Resources & Energy Group
Annual Report 2020

Plain-text annual report

ANNUAL REPORT 30 JUNE 2020 Business Objective Contents Resources and Energy Group Limited (ASX:REZ) is an independent, ASX- listed mineral resources explorer, developer and producer, holding mining leases in Western Australia and Queensland. REZ aims to develop a portfolio of mining tenements through to production. REZ is currently focused on the development of the flagship Menzies Gold Project 130km north of Kalgoorlie in Western Australia. Cover photo Air-core drilling at the Athena prospect within the East Menzies Gold Project Corporate Directory Directors' Report Mineral Resources & Reserves Financial Report Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position 2 3-15 16 17 18 Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Financial Statements 19 20 21-55 Directors' Declaration Auditor's Independence Declaration Independent Auditor's Report Security Holders' Information 56 57 58-61 62-63 Annual Report June 2020 1 Corporate Directory Directors Gavin Rezos Richard Poole Virginia Bruce Secretary Warren Kember Share Registry Automic Group Level 5, 126 Phillip St, Sydney, NSW 2000 Telephone 1300 288 664/(02) 9698 5414 Email: hello@automicgroup.com.au Auditor RSM Australia Partners Level 13, 60 Castlereagh Street Sydney, NSW 2000 Stock exchange listing Resources & Energy Group Limited's fully paid ordinary shares are listed on the Australian Securities Exchange (ASX:REZ) Registered Office Level 33 Colonial Centre 52 Martin Place Sydney, NSW 2000 Telephone +(612) 9227 8900 Facsimile +(612) 9227 8901 ABN: 12 110 005 822 Web site: www.rezgroup.com.au Solicitor Steinepreis Paganin Level 4, 16 Milligan Street Perth, WA 6000 Bankers National Australia Bank 255 George Street Sydney, NSW 2000 Annual Report June 2020 2 Directors' Report The directors present their report together with the annual Financial Report of Resources & Energy Group Limited (Company) and its controlled entities (the Group or consolidated entity) for the year ended 30 June 2020 and the Independent Audit Report thereon. Directors The details of directors of the Company at any time during or since the end of the financial year to the date of this report are set out below. Names, qualifications, experience and special responsibilities Mr Gavin Rezos Bachelor of Laws, LLB, BA Chairman, non-executive director, independent Appointed: 22 April 2016 Completed years of service: 4 years Mr Rezos has extensive Australian and international investment banking experience and is a former investment banking Director of HSBC Group with regional roles during his career in London, Sydney and Dubai. Mr Rezos has held CEO or directorship roles of companies in the technology and resources sectors in Australia, the UK and the US and was formerly Chairman of Alexium International Group Limited, a non-executive director Iluka Resources Limited and of Rowing Australia. He is currently Chairman of Vulcan Energy Resources Limited and principal of Viaticus Capital. Non-executive director positions held during the past 3 years: Vulcan Energy Resources Limited. Mr Richard Poole Bachelor of Laws, Bachelor of Commerce, LLB, ASIA Director and Chief Executive Officer, non-independent Appointed: 12 July 2004 Completed years of service: 16 years Mr Poole commenced his career as a lawyer specialising in mergers and acquisitions. He left the law in 1990 to build a research and development operation with operations in Japan, USA and Australia and added a manufacturing company in China in 1994. He successfully built the R&D company from its early stages to a public listed vehicle raising the necessary capital up to his departure in 1999. Since 1999 he has continued his involvement in fund raising and the development of companies. He is a principal of Arthur Phillip Pty Limited a corporate advisory firm providing investment services and he is an experienced corporate advisor and entrepreneur. Ms Virginia Bruce Non-executive director, independent Appointed: 6 December 2004 Completed years of service: 15 years Ms Bruce’s international reputation was developed through her key role in developing International brand and business strategies for many Fortune 500 brands including Warner Bros, Mattel, Avon, Disney, Kelloggs, Audi, Volkswagen, Coca Cola, Network 7 including four back to back Olympics starting with the Sydney Olympic Games. She has worked extensively in the USA, Australia, Asia, China, Middle East and Europe, establishing business operations in all of these markets. Ms Bruce is currently the CEO of The REAL Group, which focuses on social development and mentoring programs. Annual Report June 2020 3 Directors' Report Company Secretary Mr Warren Kember Bachelor of Commerce, MBA, Dip Applied Finance