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Annual Report 2017

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ANNUALREPORT2017 ACN 108 003 890 CONTENTS Corporate Directory ....................................................................................................................................................... 3 Corporate Profile ............................................................................................................................................................ 4 Chairman’s Message ..................................................................................................................................................... 5 Business Performance and Outlook ............................................................................................................................. 6 Annual Mineral Resources and Ore Reserves Statement ......................................................................................... 11 Directors’ Report ........................................................................................................................................................... 15 Auditor’s Independence Declaration ......................................................................................................................... 31 Consolidated statement of profit or loss and other comprehensive income ........................................................ 32 Consolidated statement of financial position ........................................................................................................... 33 Consolidated statement of changes in equity ......................................................................................................... 34 Consolidated statement of cash flows ...................................................................................................................... 35 Notes to the consolidated financial report ............................................................................................................... 36 Directors’ Declaration ................................................................................................................................................... 67 Independent Audit Report .......................................................................................................................................... 68 ASX Additional Information ......................................................................................................................................... 73 Tenement Schedule ..................................................................................................................................................... 75 2 Rey Resources Annual Report 2017 CORPORATE DIRECTORY Directors Ms Min Yang - Non-Executive Chairman Mr Wei Jin - Managing Director (appointed Managing Director 1 July 2016) Mr Geoff Baker - Non-Executive Director Mr Dachun Zhang – Independent Non-Executive Director Dr Zhiliang Ou – Independent Non-Executive Director (appointed 22 September 2016) Mr Louis Chien - Alternate Director to Non-Executive Chairman, Ms Min Yang Company Secretary Ms Shannon Coates Registered Office Suite 5, 62 Ord Street Tel +61 (08) 9322 1587 West Perth WA 6005 Fax +61 (08) 9322 5230 Administration Office Suite 2, 3B Macquarie Street Tel +61 (02) 8259 9620 Sydney NSW 2000 Fax +61 (02) 9251 9066 Share Registry Boardroom Pty Limited Level 12, 225 George Street GPO Box 3993 Sydney NSW 2001 Sydney NSW 2000 Lawyers Corrs Chambers Westgarth 240 St Georges Terrace Perth WA 6000 Auditor KPMG International Towers Sydney 3 300 Barangaroo Avenue Sydney NSW 2000 Securities Exchange Australian Securities Exchange (ASX) ASX Code: REY Website www.reyresources.com Rey Resources Annual Report 2017 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 100% interest in (and is Operator of) EP487, the “Derby Block”. Rey also holds a 43.47% interest in the Perth Basin within EP437. Rey has participated the completed a series of exploration works for these permits, including two deep conventional oil wells in Canning Basin and one shallow oil well in the Perth Basin, more than 100km of new seismic line acquisition, 2300+km vintage seismic line reprocessing and multiple regional geology studies. Rey has planned integrated exploration activity for future Canning and Perth Basin development. Rey also holds coal tenements in the Canning Basin, some contiguous with the Fitzroy Blocks, including those hosting the Duchess Paradise Coal Project. Rey has an experienced Board and management team and is committed to continuing to develop its energy assets to deliver maximum value to its Shareholders. 4 Rey Resources Annual Report 2017 CHAIRMAN’S MESSAGE Dear fellow Shareholder, It is my pleasure to deliver Rey Resources’ Annual Report for the year ended 30 June 2017. Our key focus remains on our gas and petroleum exploration business in the Canning and Perth Basins in Western Australia. During the year ended 30 June 2017, we obtained a 100% interest and acquired operatorship in EP487. This positions Rey with significant potential in both gas exploration and farm-out capacity in a large permit. An integrated work program has been completed during the period, which will strive to further decrease the risk of drilling in the coming year with planned new 2D seismic. The Ungani Trend remains Rey’s exploration priority in the Fitzroy Block. The two drilling programs completed in 2015 provided valuable information for the future exploration strategy. Rey also worked with other Joint Venture partners on the study of drilling results during the 2017 financial year. Rey participated in the well planning for EP437 in the Perth Basin to meet the commitment requirements. Drilling of the proposed well is expected to commence shortly. The development of the Duchess Paradise coal deposit faced continued challenges during the 2017 financial year, but the recent uplift in coal prices is positive news for the potential project development. We continue to maintain Duchess Paradise in good standing to support the potential future development of the project. I would like to thank all Shareholders for their support, and welcome those who joined during the year. I also thank our new staff and management team for their work over the past year and I look forward to that continuing into the future. Min Yang Non-Executive Chairman Rey Resources Annual Report 2017 5 BUSINESS PERFORMANCE AND OUTLOOK OIL & GAS 1. Canning Basin – the Fitzroy Blocks (EP457 and EP458) 1.1 Background Equity interests in the Fitzroy Blocks (EP457 and EP458) are currently: Rey (Rey Oil & Gas Pty Ltd) 25% (including 10% free carried to production) Buru 37.5% (Operator) Diamond Resources (Fitzroy) 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 5,000 kilometre2) are located over parts of the southern flank of the Fitzroy Graben. The Fitzroy Blocks straddle three major trends: • 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 4,800 kilometre2). This extends diagonally, north-west to south-east, across the Fitzroy Blocks. The conventional dolomite reservoir oil discovery by Buru in 2011 at Ungani (located 15 kilometres north-west 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. 6 Rey Resources Annual Report 2017 1.2 Work program during the year The Joint Venture drilled two exploration wells and completed the 100 line km seismic survey program over prospects Rafael, Wright and Victory in 2015. The drilling results were analysed during FY2017. Exploration well Victory-1 was spudded on 9 September 2015 in EP457, 185 kilometres east of Broome and 85 kilometres 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. The Senagi-1 conventional exploration well was spudded on 15 October 2015 in EP458, 240 kilometres south- east of Broome and 144 kilometres south-east 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 286 metres 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. The Operator completed the final reports for Victory 1 and Senagi 1 exploration wells. Both reports and all of the associated well data were lodged with the regulator, the Department of Mines, Industry Regulation and Safety (“DMIRS”) and this completed all mandatory reporting and data submission requirements. During FY2017, the EP457 and EP458 permits were renewed for further five (5) year terms, with 50% of the combined area being relinquished, as requested by the regulator. The new terms commenced on 6 January 2017 and EP457 and EP458 now cover areas of approximately 2,517 kilometre2 and 2,920 kilometre2 respectively. The work obligation for the first permit year of the new term for both permits is the acquisition of a magneto-telluric (M-T) survey. Rey Resources Annual Report 2017 7 During FY2017, the Joint Venture also commenced planning for M-T surveys to be acquired in each of the permits to fulfil the Year 1 work program with the intention to conduct these surveys during the second half of the 2017 calendar year. Subsequent to 30 June 2017, the following relevant events occurred: • The Joint Venture parties lodged applications for suspension of the work program requirements for EP457 and EP458 with DMIRS on 28 July 2017. These applications were lodged due to the uncertainty generated by the WA Government’s introduction of a moratorium on hydraulic fracture stimulation (fracking) pending the outcome of a scientific inquiry; • On 31 July 2017, DMIRS acknowledged the receipt of the applications and advised that the applications had been placed on hold to consider all aspects of the matter. No further response from DMIRS regarding the applications had been received as at the date of this Report. • On 5 September 2017, the WA Government announced an independent scientific panel inquiry into the effects on the environment of the process of fracking coincident with the moratorium on fracking in the Kimberley (and other areas) of Western Australia. 