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Annual Report 2022

Plain-text annual report

REY RESOURCES LIMITED A.B.N. 84 108 003 890 ANNUAL REPORT 2022 CONTENTS Page Corporate Directory ..................................................................................................................................................... 2 Company Profile ....................................................................................................................................................3 Chairman’s Message ..............................................................................................................................................4 Business Performance and Outlook .......................................................................................................................5 Annual Reserves and Resources Statement ...........................................................................................................9 Director’s Report .................................................................................................................................................12 Auditor’s Independence Declaration ...................................................................................................................27 Consolidated statement of profit or loss and other comprehensive income .........................................................28 Consolidated statement of financial position ......................................................................................................29 Consolidated statement of changes in equity........................................................................................................30 Consolidated statement of cash flows .................................................................................................................31 Note to the consolidated financial statements ....................................................................................................32 Directors’ Declaration .........................................................................................................................................61 Independent Audit Report ...................................................................................................................................62 ASX Additional Information ..................................................................................................................................67 Tenement Schedule ..............................................................................................................................................70 1 CORPORATE DIRECTORY Directors Ms Min Yang Mr Wei Jin Mr Geoff Baker Mr Dachun Zhang Mr Louis Chien Company Secretary Mr William Kuan Non-Executive Chairman Managing Director Non-Executive Director Independent Non-Executive Director Alternate Director to Non-Executive Chairman, Ms Min Yang Registered Office 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 Auditor SW Audit (formerly ShineWing Australia) Level 7, Aurora Place 88 Phillip Street Sydney NSW 2000 Securities Exchange Australian Securities Exchange (ASX) ASX Code: REY Website www.reyresources.com 2 COMPANY PROFILE Rey Resources Limited (“Rey” or “Company”) is an ASX-listed company (ASX: REY) focused on exploring and developing energy resources in Western Australia’s Canning Basin. Rey holds 100% interest in EP487 (the “Derby Block”) and 20% interest in two prospective Canning Basin petroleum exploration permits - EP457 and EP458 (the “Fitzroy Blocks”). Rey also holds 100% interest in EP104, Retention Licence R1 and Production Licence L15 (together the “Lennard Shelf Blocks”). Rey has participated and completed a series of exploration works on these permits, including two deep conventional oil wells in Canning Basin, more than 160km of new seismic line acquisition, 2300+km vintage seismic line reprocessing and multiple regional geology and geophysics studies. Rey is aiming to have an extensive exploration activity for future Canning Basin development. Rey also holds two well-explored coal tenements in the Canning Basin which consist of the Duchess Paradise Coal Project. Rey also holds 7.5 million fully paid ordinary shares in PZE Limited, representing approximately 9.9% of its issued capital as of 30 June 2022, which holds the Surat Gas Project located at Surat Basin, Queensland. Rey has an experienced Board and management team and is committed to continue developing its energy assets to deliver maximum value to its shareholders. 3 CHAIRMAN’S MESSAGE Dear Shareholders, It is my pleasure to deliver Rey’s Annual Report for the year ended 30 June 2022. We kept our target to bring maximum values to shareholders and contribute to the energy development by focusing on our coal and oil and gas exploration projects in Canning Basin in WA during this financial year. In the first half of 2022, we focused on the engineering and geology evaluation over Lennard Shelf Project which confirmed the hydrocarbon potential and enlarged the prospective resources. The R1 renewal has also been approved by the DMIRS in August 2022. The renewal maintains Rey’s interests in Canning Basin as well as the potential large gas resources assets. Rey also updated the exploration strategy and rational over EP487 that conventional resources, instead of unconventional tight gas, will be the future target. The change is partially caused by the successful conventional discovery at Rafael Propsective. Rey also holds 7.5 million fully paid ordinary shares in PZE Limited which holds the Surat Gas Project located at Surat Basin, Queensland. PZE Limited is a public company incorporated in Australia. This potentially could bring Rey a successful financial investment. After long time negotiation with Walalakoo for DP Project, a term sheet for formal co-existing agreement has been prepared and provided to the Native Title. Rey keens to negotiate for the heritage protection and other commercial terms with Walalakoo body corporate which represent Nyikina Mangala people in good faith and co-develop the Duchess Paradise Coal Project. I would like to thank all shareholders for their support and understanding. I also want to thank our staff and management team for their work over the past year and look forward to the next exciting year. Min Yang Non-executive Chairman 4 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 Origin Energy 20% 40% 40% (including 6.664% free carried to production) (Operator) Rey holds a total 20% participating interest in the two blocks, but only has a 13.336% funding obligation until commercial production. This is due to a Funding Agreement whereby Buru Energy Ltd free carries 6.664% of Rey's 20% participating interest. The Fitzroy Blocks (comprising a combined area in excess of 5,000 km2) 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 km2). 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 Following the execution of formal farmin agreement on 15 April 2021 with Origin Energy, the planned Celestine 2D seismic was completed in September 2021. All the seismic data was received and completed the processing by operator. The final outputs were received in March 2022. The seismic survey Is primarily within EP457 with total length of 383km but also about 147km extended into EP458. Interpretation of the Celestine 2D seismic data and integration with the existing grid of vintage 2D data was ongoing throughout Q2 2022. It is apparent at this early stage of the interpretation that the Celestine 2D survey has allowed the identification of a new play that was not previously recognised. This new play involves a postulated salt body that trends across the southwestern part of EP 457. 5 2. Canning Basin - the Derby Block (EP487) 2.1 Background The Derby Block (EP487) is a large petroleum exploration permit of approximately 5,000 km2. 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). Rey is holding 100% of the equity interest in the Derby Block through the following subsidiaries: Rey Lennard Shelf Pty Ltd Rey Derby Block Pty Ltd 50% 50% 2.2 Work program during the year Rey reviewed the exploration rational of EP487 in late 2021 and decide to change the exploration strategy over Derby Block from unconventional development to conventional target appraisal. A 500km2 3D seismic survey has been planned to cover all Butler prospect in EP487. Rey expects the 3D seismic could further derisk the potential conventional sandstone target and better define the well location. 6 Several rounds of discussion with potential farmin partner as well as the department has been conducted. A work variation, suspension and extension has been lodged to DMIRS for assessment and approval. 3. Lennard Shelf Blocks – EP104, R1 and L15 3.1 Background Rey holds 100% interest in the Lennard Shelf Blocks which comprises EP104, a Retention Lease (R1) and one Production License (L15). The Lennard Shelf Blocks are situated north of Rey’s existing interests in the Canning Basin petroleum exploration license EP487 and covering a total area of approximately 1,145 km2 and considered prospective for conventional oil and tight gas. 3.2 Work Program during the year During the report period, couple of studies has been conducted over Lennard Shelf Project including R1 engineering deep dive study, R1 resources review, R1 and EP 104 geology overview, L15 reproduction initial plan and EP104 leads remapping. The R1 resources review is provided by RISC in Q2 2022. The review is focus on the Anderson Sandstone in Point Torment trap. The seismic, structural interpretation, reservoir properties, gas condensate fluid properties were reviewed. The updated sources is listed in the Annual Reserves and Resources Statement. 