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Annual Report 2019

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l y n o e s u l a n o s r e p r o F ANNUALREPORT2019 ACN 108 003 890 1 Rey Resources Annual Report 2019 CONTENTS Corporate Directory Company Profile Chairman’s Message Business Performance and Outlook Annual Reserves and Resources Statement Directors’ Report Auditor’s Independence Declaration Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial report Directors’ Declaration Independent Audit Report ASX Additional Information Tenement Schedule Page 2 3 4 5 10 15 34 35 36 37 38 39 77 78 84 87 l y n o e s u l a n o s r e p r o F 1 Rey Resources Annual Report 2019 CORPORATE DIRECTORY Managing Director Directors Ms Min Yang Non-Executive Chairman Mr Wei Jin Mr Geoff Baker Mr Dachun Zhang Dr Zhiliang Ou Mr Louis Chien Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Alternate Director to Non-Executive Chairman, Ms Min Yang Company Secretary Ms Shannon Coates Registered Office Suite 5, 62 Ord Street West Perth WA 6005 Tel +61 (08) 9322 1587 Fax +61 (08) 9322 5230 Principal Place of Business Suite 2, 3B Macquarie Street Sydney NSW 2000 Tel +61 (02) 9251 9088 Fax +61 (02) 9251 9066 Share Registry Boardroom Pty Limited Level 12, 225 George Street Sydney NSW 2000 GPO Box 3993 Sydney NSW 2001 Lawyers Corrs Chambers Westgarth Level 6, Brookfield Place Tower 2 123 St Georges Terrace Perth WA 6000 Auditor KPMG Level 38, Tower 3 International Towers Sydney 300 Barangaroo Avenue Sydney NSW 2000 Securities Exchange Australian Securities Exchange (ASX) ASX Code: REY Website www.reyresources.com l y n o e s u l a n o s r e p r o F 2 Rey Resources Annual Report 2019 COMPANY PROFILE Rey Resources Limited (“Rey Resources” or “the Company”) is an ASX-listed company (ASX: REY) focused on exploring and developing energy resources in Western Australia’s Canning Basin. Rey holds a 100% interest in (and is Operator of) EP487, the “Derby Block” and a 40% interest in two prospective Canning Basin petroleum exploration permits (EP457 and EP458) known as the “Fitzroy Blocks”. Rey also holds a 100% interest in EP104, Retention Licence R1 and Production Licence L15, together the “Lennard Shelf Blocks”. e s u Rey has participated in and completed a series of exploration works for these permits, including two deep conventional oil wells in Canning 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 Basin development. Rey also holds coal tenements in the Canning Basin, some contiguous with the Fitzroy Blocks, including those hosting the major 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. l y n o l a n o s r e p r o F 3 Rey Resources Annual Report 2019 CHAIRMAN’S MESSAGE Dear fellow Shareholder, It is my pleasure to deliver Rey Resources’ Annual Report for the year ending 30 June 2019, a year in which our key focus remained on maximising the value of our coal project and oil and gas exploration business in the Canning Basin in Western Australia. During the year ended 30 June 2019, we executed two farmout agreements with Doriemus Plc regarding EP487 and the L15 petroleum production licence, situated to the north of EP487, to potentially provide Rey an opportunity to achieve production in the short term. While the Doriemus farmin on EP487 was terminated in August 2019, Rey is in positive discussions with other significant investors to undertake the development work on EP487. The L15 farmout continues and was not affected by the above. We look forward to progressing these opportunities into 2020. During the year, the Company entered into a cooperation framework agreement with Yuanrun Investment Ltd for the sale of 100% of the shares in Blackfin Pty Ltd, which holds the Company’s Duchess Paradise Coal Project, for a total consideration of A$24 million. However, in November 2018 Yuanrun and Rey both agreed to terminate the transaction. Rey is currently discussing with other significant investors possible funding solutions for the Project. I would like to thank all Shareholders for their support and understand, and welcome those who joined during the year. I also thank our staff and management team for their work over the past year and I look forward to the next exciting year. Min Yang Non-Executive Chairman l y n o e s u l a n o s r e p r o F 4 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F 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) Buru 40% 60% (Operator) Rey holds a total 40% participating interest in the two blocks, but only has a 33.336% funding obligation until commercial production. This is due to a Funding Agreement whereby Buru Energy Ltd free carries 6.664% of Rey's 40% participating interest. The Fitzroy Blocks (comprising a combined area in excess of 5,000 kilometres2) 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. 1.2 Work program during the year An independent scientific inquiry into the hydraulic fracturing (fracking) process was completed and the report from the panel was delivered to the Western Australian Government ("Government") in September 2018. However, the Government is still 5 Rey Resources Annual Report 2019 considering the potential imposition of new and additional regulations. In light of the uncertainty of the outcome of these deliberations, applications for further 12 month suspensions to the commencement of Year 1 and 12 month extensions to the permit terms of EP 457 and EP 458 were lodged with the regulator (DMIRS) on 7 January 2019 (STP-EPS-0299 and STP-EPS-0300 respectively). These applications were approved on 16 January 2019 and the requirement to complete the acquisition of a magneto-telluric geophysical survey in each permit to fulfil the Year 1 work program obligation has therefore been deferred until March 2021. During the year, the Government continued to consider the final report from the independent scientific inquiry into the hydraulic fracturing (fracking) process. The final report was delivered to the Government on 12 September 2018 (just over one year after the inquiry panel was established on 5 September 2017) and included 91 findings and 44 recommendations. The Government announced on 8 July 2019 that it had approved an Implementation Plan (the Plan) following its consideration of the final report from the independent scientific inquiry panel. The Government also announced that a steering group made up of senior officials from key Government agencies developed the Plan and had been tasked with overseeing the implementation of the actions resulting from the Government’s policy decisions relating to the findings and recommendations of the report. The Government has also stated its intention to implement the recommendations and policy decisions by the end of 2020. During the year, a trial 2D seismic reprocessing program was completed and resulted in marked improvement in the quality of the sub-surface image. Technical work was also conducted and a number of anomalous gravity and seismic features that may be interpreted as isolated Late Devonian carbonate build-ups have been identified. These activities provide sufficient encouragement for a larger seismic reprocessing program potentially involving up to several hundred line kilometres of vintage 2D data across both EP 457 and EP 458 and this remains under consideration. The possible acquisition of a new 2D seismic survey may also be considered. 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). l y n o e s u l a n o s r e p r o F 6 Rey Resources Annual Report 2019 Equity interests in the Derby Block are currently: Rey (Rey Lennard Shelf Pty Ltd) Rey (Rey Derby Block Pty Ltd) 50% 50% l y n o e s u l a n o s r e p r o F 2.2 Work program during the year On 20 March 2018, Rey was granted a suspension and extension of the current year commitments for EP487. The one well commitment has been deferred by 12 months to the end of 2019. On 31 December 2018, Rey entered into a binding letter of intent (Agreement) with Doriemus PLC ("Doriemus") (ASX: DOR) pursuant to which Doriemus, subject to the completion of due diligence and fulfilling certain conditions precedent, agreed to farmin to EP487. On 28 March 2019, Rey announced that definitive documentation (subject to the usual Government approvals), including a binding Farmout Agreement which comprises an agreed form Joint Operating Agreement (Agreements) had been executed with Doriemus for EP487. Pursuant to the Agreements, Doriemus was to drill the commitment well on EP487 at its own cost, in an endeavour to confirm the Butler Prospect potential. Subsequently, Doriemus failed to raise sufficient funds by end of June 2019 (which was extended to 31 July 2019) to undertake the farmin work on EP487 and Rey announced that it had terminated the Agreements on 5 August 2019. On 20 May 2019, Rey sent a letter to the Government regarding the potential partial surrender of a number of blocks in EP487 and applied to vary the work programs for the remaining permit years, in consideration for the Government’s ban on fracture stimulation. On 9 August 2019, the Government suggested Rey maintain all blocks in EP487 and agreed to remove the drilling depth and core conditions for the year 2 commitment well and to provide an exemption for the 2 well drilling requirements in permit year 3. 2.3 Prospective Resources On 11 April 2019, Doriemus and Buru Energy Limited (Buru) jointly announced that an independent review of the prospective gas and liquids Resources of the Butler prospect, which straddles EP487 and EP129 (100% Buru), was undertaken by ERC Equipoise Pte Ltd who had confirmed the view that the Butler prospect has the potential to host a significant gas and liquids accumulation. (See Doriemus and Buru joint announcement, as cross released on Rey’s ASX platform on 11 April 2019, for full details.) Rey engaged 3D Geo to review the prospective Resources for EP487 as part of its annual review of Reserves and Resources, with the results detailed on page 11 of this Annual Report. 3.Lennard Shelf Blocks – EP104, R1 and L15 3.1 Background Rey holds a 100% interest in the Lennard Shelf Blocks, comprising EP104, a Retention Lease (R1) and one Production Licence (L15). The Lennard Shelf Blocks are situated to the 7 Rey Resources Annual Report 2019 north of Rey’s existing interests in the Canning Basin petroleum exploration licence, EP487 covering a total area of approximately 1,145 km2 and are considered prospective for conventional oil and tight gas. 3.2 Work Program during the year On 31 December 2018, Rey entered into a binding letter of intent with Doriemus pursuant to which Doriemus, subject to the completion of due diligence and fulfilling certain conditions precedent, agreed to farmin to Production Licence 15 (L15). On 5 March 2019, Rey announced that it had entered into definitive documentation (subject only to the usual Government approvals), including a binding Farmout Agreement which comprises an agreed form Joint Operating Agreement (Agreements) with Doriemus for L15. Pursuant to the Agreements, Doriemus is to fund A$1 million in development work on L15, in an endeavour to bring the West Kora 1 well (which is located within L15) into economic production. Subject to Doriemus funding the $1 million field development plan over the next 12 months, Doriemus will be assigned 50% of the L15 permit. On completion, and subject to obtaining government approvals, Doriemus will be appointed the Operator for L15. As requested by the Traditional Owners, Rey scheduled the heritage survey in July 2019 for the coming geochemical survey in R1 and well inspection work in L15. A draft heritage protection agreement has also been received and reviewed by Rey. On 11 July 2019, the heritage survey was completed and the final heritage clearance report was received on 24 July 2019. The well inspection and West Kora Tank Farm clean work, required by the Government, is still ongoing as at the date of this report. On 20 May 2019, Rey sent a letter to the Government regarding the potential partial surrender of several blocks in EP104 and applied to vary the work programs for the remaining permit years in consideration for the Government’s ban on fracture stimulation. On 9 August 2019, the Government suggested Rey maintain all blocks in EP104 and agreed to remove the current geochemical survey requirements and drilling requirements in permit year 3 and year 5. 