2. Canning Basin - the Derby Block (EP487) 2.1 Background The Derby Block (EP487) is a large petroleum exploration permit of approximately 5,000 kilometre2. It occurs to the north-west 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). In June 2015, the Company’s wholly owned subsidiary Rey Lennard Shelf Pty Ltd (“RLS”) completed the acquisition of a 50% participating interest in EP487 from Backreef Oil Pty Ltd. The Company 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. In June 2016, RLS assumed Operatorship of the Derby Block and Rey reached an agreement with Oil Basins to acquire its remaining 50% participating interest. In May 2017, Rey completed the transaction with Oil Basins and a acquired the remaining 50% interest in EP487 via its wholly owned subsidiary, Rey Derby Block Pty Ltd (“RDB”). Equity interests in the Derby Block are currently: Rey (Rey Lennard Shelf Pty Ltd) Rey (Rey Derby Block Pty Ltd) 50% 50% 8 Rey Resources Annual Report 2017 2.2 Work program during the year Since assuming Operatorship of the Derby Block, the Company has reviewed the status of the work completed on the permit to date in the context of the regional setting. During FY2017, Rey completed an integrated work program to further de-risk the proposed well sites, including a Petrophysical Study, Perspectivity Study, Regional Geology Study, Well Location review and 580+km vintage seismic line reprocessing. The Heritage Survey, which is planned for the new 2D seismic acquisition in September 2017, was completed in July 2017 without heritage issues. The Butler Prospect is adjacent to the Gibb River Road, just 45 kilometres east of Derby. Seismic reprocessing and mapping conducted in early 2017 has uncovered a large undrilled seismic feature in the mid-Laurel with an estimation of multi-Tcf Potential Recoverable Resources net to EP487 (note: Butler is uncertain and not currently subject to a resources or reserves estimate). The seismic anomaly is encased in the Laurel section which is gas saturated in local wells. This unconventional section produced gas after stimulation from the Yulleroo and Asgard/Valhalla area. It is interpreted that the section at Butler contains sandstones capable of conventional commercial production without need of stimulation. 2.3 Prospective Resources 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 3D Geo in June 2017. The Company’s 100% interest in these Prospective Potential Recoverable Resources (unrisked, probabilistic estimate) of the Derby Block BCG play is provided in Table 1 below. Prospective Potential Recoverable Resources SPE PRMS (2011)3 Gas in place Recoverable Gas Recoverable Condensate Recoverable BOE Tcf1 Tcf1 MMbbl2 MMBOE4 P901 68.0 9.4 239 1,852 P501 169.6 28.4 707 5,283 P102 412.9 81.1 2,066 15,096 Table 1: Rey Resources’ 100% attributable interest in the gross Prospective Potential Recoverable Resources estimate of the Laurel BCG in EP487 (estimate prepared by 3D-GEO June 2017). 1. Tcf- trillion cubic feet. 2. MMbbl- million barrels. 3. SPE PRMS (2011) - Society of Petroleum Engineers Petroleum Resource Management System (2011). 4. MMBOE- million barrels oil equivalent. Calculated using ratio of 6.22 billion cubic feet of gas equivalent to 1 million barrels of crude oil. 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. Rey Resources Annual Report 2017 9 3. Perth Basin (EP437) 3.1 Background Rey farmed into EP437 during 2014 through funding the drilling of exploration well Dunnart-2. Equity interests in EP437 are currently: Rey (Rey Oil and Gas Perth Pty Ltd) 43.47% Key Petroleum Limited (Key Petroleum (Australia) Pty Ltd) (Operator) 43.47% Pilot Energy Limited 13.06% 3.2 Work Program during the year 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 south-east in the Perth Basin. The Petrophysical studies on surrounding wells were conducted to better define and de-risk the Wye Knot prospect. During FY2017, the well planning for proposed Wye Knot-1 was prepared by the Operator. An AFE for long lead was issued and approved by Joint Venture partners. 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 August 2016, Rey officially withdrew from the Environmental Permit application (“EPA”) process with the aim of focusing on the Mining Licence application. A mention hearing for objections to Rey’s application in the Warden’s Court is scheduled for November 2017. During the report period, two tenements of the project were expired and a one year renewal has been granted for both tenement. 10 Rey Resources Annual Report 2017 ANNUAL MINERAL RESOURCES AND ORE RESERVES STATEMENT The current Mineral Resource for the Duchess Paradise Coal Project, located in the Canning Basin, Western Australia, is shown in Table 1 below. Table 1: 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 of Mineral Resources estimates, please refer to the Company’s ASX announcement dated 28 October 2014. Material Changes and Mineral Resources and Ore Reserves Comparison The Company reviews its Mineral Resources and Ore Reserves 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 Mineral Resources and/or Ore Reserves over the course of the year, the Company is required to promptly report these changes as they occur. Rey has undertaken an annual review of its Mineral Resources for the year ended 30 June 2017, which was conducted by independent consultant ROM Resources. The historical assumptions and technical parameters underpinning the estimates were examined and found not to have materially changed the estimate for the Mineral Resources of Duchess Paradise P1-seam from the time they were first reported to ASX on 28 October 2014 (at which time the Mineral 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). As the Duchess Paradise Coal Project has not commenced active operation, no resource depletion has occurred for the review period. The review indicates that the Mineral Resource defined in the ASX announcement on 28 October 2014 remains consistent to the date of this Annual Report, with an estimated 305.8 million tonnes in place. An annual review of the Company’s Ore Reserves for the same period was commenced in August 2017. As announced to ASX on 20 September 2017, the Board subsequently resolved to engage an expert to review and update the Definitive Feasibility Study (DFS) previously reported on 6 June 2011 for the Duchess Paradise P1-seam. The DFS review will focus on updating the economic and financial model and is expected to result in an increased Ore Reserve, in comparison to the 2011 DFS. Other factors that may also require revision include transportation pathways. As the DFS review is expected to take several months, the Company has withdrawn its Ore Reserve as first reported in 2011 pending completion of the DFS review and announcement of the results and applicable new Coal Reserves. As a result, the Company is not in a position to report the outcome of its annual review of Ore Reserves in this Annual Report. Rey Resources Annual Report 2017 11 Governance Arrangements and Internal Controls The Company ensures that its quoted Mineral Resources and Ore Reserves are subject to good governance arrangements and internal controls. The Mineral Resources reported have been generated by independent external consultants who are experienced in best practice modelling and estimation methods. The consultants have also undertaken reviews of the quality and suitability of the underlying information used to generate the Mineral Resource estimation. In addition, Rey management carries out regular reviews of internal processes and external contractors that have been engaged by the Company. Competent Persons Statements Coal Resources Coal Quality 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: • “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. 12 Rey Resources Annual Report 2017 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. 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. Annual Mineral Resources and Ore Reserves Statement This Annual Mineral Resources and Ore Reserves Statement is based on and fairly represents information and supporting documentation prepared by the Competent Persons described above. The Annual Mineral Resources and Ore Reserves Statement as a whole has been consented to by Mr Mark Biggs. Mark Biggs has over 36 years of experience in base metal, industrial mineral, coal exploration and mine evaluation throughout Australia. He has worked extensively within the Bowen and Surat Basins and was resident at several Central Queensland coal mines for 22 years. He has held many roles in these mine’s Technical Services, including Senior Geologist, Chief Geologist, Coal Quality and Scheduling Superintendent and Acting Technical Services Manager. He is a Competent Person for coal as defined by the JORC Code (2012) and has extensive experience in open cut and underground exploration techniques, geophysical techniques, coal quality, geotechnical and structural modelling, mining, and scheduling. Mark is the Principal Geologist for ROM Resources, which has been operating since 2012, and a consultant to the Company. His principal qualifications are a B. App. Sci. from the Queensland University of Technology and a M. App. Sci. from the same institution. Mark is a Member of The Australasian Institute of Mining & Metallurgy and a Member of the Geological Society of Australia. Rey Resources Annual Report 2017 13 Oil and Gas 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. The oil and gas prospective resources quoted in this Annual Report has been compiled and/or assessed by Mr Keven Asquith who is a qualified petroleum reserves and resources evaluator. Mr Asquith is Director of 3D-GEO Pty Ltd and has over 30 years of geotechnical experience in the Petroleum Industry, as well as seven years of Project Management in the Government Sector. His experience includes four years at ESSO Resources Canada, 16 years at BHP Petroleum in Melbourne and the 10 years consulting at 3D-GEO. Keven has an Honours BSc in Geology and a Diploma in Project Management. He has been a member of the American Association of Petroleum Geologists for over 25 years. The Company confirms that the form and context in which the information is presented has not been materially modified and it is not aware of any new information or data that materially affects the information included in the relevant market announcements, as detailed in the body of this announcement. 