4. Surat Gas Project On 21 December 2020, the Company announced that it has signed a term sheet with Southernpec (Australia) Pty Ltd (“SouthnA”) and Southernpec Holdings Pty Ltd pursuant to which Rey will acquire up to 75% equity interest in SouthnA which holds significant interests in Surat Gas Project. On 28 January 2022, Rey announced that it will not proceed further on stages 2 and 3 of the proposed acquisition and was in discussion with SouthnA about capital raising alternatives. In end of June 2022, Rey signed a Share Buy-back Deed with SouthnA pursuant to which SouthnA bought back all the shares in SouthnA held by Rey for 7.5 million fully paid ordinary shares representing approximately 9.9% of PZE Limited as of 30 June 2022. Please refer to the announcement released by Rey on 4 July 2022. The share buyback by SouthnA and share issue by PZE was completed in August 2022. Surat Gas Project has good conventional resources potential and good production history, as planned with Rey, a reproduction work program, new 3D seismic and new well drilling works has been proposed for further development and appraisal. COAL The Duchess Paradise Coal Project (“DP Project”) is a proposed bituminous thermal coal operation of up to 3 million tonnes per annum in the Canning Basin, north Western Australia. A Definitive Feasibility Study (“DFS”) of the Project was completed in June 2011 and the first phase update of the DFS has been completed in 2018. Rey continues the communication with Native Title holders for the co-existing agreement to support the DP Project development during the 2021-2022 financial year. Due to the inactive responses from Nyikina Mangala (“NM”) People, Rey drafted a term sheet of future co-existing agreement in good faith for comments from NM People. The term sheet provided a good base for the parties to have material progress on the future development and operation of DP Project. 7 CORPORATE On 22 June 2022, Rey announced that it had agreed with Ms Wanyan Liu and ASF Group Limited for the extension of the respective loan maturity dates by 1 year to 31 October 2023. Ms Wanyan Liu also agreed to increase the loan facility amount provided to Rey by $4.5 million to a total of $17 million. Subsequent to the financial year end on 4 August 2022, the Company announced the extension of its on- market buyback program for a further 12 months from 18 August 2022. During the year ended 30 June 2022, the Company did not buy back any share under the previous buyback program. 8 ANNUAL RESERVES AND RESOURCES STATEMENT Mineral Resources and Ore Reserves Comparison During the report period, Rey continued the review of the JORC resources of Duchess Paradise P1-seam and expects a minor impact from the surrendered tenement of E04/1386. An updated JORC resources in accordance with JORC 2012 is expected to be reported to ASX once the assessment work is completed. Rey also continued the re-estimation of Ore Reserves for Duchess Paradise P1 seam during the report period. As a result, the Company is not in a position to report the outcome of its annual review of Ore Resources and Reserves in this Annual Report. Oil and Gas Resources and Reserves The Company reviews its Oil and Gas Reserves, Contingent and Prospective 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 and continually review in the following 5 years. 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 Recoverable BOE Tcf1 Tcf1 MMbbl2 MMBOE4 P901 68.0 9.4 239 1,852 P501 169.6 28.4 707 5,283 P102 412.9 81.1 2,066 15,096 Table 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. During the report period, Rey reviewed the resources of EP487 in September 2022 with third party consultant, 3D GEO. The results indicated that no adjustment is required to the resources of EP487 initially released in June 2017. 9 L15 A review of Rey’s oil Reserves and contingent Resources for the West Kora Oilfield in L15 was conducted by Rey in August 2021. The review showed no changes are required. Detailed Reserves of West Kora Oilfield in L15 is listed in Table 3 below: Table 3: Estimated Remaining Petroleum Reserves and Contingent Resources West Kora Oilfield West Kora Oilfield Recoverable Oil West Kora Oilfield Recoverable Contingent Resources 1 Mstb – Thousand stock tank barrels of oil. 1P 67 1C 13.2 Mstb1 Mstb 2P 238 2C 60.7 3P 593 3C 226.4 R1 In May 2022, Rey appointed independent evaluator, RISC to carry out a resources review over R1 and the results were initially released in July as part of the Company's June Quarterly Report. The updated Resources are shown as below: Gas and condensate Point Torment Raw GIIP Point Torment Sales Gas Unit Bscf Bscf Contingent Resources 1C 5.76 3.2 Point Torment Condensate PJ 000 stb 4.1 16 2C 11.9 7.5 9.5 38 3C 21.2 14.2 18 71 The Contingent Resources in Point Torment were reviewed in September 2022 by Mr John Begg, who is a highly experienced petroleum geologist familiar with the project area. Mr John Begg agrees the resources review result from RISC. 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 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 for EP487 and L15 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 31 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 15 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. 10 The Contingent Resources review quoted in this Annual Report for R1 have been assessed by Mr John Begg who has over 42 years of experience in the oil and gas industry. Mr Begg is a member of the American Association of Petroleum Geologists (AAPG) and the Petroleum Exploration Society of Australia (PESA). He is a recipient of the John Doran award for lifetime achievement in the upstream oil and gas industry (an Annual award presented at the Good Oil Conference). Mr Begg consents to the inclusion of the information in this report relating to hydrocarbon Contingent Resources in the form and context in which it appears. 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. 11 DIRECTORS’ REPORT The Directors of Rey Resources Limited (“Rey” 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 2022. 1. DIRECTORS The Directors of the Company at any time during or since the end of the financial year are: Ms Min Yang Mr Wei Jin Mr Geoff Baker Mr Dachun Zhang Mr Louis Chien Non-Executive Chairman Managing Director Non-Executive Director Independent Non-Executive Director Alternate Director to Non-Executive Chairman, Ms Min Yang Details of Directors’ qualifications, experience, special responsibilities and directorships of other listed companies can be found on pages 13 to 15. 12 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 Min Yang has extensive business connections and has over 30 years of hands-on experience dealing with private and state- owned enterprises in the Asia-Pacific region. Over the years, Ms Yang has proven her unique business insight and expertise in the identification, incubation and realisation of real asset investment opportunities. 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 in Science from China University of Wei Jin holds PhD 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. 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 in the region. As an assisting companies doing business 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. • Non-Executive Chairman • Member, Audit and Risk Management Committee • Member, Audit and Risk Management Committee • Member, Audit and Risk Management Committee • ASF Group Limited (September 2005, ongoing) • ActiveEX Limited (May 2012, ongoing) • Key Petroleum Limited (January 2014, ongoing) • BSF Enterprise PLC (appointed 5 September 2018, ongoing) None • ASF Group Limited (November 2006, ongoing) • ActiveEX Limited (appointed February 2013. Resigned June 2017 and re-appointed August 2017, ongoing) • Key Petroleum Limited (January 2014, ongoing) • BSF Enterprise PLC (appointed 5 September 2018, ongoing) 13 Directors Designation and Independence status Current Dachun Zhang Appointed on 1 July 2013 Director Non-Executive Independent Experience, expertise and qualifications Directorships of other listed companies during the last three years Special responsibilities during the year 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. None • Chairman, Audit and Risk Management Committee 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. 14 Designation and Independence status Alternate Director Directors Current Louis Chien Appointed Alternate Director to Non- Executive Chairman, Ms Min Yang on 11 January 2016. Experience, expertise and qualifications Directorships of other listed companies during the last three years Special responsibilities during the year 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. Mr Chien holds a Master of Business Administration in finance from Kelley School of Business, Indiana University, and two bachelor degrees in Architecture, all attained in the United States. • ASF Group Limited (May None 2015, ongoing) • ActivEX Limited (appointed Alternate Director to Ms Min Yang on 20 April 2020, ongoing) • Key Petroleum Limited (appointed 1 October 2021, ongoing) 15 3. COMPANY SECRETARY Mr William Kuan was appointed to the position of Company Secretary on 1 July 2020. Mr Kuan holds a Master Degree in International Accounting. He is a Fellow of CPA Australia and an Associate of The Chartered Governance Institute (formerly ICSA) in the UK and The Hong Kong Chartered Governance Institute (formerly HKICS). Mr Kuan has extensive experience in accounting, corporate finance and company secretarial areas. He is currently a Director and Company Secretary of ASF Group Limited, a substantial shareholder of the Company. Prior to joining ASF, he was company secretary for a number of diverse Hong Kong 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 Louis Chien Meetings A 3 3 3 3 1 B 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 Meetings A 2 2 2 2 B 2 2 2 2 A - Number of meetings attended. B - Number of meetings held during the time the Director held office. 16 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 Min Yang Geoff Baker Dachun Zhang Wei Jin Louis Chien 200,000 200,000 777,414 200,000 Nil 6. REMUNERATION REPORT – AUDITED Nil Nil Nil Nil Nil Performance Rights Nil Nil Nil Nil Nil This remuneration report outlines the Director and executive remuneration arrangements for Rey in accordance with the requirements of the Corporations Act 2001 and its associated 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’s 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. 2022 Key Management Personnel The KMP of Rey during the year ended 30 June 2022 were: Non Executive Min Yang Geoff Baker Dachun Zhang Louis Chien Executive Wei Jin Non-Executive Chairman (appointed 13 September 2012) Non-Executive Director (appointed 13 September 2012) Independent Non-Executive Director (appointed 1 July 2013) Alternate Director to Ms Min Yang (appointed 11 January 2016) Managing Director (appointed Non-Executive Director 2 December 2013, appointed Managing Director 1 July 2016) 17 6. REMUNERATION REPORT – AUDITED (continued) 6.1 Principles of compensation (continued) 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. 