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l y n o e s u l a n o s r e p r o F ANNUALREPORT2016 ACN 108 003 890 CONTENTS Corporate Directory......................................................................................................................................................... 3 Company Profile............................................................................................................................................................... 4 Chairman’s Message....................................................................................................................................................... 5 Business Performance and Outlook............................................................................................................................... 6 Annual Mineral Reserves and Resources Statement ................................................................................................ 10 Directors’ Report............................................................................................................................................................ 16 Auditor’s Independence Declaration ........................................................................................................................ 35 Consolidated Statement of Profit or Loss and Other Comprehensive Income........................................................ 36 Consolidated Statement of Financial Position............................................................................................................ 37 Consolidated Statement of Changes in Equity......................................................................................................... 38 Consolidated Statement of Cash Flows........................................................................................................................ 39 Notes to the Financial Statements................................................................................................................. 40 Directors’ Declaration ................................................................................................................................................... 72 Independent Audit Report............................................................................................................................................ 73 Additional ASX Information............................................................................................................................................ 75 Tenement Schedule....................................................................................................................................................... 79 l y n o e s u l a n o s r e p r o F 2 Rey Resources Annual Report 2016 CORPORATE DIRECTORY Directors Ms Min Yang – Non-Executive Chairman Mr Jin Wei – Managing Director Mr Geoff Baker – Non-Executive Director Mr Dachun Zhang – Independent Non-Executive Director Dr Zhiliang Ou – Independent Non-Executive Director Mr Louis Chien – Alternate Non-Executive Director (alternate to Min Yang) l y n o e s u l a n o s r e p r o F Company Secretary Ms Shannon Coates Registered Office Suite 5, 62 Ord Street West Perth WA 6005 Auditors KPMG 10 Shelley Street Sydney NSW 2000 Solicitors Corrs Chambers Westgarth 240 St Georges Terrace Perth WA 6000 Share Registry Boardroom Pty Limited Level 7, 207 Kent Street Sydney NSW 2000 Stock Exchange Tel: +61 8 9322 1587 Fax: +61 8 9322 5230 Tel: +61 8 9460 1666 Fax: +61 8 9460 1667 GPO Box 3993 Tel: 1300 737 760 (within Australia) Sydney NSW 2001 Fax: 1300 653 459 (within Australia) Tel: +61 2 9290 9600 (outside Australia) Fax: +61 2 9279 0664 (outside Australia) Australian Securities Exchange (ASX) ASX Code: REY Website www.reyresources.com Rey Resources Annual Report 2016 3 COMPANY PROFILE Rey Resources Limited (“Rey”, Rey Resources” or “Company”) is an ASX-listed company (ASX: REY) focused on exploring and developing energy resources in Western Australia’s Canning Basin and Perth Basin. Rey holds a 25% interest in two prospective Canning Basin petroleum exploration permits (EP457 and EP458) known as the “Fitzroy Blocks” and a 50% participating interest in (and is operator of) the “Derby Block’ (EP487). Two conventional oil wells were drilled in the Fitzroy Blocks during 2015, although neither resulted in a petroleum discovery. The Derby Block is considered prospective for both conventional and unconventional hydrocarbons and Rey assumed operatorship of this block in June 2016. Rey also holds coal tenements in the Canning Basin, some contiguous with the Fitzroy Blocks, including those hosting the Duchess Paradise coal resources and reserves. Rey continues to investigate targets in the Perth Basin within Exploration Permit 437 (“EP 437”) in which it holds a 43.47% interest. Rey has an experienced Board and management team, committed to continuing to develop its energy assets to deliver maximum value to its shareholders. l y n o e s u l a n o s r e p r o F 4 Rey Resources Annual Report 2016 l y n o e s u l a n o s r e p CHAIRMAN’S MESSAGE Dear fellow Shareholder, It is my pleasure to deliver Rey Resources’ Annual Report for the year ending 30 June 2016. Our key focus remains our petroleum exploration business in the Canning Basin and Perth Basin. Our interest in the Fitzroy Blocks straddles the continuation of the Ungani Trend and during the year we participated in the drilling of two exploration wells on the trend during the year, Victory-1 and Senagi-1. Unfortunately neither of these delivered a petroleum discovery but the information gained from the wells is developing the future strategy for exploration on the trend. Following our acquisition of a 50% interest in EP 487, the Derby Block, in 2015, we eventually achieved operatorship in June 2016. Since that date, we have reviewed the available geological information and proposed further seismic acquisition in late 2016, prior to drilling in 2017. As operator of the Derby Block, we are now well positioned to consider farmouts to support the proposed 2017 drilling campaign. The outlook for development of the Duchess Paradise coal deposit remained challenging during the 2016 financial year, but a recent upturn in coal prices may represent an early sign that the business environment is turning. We continue to maintain the prospect in good standing pending further evidence of improving demand circumstances for the project. I would like to thank all Shareholders for their support, and welcome those who joined during the year. I also thank our staff and management team for their work over the past year and I look forward to that continuing over the next twelve months. r o Non-Executive ChairmanF Min Yang Rey Resources Annual Report 2016 5 l y n o e s u a n o s r e p r o F BUSINESS PERFORMANCE AND OUTLOOK OIL & GAS Canning Basin – the Fitzroy Blocks Equity interests in the Fitzroy Blocks (EP457 and EP458) are: Rey Buru Diamond Resources (Fitzroy) 25% (including 10% free carried to production) 37.5% (operator) 37.5% (subsidiary of Mitsubishi Corporation) Rey’s contribution to expenditure for the Fitzroy Blocks is 16.7% (as 10% of its interest is free-carried to production). The Fitzroy Blocks (comprising a combined area in excess of 10,000 km2) are located over parts of the southern flank of the Fitzroy Graben. The Fitzroy Blocks straddle three major trends: l • the Ungani conventional oil trend (“Ungani Trend”); • the Laurel Basin-Centred Gas Accumulation, conventional and unconventional gas; and • the Goldwyer oil and gas unconventional shale. The Ungani Trend includes identified leads and prospects in an area of prospectivity of at least 120 kilometres by 40 kilometres (over one million acres or 4,800km2). This extends diagonally, NW-SE, across the Fitzroy Blocks. The conventional dolomite reservoir oil discovery by Buru in 2011 at Ungani (located 15 kilometres northwest of EP457) on the trend running through the Fitzroy Blocks is a significant regional discovery event. Commercial production was established by Buru at Ungani in mid-2015. Although Prospective (recoverable) Resources of the Laurel Formation within the Fitzroy Blocks have not been assessed by drilling to date, the formation extends across part of the Fitzroy Blocks. A wet gas accumulation has been identified immediately east of the Fitzroy Blocks which has the characteristics of a Basin-Centred Gas Accumulation. The Goldwyer Shale Formation is characterised as a thick, regionally extensive organic rich “Bakken” shale analogue. The play type is regarded as highly prospective and clearly extends across part of the Fitzroy Blocks, although is believed to be at considerable depth. The joint venture drilled two exploration wells during the year. Exploration well Victory-1 was spudded on 9 September 2015 in EP457, 185 km east of Broome and 85 km southeast of Buru Energy’s producing Ungani Oilfield. The well was drilled with Atlas Rig 2 to the programmed total depth of 2,600 metres. 6 Rey Resources Annual Report 2016 At a depth of 1,945 metres complete lost circulation was encountered with high and erratic drilling rates similar to those encountered elsewhere by the Operator in the Ungani Dolomite. The drilling system was then switched to a managed pressure system but complete losses continued to a depth of 2,600 metres where logs were attempted to be run. Logs were initially unable to be obtained deeper than approximately 2,030 metres due to hole conditions and several further attempts were made to log the lower part of the hole below the lost circulation zone with no success. The difficulties in acquiring the logs were principally due to a well-developed shale section below the zone of lost circulation. During these logging operations, further problems with the casing were encountered. After considering the options for remedying the issue, and the associated costs, it was agreed by the joint venture to plug and abandon the well bore, meaning that a flow test of the horizon where circulation was lost was not operationally achievable. Abandonment was undertaken in accordance with all regulations and oil field practice to ensure all formations were effectively isolated. 100 line-km of 2D seismic data was also acquired in EP457 during the year over prospects Rafael, Wright and Victory. The Senagi-1 conventional exploration well was spudded on 15 October 2015 in EP 458, 240 km southeast of l Broome and 144 km southeast of Buru Energy’s Ungani Oilfield. Senagi-1 was drilled with the DDH1 Rig#31 (with Buru as Operator) and was drilled to a total depth of 1,045 metres. The well targeted conventional oil and gas in the Lower Laurel (Ungani Dolomite) and Devonian-aged (Nullara) carbonates. A total of 286m of continuous core was cut, with 97% recovered. A thin interval with vugular porosity with oil shows was observed in core however, the shows were interpreted to be residual. Valuable data was obtained which will assist with correlation of core and image logs over the very well developed vugular dolomite reservoir section. This correlation will provide more certainty in the interpretation of the dolomite reservoirs encountered in future wells. Wireline logs were obtained and the well was plugged and abandoned. All of the data from the well is being analysed by the joint venture to ensure the highest chance of success of the other prospects in the area. In advance of the six year permit anniversary in October 2016 and compulsory relinquishment of 50% of the area of the two exploration licences, the joint venture applied for a five year extension of the licences with a 50% area reduction, in July 2016. Canning Basin – the Derby Block In June 2015, the Company’s wholly owned subsidiary Rey Lennard Shelf Pty Ltd (“RLS”) completed the acquisition of a 50% participating interest in petroleum exploration permit EP487 (“the Derby Block”) from Backreef Oil Pty Ltd (“Backreef”). The Company has also entered into a Joint Venture Agreement (“JOA”) with Oil Basins Limited (“Oil Basins”) (ASX: OBL), holder of the remaining 50% interest and permit Operator, for the operation of exploration programmes on the Derby Block, located in the Canning Basin of Western Australia. l y n o e s u a n o s r e p r o F Rey Resources Annual Report 2016 7 l y n o e s u l a n o s r e p r o F The Derby Block is a large exploration permit of approximately 5,000 km2 that was in March 2014. It occurs to the north of Rey’s interests in the Fitzroy Blocks. The Derby Block is considered to be predominantly a Wet Laurel Basin Centred Gas play (“BCG”) which is regionally extensive throughout the Canning Basin and has been the subject of exploration in the Canning Basin by other parties in 2015, resulting in encouraging flow tests by Buru Energy at Valhalla and Asgard (please refer various BRU ASX releases including releases dated 20 January 2016 and 18 April 2016). Prospective Resources the Table below. Gas in place Recoverable Gas Recoverable Condensate Recoverable BOE A new (preliminary) estimate of the gross prospective potential recoverable resource estimate (Tcf gas recoverable) of the BCG play in the Derby Block (onshore portion) was provided by Oil Basins (OBL ASX release dated 15 January 2016 and an update on 14 April 2016). The Company’s 50% interest in these Prospective Potential Recoverable Resources (unrisked, probabilistic estimate) of the Derby Block BCG play is provided in Prospective Potential Recoverable Resources SPE PRMS (2011)6 Tcf3 Tcf3 MMbbl4 MMBOE5 P901 28.5 4.3 101.9 791.5 P501 71.1 12.3 307 P102 173.3 35.6 908 2,289.5 6,634.0 Rey Resources’ 50% attributable interest in the gross prospective potential recoverable resources estimate of the Laurel BCG in EP487 (estimate prepared by 3D-GEO January 2016). 1. P90 and P50 estimates consider the Laurel section between 2,500-5,000m. 2. P10 estimates assume an additional 10% of Laurel section. 3. Tcf- trillion cubic feet. 4. MMbbl- million barrels. 5. MMBOE- million barrels oil equivalent. 6. SPE PRMS (2011) - Society of Petroleum Engineers Petroleum Resource Management System (2011). Prospective resources are the estimated quantities of petroleum that may be potentially recovered by the application of a future development project and relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration, appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons. On 3 February 2016, the Department of Mines and Petroleum of Western Australia approved a variation to the Year 2 work program. Well site locations have been proposed by Oil Basins for consideration by the Joint Venture for drilling in 2016, in satisfaction of the EP487 Year 2 permit conditions. On 12 February 2016, Rey announced that it and RLS had commenced legal proceedings against Oil Basins in the Supreme Court of Western Australia seeking orders that Oil Basins resign as the Operator of EP487 in accordance with the terms of the Joint Operating Agreement between Rey, RLS and Oil Basins. The proceedings were heard in the Western Australian Supreme Court on 25 May 2016. On 26 May 2016, the Supreme Court ruled in favour of the Company and Oil Basins was ordered to immediately resign as operator. 8 Rey Resources Annual Report 2016 Since assuming operatorship, the Company has reviewed the status of the work completed on the permit to date in the context of the regional setting. The study concluded that the original proposed well sites needed further de-risking as well as proposing new well sites that may be more favourable. A 2D seismic acquisition survey is planned to occur in the final quarter of 2016. As a consequence of requiring additional work on the proposed well sites a suspension of the workplan and extension of title was requested from DMP in August 2016. Perth Basin interests in the licence are as follows: Rey farmed into EP437 during 2014 through funding the drilling of exploration well Dunnart-2. The beneficial Rey (Rey Oil and Gas Perth Pty Ltd) Key Petroleum Limited (Key Petroleum (Australia) Pty Ltd) (Operator) Pilot Energy Limited 43.47% 43.47% 13.06% The Joint Venture has identified at least ten prospects and leads on the licence. Additional mapping of the Wye area was conducted in light of results from the Waitsia gas discovery to the south of EP437 by AWE Limited. The Wye area consists of several fault bounded structures defined by vintage 2D seismic including a section of High Cliff sandstone encountered further south at the Dongara and Waitsia fields some 40 kilometres to the southeast in the Perth Basin. The Joint Venture is reviewing the prospects, particularly the Wye Knot prospect and is undertaking petrophysical studies as part of preplanning for an exploration well in 2017. COAL The Duchess Paradise Coal Project (“Duchess Paradise Project”) is a proposed bituminous thermal coal operation of up to 2.5 million tonnes per annum in the Canning Basin, north Western Australia. A Definitive Feasibility Study (“DFS”) of the Project was completed in June 2011. In April 2015 the environmental assessment of the proposed Duchess Paradise Project by the Western Australian Environmental Protection Authority (EPA) was placed on hold by agreement between Rey and the EPA. In August 2016, Rey informed the EPA that it considered the assessment of the proposed project should be withdrawn pending an improvement in economic conditions impacting Duchess Paradise. l y n o e s u l a n o s r e p r o F Rey Resources Annual Report 2016 9 ANNUAL MINERAL RESERVES AND RESOURCES STATEMENT The current Reserves and Resources Statement for the Duchess Paradise Project, located in the Canning Basin, Western Australia, is shown in Tables 1 to 3 below. Table 1: P1-seam Reserves Estimates for Proposed Duchess Paradise Mine Plan – October 2014 (JORC 2012 Code) Mining Type Reserves (ROM Tonnes) 1 Slot Excavation Highwall Mining Total Marketable Cleaned Tonnes (ar) 2, 3 Slot Excavation Highwall Mining Total Proved Probable Total 2,016,000 18,427,000 20,442,000 1,363,000 12,480,000 13,843,000 495,000 5,333,000 5,828,000 334,000 3,612,000 3,947,000 2,510,000 23,760,000 26,270,000 1,697,000 16,093,000 17,790,000 4 1. (ROM) run of mine. 2. (ar) as received. 