14 Rey Resources Annual Report 2017 DIRECTORS’ REPORT The Directors of Rey Resources present their report together with the consolidated financial statements of the Company and its controlled entities (“the Group”) for the financial year ended 30 June 2017. 1. DIRECTORS The Directors of the Company at any time during or since the end of the financial year are: Ms Min Yang - Non-Executive Chairman Mr Wei Jin - Managing Director (appointed Managing Director 1 July 2016) Mr Geoff Baker - Non-Executive Director Mr Dachun Zhang – Independent Non-Executive Director Dr Zhiliang Ou – Independent Non-Executive Director (appointed 22 September 2016) Mr Louis Chien - Alternate Director to Non-Executive Chairman, Ms Min Yang Details of Directors’ qualifications, experience, special responsibilities and directorships of other listed companies can be found on pages 16 to 17. Rey Resources Annual Report 2017 15 2. INFORMATION ON DIRECTORS AND OFFICERS Directors Designation and Independence status Experience, expertise and qualifications Directorships of other ASX listed companies during the last three years Special responsibilities during the year Current Min Yang Appointed on 13 September 2012 Chairman Non-Executive Wei Jin Appointed Non-Executive Director on 2 December 2013. Appointed Managing Director on 1 July 2016 Geoff Baker Appointed on 13 September 2012 Managing Director Director Non-Executive 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. 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. • ASF Group Ltd • Non- (September 2005, ongoing) Executive Chairman • ActiveEX Limited • Member, (May 2012, ongoing) • Key Petroleum Limited (January 2014, ongoing) • Metaliko Resources Limited (appointed August 2014 and resigned October 2016) Audit and Risk Management Committee • Member, Audit and Risk Management Committee Qualifications – BCom, LLB, MBA • ASF Group Ltd • Member, 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. Audit and Risk Management Committee (November 2006, ongoing) • ActiveEX Limited (appointed February 2013. Resigned June 2017 and re-appointed August 2017) • Key Petroleum Limited (January 2014, ongoing) • Metaliko Resources Limited (appointed August 2014 and resigned January 2017) 16 Rey Resources Annual Report 2017 2. INFORMATION ON DIRECTORS AND OFFICERS (Continued) Directors Designation and Independence status Experience, expertise and qualifications Current Dachun Zhang Appointed on 1 July 2013 Director Non-Executive Independent Zhiliang Ou Appointed on 22 September 2016 Director Non-Executive Independent Alternate Director Louis Chien Appointed Alternate Director to Non-Executive Chairman, Ms Min Yang on 11 January 2016. 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. 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. Directorships of other ASX listed companies during the last three years Special responsibilities during the year • Chairman, Audit and Risk Management Committee • ASF Group Ltd (May 2015, ongoing) Rey Resources Annual Report 2017 17 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: Director Min Yang Wei Jin Geoff Baker Dachun Zhang Zhiliang Ou1 Louis Chien2 Meetings A 2 2 3 3 2 1 B 3 3 3 3 2 3 1. Dr Zhiliang Ou was appointed as a Director on 22 September 2016. 2. Mr Louis Chien attended one Directors’ meeting as Alternate Director to Ms Min Yang. 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 one Executive and three Non-Executive Directors, with independent Non-Executive Director Mr Dachun Zhang as Chair. The number of Audit and Risk Management Committee meetings and number of meetings attended by each of the members of the Committee during the financial year are: Director Min Yang Geoff Baker Dachun Zhang Wei Jin Louis Chien1 Meetings A 0 2 2 2 1 B 2 2 2 2 2 1. Mr Louis Chien attended one Audit and Risk Committee meeting as Alternate Director to Ms Min Yang. A - Number of meetings attended. B - Number of meetings held during the time the Director held office. 18 Rey Resources Annual Report 2017 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 Ordinary shares1 Options over ordinary shares Performance Rights 200,000 200,000 777,413 200,000 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 1. Rey’s ordinary shares were consolidated on a 5 into 1 basis on 1 December 2016. The above relevant interests are reflected on a post consolidation basis. 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. Rey Resources Annual Report 2017 19 6. REMUNERATION REPORT – AUDITED (continued) 6.1 Principles of compensation (continued) 2017 Key Management Personnel The KMP of Rey Resources during the year ended 30 June 2017 were: Non Executive Min Yang Non-Executive Chairman (appointed 13 September 2012) Geoff Baker Non-Executive Director (appointed 13 September 2012) Dachun Zhang Independent Non-Executive Director (appointed 1 July 2013) Zhiliang Ou Independent Non-Executive Director (appointed 22 September 2016) Louis Chien Alternate Director to Ms Min Yang (appointed 11 January 2016) Executive Wei Jin Managing Director (appointed Non-Executive Director 2 December 2013, appointed Managing Director 1 July 2016) Remuneration policy 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 to these roles. Four broad principles govern the remuneration strategy of the Company: 1. To set demanding levels of performance for KMP and to align their remuneration with the achievement of clearly defined targets. 2. To provide market competitive remuneration and conditions in the current market for high quality Directors and executives. 3. To align remuneration with the creation of shareholder value and the achievement of Company strategy, objectives and performance. 4. 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. 20 Rey Resources Annual Report 2017 6. REMUNERATION REPORT – AUDITED (continued) 6.1 Principles of compensation (continued) 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. 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. Short term incentive 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. 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. 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 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 2017 21 6. REMUNERATION REPORT – AUDITED (continued) 6.1 Principles of compensation (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. Rey Closing Share Price as at 30 June * Adjusted for 5 into 1 share consolidation 2017 0.20 2016 0.145* 2015 0.525* 2014 0.525* 2013 0.26* Consequences of performance on shareholder wealth Profit (loss) ($’000) Dividends declared Total shareholder return (TSR)% Non-Executive Director fees 2017 (559) 0 38% 2016 (3,998) 0 (72%) 2015 (10,200) 0 0% 2014 (3,304) 0 102% 2013 (7,678) 0 (31%) 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 in cash. An aggregate fee limit for NED fees of $400,000 was approved at the 2010 Annual General Meeting and no change is currently proposed. 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 $48,000 per annum payable to her related entity, Luxe Hill Limited; Mr Baker $60,000 per annum payable to his related entity, Gold Star Industry Ltd; Mr Zhang $25,000 per annum payable to his related entity, AMI Corporation Pty Ltd; Dr Ou $54,000 per annum plus superannuation. 22 Rey Resources Annual Report 2017 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 2016 and 30 June 2017. Short Term Benefits employment Term employee Based Post- Other Long Share Benefits benefit Payments Termination Benefits Total Cash salary/ Fees Annual Incentive Non-monetary Super LSL & AL Rights /Options Termination Payments $ $ $ $ M Yang - Non-Executive Chairman - Appointed 13 September 2012 2017 2016 48,000 68,000 - - - - - - G Baker - Non-Executive Director - Appointed 13 September 2012 2017 2016 60,000 85,000 - - - - - - D Zhang - Non-Executive Director - Appointed 1 July 2013 2017 2016 25,000 35,625 - - - - - - $ - - - - - - $ - - - - - - $ - - - - - - $ 48,000 68,000 60,000 85,000 25,000 35,625 W Jin - Managing Director - Appointed Non-Executive Director 2 December 2013, appointed Managing Director 1 July 2016 2017 2016 90,000 42,500 - - - - 8,550 - Z Ou - Non-Executive Director - Appointed 22 September 2016 2017 2016 41,954 - - - - - 3,985 - L Chien - Alternate Director - Appointed 11 January 2016 2017 2016 - - - - - - K Wilson - Managing Director – Resigned 31 May 2016 2017 2016 - 304,718 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 98,550 42,500 45,939 - - - - 28,948 49,264 38,000 108,601 529,531 I Pound - General Manager – Resigned 31 January 2016 2017 2016 TOTAL 2017 2016 - 163,333 264,954 699,176 - - - - - - - - - 15,517 12,535 44,465 - - - - - - - - 112,349 291,199 - 277,489 49,264 38,000 220,950 1,051,855 Rey Resources Annual Report 2017 23 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 No rights over ordinary shares in the Company were granted during the reporting period. Details on rights that were vested during the reporting period are as follows: Name Number of rights held during FY 2017 Vesting condition3 Grant Date Fair value per share right at grant date K Wilson 1,000,0001 2,426,6672 TSR TSR 26 Nov 2014 22 Nov 2012 $0.057 $0.043 Vest Date 1 July 20164 1 July 20164 Expiry Date 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 Number Grant Date % vested in year % forfeited/ lapsed in financial year 2016 Financial year in which grant vests Share Rights K Wilson K Wilson 1,000,0001 26.11.2014 2,426,6671 22.11.2012 100% 100% 0% 0% Vested 1 July 2016 Vested 1 July 2016 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. 6.3.5 Movements in share rights The movement during the reporting period of share rights over ordinary shares in the Company held by the KMP is detailed below. Name Held at 1 July 2016 Other Changes Held at 30 June 2017 Vested during year Share Rights K Wilson K Wilson 1,000,000 2,426,667 N/A N/A N/A N/A 1,000,0001 2,426,6671 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. 24 Rey Resources Annual Report 2017 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 Contract Term Termination by Company Termination by Executive Wei Jin Ongoing 3 months’ notice or payment in lieu. 3 months’ notice or payment in lieu. 