18 6. REMUNERATION REPORT – AUDITED (continued) 6.1 Principles of compensation (continued) Executive remuneration components Executive remuneration is structured so that it supports the key remuneration principles outlined above, and is intended to motivate executives towards achievement of the annual objectives and longer term success of the Company. A Total Fixed Remuneration (“TFR”) is paid which considers external market comparisons and individual performance. Performance linked compensation is available through the short term and long term incentive plans outlined below. Fixed remuneration Executives receive an annualised TFR from which they must have deducted statutory superannuation. They may elect to salary sacrifice further superannuation contributions and other benefits such as a motor vehicle. Accommodation assistance and medical insurance may be provided for employees from overseas or interstate where it is necessary to be able to attract key talent. A review of TFR is undertaken each year and reflects market movements and individual performance. 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. No EIRP was granted during the year. 19 6. REMUNERATION REPORT – AUDITED (continued) 6.1 Principles of compensation (continued) Relationship between Company performance and remuneration The objective of the Company’s remuneration structure is to reward and incentivise the executives so as to ensure alignment with the interests of the shareholders. The remuneration structure also seeks to reward executives for their contribution in a manner that is appropriate for a company at this stage of its development. As outlined elsewhere in this Report, the remuneration structure incorporates fixed, annual at risk and long term incentive components. For shareholders, the key measure of value is 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 2022 0.26 2021 0.27 2020 0.31 2019 0.31 2018 0.32 Consequences of performance on shareholder wealth Loss ($’000) Dividends declared Total shareholder return (TSR)% 2022 (1,798) - (4%) 2021 (1,323) - (13%) 2020 (1,880) - 2019 (8,923) - 2018 (1,049) - 0% (3%) 60% 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 original annual cash fees payable to each NED were 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. From April 2020 onwards, fees paid to each NED had been reduced by 50% of the original fees. 20 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 2021 and 30 June 2022. 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 $ $ $ $ $ $ $ M Yang - Non-Executive Chairman - Appointed 13 September 2012 2022 2021 24,000 24,000 - - - - G Baker - Non-Executive Director - Appointed 13 September 2012 2022 2021 30,000 30,000 - - - - D Zhang - Non-Executive Director - Appointed 1 July 2013 2022 2021 12,500 12,500 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 24,000 24,000 30,000 30,000 12,500 12,500 W Jin - Managing Director - Appointed Non-Executive Director 2 December 2013, appointed Managing Director 1 July 2016 2022 2021 60,002 60,002 - - - - 6,000 5,700 L Chien - Alternate Director - Appointed 11 January 2016 2022 2021 TOTAL 2022 2021 - - 126,502 126,502 - - - - - - - - - - 6,000 5,700 - - - - - - 1 In accordance with his contract Wei Jin does not accrue long term employee benefits. 6.3 Equity instruments No share rights were granted during the financial year. - - - - - - - - - - - - 66,002 65,702 - - 132,502 132,202 No options and rights over ordinary shares in the Company were granted during the financial year. 21 6. REMUNERATION REPORT – AUDITED (continued) 6.4 Key employment contract The table below summarises the key contractual provisions of the executive KMP. Name and Position Wei Jin Contract Term Ongoing Termination by Company Termination by Executive 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. 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 2022 financial year. 6.6 Movements in share holdings Movements in shares The movement during the reporting period in the number of ordinary shares in the Company held by each KMP, including their related parties, is as follows: 2022 Directors Min Yang1 Geoff Baker2 Wei Jin3 Dachun Zhang4 Louis Chien Total Held at 1 July 2021 Received as compensation Received on exercise of options/rights Other changes Held at 30 June 2022 200,000 200,000 200,000 777,414 - 1,377,414 - - - - - - - - - - - - - - - - - - 200,000 200,000 200,000 777,414 - 1,377,414 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. 22 6. REMUNERATION REPORT – AUDITED (continued) 6.7 Movements in Option holdings No KMP held or were issued options during the 2022 reporting period. 6.8 Movement in Share right holdings No KMP held or were issued share rights during the 2022 reporting period. 6.9 Loans to KMP and their related parties During the financial year and to the date of this report, the Company made no loans to directors and other KMP and none were outstanding as at 30 June 2022. 6.10 Other transactions with KMP There were no other disclosable transactions with KMP during the 2022 reporting period. 7. PRINCIPAL ACTIVITIES The principal activity of Rey is exploring for and developing energy resources in Western Australia’s Canning Basin. The Company holds 20% interest in petroleum permits EP457 & 458 in joint venture with Buru and Origin, 100% interest in the Derby Block EP487 and petroleum exploration permit EP104, retention licence R1 and production licence L15. Rey also holds 100% interests in Duchess Paradise Coal Project. Rey also holds 7.5 million fully paid ordinary shares in PZE Limited, representing approximately 9.9% of its issued capital as of 30 June 2022, which in turn holds the Surat Gas Project located at Surat Basin, Queensland. PZE Limited is a public company incorporated in Australia. 8. RESULTS FOR THE YEAR AND REVIEW OF OPERATIONS Oil and Gas Fitzroy Blocks (EP457 & EP458) Following the completion of Celestine 2D seismic and received all processed data, the interpretation of the data and integration with the existing grid of vintage 2D data was ongoing since early 2022. It is apparent at this early stage of the interpretation that the Celestine 2D survey has allowed the identification of a new play that was not previously recognised. This new play involves a postulated salt body that trends across the southwestern part of EP 457. Derby Block (EP487) Rey reviewed the exploration rational of EP487 in late 2021 and decide to change the exploration strategy over Derby Block from unconventional development to conventional target appraisal. A 500km2 3D seismic survey has been planned to cover all Butler prospect in EP487. Rey expects the 3D seismic could further derisk the potential conventional sandstone target and better define the well location. Several rounds of discussion with potential farmin partner as well as the department has been conducted. A work variation, suspension and extension has been lodged to DMIRS for assessment and approval. 23 8. RESULTS FOR THE YEAR AND REVIEW OF OPERATIONS (continued) Lennard Shelf Blocks (EP104, R1, L15) During the report period, couple of studies has been conducted over Lennard Shelf Project including R1 engineering deep dive study, R1 resources review, R1 and EP 104 geology overview, L15 reproduction initial plan and EP104 leads remapping. The R1 resources review is provided by RISC in Q2 2022. The review is focus on the Anderson Sandstone in Point Torment trap. The seismic, structural interpretation, reservoir properties, gas condensate fluid properties were reviewed. The updated sources is listed in the Annual Reserves and Resources Statement. Coal Duchess Paradise Projects Rey continues the communication with Native Title holders for the co-existing agreement to support the DP Project development during the 2021-2022 financial year. Due to the inactive responses from Nyikina Mangala People, Rey drafted the term sheet of future co-existing agreement in good faith for comments from NM People. The term sheet provided a good base for parties to have material progress on the future development and operation of DP Project. Corporate On 22 June 2022, Rey announced that it had agreed with Ms Wanyan Liu and ASF Group Limited for the extension of the respective loan maturity dates by 1 year to 31 October 2023. Ms Wanyan Liu also agreed to increase the loan facility amount provided to Rey by $4.5 million to a total of $17 million. Subsequent to the financial year end on 4 August 2022, the Company announced the extension of its on-market buyback program for a further 12 months from 18 August 2022. During the year ended 30 June 2022, the Company did not buy back any share under the previous buyback program. Financial review Net loss of the Group after income tax for the year ended 30 June 2022 was $1,798,000, an increase of approximately 36% compared with the loss of $1,323,000 for the last year. Losses for the year was mainly attributed to the finance costs of $1,391,000, which was principally interest accrued for the loans granted by ASF and Liu. As at the balance sheet date, the Group had undrawn loan facilities of $6.84 million from Ms Wanyan Liu and ASF Group Ltd. 9. DIVIDENDS No dividend has been paid or declared by the Company during the financial year ended 30 June 2022 (2021: nil) and the Directors do not recommend the payment of a dividend in respect of the financial year ended 30 June 2022. 24 10. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Other than as noted elsewhere in this report, there have been no significant changes in the state of the affairs of the Company up to and including the date of this report. 11. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Future information about the likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the 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. 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 The Group has in place Deeds with each of the Directors whereby the Group has agreed to provide certain indemnities to each Director to the extent permitted by the Corporations Act and to use its best endeavours to obtain and maintain Directors’ and Officers’ indemnity insurance, subject to such insurance being available at reasonable commercial terms. The Group has not given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums in respect of any person who is or has been an auditor of the Company or a related body corporate during the year and up to the date of this report. 