3.3 Prospective Resources L15 is a production licence with production history in the West Kora oilfield. An estimation of oil Reserves and contingent oil Resources for the West Kora oilfield and Point Torment gas discovery in R1 was announced to ASX by Key Petroleum Limited (ASX:KEY) on 30 September 2015. On 9 May 2019, Doriemus announced the results of an independent Resources review for L15, which confirmed the prospectivity of L15 (See Doriemus announcement, as cross released on Rey’s ASX platform on 9 May 2019, for full details). Rey engaged 3D Geo to review the prospective Resources for L15 as part of its annual review of Reserves and Resources, with the results detailed on page 12 of this Annual Report. l y n o e s u l a n o s r e p r o F 8 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F COAL The Duchess Paradise Coal Project (“Duchess Paradise Coal Project”) is a proposed bituminous thermal coal operation in the Canning Basin, north Western Australia. A Definitive Feasibility Study (“DFS”) of the Project was completed in June 2011. On 17 July 2018, the Company entered into a cooperation framework agreement with Yuanrun Investment Ltd for the sale of 100% of the shares in Blackfin Pty Ltd, which holds the Duchess Paradise Coal Project for a total consideration of A$24 million. Rey’s Shareholders approved the transaction on 13 September 2018. On 23 November 2018, the cooperation framework agreement was terminated by Rey due to non-payment of the deposit of A$2 million. The Company continues to investigate potential opportunities for the Project to maximise shareholder value. Following an internal review of its previously reported Ore Reserves in 2017, the Company considered that a review of the DFS was warranted given that the initial DFS was undertaken six years ago. Consequently, on 20 September 2017 the Company withdrew its Ore Reserves pending the outcome of this review and decided to update the DFS. Rey has fully reviewed the proposed work program for DFS phase 2 update prepared by LDO during the June 2019 quarter and is consulting with mining services contractor for further comments. During the reporting period, Rey continued to progress an Access Deed with the only objector, Hancock Prospecting, for a Mining Licence Application. After multi rounds discussion, the Access Deed is close to being finalised. CORPORATE As at 30 June 2019, Rey had a loan facility for $3,800,000 with ASF Group Limited (ASF Loan Facility), a $500,000 outstanding loan from Wanyan Liu, a substantial shareholder in the Company (Liu Loan #1) and, as announced on 18 April 2019, a second loan from with Wanyan Liu for $3,000,000 (Liu Loan #2). The Liu Loan #2 was used to repay $2,500,000 of the ASF Loan Facility (which remains available for re-draw pursuant to the terms of the ASF Loan Facility) and to provide general working capital. As at 30 June 2019, the Company had fully drawn down the Liu Loans #1 and #2 and had $2.35 million remaining for draw down from the ASF Loan Facility. As announced on 17 July 2019, the Company entered into a third loan agreement with Wanyan Liu, pursuant to which a further loan facility of up to $3,000,000 has been provided to the Company ("Liu Loan #3"). Liu Loan #3 has and will be used to repay the balance of the ASF Loan Facility and support future working capital needs. 9 Rey Resources Annual Report 2019 ANNUAL RESERVES AND RESOURCES STATEMENT Coal Mineral Resources and Ore Reserves The current Coal 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 Mineral 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 1 Difference in Total Inferred Resources due to rounding Total 305.8 For further information on the above summary of Coal Mineral Resources estimates, please refer to the Company’s ASX announcement dated 28 October 2014. Mineral Resources and Ore Reserves Comparison The Company reviews its coal Mineral Resources and Ore Reserves at least annually in accordance with ASX Listing Rule 5.21. The date of reporting is 30 June each year to coincide with the release of the Company’s Annual Report. If there are any material changes to its coal 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 coal Mineral Resources for the year ended 30 June 2019, which was conducted by independent consultant ROM Resources. The historical factors 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). There has been no additional exploration or drilling undertaken at the Duchess Paradise Coal Project during the review period. Further, as the Duchess Paradise Coal Project has not commenced active operation, no resource depletion has occurred for the review period. The review indicated 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 total of 305.8 million tonnes in place. As announced on 20 September 2017, the Company withdrew its Ore Reserves for the Duchess Paradise P1-seam, as first reported in 2011. During the year the Company continued to progress a review with a focus on updating the economic and financial l y n o e s u l a n o s r e p r o F 10 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F model, which 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 a result, the Company is not in a position to report the outcome of its annual review of Ore Reserves in this Annual Report. Oil and Gas Resources and Reserves The Company reviews its oil and gas Reserves and Contingent Resources at least annually in accordance with ASX Listing Rule 5.39 and 5.40. The date of reporting is 30 June each year to coincide with the release of its Annual Report. If there are any material changes to its oil and gas Reserves and Contingent Resources over the course of the year, the Company is required to promptly report these changes as they occur. EP487 (Derby Block) An 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 independent consultant 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 2 below. Prospective Potential Recoverable Resources SPE PRMS (2011)3 Gas in place Recoverable Gas Recoverable Condensate Tcf1 Tcf1 MMbbl2 P901 68.0 9.4 239 Recoverable BOE MMBOE4 1,852 P501 169.6 28.4 707 5,283 P102 412.9 81.1 2,066 15,096 Table 2: 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. 11 Rey Resources Annual Report 2019 On 5 May 2019, Doriemus released an announcement to ASX regarding an independent review it had commissioned on EP487, prepared by ERCE, which was cross released to Rey’s ASX platform. Rey subsequently appointed independent consultant 3D Geo to review and compare the results of the ERCE review to the one initially undertaken by 3D Geo in 2017 (See Table 4 below). 3D GEO found the key differences to be in the Gross Rock Volumes (related to the depth to base prospective gas with 3D-GEO using 5000mss and ERCE using 4250mss) and the Net to Gross Ratios used by 3D-GEO ranging from 5 to 24% instead of 2 to 7% used by ERCE and confirmed that in their view, their estimate from 2017 remained appropriate. Accordingly, Rey will not adopt the Resources estimate provided by ERCE. L15 An estimation of Rey’s oil Reserves and contingent Resources for the West Kora Oilfield in L15 was provided by Energetica Consulting in September 2015 (refer to Key Petroleum Limited’s ASX releases dated 30 September 2015) and reviewed and released by Rey on 14 May 2018. The estimation was based on the vintage wells in the permit and relevant studies. On 5 May 2019, Doriemus released to ASX the results of its own independent review of the contingent oil Resources and Reserves of West Kora, prepared by ERCE and cross- released on Rey’s ASX platform. Rey subsequently appointed independent consultant 3D Geo to review and compare the ERCE and Energetica Consulting estimates. According to the suggestion of 3D GEO, Rey adopts the Reserves results provided by ERCE. The updated Resources of R1 and Reserves of West Kora Oilfield in L15 are listed in Table 3 and Table4 below: Table 3: Estimated Remaining Petroleum Reserves and Contingent Resources West Kora Oilfield - 30 June 2019 West Kora Oilfield Recoverable Oil Mstb1 1P 67 1C 2P 238 2C 3P 593 3C West Kora Oilfield Recoverable Contingent Resources Point Torment Gas Discovery Recoverable Contingent Resources Mstb 13.2 60.7 226.4 BCF2 2.41 4.725 8.42 1Mstb – Thousand stock tank barrels of oil. 2BCF – billion cube feet (Estimate prepared by Energetica Consulting for Point Torment Gas Resources in R1 in September 2015, refer to Key ASX releases dated on 30 September 2015. Estimate prepared by ERCE for West Kora oilfield reserves in L15 in May 2019, refer to Doriemus ASX releases dated on 9 May 2019) l y n o e s u l a n o s r e p r o F 12 Rey Resources Annual Report 2019 Oil Reserves and Contingent Resources Comparison Table 4: Comparison of West Kora Reserves and Contingent Resources between report prepared by ERCE and Energetica Consulting West Kora Oilfield Recoverable Oil Mstb1 ERCE Estimation Energetca Estimation 1P 67 1C 2P 238 2C 3P 593 3C 1P 250 1C 2P 380 2C 3P 660 3C West Kora Oilfield Recoverable Contingent Resources Mstb 13.2 60.7 226.4 60 120 260 Governance Arrangements and Internal Controls The Company ensures that its quoted Resource and Reserves are subject to good governance arrangements and internal controls. The Resources and Reserves 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 applicable estimations. 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 Resources Estimate The estimate of P1-seam Resources in the Duchess Paradise Coal Project was first reported to ASX on 28 October 2014 and reviewed in August 2019, in accordance with: • “The Australian Guidelines for the Estimation and Classification of Coal Resources ” – September 2014 Edition prepared by the Coalfields Geology Council of New South Wales and the Queensland Resources Council; and • JORC Code, 2012 Edition, and as adopted by the Australian Securities Exchange. l y n o e s u l a n o s r e p r o F The P1-seam Resources review has been prepared by Mark Biggs for and on behalf of Rey Resources Limited. 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 Managing Director and Principal Geologist of ROM Resources, which has been operating since 2012. His principal qualifications are a B. App. Sci. and M. App. 13 Rey Resources Annual Report 2019 Sci. from the Queensland University of Technology. Mark is a Member of The Australasian Institute of Mining & Metallurgy and a Member of the Geological Society of Australia. In November 2018 Mark successfully completed the AUSIMM JORC Online course. The Company confirms that the form and context in which the information is presented in this Annual Report 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. The Coal Resources section of this Annual Mineral Resources and Reserves Statement is based on and fairly represents information and supporting documentation prepared by competent persons and has been approved as a whole by Mr Biggs. Mr Biggs has consented to the inclusion in this report of the matters based on the information in the form and context in which they appear. Oil and Gas Reserves and Resources 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. The oil and gas Reserves and 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 11 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 30 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. The Oil and Gas section of this Annual Mineral Resources and Reserves Statement is based on and fairly represents information and supporting documentation prepared by competent persons and has been approved as a whole by Mr Martens. 