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 2017 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: 2017 Directors Min Yang Geoff Baker Wei Jin Dachun Zhang Louis Chien Total Held at 1 July 2016 Received as compensation Received on exercise of options/rights Other changes Held at 30 June 2017 1,000,000 1,000,000 1,200,000 3,887,066 - 7,087,066 - - - - - - - - - - - - (800,000)1 (800,000)1 (1,000,000)1,2 (3,109,653)1 - 200,000 200,000 200,000 777,413 - (5,709,653) 1,377,413 1. Rey’s share capital was consolidated on a 5 into 1 basis on 1 December 2016 2. Mr Wei Jin sold 40,000 shares on market on 23 March 2017 6.7 Movements in Option holdings No KMP held or were issued options during the 2017 reporting period. 6.8 Movement in Share right holdings No KMP held or were issued share rights during the 2017 reporting period. 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 100% interest in the Derby Block EP487 and a 43.47% in petroleum exploration permit EP437. Rey Resources Annual Report 2017 25 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 25% (of which a 10% interest is free carried to production) Buru Fitzroy Pty Ltd 37.5% (Buru Energy Limited Operator) Diamond Resources (Fitzroy) Pty Ltd 37.5% (100% subsidiary of Mitsubishi Corporation) During the reporting period, the permits have been renewed for a five (5) years term but 50% of the areas had been dropped as required by the regulations. The new terms commenced on 6 January 2017. EP457 and EP458 now cover areas of approximately 2517km2 and 2920km2 respectively. The Operator completed the final reports for Victory 1 and Senagi 1 exploration well. Both reports and all associated well date have been lodged. Further, the JV has planned the magneto-telluric suvery in the permits area, which will be conducted in the second half of 2017. Derby Block (EP487) On 16 June 2017, Rey announced the completion of the transaction (“Transaction”) with Oil Basins Limited (“OBL”) to acquire its 50% interests of EP487 (“Derby Block”) via another wholly owned subsidiary, Rey Derby Block Pty Ltd, subsequent to the granting of operatorship in May 2016. Rey now holds 100% of the Derby Block. According to the agreement, Rey had a three month option to acquire Oil Basins Royalties Limited (“OBR”), wholly owned subsidiary of OBL, for up to $400,000 if the negotiated sale of OBR to a third party does not proceed within six months from the date of completion of the Transaction. Rey has been informed that the sale of OBR has completed and the option to acquire OBR has lapsed accordingly. The equity interests in the permit are : Rey Lennard Shelf Pty Ltd Rey Derby Block Pty Ltd 50% 50% The Derby Block is a large exploration licence with an area of approximately 5,000 km2. The block is considered prospective for basin centred wet gas. It occurs to the north of Rey’s existing interests in petroleum exploration licences in the Canning Basin. 26 Rey Resources Annual Report 2017 8. RESULTS FOR THE YEAR AND REVIEW OF OPERATIONS (continued) On 30 September 2016, a 12-month commitment work suspension and extension was granted by DMP. The two wells drilling condition to December 2016 has been replaced by an intergrated work, including Petrophysical study, regional geology study, 600km vintage seismic line reprocessing and new 60km seismic. The commitment drilling is deferred to December 2017. At the date of this report, the studies and reprocessing have been completed. Rey also completed the updated resources estimation and initial well location review. The potential of conventional target, Butler Perspect, has also been initially identified based on the geology studies results. Rey planned to conduct the proposed new seismic before the drillings in aim of optimal the well locations. Perth Basin (EP437) The beneficial interests in EP437 are as follows: Key Petroleum Limited (Key Petroleum (Australia) Pty Ltd) (Operator) 43.47% Rey (Rey Oil and Gas Perth Pty Ltd) Pilot Energy Limited 43.47% 13.06% During the period, an AFE for the long lead and well planning has been issued to the JV partners by the Operator. The proposed drilling is planned to be conducted in the second half of 2017. Coal 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 The Duchess Paradise Project is a proposed bituminous thermal coal project in the Canning Basin, north Western Australia. A Definitive Feasibility Study of the Project was completed in June 2011. The project covers 3 tenements. During the period, two tenements of the project have been renewed for one year until 20 January 2018 and 19 April 2018 respectively. A Mining Licence covering three tenements is under application. Next hearing will be held by the Wardens Court in November 2017 between Rey and objectors regarding the Mining Licence application. Rey has revised the particulars for the next hearing. An access deed has also been drafted for one of the objectors. Management has re-assessed the carrying value of the Duchess Paradise exploration and evaluation asset using a fair value calculation which was prepared by an independent technical specialist. The calculation supports the carrying value of the Duchess Paradise exploration and evaluation asset however changes in certain key assumptions used in valuation report, such as the coal price, foreign exchange rate and the post- tax discount rate may result in an impairment of the carrying value of the asset. Rey Resources Annual Report 2017 27 8. RESULTS FOR THE YEAR AND REVIEW OF OPERATIONS (continued) Corporate On 1 July 2016, Mr Wei Jin was appointed Managing Director of the Company. Mr Jin has been a Director of the Company since 2 December 2013. He holds a PhD in Science from the China University of Geosciences with 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. On 22 September 2016, Dr Zhilang Ou was appointed Independent Non-Executive Director of the Company. Dr Ou holds a Doctor of Philosophy degree in Civil & Resource Engineering from the University of Western Australia and has over 27 years of professional engineering and management experience in the oil and gas, mining and infrastructure industries both in Australia and China. Dr Ou 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. On 17 October 2016, the Company raised $1 million by placement of 66,666,666 fully paid ordinary shares at an issue price of $0.015 per share. As approved by shareholders at the Company’s Annual General Meeting held on 25 November 2016, the Company’s shares were consolidated on a five into one basis and the issued capital of the Company became 212,495,266 shares upon completion of the share consolidation in December 2016. As part of the ongoing capital management strategy, the Company had on 23 May 2017 announced the extension of the on-market buyback program for a further 12 months from 6 June 2017. No shares were bought back for the year ended 30 June 2017. In June 2017, the Company secured a loan of $500,000 from a substantial shareholder, Ms Wanyan Liu. The loan bears an interest rate of 12% per annum with a term of 12 months. Finance review The loss for the Group after income tax for the year ended 30 June 2017 was $559,000 (2016: $3,998,000). During the period $1,171,000 (2016: $3,658,000) in exploration expenditure was capitalised, $1,065,000 of which related to oil and gas exploration (2016: $3,451,000). 9. DIVIDENDS No dividend has been paid or declared by the Company during the financial year ended 30 June 2017 (2016: nil) and the Directors do not recommend the payment of a dividend in respect of the financial year ended 30 June 2017. 28 Rey Resources Annual Report 2017 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. 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 the financial year, 3,426,667 performance rights vested and were converted to shares. 13. OPTIONS OVER UNISSUED SHARES Options on Issue During the financial year and as at the date of this report there are no options on issue. 14. ENVIRONMENTAL DISCLOSURE The Group’s operations are subject to various laws governing the protection of the environment in areas such as protection 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. Rey Resources Annual Report 2017 29 15. INDEMNITIES AND INSURANCE (continued) 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. 16. SUBSEQUENT EVENTS No other matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. 17. PROCEEDINGS ON BEHALF OF THE COMPANY 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 Australian Securities and Investments Commission (ASIC) Class Order 2016/191. In accordance with that Class Order, amounts contained in the consolidated financial statements and Directors’ report have been rounded off to the nearest one thousand dollars, unless specially stated to be otherwise. 19. NON-AUDIT SERVICES There were no non-audit services provided by KPMG during this financial year. 20. AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration is set out on page 31 and forms part of the Directors’ report for the financial year ended 30 June 2017. Signed in accordance with a resolution of Directors. Min Yang Non-Executive Chairman Sydney, Australia 21 September 2017 30 Rey Resources Annual Report 2017 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 AUDITOR’S INDEPENDENCE DECLARATION To the Directors of Rey Resources Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Rey Resources Limited for the financial year ended 30 June 2017 there have been: no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 no contraventions of any applicable code of professional conduct in relation to the audit. i. ii. To the Directors of Rey Resources Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Rey Resources Limited for the financial year ended 30 June 2017 there have been: KPM_INI_01 PAR_SIG_01 PAR_NAM_01 i. PAR_POS_01 PAR_DAT_01 no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and PAR_CIT_01 KPMG ii. no contraventions of any applicable code of professional conduct in relation to the audit. PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPM_INI_01 PAR_SIG_01 KPMG Daniel Camilleri Partner Sydney 21 September 2017 Daniel Camilleri Partner Sydney 21 September 2017 21 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 Professional Standards Legislation. Rey Resources Annual Report 2017 31 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 Professional Standards Legislation. 