25 16. SUBSEQUENT EVENTS On 4 August 2022, the Company announced the extension of its on-market buyback program for a further 12 months from 18 August 2022. No other matter or circumstance has arisen since 30 June 2022 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 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 specifically stated to be otherwise. 19. NON-AUDIT SERVICES There were no non-audit services provided by SW Audit (formerly ShineWing Australia) during this financial year. 20. AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration is set out on page 27 and forms part of the Directors’ report for the financial year ended 30 June 2022. Signed in accordance with a resolution of Directors. Min Yang Non-Executive Chairman Sydney, Australia 27 September 2022 26 Take the lead AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF REY RESOURCES LIMITED As lead auditor, I declare that, to the best of my knowledge and belief, during the year ended 30 June 2022 there have been: i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit, and ii. no contraventions of any applicable code of professional conduct in relation to the audit. SW Audit (formerly ShineWing Australia) Chartered Accountants Yang (Bessie) Zhang Partner Sydney, 27 September 2022 Brisbane Level 15 240 Queen Street Brisbane QLD 4000 T + 61 7 3085 0888 Melbourne Level 10 530 Collins Street Melbourne VIC 3000 T + 61 3 8635 1800 Perth Level 25 108 St Georges Terrace Perth WA 6000 T + 61 8 6184 5980 Sydney Level 7, Aurora Place 88 Phillip Street Sydney NSW 2000 T + 61 2 8059 6800 SW Audit ABN 39 533 589 331. Liability limited by a scheme approved under Professional Standards Legislation. SW Audit is an independent member of ShineWing International Limited. sw-au.com 27 Rey Resources Limited Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2022 in thousands of dollars Note Other income Administrative expenses Loss from operations Finance costs Loss before income tax Income tax expense Loss for the year attributable to owners of the company Other comprehensive income Total comprehensive loss for the year, attributable to owners of the Company Loss per share Basic and diluted (cents per share) 4 6 5 7 8 30 June 2022 - (405) (405) (1,393) (1,798) 30 June 2021 67 (382) (315) (1,008) (1,323) - - (1,798) (1,323) - - (1,798) (1,323) (0.85) (0.62) The notes on pages 32-60 are an integral part of these consolidated financial statements 28 Rey Resources Limited Consolidated statement of financial position As at 30 June 2022 In thousands of dollars Note 2022 2021 (Reclassified) ASSETS Current assets Cash and cash equivalents Trade and other receivables Prepayments Total current assets Non-current assets Property, plant and equipment Financial assets Exploration and evaluation expenditure Total non-current assets Total assets LIABILITIES Current liabilities Loans and borrowings Trade and other payables Employee benefits Total current liabilities Non-current liabilities Loans and borrowings Provisions Total non-current liabilities Total liabilities Net assets EQUITY Share capital Accumulated losses 9a 10 Note 11 12 13 21d 14 15 21d 16 17 Total equity attributable to equity holders of the Company The notes on pages 32-60 are an integral part of these consolidated financial statements 172 9 3 184 2 767 38,353 39,122 39,306 63 403 14 480 12,878 3,535 16,413 16,893 22,413 36 47 3 86 3 700 37,230 37,933 38,019 272 65 11 348 10,139 3,321 13,460 13,808 24,211 86,537 (64,124) 86,537 (62,326) 22,413 24,211 29 Rey Resources Limited Consolidated statement of changes in equity For the year ended 30 June 2022 in thousands of dollars Balance at 30 June 2020 Loss for the year Other comprehensive income Total comprehensive loss for the year Transactions with owners recorded directly in equity: Contributions by and distributions to owners Share buy back Balance at 30 June 2021 Loss for the year Other comprehensive income Total comprehensive loss for the year Transactions with owners recorded directly in equity: Contributions by and distributions to owners Share buy back Balance at 30 June 2022 Share capital 86,589 Accumulated Losses (61,003) - - - (52) 86,537 - - - - 86,537 (1,323) - (1,323) - (62,326) (1,798) - (1,798) - (64,124) Total 25,586 (1,323) - (1,323) (52) 24,211 (1,798) - (1,798) - 22,413 The notes on pages 32-60 are an integral part of these consolidated financial statements 30 Rey Resources Limited Consolidated statement of cash flows For the year ended 30 June 2022 in thousands of dollars Note 30 June 2022 30 June 2021 9b 12 Cash flows from operating activities Cash paid to suppliers and employees Government Subsidy Net cash used in operating activities Cash flows from investing activities Investment in financial assets Payments for exploration expenditure Net cash used in investing activities Cash flows from financing activities Share buy back Proceeds from loans and borrowings Repayment of loans and borrowings Finance costs Net cash inflow from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 9a The notes on pages 32-60 are an integral part of these consolidated financial statements. (357) 8 (349) (67) (883) (950) - 2,710 (50) (1,225) 1,435 136 36 172 (378) 35 (343) (700) (749) (1,449) (51) 4,780 (2,040) (1,036) 1,653 (139) 175 36 31 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 1. REPORTING ENTITY Rey Resources Limited (the “Company”) is a company domiciled in Australia. The address of the Company’s registered office is Suite 2, 3B Macquarie Street, Sydney NSW 2000. The consolidated financial statements of the Company as at and for the financial year ended 30 June 2022 comprise the Company and its subsidiaries (together referred to as “Rey” 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 Statement of compliance (a) 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 also comply with International Financial Reporting Standards (“IFRS”) and interpretations issued by the International Accounting Standards Board (“IASB”). The accounting policies detailed below have been consistently applied to all of the years presented unless otherwise stated. The consolidated financial statements were authorised for issue by the Board of Directors on 27 September 2022. Going concern (b) 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 2022 the Group incurred a loss after tax of $1,798,000 and incurred operating and investing cash outflows of $1,299,000. As at 30 June 2022 the Group had cash of $172,000, available standby loan facilities from ASF Group Limited of $2 million and Wanyan Liu of $4.84 million, a net working capital deficit of $296,000 and net assets of $22,413,000 as at 30 June 2022. The Group also has exploration expenditure commitments of $1,819,000 for the next financial year. The Group has prepared a cashflow forecasts for the period to 30 September 2023. The cashflow forecast reflects: • The need to raise additional funding during the forecast period; • 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. 32 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 2. BASIS OF PREPARATION (Continued) 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 could be extended if needed, 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. These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern and to be able to pay its debts as and when they fall due, and therefore the Group may be unable to realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the consolidated financial statements. Basis of measurement (c) The consolidated financial statements have been prepared on the historical cost basis. Functional and presentation currency (d) 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 and in accordance with that Class Order, all financial information presented in Australian dollars has been rounded to the nearest thousand dollars unless otherwise stated. Critical accounting estimates and judgements (e) The Directors evaluate estimates and judgements incorporated into these consolidated financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. The resulting accounting estimates will, by definition, seldom equal the related actual results. Following is a summary of the key assumptions concerning the future, and other key sources of estimation and accounting judgements at the reporting date that have not been disclosed elsewhere in these consolidated financial statements. (i) Exploration and evaluation expenditure The application of the Group's accounting policy for exploration and evaluation expenditure requires judgement in determining whether it is likely that future economic benefits will be realised, which may be based on assumptions about future events or circumstances. Estimates and assumptions may change if new information becomes available. If after expenditure is capitalised information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalised is written off in the profit and loss in the period when the new information becomes available. 33 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 2. BASIS OF PREPARATION (Continued) (ii) Impairment of assets The determination of fair value and value in use requires management to make estimates and assumptions about expected production and sales volumes, coal prices (considering current and historical prices, price trends and related factors), foreign exchange rates, coal resources and reserves, operating costs, closure and rehabilitation costs and future capital expenditure. These estimates and assumptions are subject to risk and uncertainty; hence there is a possibility that changes in circumstances will alter these projections, which may impact the recoverable amount of the assets. In such circumstances, some or all of the carrying amount of the assets may be further impaired or the impairment charge reduced with the impact recorded in the statement of profit or loss. (iii) Rehabilitation The rehabilitation provision has been created based on a third party quotation adjusted by discount and annual inflation rates, which management believes is a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly to take into account any material changes to the assumptions, however actual rehabilitation costs will ultimately depend upon the future market prices for the necessary decommissioning works and the timing of when the rehabilitation costs are incurred. Timing is dependent upon when the mines/wells ceases to produce at economically viable rates, which in turn, will depend upon future commodity prices, which are inherently uncertain. (iv) Income taxes The Group is subject to income taxes in Australia. Significant judgement is required in determining the provision for income taxes. There are transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax liabilities based on the Group's understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. (v) Investment in Surat Gas Project As disclosed in Note 12, the Company executed a Share Buy-back Deed with Southernpec (Australia) Pty Ltd (“SouthnA”) pursuant to which SouthnA bought back all the fully paid ordinary shares in SouthnA held by the Company for 7.5 million fully paid ordinary shares of PZE Limited (“PZE”) which is proposed to apply for listing on the ASX. As the Group does not have board representation and hold less than 20% of the voting power at PZE during the year and at the balance date, the Group concluded we had no significant influence in PZE and it is not an associate company of the Group. 