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. l y n o e s u l a n o s r e p r o F 14 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F DIRECTORS’ REPORT The Directors of Rey Resources Limited (“Rey”, “Rey Resources” or “the Company”) present their report together with the consolidated financial statements of the Company and its controlled entities (“the Group”) for the financial year ended 30 June 2019. 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 Mr Geoff Baker Mr Dachun Zhang Dr Zhiliang Ou Mr Louis Chien Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Alternate Director to Non-Executive Chairman, Ms Min Yang Managing Director Details of Directors’ qualifications, experience, special responsibilities and directorships of other listed companies can be found on pages 15 to 19. 2.INFORMATION ON DIRECTORS AND OFFICERS Directors Current Min Yang Appointed on 13 September 2012 Designation and Independence status Chairman Non-Executive Experience, expertise and qualifications Directorships of other listed companies during the last three years Special responsibilities during the year • Non- Executive Chairman • Member, Audit and Risk Management Committee 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, Ms 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. • ASF Group Limited (September 2005, ongoing) • ActiveEX Limited (May 2012, ongoing) • Key Petroleum Limited (January 2014, ongoing) • Metaliko Resources Limited (appointed August 2014 and resigned October 2016) • BSF Enterprise PLC (appointed 5 September 2018) 15 Rey Resources Annual Report 2019 2.INFORMATION ON DIRECTORS AND OFFICERS(Continued) Directors Designation and Independence status Experience, expertise and qualifications Directorships of other listed companies during the last three years Special responsibilities during the year Current 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 Wei Jin holds PhD in Science from China University of Geosciences. He has over 20 years’ professional experience covering exploration, mineral industry construction and operation, as well as international mineral trading activities in Australia, China, Russia and Mongolia. None • Member, Audit and Risk Management Committee Director Non-Executive Qualifications – BCom, LLB, MBA For the past 35 years Geoff Baker 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, Mr Baker provides valuable assistance to international operations and in particular to the negotiation, structuring and implementation of joint venture and commercial agreements. • ASF Group Limited (November 2006, ongoing) • ActiveEX Limited • Member, Audit and Risk Management Committee (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) • BSF Enterprise PLC (appointed 5 September 2018) l y n o e s u l a n o s r e p r o F 16 Rey Resources Annual Report 2019 2.INFORMATION ON DIRECTORS AND OFFICERS(Continued) Directors Current Dachun Zhang Appointed on 1 July 2013 l y n o e s u Designation and Independence status Director Non-Executive Independent Experience, expertise and qualifications Directorships of other listed companies during the last three years Special responsibilities during the year None • Chairman, Audit and Risk Management Committee 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. l a n o s r e p r o F 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. 17 Rey Resources Annual Report 2019 2.INFORMATION ON DIRECTORS AND OFFICERS(Continued) Directors Designation and Independence status Experience, expertise and qualifications Directorships of other listed companies during the last three years Special responsibilities during the year Current Zhiliang Ou Appointed on 22 September 2016 Director Non-Executive Independent None Executive director of Haotian International Construction Investment Group since 2017. Executive director of Haotian Development Group Ltd since 2012. 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. l y n o e s u l a n o s r e p r o F 18 Rey Resources Annual Report 2019 2.INFORMATION ON DIRECTORS AND OFFICERS(Continued) Directors Current Louis Chien Appointed Alternate Director to Non- Executive Chairman, Ms Min Yang on 11 January 2016. l y n o e s u l a n o s r e p r o F Designation and Independence status Alternate Director Experience, expertise and qualifications Directorships of other listed companies during the last three years Special responsibilities during the year • ASF Group Limited None (May 2015, ongoing) 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. 19 Rey Resources Annual Report 2019 3.COMPANY SECRETARY l y n o 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 public and private unlisted companies, the majority of which operate in the mineral resources industry, both in Australia and internationally. Ms Coates is Director of Perth based corporate advisory firm Evolution Corporate Services Pty Limited, 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 Ou Louis Chien Meetings A 3 3 3 2 2 0 B 3 3 3 3 3 3 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 Wei Jin Geoff Baker Dachun Zhang Louis Chien Meetings A 2 2 2 1 0 B 2 2 2 2 2 A - Number of meetings attended. B - Number of meetings held during the time the Director held office. e s u l a n o s r e p r o F 20 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F 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: Ordinary shares Options over ordinary shares Performance Rights Min Yang Geoff Baker Dachun Zhang Wei Jin Zhiliang Ou Louis Chien 200,000 200,000 777,414 200,000 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 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, if any. 2019 Key Management Personnel The KMP of Rey Resources during the year ended 30 June 2019 were: Non Executive Min Yang Geoff Baker Non-Executive Director (appointed 13 September 2012) Dachun Zhang Non-Executive Chairman (appointed 13 September 2012) Independent Non-Executive Director (appointed 1 July 2013) 21 Rey Resources Annual Report 2019 6.REMUNERATION REPORT - AUDITED (continued) l y n o e s u l a n o s r e p r o F Zhiliang Ou Louis Chien Independent Non-Executive Director (appointed 22 September 2016) Alternate Director to Ms Min Yang (appointed 11 January 2016) Executive Wei Jin appointed Managing Director 1 July 2016) Managing Director (appointed Non-Executive Director 2 December 2013, 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. The Board seeks independent remuneration advice from time to time, and refers to relevant market survey data for the purposes of external comparison. Further details have been included in section 6.5. Hedging policy The Company’s Securities Trading Policy prohibits all Directors and employees from entering into arrangements to protect the value of unvested Long Term Incentive (“LTI”) awards. The prohibition includes entering into contracts to hedge their exposure to unvested share rights and options awarded as part of their remuneration package. 22 Rey Resources Annual Report 2019 6.REMUNERATION REPORT - AUDITED (continued) l y n o 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. e s u 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. l 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 (“EIRP”), which was first adopted by shareholders on 23 November 2011 and most recently re-approved at the Company’s 2018 Annual General Meeting. The EIRP aligns the reward of the participants with the long term creation of shareholder value. The EIRP enables participants to be granted rights to acquire shares subject to the satisfaction of certain vesting conditions which will be determined by the Board from time to time. 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 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. 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 23 a n o s r e p r o F Rey Resources Annual Report 2019 6.REMUNERATION REPORT - AUDITED (continued) in this Report, the remuneration structure incorporates fixed, annual at risk and long term incentive components. For shareholders, the key measure of value is Total Shareholder Return (“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 0.31 2019 2018 0.32 2017 2016 2015 0.2 0.145* 0.525* * Adjusted for 5 into 1 share consolidation Consequences of performance on shareholder wealth 2019 2018 2017 2016 2015 Loss ($’000) (8,923) (1,049) (559) (3,998) (10,200) Dividends declared 0 0 0 0 Total shareholder return (TSR)% (3%) 60% 38% (72%) 0 0% Non-Executive Director fees 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. l y n o e s u l a n o s r e p r o F 24 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F 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 2018 and 30 June 2019. Short Term Benefits Post- employment Benefits Other Long Term employee benefit 1 Share Based Payments Termination Benefits Total Cash salary/ Fees Annual Incentive Non- monetary Super LSL & AL Rights /Options Termination Payments $ $ $ $ $ $ $ $ W Jin - Managing Director - Appointed Non-Executive Director 2 December 2013, appointed Managing Director 1 July 2016 M Yang - Non-Executive Chairman - Appointed 13 September 2012 2019 2018 48,000 48,000 - - - - - - - - G Baker - Non-Executive Director - Appointed 13 September 2012 2019 2018 60,000 60,000 - - - - - - - - D Zhang - Non-Executive Director - Appointed 1 July 2013 2019 2018 25,000 25,000 - - - - - - - - 2019 120,000 2018 120,000 - - - - 11,400 11,400 - - Z Ou - Non-Executive Director - Appointed 22 September 2016 2019 2018 54,000 54,000 - - - - 5,130 5,130 L Chien - Alternate Director - Appointed 11 January 2016 - - 2019 2018 TOTAL 2019 307,000 2018 307,000 - - - - - - - - - - 16,530 16,530 - - - - - - - - - - - - - - - - - - 48,000 48,000 60,000 60,000 25,000 25,000 - - - - - - - - - - - - - - - - 131,400 131,400 59,130 59,130 - - 323,530 323,530 1 In accordance with his contract Wei Jin does not accrue long term employee benefits. 25 Rey Resources Annual Report 2019 6.REMUNERATION REPORT - AUDITED (continued) 6.3 Equity instruments No share rights were granted during the financial year. No options and rights over ordinary shares in the Company were granted during the financial year. 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 by 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 2019 financial year. 6.6 Movements in share holdings 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: 2019 Directors Held at 1 July 2018 Received as compensation Received on exercise of options/rights Other changes Held at 30 June 2019 Min Yang1 200,000 Geoff Baker2 200,000 Wei Jin3 200,000 Dachun Zhang4 777,414 Zhiliang Ou Louis Chien - - Total 1,377,414 - - - - - - - - - - - - - - - - - - - - - 200,000 200,000 200,000 777,414 - - 1,377,414 l y n o e s u l a n o s r e p r o F 26 Rey Resources Annual Report 2019 6.REMUNERATION REPORT - AUDITED (continued) l y n o 1. The shares are held by Luxe Hill Ltd, of which Min Yang is a director and shareholder. 