Chief Financial Officer and Company Secretary Completed years of service: 4 years Mr Kember is the Chief Financial Officer and Company Secretary of the Group and is responsible for directing all financial, legal and risk management. Mr Kember has significant experience in executive finance having served as Chief Financial Officer for a number of ASX listed companies in the construction, mining and technology sectors. Interests in the shares and options of the company and related bodies corporate As at the date of this report, the interests of the directors in the shares and options of the Company were: Mr Gavin Rezos Mr Richard Poole Ms Virginia Bruce Number of Ordinary Shares 14,603,700 67,987,302 550,000 Number of Options over Ordinary Shares 7,500,000 - - Directors' meetings The number of meetings of directors (including meetings of committees of directors) held during the financial year and the number of meetings attended by each director were as follows: Mr Gavin Rezos Mr Richard Poole Ms Virginia Bruce Dividends Directors' meetings Eligible to attend 6 6 6 Attended 6 6 6 No dividends have been paid or declared since the end of the previous financial year, nor do the directors recommend the declaration of a dividend. (2019: Nil). Principal Activities The principal activities of the Group are to explore and develop suitable mineral deposits, including gold and silver. The Group had 1 employee at 30 June 2020 (2019: 4 employees). Annual Report June 2020 4 Directors' Report Operating Results for the Year Financial results The loss after tax of the Group for the year ended 30 June 2020 was $3,128,112 (2019: $4,160,253). The loss included a write down of the value of the Radio Gold of $1,681,834 upon its sale. Capital Issues During the reporting period the Company raised additional capital via an issue of ordinary shares of 75,000,000 ordinary shares at 4 cents each to raise $3,000,000. A further 16,958,700 ordinary shares were issued to extinguish amounts owed to suppliers and directors of $690,148. Mount Mackenzie The Mount Mackenzie Gold Project is located 150km north west of Rockhampton, Queensland. The project includes a 28.4km2 tenement package held by the Group. Located within the Connors Magmatic Arc of the New England Fold Belt region, the broader area has produced over 50 million ounces of gold and large amounts of copper and silver. The region is acknowledged as the largest high sulphuration epithermal systems in Eastern Australia, comparable with those associated with major gold-copper porphyry systems around the world. During the financial year further exploration work resulted in the upgrading and expanding the JORC Resource to 3.47Mt at 1.18gpt gold and 9.0gpt silver for a total of 129 oz gold and 862 oz silver. The Group released an updated scoping study confirming a potential low-cost gold project, generating 43,000 ounces of gold with a possible $63 million in earnings before interest, tax, depreciation and amortisation from a $13 million capital investment. The scoping study investigated a range of production and processing options and identifies a 300,000 tonnes per annum open cut development with an onsite gold plant as the most appropriate case for the progression of the project to Feasibility Study. The processing plant is proposed to be a low-cost modular crushing, grinding and CIL circuit. An evaluation of MMGP indicates it would be a technically low risk operation supported by strong economic performance. The scoping study has also identified opportunity for a staged increase in plant capacity to 500,000 tonnes per annum, and introducing a flotation circuit for recovery of a gold concentrate from the treatment of primary ore. This option requires further investigation but has potential to recover a larger part of the primary resource than currently envisaged. A mineral development licence has been formally granted over the entire MMGP area, which encompasses the current project area and all land required for its development. Planning work associated with a program of diamond and reverse circulation drilling at Mount Mackenzie has also been prepared to test weathering limits and the extent of primary mineralisation beneath the North Knoll and SW Slopes prospects. Exploration planning associated with testing mineralisation associated with the Clive Creek prospects (Quinine Gully and Sphinx) has also been completed. Annual Report June 2020 5 Directors' Report East Menzies The East Menzies Gold Project is located 130km north of Kalgoorlie, with a collective surface area of 103km2 and consists of over 50 tenements, a mixture of mining lease’s, mining lease applications, prospecting lease’s and prospecting lease applications. These mining and exploration instruments are host to a 