21 Rey Resources Limited Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2017 in thousands of dollars Other income Impairment reversal /(loss) 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 Total comprehensive loss for the year, attributable to owners of the Company Loss per share Basic and diluted (cents per share)* * Basic and diluted loss per share for 30 June 2016 have been restated. Refer to Note 7 The notes on pages 36-66 are an integral part of these consolidated financial statement Note 30 June 30 June 2017 2016 4 5 4 6 7 145 - - (704) (559) 3 (3) - 7 (2,329) (144) (1,458) (3,924) 9 (83) (74) (559) (3,998) - - (559) - (559) (3,998) - (3,998) (0.27) (2.4) 32 Rey Resources Annual Report 2017 Rey Resources Limited Consolidated statement of financial position As at 30 June 2017 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 Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Employee benefits Loan from a shareholder 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 36-66 are an integral part of these consolidated financial statements. Note 2017 2016 8a 9 10 11 12 13 14 21d 14 15 16 590 23 13 626 12 212 37,296 37,520 38,146 111 3 500 614 - - 614 37,532 1,157 28 19 1,204 15 106 36,125 36,246 37,450 201 158 - 359 - - 359 37,091 86,683 85,683 - (49,151) 37,532 2,238 (50,830) 37,091 Rey Resources Annual Report 2017 33 Rey Resources Limited Consolidated statement of changes in equity For the year ended 30 June 2017 In thousands of dollars Balance at 30 June 2015 81,072 2,200 (46,832) 36,440 Share capital Reserves Accumulated Losses Total 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 Issue of ordinary shares Less: transaction Cost Share-based payment transactions Share buy back - - - 4,721 (41) - (69) - - - - - 38 - Balance at 30 June 2016 85,683 2,238 (50,830) Loss for the period Other comprehensive income Total comprehensive loss 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) - - - 1,000 - - - - - - - (559) - (559) - - (2,238) 2,238 (3,998) (3,998) - - (3,998) (3,998) - - - - 4,721 (41) 38 (69) 37,091 (559) - (559) 1,000 - - Balance at 30 June 2017 86,683 - (49,151) 37,532 The notes on pages 36-66 are an integral part of these consolidated financial statements. 34 Rey Resources Annual Report 2017 Rey Resources Limited Consolidated statement of cash flows For the year ended 30 June 2017 in thousands of dollars Cash flows from operating activities GST refund Miscellaneous Income Cash paid to suppliers and employees Net cash used in operating activities 8b Cash flows from investing activities Interest received Payments for property, plant and equipment Proceeds from sale of plant and equipment 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 8a The notes on pages 36-66 are an integral part of these consolidated financial statements. Note 30 June 30 June 2017 2016 7 41 (944) (896) 3 (3) - (1,171) (1,171) 1,000 - 500 - - 1,500 (567) 1,157 590 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 Rey Resources Annual Report 2017 35 Notes to the consolidated financial report For the year ended 30 June 2017 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 2017 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 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 21 September 2017. (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 2017 the Group incurred a loss of $559,000 and incurred operating and investing cash outflows of $2,067,000. As at 30 June 2017 the Group had cash of $590,000, net working capital of $12,000 and net assets of $37,532,000. The Group has prepared a cashflow forecast for the 12 months ending 30 September 2018. 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. The Directors are evaluating funding alternatives in the form of debt and equity, including discussions with existing shareholders, and with third parties for farming out certain petroleum interests. 36 Rey Resources Annual Report 2017 Notes to the consolidated financial report (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 2017 37 Notes to the consolidated financial report (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation The consolidated financial statements comprise the financial statements of Rey Resources Limited and its subsidiaries. (i) Subsidiaries 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. 38 Rey Resources Annual Report 2017 Notes to the consolidated financial report (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (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. (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 Loans and receivables 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. 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 Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. (ii) Non-derivative financial liabilities 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 cancelled or expire. 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. Rey Resources Annual Report 2017 39 Notes to the consolidated financial report (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (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. (d) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. 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. 40 Rey Resources Annual Report 2017 Notes to the consolidated financial report (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (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. 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. (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. Rey Resources Annual Report 2017 41 Notes to the consolidated financial report (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. 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. 42 Rey Resources Annual Report 2017 Notes to the consolidated financial report (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (g) Employee benefits 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 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. Rey Resources Annual Report 2017 43 Notes to the consolidated financial report (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (i) Income tax 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 recognised for: • • 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. 44 Rey Resources Annual Report 2017 Notes to the consolidated financial report (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (j) Earnings per share 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. Rey Resources Annual Report 2017 45 Notes to the consolidated financial report (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. (o) New standards and interpretations not yet adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2017. The Group’s assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below: AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace AASB 139 ‘Financial Instruments: Recognition and Measurement’. AASB 9 introduces new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely principal and interest. All other financial instrument assets are to be classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income (‘OCI’). For financial liabilities, the standard requires the portion of the change in fair value that relates to the entity’s own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance. Impairment will be measured under a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. The standard introduces additional new disclosures. The Group expects to adopt this standard from 1 July 2018 but the impact of its adoption is yet to be assessed. 46 Rey Resources Annual Report 2017 Notes to the consolidated financial report (Continued) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgments made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The Group expects to adopt this standard from 1 July 2018 but the impact of its adoption is yet to be assessed. AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 ‘Leases’ and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a ‘right-of-use’ asset will be capitalised in the statement of financial position, measured as the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a ‘right-of-use’ asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The Group will adopt this standard from 1 July 2019 but the impact of its adoption is yet to be assessed. Rey Resources Annual Report 2017 47 Notes to the consolidated financial report (Continued) 4. OTHER INCOME AND FINANCE INCOME in thousands of dollars 2017 2016 Other income Change in fair value of investment Others Finance income Interest income 5. ADMINISTRATIVE EXPENSES 106 39 145 3 3 - 7 7 9 9 in thousands of dollars 2017 2016 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 6. INCOME TAX EXPENSE in thousands of dollars Income tax recognised in profit or loss Current tax benefit Deferred tax benefit Income tax benefit 48 Rey Resources Annual Report 2017 194 144 167 3 16 112 68 704 - 150 17 - 167 140 257 578 4 23 157 299 1,458 38 491 45 4 578 2017 2016 - - - - - - - - Notes to the consolidated financial report (Continued) 6. INCOME TAX EXPENSE (continued) Reconciliation of prima facie tax on accounting loss before tax to income tax (benefit) / expense in thousands of dollars Accounting loss before tax At statutory income tax rate of 30% (2016: 30%) Non-deductible expenses Tax losses for which no deferred tax asset was recognised Income tax benefit 2017 2016 (559) (3,998) (168) (71) 239 - (1,199) (139) 1,338 - Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: in thousands of dollars 2017 2016 2017 2016 Statement of financial position Profit or loss 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 (11,189) (10,837) (4) (6) (11,193) (10,843) 11,180 13 11,193 - 10,735 108 10,843 - (352) 2 (350) 445 (95) 350 - (399) (6) (405) 396 9 405 - At 30 June 2017, the Group has tax losses arising in Australia of $76,790,474 (2016: $74,251,417) 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. The ability of the Group to utilise these tax losses will depend on whether the Group is determined to pass the Australian Tax Office rules of continuity of ownership test, or failing that, the same business test. 