2. The shares are held by Gold Star Industry Ltd, of which Geoff Baker is a director and shareholder. 3. The shares are held by Renown Capital Holdings Ltd, of which Wei Jin is a director and shareholder. 4. The shares are held by Greenhouse Investment (VIC) Pty Ltd ATF AMF Superannuation Fund. Dachun Zhang is a director of Greenhouse Investment (VIC) Pty Ltd and a beneficiary of the AMF Superannuation Fund. 6.7 Movements in Option holdings No KMP held or were issued options during the 2019 reporting period. 6.8 Movement in Share right holdings No KMP held or were issued share rights during the 2019 reporting period. l 7.PRINCIPAL ACTIVITIES The principal activity of Rey Resources is exploring for and developing energy resources in Western Australia’s Canning Basin. The Company holds a 40% interest in petroleum permits EP457 & 458 in joint venture with Buru Energy Limited, a 100% interest in the Derby Block EP487 and petroleum exploration permit EP104, retention licence R1 and production licence L15. Rey also holds a 100% interest in Duchess Paradise Coal Project. 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, with particular focus on its oil and gas assets. Oil and Gas Fitzroy Blocks (EP457 & EP458) On 10 December 2018, the Company announced that, pursuant to a transaction entered into between Buru Energy Limited (“Buru”) and Diamond Resources (Barbwire) Pty Ltd (“DRB”) whereby Buru will increase its interests in these permits from 37.5% to 60%, Rey (via its wholly owned subsidiary Rey Oil and Gas Pty Limited) has exercised its pre- emptive rights under the permit joint operating agreements and entered into a parallel agreement with DRB to increase its current interests in each of the EP457 and EP458 permits from 25% to 40% for a total cash consideration of $480,000. e s u a n o s r e p r o F 27 Rey Resources Annual Report 2019 8.RESULTS FOR THE YEAR AND REVIEW OF OPERATIONS (continued) The equity interest in each permit is currently: Rey Oil and Gas Pty Limited Buru Fitzroy Pty Limited 40% 60% (Buru Energy Limited operator) Fitzroy Block is considered prospective for conventional oil. It is close to Ungani oil field and on the Ungani Oil Trend. Two wells have been drilled in 2015 and tens of prospects has been identified by the operator in the block for future development. On 4 January 2019, the operator lodged an application for a further 12 month suspension of years 1-5 work requirements to the DMIRS because the lifting of the frack moratorium has not been formalized. The application was approved on 16 January 2019 and the planned magneto-telluric survey will be conducted in 2021. Derby Block (EP487) Rey Resources holds 100% equity interests in EP487 (“Derby Block”) through the following wholly owned subsidiaries: Rey Lennard Shelf Pty Limited 50% 50% Rey Derby Block Pty Limited 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. On 31 December 2018, the Company announced that it has entered into a binding letter of intent (“LOI”) with Doriemus pursuant to which Doriemus agreed to farmout to exploration permit EP487. Upon completion of the farmout, Doriemus will earn a 50% operating interest in the asset. Subsequently, Doriemus failed to raise sufficient funds by end of June 2019 (which was extended to 31 July 2019) to undertake the farmout work on EP487 and Rey announced that it had terminated the Agreements on 5 August 2019. On 20 May 2019, Rey sent a letter to the government regarding the voluntary relinquishment of 13 blocks in EP487 and apply to change the work programs for all rested permit years in consideration of ban area of fracture stimulation. On 9 August, Rey received suggestion letter from the DMIRS. The DMIRS will not suggest Rey to partially surrender of any blocks in EP487 at this stage but prepares to agree to remove the drilling depth and core conditions for year 2 commitment well and exempt the 2 well drilling requirements in permit year 3. l y n o e s u l a n o s r e p r o F 28 Rey Resources Annual Report 2019 8.RESULTS FOR THE YEAR AND REVIEW OF OPERATIONS (continued) Lennard Shelf Blocks (EP104, R1, L15) L15 is a production licence with production history in West Kora oil field. An estimation of oil reserves and contingent oil resource for West Kora oilfield and Point Torment gas discover in R1 was provided by third party in September 2015. On 31 December 2018, the Company announced that it has entered into a binding letter of intent (“LOI”) with Doriemus PLC (“Doriemus”, ASX: DOR) pursuant to which Doriemus agreed to farmout the 100% owned Petroleum Production Licence 15 (L15). Upon completion of the farmout, Doriemus will earn a 50% operating interest L15. On 5 March 2019, the Company announced that it has signed a binding Farmout Agreement with Doriemus pursuant to which Doriemus will fund A$1 million in development work on Petroleum Production Licence 15. These activity has not yet commenced at 30 June 2019, and accordingly Rey continue to consider their interest and exploration activity. On 5 May 2019, Doriemus released announcement regarding the updated reserves of West Kora prepared by ERCE cross Rey’s ASX platform. Rey appointed 3D Geo to review and compare the new reserves report to the one provided by Energetca Consulting for Key Petroleum Ltd in 2015. According to the suggestion of 3D Geo, Rey adopts the reserves results provided by ERCE. As requested by the Traditional Land Owners, Rey scheduled the heritage survey in July 2019 for the coming geochemical survey in R1 and well inspection work in L15. A drafted heritage protection agreement has also been received and reviewed by Rey. On 11 July 2019, the heritage survey was completed and final heritage clearance report was received on 24 July 2019. The well inspection and West Kora Tank Farm clean work, which is required by the government, is still ongoing as at 30 June 2019. l y n o e s u l a n o s r e p Coal Duchess Paradise Project r o F The Duchess-Paradise Thermal Coal Project (“DP”) is located in the Canning Basin in the northwest of Australia, which is also the largest undeveloped Permian coal-bearing basin in Australia. The total identified JORC mineral resources of P1 seam is 305Mt (Measured 60.2Mt/Indicated 78.5Mt/Inferred 167.1Mt). The thermal coal of DP is in shallow seam from the surface which makes both open pit and underground mining potentially viable. During the period, the Company continued to plan the second phase Definitive Feasibility Study (“DFS”) update. Rey has fully reviewed the proposed work program for DFS phase 2 update prepared by LDO during the June 2019 quarter and is consulting with mining services contractor for further comments. 29 Rey Resources Annual Report 2019 8.RESULTS FOR THE YEAR AND REVIEW OF OPERATIONS (continued) The DFS review and update will focus on updating the economic and financial model through different mining technology. Rey expects the new results will potentially increase Coal Reserve in comparison to the 2011 DFS. Other factors that may also require revision include transportation pathways. Rey is now negotiating with Hancock Prospecting, the only objector to the Mining License Application for the DP project, to remove the objection. After multi rounds discussion, the Access Deed is close to be finalized. Corporate During the year, the loan facility granted by ASF Group Limited (“ASF”) increased to $3.8 million (“ASF Loan”). In April 2019, the Company repaid $2.5 million of ASF Loan which remains available for re-draw before maturity pursuant to the terms of the ASF Loan. On 14 June 2019, the Company further drawdown $150,000, therefore the remaining amount available under the $3.8 million ASF Loan is $2.35 million as at 30 June 2019. In addition to the existing $500,000 loan (“First Liu Loan”), the Company entered into a further loan agreement on 18 April 2019 with Wanyan Liu (“Liu”), a substantial shareholder of the Company, for the granting of additional $3 million loan (“Second Liu Loan”), part of which had been used to repay ASF Loan as mentioned above. The Second Liu Loan will mature on 31 December 2020, with interest accruing at the rate of 12% per annum. Subsequently after the financial year end, the Company entered into another new loan agreement with Liu for the granting of a further $3 million standby loan facility (“Third Liu Loan”) and the extension of the maturity date of the First Liu Loan from 31 December 2019 to 31 March 2021. The Third Liu Loan will mature on 31 December 2021, with interest accruing at the rate of 12% per annum. During the financial year, the Company undertook an on-market share buyback and bought back 216,827 shares at a cost of $66,000. As part of the ongoing capital management strategy, the Company has on 24 June 2019 announced the extension of the on-market buyback program for a further 12 months from 9 July 2019. Finance review Net loss of the consolidated entity after income tax for the year ended 30 June 2019 was $8,923,000, compared with the loss of $1,049,000 for the last year. The significant increase in loss for the year was mainly attributed to the following: • impairment of exploration assets of $7,450,000 as a result of revaluation of EP457 & EP458 to their fair value; l y n o e s u l a n o s r e p r o F 30 Rey Resources Annual Report 2019 l y n o e s u a n o s r e p r o F 8.RESULTS FOR THE YEAR AND REVIEW OF OPERATIONS (continued) • impairment of listed investment of $53,000 as a result of the decline in market price; and • finance costs of $476,000, which was principally interest accrued for the loans from ASF and Liu. During the year, $1,537,000 (2018: $1,629,000) in exploration expenditure was capitalised, of which $1,385,000 related to oil and gas exploration (2018: $1,249,000). 9.DIVIDENDS No dividend has been paid or declared by the Company during the financial year ended 30 June 2019 (2018: nil) and the Directors do not recommend the payment of a dividend in respect of the financial year ended 30 June 2019. 10.SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS l 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 No performance rights were vested and converted to shares during the year. 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. 31 Rey Resources Annual Report 2019 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. 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 On 17 July 2019, the Group entered into a new loan agreement with Wanyan Liu, pursuant to which Liu agreed to grant a further loan facility to $3 million (Third Liu Loan) to the Company expiring 31 December 2021 and to extend the maturity date of the existing $500,000 loan (First Liu Loan) from 31 December 2019 to 31 March 2021. During July 2019 and August 2019, the Group has drawn down $500,000 of the $3.0 million available under the Third Liu Loan. l y n o e s u l a n o s r e p r o F 32 Rey Resources Annual Report 2019 The Company announced on 5 August 2019 that it has terminated the EP487 Farmout Agreement with Doriemus PLC. No other matter or circumstance has arisen since 30 June 2019 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 34 and forms part of the Directors’ report for the financial year ended 30 June 2019. Signed in accordance with a resolution of Directors. l y n o e s u l a n o s r e p r o 19 September 2019F Min Yang Non-Executive Chairman Sydney, Australia 33 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F 34 KPMG, an Australian partnership and a member firm of the KPMG KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. International Cooperative ("KPMG International"), a Swiss entity. 