3. Average Mine Recoveries and Yields to generate Marketable Cleaned Coal tonnages is presented in Table below. A&B Mylec calculated a 67.3 percent wet yield based on coal quality data from 60 cored holes and seam thickness data from 380 available drill holes, as reported in the A&B Mylec 2011 DFS report (Including 2011 DFS report Addendum). The stated seam thickness data was supplied by Marshal Miller & Associates (now Cardno) for use in the 2011 DFS report Addendum. No further works has been completed by A&B Mylec since the completion of these 2011 works. Marshall Miller & Associates supplemented the thickness database with the available drill holes (385 holes) to derive a weighted average 67.7% wet yield. 4. An additional 2.7 million marketable cleaned tonnes (ar) derived from inferred resource are included in the mine plan, which totals 20.5 million tonnes (ar). Table 2: P1-seam Marketable Cleaned Coal Estimate Derivation Factors – October 2014 (JORC 2012 Code) Type Slot Excavation Highwall Mining Total Average Mine Recovery (%) Total Run of Mine Coal (ar) 1 (Mt) 2 Wet Yield based on Expected Total Moisture (%) 3 Marketable Cleaned Coal 4 (ar)1 @ 17.3 % Total Moisture (Mt) 2 95 51 2.5 23.8 26.3 67.6 67.7 67.7 3 1.7 16.1 17.8 l y n o e s u l a n o s r e p r o F 1. (ar) as received. 2. (Mt) million tonnes. 3. A&B Mylec calculated a 67.3 percent wet yield based on coal quality data from 60 cored holes and seam thickness data from 380 available drill holes, as reported in the A&B Mylec 2011 DFS report (Including 2011 DFS report Addendum). The stated seam thickness data was supplied by Marshal Miller & Associates (now Cardno) for use in the 2011 DFS report Addendum. No further works has been completed by A&B Mylec since the completion of these 2011 works. Marshall Miller & Associates supplemented the thickness database with the available drill holes (385 holes) to derive a weighted average 67.7% wet yield. 4. an additional 2.7 million marketable cleaned tonnes (ar) derived from Inferred Resources are included in the mine plan, which totals 20.5 million marketable cleaned tonnes (ar). 10 Rey Resources Annual Report 2016 l y n o e s u l a n o s r e p r o F Reserves are included in the following Resources Statement. Table 3: Duchess Paradise P1-seam Resources - October 2014 (JORC 2012 Code) Duchess Paradise Resources Estimate (in-place, with in situ moisture) Million Tonnes Measured Indicated Inferred (Interpolated) Inferred (Extrapolated) Total Inferred 1 60.2 78.5 51.3 115.7 167.1 Total 305.8 1. Difference in Total Inferred Resources due to rounding For further information on the above summary Reserves and Resources estimates, please refer to the Company’s ASX announcement dated 28 October 2014. Material Changes and Reserves and Resources Statement Comparison The Company reviews its Mineral Reserves and Resources at least annually in accordance with ASX Listing Rule 5.21. The date of reporting is post-30 June each year to coincide with the release of this Annual Report. If there are any material changes to its Reserves and Resources over the course of the year, the Company is required to promptly report these changes as they occur. Rey has undertaken an annual review for the year ended 30 June 2016, which was conducted by Cardno Inc. The historical factors were examined and found not to have materially changed the Reserves and Resources of Duchess Paradise P1-seam from the time they were first reported to ASX on 28 October 2014 (at which time the Reserves and Resources were updated in accordance with JORC 2012 and found not to have materially changed since reported in accordance with JORC 2004 on 6 April 2011 and 6 June 2011 respectively). The Duchess Paradise Project has not commenced active operation and hence no resource depletion has occurred for the review period. The result of the review was verification of the Coal Reserve estimate for the P1 seam of 17.79 million marketable tonnes (gross as-received basis), recovered over a mine life of approximately 10 years. The review also indicates that the resource defined in the ASX announcement on 28 October 2015 remains valid at 305.8 million tonnes in place. Governance Arrangements and Internal Controls The Company has ensured that the Reserves and Resources quoted are subject to good governance arrangements and internal controls. The Reserves and Resources reported have been generated by independent external consultants who are experienced in best practices in modelling and estimation methods. The consultants have also undertaken reviews of the quality and suitability of the underlying information used to generate the resource estimation. In addition, Rey management carries out regular reviews of internal processes and external contractors that have been engaged by the Company. The Reserves and Resources were compiled in accordance with the December 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Minerals Resources and Ore Reserves”. Rey Resources Annual Report 2016 11 Competent Persons Statements Coal Reserves and Resources Coal Quality l y n o e s u a n o s r e p r o F The coal quality information in this report was first reported to ASX on 28 October 2014. It was compiled under the supervision of and reviewed by Mr Andrew Meyers, a consultant to the Company, who is a Fellow of the Australasian Institute of Mining and Metallurgy (Member since 1993) and Director of A&B Mylec Pty Ltd, metallurgical and coal technology consultants. Andrew Meyers has more than 20 years’ experience in coal processing for coal projects and coal mines both in Australia and overseas. With this level of experience, he is adequately qualified as a Competent Person as defined in the December 2012 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (The JORC Code, 2012 Edition). Coal Resources Estimate The estimate of P1-seam Resources in the Duchess Paradise area was first reported to ASX on 28 October 2014, in accordance with: l • “The Australian Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves” – 2003 Edition prepared by the Coalfields Geology Council of New South Wales and the Queensland Mining Council; • JORC Code, 2012 Edition, and as adopted by the Australian Stock Exchange; and • ASX Companies Update 03/07 and the JORC paper of June 19th 2007, Guidance for Practitioners. The P1-seam Resources estimate and discussion presented in this report is based on information supplied by Rey Resources or by companies employed by Rey Resources, as well as information collected during exploration activities under the guidance of Rey Resources. The information was approved by consultants to the Company Mr K. Scott Keim, C.P.G. , Area Manager, Senior Principal for Cardno, and Mr Ronald H. Mullennex, C.P.G., C.G.W.P., Senior Principal for Cardno. Mr Keim has over 32 years of experience in coal-related work, including but not limited to coal exploration and coal reserve/resource estimation. He is a member of the Society of Mining, Metallurgy, and Exploration (SME), which is part of The American Institute of Mining, Metallurgy, and Petroleum Engineers (AIME). He is also a member of the American Institute of Professional Geologists (AIPG). He has served as a member of the Board of Directors of The Penn State Research Foundation, and on the Advisory Board to the Virginia Center for Coal and Energy Research, affiliated with the Virginia Polytechnic Institute and State University. Mr Keim holds a Bachelor of Science degree from The Pennsylvania State University. His education and experience qualify him as a Competent Person as defined in the JORC Code, 2012 Edition. 12 Rey Resources Annual Report 2016 Mr Mullennex has over 40 years of experience in diverse geologic and hydrogeologic applications related to all aspects of coal geology. One of his specific areas of expertise involves application of stratigraphic and deposystem analysis to coal resource and reserve delineation and mineability determination. Mr Mullennex is a member of the American Institute of Professional Geologists, the Association of Engineering Geologists, the Geological Society of America (Coal Geology and Hydrogeology Divisions), SME of AIME, Association of Ground Water Scientists and Engineers (division of National Ground Water Association), International Mine Water Association, and the American Society of Mining and Reclamation. Mr Mullennex holds both Bachelor of Science and Master of Science degrees in Geology from West Virginia University. He has served on the Visiting Committee for the Department of Geology and Geography at WVU. His education and experience qualify him as a Competent Person as defined in the JORC Code, 2012 Edition. Coal Reserves Estimate in accordance with: The estimate of P1-seam Reserves in the Duchess Paradise area was first reported to ASX on 28 October 2014, • “The Australian Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves” – 2003 Edition prepared by the Coalfields Geology Council of New South Wales and the l Queensland Mining Council; • JORC Code, 2012 Edition, as adopted by the Australian Stock Exchange; and • ASX Companies Update 03/07 and the JORC paper of June 19th 2007, Guidance for Practitioners. The P1-seam Reserves estimate and discussions presented in this report are based on information supplied by Rey Resources or by companies employed by Rey Resources, as well as information collected during exploration activities under the guidance of Rey Resources. The information was approved by consultants to the Company, Mr Gerard Enigk, B.S.M.E., P.E., Manager of Engineering for Cardno and Mr Peter Christensen, Mining Vice President for Cardno. Mr Enigk has over 37 years of experience in coal-related work, including but not limited to coal reserve/ resource estimation, mine planning and design, mine operations, mineral valuation and appraisals, and geotechnical evaluations. He is a Registered Member of the Society of Mining, Metallurgy, and Exploration (SME), which is part of The American Institute of Mining, Metallurgy, and Petroleum Engineers (AIME). Mr Enigk holds a Bachelor of Science degree in Engineering of Mines from The Pennsylvania State University and a Master’s degree in Environmental Science from the West Virginia Graduate College, and is a Registered Professional Engineer in West Virginia. Mr Enigk has served in the capacity as Manager of Engineering and as a production supervisor for operating coal companies, and has extensive experience with surface and underground mining operations, including the use of highwall mining systems. Mr Enigk is a certified mine foreman in West Virginia. His education and experience qualify him as a Competent Person as defined in the JORC Code, 2012 Edition. l y n o e s u a n o s r e p r o F Rey Resources Annual Report 2016 13 Mr Christenson has over 28 years of experience in underground and surface coal mining including the use of highwall mining systems. He is a member of the Society of Mining, Metallurgy, and Exploration (SME), which is part of The American Institute of Mining, Metallurgy, and Petroleum Engineers (AIME). He is also a member of the Australasian Institute of Mining and Metallurgy, the Rocky Mountain Coal Mining Institute, the Denver Mining Club, and the Denver Coal Club. Mr. Christensen is a certified underground mine foreman in New Mexico. Mr Christensen holds a Bachelor of Engineering degree in Mining Engineering from University of Queensland, Australia. He has broad international mining experience in open cut, underground and highwall coal mining. He has held various senior positions with major mining companies and service providers including roles of engineering manager, operations manager, project manager and statutory responsibility as Site Senior Executive in Queensland, Australia. His experience includes managing feasibility studies, new mine development, mining method and equipment selection, mine planning and cost estimation. He has conducted economic and financial evaluations of mining operations as well as audits and reviews of mining practices, cost structures and operating performance. He has also developed and implemented safety management systems. His education and experience qualify him as a Competent Person as defined in the JORC Code, 2012 Edition. l The Company is not aware of any new information or data that materially affects the Reserves and Resources information included in the ASX announcement on 28 October 2014 and confirms that all material assumptions and technical parameters underpinning the estimates continue to apply and have not materially changed. Reserves and Resources Statement This Annual Mineral Reserves and Resources Statement is based on and fairly represents information and supporting documentation prepared by the Competent Persons described above. The Annual Mineral Reserves and Resources Statement as a whole has been consented to by Mr Gerard Enigk (see details above) and Mr Justin Douthat. Mr Douthat graduated with a Bachelor of Science in Mining Engineering from the Virginia Polytechnic Institute & State University and a Master of Business Administration degree from The Pennsylvania State University, is a registered member of SME and is licensed as a professional engineer in Virginia, West Virginia, Kentucky, Illinois, North Carolina, Kansas, Arkansas, Colorado, Mississippi and Louisiana. He has been employed at Cardno since 1995, working on coal mining projects and feasibility studies throughout the United States and abroad. His education and experience qualify him as a CP as defined in the JORC Code, 2012 Edition. l y n o e s u a n o s r e p r o F 14 Rey Resources Annual Report 2016 Oil and Gas l y n o The oil and gas technical information quoted in this Annual Report has been compiled and/or assessed by Mr Keith Martens who is a self-employed consulting professional geologist, and a continuous Member of the Petroleum Exploration Society of Australia since 1999. Mr Martens has a BSc degree in geology/geophysics and has over 35 years’ experience in the petroleum industry. Mr Martens has consented to the inclusion in this report of the matters based on the information in the form and context in which they appear. e s u l a n o s r e p r o F Rey Resources Annual Report 2016 15 The Directors of Rey Resources Limited (“Rey”, “Rey Resources” or “the Company”) present their report together with the consolidated financial statements of the Company and its controlled entities (“the Group”) DIRECTORS’ REPORT for the financial year ended 30 June 2016. 