34 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 3. SIGNIFICANT ACCOUNTING POLICIES Basis of consolidation (a) The consolidated financial statements comprise the financial statements of Rey Resources Limited and its subsidiaries. Subsidiaries (i) 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. Transactions eliminated on consolidation (ii) Intercompany transactions, balances and unrealised gains and expenses on transactions between companies of the Group are eliminated in preparing the consolidated financial statements. Loss of control (iii) 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 accounted investee or as a financial asset depending on the level of influence retained. Joint arrangements (iv) 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. Interests in joint ventures are accounted for using the equity method. A joint operation is an arrangement in which the parties with joint control have rights to the assets and obligations for the liabilities relating to that arrangement. In respect of its interest in a joint operation, a joint operator the Group recognises its relative share of its assets, liabilities, revenues and expenses. Interest in unincorporated mining ventures assets and liabilities (v) The Group has interest in unincorporated mining ventures and represents the right to the assets and obligation to the liabilities of these unincorporated ventures. Such interest is accounted in accordance with respective accounting policy. The Group's interest is primarily related to exploration and evaluation assets and is accounted for as per the policy stated in Note 2(e). 35 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Foreign currency (b) Transactions in foreign currencies are translated to Australian dollars being the functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency differences arising on retranslation are recognised in profit or loss. (c) Non derivative financial instruments Recognition and initial measurement (i) 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 Subsequent measurement of financial assets For the purpose of subsequent measurement, financial assets are classified into the following categories upon initial recognition: • • financial assets at amortised cost financial assets at fair value through profit or loss (FVPL) Classifications are determined by both: • The entity’s business model for managing the financial asset • The contractual cash flow characteristics of the financial assets All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVPL): • • they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding 36 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 3. (c) SIGNIFICANT ACCOUNTING POLICIES (Continued) Non derivative financial instruments (continued) After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. Financial assets at fair value through profit or loss (FVPL) Financial assets that are held within a business model other than ‘hold to collect’ or ‘hold to collect and sell’ are categorised at fair value through profit and loss. Further, irrespective of business model, financial assets whose contractual cash flows are not solely payments of principal and interest are accounted for at FVPL. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements apply. Refer Note 22 for summary of the classification of the Group’s financial assets and financial liabilities. Derecognition (iii) 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. 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. 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. Share capital (iv) 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. 37 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (d) Property, plant and equipment Recognition and measurement (i) 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. Subsequent costs (ii) The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. (iii) Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. The estimated depreciation rates for the current and comparative years are as follows: Class of Fixed Asset Equipment Depreciation Rate 8% - 33% Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. 38 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Exploration and development assets (e) 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. An exploration and evaluation asset is recognised 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. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made. Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, the exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to mining tenements or mine development assets. Then 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. Costs of the site restoration are provided over the life of the facility from when production 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 are 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. 39 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Impairment of assets (f) Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised immediately in profit or loss for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units, "CGUs"). For the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to CGUs that are expected to benefit from the synergies of the combination. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. Non-derivative financial assets (i) 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. Employee benefits (g) 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. Short-term employee benefits (i) 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. 40 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (h) Goods and Services Tax (GST) 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. Income tax (i) 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. 41 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 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 the 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. Earnings per share (j) 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. Segment reporting (k) 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 exploration and evaluation expenditure other than goodwill. Provisions (l) 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. Other income (m) Other income primarily relates to sundry deposits and recognised on receipt in the bank account or when the right to receive payment is established. Finance income and finance costs (n) 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. 42 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Changes in significant accounting policies (o) No new Australian Accounting Standards and Interpretations that have been issued but are not yet effective have been applied in the preparation of these consolidated financial statements. Such standards are not expected to have a material impact on the consolidated entity's financial statements on initial application. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. (p) Reclassifications of interest payable For the year ended 30 June 2021, the interest accrued for the loan from Ms Wanyan Liu of $272,000 was reclassified as current liabilities. There has been no impact on the reported net profit, net assets, or cash flows. 4. OTHER INCOME in thousands of dollars Other income/(expense) Government Subsidy * * Cash flow boost payment 5. FINANCE COSTS in thousands of dollars Finance costs Bank charges Interest on loans 6. LOSS FOR THE YEAR in thousands of dollars Corporate and administration overheads Employee benefits (see below) Depreciation and amortisation Insurance premiums Legal costs Other expenses (incl travel expense) Employee benefits expense consists of: Salaries and fees Superannuation 2022 2021 - - 67 67 2022 2021 2 1,391 1,393 2 1,006 1,008 2022 2021 226 111 1 3 - 64 405 98 13 111 163 109 - 2 19 89 382 97 12 109 43 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 7. INCOME TAX EXPENSE in thousands of dollars 2022 2021 Income tax recognised in profit or loss Current tax expenses Deferred tax expenses Income tax expenses - - - - - - - - Reconciliation of prima facie tax on accounting loss before tax to income tax (benefit) / expense in thousands of dollars Accounting loss before tax At statutory income tax rate of 25% (2021: 26%) Non-deductible expenses Tax losses for which no deferred tax asset was recognised Income tax benefit 2022 2021 (1,798) (1,323) (449) - 449 - (344) (18) 362 - Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: in thousands of dollars 2022 2021 2022 2021 Statement of financial position Profit or loss Deferred tax liabilities Exploration and evaluation expenditure Other Gross deferred tax liability Deferred tax assets Tax loss carry forwards Other Gross deferred tax asset Net deferred tax asset (9,392) (1) (9,393) 8,594 799 9,393 - (9,571) (1) (9,572) 8,695 877 9,572 - 179 - 179 (101) (78) (179) - 333 - 333 (299) (34) (333) - 44 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 7. INCOME TAX EXPENSE (Continued) Tax losses At 30 June 2022, the Group has tax losses arising in Australia of $88,610,770 (2021: $85,881,104) 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. 