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 Liability limited by a scheme approved under Professional Standards Legislation. Professional Standards Legislation. Liability limited by a scheme approved under Professional Standards Legislation. KPMG, an Australian partnership and a member firm of the KPMG KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. International Cooperative ("KPMG International"), a Swiss entity. Liability limited by a scheme approved under Liability limited by a scheme approved under Professional Standards Legislation. Professional Standards Legislation. Rey Resources Annual Report 2019 Rey Resources Limited in thousands of dollars Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2019 l y n o e s u a n o s r e p r o F Other income/(expense) Impairment of exploration and evaluation assets Administrative expenses Loss from operations l Finance income Finance costs Net finance costs 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 Note 30 June 30 June 2019 2018 4 13 6 4 5 7 (53) (7,450) (944) (8,447) - (476) (476) (42) (1) (844) (887) 1 (163) (162) (8,923) (1,049) - - (8,923) (1,049) - - (8,923) (1,049) Loss per share Basic and diluted (cents per share) 8 (4.20) (0.49) The notes on pages 39-76 are an integral part of these consolidated financial statements 35 Rey Resources Annual Report 2019 Rey Resources Limited Consolidated statement of financial position As at 30 June 2019 l y n o e s u l a n o s r e p r o F In thousands of dollars Note 2019 2018 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 and borrowings Total current liabilities Non-current liabilities Loan and borrowings Provision Total non-current liabilities Total liabilities Net assets EQUITY Share capital Accumulated losses Total equity attributable to equity holders of the Company 9a 10 11 12 13 14 15 21d 21d 16 17 28 20 16 64 4 106 35,912 36,022 36,086 110 16 2,534 2,660 3,000 2,952 5,952 8,612 36 22 14 72 9 159 41,825 41,993 42,065 84 16 2,602 2,702 - 2,900 2,900 5,602 27,474 36,463 86,597 86,663 (59,123) (50,200) 27,474 36,463 The notes on pages 39-76 are an integral part of these consolidated financial statements. 36 Rey Resources Annual Report 2019 Rey Resources Limited Consolidated statement of changes in equity For the year ended 30 June 2019 in thousands of dollars l y n o e s u a n o s r e p r o F Balance at 30 June 2017 Loss for the period Other comprehensive income Total comprehensive loss for the period l Transactions with owners recorded directly in equity: Contributions by and distributions to owners Share buy back Balance at 30 June 2018 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 Share buy back Balance at 30 June 2019 Share capital Accumulated Losses Total 86,683 (49,151) 37,532 - - - (1,049) (1,049) - - (1,049) (1,049) (20) - (20) 86,663 (50,200) 36,463 - - - (8,923) (8,923) - - (8,923) (8,923) (66) - (66) 86,597 (59,123) 27,474 The notes on pages 39-76 are an integral part of these consolidated financial statements. 37 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F Rey Resources Limited Consolidated statement of cash flows For the year ended 30 June 2019 in thousands of dollars Cash flows from operating activities GST refund Cash paid to suppliers and employees Note 30 June 30 June 2019 2018 2 (2) (917) (853) Net cash used in operating activities 9b (915) (855) Cash flows from investing activities Interest received Payments for property, 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 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 9a - - - (2) (1,537) (1,617) (1,537) (1,619) - - (66) (20) 5,010 1,940 (2,500) - - - 2,444 1,920 (8) 36 28 (554) 590 36 The notes on pages 39-76 are an integral part of these consolidated financial statements. 38 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 1. REPORTING ENTITY l y n o e s u l a n o s r e p 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 financial year ended 30 June 2019 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. This is the first set of the Group’s annual financial statements in which AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments have been applied. Changes to significant accounting policies are described in Note 3(o). The consolidated financial statements were authorised for issue by the Board of Directors on 19 September 2019. r o F (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 2019 the Group incurred a loss of $8,923,000 and incurred operating and investing cash outflows of $2,452,000. As at 30 June 2019 the Group had cash of $28,000, an available standby loan facility from ASF Group Limited of $2,350,000, net working capital deficiency of $1,897,000 and net assets of $27,474,000 as at 30 June 2019. 39 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 2. BASIS OF PREPARATION (Continued) The Group has prepared a cashflow forecast for the period to 31 October 2020. The cashflow forecast reflects: • The need to raise additional funding during the forecast period; • The need to renegotiate to extend the repayment of the loan from ASF Group Limited beyond 31 December 2019. • That the Group has subsequent to 30 June 2019 drawdown $500,000 and has access to the remaining $2.5 million under the $3.0 million “Third Liu Loan”. • That ASF Group Limited and Wanyan Liu will not call their loans owing from the Group in advance of the loan maturity date; and • The need to defer or farm out the Group’s share of certain petroleum interests to meet committed and forecast expenditures. Rey is pursuing funding alternatives in the form of debt and equity, including discussions with existing shareholders, and with third parties for farmout certain petroleum interests. The Directors believe that sufficient funding will be sourced, the repayment of loans extended, the loans will not be recalled and farm out parties will be sourced in the timeframes required and therefore the adoption of the going concern basis of preparation is appropriate. The requirement to raise the necessary funding to meet its commitments and secure farm out parties, or defer expenditure, is a material uncertainty that may cast significant doubt as to whether the Group will be able to continue as a going concern. If the Group is unable to continue as a going concern, it may be unable to 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. l y n o e s u l a n o s r e p r o F 40 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 2. BASIS OF PREPARATION (Continued) (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: - Going concern Note 2(b) Note 7 - Recoverability of tax losses. Note 13 - Ultimate recoupment of carried forward exploration expenditure. 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. 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 entity 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. 41 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (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 is accounted for using the equity method. A joint operation is an arrangement in which the parties with joint control have rights to the assets and obligations for the liabilities relating to that arrangement. In respect of its interest in a joint operation, a joint operator the Group recognises its relative share of its assets, liabilities, revenues and expenses. (b) Foreign currency Transactions in foreign currencies are translated to Australian dollars being the functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency differences arising on retranslation are recognised in profit or loss. l y n o e s u l a n o s r e p r o F 42 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (c) Non derivative financial instruments (i) Recognition and initial measurement Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument. A trade receivable without a significant financing component is initially measured at the transaction price. (ii) Classification and subsequent measurement The Group has two types of financial assets: amortised cost and FVTPL in accordance with AASB 9. Refer Note 22 for summary of the reclassification of the Group’s financial assets and financial liabilities. (iii) Derecognition Financial assets The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. l y n o e s u l a n o s r e p The Group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised. r o F Financial liabilities The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. 43 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (iv) 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. l y n o e s u l a n o s r e p r o F 44 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 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. This expenditure is 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. 45 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Costs of the site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of plant, 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 may be uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. (f) Impairment (i) Non-derivative financial assets The Group has adopted AASB 9 from 1 July 2019 which has introduced a revised impairment model for financial assets. AASB 9 replaces the ‘incurred loss’ model in AASB 139 with an ‘expected credit loss’ ("ECL") model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVTOCI, but not to investments in equity instruments. Under AASB 9, credit losses are recognised earlier than under AASB 139. 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. l y n o e s u l a n o s r e p r o F 46 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 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. 47 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 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. l y n o e s u l a n o s r e p r o F 48 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. (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. 49 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (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. l y n o e s u (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) Changes in significant accounting policies The Group has initially applied AASB 15 and AASB 9, including any consequential amendments to other standards from 1 July 2018. A number of other new standards are also effective from 1 July 2018. AASB 15 Revenue from Contracts with Customers AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced AASB 118 Revenue, AASB 111 Construction Contracts and related interpretations. Under AASB 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control – at a point in time or over time – requires judgement. The adoption of AASB 15 has no impact on this set of financial statements. AASB 9 Financial Instruments AASB 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS l a n o s r e p r o F 50 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) 39 Financial Instruments: Recognition and Measurement. The adoption of AASB 9 has not had a significant effect on the Group’s financial statements. Classification and measurement of financial assets and financial liabilities AASB 9 contains principal classification categories for financial assets: measured at amortised cost and FVTPL. The classification of financial assets under AASB 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. AASB 9 eliminates the previous AASB 139 categories of held to maturity, loans and receivables and available for sale. Under AASB 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard is never separated. Instead, the hybrid financial instrument as a whole is assessed for classification. AASB 9 largely retains the existing requirements in AASB 139 for the classification and measurement of financial liabilities. Impairment of financial assets AASB 9 replaces the ‘incurred loss’ model in AASB 139 with an ‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under AASB 9, credit losses are recognised earlier than under AASB 139. The Group has determined that the application of AASB 9’s impairment requirements does not result in material change to the impairment loss recognised at 1 July 2019. Financial liabilities The Group classifies non-derivative financial liabilities into the other financial liabilities category. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss. 51 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial liabilities are initially recognised when the Group becomes party to the contractual provisions of the instrument. A financial liability is initially measured at fair value plus transactions costs that are directly attributable to its issue. Transition On the date of initial application, 1 July 2018, the Group’s financial assets and financial liabilities were reclassified as follows: In thousands of dollars Original AASB 139 Category New Carrying Carrying AASB 9 Amount Amount Category AASB 139 AASB 9 Note Original New Cash and cash equivalents 9a Loans and receivables Amortised cost 36 36 Investments – fair value Trade and other receivables 12 10 Designated at FVTPL Mandatorily at FVTPL 159 159 Loans and receivables Amortised cost 22 22 Total financial assets Trade and other payables 14 Other financial liabilities Other financial liabilities 217 85 217 85 Loans and borrowings 21d Other financial liabilities Other financial liabilities 2,602 2,602 Total financial liabilities 2,687 2,687 (p) New standards and interpretations not yet adopted At the date of authorisation of the financial report, AASB 16 Leases (effective 1 Jul 2019) was issued but not yet effective. As disclosed in Note 19 (a), there was no non- cancellable operating lease commitment for the Group. Based on management assessment, AASB 16 Leases will have minimal impact on the Group. l y n o e s u l a n o s r e p r o F 52 Rey Resources Annual Report 2019 l y n o a n o s r e p r o F Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 4. OTHER INCOME AND FINANCE INCOME in thousands of dollars 2019 2018 e s u Other income/(expense) Change in fair value of investment Others l Finance income Interest income 5. FINANCE COSTS (53) - (53) - - (53) 11 (42) 1 1 in thousands of dollars 2019 2018 Finance costs Bank charges Interest on loans 2 474 476 1 162 163 53 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 6. ADMINISTRATIVE EXPENSES in thousands of dollars 2019 2018 Office supplies and expenses Professional consulting fees Employee benefits expense (see below) Depreciation and amortisation expense Insurance premiums Legal costs Other expenses (incl travel expense) Employee benefits expense consists of: Salaries and fees Superannuation 7. INCOME TAX EXPENSE 255 1 320 5 16 191 156 944 283 37 320 225 2 319 5 10 198 85 844 282 37 319 in thousands of dollars 2019 2018 Income tax recognised in profit or loss Current tax benefit Deferred tax benefit Income tax benefit - - - - - - - - l y n o e s u l a n o s r e p r o F 54 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 7. 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 2019 2018 (8,923) (1,049) At statutory income tax rate of 27.5% (2018: 27.5%) (2,453) (288) Non-deductible expenses Tax losses for which no deferred tax asset was recognised Income tax benefit (19) 2,472 - (25) 313 - Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: in thousands of dollars Deferred tax liabilities Exploration and evaluation expenditure Other Gross deferred tax liability Statement of financial position Profit or loss 2019 2018 2019 2018 (9,876) (10,704) (4) (4) (9,880) (10,708) 829 (1) 828 485 - 485 Deferred tax assets Tax loss carry forwards 9,053 10,692 (1,639) (488) Other Gross deferred tax asset Net deferred tax asset 827 16 9,880 10,708 - - 811 (828) - 3 (485) - 55 Rey Resources Annual Report 2019 Rey Resources Limited l y n o Notes to the consolidated financial report For the year ended 30 June 2019 7. INCOME TAX EXPENSE (Continued) Tax losses e s u At 30 June 2019, the Group has tax losses arising in Australia of $81,407,676 (2018: $79,503,136) 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. Additionally, 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. l a n o s r e p r o F 56 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 8. LOSS PER SHARE in thousands of dollars 2019 2018 Earnings Earnings used in calculating basic and diluted earnings per share attributable to the owners of the company (8,923) (1,049) Number of ordinary shares 2019 2018 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) 212,364,928 212,484,287 (4.2) (4.2) (0.49) (0.49) Calculation of loss per share Basic loss per share is calculated as loss for the period attributable to shareholders of $8,923,000 (2018:$1,049,000 loss) divided by the weighted average number of ordinary shares of 212,364,928 (2018: 212,484,287). The diluted loss per share for the year ended 30 June 2019 and 2018 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. l y n o e s u l a n o s r e p r o F 57 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 9a. CASH AND CASH EQUIVALENTS in thousands of dollars 2019 2018 Cash at bank and in hand Cash and cash equivalents 28 28 36 36 The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 22. 9b. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES in thousands of dollars Note 2019 2018 Cash flows from operating activities Loss for the period Adjustments for: Depreciation Write back Impairment of capitalised exploration expenditure Impairment of capitalised exploration expenditure Change in fair value of investment Finance costs ( I n c r e a s e ) / d e c r e a s e i n t r a d e a n d o t h e r receivables (Increase) / decrease in prepayments Increase / (decrease) in trade and other payables Increase / (decrease) in employee benefits 11 12 5 (8,923) (1,049) 5 - 7,450 53 474 (941) 2 (2) 27 (1) 5 (12) - 53 162 (841) 1 (1) (27) 13 Net cash used in operating activities (915) (855) l y n o e s u l a n o s r e p r o F 58 Rey Resources Annual Report 2019 in thousands of dollars 2019 2018 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 10. TRADE AND OTHER RECEIVABLES Current Other receivables 11. PROPERTY, PLANT AND EQUIPMENT in thousands of dollars Property, plant and equipment At cost Accumulated depreciation Total property plant and equipment Movements in carrying amounts: in thousands of dollars Balance as at 1 July Additions Disposals Depreciation expense Balance as at 30 June l y n o e s u l a n o s r e p r o F 20 20 2019 181 (177) 4 22 22 2018 181 (172) 9 2019 2018 9 - - (5) 4 12 2 - (5) 9 59 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 12. INVESTMENT in thousands of dollars Investment in Norwest Energy NL at fair value as at 1 July Changes in fair value of investment 2019 159 (53) 106 2018 212 (53) 159 The financial asset at fair value through profit or loss is an investment in Norwest Energy NL. Fair value represents the market value of the financial assets at balance date. 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 2019 was $0.002 per share. This financial asset is initially measured at fair value plus transaction costs that are directly attributable to its acquisition or issue. These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. 13. EXPLORATION AND EVALUATION EXPENDITURE Working Interests Exploration and evaluation expenditures carried forward in thousands of dollars 2019 100% 40% 100% 100% 100% 100% 2018 2019 2018 100% 22,094 21,942 25% 100% 100% 100% 100% 4,134 2,893 169 3,087 3,535 10,789 2,829 4 2,907 3,354 in respect of: Duchess Paradise 1 EP457 and EP458 2 EP104 3 R1 3 L15 3 EP487 4 Costs carried forward 35,912 41,825 l y n o e s u l a n o s r e p r o F 60 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 l y n o 13. EXPLORATION AND EVALUATION EXPENDITURE (Continued) Movements in carrying amount: e s u l a n o s r e p r o F in thousands of dollars Opening balance Disposal of interest in EP437 Acquisition of interests in EP104, R1, L15 Current year expenditure capitalised Impairment2 2019 41,825 - - 1,537 (7,450) 35,912 2018 37,296 (2,716) 5,616 1,629 - 41,825 1. Exploration and evaluation expenditure recognised in Duchess Paradise is held solely by the Group. 2. Exploration and evaluation expenditure recognised on EP457 and EP458 tenements under joint venture agreement with Buru Energy Limited. This amount includes the Group’s proportionate share of exploration assets held by the respective joint venture entities. On 28 March 2019, the Company increased its current interests in each of the EP457 & EP458 permits from 25% to 40% for a total cash consideration of $480,000. An impairment of $7,450,000 was made as a result of revaluation of EP457 & EP458 to their fair value. The Group utilized a third party valuation expert who applied the VALMIN code to determine the fair value of EP457 and EP458. 3. Acquisition costs and the exploration and evaluation expenditure recognised on EP104, R1 and L15 (together the “Lennard Shelf Blocks”) which are held solely by the Group. On 5 March 2019, the Company announced that it has signed a binding Farmout Agreement with Doriemus Plc (“Doriemus”) pursuant to which Doriemus will fund $1 million in development work on L15 for a 50% interest in L15. The carry value of L15 will be reassessed upon the completion of the Farmout Agreement activities. 4. Exploration and evaluation expenditure recognised on EP487 which is held solely by the Group. On 31 December 2018, the Company announced that it has entered into a binding letter of intent (“LOI”) with Doriemus PLC (“Doriemus”, ASX: DOR) pursuant to which Doriemus agreed to farmout to exploration permit EP487. Upon completion of the farmout, Doriemus will earn a 50% operating interest in the asset. As announced by the Company on 5 March 2019, Doriemus advised that it 61 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 13. EXPLORATION AND EVALUATION EXPENDITURE (Continued) has finalised the due diligence on EP487. On 5 August 2019, Rey announced that it has terminated the farmout arrangement with Doriemus as Doriemus has failed to raise the necessary fund required for the drilling commitments before the mutually agreed deadline. An exploration and evaluation asset is recognized in relation to an area of interest if the following conditions are satisfied: (a) The rights to tenure of the area of interest are current; (b) At least one of the following conditions is also met: (i) the exploration and evaluation expenditures are expected to be recouped through successful development and exploitation of the area of interest, or alternatively, by its sale; and (ii) exploration and evaluation activities in the area of interest have not at the end of the reporting period reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing. Management expect to extend the right of tenure for tenements approaching expiry. 