1. DIRECTORS Ms Min Yang - Non-Executive Chairman The Directors of the Company at any time during or since the end of the financial year are: Mr Wei Jin - Managing Director (appointed Managing Director 1 July 2016) Mr Geoff Baker - Non-Executive Director l Mr Dachun Zhang - Non-Executive Director Dr Zhiliang Ou - Non-Executive Director (appointed 22 September 2016) Mr Louis Chien - Alternate Director to Non-Executive Chairman, Ms Min Yang (appointed 11 January 2016) Mr Kevin Wilson - Managing Director (resigned 31 May 2016) Details of Directors’ qualifications, experience, special responsibilities and directorships of other listed companies can be found on pages 17 to 19. l y n o e s u a n o s r e p r o F 16 Rey Resources Annual Report 2016 2. INFORMATION ON DIRECTORS AND OFFICERS l y n o Directors Current Min Yang Appointed on 13 September 2012 e s u Geoff Baker Appointed on 13 September 2012 Dachun Zhang Appointed on 1 July 2013 l a n o s r e p r o F Designation and Independence status Chairman Non-Executive Director Non-Executive Director Non-Executive Independent Experience, expertise and qualifications Min Yang has extensive business connections in the Asia Pacific region, especially greater China, and has over twenty years of hands-on experience dealing with both private and state-run businesses in China. Over the years, Min Yang has proven her unique business insight and expertise in the identification, incubation and realisation of embryonic opportunities in the resources, commodities trading & residential estate and financial investment sectors. Directorships of other ASX listed companies during the last three years Special responsibilities during the year • ASF Group Ltd • Non- (September 2005, ongoing) Executive Chairman • ActiveEX Limited • Member, Audit and Risk Management Committee (May 2012, ongoing) • Key Petroleum Limited (January 2014, ongoing) • Metaliko Resources Limited (August 2014, ongoing) Qualifications – BCom, LLB, MBA • ASF Group Ltd • Member, Audit and Risk Management Committee • Chairman, Audit and Risk Management Committee For the past 35 years Geoff has been active in Asia and China working in law and conducting an advisory practice in assisting companies doing business in the region. As an experienced lawyer qualified to practice in Australia and Hong Kong, Geoff provides valuable assistance to international operations and in particular to the negotiation, structuring and implementation of joint venture and commercial agreements. (November 2006, ongoing) • ActiveEX Limited (February 2013, ongoing) • Key Petroleum Limited (alternate to Min Yang) (January 2014, ongoing) • Metaliko Resources Limited (August 2014, ongoing) Mr Zhang has a Bachelor’s Degree from Poznan University, Poland and a Master’s Degree from the University of Wales, UK and was conferred the qualification of Senior Economist in Shipping Management by the Ministry of Communications of China. Mr Zhang was most recently Executive Director and President of China Merchants Group, as well as the Chairman of Merchants International Co. Ltd (a listed Hong Kong company). Previously his career was with COSCO (a Chinese company and one of the world’s largest shipping groups) where he held the positions of Executive Vice-Chairman and President of COSCO (Hong Kong) Group Ltd, as well as Vice-Chairman of two Hong Kong listed companies: COSCO Pacific Co. Ltd and COSCO International Holdings Co. Ltd. Mr Zhang, a resident of Victoria, Australia brings extensive international experience and Chinese business relationships to the Board of Rey. Rey Resources Annual Report 2016 17 2. INFORMATION ON DIRECTORS AND OFFICERS (Continued) l y n o e s u Directors Current Wei Jin Appointed Non-Executive Director on 2 December 2013. Appointed Managing Director on 1 July 2016 Zhiliang Ou Appointed on 22 September 2016 l a n o s r e p Louis Chien Appointed Alternate Director to Non-Executive Chairman, Ms Min Yang on 11 January 2016. r o F Designation and Independence status Managing Director Director Non-Executive Independent Alternate Director Experience, expertise and qualifications Directorships of other ASX listed companies during the last three years Special responsibilities during the year Member, Audit and Risk Management Committee Wei Jin holds PhD in Science in China University of Geosciences. He has over 20 years’ professional experience covering exploration, mineral industry construction and operation, as well as mineral resources products international trading activities in Australia, China, Russia and Mongolia. Dr Ou has over 27 years of professional engineering and management experience in the oil and gas, mining and infrastructure industries both in Australia and China. He currently serves as an executive director of Hao Tian Development Group Limited, a company listed on the main board of the Hong Kong Stock Exchange. Dr Ou holds a Doctor of Philosophy degree in Civil & Resource Engineering from the University of Western Australia. He also holds two Bachelor of Engineering degrees in Structural Engineering & Engineering Management respectively. Mr Chien was born in Shanghai, China, grew up and was educated in the United States, and is now based in Australia. He has 20+ years of corporate experience based in Australia, the United States and Singapore and has held various engineering and finance leadership positions within The Procter & Gamble Company (P&G). He has managed organisations across the Americas, Europe and Asia-Pacific, and is currently a director of ASX listed ASF Group Limited, and ASF Consortium Pty Ltd. Mr Chien holds a Master of Business Administration in finance from Kelley School of Business, Indiana University, and two bachelor degrees in Architecture, all attained in the United States. ASF Group Ltd (May 2015, ongoing) 18 Rey Resources Annual Report 2016 2. INFORMATION ON DIRECTORS AND OFFICERS (Continued) Directors Current Kevin Wilson Appointed on 9 August 2007 and resigned 31 May 2016 l y n o e s u l a n o s r e p r o F Directorships of other ASX listed companies during the last three years Special responsibilities during the year Navarre Minerals Limited (March 2011, ongoing) Managing Director Designation and Independence status Managing Director Experience, expertise and qualifications Qualifications – BSc (Hons), ARSM, MBA Mr Wilson has over 30 years’ experience in the minerals and finance industries. He was the Managing Director of Leviathan Resources Limited, a Victorian gold mining company, from its IPO in 2005 through to its sale in 2006. His experience includes eight years as a geologist with the Anglo American Group in Africa and North America and 14 years as a stockbroking analyst and investment banker with CS First Boston and Merrill Lynch in Australia and New York. Rey Resources Annual Report 2016 19 Director Min Yang Kevin Wilson1 Geoff Baker Dachun Zhang Wei Jin Louis Chien 2 Zhiliang Ou3 l y n o e s u l a n o s r e p r o F 3. COMPANY SECRETARY Ms Shannon Coates was appointed to the position of Company Secretary on 11 January 2012. Ms Coates holds a Bachelor of Laws from Murdoch University and has over 20 years’ experience in corporate law and compliance. Ms Coates is a Chartered Secretary and currently acts as company secretary to several ASX listed companies and unlisted companies, the majority of which operate in the mineral resources industry, both in Australia and internationally. Ms Coates is Director to Perth based corporate advisory firm Evolution Corporate Services Pty Ltd, which specialises in the provision of corporate services to listed companies. 4. DIRECTORS’ ATTENDANCE AT MEETINGS The number of Directors’ meetings and number of meetings attended by each of the Directors of the Company during the financial year are: Meetings B 4 4 4 4 4 2 0 A 3 4 4 4 4 2 0 A 2 2 2 2 B 2 2 2 2 1. Mr Kevin Wilson resigned 31 May 2016. 2. Mr Louis Chien attended one Directors meeting as an invitee and one as Alternate Director to Ms Min Yang. 3. Dr Zhiliang Ou was appointed on 22 September 2016. A - Number of meetings attended. B - Number of meetings held during the time the Director held office. The Company has established an Audit and Risk Management Committee, comprising the four Non-Executive Directors, with Mr Dachun Zhang as Chair. The number of Audit and Risk Management Committee meetings and number of meetings attended by each of the member of the Committee during the financial year are: Director Meetings Min Yang Geoff Baker Dachun Zhang Wei Jin A - Number of meetings attended. B - Number of meetings held during the time the Director held office. 20 Rey Resources Annual Report 2016 l y n o e s u l a n o s r e p 5. DIRECTORS’ INTERESTS IN SECURITIES IN REY RESOURCES LIMITED The relevant interest of each Director in the ordinary shares of Rey Resources Limited at the date of this report is set out as below: Min Yang Geoff Baker Dachun Zhang Wei Jin Zhiliang Ou Louis Chien Kevin Wilson Ordinary shares Options over ordinary shares Performance Rights 1,000,000 1,000,000 3,887,066 1,200,000 Nil Nil 8,911,6731 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil1 1. Mr Wilson resigned on 31 May 2016. At resignation, Mr Wilson held 3,426,667 performance rights All performance rights were vested to Mr Kevin Wilson and converted into shares on 1 July 2016 in accordance with the Company’s share incentive scheme and as part of Mr Wilson’s agreed termination payment. 6. REMUNERATION REPORT - AUDITED This remuneration report outlines the Director and executive remuneration arrangements for Rey Resources in accordance with the requirements of the Corporations Act 2001 and its Regulations. The information in the report has been audited as required by Section 308(3C) of the Act. 6.1 Principles of compensation For the purpose of this report key management personnel (“KMP”) are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Company. The officers listed as KMP below are included in the report. The report will provide an explanation of Rey Resources’ remuneration policy and structure, details of remuneration paid to KMP (including Directors), an analysis of the relationship between Company performance and executive remuneration payments, details of share-based payments, key terms of executive employment contracts and details of independent external advice received in relation to KMP remuneration. r o F Rey Resources Annual Report 2016 21 Non Executive Min Yang Geoff Baker Dachun Zhang Executive Wei Jin Kevin Wilson Ian Pound Remuneration policy to these roles. l y n o e s u l a n o s r e p 1. 2. 3. 4. r o F 6. REMUNERATION REPORT - AUDITED (Continued) 2016 Key Management Personnel The KMP of Rey Resources during the year ended 30 June 2016 were: Non-Executive Chairman (appointed 13 September 2012) Non-Executive Director (appointed 13 September 2012) Non-Executive Director (appointed 1 July 2013) Louis Chien Alternate Director to Ms Min Yang (appointed 11 January 2016) Managing Director (appointed Non-Executive Director 2 December 2013, appointed Managing Director 1 July 2016) Managing Director (appointed 9 August 2007, resigned 31 May 2016) General Manager (resigned 31 January 2016) The successful performance of the Company is dependent on the quality and performance of Directors and executives, so the focus of the remuneration policy is to attract, retain and motivate highly competent people Four broad principles govern the remuneration strategy of the Company: To set demanding levels of performance for KMP and to align their remuneration with the achievement of clearly defined targets. To provide market competitive remuneration and conditions in the current market for high quality Directors and executives, particularly in Western Australia. To align remuneration with the creation of shareholder value and the achievement of Company strategy, objectives and performance. To be able to differentiate reward based on performance, in particular acknowledging the contribution of outstanding performers. The Company seeks to provide fixed remuneration at the median level of the markets in which it competes for talent, and to provide the opportunity for a higher than median level of variable reward for those individuals who make an outstanding contribution to the success of the business. The Board is responsible for matters relating to the remuneration of the Directors, senior executives and employees of the Company, including making recommendations in relation to the remuneration framework of the Company and the fees and remuneration paid to Directors and executives. The Board seeks independent remuneration advice from time to time, and refers to relevant market survey data for the purposes of external comparison. Further details have been included in section 6.5. Hedging policy The Company’s Securities Trading Policy prohibits all Directors and employees from entering into arrangements to protect the value of unvested Long Term Incentive (“LTI”) awards. The prohibition includes entering into contracts to hedge their exposure to unvested share rights and options awarded as part of their remuneration package. 22 Rey Resources Annual Report 2016 l y n o e s u l a n o s r e p r o F 6. REMUNERATION REPORT - AUDITED (Continued) Executive remuneration components Executive remuneration is structured so that it supports the key remuneration principles outlined above, and is intended to motivate executives towards achievement of the annual objectives and longer term success of the Company. A Total Fixed Remuneration (“TFR”) is paid which considers external market comparisons and individual performance. Performance linked compensation is available through the short term and long term incentive plans outlined below. Fixed remuneration Executives receive an annualised TFR from which they must have deducted statutory superannuation. They may elect to salary sacrifice further superannuation contributions and other benefits such as a motor vehicle. Accommodation assistance and medical insurance may be provided for employees from overseas or interstate where it is necessary to be able to attract key talent. A review of TFR is undertaken each year and reflects market movements and individual performance. The objective of the short term incentive (“STI”) plan is to align the achievement of the Company’s annual targets with the performance of those executives who have key responsibility for achieving those targets. The only participant in the plan is currently the Managing Director. Short term incentive Long term incentive Executives are eligible to participate in the Rey Resources Limited Executive Incentive Rights Plan (“2014 EIRP”), which was approved by shareholders at the Company’s 2014 Annual General Meeting. The 2014 EIRP replaced the 2011 EIRP that was previously approved by shareholders. The EIRP aligns the reward of the participants with the long term creation of shareholder value. The Managing Director and the General Manager are eligible to participate in the plan. Both the 2014 EIRP and 2011 EIRP enable participants to be granted rights to acquire shares subject to the satisfaction of certain conditions including progression of Rey project milestones and Total Shareholder Return (“TSR”). Subject to adjustments for any bonus issues of shares and capital reorganisations, one share will be issued on the exercise of each right which vests or becomes exercisable. No amount is payable by employees in respect of the grant or exercise of rights. The EIRP forms an important component of the total remuneration of the Managing Director. The number of rights provided are based on 50% of TFR. The allocated rights are then subject to a three year vesting period which requires achievement of a compound annual growth in Total Shareholder Return hurdle for the vesting period, and where relevant achievement of additional performance conditions. The proportion to vest increases from 25% at a 10% compound annual growth rate, to 100% for achieving greater than 20% compound annual growth. The vesting condition may be retested one year after the three year vesting period. The EIRP plan has been designed to deliver benefits based on the value of shares when performance and service conditions are satisfied. The benefits may be provided in cash or a combination of cash and shares. Rey Resources Annual Report 2016 23 l y n o e s u a n o s r e p r o F 6. REMUNERATION REPORT - AUDITED (Continued) Relationship between Company performance and remuneration The objective of the Company’s remuneration structure is to reward and incentivise the executives so as to ensure alignment with the interests of the shareholders. The remuneration structure also seeks to reward executives for their contribution in a manner that is appropriate for a company at this stage of its development. As outlined elsewhere in this Report, the remuneration structure incorporates fixed, annual at risk and long term incentive components. For shareholders, the key measure of value is TSR. Other than general market conditions, the key drivers of value for the Company and a summary of performance are provided in the table following. At this stage in the development of the Company, successful execution of the below drivers is the mechanism through which shareholder wealth will be created. The only relevant financial measure at this point is the Rey share price for which the history is presented below. Absolute TSR performance is the basis for long term incentive awards under the EIRP. l Rey Closing Share Price as at 30 June 2016 0.029 2015 0.105 2014 0.105 2013 0.052 2012 0.075 Consequences of performance on shareholder wealth 2016 2015 2014 2013 2012 (3,998) ($10,200) ($3,304) ($7,678) ($8,919) 0 (72%) 0 0% 0 102% 0 (31%) 0 (63%) Profit (loss) Dividends declared Total shareholder return (TSR)% Non-Executive Director fees in cash. change is currently proposed. The policy on Non-Executive Director (“NED”) fees is to apply a remuneration framework in order to attract and retain highly capable NEDs and also in accordance with governance best practice. A fixed annual fee is paid An aggregate fee limit for NED fees of $400,000 was approved at the 2010 Annual General Meeting and no NED fees comprise a fixed annual fee, with no participation in any performance rights plan. The annual cash fees payable to each NED are as follows: Ms Yang $96,000 per annum payable to her related entity, Luxe Hill Limited; Mr Baker $120,000 per annum payable to his related entity, Gold Star Industry Ltd; Mr Zhang $50,000 per annum payable to his related entity, AMI Corporation Pty Ltd; Mr Jin $60,000 per annum payable to his related entity, Crystal Yield Investments Ltd. From 1 December 2015, fees payable to each NED were reduced as follows: Ms Yang $48,000 per annum; Mr Baker $60,000 per annum; Mr Zhang $25,000 per annum; Mr Jin $30,000 per annum. 