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 2017 49 Notes to the consolidated financial report (Continued) 7. LOSS PER SHARE in thousands of dollars 2017 2016 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) Calculation of loss per share (559) 2017 208,549,966 (0.27) (0.27) (3,998) 2016 (Restated) 166,549,861 (2.4) (2.4) During the year, Rey completed a 5 into 1 share consolidation and accordingly loss per share for the 2016 comparative period have been adjusted for such share consolidation by dividing the average weighted number of share prior to the share consolidation by 5. Upon completion of the 5 to 1 share consolidation in December 2016, the issued capital of the Company was consolidated into 212,495,266 fully paid ordinary shares. Basic loss per share is calculated as loss for the period attributable to shareholders of $559,000 (2016: $3,998,000 loss) divided by the weighted average number of ordinary shares (2017: 208,549,966; 2016 (restated): 166,549,861). The diluted loss per share for the year ended 30 June 2017 and 2016 were the same as the basic loss per share as the outstanding performance share rights had an anti-dilutive effect to the basic loss per share. 50 Rey Resources Annual Report 2017 Notes to the consolidated financial report (Continued) 8a. CASH AND CASH EQUIVALENTS in thousands of dollars Cash at bank and in hand Cash and cash equivalents 2017 2016 590 590 1,157 1,157 The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 22. 8b. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES in thousands of dollars Note 2017 2016 Cash flows from operating activities Loss for the period Adjustments for: Depreciation Impairment of capitalised exploration expenditure Change in fair value of investment Equity-settled share-based payment expense Interest income Finance costs Loss/(Profit) on disposal of fixed assets Other non-cash transactions (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 10 11 5 (559) (3,998) 3 - (106) - - - 2 (2) (662) 5 6 (90) (155) (896) 4 2,329 144 38 (9) 87 (4) 1 (1,408) 30 3 72 (71) (1,374) Rey Resources Annual Report 2017 51 Notes to the consolidated financial report (Continued) 9. TRADE AND OTHER RECEIVABLES in thousands of dollars Current Other receivables 2017 2016 23 23 28 28 10. PROPERTY, PLANT AND EQUIPMENT in thousands of dollars 2017 2016 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 Balance as at 30 June 11. INVESTMENT in thousands of dollars Investment in Norwest Energy NL at fair value as at 1 July Changes in fair value of investment 179 (167) 12 178 (163) 15 2017 2016 15 - - (3) 12 2017 106 106 212 20 2 (3) (4) 15 2016 250 (144) 106 On 5 June 2015, Rey subscribed for $250,000 of Norwest Energy NL (Norwest) shares at a price of $0.004712 per share. The closing price of Norwest shares as at 30 June 2017 was $0.004 per share. This investment is classified as a fair value through profit or loss financial asset and accordingly fair value changes are recorded in the profit and loss statement. 52 Rey Resources Annual Report 2017 Notes to the consolidated financial report (Continued) 12. EXPLORATION AND EVALUATION EXPENDITURE in thousands of dollars 2017 2016 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 21,562 10,640 2,717 2,377 37,296 21,456 10,459 2,650 1,560 36,125 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. In June 2017, Rey Derby Block Pty Ltd, a wholly owned subsidiary of the Company, has completed the acquisition of a 50% interest from Oil Basins Ltd and the Group now holds a 100% beneficial interest in EP487. in thousands of dollars At cost Accumulated impairment losses Movements in carrying amount: in thousands of dollars Opening balance Current year expenditure capitalised Impairment 2017 37,296 - 37,296 2017 36,125 1,171 - 37,296 2016 56,021 (19,896) 36,125 2016 34,796 3,658 (2,329) 36,125 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 (2017: $21,562,000; 2016: $21,456,000) using a fair value calculation and no impairment was recognised for the year ended 30 June 2017. The fair value of Duchess Paradise is sensitive to key assumptions such as discount rate (10%), coal price (USD 82 per tonne) and exchange rate (AUD 1: USD 0.79). 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 2017. Management expected to extend the right of tenure for tenements approaching expiry. Rey Resources Annual Report 2017 53 Notes to the consolidated financial report (Continued) 13. TRADE AND OTHER PAYABLES in thousands of dollars Unsecured liabilities Sundry payables and accrued expenses 2017 111 111 2016 201 201 The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 22. 14. EMPLOYEE BENEFITS in thousands of dollars Employee benefits Current Non-current 15. ISSUED CAPITAL in thousands of dollars 212,495,266 1 (2016: 992,381,876) fully paid ordinary shares 2017 2016 3 - 3 158 - 158 2017 2016 86,683 86,683 85,683 85,683 1. On 1 December 2016, shares of the Company were consolidated on a five (5) into one (1) basis. Accordingly the total number of issued shares of the Company after consolidation became 212,495,266 shares. The Company does not have a limited amount of authorised capital and issued shares do not have a par value. Ordinary shares participate in the proceeds on winding up of the parent entity in proportion to the numbers of shares held. 54 Rey Resources Annual Report 2017 Notes to the consolidated financial report (Continued) 15. ISSUED CAPITAL (Continued) Movements in shares on issue On issue at beginning of the year 992,381,876 85,683 711,750,074 Number 2017 $’000 Number Shares issued during the year: 12 February 2016 1 7 April 2016 2 29 April 2016 2 1 July 2016 3 17 Oct 2016 4 Share consolidation 5 Share buy back 6 Transaction costs relating to share issues - - - 3,426,667 66,666,666 (849,979,943) - - - - - - 1,000 - - - 33,333,333 229,497,045 18,598,424 - - - (797,000) - 2016 $’000 81,072 1,000 3,442 279 - - - (69) (41) On issue at the end of the year 212,495,266 86,683 992,381,876 85,683 1. 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 $0.03 per share to a sophisticated investor. 2. 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. 3. On 1 July 2016, 3,426,667 share performance rights held by Mr Wilson vested and were converted to fully paid ordinary shares of the Company. 4. On 17 October 2016, the Company completed a private placement to raise $1 million (before costs) via the issue of a total of 66,666,666 shares at an issue price of $0.015 per share to sophisticated investors. 5. On 1 December 2016, shares of the Company were consolidated on a five (5) into one (1) basis. Accordingly the total number of issued shares of the Company after consolidation became 212,495,266 shares. 6. During the year ended 30 June 2016, a total of 797,000 shares were bought back at a cost of $69,466 and cancelled. On 23 May 2017, the Company announced the implementation of a new buyback scheme for 12 months from 6 June 2017. No shares were acquired and cancelled for the year ended 30 June 2017. 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. Rey Resources Annual Report 2017 55 Notes to the consolidated financial report (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 ended 30 June 2017, all outstanding share performance rights were either lapsed or exercised and the share based payments reserves were reversed accordingly. 17. COMMITMENTS (a) Operating lease commitments There was no non-cancellable operating lease commitment for the Group. (b) Exploration expenditure commitments The commitments are required in order to maintain the Group’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 18. GROUP ENTITIES Mineral Petroleum 129 - 129 8,249 12,343 20,592 Total 8,378 12,343 20,721 Consolidated subsidiaries Country of incorporation Ownership Interest Blackfin Pty Limited Rey Cattamarra Pty Limited Rey Derby Pty Limited Rey Derby Block Pty Limited Rey Derby Port Operations Pty Limited Rey Royalty Chile Pty Ltd Rey Mt Fenton Pty Limited Rey Freney Pty Limited Rey Victory Pty Limited 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 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 2017 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2016 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 56 Rey Resources Annual Report 2017 Notes to the consolidated financial report (Continued) 19. JOINT OPERATION INTERESTS 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 $10,640,000 (2016: $10,458,786) (note 12). Rey/Key/Caracal Joint Venture 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) 43.47% Rey Oil and Gas Perth Pty Ltd 43.47% Caracal Exploration Pty Ltd 13.06% The total amount of the Group’s capitalised exploration and evaluation expenditure capitalised and employed in this farm in agreement at the reporting date is $2,716,333 (2016: $ 2,649,463) (note 12). Rey Resources Annual Report 2017 57 Notes to the consolidated financial report (Continued) 19. JOINT OPERATION INTERESTS (Continued) 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 (“OBL”, 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 were: RLS 50% (assuming operatorship on 1 January 2016 under certain preconditions) OBL 50% (acting as operator until at least 1 January 2016) Following a hearing in the Supreme Court of western Australia, OBL transferred operatorship to RLS on 2 June 2016. On 16 June 2017, Rey announced the completion of the transaction (“Transaction”) with OBL to acquire its 50% interests of EP487 via another wholly owned subsidiary, Rey Derby Block Pty Ltd, subsequent to the granting of operatorship in May 2016. Rey now holds 100% of the Derby Block. According to the agreement, Rey had a three month option to acquire Oil Basins Royalties Limited (“OBR”), wholly owned subsidiary of OBL, for up to $400,000 if the negotiated sale of OBR to a third party does not proceed within six months from the date of completion of the Transaction. Rey has been informed that the sale of OBR has completed and the option to acquire OBR has lapsed accordingly. The total amount of the Group’s capitalised interest in EP487 is $2,377,382 (2016: 1,560,229) (note 12). 