8. LOSS PER SHARE in thousands of dollars 2022 2021 Earnings Earnings used in calculating basic and diluted earnings per share attributable to the owners of the company Number of ordinary shares Weighted average number of ordinary shares outstanding during the year used in calculating basic and diluted loss per share Basic loss per Share (cents per share) (1,798) (1,323) 2022 2021 211,927,539 (0.85) 212,011,021 (0.62) Diluted loss per Share (cents per share) (0.85) (0.62) Calculation of loss per share Basic loss per share is calculated as loss for the period attributable to shareholders of $1,798,000 (2021: $1,323,000) divided by the weighted average number of ordinary shares of 211,927,539 (2021: 212,011,021). The diluted loss per share for the year ended 30 June 2022 and 2021 was the same as the basic loss per share as there were no dilutive instruments outstanding. 45 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 9a. CASH AND CASH EQUIVALENTS in thousands of dollars Cash at bank and in hand Cash and cash equivalents 2022 2021 172 172 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 2022 2021 Cash flows from operating activities Loss for the period Adjustments for: Depreciation Finance costs Other non-cash item Decrease in trade and other receivables (Decrease) / increase in trade and other payables Decrease in employee benefits Net cash used in operating activities 11 5 (1,798) (1,323) 1 1,391 (26) (432) 38 41 4 (349) - 1,006 - (317) (29) (2) 5 (343) 9c. CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES in thousands of dollars ASF Loan Liu Loan Total Balance at 1 July 2020 Net cash (used in)/from financing activities Interest payable Balance at 1 July 2021 Net cash (used in)/from financing activities Interest payable Balance at 30 June 2022 2,093 (1,540) 86 639 - 79 718 5,608 3,892 272 9,772 2,388 360 7,701 2,352 358 10,411 2,388 439 12,520 13,238 46 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 10. TRADE AND OTHER RECEIVABLES in thousands of dollars Current Other receivables 11. PROPERTY, PLANT AND EQUIPMENT in thousands of dollars Equipment At cost Accumulated depreciation Total Equipment Movements in carrying amounts: in thousands of dollars Balance as at 1 July Additions Disposals Depreciation expense Balance as at 30 June 12. FINANCIAL ASSETS in thousands of dollars Measured at FVPL Investment in PZE Limited 1 2022 2021 9 9 47 47 2022 2021 181 (179) 2 181 (178) 3 2022 2021 3 - - (1) 2 3 - - - 3 2022 2021 767 767 700 700 1. Pursuant to a term sheet signed on 18 December 2020 between the Company, Southernpec (Australia) Pty Ltd (“SouthnA”) which holds significant interests in 7 conventional gas production licences in Surat Gas Project located at Surat Basin in Queensland and Southernpec Holdings Pty Ltd, the Company would acquire up to 75% equity interest in SouthnA in three stages of which 10% for $400,000 under the first stage was paid in December 2020. The parties further entered into a Supplementary Terms Sheet in May 2021 for the modification of second stage investment and the subscription of additional 10% equity interest in SouthnA by the Company for $300,000, which was paid in May 2021. 47 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 12. FINANCIAL ASSETS (Continued) During the year, the Company announced that it would not proceed further on stages 2 and 3 of the investment and, in June 2022 Rey executed a share buy-back deed with SouthnA pursuant to which SouthnA bought back all the fully paid ordinary shares in SouthnA held by the Company (including the conversion of $67,000 loan granted by the Company into additional shares in SouthnA) for 7.5 million fully paid ordinary shares representing approximately 9.9% in the issued capital of PZE Limited (“PZE”) as of 30 June 2022. PZE is a public company incorporated in Australia. PZE acquired the Surat Gas Project from SouthnA by the issue of 35.5 million fully paid ordinary shares in PZE at an issue price of $0.10 per share to SouthnA. As the Group does not have board representation and hold less than 20% of the voting power at PZE during the year and at the balance date, the Group concluded we had no significant influence in PZE and it is not an associate company of the Group. As a result, the investment is accounted for as financial assets measured at fair value, for further information refer to note 22. 13. EXPLORATION AND EVALUATION EXPENDITURE Working Interests Exploration and evaluation expenditures carried forward in thousands of dollars 2022 2021 2022 2021 100% 20% 100% 100% 100% 100% 100% 20% 100% 100% 100% 100% in respect of: Duchess Paradise 1 EP457 and EP458 2 EP104 3 R1 3 L15 3 EP487 4 Costs carried forward Movements in carrying amount: in thousands of dollars Opening balance Current year expenditure capitalised Adjustment of restoration provision for L15, R1 Refund of cash call for EP457 and EP458 21,667 4,753 3,030 1,392 3,614 3,897 38,353 2022 37,230 931 214 (22) 38,353 21,590 4,648 2,971 868 3,390 3,763 37,230 2021 36,432 749 49 - 37,230 48 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 13. EXPLORATION AND EVALUATION EXPENDITURE (Continued) 1. Exploration and evaluation expenditure recognised in Duchess Paradise (coal project) is held solely by the Group. 2. Exploration and evaluation expenditure recognised on EP457 and EP458 tenements (Petroleum project) 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 21 December 2020, a binding letter of agreement had been executed between Rey, Buru and Origin pursuant to which both Buru and Rey will farm-out 20% of their respective participating interest in each of EP457 and EP458 to Origin. On 15 April 2021, a formal farm-in agreement was executed between the parties and Origin now holds 40% interests in each of the tenements. Origin shall elect by 5 January 2024 whether to carry and fund the first $6m for one exploration well to be drilled on the Permits. If Origin elects to drill the well, the drilling needs to be completed by 5 January 2025 or such later date agreed by the parties. If Origin elects not to drill the well, it can choose to either withdraw from the Joint Ventures (and assign the Farmin Interests back equally to Buru and Rey) or remain in the Joint Ventures and assign a 10% interest in the Permits back to each of Buru and Rey. 3. Acquisition costs and the exploration and evaluation expenditure recognised on EP104, R1 and L15 (Petroleum projects) which are held solely by the Group. EP104 expired on 29 July 2022 and renewal is pending approval. 4. Exploration and evaluation expenditure recognised on EP487 (Petroleum project) which is held solely by the Group. Management expects to extend the right of tenure for tenements approaching expiry. 14. TRADE AND OTHER PAYABLES in thousands of dollars 2022 2021 Unsecured liabilities Sundry payables and accrued expenses Withholding tax payable 106 297 403 65 - 65 The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 22. 15. EMPLOYEE BENEFITS in thousands of dollars Employee benefits Current Non-current 2022 2021 14 - 14 11 - 11 49 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 16. PROVISION in thousands of dollars Restoration provision (L15, R1) 2022 2021 3,535 3,535 3,321 3,321 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. 17. ISSUED CAPITAL in thousands of dollars 211,927,539 (2021: 211,927,539) fully paid ordinary shares 2022 2021 86,537 86,537 86,537 86,537 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 On issue at beginning of the year Share buy back On issue at the end of the year 2022 2021 Number 211,927,539 - 211,927,539 $’000 86,537 - 86,537 Number 212,160,439 (232,900) 211,927,539 $’000 86,589 (52) 86,537 The Company did not buy back any share for the year ended 30 June 2022. Subsequent to the financial year end on 4 August 2022, the Company announced the extension of its on- market buyback program for a further 12 months from 18 August 2022. 50 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 18. COMMITMENTS AND CONTINGENTS Exploration expenditure commitments The commitments are required in order to maintain the Group’s interests in good standing with the DMIRS. 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 DMIRS. In thousands of dollars Year 1 Year 2-5 Total Mineral 105 Petroleum 1,714 - 105 5,096 6,810 Total 1,819 5,096 6,915 Contingent Other than those disclosed in the ‘Business Performance and Outlook’ section in this Report in relation to the native title negotiation for the Duchess Paradise Coal Project, as at 30 June 2022 and 2021 there are no contingent liabilities. 19. INTERESTS IN SUBSIDIARIES Consolidated subsidiaries Country of incorporation Ownership Interest Blackfin Pty Limited Gulliver Productions Pty Limited Humitos Pty Limited Rey Derby Block Pty Limited Rey Derby Port Operations Pty Limited Rey Surat Gas Pty Ltd (formerly Rey Derby Pty Ltd) Rey Lennard Shelf Pty Limited Australia Australia Rey Oil and Gas Pty Limited Australia Rey Royalty Chile Pty Limited Australia Australia Australia Australia Australia Australia 20. MINING VENTURE INTERESTS 2022 100% 100% 100% 100% 100% 100% 100% 100% 100% 2021 100% 100% 100% 100% 100% 100% 100% 100% 100% The Group has interest in unincorporated mining venture (commonly referred as “joint venture agreements”). Those agreements have been entered into with third parties. Details of the agreements are disclosed below. Assets employed by these unincorporated mining ventures are accounted for as based on applicable accounting standards. 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. 51 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 20. MINING VENTURE INTERESTS (continued) Rey/Buru/Origin 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. On 21 December 2020, a binding letter of agreement had been executed between Rey, Buru Fitzroy Pty Ltd (“Buru”) and Origin Energy West Pty Ltd (“Origin”) pursuant to which both Buru and Rey will farmout 20% of their respective participating interest in each of EP457 and EP458 to Origin. On 15 April 2021, a formal farm-in agreement had been executed between the parties and Origin is now interested in 40% in each of the tenements. The current interest in the two exploration permits, known as “The Fitzroy Blocks”, are: Rey Oil and Gas Pty Ltd Buru Fitzroy Pty Ltd Origin Energy West Pty Ltd 20% 40% 40% (of which a 6.66% interest is free carried to production) (Buru Energy Limited, operator) As a result of the farm-in agreement, the Group has significant influence over the unincorporated mining venture interest over the exploration permits. The total amount of the Group’s capitalised exploration and evaluation expenditure under this joint venture agreement at the reporting date was $4,753,000 (2021: $4,648,000). 