24 Rey Resources Annual Report 2016 6. REMUNERATION REPORT - AUDITED (Continued) 6.2 Directors’ and executive officers’ remuneration The table below sets out the remuneration of the Group’s KMP for the years ended 30 June 2015 and 30 June 2016. Short Term Benefits Post- employment Benefits Other Long Term employee benefit Share Based Payments Termination Benefits Total Cash salary/ Fees Annual Incentive Non- monetary Super LSL & AL Rights /Options Termination Payments l y n o e s u a n o s r e p 2016 2015 2016 2015 2016 2015 2016 2015 $ $ $ $ M Yang - Non-Executive Chairman - Appointed 13 September 2012 2016 2015 68,000 96,000 - - - - - - K Wilson -Managing Director – Resigned 31 May 2016 2016 304,718 l 2015 332,420 - - - - 28,948 31,580 49,264 422 G Baker - Non-Executive Director - Appointed 13 September 2012 85,000 120,000 - - - - - - D Zhang - Non-Executive Director - Appointed 1 July 2013 W Jin - Managing Director - Appointed 2 December 2013 35,625 50,000 - - - - 42,500 60,000 - - - - - - - - - - - - - - - - L Chien – Alternate Director - Appointed 11 January 2016 I Pound – General Manager – Resigned 31 January 2016 r o F 2016 2015 TOTAL 2016 2015 163,333 280,000 699,176 938,420 - - - - - - - - 15,517 26,600 44,465 58,180 $ - - - - - - - - - - - 12,923 49,264 13,345 $ - 90,000 38,000 61,910 - 90,000 - 45,000 - 90,000 - - - - $ - - $ 68,000 186,000 108,601 529,531 - - - - - - - - - 426,332 85,000 210,000 35,625 95,000 42,500 150,000 - - 112,349 291,199 - 319,523 38,000 220,950 1,051,855 376,910 - 1,386,855 Rey Resources Annual Report 2016 25 6. REMUNERATION REPORT - AUDITED (Continued) 6.3 Equity instruments 6.3.1 No share rights were granted during the financial year. 6.3.2 The valuation assumptions and methodology for the Share based payments (rights) are set out in note 20 to the financial statements. 6.3.3 Rights over equity instruments granted as compensation Details on rights over ordinary shares in the Company that were granted as compensation to the KMP during the reporting period and details on those rights that also vested during the reporting period are as follows: Name K Wilson Number of rights held during FY 2016 1,000,0001 2,426,6672 Vesting condition3 TSR TSR Grant Date 26 Nov 2014 22 Nov 2012 Fair value per share right at grant date Vest Date Expiry Date $0.057 $0.043 1 July 20164 1 July 20164 N/A N/A 1. Approved by shareholders at 2014 Annual General Meeting. 2. Approved by shareholders at 2012 Annual General Meeting. 3. Subject to the Board’s discretion. 4. Mr Wilson resigned on 31 May 2016. In accordance with the Company’s share incentive scheme and as part of his agreed termination payment, all performance rights vested and converted to Shares on 1 July 2016. 6.3.4 Options and rights over equity instruments granted as compensation Details of the vesting profiles of the options and rights granted as remuneration to the KMP are detailed below. Name Share Rights K Wilson K Wilson Number Grant Date % vested in year % forfeited/ lapsed in financial year 2015 Financial year in which grant vests 1,000,000 26.11.2014 2,426,667 22.11.2012 0% 0% 0% 0% Vest 1 July 2016 Vest 1 July 2016 6.3.5 Movements in share rights KMP is detailed below. The movement during the reporting period of share rights over ordinary shares in the Company held by the Name Share Rights K Wilson K Wilson Held at 1 July 2015 Other Changes1 Held at 30 June 2016 Vested during year 2,426,667 1,000,000 2,426,6672 1,000,0002 N/A N/A N/A N/A l y n o e s u l a n o s r e p r o F 1. Other changes represent rights that lapsed or employees who are no longer key management personnel as at 30 June 2016. 2. Rights were vested on 1 July 2016. 26 Rey Resources Annual Report 2016 l y n o e s u a n o s r e p 6. REMUNERATION REPORT - AUDITED (Continued) 6.4 Key employment contracts The table below summarises the key contractual provisions of the executive KMP. Name and Position Kevin Wilson1 Managing Director Contract Term Ongoing Termination by Company Termination by Executive 6 months’ notice or payment in lieu. 6 months’ notice or payment in lieu. Pro-rata Annual Incentive is paid. Unvested Long Term Incentive vests. If terminated within 6 months of a Fundamental Change receives 6 months TFR at termination date. Ongoing 3 months’ notice or payment in lieu. Board discretion to pay pro-rata Annual Incentive and unvested Long Term Incentive. 1 month notice or payment in lieu. Ian Pound2 General Manager 1. Mr Kevin Wilson resigned 31 May 2016. 2. Mr Ian Pound resigned 31 January 2016. l Non-Executive Directors are engaged by a letter of appointment for a term as stated in the Constitution of the Company. They may resign from office with reasonable notice to the Chairman. Non-Executive Directors receive annual fees. There are no post-employment benefits other than statutory superannuation. 6.5 Remuneration Consultant The Board may seek advice on remuneration matters for the KMP and Non-Executive Directors from independent external advisors. Such advisors are appointed and directly engaged by the Chairman. No external advisors were engaged on remuneration matters for the 2016 financial year. 6.6 Movements in share holdings Movements in shares The movement during the reporting period in the number of ordinary shares in the Company held by each KMP, including their related parties, is as follows: Held at 1 July 2015 Received as compensation Received on exercise of options/rights Other changes Held at 30 June 2016 2016 r o F Directors Min Yang Geoff Baker Wei Jin Dachun Zhang Louis Chien 1,000,000 1,000,000 1,200,000 2,915,300 - Kevin Wilson 4,485,006 Executives Ian Pound Total 353,000 10,953,306 - - - - - - - - - - - - - - - - - - 971,7663 1,000,0003 - 1,971,766 1,000,000 1,000,000 1,200,000 3,887,066 - N/A 1 N/A 2 7,087,066 1. Mr Kevin Wilson resigned 31 May 2016. 2. Mr Ian Pound resigned 31 January 2016. 3. Shares acquired pursuant to Company's Rights Issue. Rey Resources Annual Report 2016 27 l y n o e s u l a n o s r e p 6. REMUNERATION REPORT - AUDITED (Continued) 6.7 Movements in Option holdings No KMP held or were issued options during the 2016 reporting period. 6.8 Movement in Share right holdings The movement during the reporting period in the number of share rights over ordinary shares in the Company by each KMP, including their related parties, is as follows: 2016 Directors Min Yang Geoff Baker Wei Jin Dachun Zhang Louis Li Chien Kevin Wilson Executives Ian Pound Total Held at 1 July 2015 Granted as compensation Exercised Other changes Held at 30 June 2016 Vested and exercisable at 30 June 2016 Unvested and unexercisable at 30 June 2016 - - - - - 3,426,667 - 3,426,667 - - - - - - - - - - - - - - - - - - - - - 3,426,667 - 3,426,667 - - - - - - - - - - - - - - - - - - - - - 3,426,6671 - 3,426,667 1. Mr Wilson resigned on 31 May 2016. In accordance with the Company’s share incentive scheme and as part of his agreed termination payment, all performance rights vested and converted to Shares on 1 July 2016. This is the end of the audited remuneration report. 7. PRINCIPAL ACTIVITIES The principal activity of Rey Resources is exploring for and developing energy resources in Western Australia’s Canning and Perth Basins. The Company holds coal exploration assets, a 25% interest in petroleum permits EP457 & 458 in joint venture with Buru Energy Limited and Mitsubishi Corporation, a 50% interest in the Derby Block EP487 and a 43.47% in petroleum exploration permit EP437. r o F 28 Rey Resources Annual Report 2016 l y n o e s u l a n o s r e p r o F 8. RESULTS FOR THE YEAR AND REVIEW OF OPERATIONS During the year, Rey Resources continued its strategy of exploring and developing energy resources in Western Australia’s Canning Basin and Perth Basin, with particular focus on its oil and gas assets. Oil and Gas Canning Basin EP457 & EP458 Rey Resources holds a 25% interest in Exploration Permits EP457 and EP458 (“the Fitzroy Blocks”). The Fitzroy Blocks are located in the Canning Basin in the northwest of Western Australia. The equity interest in each permit is: Rey Oil and Gas Pty Ltd Buru Fitzroy Pty Ltd Diamond Resources (Fitzroy) Pty Ltd 25% (of which a 10% interest is free carried to production) 37.5% (Buru Energy Limited operator) 37.5% (100% subsidiary of Mitsubishi Corporation) The joint venture drilled two exploration wells during the year. Exploration well Victory-1 was spudded on 9 September 2015 in EP457, 185 km east of Broome and 85 km southeast of Buru Energy’s producing Ungani Oilfield. The well was drilled with Atlas Rig 2 to the programmed total depth of 2,600 metres. At a depth of 1,945 metres complete lost circulation was encountered with high and erratic drilling rates similar to those encountered elsewhere by the Operator in the Ungani Dolomite. The drilling system was then switched to a managed pressure system but complete losses continued to a depth of 2,600 metres where logs were attempted to be run. Logs were initially unable to be obtained deeper than approximately 2,030 metres due to hole conditions and several further attempts were made to log the lower part of the hole below the lost circulation zone with no success. The difficulties in acquiring the logs were principally due to a well-developed shale section below the zone of lost circulation. During these logging operations, further problems with the casing were encountered. After considering the options for remedying the issue, and the associated costs, it was agreed by the joint venture to plug and abandon the well bore, meaning that a flow test of the horizon where circulation was lost was not operationally achievable. Abandonment was undertaken in accordance with all regulations and oil field practice to ensure all formations were effectively isolated. 100 line-km of 2D seismic data was acquired in EP457 over prospects Rafael, Wright and Victory. Processing of this data was completed and early results suggest Wright to be a promising drill target. The Senagi-1 conventional exploration well was spudded on 15 October 2015 in EP458, 240 km southeast of Broome and 144 km southeast of Buru Energy’s Ungani Oilfield. Senagi-1 was drilled with the DDH1 Rig#31 (with Buru as Operator) and was drilled to a total depth of 1,045 metres. The well targeted conventional oil and gas in the Lower Laurel (Ungani Dolomite) and Devonian-aged (Nullara) carbonates. A total of 286m of continuous core was cut, with 97% recovered. A thin interval with vugular porosity with oil shows was observed in core however, the shows were interpreted to be residual. Valuable data was obtained which will assist with correlation of core and image logs over the very well developed vugular dolomite reservoir section. This correlation will provide more certainty in the interpretation of the dolomite reservoirs encountered in future wells. Wireline logs were obtained and the well was plugged and abandoned. All of the data from the well is being analysed by the joint venture to ensure the highest chance of success of the other prospects in the area. Rey Resources Annual Report 2016 29 l y n o e s u l a n o s r e p r o F 8. RESULTS FOR THE YEAR AND REVIEW OF OPERATIONS (Continued) As part of the title conditions of both EP457 and EP458, the Joint Venture is required to relinquish 50% of the licence area of both permits at the end of Title Year 6 in October 2016. Buru Energy, as Operator, completed permit reviews in 2Q 2016 and proposed areas for mandatory relinquishment to the Joint Venture. Following consideration and unanimous agreement on the relinquishment areas by the JV parties, applications to renew both permits were lodged with the regulator. Derby Block (EP487) OBL). The equity interests in the permit are : Rey Lennard Shelf Pty Ltd Oil Basins Limited 50% 50% As announced on 1 June 2015, Rey Lennard Shelf Pty Ltd (a wholly owned subsidiary of Rey Resources) completed the acquisition of a 50% participating interest in petroleum exploration permit EP487 (“the Derby Block”) from Backreef Oil Pty Ltd and entered into a Joint Venture Agreement with Oil Basins Limited (ASX: The Derby Block is considered to be predominantly a Wet Laurel Basin Centred Gas play (“BCG”) which is regionally extensive throughout the Canning Basin. A new estimate of the gross prospective potential recoverable resource estimate (TCF gas recoverable) of the BCG play in the Derby Block (onshore portion) was provided by Oil Basins (OBL ASX release dated 15 January 2016). In September 2015, the joint venture, lodged a work plan variation and on 5 February 2016 Oil Basins announced that the joint venture had been successful in its application to have the Work Program for Year 1 deemed complete and the Work Program Year 2 variation approved by the WA regulator, the Department of Mines and Petroleum. The Year 2 Work Program requires the drilling of two exploration wells in 2016. On 12 February 2016, Rey announced that it and RLS had commenced legal proceedings against Oil Basins in the Supreme Court of Western Australia seeking orders that Oil Basins resign as the Operator of EP487 in accordance with the terms of the Joint Operating Agreement between Rey, RLS and Oil Basins. The proceedings were heard in the Western Australian Supreme Court on 25 May 2016. On 26 May 2016, the Supreme Court ruled in favour of the Company and Oil Basins was ordered to immediately resign as operator. Since assuming operatorship, the Company has reviewed the status of the work completed on the permit to date in the context of the regional setting and proposed new well sites to the joint venture as well as geophysical studies. Perth Basin (EP437) The beneficial interests in EP437 are as follows: Key Petroleum Limited (Key Petroleum (Australia) Pty Ltd) (Operator) Rey (Rey Oil and Gas Perth Pty Ltd) Pilot Energy Limited 43.47% 43.47% 13.06% 30 Rey Resources Annual Report 2016 8. RESULTS FOR THE YEAR AND REVIEW OF OPERATIONS (Continued) The Joint Venture continued to review the prospectivity of the basin during the quarter and decided to reprocess approximately 130kms of vintage 2D seismic data across the Wye Not and Becos prospects. The permit conditions requires a commitment well in 2017. Rey’s thermal coal tenements are located in the Fitzroy Trough of the Canning Basin, north Western Australia and are partly contiguous with the Fitzroy Blocks petroleum tenements. The Canning Basin is well situated to feed the strong Asian demand for Australian export thermal coal for power generation. Duchess Paradise Project in June 2011. l The Duchess Paradise Project is a proposed bituminous thermal coal operation of up to 2.5 million tonnes per annum in the Canning Basin, north Western Australia. A Definitive Feasibility Study of the Project was completed In April 2015, the environmental assessment of the proposed Duchess Paradise Project by the Western Australian Environmental Protection Authority (EPA) was placed on hold by agreement between Rey and the EPA. In August 2016, Rey informed the EPA that it considered the assessment of the proposed project should be withdrawn pending an improvement in economic conditions impacting Duchess Paradise. However, Rey is currently meeting its statutory expenditure commitments on the Duchess Paradise project and the intention is to realise the value of the project through development. Management has re-assessed the carrying value of the Duchess Paradise exploration and evaluation asset using a fair value calculation. The calculation supports the carrying value of the Duchess Paradise exploration and evaluation asset however changes in certain key assumptions, such as the coal price (US$65 per tonne), FX (AUD:USD $0.74) and the post-tax discount rate (10%) may result in an impairment of the carrying value of the asset. Coal l y n o e s u a n o s r e p r o F Corporate follows: During the year, the Company raised a total of $4.7 million (before costs) through the issue of new equity as • On 12 February 2016, the Company completed a private placement to raise $1 million (before costs) via the issue of a total of 33,333,333 shares at an issue price of 3 cents per share to an existing shareholder; and • On 26 February 2016, the Company announced a non-renounceable pro-rata 1 for 3 rights issue at an offer price of $0.015 per share. On 5 April 2016, the Company announced that entitlement applications were received for 141,692,231 new shares and a further 87,804,814 new shares were applied for as additional shortfall shares, raising approximately $3.4 million before costs. On 29 April 2016 it was announced that the remaining shortfall of 18,598,424 shares was placed to investors, completing the rights issue. Rey Resources Annual Report 2016 31 l y n o e s u a n o s r e p r o F 8. RESULTS FOR THE YEAR AND REVIEW OF OPERATIONS (Continued) On 29 October 2015 the Company entered into a loan facility agreement with its major shareholder ASF Group Limited (“ASF”) for a loan facility of up to $2 million with an interest rate of 9% per annum (“Loan Facility”). The Loan Facility had been fully drawn down during the year. On 16 May 2016, the Company announced that it had repaid the Loan Facility in full. As part of the Company’s restructuring, the registered address of the Company was changed to Suite 5, 62 Ord Street, West Perth WA 6005 on 1 January 2016. During the year, a total of 797,000 shares were bought back at a cost of $69,466 and cancelled under the previous buyback scheme which expired on 17 December 2015. On 10 May 2016, the Company announced the implementation of a new buyback scheme for 12 months from 25 May 2016. No shares have been acquired and cancelled under the new buyback scheme to the date of this report. On 11 January 2016 the Company appointed Mr Louis Chien as Alternate Director to the Non-Executive Chairman, Ms Min Yang. l On 1 June 2016, the Company announced that Mr Kevin Wilson had resigned as Managing Director following the completion of his 6 month notice period. Pursuant to the Company’s share incentive scheme and as part of Mr Wilson’s termination payment, 3,426,667 performance rights held by Mr Wilson vested and were converted to an equivalent number of ordinary shares on 1 July 2016. The loss for the Group after income tax for the year ended 30 June 2016 was $3,998,000 (2015: $10,200,000). This amount includes $2,329,000 written off as a result of relinquishment of mineral exploration tenements during During the period $3,658,000 (2015: $4,758,000) in exploration expenditure was capitalised, $3,451,000 of which related to oil and gas exploration (2015: $3,723,000). Finance review the year. 9. DIVIDENDS No dividend has been paid or declared by the Company during the financial year ended 30 June 2016 (2015: nil) and the Directors do not recommend the payment of a dividend in respect of the financial year ended 30 June 2016. 10. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Other than as noted elsewhere in this report, there have been no significant changes in the state of the affairs of the Company up to and including the date of this report. 11. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Future information about the likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the consolidated Group. 32 Rey Resources Annual Report 2016 l y n o e s u l a n o s r e p r o F 12. PERFORMANCE RIGHTS OVER UNISSUED SHARES Performance rights on Issue As at the date of this report there were no performance rights on issue. Performance rights vested, forfeited or lapsed During or since the end of the financial year, 3,426,667 performance rights vested and were converted to shares. 13. OPTIONS OVER UNISSUED SHARES Options on Issue 14. ENVIRONMENTAL DISCLOSURE During the financial year and as at the date of this report there are no options on issue. The Group’s operations are subject to various laws governing the protection of the environment in areas such asprotection of water quality, waste emission and disposal, environmental impact assessments, exploration rehabilitation and use of, ground water. In particular, some operations are required to be licensed to conduct certain activities under the environmental protection legislation in the state in which they operate and such licences include requirements specific to the subject site. So far as the Directors are aware, there have been no material breaches of the Company’s licences and all exploration and other activities have been undertaken in compliance with the relevant environmental regulations. 15. INDEMNITIES AND INSURANCE During the financial year, the Company paid a premium to insure the Directors and officers of the Company against liabilities incurred in the performance of their duties. Under the terms and conditions of the insurance contract, the premium paid cannot be disclosed. The officers of the Company covered by the insurance policy include any person acting in the course of duties for the Company who is, or was, a Director, Company Secretary or senior manager within the Company. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers, in their capacity as officers, of the Company, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. Rey Resources Annual Report 2016 33 16. SUBSEQUENT EVENTS Mr Wei Jin was appointed Managing Director of the Company on 1 July 2016. Mr Jin has been a Director of Rey Resources since 2 December 2013. He holds a PhD in Science from the China University of Geosciences. He has over 22 years’ professional experience covering exploration, mineral industry construction and operation, as well as mineral resources products international trading activities in Australia, China, Russia and Mongolia. 3,426,667 performance rights held by former Managing Director, Mr Wilson vested and were converted to an equivalent number of ordinary shares of the Company on 1 July 2016 in accordance with the Company’s share incentive scheme and as part of his agreed termination payment. Dr Zhiliang Ou was appointed as an independent Non-Executive Director of the Company on 22 September 2016. 17. PROCEEDINGS ON BEHALF OF THE COMPANY l At the date of this report, there are no leave applications or proceedings brought on behalf of the Company under section 237 of the Corporations Act 2001. 18. ROUNDING The Group is of a kind referred to in ASIC Corporations Instrument 2016/191 dated 10 July 1998 and in accordance with that Class Order 98/100, amounts included in the consolidated financial statements and Directors’ report have been rounded to the nearest thousand dollars, unless otherwise stated. 19. NON-AUDIT SERVICES There were no non-audit services provided by KPMG during this financial year. The auditor’s independence declaration is set out on page 35 and forms part of the Directors’ report for the 20. AUDITOR’S INDEPENDENCE DECLARATION financial year ended 30 June 2016. Signed in accordance with a resolution of Directors. l y n o e s u a n o s r e p r o F Min Yang Non-Executive Chairman Sydney, Australia 23 September 2016 34 Rey Resources Annual Report 2016 AUDITOR’S INDEPENDENCE DECLARATION l y n o Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To: the directors of Rey Resources Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2016 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. KPM_INI_01 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Daniel Camilleri Partner Sydney 23 September 2016 e s u l a n o s r e p r o F KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative Liability limited by a scheme approved under (“KPMG International”), a Swiss entity. Profession Standards Legislation. Rey Resources Annual Report 2016 35 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Profession Standards Legislation. 23 Consolidated statement of profit or loss and other comprehensive income Rey Resources Limited for the year ended 30 June 2016 in thousands of dollars l y n o e s u l a n o s r e p Other income Impairment of exploration and evaluation assets Impairment of investment Administrative expenses Loss from operations Finance income Finance costs Net finance income Loss before income tax Income tax benefit Loss for the year attributable to owners of the company Other comprehensive income Items that will not be reclassified to profit or loss Items that may be reclassified subsequently to profit or loss Total comprehensive loss for the year, attributable to owners of the Company Loss per share Note 30 June 30 June 2016 2015 4 12 5 4 6 7 (2,329) (144) (1,458) (3,924) 9 (83) (74) 14 (8,117) - (2,147) (10,250) 50 - 50 (3,998) (10,200) - - (3,998) (10,200) - - - - (3,998) (10,200) Basic and diluted (cents per share) 7 (0.48) (1.40) The notes on pages 40-71 are an integral part of these consolidated financial statements. r o F 36 Rey Resources Annual Report 2016 Rey Resources Limited Consolidated statement of financial position as at 30 June 2016 in thousands of dollars ASSETS Current assets Cash and cash equivalents Trade and other receivables Prepayments Total current assets Non-current assets Property, plant and equipment Investment Exploration and evaluation expenditure l y n o e s u l a n o s r e p r o F Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Employee benefits Total current liabilities Non-current liabilities Employee benefits Total non-current liabilities Total liabilities Net assets EQUITY Share capital Reserves Accumulated losses Total equity attributable to equity holders of the Company The notes on pages 40-71 are an integral part of these consolidated financial statements. Note 2016 2015 8a 9 10 11 12 13 14 14 15 16 1,157 28 19 1,204 15 106 36,125 36,246 37,450 201 158 359 - - 359 37,091 85,683 2,238 (50,830) 1,652 58 22 1,732 20 250 34,796 35,066 36,798 129 184 313 45 45 358 36,440 81,072 2,200 (46,832) 37,091 36,440 Rey Resources Annual Report 2016 37 Share capital 75,565 - - 6,000 (305) - (188) 81,072 - - 4,721 (41) - (69) Reserves Accumulated Losses Total 1,823 (36,632) 40,756 - - - - 377 - 2,200 - - - - 38 - (10,200) (10,200) - - (10,200) (10,200) - - - - (46,832) (3,998) - 6,000 (305) 377 (188) 36,440 (3,998) - (3,998) (3,998) - - - - 4,721 (41) 38 (69) 85,683 2,238 (50,830) 37,091 Rey Resources Limited Consolidated statement of changes in equity for the year ended 30 June 2016 In thousands of dollars Balance at 30 June 2014 Total comprehensive income: Loss for the period Other comprehensive income Total comprehensive income for the period Transactions with owners recorded directly in equity: Contributions by and distributions to owners l Issue of ordinary shares Less: transaction Cost Share-based payment transactions Share buy back Balance at 30 June 2015 Loss for the period Other comprehensive income Total comprehensive income for the period Transactions with owners recorded directly in equity: Contributions by and distributions to owners Issue of ordinary shares (Note 15) Less: transaction Cost (Note 15) Share-based payment transactions (Note 20) Share buy back (Note 15) Balance at 30 June 2016 l y n o e s u a n o s r e p r o F 38 Rey Resources Annual Report 2016 The notes on pages 40-71 are an integral part of these consolidated financial statements. l y n o e s u l a n o s r e p r o F Rey Resources Limited Consolidated statement of cash flows for the year ended 30 June 2016 in thousands of dollars Cash flows from operating activities BAS refund Misc income Cash paid to suppliers and employees Net cash used in operating activities Cash flows from investing activities Interest received Cash received from R&D claims Investment in share Payments for property, plant and equipment Proceeds from sale of plant and equipment Recovery of rehabilitation bonds Recovery of other bonds Payments for exploration expenditure Net cash used in investing activities Cash flows from financing activities Proceeds from issue of ordinary shares (net of costs) Share buy back Proceeds from loans and borrowings Repayment of loans and borrowings Finance costs Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Note 30 June 30 June 2016 2015 30 4 (1,408) (1,374) 9 - - - 4 - - (3,658) (3,645) 4,680 (69) 2,503 (2,503) (87) 4,524 (495) 1,652 1,157 - - (1,927) (1,927) 47 - (250) (16) 10 - 38 (4,757) (4,928) 5,695 (188) - 5,507 (1,348) 3,000 1,652 8b 8a The notes on pages 40-71 are an integral part of these consolidated financial statements. Rey Resources Annual Report 2016 39 l y n o e s u a n o s r e p r o F Notes to the financial statements 1. REPORTING ENTITY Rey Resources Limited (the “Company”) is a company domiciled in Australia. The address of the Company’s registered office is Suite 5, 62 Ord Street, West Perth WA 6005. The consolidated financial statements of the Company as at and for the year ended 30 June 2016 comprise the Company and its subsidiaries (together referred to as “Rey Resources” or the “Group”). The Group is a for-profit entity and is primarily involved in mineral and oil and gas exploration and project evaluation. 2. BASIS OF PREPARATION (a) Statement of compliance The consolidated financial statements are general purpose financial statements which have been prepared l in accordance with Australian Accounting Standards (including the Australian Interpretations) adopted by the Australian Accounting Standards Board (“AASB”), and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (“IFRS”) and interpretations adopted by the International Accounting Standards Board (“IASB”). The accounting policies detailed below have been consistently applied to all of the years presented unless otherwise stated. The consolidated financial statements were authorised for issue by the Board of Directors on 23 September 2016. (b) Going concern The consolidated financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. For the year ended 30 June 2016 the Group incurred a loss of $3,998,000 and incurred operating and investing cash outflows of $5,019,000. The loss for the period was significantly impacted by the recognition of non-cash impairment losses on exploration and evaluation assets of $2,329,000. As at 30 June 2016 the Group had cash of $1,157,000,net working capital of $845,000 and net assets of $37,091,000. The Group has prepared a cashflow forecast for the 12 months ending 30 September 2017. The cashflow forecasts demonstrates the need to raise additional funding to meet both non-discretionary and discretionary expenditure. The forecast non-discretionary expenditure includes Rey’s share of committed spend for exploration programs on the Canning Basin and Perth properties. Rey is considering funding alternatives in the form of debt and equity, including discussions with existing shareholders, and with third parties for farming out certain petroleum interests. 40 Rey Resources Annual Report 2016 l y n o e s u l a n o s r e p r o F Notes to the financial statements (Continued) 2. BASIS OF PREPARATION (Continued) The Directors believe that sufficient funding will be available in the timeframes required and that the adoption of the going concern basis of preparation is appropriate. The matters referred to above indicate the existence of a material uncertainty as to whether the Group will continue as a going concern and whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. (c) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis. (d) Functional and presentation currency These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency. The Company is of a kind referred to in ASIC Corporations Instrument 2016/191 dated 10 July 1998 and in accordance with that Class Order, all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated. (e) Use of estimates and judgements The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Other information about assumptions, estimates and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes: Note 2(b) - going concern Note 6 - recoverability of tax losses. Note 12 - ultimate recoupment of carried forward exploration expenditure. Note 20 - key assumptions in determining the fair value of share based payments. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by the Group. Rey Resources Annual Report 2016 41 l y n o e s u l a n o s r e p r o F Notes to the financial statements (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation and its subsidiaries. (i) Subsidiaries The consolidated financial statements comprise the financial statements of Rey Resources Limited Subsidiaries are entities controlled by the Group. The Group controls an enity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. (ii) Transactions eliminated on consolidation Intercompany transactions, balances and unrealised gains and expenses on transactions between companies of the consolidated entity are eliminated in preparing the consolidated financial statements. (iii) Loss of control On the loss of control, the Group de-recognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently that retained interest is accounted for as an equity accounts investee or as an available-for-sale financial asset depending on the level of influence retained. (iv) Joint arrangements Joint arrangements are defined as the contractually agreed sharing of control of an arrangement, which exists only when decisions about relevant activities require unanimous consent of the parties sharing control. These arrangements may be accounted for as a joint venture or a joint operation. A joint venture, which is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than the rights to its assets and obligation for its liabilities. Interest in joint ventures are accounted for using the equity method. A joint operation is an arrangement in which the parties with joint control have rights to the assets and obligations for the liabilities relating to that arrangement. In respect of its interest in a joint operation, a joint operator the Group recognises its relative share of its assets, liabilities, revenues and expenses. (b) Foreign currency Transactions in foreign currencies are translated to Australian dollars being the functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency differences arising on retranslation are recognised in profit or loss. 42 Rey Resources Annual Report 2016 l y n o e s u a n o s r e p r o F Notes to the financial statements (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (c) Non derivative financial instruments Financial instruments are recognised when the Group becomes a party to the contractual provisions of the instrument. For financial assets, this is equivalent to the date that the Group commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). (i) Non-derivative financial assets The Group initially recognises loans and receivables and deposits on the date that they are originated. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. l Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprise cash and cash equivalents and trade and other receivables. Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months Cash and cash equivalents or less. (ii) Non-derivative financial liabilities cancelled or expire. The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. The Group derecognises a financial liability when its contractual obligations are discharged or Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Other financial liabilities comprise loans and borrowings and trade and other payables. (iii) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. Rey Resources Annual Report 2016 43 Notes to the financial statements (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (d) Property, plant and equipment (i) Recognition and measurement accumulated impairment losses. Items of property, plant and equipment are measured at cost less accumulated depreciation and Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self- constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within other income/other expenses in profit or loss. (ii) Subsequent costs The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. (iii) Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. l y n o e s u l a n o s r e p r o F The estimated depreciation rates for the current and comparative years are as follows: Class of Fixed Asset Depreciation Rate Plant and equipment 20 - 40% Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. 44 Rey Resources Annual Report 2016 l y n o e s u l a n o s r e p r o F Notes to the financial statements (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (e) Exploration and development assets Exploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area of interest. At the end of each reporting period, the capitalised exploration and evaluation expenditure is assessed for impairment. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. 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. Costs of the site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plants, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis. Any changes in the estimates for costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly, the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site. (f) Impairment (i) Non-derivative financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Loans and receivables and held-to maturity securities In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. Rey Resources Annual Report 2016 45 l y n o e s u l a n o s r e p r o F Notes to the financial statements (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to balance sheet date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-cost. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows (g) Employee benefits to be made for those benefits. (i) Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. (ii) Share-based payment transactions The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. (h) Goods and services tax Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. 46 Rey Resources Annual Report 2016 Notes to the financial statements (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (i) Income tax l y n o e s u a n o s r e p r o F l recognised for: Income tax expense comprises current and deferred tax. Current and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not • temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. • temporary differences related to investments in subsidiaries and associates and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. The Company and its wholly-owned Australian resident entities are part of a tax-consolidated group. As a consequence, all members of the tax-consolidated group are taxed as a single entity. The head entity within the tax-consolidated group is Rey Resources Limited. Current income tax expense / benefit, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation. Rey Resources Annual Report 2016 47 Notes to the financial statements (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (j) Earnings per share l y n o e s u l a n o s r e p r o F The Group presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share 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, adjusted for own shares held. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options and share performance rights granted to employees. (k) Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating results are reviewed regularly by the Group’s Chief Operating Decision maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. (l) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, 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 a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. (m) Finance income and finance costs Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method. Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position. 48 Rey Resources Annual Report 2016 Notes to the financial statements (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (n) Determination of fair values Share-based payment transactions The fair value of the Directors’ performance rights is measured using Monte Carlo Sampling. The fair value of the executive rights is measured with reference to the share price at grant date. The fair value of the employee share options are measured using the Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. l (o) New standards and interpretations not yet adopted In the year ended 30 June 2016, the Group has reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for the current annual reporting period. accounting policies. It has been determined by the Group that there is no material impact of the new and revised Standards and Interpretations on its business that are not already disclosed, and therefore, no change is necessary to Group l y n o e s u a n o s r e p r o F Rey Resources Annual Report 2016 49 2016 2015 7 7 9 9 2016 140 257 578 4 23 157 299 1,458 38 491 45 4 578 14 14 50 50 2015 263 311 1,192 4 50 94 233 2,147 377 757 58 - 1,192 Notes to the financial statements (Continued) 4. OTHER INCOME AND FINANCE INCOME l y n o e s u l a n o s r e p in thousands of dollars Other income Other income Finance income Interest income 5. ADMINISTRATIVE EXPENSES in thousands of dollars Office supplies and expenses Professional consulting fees Employee benefits expense (see below) Depreciation and amortisation expense Insurance premiums Legal costs Other expenses (inc Travel expense) Employee benefits expense consists of: Equity-settled share- based payments Salaries and fees Superannuation Fringe Benefit Tax r o F 50 Rey Resources Annual Report 2016 Notes to the financial statements (Continued) 6. INCOME TAX EXPENSE in thousands of dollars Income tax recognised in loss Current tax benefit Deferred tax benefit Income tax benefit in thousands of dollars Accounting loss before tax Reconciliation of prima facie tax on accounting loss before tax to income tax (benefit) / expense At statutory income tax rate of 30% (2015: 30%) Non-deductible expenses Tax exempt income Tax losses for which no deferred tax asset was recognised Income tax benefit Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: in thousands of dollars Deferred tax liabilities Exploration and evaluation expenditure Other Gross deferred tax liability Deferred tax assets Tax loss carry forwards Other Gross deferred tax asset Net deferred tax asset Tax losses Statement of financial position 2015 2016 Profit or loss 2016 (10,837) (6) (10,843) 10,735 108 10,843 - (10,438) - (10,438) 10,339 99 10,438 - (399) (6) (405) 396 9 405 - 2016 2015 - - - - - - - - 2016 2015 (3,998) (10,200) (1,199) (139) - (1,338) - (3,061) (259) - 3,319 - 2015 1,008 16 1,024 (1,043) 19 (1,024) - l y n o e s u l a n o s r e p r o F At 30 June 2016, the Group has tax losses arising in Australia of $74,471,305 (2015: $69,020,361) that are available for offset against future taxable income. The Group has not recognised a deferred tax asset in relation to these tax losses (other than an offset to the deferred tax liability) as realisation of the benefit is not regarded as probable. Tax consolidation Rey Resources Limited and its 100% owned Australian resident subsidiaries formed a tax-consolidated Group with effect from 1 July 2009. The first consolidated income tax return for the Group was filed for the tax year ended 30 June 2010. Rey Resources Limited is the head entity of the tax-consolidated group. Rey Resources Annual Report 2016 51 Notes to the financial statements (Continued) 7. LOSS PER SHARE in thousands of dollars Earnings Earnings used in calculating basic and diluted earnings per share attibutable to the owners of the company Number of ordinary shares Weighted average number of ordinary shares outstanding during the year used in calculating basic and diluted loss per share Basic loss per Share (cents per share) Diluted loss per Share (cents per share) 2016 2015 (3,998) (10,200) 2016 2015 Restated1 832,749,305 728,837,778 (0.48) (0.48) (1.40) (1.40) 1. Restatement of weighted average number of shares used as denominator. During the period, Rey Resources completed a rights issue of 248,095,469 shares at $0.015 per share. The rights issue took place on two dates, with the first date having a 25% discount to the market price and the second date having a 50% discount to the market price. Therefore a bonus was received by shareholders who participated in the rights issue. Accordingly, earnings per share for the 2015 comparative period have been adjusted for the bonus element of the issue by multiplying the average weighted number of shares prior to the rights issue by 1.07 (i.e. a 7% bonus element). Weighted average number of ordinary shares pre adjustement for rights issue Bonus element of rights issue Weighted average number of ordinary shares adjusted for rights issue 2015 679,468,199 1.07 728,837,778 l y n o e s u l a n o s r e p r o F 52 Rey Resources Annual Report 2016 Notes to the financial statements (Continued) 8. CALCULATION OF LOSS PER SHARE Basic loss per share is calculated as loss for the period attributable to the parent entity (2016: $3,998,000 loss; 2015: $10,200,000 loss) divided by the weighted average number of ordinary shares (2016: 832,749,305; 2015: 728,837,778). Diluted loss per share represents loss for the period attributable to the parent entity divided by the weighted average number of ordinary shares (2016: 836,175,972; 2015: 732,264,445) which has been adjusted to reflect the number of shares which would be issued the performance share rights were to be exercised (2016: 3,426,667; 2015: 3,426,667). Due to the loss attributable to the parent entity for the year ended 30 June 2016, the effect of these instruments and the impact of the share rights issue on these instruments has been excluded in the 30 June 2016 calculation of diluted earnings per share as they would reduce the loss per share. 8a. CASH AND CASH EQUIVALENTS l in thousands of dollars Cash at bank and in hand Cash and cash equivalents 2016 1,157 1,157 2015 1,652 1,652 The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 22. l y n o e s u a n o s r e p r o F Rey Resources Annual Report 2016 53 Notes to the financial statements (Continued) 8. CALCULATION OF LOSS PER SHARE (Continued) 8b. Reconciliation of cash flows from operating activities l y n o e s u a n o s r e p in thousands of dollars Cash flows from operating activities Loss for the period Adjustments for: Depreciation Impairment of capitalised exploration expenditure Impairment of investment Equity-settled share-based payment expense Interest income Finance costs Profit on disposal of fixed assets l Other non-cash (Increase) / decrease in trade and other receivables (Increase) / decrease in prepayments Increase / (decrease) in trade and other payables Increase / (decrease) in employee benefits Net cash used in operating activities 9. TRADE AND OTHER RECEIVABLES in thousands of dollars Current Other receivables Note 2016 2015 10 12 11 5 (3,998) (10,200) 4 2,329 144 38 (9) 87 (4) 1 4 8,117 - 377 (50) - - (8) (1,408) (1,760) 30 3 72 (71) (1,374) (8) 28 (139) (48) (1,927) 2016 2015 28 28 58 58 r o F 54 Rey Resources Annual Report 2016 Notes to the financial statements (Continued) 10. PROPERTY, PLANT AND EQUIPMENT in thousands of dollars Property, plant and equipment At cost Accumulated depreciation Total property plant and equipment Movements in carrying amounts: in thousands of dollars Balance as at 1 July Additions Disposals Depreciation expense l Balance as at 30 June 11. INVESTMENT in thousands of dollars Investment in Norwest Energy NL Provision for impairment l y n o e s u a n o s r e p 2016 2015 178 (163) 15 198 (178) 20 2016 2015 20 2 (3) (4) 15 2016 250 (144) 106 8 16 - (4) 20 2015 250 - 250 On 5 June 2015, Rey subscribed for $250,000 of Norwest Energy NL (Norwest) shares at a price of $0.004712 per share, resulting in approximately 3.68% of total Norwest shares on issue. The closing price of Norwest shares as at 30 June 2016 was $0.002 per share and as a result a provision for impairment of $144,000 was made for the financial year ended 30 June 2016. Refer to note 16 for further details. r o F Rey Resources Annual Report 2016 55 1. Exploration and evaluation expenditure recognised in exploration assets held solely by the Group. 2. Exploration and evaluation expenditure recognised on EP457 and EP458 tenements under joint venture agreement with Buru Energy Limited and Mitsubishi Corporation. This amount includes the Group’s proportionate share of exploration assets held by the respective joint venture entities. 3. Exploration and evaluation expenditure recognised on tenements under under joint venture agreement with Key Petroleum Pty Ltd and Caracal Exploration Pty Ltd. This amount includes The Group’s proportionate share of exploration assets held by the EP437 tenement owners. 4. Exploration and evaluation expenditure recognised on tenements under joint venture agreement with Oil Basins Ltd. This amount includes The Group’s proportionate share of exploration assets held by the EP487 tenement owners. Notes to the financial statements (Continued) 12. EXPLORATION AND EVALUATION EXPENDITURE in thousands of dollars Costs carried forward in respect of: Incurred at cost by the Group on assets not governed by joint venture agreements1 Capitalised share of exploration assets under Joint Venture Agreements2 Capitalised share of exploration assets under Joint Venture Agreements3 Capitalised share of exploration assets under Joint Venture Agreements4 Costs carried forward in thousands of dollars At cost Accumulated impairment losses Movements in carrying amount: in thousands of dollars Opening balance Transfer from asset held for sale Current year expenditure capitalised Impairment R&D refund offset l y n o e s u l a n o s r e p r o F 2016 2015 21,456 23,579 10,459 2,650 1,560 36,125 7,932 2,445 840 34,796 2016 56,021 (19,896) 36,125 2016 34,796 - 3,658 (2,329) - 36,125 2015 52,363 (17,567) 34,796 2015 38,155 - 4,758 (8,117) - 34,796 During 2016, as a result of the impairment testing process at 30 June 2016, the Group recognised an impairment loss of $2,329,000 with respect to relinquishment of tenements exploration licenses. The impairment loss was recognised in ’exploration impairment’ on the Consolidated Statement of Profit or Loss and other comprehensive Income. Management has re-assessed the carrying value of the Duchess Paradise exploration and evaluation asset using a fair value calculation. The calculation supports the carrying value of the Duchess Paradise exploration and evaluation asset however changes in certain key assumptions, such as the coal price (US$65 per tonne), FX (AUD:USD $0.74) and the post-tax discount rate (10%) may result in an impairment of the carrying value of the asset. 