14. TRADE AND OTHER PAYABLES in thousands of dollars Unsecured liabilities Sundry payables and accrued expenses 2019 2018 110 110 84 84 The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 22. l y n o e s u l a n o s r e p r o F 62 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 15. EMPLOYEE BENEFITS in thousands of dollars Employee benefits Current Non-current 16. Provision in thousands of dollars Restoration provision (L15, R1) l y n o e s u l a n o s r e p r o F The restoration provision relates to the West Kora 1 well and disused production facilities in Production License L15, which was estimated based upon converting the well to a water well following confirmation from the pastoral lease owner and removing the tank farm and restoring the site back to its original condition. The provision has been calculated on an assumption that management expects that the cash out flow will not be incurred until approximately 2029. The movement of the provision is related to the discount unwind. 2019 2018 16 - 16 2019 2,952 2,952 16 - 16 2018 2,900 2,900 63 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 17. ISSUED CAPITAL in thousands of dollars 2019 2018 212,188,439 (2018: 212,405,266) fully paid ordinary shares 86,597 86,597 86,663 86,663 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. Movements in shares on issue 2019 2018 Number $’000 Number $’000 On issue at beginning of the year 212,405,266 86,663 212,495,266 86,683 Share buy back (216,827) (66) (90,000) (20) On issue at the end of the year 212,188,439 86,597 212,405,266 86,663 During the year ended 30 June 2019, a total of 216,827 shares were bought back at a cost of $66,000 and cancelled. On 24 June 2019, the Company announced the extension of the on-market buyback program for a further 12 months from 9 July 2019. 18. 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 l y n o e s u l a n o s r e p r o F 64 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 18. COMMITMENTS (Continued) 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 Mineral Petroleum Year 1 Year 2-5 Total 169 37 206 7,327 13,882 21,209 Total 7,496 13,919 21,415 In May 2018, the Company acquired from Key and Indigo 100% interests in EP104, R1 and L15. Pursuant to the agreement, Key and Indigo would be granted a royalty of 2.5% and 0.5% separately over R1 and L15 upon completion of each applicable transfer. The royalty is payable based on the value of wellhead petroleum recovered and produced from the licences. l y n o e s u l a n o s r e p r o F 65 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 19. GROUP ENTITIES Consolidated subsidiaries Country of incorporation Ownership Interest Blackfin Pty Limited Rey Cattamarra Pty Limited Rey Derby Pty Limited Rey Derby Block Pty Limited Australia Australia Australia Australia Rey Derby Port Operations Pty Limited Australia Rey Royalty Chile Pty Limited Rey Victory Pty Limited Rey Oil and Gas Pty Limited Rey Lennard Shelf Pty Limited Humitos Pty Limited Gulliver Productions Pty Limited Australia Australia Australia Australia Australia Australia 2019 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2018 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% l y n o e s u l a n o s r e p r o F 66 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 20. 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 13) and disclosed distinctly from capitalised exploration costs incurred on the Group’s 100% owned projects. Rey/Buru Joint Venture On 18 March 2013, the Company entered into an agreement with Buru Energy Limited (“Buru”) 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. On 10 December 2018, the Company announced that, pursuant to a transaction entered into between Buru and Diamond Resources (Barbwire) Pty Limited (“DRB”) whereby Buru will increase its interests in these permits from 37.5% to 60%, Rey (via its wholly owned subsidiary Rey Oil and Gas Pty Limited) has exercised its pre- emptive rights under the permit joint operating agreements and entered into a parallel agreement with DRB to increase its current interests in each of the EP457 and EP458 permits from 25% to 40% for a total cash consideration of $480,000. The current interest in the two exploration permits, known as “The Fitzroy Blocks”, are: Rey Oil and Gas Pty Limited 40% (of which a 10% interest is free carried to production) Buru Fitzroy Pty Limited 60% (Buru Energy Limited operator) The total amount of the Group’s capitalised exploration and evaluation expenditure under this joint venture agreement at the reporting date was $4,134,000 (2018: $10,789,000). 21.RELATED PARTIES (a) Parent entity The ultimate parent entity within the Group is Rey Resources Limited. 67 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 21. RELATED PARTIES (Continued) (b) Subsidiaries Interests in subsidiaries are set out in note 19. (c) KMP compensation Disclosures relating to compensation of the KMP compensation comprised: Individual Directors and executives compensation disclosures Short term benefits Post-employment benefits 2019 2018 307,000 307,000 16,530 16,530 323,530 323,530 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. l y n o e s u l a n o s r e p r o F 68 Rey Resources Annual Report 2019 2019 2018 120,000 120,000 1,834,969 2,041,717 1,834,969 2,041,717 3,699,069 699,069 3,000,000 560,164 560,164 - Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 21. RELATED PARTIES (Continued) (d) Transactions with related parties ASF Group Limited Service fees Loan granted (inclusive of interest) 1 -current l Wanyan Liu -current -Non current Loan granted (inclusive of interest) 2 l y n o e s u a n o s r e p r o F 1. An unsecured loan of up to $3.8 million (“ASF Loan”) was granted by ASF Group Limited, a substantial shareholder of the Company, with maturity date on 31 December 2019 and interest bearing at 12% per annum. During the year, the Company repaid $2.5 million ASF Loan, which will remain available for re-draw pursuant to the terms of the ASF Loan. Ms Min Yang and Mr Geoff Baker are directors of ASF Group Limited. There is $2.35 million available under the $3.8 million facility from ASF to the Group at 30 June 2019. 2. An unsecured loan of $500,000 was granted by Wanyan Liu (“Liu”), a substantial shareholder of the Company, with maturity date on 31 March 2021 and interest bearing at 12% per annum (First Liu Loan). On 18 April 2019, the Company entered into another Loan Agreement with Liu for the granting of $3 million additional loan (Second Liu Loan), with maturity date on 31 December 2020 and interest bearing at 12% per annum payable quarterly by cash. Liu loans are fully drawn down as at 30 June 2019. Refer to Note 24 Subsequent event update relating to Liu loans. 69 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 22. FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS Categories of financial instruments The Group’s financial instruments consist mainly of cash and cash equivalents, trade and other receivables, investment, trade and other payables, and loan and borrowings. The totals for each category of financial instruments, measured in accordance with AASB 9 as detailed in the accounting policies to these financial statements, are as follows: in thousands of dollars 2019 2018 FVTPL -Investment 1 Financial assets measured at amortised cost -Cash and cash equivalents -Trade and other receivables Total financial assets Financial liabilities measured at amortised cost Trade and other payables Total financial liabilities 106 28 20 154 110 110 159 36 22 217 84 84 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 2019 was $0.002 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 Financial risk management framework 2019 20 2018 22 The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. l y n o e s u l a n o s r e p r o F 70 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 22. FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) 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 2019 and 30 June 2018, there was no impairment loss allowance 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. 71 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 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: 2019 in thousands of dollars Carrying amount Expected / contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years More than 5 years Financial liabilities Trade and other payables 110 110 110 - - Loans from shareholders 5,534 6,188 2,827 180 3,181 5,644 6,298 2,937 180 3,181 2018 in thousands of dollars Carrying amount Expected / contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years Financial liabilities Trade and other payables 84 84 Loans from shareholders 2,602 3,042 2,686 3,126 84 - 84 - - - - 3,042 3,042 - - - - - - - - - More than 5 years - - - Currency risk 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. l y n o e s u l a n o s r e p r o F 72 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 l y n o e s u l a n o s r e p r o F 22. FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) 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 2019 2018 Variable rate instruments Cash and cash equivalents 28 28 36 36 At the reporting date, the Group had a total of $7.3 million term loan facilities from shareholders. Due to the fixed interest rate of the loans, the Group is not exposed to interest rate fluctuations. 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 $374 (2018: $624). 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 2018 and 2019, 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. 73 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 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 2019 Mineral 2018 Petroleum 2019 Petroleum 2018 Corporate 2019 Corporate 2018 Total 2019 Total 2018 Consolidated $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Revenue Total Reportable segment revenue Other income/ (expense) Impairment of assets Interest revenue Finance costs Administration cost Profit/(loss) before income tax benefit income tax benefit Loss after income tax benefit Assets Other Assets - - - - - - - - - - - - - - - - - - - - - - (7,450) - - - - - - - - 11 (53) (53) (53) 42 - - - - - - - - (7,450) - - - (476) (944) (163) (476) (163) (844) (944) (844) (7,450) 11 (1,473) (1,060) (8,923) (1,049) - - - - - - (7,450) 11 (1,473) (1,060) (8,923) (1,049) Segment assets 22,094 21,942 13,818 19,883 Total assets 22,094 21,942 13,818 19,883 - - 174 - 174 240 174 240 - 35,912 41,825 240 36,086 42,065 Liability Other liabilities Segment liabilities Total Liabilities Capital Expenditure - - - - - - - 2,952 2,952 - 5,660 2,702 5,660 2,702 2,900 2,900 - - 2,952 2,900 5,660 2,702 8,612 5,602 152 380 1,385 1,249 - - 1,537 1,629 l y n o e s u l a n o s r e p r o F 74 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 24. SUBSEQUENT EVENTS On 17 July 2019, the Group entered into a new loan agreement with Wanyan Liu, pursuant to which Liu agreed to grant a further loan facility to $3 million (Third Liu Loan) to the Company expiring 31 December 2021 and to extend the maturity date of the existing $500,000 loan (First Liu Loan) from 31 December 2019 to 31 March 2021. During July 2019 and August 2019, the Group has drawn down $500,000 of the $3.0 million available under the Third Liu Loan. The Company announced on 5 August 2019 that it has terminated the EP487 Farmout Agreement with Doriemus PLC. No other matter or circumstance that is not already disclosed in these financial statements has arisen since 30 June 2019 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 Other assurance services 2019 2018 69,917 - 69,917 62,000 2,000 64,000 75 Rey Resources Annual Report 2019 Rey Resources Limited Notes to the consolidated financial report For the year ended 30 June 2019 26. PARENT ENTITY DISCLOSURES As