20km continuous strike of a mineralised Greenstone Belt, including the Springfield Venn Gold Corridor, and the Goodenough Syncline. Since acquisition, a total of 194 soil samples have been collected from a number of tenements for mobile metal ion analysis which were subject to assay analysis. Work on compiling and evaluating historical exploration data has commenced, and the Company is in the process of assembling a complete data base representing all historical and recent exploration data. The database includes data from 13,895 holes, 17,090 geochemical samples and 97,502 assay intervals. An analysis of the drilling data acquired has highlighted the overall shallow tenor of previous exploration. This historical approach to drilling shallow drill holes has highlighted areas of near surface mineralisation, however, there still remains significant exploration potential for further discoveries at depth and within areas that have yet to be drill tested. A review of the open file multi element geochemical data as well as information contained within the project databases, has revealed large coincident gold, arsenic, lead and sulphur anomalies within the Menzies tenement package. Many of these have never been followed up by modern drilling. The geochemical samples when incorporated into the database show areas that have known gold deposits, such as Granny Venn-Caesar which has a very consistent and focused gold-in-soil response. All historical projects within the Menzies region were imported into a 3D geology program and their data validated to identify missing data and data errors. The projects include Granny Venn, Caesar, Jenny Venn, Goodenough, Maranoa and Gigante Grande as well as many other smaller prospects. Each of the projects have had drilling planned to extend the known mineralisation down dip and or along strike. Radio Gold During the reporting period the Group announced an agreement for farm-in, joint venture and tribute to the Radio Gold Project by Bullfinch One Pty Limited (Bullfinch). Bullfinch will gain a 50% interest in the project, by undertaking $4,000,000 in expenditure at Radio Gold over a 2-year farm-in period. The agreement also provides that Bullfinch has the right to acquire a further 25% interest (bringing its total interest to 75%) in Radio Gold for $2,000,000 cash. Pursuant to this agreement the Group recevied $500,000 during the 6 month period to 31 December 2019. Subsequently the company received an offer from Summit Resource Holdings Pty Limited, a subsidiary of Nu Fortune Gold Limited, to acquire the Group's remaining 93.75% interest in Radio Gold for $1,500,000. This offer was declared unconditional during the reporting period and a total of $1,100,000 prior to 30 June 2020 was received. The balance of $400,000 owing was received on 15 July 2020. Annual Report June 2020 6 Directors' Report Tenements Tenements held by the Group as of 30 June 2020 were as follows. State Project Number Status Queensland Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Mt Mackenzie Radio Gold Radio Gold Radio Gold Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies EPM10006 ML77/633 L77/81 P77/4492 M29/0141 M29/0189 L29/0061 P29/2223 P29/2224 P29/2225 P29/2226 P29/2227 P29/2228 P29/2242 P29/2243 P29/2244 P29/2245 P29/2246 P29/2247 P29/2248 P29/2270 E29/0979 P29/2391 P29/2395 P29/2408 P29/2409 P29/2455 P29/2456 P29/2457 P29/2458 P29/2459 P29/2460 P29/2461 M29/0427 P29/2470 P29/2528 Live Pending settlement of sale contract Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Annual Report June 2020 REZ beneficial ownership 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Expiry 28 Mar 2023 24 Aug 2036 18 Jan 2020 31 Jul 2022 31 Jul 2033 15 Oct 2040 31 Mar 2041 4 Sep 2020 4 Sep 2020 4 Sep 2020 4 Sep 2020 4 Sep 2020 4 Sep 2020 17 Jan 2021 17 Jan 2021 17 Jan 2021 17 Jan 2021 17 Jan 2021 17 Jan 2021 17 Jan 2021 22 Apr 2021 23 Feb 2022 2 Apr 2021 19 Apr 2021 2 Jul 2021 28 Sep 2021 31 Jan 2023 31 Jan 2023 31 Jan 2023 31 Jan 2023 31 Jan 2023 31 Jan 2023 31 Jan 2023 11 Feb 2040 16 Jul 2023 24 Oct 2023 7 Directors' Report Tenements (continued) State Project Number Status Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Western Australia Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies Menzies P29/2474 P29/2469 P29/2472 P29/2473 P29/2496 P29/2497 P29/2500 P29/2471 P29/2492 P29/2494 P29/2553 P29/2554 P29/2555 P29/2556 P29/2557 P29/2558 P29/2563 P29/2564 P29/2565 P29/2566 P29/2567 P29/2568 Live Live Live Live Live Live Live Live Live Live Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Expiry 12 Mar 2024 24 Mar 2024 25 Mar 2024 25 Mar 2024 25 Mar 2024 25 Mar 2024 25 Mar 2024 14 Jun 2024 14 Jun 2024 14 Jun 2024 REZ beneficial ownership 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Significant