58 Rey Resources Annual Report 2017 Notes to the consolidated financial report (Continued) 20. SHARE BASED PAYMENTS 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 30 June 2017. Share performance rights programme (equity-settled) 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. Vesting Scale: Performance Level Threshold & 10% & <15% Pro rata based on the % achieved Target >Target & 15% & <20% ≥20% 50% Pro rata based on the % achieved 100% Rey Resources Annual Report 2017 59 Notes to the consolidated financial report (Continued) 20. SHARE BASED PAYMENTS (Continued) 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. No share performance rights were outstanding at 30 June 2017. 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 Short term benefits Post-employment benefits Other long term employee benefits Share based payments Termination benefits 2017 264,954 12,535 - - - 277,489 2016 699,176 44,465 49,264 38,000 220,950 1,051,855 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. 60 Rey Resources Annual Report 2017 Notes to the consolidated financial report (Continued) 21. RELATED PARTIES (Continued) (d) Transactions with related parties ASF Group Ltd Service fees Loan granted and fully repaid during the year (inclusive of interest) Wanyan Liu Loan granted 1 2017 2016 85,000 - 45,000 2,587,000 500,000 - 1. An unsecured loan of $500,000 was granted by Wanyan Liu, a substantial shareholder of the Company, with maturity date on 27 June 2018 and interest bearing at 12% per annum. 22. FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS 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 2017 2016 Financial assets Financial assets measured at fair value Share investment 1 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 212 590 23 825 111 111 106 1,157 28 1,291 201 201 1. 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. The closing price of Norwest shares as at 30 June 2017 was $0.004 per share. 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 2017 23 2016 28 Rey Resources Annual Report 2017 61 Notes to the consolidated financial report (Continued) 22. FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Financial risk management framework 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. 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 as there were no trading operations during the year. At 30 June 2017 and 30 June 2016, 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. 62 Rey Resources Annual Report 2017 Notes to the consolidated financial report (Continued) 22. FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) 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: 2017 in thousands of dollars Financial liabilities Trade and other payables Loan from a shareholder 2016 in thousands of dollars Financial liabilities Trade and other payables Currency risk Carrying amount Expected / contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years More than 5 years 111 500 611 111 560 671 111 - 111 - 560 560 - - - - - - Carrying amount Expected / contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years More than 5 years 201 201 201 201 201 201 - - - - - - - - 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. Interest rate risk The Group is exposed to interest rate risk 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. in thousands of dollars Variable rate instruments Cash and cash equivalents 2017 2016 590 590 1,157 1,157 At the reporting date, the Group had a $500,000 term loan from a shareholder. Due to the short term nature and fixed interest rate of the loan, the Group does not expose to interest rate risk. 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 or loss by $4,429 (2016: $7,164). Rey Resources Annual Report 2017 63 Notes to the consolidated financial report (Continued) 22. FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Fair values The Group’s share investment measured at fair value at the end of the reporting period on a recurring basis and categorised into Level 1 fair value hierarchy as defined in AASB 13 Fair value measurement. The fair value of the share investment is measured using unadjusted quote price on the Australian Securities Exchange. During the year ended 30 June 2016 and 2017, there were no transfers between Level 1 and Level 2 or transfer into or out of Level 3. Except for the share investment, the carrying amounts of other financial assets and financial liabilities are assumed to approximate their fair values due to their short-term nature. 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 Mineral 2017 Mineral 2016 Petroleum 2017 Petroleum 2016 Corporate 2017 Corporate 2016 $’000 $’000 $’000 $’000 $’000 $’000 Total 2017 $’000 Total 2016 $’000 Consolidated Revenue Total Reportable segment revenue Other income Impairment reversal of assets Impairment of investment Interest revenue Finance costs Administration cost Profit/(loss) before income tax benefit - 104 - - - - - 7 (2,329) - - - 104 (2,322) income tax benefit - - Loss after income tax benefit 104 (2,322) Assets Other Assets Segment assets Total assets Liability Other liabilities Total Liabilities - - 21,562 21,456 21,562 21,456 15,734 15,734 14,669 14,669 - - - - - - - - Capital Expenditure 106 207 1,065 3,452 64 Rey Resources Annual Report 2017 - - - - - - - - - - - - - - - - - - - - - 41 - 3 (3) - - - (144) 9 (83) - 145 - - 3 (3) - 7 (2,329) (144) 9 (83) (704) (1,458) (704) (1,458) (663) (1,676) (559) (3,998) - - - - (663) (1,676) (559) (3,998) 850 - 850 614 614 - 1,325 - 1,325 359 359 850 37,296 38,146 614 614 1,325 36,125 37,450 359 359 - 1,171 3,659 Notes to the consolidated financial report (Continued) 24. SUBSEQUENT EVENTS No other matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. 25. AUDITORS REMUNERATION in dollars Audit services Auditors of the Company KPMG Australia: Audit and review of financial reports -2016 -2017 2017 2016 - 58,700 58,700 56,690 - 56,690 The auditors of the Company did not provide any other services to the Company during the years ended 30 June 2017 and 30 June 2016. Rey Resources Annual Report 2017 65 Notes to the consolidated financial report (Continued) 26. PARENT ENTITY DISCLOSURES As at, and throughout, the financial year ended 30 June 2017 the parent entity of the Group was Rey Resources Limited. in thousands of dollars A. Result of parent entity Loss for the year Total comprehensive loss for the year B. Financial position of the parent entity Total current assets Total non-current assets Total assets Total current liabilities Total non-current liabilities Total liabilities Net assets Total equity of the parent entity comprising of: Share capital Reserves Accumulated losses Total equity C. Parent entity contingencies 2017 2016 (600) (600) 614 35,705 36,319 608 - 608 (26,673) (26,673) 1,194 34,477 35,671 202 158 360 35,711 35,311 86,683 - (50,972) 35,711 85,683 2,238 (52,610) 35,311 As at 30 June 2017 and 2016, there are no contingent liabilities of the parent entity. D. Parent entity capital commitments As at 30 June 2017 and 2016, the parent entity has not entered into any material contractual agreements for the acquisition of property, plant or equipment. E. Parent entity guarantees in respect of the debts of its subsidiaries As at 30 June 2017 and 2016, there are no guarantees entered into by the parent entity. 66 Rey Resources Annual Report 2017 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 2017 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 2017. Signed in accordance with a resolution of the Directors. Min Yang Non-Executive Chairman Sydney, Australia 21 September 2017 Rey Resources Annual Report 2017 67 INDEPENDENT AUDIT REPORT – KPMG Independent Auditor’s Report To the shareholders of Rey Resources Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Rey Resources Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • • giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2017 • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended • Notes including a summary of significant accounting policies • Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. 68 Rey Resources Annual Report 2017 57 Material uncertainty related to going concern We draw attention to Note 2(b), “Going Concern” in the financial report. The conditions disclosed in Note 2(b), indicate a material uncertainty exists that may cast doubt on the Group’s ability to continue as a going concern and, therefore, whether it will realise its assets and discharge its liabilities in the normal course of business, and at the amounts stated in the financial report. Our opinion is not modified in respect of this matter. In concluding there is a material uncertainty related to going concern we evaluated the extent of uncertainty regarding events or conditions casting significant doubt in the Group’s assessment of going concern. This included: • Analysing the cash flow projections by: • Evaluating the underlying data used to generate the projections for consistency with other information tested by us, our understanding of the Group’s intentions, and past results and practices; • Assessing the planned levels of operating and capital expenditures for consistency of relationships and trends to the Group’s historical results, results since year end, and our understanding of the business, industry and economic conditions of the Group; • Assessing significant non-routine forecast cash inflows and outflows, including the impact of the loan provided by a substantial shareholder subsequent to year end, for feasibility, quantum and timing. We used our knowledge of the client, its industry and current status of those initiatives to assess the level of associated uncertainty; • Reading Directors minutes and relevant correspondence with the Group’s advisors to understand the Group’s ability to raise additional shareholder funds, and assess the level of associated uncertainty; and • Evaluating the Group’s going concern disclosures in the financial report by comparing them to our understanding of the matter, the events or conditions incorporated into the