at, and throughout, the financial year ended 30 June 2019 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 2019 2018 (1,419) (1,419) 57 31,301 31,358 2,660 3,000 5,660 25,698 (1,060) (1,060) 65 37,263 37,328 2,695 - 2,695 34,633 Total equity of the parent entity comprising of: Share capital Accumulated losses Total equity 86,597 (60,899) 25,698 86,663 (52,030) 34,633 C. Parent entity contingencies As at 30 June 2019 and 2018, there are no contingent liabilities of the parent entity. D. Parent entity capital commitments As at 30 June 2019 and 2018, 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 2019 and 2018, there are no guarantees entered into by the parent entity. l y n o e s u l a n o s r e p r o F 76 Rey Resources Annual Report 2019 Rey Resources Limited Directors' Declaration For the year ended 30 June 2019 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 2019 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 2019. Signed in accordance with a resolution of the Directors. l y n o e s u l a n o s r e p r o 19 September 2019F Min Yang Non-Executive Chairman Sydney, Australia 77 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F Independent Auditor’s Report To the shareholders of Rey Resources Limited Report on the audit of the Financial Report Opinions We have audited the Financial Report of Rey Resources Limited (the Company). I n o u r o p i n i o n , t h e a c c o m p a n y i n g Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the G r o u p ’ s f i n a n c i a l p o s i t i o n a s a t 30 June 2019 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 2019; • 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; • N o t e s i n c l u d i n g a s u m m a r y o f significant accounting policies; and • Directors' Declaration. The Group consists of the Company and the entities it controlled at the year end or from time to time during the financial year. 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 audits 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 audits of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. 78 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F 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 significant 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 a potential share issue 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 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 Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matter described below to be the Key Audit Matter. 79 Rey Resources Annual Report 2019 Exploration and evaluation expenditure ($35,912,000) Refer to Note 13 ‘Exploration and Evaluation Expenditure’ 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 99% 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; • 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; and • 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. 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 programs planned for those for consistency with documentation such as license related technical conditions, joint venture agreements, and planned work programs; • 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 or by its sale by evaluating the Group’s documentation of planned future/continuing activities including l y n o e s u l a n o s r e p r o F 80 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F In assessing the presence of impairment indicators, we focused on those 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, and given the financial position of the Group and restrictive events imposed 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; The impact of the restrictive event imposed on the Groups to the implications to carrying forward capitalised E&E; and • Results from latest activities regarding the existence or otherwise of economically recoverable reserves. These assessments can be inherently difficult, particularly in uncertain or depressed market conditions such as those currently being experienced in Australian oil and gas exploration. In addition to the above across significant tenements, the Group recorded an impairment charge of $7,450,000 against two areas of interest, as a result of the recent market transaction with a third party. This further increased our audit effort in this key audit area. work programs and project and corporate budgets for a sample of areas; • 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 assessed the impact of the unconventional drilling moratoriums to the Group’s planned continued exploration and evaluation activities. We read correspondence from the Government of Western Australia which imposed the moratorium to understand the scenario and status, and compared this to the Group’s proposed level and timing of recommencement activity to that prior to the moratorium. We used this knowledge to assess the Group’s decision to continue to carry E&E on these areas, and the consistency of the decision for commercial continuation of activities; and • We compared the results regarding the existence of reserves for consistency to the treatment of E&E and the requirements of the accounting standard. • We assessed the scope, competency and objectivity of the external expert engaged by the Group who assisted with the assessments of the valuation of E&E assets. • For the specific tenements where impairment was recorded, we recalculated the impairment charge against the recorded carrying value and compared this to the amount disclosed. Other Information 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 81 Rey Resources Annual Report 2019 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 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 Reports 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 Reports The Directors are responsible for: • preparing the Financial Report that give 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 give a true and fair view and are free from material misstatement, whether due to fraud or error; and • assessing the Group's ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audits of the Financial Reports Our objective is: • to obtain reasonable assurance about the Financial Report as a whole are 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 l y n o e s u l a n o s r e p r o F 82 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audits of the Financial Reports is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/ auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion Directors' responsibilities In our opinion, the Remuneration Report of Rey Resources Limited for the year ended 30 June 2019, 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 2019. 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 19 September 2019 83 Rey Resources Annual Report 2019 ASX ADDITIONAL INFORMATION Additional Shareholder Information Additional information required by the Australian Securities Exchange Listing Rules and not disclosed elsewhere in this Annual Report is set out below. The information was current as at 12 September 2019. 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 2019 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 2019 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 12,970,000 12,361,500 12,092,553 10,959,614 16.34% 16.06% 11.84% 6.81% 6.11% 5.83% 5.70% 5.17% l y n o e s u l a n o s r e p r o F 84 Rey Resources Annual Report 2019 Top 20 Shareholders The 20 largest shareholders of the Company are listed below: l y n o e s u l a n o s r e p r o F Name Number of Shares Percentage Held % 1. ASF CANNING BASIN ENERGY PTY LTD 2. MISS WANYAN LIU 3. MERCHANT CENTRAL LIMITED 34,666,667 34,068,800 25,114,286 4. NEWAY ENERGY INTERNATIONAL LIMITED 14,450,580 5. MRS YINXIN HE 6. START GRAND GLOBAL LIMITED 7. MISS MEI CHI JOYCE LEE 8. START LINK INVESTMENTS LIMITED 9. JADE SILVER INVESTMENTS LIMITED 10. XIAO HUI ENTERPRISES LIMITED 11. BNP PARIBAS NOMS PTY LTD 12. MR JIARONG HE 13. MR HAITAO GENG 14. TONG HENG HOLDINGS LIMITED 15. JADE SILVER INVESTMENTS LTD 16. FOREVER GRAND GROUP LIMITED 17. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 12,970,000 12,361,500 12,092,553 10,959,614 9,352,056 6,959,404 6,633,063 6,228,491 3,000,000 1,846,126 1,480,000 1,150,837 1,025,921 18. BROWNSTONE INTERNATIONAL PTY LTD 1,000,000 19. MEGA AHEAD LIMITED 20. MRS SHUNYI ZHU 990,326 915,755 16.34% 16.06% 11.84% 6.81% 6.11% 5.83% 5.70% 5.17% 4.41% 3.28% 3.13% 2.94% 1.41% 0.87% 0.70% 0.54% 0.48% 0.47% 0.47% 0.43% TOTAL TOP 20 SHAREHOLDERS 197,265,979 92.97% 85 Rey Resources Annual Report 2019 Distribution of Equity Securities There were 665 holders of less than a marketable parcel of ordinary shares (being 291,523 shares on 12 September 2019). The number of shareholders by size of holding is set out below: Fully Paid Ordinary Shares Size of Holding 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over TOTALS Voting Rights Number of holders Number of shares 570 411 152 157 50 1,340 163,501 1,132,168 1,166,689 4,113,912 205,612,169 212,188,439 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 7 June 2018, 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. A total of 216,827 shares were bought back pursuant to the share buy-back before it closed on 21 June 2019. On 24 June 2019, Rey Resources announced another on-market share buy-back of up to 10% of its issued share capital on market over a 12-month period. To the date of this Annual Report, Rey Resources has not bought back any shares pursuant to the current share buy-back. Securities Exchange Rey Resources is listed on the Australian Securities Exchange (ASX code: REY). l y n o e s u l a n o s r e p r o F 86 Rey Resources Annual Report 2019 l y n o e s u a n o s r e p r o F Tenement Schedule The tenement schedule for the Group as at the date of this report is tabulated below: Licence Type Licence No.1 Grant Date Expiry Date Holder Area (Ha) Percentage Held EL EL EL E04/1386 21/01/2004 20/01/2020 Blackfin Pty Ltd 1,627 E04/1519 20/04/2006 19/04/2020 Blackfin Pty Ltd 11,386 E04/1770 4/03/2009 3/03/2020 Blackfin Pty Ltd 6,834 MA M04/0453 Pending Pending Blackfin Pty Ltd 12,964 100% 100% 100% 100% EP EP EP457 24/10/2007 05/01/20221 EP458 24/10/2007 05/01/20221 l EP EP4872 14/03/2014 13/12/2021 Rey Oil and Gas Pty Ltd /Buru/DR Rey Oil and Gas Pty Ltd /Buru/DR 251,737 40% 292,050 40% Rey Lennard Shelf Pty Ltd 505,840 50% EP L R EP EP4872 14/03/2014 13/12/2021 Rey Derby Block Pty Ltd 505,840 50% L153,4 R14 EP1044 01/04/2010 21/03/2031 Gulliver Productions 16,400 11/10/2016 10/10/2022 Gulliver Productions 24,516 30/01/2015 29/07/2022 Gulliver Productions 73,596 100% 100% 100% EL: Exploration Licence MA: Mining Lease Application EP: Exploration Permit Petroleum L: R: Production Licence Retention Licence 1. All licences are located in Western Australia 2. Royalties attaching to EP487: Rey Lennard Shelf Pty Ltd may, at its election, on the grant of a production licence on EP487, either: grant Backreef Oil Pty Ltd a 1% royalty on sales proceeds from future production from its former interest in EP487 or pay $2 million to Backreef. 3. Subject to farmin by Doriemus Plc., with Doriemus to earn 50% operating interest on completion. 4. Royalties attaching to L15, R1 and EP104: Gulliver granted Key Petroleum Ltd and Indigo Oil Pty Ltd a 25% and 0.5% royalty respectively over the three blocks. 87 Rey Resources Annual Report 2019 l y n o e s u l a n o s r e p r o F 88 Suite 5 62 Ord Street West Perth WA 6005 Tel: +61 8 9322 1587 Fax:+61 8 9322 5230 www.reyresources.con Rey Resources Annual Report 2019 

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