Changes in State of Affairs During the financial year the following significant changes occurred. The Group entered into an agreement to sell its remaining its interest in the Radio Gold mine. The Company raised $3,000,000 (before costs) via the placement of 75,000,000 ordinary shares at 4 cents each cash consideration. A further $690,148 of payables were settled via the issue of 16,958,700 ordinary shares. Annual Report June 2020 8 Directors' Report Going Concern The directors have prepared financial statements on a going concern basis which contemplates the continuity of normal business activity and the realisation of assets and settlement of liabilities in the normal course of business. For the 12 months ended 30 June 2020 the Group reported a loss after taxation of $3,128,112 (2018: $4,160,253), and net cash used by operating activities was $2,207,947 (2019: $1,461,922). The directors intend to raise funds of approximately $2,000,000 in February 2021 through the issue of shares. During the current phase of development, the generation of sufficient funds from operating and financing activities in accordance with the Group’s current business plan and growth forecasts is dependent on its ability to raise capital or to access other sources of finance. These factors indicate a material uncertainty which may cast significant doubt as to whether the Group will continue as a going concern and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. The directors believe that there are reasonable grounds to believe that the Group will be able to continue as a going concern, after consideration of the following factors: (i) the Group's current assets of $1,798,018 (2019: $1,074,174) were more than current liabilities of $454,476 (2019: $1,659,020) at balance date; (ii) the group has a cash balance of $1,356,267 at balance date; (iii) the availability of equity and financing facilities to fund working capital requirements; (iv) realising value from its assets through joint ventures or outright sale; (v) the ability for the directors to scale back activities in order to preserve cash when required; and (vi) continuing financial support from directors or related parties. The directors are of the opinion that the use of the going concern basis of accounting is appropriate as they are satisfied regarding the Group's ability to maintain the continued financial support of its directors, current financiers, creditors and shareholders. The financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern. Significant Events After Balance Date On 15 July 2020 the Company received $400,000 in respect of the final balance owing from the sale of its interest in the Radio Gold mining tenements. On 10 August 2020 12,000,000 performance rights were cancelled upon the resignation of an employee. There have been no other significant events occurring after the balance date which may affect either the Group's operations, results of those operations or the Group's state of affairs. Likely Development and Expected Results Apart from the matters referred to above in the Operating Results for the year, other likely developments in the operations of the Group and the expected results of those operations in subsequent financials years have not been included in this report because the directors believe this could result in unreasonable prejudice to the Group. Annual Report June 2020 9 Directors' Report Environmental Regulation and Performance Exploration and development activities are subject to State and Federal laws and regulations. The Group has a policy of complying with its environmental performance obligations as a minimum, and during the reporting period, there has been no known breach of the environment regulations. The Group is committed to ensuring the activities of its business are conducted in a way so as to minimise adverse impacts on the environment and local communities. Unissued Shares Under Securities There were 26,117,500 share options on issue as at 30 June 2020 that can convert to ordinary shares in the ratio of one fully paid ordinary share for each share option. No share options have been issued subsequent to the end of the financial year to the date of this report. Option class Class D (i) Vesting conditions Vested Grant date 9/11/2015 Expiry date 31/12/2019 Exercise price $0.120 Number of share options - Class F Class G Class I Class J Class L Class M Class N Class O na Vested Vested Vested Vested Vested Vested Vested 20/06/2016 31/03/2021 $0.120 5,000,000 20/06/2016 31/03/2021 $0.120 2,500,000 6/12/2016 31/03/2021 $0.120 250,000 6/12/2016 31/03/2021 $0.140 250,000 18/12/2017 15/12/2022 $0.140 1,000,000 18/12/2017 15/12/2022 $0.140 1,000,000 11/10/2019 11/10/2022 $0.080 15,000,000 11/10/2019 28/06/2022 $0.075 1,117,500 Share options on issue at 30 June 2020 26,117,500 (i) Class D options were valued at nil due to uncertainty as to whether vesting condition will be met (ii) No shares were issued during the financial year as a result of the exercise of options There were 12,000,000 performance rights on issue as at 30 June 2020 that can convert to ordinary shares in the ratio of one fully paid ordinary share for each right. No performance rights have been issued and 12,000,000 have been cancelled subsequent to the end of the financial year to the date of this report. Issue Tranche A Tranche B Tranche C Vesting Conditions Grant date Expiry date Number of performance rights 30 day VWAP > 8 cents 30 day VWAP > 16 cents 30 day VWAP > 32 cents 17/12/2019 17/12/2022 17/12/2019 17/12/2023 17/12/2019 17/12/2024 2,000,000 4,000,000 6,000,000 Annual Report June 2020 12,000,000 10 Directors' Report Indemnification and Insurance of Officers and Directors REZ’s constitution indemnifies, to the extent permitted by law, officers of the Group when acting in their capacity in respect of: • liability to third parties (other than related entities) when acting in good faith; and • costs and expenses of successfully defending legal proceedings and ancillary matters. The Directors and the Company Secretary named earlier in this report have the benefit of the indemnity together with any other person in or who takes part in the management of the Group. During the year REZ did not pay any premiums of insurance in respect of contracts insuring Directors, Company Secretary or other members of management against liabilities incurred in their capacity as Director or officers of the Group. Rounding The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the company under ASIC Class Order 98/0100. The company is an entity to which the Class Order applies. Proceedings on Behalf of the Company No person has applied for leave of court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is party for the purpose of taking responsibility for the company for all or any part of those proceedings. The Company and Group were not party to any such proceedings during the financial year. Auditor Independence A copy of the external auditor's declaration under Section 370C of the Corporations Act in relation to the audit for the financial year is attached to the Financial Statements. Non-audit services No non-audit services were provided during the current year by the auditor. Annual Report June 2020 11 Directors' Report Remuneration Report (Audited) The remuneration report, which has been audited, outlines the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report Key Management Personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, including executive and non-executive directors. During the financial year ended 30 June 2020, KMP consisted of: Mr Gavin Rezos Mr Richard Poole Mr Christian Price Mr David Frances Ms Virginia Bruce Mr Warren Kember Mr James Croser Non-executive director and Chairman Executive Director Acting Chief Executive Officer Chief Executive Officer Non-executive director Chief Financial Officer and Company Secretary Non-executive director (resigned 16 October 2018) Principles used to determine the nature and amount of remuneration In order for the Company and Group to prosper and enhance shareholder value, the Group must be able to attract and retain the highest calibre of executives. At this stage of the Group's development, a framework has not been developed that links performance and KMP remuneration. The responsibilities of the Remuneration Committee, which have been assumed by the full Board, include reviewing the remuneration of KMP and determining the nature and amount of emoluments of KMP on an annual basis. In conducting this review reference is made to market and industry conditions. Remuneration packages, can consist of base salary, fringe benefits, incentive schemes (including performance related bonuses), superannuation, and entitlements upon retirement or termination, are reviewed with due regard to performance and other relevant factors. Where appropriate, share-based remuneration is provided to encourage KMP to focus on improving shareholder value and also to reduce cash costs during the Group's development phase. The aggregate amount of non-executive director fees is limited to $200,000 per annum as per a resolution of shareholders. For further information, please refer to our corporate governance plan and annual governance statement on our web site at www.rezgroup.com.au. Short-term incentives and long-term incentives Due to the current size of the Group and the extent of its operations limited short-term incentives, such as performance based bonuses or longer term incentives, were provided to KMP other