cash flow projection assessment, the Group’s plans to address those events or conditions, and accounting standard requirements. We specifically focused on the principle matters giving rise to the material uncertainty. Key Audit Matters In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matter described below to be the Key Audit Matter: • Exploration and evaluation expenditure Key Audit Matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Rey Resources Annual Report 2017 69 58 Exploration and evaluation expenditure ($37,296,000) Refer to Note 12 to the Financial Report The key audit matter How the matter was addressed in our audit Exploration and evaluation expenditure capitalised (E&E) is a key audit matter due to: • • the significance of the activity to the Group’s business and the balance (being 98% of total assets); and the greater level of audit effort to evaluate the Group’s application of the requirements of the industry specific accounting standard AASB 6 Exploration for and Evaluation of Mineral Resources, in particular the conditions allowing capitalisation of relevant expenditure and presence of impairment indicators. The presence of impairment indicators would necessitate a detailed analysis by the Group of the value of E&E. Therefore, given the criticality of this to the scope and depth of our work, we involved senior team members to challenge the Group’s determination that no such indicators existed. In assessing the conditions allowing capitalisation of relevant expenditure, we focused on: • • • the determination of the areas of interest (areas) in particular evaluating the results of the external expert engaged by the Group; documentation available regarding rights to tenure, via licensing, and compliance with relevant conditions, to maintain current rights to an area of interest and the Group’s intention and capacity to continue the relevant E&E activities; the Group’s determination of whether the E&E are expected to be recouped through successful development and exploitation of the area of interest, or alternatively, by its sale. In assessing the presence of impairment indicators, we focused on those factors that may draw into question the commercial continuation of E&E activities for areas of interest where significant capitalised E&E exists. In addition to the assessments above, Our audit procedures included: • Evaluating the Group’s accounting policy to recognise exploration and evaluation assets using the criteria in the accounting standard; • We assessed the Group’s determination of its areas of interest for consistency with the definition in the accounting standard. This involved analysing the licenses in which the Group holds an interest and the exploration programmes planned for consistency with documentation such as license related technical conditions, joint venture agreements, results of the external expert engaged by the Group, and planned work programmes; • For each area of interest, we assessed the Group’s current rights to tenure by corroborating the ownership of the relevant license to government registries and evaluating agreements in place with other parties. We also tested for compliance with conditions, such as minimum expenditure requirements, on a sample of licenses; • We tested the Group’s additions to E&E for the year by evaluating a statistical sample of recorded expenditure for consistency to underlying records, the capitalisation requirements of the Group’s accounting policy and the requirements of the accounting standard; • We evaluated Group documents, such as minutes of Board meetings, for consistency with their stated intentions for continuing E&E in certain areas. We corroborated this through interviews with key operational and finance personnel; • We analysed the Group’s determination of recoupment through successful development and exploitation of the area by evaluating the Group’s documentation of planned future activities including work programmes and project and corporate budgets for a sample of areas; 70 Rey Resources Annual Report 2017 59 and given the financial position of the Group we paid particular attention to: • • documentation available regarding rights to tenure, via licensing, and compliance with relevant conditions, to maintain current rights to an area of interest and the Group’s intention and capacity to continue the relevant E&E activities; The ability of the Group to fund the continuation of activities; • Results from latest activities regarding the existence or otherwise of economically recoverable reserves. The Group engaged an external expert to assist with these assessments. Other Information • We obtained project and corporate budgets identifying areas with existing funding and those requiring alternate funding sources. We compared this for consistency with areas with E&E, for evidence of the ability to fund continued activities. We identified those areas relying on alternate funding sources and evaluated the capacity of the Group to secure such funding; • We compared the results from the external expert engaged by the Group regarding the existence of reserves for consistency to the treatment of E&E and the requirements of the accounting standard. Other Information is financial and non-financial information in Rey Resources Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Corporate Directory and Directors’ Report. The Annual Mineral Reserves and Resources Statement is expected to be made available to us after the date of the Auditor's Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error assessing the Group’s ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Rey Resources Annual Report 2017 71 60 Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Rey Resources Limited for the year ended 30 June 2017 complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in section 6 of the Directors’ report for the year ended 30 June 2017. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Daniel Camilleri Partner Sydney 21 September 2017 72 Rey Resources Annual Report 2017 61 ASX ADDITIONAL 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 6 September 2017. 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 2017 financial year and to the date of this report, the Company followed and reports against the 3rd Edition of the ASX Principles. The Company’s 2017 Corporate Governance Statement is available from the Company’s website at http://reyresources.com/corporate/corporate-governance/ Substantial Shareholders An extract of the Company’s register of substantial shareholders (being those shareholders who held 5% or more of the issued capital of the Company and who have provided substantial shareholding notices to the Company) is set out below: Shareholder Number of shares Percentage held ASF Canning Basin Energy Pty Ltd Miss Wanyan Liu Merchant Central Limited Neway Energy International Limited Mrs Yinxin He Start Grand Global Limited Miss Mei Chi Joyce Lee Start Link Investments Limited 34,666,667 34,068,800 25,114,286 14,450,580 13,337,285 12,361,500 12,092,553 10,959,614 16.31 16.03 11.82 6.80 6.28 5.82 5.69 5.16 Rey Resources Annual Report 2017 73 Top 20 Shareholders The 20 largest shareholders of the Company are listed below: Name Number of Shares Percentage Held % 1 2 3 4 5 6 7 8 9 10 11 ASF CANNING BASIN ENERGY PTY LTD MISS WANYAN LIU MERCHANT CENTRAL LIMITED NEWAY ENERGY INTERNATIONAL LIMITED MRS YINXIN HE START GRAND GLOBAL LIMITED MISS MEI CHI JOYCE LEE START LINK INVESTMENTS LIMITED JADE SILVER INVESTMENTS LIMITED XIAO HUI ENTERPRISES LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 12 MR JIARONG HE 13 MR HAITAO GENG 14 15 16 17 18 BNP PARIBAS NOMS PTY LTD TONG HENG HOLDINGS LIMITED JADE SILVER INVESTMENTS LTD FOREVER GRAND GROUP LIMITED BROWNSTONE INTERNATIONAL PTY LTD 19 MEGA AHEAD LIMITED 20 MRS SHUNYI ZHU TOTAL TOP 20 SHAREHOLDERS Distribution of Equity Securities The number of shareholders by size of holding is set out below: Fully Paid Ordinary Shares 34,666,667 34,068,800 25,114,286 14,450,580 13,337,285 12,361,500 12,092,553 10,959,614 9,352,056 6,959,404 4,039,008 3,125,193 3,000,000 2,789,025 1,846,126 1,480,000 1,150,837 1,000,000 990,326 881,155 16.31 16.03 11.82 6.80 6.28 5.82 5.69 5.16 4.40 3.28 1.90 1.47 1.41 1.31 0.87 0.70 0.54 0.47 0.47 0.41 193,664,415 91.14 Size of Holding 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over TOTALS Number of holders Number of shares 605 494 199 238 52 1,588 185,403 1,383,129 1,525,000 6,681,224 202,720,510 212,495,266 There were 429 holders of less than a marketable parcel of ordinary shares (being 49,984 shares on 6 September 2017). 74 Rey Resources Annual Report 2017 Voting Rights 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-market Share Buy-back On 10 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. The on-market share buy-back was extended for a further 12 month period on 23 May 2017. In the 2017 financial year and to the date of this Annual Report, Rey Resources had not bought back any shares pursuant to the share buy-back. Securities Exchange Rey Resources is listed on the Australian Securities Exchange (ASX code: REY). Tenement Schedule The tenement schedule for the Group as at the date of this report is tabulated below: Licence Type Licence No. Grant Date Expiry Date Holder EL EL EL E04/1386 21/01/2004 20/01/2018 Blackfin Pty Ltd E04/1519 20/04/2006 19/04/2018 Blackfin Pty Ltd E04/1770 4/03/2009 3/03/2019 Blackfin Pty Ltd MA M04/453 Pending Pending Blackfin Pty Ltd Area (Ha) 1,627 11,386 6,834 12,964 Percentage Held 100% 100% 100% 100% 25% 25% EP EP EP EP EP EP457 24/10/2007 05/01/20221 Rey Oil and Gas Pty Ltd /Buru/DR 251,737 EP458 24/10/2007 05/01/20221 Rey Oil and Gas Pty Ltd /Buru/DR 292,050 EP437 28/11/2014 27/11/2019 Rey Oil and Gas Perth Pty Ltd 71,573 43.47% EP487 14/03/2014 13/12/2021 Rey Lennard Shelf Pty Ltd 505,840 EP487 14/03/2014 13/12/2021 Rey Derby Block Pty Ltd 505,840 50% 50% EL: Exploration Licence MA: Mining Lease Application EP: Exploration Permit Petroleum All licences are located in Western Australia Rey Resources Annual Report 2017 75 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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