21. RELATED PARTIES Parent entity (a) The ultimate parent entity within the Group is Rey Resources Limited. Subsidiaries (b) Interests in subsidiaries are set out in note 19. KMP compensation (c) Disclosures relating to compensation of the KMP compensation comprised: Individual Directors’ and executives’ compensation disclosures in dollars Short term benefits Post-employment benefits 2022 126,502 6,000 132,502 2021 126,502 5,700 132,202 52 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 21. RELATED PARTIES (Continued) Information regarding individual Directors’ and executives’ compensation and some equity instruments disclosures as required by Corporations Regulations 2M.3.03, is provided in the Remuneration Report section of the Directors’ report. Apart from the details disclosed in this note, no Director has entered into a material contract with the Company or the Group since the end of the previous financial year and there were no material contracts involving Directors’ interests existing at year-end. Loans to KMP and their related parties There were no loans given to KMP and their related parties. (d) Transactions with related parties in dollars ASF Group Limited Service fees Loan granted (inclusive of interest) 1 - Current - Non current Wanyan Liu Loan granted (inclusive of interest) 2 - Current - Non current 2022 2021 (Reclassified) 132,000 717,658 - 717,658 75,000 639,431 - 639,431 12,222,942 62,942 12,160,000 9,771,693 271,693 9,500,000 1. An unsecured loan of $3.8 million was granted by ASF Group Ltd, a substantial shareholder of the Company, with maturity date on 31 December 2019 and interest bearing at 12% per annum. On 31 December 2019, the Company announced that it has agreed with ASF to reduce the facility amount from $3.8 million to $2 million and to extend the maturity date of the loan facility from 31 December 2019 to 31 March 2020, which was subsequently further extended to 31 October 2023. As at 30 June 2022, $717,658 representing accrued interests remain outstanding and the total $2 million loan facility remains available for draw down. 53 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 21. RELATED PARTIES (Continued) 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 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. On 17 July 2019, the Company entered into a new loan agreement with Liu pursuant to which Liu agreed to grant a further loan facility of $3 million (“Third Liu Loan”) to the Company maturing 31 December 2021 and interest bearing 12% per annum. On 25 June 2020, the Company announced that Liu agreed to increase the Second Liu Loan from $3 million to $5 million and extend the maturity date from 31 December 2020 to 31 October 2021. On 30 April 2021, the Company announced that Liu agreed to consolidate the aforesaid three loan facilities and to increase the loan facility amount by $4 million to a total of $12.5 million and extend the maturity date to 31 October 2022. On 22 June 2022, the Company announced that Liu agreed to increase the loan facility amount by $4.5 million to a total of $17 million and to extend the maturity date to 31 October 2023. As at 30 June 2022, a total of $12.16 million had been drawn down by the Company. 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 2022 2021 Financial assets measured at amortised cost - Cash and cash equivalents - Trade and other receivables Financial assets measured at FVPL - Investment in PZE Ltd Total financial assets Financial liabilities measured at amortised cost Trade and other payables Total financial liabilities 172 9 767 948 403 403 36 47 700 783 65 65 54 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 22. FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) 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 2022 9 2021 47 The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Group does not use any form of derivatives for speculative purposes. The Group is not at a level of exposure that requires the use of derivatives to hedge its exposure. The main risks the Group is exposed to through its financial instruments are liquidity risk and market risk which includes interest rate risk. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s cash and cash equivalents, and trade and other receivables. The carrying amount of financial assets represents the maximum credit exposure. The Group limits its exposure to credit risk in respect of cash and cash equivalents and other deposits with banks by only dealing with reputable banks with high credit ratings. In respect of trade and other receivables, the Group has no significant concentration of credit risk with respect to any single counter party or group of counter parties. The Group is not exposed to any significant credit risk as there were no trading operations during the year. At 30 June 2022 and 30 June 2021, 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. 55 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 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: 2022 in thousands of dollars Carrying amount Expected / contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years More than 5 years Financial liabilities Trade and other payables Loans from shareholders 403 12,941 13,344 403 12,941 13,344 403 63 466 - - - 12,878 - 12,878 - - - - - - 2021 in thousands of dollars Carrying amount Expected / contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years More than 5 years Financial liabilities Trade and other payables Loans from shareholders Currency risk 65 10,411 10,476 65 10,411 10,476 65 272 337 - - - 10,139 - 10,139 - - - - - - The Group is not exposed to currency risk at the reporting date because the Group holds no financial assets or liabilities denominated in foreign currency. Interest rate risk The Group is exposed to interest rate risk which is the risk that a financial instrument’s fair value or future cash flows will fluctuate as a result of changes in market interest rates on interest-bearing financial instruments. At the reporting date, the Group had the following mix of financial assets exposed to interest rate risk. in thousands of dollars Variable rate instruments Cash and cash equivalents 2022 2021 172 172 36 36 At the reporting date, the Group had a total of $19 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 $0 (2021: $0). 56 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 22. FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Fair values Financial assets measured at FVTL The Group accounts for its investment in PZE Limited as financial assets measured at FVPL. The reporting date, fair value of the investment approximates to the cost as it is a recent transaction completed within 12 month with a unrelated party. The investment is categorised into Level 3 fair value hierarchy as defined in AASB 13 Fair Value Measurement. Techniques which use inputs that have significant effect on the recorded fair value that are not based on observable market date. in thousands of dollars 2022 Level 1 Level 2 Level 3 Total - Investment in PZE Ltd - - 767 767 During the year ended 30 June 2021 and 22, there were no transfers between Level 1 and Level 2 or transfer into or out of Level 3. Other financial assets and liabilities The carrying amounts of other financial assets and financial liabilities are assumed to approximate their fair values due to their short-term nature. 57 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 23. OPERATING SEGMENTS The Group operates in two segments, mineral exploration and development and petroleum exploration in one geographical location, Western Australia. The consolidated financial results from these segments are equivalent to the financial statements of the Group. Operating segment information Consolidated Revenue Total Reportable segment revenue Other income/ (expense) Impairment of assets Finance costs Administration cost Profit/(loss) before income tax benefit income tax benefit Loss after income tax benefit Assets Other Assets Segment assets Total assets Liability Other liabilities Segment liabilities Total Liabilities Capital Expenditure Mineral 2022 $'000 Mineral 2021 $'000 Petroleum 2022 $'000 Petroleum 2021 $'000 Corporate 2022 $'000 Corporate 2021 $'000 Total 2022 $'000 Total 2021 $'000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 767 700 21,667 21,667 21,590 21,590 16,686 17,453 15,640 16,340 - - - 60 - - - 60 - (1,393) - (1,008) - (1,393) - (1,008) (405) (375) (405) (375) (1,798) (1,323) (1,798) (1,323) - - - - (1,798) (1,323) (1,798) (1,323) 186 - 186 89 - 89 953 789 38,353 39,306 37,230 38,019 - - - - - - - - 13,358 10,487 13,358 10,487 3,535 3,321 - - 3,535 3,321 3,535 3,321 13,358 10,487 16,893 13,808 77 76 644 673 - - 721 749 58 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 24. AUDITORS REMUNERATION in dollars Audit services Auditors of the Company SW Audit (formerly ShineWing Australia): Audit and review of financial reports Other assurance services 25. SUBSEQUENT EVENTS 2022 2021 62,289 - 62,289 61,500 - 61,500 On 4 August 2022, the Company announced the extension of its on-market buyback program for a further 12 months from 18 August 2022. No other matter or circumstance that is not already disclosed in these financial statements has arisen since 30 June 2022 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. 26. PARENT ENTITY DISCLOSURES As at, and throughout, the financial year ended 30 June 2022 the parent entity of the Group was Rey Resources Limited. in thousands of dollars A. Result of parent entity Loss for the year Total comprehensive loss for the year B. Financial position of the parent entity Total current assets Total non-current assets Total assets Total current liabilities Total non-current liabilities Total liabilities Net assets Total equity of the parent entity comprising of: Share capital Accumulated losses Total equity 2022 2021 (Reclassified) (1,804) (1,804) (1,315) (1,315) 179 40,249 40,428 453 12,878 13,331 27,097 90 39,293 39,383 332 10,150 10,482 28,901 86,537 (59,440) 27,097 86,537 (57,636) 28,901 59 Rey Resources Limited Notes to the consolidated financial statements For the year ended 30 June 2022 26. PARENT ENTITY DISCLOSURES (continued) Parent entity contingencies C. Other than those disclosed in note 18, no contingent liabilities of the parent entity. Parent entity capital commitments D. As at 30 June 2022 and 2021, the parent entity has not entered into any material contractual agreements for the acquisition of property, plant or equipment. Parent entity guarantees in respect of the debts of its subsidiaries E. As at 30 June 2022 and 2021, there are no guarantees entered into by the parent entity. 