than as shown below. Annual Report June 2020 12 Directors' Report Details of remuneration Amounts paid or owing to KMP during the financial year ended 30 June 2020 are set out below. Year ended 30 June 2020 Directors Mr Gavin Rezos Mr Richard Poole (i) Ms Virginia Bruce Management Mr Christian Price (ii) Mr David Frances (iii) Mr Warren Kember (i) Short-term benefits Post employment Salary & fees Superannuation $ $ Share-based payments Equity settled $ Total $ 48,000 33,000 33,000 - - - 170,000 - 20,000 218,000 33,000 53,000 140,060 6,489 98,727 - - - 146,549 98,727 - - - 352,787 6,489 190,000 549,276 (i) Remuneration forms part of the fees charged by a director related entity. Details of the nature of the engagement and the amount of fees charged are provided in Note 23 of the financial statements. (ii) Left 31 October 2019 (iii) Appointed 22 October 2019 and left 31 March 2020 Amounts paid or owing to KMP during the financial year ended 30 June 2019 are set out below. Year ended 30 June 2019 Directors Mr Gavin Rezos Mr Richard Poole Ms Virginia Bruce Management Mr James Croser Mr Warren Kember Short-term benefits Post employment Salary & fees Superannuation $ $ 48,000 33,000 36,000 - - - 150,355 - 267,355 10,547 - 10,547 Share-based payments Equity settled $ Total $ - - - - - 48,000 33,000 36,000 160,902 - - 277,902 The percentage of total remuneration provided in the form of share-based payments for all KMP for the current financial year was nil. Annual Report June 2020 13 Directors' Report Service agreements The non-executive directors did not enter into any service agreements with the Group. The responsibilities of the Nomination Committee, which have been assumed by the full board, includes reviewing the appointment and retirement of Non-Executive Directors on a case by case basis. Currently all directors are required to be re-elected at least every three years and at least one-third of directors must retire at each Annual General Meeting. The details of a service agreement entered into with the Chief Executive Officer are as follows: Name Title Agreement commenced Serivce ended Term of agreement Short and long term incentives No incentive arrangements have been agreed Remuneration Christian Price Acting Chief Executive Officer 1 December 2018 31 October 2019 No fixed term, termination by either party with 1 months notice $180,000 plus superannuation per annum Name Title Agreement commenced Service ended Term of agreement Short and long term incentives Refer performance rights section below Remuneration Mr David Frances Chief Executive Officer 22 October 2019 31 March 2020 No fixed term, termination by either party with 1 months notice $219,000 per annum Share options The terms and conditions of each grant of options over ordinary shares affecting remuneration of KMP in the prior, current financial year or future reporting years are as follows: Option class/Holder Class F Mr Gavin Rezos Class G Mr Gavin Rezos Class I Mr Christian Price Class J Mr Christian Price Class L Mr Christian Price Class M Mr Christian Price Number of share options 5,000,000 2,500,000 250,000 250,000 1,000,000 1,000,000 10,000,000 Grant date 20/06/2016 20/06/2016 6/12/2016 6/12/2016 18/12/2017 18/12/2017 Expiry date 31/03/2021 31/03/2021 31/03/2021 31/03/2021 15/12/2022 15/12/2022 Exercise price $0.12 $0.12 $0.12 $0.14 $0.14 $0.14 Fair value per option at grant date $0.03 $0.03 $0.03 $0.02 $0.03 $0.03 Share options carry no entitlement to dividends or right to vote. No share options were exercised, cancelled or lapsed during the current or prior financial year. No person entitled to exercise share options had or has any right by virtue of the options to participate in any share issue of any other body corporate. Annual Report June 2020 14 Directors' Report Performance Rights The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of KMP in the prior, current financial year or future reporting years are as follows: Option class/Holder Tranche A Mr David Frances Tranche B Mr David Frances Tranche C Mr David Frances Number of share options 5,000,000 7,500,000 10,000,000 22,500,000 Grant date 17/12/2019 17/12/2019 17/12/2019 Expiry date 17/12/2022 17/12/2023 17/12/2024 Condition: 30 day VWAP greater than $0.0800 $0.1600 $0.3200 Fair value per option at grant date $0.0120 $0.0095 $0.0071 Performance rights carry no entitlement to dividends or right to vote. No performance rights were exercised or lapsed during the current or prior financial year. 22,500,000 performance rights issued to Mr David Frances were cancelled upon leaving the Group. No person entitled to exercise performance rights had or has any right by virtue of the performance rights to participate in any security issue of any other body corporate. Movements in Shares