56 Rey Resources Annual Report 2016 Notes to the financial statements (Continued) 12. EXPLORATION AND EVALUATION EXPENDITURE (Continued) The ultimate recoupment of balances carried forward in relation to areas of interest still in the exploration or evaluation phase is dependent on successful development and commercial exploitation, or alternatively sale of the respective areas. Tenements where tenure is not intended to be continued have been fully impaired as at 30 June 2016. l The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 22. l y n o e s u a n o s r e p r o F 13. TRADE AND OTHER PAYABLES in thousands of dollars Unsecured liabilities Trade payables Sundry payables and accrued expenses 14. EMPLOYEE BENEFITS in thousands of dollars Employee benefits Current Non-current 15. ISSUED CAPITAL in thousands of dollars value. shares held. 992,381,876 (2015: 711,750,074) fully paid ordinary shares The Company does not have a limited amount of authorised capital and issued shares do not have a par Ordinary shares participate in the proceeds on winding up of the parent entity in proportion to the numbers of 2016 2015 - 201 201 2 127 129 2016 2015 158 - 158 184 45 229 2016 2015 85,683 85,683 81,072 81,072 Rey Resources Annual Report 2016 57 Notes to the financial statements (Continued) 15. ISSUED CAPITAL (Continued) Movements in shares on issue On issue at beginning of the year 30 June 20141 19 August 20141 9 September 20141 28 November 20142 27 January 20153 Share buy back (01/07/14-30/06/15) Transaction costs relating to share issues Shares issued during the year: 12 February 20164 7 April 20165 29 April 20165 Share buy back (01/07/15-30/06/16)6 Transaction costs relating to share issues On issue at the end of the year 2016 Number 711,750,074 $’000 81,072 - - - - - - - 33,333,333 229,497,045 18,598,424 (797,000) - - - - - - - - 1,000 3,442 279 (69) (41) 2015 Number 630,202,151 10,000,000 15,000,000 4,854,368 3,500,000 50,000,000 (1,806,445) - - - - - - $’000 75,565 - 1,500 500 - 4,000 (188) (305) - - - - - 992,381,876 85,683 711,750,074 81,072 1. On 30 June 2014 the Company announced that it was undertaking a capital raising of up to $3 million (before costs) at 10 cents per share. The first tranche of shares was issued on 10 July 2014 and $1 million received before 30 June 2014; the second tranche was issued on 19 August 2014; and the final tranche of 4,854,368 shares was issued for 10.3 cents per share on 9 September 2014. 2. Issue of shares to Directors following approval at the Company’s AGM. 3. On 27 January 2015, the Company completed a private placement to raise $4 million (before costs) via the issue of a total of 50,000,000 shares at an issue price of 8 cents per share to two Hong Kong-registered sophisticated investors. 4. On 12 February 2016, the Company completed a private placement to raise $1 million (before costs) via the issue of a total of 33,333,333 shares at an issue price of 3 cents per share to a sophisticated investor. 5. On 26 February 2016, the Company announced a non-renounceable pro-rata one for three rights issue at an offer price of $0.015 per share. A total of 229,497,045 new shares were subscribed and issued on 7 April 2016 under the entitlement offer. The remaining shortfall of 18,598,424 shares were issued on 29 April 2016. 6. During the year, a total of 797,000 shares were bought back at a cost of $69,466 and cancelled under the previous buyback scheme which expired on 17 December 2015. On 10 May 2016, the Company announced the implementation of a new buyback scheme for 12 months from 25 May 2016. No shares have been acquired and cancelled under the new buyback scheme to the date of this Report. Options and share performance rights For information relating to the Rey Resources Limited employee option plan and share performance rights plan, including numbers granted, exercised and lapsed during the financial year and the numbers outstanding at year-end, refer to note 20. l y n o e s u l a n o s r e p r o F 58 Rey Resources Annual Report 2016 l y n o e s u a n o s r e p r o F Notes to the financial statements (Continued) 16. RESERVES Share based payments reserve The share based payments reserve records the fair values recognised in accounting for employee share options and share rights awarded as share-based payments. During the year to June 2016 the share based payment reserve increased $38,000 due to the expensing of share performance rights granted to Mr Kevin Wilson. Available for sale reserve The available for sale reserve records movements in the fair value of the Company’s investment in Norwest Energy NL. The closing price of Norwest shares as at 30 June 2016 was $0.002 per share and as a result an impairment of $144,000 was made for the financial year ended 30 June 2016. The diminution in share price was considered permanent and as such the change in fair value recorded in reserves was reclassified to the l income statement. 17. COMMITMENTS (a) Operating lease commitments Non-cancellable operating lease rentals are payable as follows: in thousands of dollars Not later than one year1 Later than one year but not later than five years 1. 1121 Hay Street West Perth office lease expired in February 2016. (b) Exploration expenditure commitments 2016 2015 - - - 86 - 86 The commitments are required in order to maintain the Company’s interests in good standing with the Department of Mines & Petroleum (DMP). It includes commitment for both mineral exploration tenements and also the Company’s share in petroleum exploration permits in which it has joint venture interests. These obligations may be varied from time to time, subject to approval by the DMP. In thousands of dollars Year 1 Year 2-5 Total Mineral 250 - 250 Petroleum 4,167 5,883 10,050 Total 4,417 5,883 10,300 Rey Resources Annual Report 2016 59 l y n o e s u a n o s r e p r o F Notes to the financial statements (Continued) 18. Group entities Consolidated subsidiaries Blackfin Pty Limited Rey Cattamarra Pty Limited Rey Derby Pty Limited Rey Derby Block Pty Limited Rey Royalty Chile Pty Ltd Rey Mt Fenton Pty Limited Rey Freney Pty Limited Rey Derby Port Operations Pty Limited Rey Victory Pty Limited l Camballin Energy Pty Limited Rey Oil and Gas Pty Limited Rey Oil and Gas Perth Pty Limited Rey Lennard Shelf Pty Limited Humitos Pty Ltd 19. JOINT OPERATION INTERESTS Country of incorporation Ownership Interest Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 2016 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2015 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Joint venture agreements have been entered into with third parties. Details of joint venture agreements are disclosed below. These are accounted for as joint operations. Assets employed by these joint ventures and the Group’s expenditure in respect of them is brought to account initially as capitalised exploration expenditure (refer note 12) and disclosed distinctly from capitalised exploration costs incurred on the Group’s 100% owned projects. Rey/Buru/Mitsubishi Joint Venture On 18 March 2013, the Company entered into an agreement with Buru Energy Limited and Mitsubishi Corporation pursuant to which the Company acquired an additional 15% interest in exploration permits EP457 and EP458 in the Canning Basin, Western Australia. The interest in the two exploration permits, known as “The Fitzroy Blocks”, are: Buru Energy Limited 37.5% (operator) Mitsubishi Corporation 37.5% Rey Resources Limited 25% (of which a 10% interest is free carried to production). The total amount of the Group’s capitalised exploration and evaluation expenditure capitalised and employed under this joint venture agreement at the reporting date is $10,458,786 (2015: $7,931,895) (note 12) 60 Rey Resources Annual Report 2016 Notes to the financial statements (Continued) 19. JOINT OPERATION INTERESTS (Continued) Rey/Key/Caracal Joint Venture l y n o e s u a n o s r e p r o F On 29 May 2014, Rey Oil and Gas Perth Ltd (a wholly owned subsidrary company of the Company) entered into an agreement with Key Petroleum (Australia) Pty Ltd and Caracal Exploration Pty Ltd to farm in to Exploration Permit EP437 in the North Perth Basin, Western Australia. Following the completion of the farm in the beneficial interests in EP437 are as follows: Key Petroleum Limited (Key Petroleum (Australia) Pty Ltd) (Operator) Rey Oil and Gas Perth Pty Ltd Caracal Exploration Pty Ltd 43.47% 43.47% 13.06% The total amount of the Group’s capitalised exploration and evaluation expenditure capitalised and l employed in this farm in agreement at the reporting date is $2,649,463 (2015:$ 2,445,281) (note 12). Rey/Oil Basins Joint Venture On 29 May 2015, Rey Lennard Shelf Pty Ltd (“RLS” a wholly owned subsidiary of the Company) completed the acquisition of a 50% participating interest in petroleum exploration permit EP487 (“the Derby Block”) from Backreef Oil Pty Ltd. RLS entered into a Joint Operating agreement with Oil Basins Ltd (holder of the remaining 50% interest), for the operation of exploration programmes on the Derby Block, located in the Canning Basin of Western Australia. The equity interests in the exploration permit are: RLS Oil Basins Ltd 50% (assuming operatorship on 1 January 2016 under certain preconditions) 50% (acting as operator until at least 1 January 2016) Following a hearing in the Supreme Court of western Australia, Oil Basins transferred operatorship to RLS on 2 June 2016. The total amount of the Group’s capitalised interest in EP487 is $1,560,229 (2015: 839,559) (note 12) Rey Resources Annual Report 2016 61 Notes to the financial statements (Continued) 20. SHARE BASED PAYMENTS (a) Description of the share-based payment arrangements The Group has the following share-based payment arrangements: Share option programme (equity-settled) On 2 June 2006, the Group established a share option programme that entitles key management personnel (KMP) to purchase shares in the Company. The plan is subject to ASX Listing Rules. In accordance with these programmes, options are exercisable at the market price of the share at the date of the grant. No options remain outstanding at 30th June 2016. Share performance rights programme (equity-settled) l Executives are eligible to participate in the 2011 Executive Incentive Rights Plan (“2011 EIRP”), which replaced an earlier 2010 EIRP and was approved at the 2011 Annual General Meeting. The 2011 EIRP aligns the reward of the participants with the long term creation of shareholder value as outlined below. The 2011 EIRP enables participants to be granted rights to acquire shares subject to the satisfaction of certain conditions. Subject to adjustments for any bonus issues of shares and capital reorganisations, one share will be issued on the exercise of each right which vests or becomes exercisable. No amount is payable by employees in respect of the grant or exercise of rights. The 2011 EIRP, issued in November 2012, relates to the period 1 July 2011 to 30 June 2014 with provision for a one year retest; and for share rights issued in November 2012 for the period 1 July 2012 to 30 June 2015 with provision for a one year retest. At the end of the measurement periods (either first or second), the following vesting scale will be applied to the share rights given to executive Directors. This will be based on the compound annual growth rate over the relevant period. The retest of provision only applies if none of the share rights for Directors vest at the end of the First Test Period. l y n o e s u a n o s r e p r o F 62 Rey Resources Annual Report 2016 l y n o e s u a n o s r e p r o F Notes to the financial statements (Continued) 20. SHARE BASED PAYMENTS (Continued) (a) Description of the share-based payment arrangements (Continued) Vesting Scale: Performance Level Threshold & Target & 10% & <15% 15% >15% & <20% ≥20% Vesting % - 25% Pro rata based on the % achieved 50% Pro rata based on the % achieved 100% l In relation to the share rights granted to the executive KMP, the Board has determined the service and/ or performance conditions that need to be satisfied for incentive rights to vest along with the relationship between the various potential levels of performance and levels of vesting that may occur. Performance conditions will be determined by the Board for each tranche of each offer and may vary between offers. Following the end of the measurement period, the Board will determine for each tranche of incentive rights to which the measurement period applies, the extent to which they vest. If the incentive rights in a tranche have not vested and there is no opportunity for those incentive rights to vest at a later date, they lapse. (b) Share-option programme Terms and conditions of share-option programme No options were outstanding at the beginning of the year ended 30 June 2016. (c) Share rights programme Terms and conditions of share rights programme The terms and conditions relating to the grants of the share rights are as follows: Grant date / employees entitled Rights grant to Director in 22 November 2012 Number of instruments Vesting conditions 2,426,667 Subject to the Company's absolute total shareholder return over the measurement period 1 July 2012 to 30 June 2015. Subject to retest on 30 June 2016. Contractual life of rights 4 years Rights grant to Director in 28 November 2014 1,000,000 Subject to the Company's absolute total shareholder return over the measurement period 1 July 2014 to 30 June 2017. 3 years Total 3,426,667 Rey Resources Annual Report 2016 63 Notes to the financial statements (Continued) 20. SHARE BASED PAYMENTS (Continued) (c) Share rights programme (Continued) l y n o a n o s r e p r o F The number and weighted average exercise prices of share performance rights are as follows: e s u Outstanding at 1 July Granted during the year Vested during the year Lapsed during the year Outstanding at 30 June Weighted average exercise price ($) 2016 - - - - - Number 2016 3,426,667 - - - 3,426,667 Weighted average exercise price ($) 2015 - - - - - Number 2015 4,911,961 1,000,000 - (2,485,294) 3,426,667 Inputs for measurement of grant date fair values l The grant date fair value of the rights granted, the vesting conditions of which were subject to the Company's absolute total shareholder return over the measurement period, was measured based on Monte Carlo simulation model. The grant date fair value of other share-based payments was measured based on the fair value of the shares on the grant date and for options issued fair value was measured based on the Black- Scholes valuation model. The inputs used in the measurement of the fair values at grant date of the share- based payment plans, which were subject to the vesting conditions relating to the Company's absolute total shareholder return are the following: Valuation of Director and Executive Performance Rights Grant Date Start of measurement period End of first DPR measurement period End of second DPR measurement period 30 June 2018 30 June 2016 Spot price at start of measurement period ($) 28 November 2014 22 November 2012 Tranche A Tranche B 1 July 2014 1 July 2012 1 July 2011 30 June 2017 30 June 2015 30 June 2014 $0.105 $0.09 90.0 2.4 Nil 2.59 $0.22 $0.06 90.0 2.63 Nil 1.57 30 June 2015, retest 30 June 2016 $0.08 $0.06 90.0 2.63 Nil 2.57 0.057 0.033 0.043 Share price at grant date Volatility of share (%) Risk fee rate (4.0 years) (%) Dividend yield Expected life (years) Director performance rights (DPR) Fair Value at Grant Date ($/DPR) 64 Rey Resources Annual Report 2016 Notes to the financial statements (Continued) 21. RELATED PARTIES (a) Parent entity The ultimate parent entity within the Group is Rey Resources Limited. (b) Subsidiaries Interests in subsidiaries are set out in note 18. (c) KMP compensation Disclosures relating to compensation of the KMP compensation comprised: Individual Directors and executives compensation disclosures in thousands of dollars Short term benefits l Post-employment benefits Other long term employee benefits Share based payments Termination benefits 2016 699 45 49 38 221 1,052 2015 938 58 13 377 - 1,386 Information regarding individual Directors and executives compensation and some equity instruments disclosures as required by Corporations Regulations 2M.3.03, is provided in the Remuneration Report section of the Directors’ report. Apart from the details disclosed in this note, no Director has entered into a material contract with the Company or the Group since the end of the previous financial year and there were no material contracts involving Directors’ interests existing at year-end. Loans to KMP and their related parties There were no loans given to KMP and their related parties. (d) Transactions with related parties In thousands of dollars ASF Group Ltd Service fees Loan granted and fully repaid during the year (inclusive of interest) l y n o e s u a n o s r e p r o F 2016 45 2,587 2015 - - Rey Resources Annual Report 2016 65 l y n o e s u l a n o s r e p r o F Notes to the financial statements (Continued) 22. FINANCIAL RISK MANAGEMENT Categories of financial instruments The Group’s financial instruments consist mainly of deposits with banks and accounts receivable, payable and share investment. The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies to these financial statements, are as follows: in thousands of dollars Financial assets Share investment Financial assets measured at fair value Financial assets not measured at fair value Cash and cash equivalents Trade and other receivables Total Financial liabilities Financial assets not measured at fair value Trade and other payables Total 2016 2015 106 1,157 28 1,291 201 201 250 1,652 58 1,960 129 129 In support of a strategic alliance, Rey subscribed for $250,000 of Norwest Energy NL (Norwest) shares at a price of $0.004712 per share on 5 June 2015, resulting in approximately 3.68% of total Norwest shares on issue. The closing price of Norwest shares as at 30 June 2016 was $0.002 per share and as a result a provision for impairment of $144,000 was made for the financial year ended 30 June 2016. Trade and other receivables: analysis of age of financial asset The aging of trade and other receivables at the reporting date that were not impaired was as follows: Neither past due nor impaired Financial risk management framework 2016 28 2015 58 The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Group does not use any form of derivatives for speculative purposes. The Group is not at a level of exposure that requires the use of derivatives to hedge its exposure. The main risks the Group is exposed to through its financial instruments are liquidity risk and market risk which includes interest rate risk. 66 Rey Resources Annual Report 2016 l y n o e s u a n o s r e p r o F Notes to the financial statements (Continued) 22. FINANCIAL RISK MANAGEMENT (Continued) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s cash and cash equivalents, and trade and other receivables. The carrying amount of financial assets represents the maximum credit exposure. The Group limits its exposure to credit risk in respect of cash and cash equivalents and other deposits with banks by only dealing with reputable banks with high credit ratings. In respect of trade and other receivables, the Group has no significant concentration of credit risk with respect to any single counter party or group of counter parties. The Group is not exposed to any significant credit risk l as there were no trading operations during the year. At 30 June 2016 and 30 June 2015, there was no allowance for doubtful debts and there were no receivables past due but not impaired. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s 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 Group’s reputation. The Group manages liquidity risk by maintaining adequate cash reserves from funds raised in the market, by continuously monitoring forecast and actual cash flows and ensuring that adequate uncommitted funding is available and maintained. The following are the expected maturities of financial assets and the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: 2016 in thousands of dollars Carrying amount Expected / contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years More than 5 years Financial liabilities Trade and other payables Loans and borrowings 201 - 201 201 - 201 201 - 201 - - - - - - - - - - - - Rey Resources Annual Report 2016 67 Notes to the financial statements (Continued) 22. FINANCIAL RISK MANAGEMENT (Continued) Carrying amount Expected / contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years More than 5 years 129 - 129 129 - 129 129 - 129 - - - - - - - - - - - - The Group is not exposed to currency risk at the reporting date because the Group holds no financial assets or liabilities denominated in foreign currency. The Group is exposed to interest rate risk (primarily on its cash and cash equivalents), which is the risk that a financial instrument’s fair value or future cash flows will fluctuate as a result of changes in market interest rates on interest-bearing financial instruments. At the reporting date, the Group had the following mix of financial assets exposed to interest rate risk. There were no financial liabilities exposed to interest rate risk. 2015 in thousands of dollars Financial liabilities Trade and other payables Loans and borrowings Currency risk Interest rate risk l l y n o e s u a n o s r e p r o F in thousands of dollars Variable rate instruments Cash and cash equivalents Security deposits or loss by $7,164 (2015: $23,850). Fair values Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased or decreased profit The carrying amounts of financial assets and financial liabilities approximate fair value. 2016 1,157 - 1,157 2015 1,652 - 1,652 68 Rey Resources Annual Report 2016 Notes to the financial statements (Continued) 23. OPERATING SEGMENTS The Group operates in two segments, mineral exploration and development and petroleum exploration in one geographical location, Western Australia. The consolidated financial results from these segments are equivalent to the financial statements of the Group. Operating segment information Consolidated-2016 Revenue Total Reportable segment revenue Other income impairment of assets interest revenue Finance costs l Administration cost Profit/(loss) before income tax benefit income tax benefit Loss after income tax benefit Assets Other Assets Segment assets Total assets Liability Other liabilities Total Liabilities Capital Expenditure l y n o e s u a n o s r e p r o F Mineral Petroleum Corporate $'000 $'000 $'000 Total $'000 - 7 (2,473) 9 (83) (1,458) (3,998) - - - (144) 9 (83) (1,458) (1,676) - (1,676) (3,998) 1,325 - 1,325 359 359 1,325 36,125 37,450 359 359 - 7 (2,329) - - - (2,322) - (2,322) - 21,456 21,456 - - - - - - - - - 14,669 14,669 - - - - 207 3,452 - 3,659 Rey Resources Annual Report 2016 69 Notes to the financial statements (Continued) 24. SUBSEQUENT EVENTS Mr Wei Jin was appointed Managing Director of the Company on 1 July 2016. Mr Jin has been a Director of Rey Resources since 2 December 2013. He holds a PhD in Science from the China University of Geosciences. He has over 22 years’ professional experience covering exploration, mineral industry construction and operation, as well as mineral resources products international trading activities in Australia, China, Russia and 3,426,667 share performance rights held by Mr Wilson vested and were converted to an equivalent number of ordinary shares of the Company on 1 July 2016 in accordance with the Company’s share incentive scheme and as part of Mr Wilson’s terminiation payment. Dr Zhiliang Ou was appointed as an independent Non-Executive Director of the Company on 22 September 2016 2015 13,317 56,690 70,007 57,538 - 57,538 The auditors of the Company did not provide any other services to the Company during the years ended 30 June 2016 and 30 June 2015. l y n o e s u l a n o s r e p Mongolia. 2016. in dollars Audit services 25. AUDITORS REMUNERATION Auditors of the Company KPMG Australia: Audit and review of financial reports -2015 -2016 r o F 70 Rey Resources Annual Report 2016 Notes to the financial statements (Continued) 26. PARENT ENTITY DISCLOSURES As at, and throughout, the financial year ended 30 June 2016 the parent entity of the Group was Rey l y n o Resources Limited. in thousands of dollars A. Result of parent entity e s u B. Loss for the year Total comprehensive loss for the year Financial position of the parent entity Total current assets Total non-current assets Total assets l Total current liabilities Total non-current liabilities Total liabilities Net assets Total equity of the parent entity comprising of: Share capital Options reserve Accumulated losses Total equity C. Parent entity contingencies There are no contingent liabilities of the parent entity. D. Parent entity capital commitments plant or equipment. a n o s r e p r o F At balance date the parent entity has not entered into any material contractual agreements for the acquisition of property, E. Parent entity guarantees in respect of the debts of its subsidiaries There are no guarantees entered into by the parent entity. 2016 2015 (26,673) (26,673) (2,071) (2,071) 1,194 34,477 35,671 202 158 360 1,719 55,968 57,687 121 229 350 35,311 57,337 85,683 2,238 (52,610) 35,311 81,072 2,200 (25,935) 57,337 Rey Resources Annual Report 2016 71 DIRECTORS’ DECLARATION The Board of Directors of Rey Resources 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 financial position as at 30 June 2016 and performance of the consolidated entity 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 Directors draw attention to note 2(a) of the consolidated financial statements, which includes a statement of compliance with the International Financial Reporting Standards. (c) The remuneration disclosures that are contained in the Remuneration Report in the Directors’ Report comply with Australian Accounting Standard AASB 124 Related Party Disclosures, the Corporations Act 2001 and the Corporations Regulations 2001. (d) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. The Board of Directors has received the declaration by the Managing Director and Financial Controller required by Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2016. Signed in accordance with a resolution of the Directors. l y n o e s u l a n o s r e p r o F Min Yang Non-Executive Chairman Sydney, Australia 23 September 2016 72 Rey Resources Annual Report 2016 l y n o e s u l a n o s r e p r o F INDEPENDENT AUDIT REPORT – KPMG ABCD Independent auditor’s report to the members of Rey Resources Limited Report on the financial report We have audited the accompanying financial report of Rey Resources Limited (the Company), which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 26 comprising a summary of significant accounting policies and other explanatory information, and the Directors’ Declaration of the Group comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001, and for such internal control as the Directors determine is necessary to enable the preparation of a financial report that is free from material misstatement, whether due to fraud or error. In Note 2(a), the Directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report. We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position and of its performance. We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Rey Resources Annual Report 2016 73 60 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative Liability limited by a scheme approved under (“KPMG International”), a Swiss entity. Professional Standards Legislation l y n o e s u l a n o s r e p r o F Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To: the directors of Rey Resources Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2016 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. KPM_INI_01 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Daniel Camilleri Partner Sydney 23 September 2016 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative Liability limited by a scheme approved under (“KPMG International”), a Swiss entity. Profession Standards Legislation. 74 Rey Resources Annual Report 2016 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Profession Standards Legislation. 23 l y n o e s u ASX ADDITIONAL INFORMATION Additional Shareholder Information Additional information required by the Australian Securities Exchange Listing Rules and not disclosed elsewhere in this Annual Report is set out below. The information was current as at 14 September 2016. Corporate Governance Statement ASX Listing Rule 4.10.3 requires ASX listed companies to report on the extent to which they have followed the Corporate Governance Principles and Recommendations (“ASX Principles”) released by the ASX Corporate Governance Council. The ASX Principles require the Board to consider the development and adoption of appropriate corporate governance policies and practices founded on the ASX Principles. For the 2016 financial year, the Company followed and reports against the 3rd Edition of the ASX Principles. The Company’s 2016 Corporate Governance Statement is available from the Company’s website at http://reyresources.com/ l corporate/corporate-governance/ a n o s r e p r o F Rey Resources Annual Report 2016 75 Top 20 Shareholders The 20 largest shareholders of the Company are listed below: Name 1 2 3 4 5 6 7 8 9 ASF CANNING BASIN ENERGY PTY LTD MISS WANYAN LIU MERCHANT CENTRAL LIMITED MRS YINXIN HE MISS MEI CHI JOYCE LEE START LINK INVESTMENTS LIMITED JADE SILVER INVESTMENTS LIMITED START GRAND GLOBAL LIMITED XIAO HUI ENTERPRISES LIMITED 10 UNIQUE INVESTMENT HOLDINGS PTY LTD 11 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 12 MR HAITAO GENG 13 14 15 TONG HENG HOLDINGS LIMITED JADE SILVER INVESTMENTS LTD ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD 16 BNP PARIBAS NOMS PTY LTD 17 18 19 FOREVER GRAND GROUP LIMITED NEWAY ENERGY INTERNATIONAL LIMITED BROWNSTONE INTERNATIONAL PTY LTD 20 MEGA AHEAD LIMITED TOTAL TOP 20 SHAREHOLDERS Number of Percentage Shares Held % 173,333,333 170,344,000 125,571,429 66,686,424 60,462,765 54,798,067 46,760,280 40,103,583 34,797,020 21,703,912 18,406,385 15,000,000 9,230,628 7,400,000 7,211,426 6,664,548 5,754,185 5,586,233 5,000,000 4,951,626 17.40 17.10 12.61 6.69 6.07 5.50 4.69 4.03 3.49 2.18 1.85 1.50 0.93 0.74 0.72 0.67 0.58 0.56 0.50 0.50 879,765,844 88.35% l y n o e s u l a n o s r e p r o F 76 Rey Resources Annual Report 2016 An extract of the Company’s register of substantial shareholders (being those shareholders who held 5% or more of the issued capital on 14 September 2016 and who have provided substantial shareholding notices to Number of shares Percentage held 125,571,429 66,686,424 170,344,300 64,160,280 54,798,067 60,462,765 173,333,333 40,103,583 12.90 6.72 17.49 5.56 5.62 6.20 17.60 5.62 There were 1,250 holders of less than a marketable parcel of ordinary shares (being 31,250 shares on The number of shareholders by size of holding is set out below: Substantial Shareholders the Company) is set out below: Shareholder Merchant Central Limited1 Mrs Yinxin He2 Wanyan Liu3 Jade Silver Investments Limited4 Start Link Investments Limited5 Miss Mei Chi Joyce Lee6 ASF Canning Basin Energy Pty Ltd7 Start Grand Global Limited8 1. As provided to the Company on 21 June 2016. 2. As provided to the Company on 2 May 2016. 3. As provided to the Company on 14 April 2016. 4. As provided to the Company on 12 April 2016. 5. As provided to the Company on 11 April 2016. 6. As provided to the Company on 11 April 2016. 7. As provided to the Company on 7 April 2016. 8. As provided to the Company on 29 January 2015. Distribution of Equity Securities 14 September 2016). Fully Paid Ordinary Shares Size of Holding 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over TOTALS l y n o e s u l a n o s r e p r o F Number of holders Number of shares 332 282 221 728 206 1,769 77,039 876,180 1,797,674 26,628,694 966,428,956 995,808,543 Rey Resources Annual Report 2016 77 For all ordinary shares, voting rights are on a show of hands whereby every member present in person or by proxy shall have one vote and upon a poll, each share shall have one vote. On 23 May 2016, Rey Resources announced an on market share buy-back of up to 10% of its issued share capital on market over a 12 month period. As at the date of this Annual Report, Rey Resources had not bought back any shares pursuant to the share buy-back. Rey Resources is listed on the Australian Securities Exchange (ASX code: REY). Voting Rights Ordinary Shares On-market Share Buy-back Securities Exchange Tel: +61 8 9322 1587 Fax: +61 8 9322 5230 www.reyresources.com l y n o e s u l a n o s r e p r o F 78 Rey Resources Annual Report 2016 Tenement Schedule The tenement schedule for the Group as at the date of this report is tabulated below: Licence Type EL EL EL Licence No. Grant Date Expiry Date Holder E04/1386 21/01/2004 20/01/2017 Blackfin Pty Ltd E04/15191 20/04/2006 19/04/2017 Blackfin Pty Ltd E04/1770 4/03/2009 3/03/2019 Blackfin Pty Ltd MA M04/453 Pending L04/58 Pending Pending Pending Blackfin Pty Ltd Blackfin Pty Ltd LA EP EP EP EP EP457 EP458 EP437 EP487 24/10/2007 23/10/20161 Rey Oil and Gas Pty Ltd /Buru/DR 503,780 24/10/2007 23/10/20161 Rey Oil and Gas Pty Ltd /Buru/DR 576,022 28/11/2014 27/11/2019 Rey Oil and Gas Perth Pty Ltd 71,573 43.47% 14/03/2014 13/12/2020 Rey Lennard Shelf Pty Ltd 505,840 50% Area (Ha) 1,627 11,386 6,834 12,964 3,137 Percentage Held 100% 100% 100% 100% 100% 25% 25% R: Retention Licence RA: Retention Licence Application EL: Exploration Licence EA: Exploration Licence Application MA: Mining Lease Application LA: Miscellaneous Licence Application EP: Exploration Permit Petroleum 1: Extension applied for All licences are located in Western Australia l y n o e s u l a n o s r e p r o F Rey Resources Annual Report 2016 79 l y n o e s u l a n o s r e p r o F Suite 5 62 Ord Street West Perth WA 6005 Tel: +61 8 9322 1587 Fax: +61 8 9322 5230 www.reyresources.com

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