60 Rey Resources Limited Directors’ Declaration For the year ended 30 June 2022 The Board of Directors of Rey Resources Limited declares that: (a) The consolidated financial statements and the accompanying notes are in accordance with the Corporations Act 2001, including: • giving a true and fair view of the financial position as at 30 June 2022 and performance of the Group for the financial year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations), the Corporations Regulations 2001 and other mandatory professional reporting requirements. • (b) (c) 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. 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 2022. Signed in accordance with a resolution of the Directors. Min Yang Non-Executive Chairman Sydney, Australia 27 September 2022 61 Take the lead INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF REY RESOURCES LIMITED Report on the Audit of the Consolidated Financial Report Opinion We have audited the consolidated financial report of Rey Resources Limited (the Company) and its subsidiaries (the Group) which comprises the consolidated statement of financial position as at 30 June 2022, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying consolidated financial report of the Group is in accordance with the Corporations Act 2001, including: a. giving a true and fair view of the Group’s financial position as at 30 June 2022 and of its financial performance for the year then ended, and b. complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the consolidated financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 2(b) in the consolidated financial statements, which indicates that the Group incurred a net loss of $1,798,000 and had operating and investing cash outflows totalling $1,299,000 for the year ended 30 June 2022. The Group’s current liabilities exceeded current assets by $296,000 as at 30 June 2022. As stated in Note 2(b), these conditions, along with other matters as set forth in Note 2(b), indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Brisbane Level 15 240 Queen Street Brisbane QLD 4000 T + 61 7 3085 0888 Melbourne Level 10 530 Collins Street Melbourne VIC 3000 T + 61 3 8635 1800 Perth Level 25 108 St Georges Terrace Perth WA 6000 T + 61 8 6184 5980 Sydney Level 7, Aurora Place 88 Phillip Street Sydney NSW 2000 T + 61 2 8059 6800 SW Audit ABN 39 533 589 331. Liability limited by a scheme approved under Professional Standards Legislation. SW Audit is an independent member of ShineWing International Limited. sw-au.com 62 Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How our audit addressed the key audit matter Take the lead Note 13 Exploration and Evaluation Expenditure As at 30 June 2022, the Group has $38 million exploration and evaluation expenditure (E&E Expenditure) capitalised as assets. The E&E Expenditure must be assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount in accordance with AASB 6 Exploration for and Evaluation of Mineral Resources. E&E Expenditure was a key audit matter due to the size of the balances, being 97.5% of the Group’s total assets. And the level of judgement required to be applied to prepare the impairment assessment. Our audit procedures included:  Evaluating the Group’s accounting policy to recognise E&E Expenditure using the criteria in the accounting standard AASB 6 Exploration for and Evaluation of Mineral Resources  Reviewing the position paper, prepared by management, to identify if any impairment indicators have been identified for the E&E Expenditure and whether the carrying value is appropriate  Assessing independently if there are facts, circumstances or impairment indicators which suggest that the carrying amount of the Group’s E&E Expenditure may exceed its recoverable amount in accordance with AASB 6 Exploration for and Evaluation of Mineral Resources  Considering whether the Group’s right to explore in the relevant exploration areas is valid. This included obtaining and assessing relevant documentation such as contracts and legal documents on the Group’s rights to explore  Considering the Group’s intention to continue to carry out exploration and evaluation activity in the relevant exploration area which included assessing the Group’s cash-flow forecasts and the strategy of the Group  Obtaining project and corporate budgets and evaluating the Group’s ability to fund continued exploration and evaluation activities and its capacity to secure additional funding when necessary  Testing the Group’s additions to E&E Expenditure for the year by evaluating a statistical sample of recorded expenditure for consistency to underlying records and the capitalisation requirements of the accounting standards  Testing the mathematical accuracy of the cash flow models used in the impairment test  Assessing the discount rates, commodity prices and other key assumptions to internal and external data, with involvement from our valuation specialist, and  Assessing the adequacy and appropriateness of the disclosures in the consolidated financial statements. 63 Take the lead Information Other than the Consolidated Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2022, but does not include the consolidated financial report and our auditor’s report thereon. Our opinion on the consolidated financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial report, or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Consolidated Financial Report The directors of the Company are responsible for the preparation of the consolidated financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the consolidated financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the consolidated financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Consolidated Financial Report Our objectives are to obtain reasonable assurance about whether the consolidated financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this consolidated financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. 64 Take the lead  Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represents the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them, all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 65 Take the lead Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 17 to 23 of the directors’ report for the year ended 30 June 2022. In our opinion, the Remuneration Report of Rey Resources Limited for the year ended 30 June 2022 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. SW Audit (formerly ShineWing Australia) Chartered Accountants Yang (Bessie) Zhang Partner Sydney, 27 September 2022 66 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 23 September 2022. 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 2022 financial year and to the date of this report, the Company followed and reports against the 4th Edition of the ASX Principles. The Company’s 2022 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 ASF GROUP LIMITED 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 Number of shares Percentage held 34,666,667 34,068,800 25,114,286 14,450,580 12,970,000 12,361,500 12,092,553 10,959,614 16.358% 16.076% 11.850% 6.819% 6.120% 5.833% 5.706% 5.171% 67 Top 20 Shareholders The 20 largest shareholders of the Company are listed below: Name ASF GROUP LIMITED MISS WANYAN LIU MERCHANT CENTRAL LIMITED NEWAY ENERGY INTERNATIONAL LIMITED MRS YINXIN HE START GRAND GLOBAL LIMITED MISS MEI CHI JOYCE LEE START LINK INVESTMENTS LIMITED JADE SILVER INVESTMENTS LIMITED BNP PARIBAS NOMS PTY LTD XIAO HUI ENTERPRISES LIMITED MR JIARONG HE MR HAITAO GENG TONG HENG HOLDINGS LIMITED MR WEICHENG HE JADE SILVER INVESTMENTS LTD CITICORP NOMINEES PTY LIMITED FOREVER GRAND GROUP LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED BROWNSTONE INTERNATIONAL PTY LTD Number of Shares Percentage Held % 34,666,667 34,068,800 25,114,286 14,450,580 12,970,000 12,361,500 12,092,553 10,959,614 9,352,056 7,187,293 6,959,404 6,228,491 3,000,000 1,846,126 1,569,538 1,480,000 1,195,281 1,150,837 1,040,272 1,000,000 16.358% 16.076% 11.850% 6.819% 6.120% 5.833% 5.706% 5.171% 4.413% 3.391% 3.284% 2.939% 1.416% 0.871% 0.741% 0.698% 0.564% 0.543% 0.491% 0.472% TOTAL TOP 20 SHAREHOLDERS 198,693,298 93.755% 68 Distribution of Equity Securities There were 646 holders of less than a marketable parcel of ordinary shares (being 1,886 shares on 23 September 2022). 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 546 364 121 131 40 1,202 147,877 981,882 917,300 3,680,607 206,199,873 211,927,539 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 22 July 2021, the Company announced an on-market share buy-back of up to 10% of its issued share capital on market over a 12-month period. No shares were bought back under the share buy-back program during the year. On 4 August 2022, the Company announced the extension of its on-market buyback program for a further 12 months from 18 August 2022. To the date of this Annual Report, no shares were bought back under the current share buy-back program. Securities Exchange The Company is listed on the Australian Securities Exchange (ASX code: REY). 69 Tenement Schedule The tenement schedule for the Group as at the date of this report is tabulated below: Licence Type EL EL MA EP EP EP EP L R EP Licence No.1 Grant Date Expiry Date Holder Area (Ha) Percentage E04/1519 20/04/2006 19/04/2023 Blackfin Pty Ltd 11,386 E04/1770 4/03/2009 3/03/2023 Blackfin Pty Ltd 6,834 Held 100% 100% M04/0453 Pending Pending Blackfin Pty Ltd 12,964 100% EP457 24/10/2007 05/01/2026 EP458 24/10/2007 05/01/2026 EP4872 14/03/2014 13/12/2025 Rey Oil and Gas Pty Ltd / Buru / Origin Rey Oil and Gas Pty Ltd / Buru / Origin Rey Lennard Shelf Pty Ltd 251,737 20% 292,050 20% 505,840 50% EP4872 14/03/2014 13/12/2025 Rey Derby Block Pty Ltd 505,840 50% L153 R13 01/04/2010 21/03/2031 11/10/2016 3/8/2027 Gulliver Productions Pty Ltd Gulliver Productions Pty Ltd 16,400 100% 24,516 100% EP1043 30/01/2015 Renewal Pending Gulliver Productions Pty 73,596 100% Ltd EL: Exploration Licence MA: Mining Lease Application EP: Exploration Permit Petroleum L: R: Production Licence Retention Licence 1. 2. 3. All licences are located in Western Australia 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. 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. 70 

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