held by Key Management Personnel 2020 Mr Gavin Rezos (i) Mr Richard Poole Ms Virginia Bruce (i) Balance at the start of the year 10,250,000 67,987,302 50,000 Granted as compensation Net other change - - - 4,353,700 - 500,000 Balance at the end of the year 14,603,700 67,987,302 550,000 (i) Net change other movements - ordinary shares issued to the director's related entities to settle outstanding amounts Movements in Share Options held by Key Management Personnel 2020 Mr Gavin Rezos Mr Christian Price Balance at the start of the year 7,500,000 2,500,000 Granted as compensation Granted on subscription to loan - - - - Net other change Balance at the end of the year 7,500,000 2,500,000 - - Movements in Performance Rights held by Key Management Personnel 2020 Mr David Frances Balance at the start of the year - Granted as compensation 22,500,000 Granted on subscription to loan - Net other change Balance at the end of the year - (22,500,000) End of remuneration report Signed in accordance with a resolution of the directors. Mr Gavin Rezos, Chairman Sydney, 30 September 2020 Annual Report June 2020 15 Mineral Resources and Ore Reserves Group mineral resources as at 30 June 2020 were estimated at 3.5 million tonnes at 1.24g/t Au for 137,200 ounces AU and 862,000 ounces AG. Mineral resource figures have been prepared in accordance with the requirements of 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results. Mineral Resources Project Type Cut off Tonnes (kt) (g/t) 30 June 2020 Mount Mackenzie Open Cut Indicated Gold metal (koz) Gold grade (g/t) Silver grade (g/t) Silver metal (koz) Tonnes (kt) Inferred Gold metal (koz) Gold grade (g/t) Silver grade (g/t) Silver metal (koz) Tonnes (kt) Gold grade (g/t) Total Gold metal (koz) Silver grade (g/t) Silver metal (koz) Oxide Primary Menzies Maranoa 0.35 0.55 500 1,200 1.09 1.25 18.0 48.0 8 13 136 482 700 1,030 0.96 1.28 21.0 42.0 4 5 87 157 1,200 2,230 1.02 1.27 39.0 90.0 6 9 223 639 Open Cut 0.5 49.6 5.14 8.2 50 5.14 8.2 1,700 1.20 66 12 618 1,780 1.26 71.21 4 244 3,480 1.24 137.2 8 862 30 June 2019 Mount Mackenzie Underground Oxide Primary Radio Gold Main Lode East Lode Underground 0.43 0.58 1.00 1.00 450 700 25 25 1.18 1.42 3.81 5.33 17 32 3.2 4.2 9 14 130 315 - - - - 520 700 76 84 1.18 1.37 20.0 31.0 4 5 67 112 970 1,400 3.47 4.72 8.5 12.8 - - - - 101 109 1.18 1.39 3.55 4.85 37 63 7 9 197 427 11.7 17.0 - - - - 1,200 1.27 56.4 11 445 1,380 1.14 72.3 3 179 2,580 1.54 128.7 6 624 Competent Persons Statement and Consent The information in this release that relates to mineral resources is based on and fairly represents information compiled by Mr. Michael Johnstone and Mr Todd Axford and who are members of the Australasian Institute of Mining and Metallurgy, and Principal Consultants for Minerva Geological Services (MGS) and Geko‐Co (GKC) respectively. MGS and GKC have been contracted by Resources & Energy Group Limited (the Company) to provide exploration management, advice and guidance to the company. Both Mr. Axford and Mr Johnstone have sufficient technical experience that is relevant to the reporting of exploration results to qualify as a competent person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr. Axford and Mr Johnstone consent to the inclusion in this release of the matters based on their information in the form and context in which it appears. This presentation contains information provided in releases made by the Company to the ASX on 26 February 2016, 21 June 2016 and 19 May 2020 concerning the Mt Mackenzie Resource and 11 June 2020 concerning Menzies. Resource estimates for Radio Gold have been excluded as the Group's interest in the mining leases were sold during the financial year wilth final settlement occuring on 15 July 2020. The Company is not aware of any new information or data that materially affects the information included in previous ASX announcements and that all material assumptions and technical parameters underpinning the estimates in the announcement continue to apply and have not materially changed. Annual Report June 2020 16 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2020 Continuing operations Sales revenue Cost of sales Notes 2020 $ 2019 $ 4(a) 4(b) - 434,612 - (885,518) - (450,906) 4(a) Other income Corporate and other administration costs Director fees Exploration and evaluation costs expensed Employee benefits expense Finance costs Depreciation Share-based payments expense Insurance Other expenses Value of incremental shares issued on conversion of project development notes 14(i) 4(c) 4(d) Loss before income tax Income tax benefit Loss after tax from continuing operations Discontinued operations Loss after tax for the year from discontinued operations Loss for the year Other comprehensive income 5 6 - 765,909 (585,950) (126,000) - (412,318) (322,457) (52,148) - (64,350) (196,508) (2,715,524) (512,902) (145,171) (277,498) (247,880) 5,700 (27,206) (14,130) (96,684) (130,508) - (1,446,278) - (1,446,278) (4,160,253) - (4,160,253) (1,681,834) - (3,128,112) (4,160,253) - - Total comprehensive loss for the year (3,128,112) (4,160,253) Total comprehensive loss is attributable to: - shareholders of Resource & Energy Group Limited - non- controlling interests (3,127,904) (208) (3,128,112) (4,156,854) (3,399) (4,160,253) Loss per share (cents per share) – basic and diluted 17 (0.86) (3.08) This consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the notes to the financial statements. Annual Report June 2020 17 Consolidated Statement of Financial Position As at 30 June 2020 Assets Current assets Cash and cash equivalents Assets held for sale Trade and other receivables Other assets Total current assets Non-current Assets Property, plant and equipment Exploration and evaluation assets Mine development Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Interest-bearing loans and borrowings Provisions Total current liabilities Non-current liabilities Interest-bearing loans and borrowings Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Notes 2020 $ 2019 $ 7 6 8 9 10 11 12 13 14 13 14 1,356,267 400,000 21,751 20,000 1,035,939 - 18,235 20,000 1,798,018 1,074,174 30,929 6,732,509 - 405,420 5,138,321 3,647,061 6,763,438 9,190,802 8,561,456 10,264,976 419,597 - 34,879 1,251,490 372,000 35,530 454,476 1,659,020 116,296 515,898 104,630 1,099,098 632,194 1,203,728 1,086,670 2,862,748 7,474,786 7,402,228 15 16 31,326,704 624,023 (26,841,170) 28,535,748 214,309 (23,713,266) Total equity attributable to the shareholders of Resources & Energy Group Limited Non-controlling interests Total equity 5,109,557 5,036,791 2,365,229 7,474,786 2,365,437 7,402,228 This consolidated statement of financial position should be read in conjunction with the notes to the financial statements Annual Report June 2020 18 Consolidated Statement of Cash Flows For the year ended 30 June 2020 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest paid Interest received Notes 2020 $ 2019 $ - 434,612 (1,894,038) (2,740) 244 (2,207,947) - - Net cash flows used in operating activities 7(b) (2,207,947) (1,461,922) Cash flows from investing activities Purchase of property, plant and equipment Exploration and evaluation costs capitalised Proceeds from sale of mining tenements Mine development costs capitalised Net cash flows used in investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Proceeds from borrowings - related party, net Share placement Transaction costs on issue of shares (929) (1,594,188) 1,600,000 (0) - (37,804) - (44,917) 4,883 (82,721) - (183,000) - 3,000,000 (293,608) 300,000 - 423,888 1,863,724 (115,057) Net cash flows provided by financing activities 2,523,392 2,472,555 Net decrease in cash and cash equivalents 320,328 927,912 Cash and cash equivalents at beginning of period 1,035,939 108,027 Cash and cash equivalents at end of period 7(a) 1,356,267 1,035,939 This consolidated statement of cash flow should be read in conjunction with the notes to the financial statements Annual Report June 2020 19 Consolidated Statement of Changes in Equity For the year ended 30 June 2020 Issued capital $ Share option reserve $ Retained earnings $ Non- controlling interests $ Total $ Balance at 1 July 2018 14,712,060 1,575,267 (19,556,412) 2,368,836 (900,249) Total comprehensive income for the year Issue of shares De-recognition of equity component on issue of project development notes on early repayment Value of incremental shares issued on covnersion of project development notes Transfer from reserve on conversion of project development notes Capital raising cost 10,223,911 - - (361,648) (4,156,854) - - (3,399) - - (4,160,253) 10,223,911 (361,648) 2,715,524 - 999,310 (999,310) (115,057) - - - - - - - 2,715,524 - (115,057) Balance at 30 June 2019 28,535,748 214,309 (23,713,266) 2,365,437 7,402,228 Balance at 1 July 2019 28,535,748 214,309 (23,713,266) 2,365,437 7,402,228 Total comprehensive income for the year Issue of shares Capital raising cost Share-based payment Cancellation of performance shares - 3,690,148 (899,192) (3,127,904) - - - - 395,585 42,388 (28,259) (208) - - (3,128,112) 3,690,148 (503,607) 42,388 (28,259) Balance at 30 June 2020 31,326,704 624,023 (26,841,170) 2,365,229 7,474,786 This consolidated statement of changes in equity should be read in conjunction with the notes to the financial statements Annual Report June 2020 20 Notes to the Financial Statements For the year ended 30 June 2020 1 Corporate information Resources & Energy Group Limited (the “Company”) is a listed public company incorporated and domiciled in Australia. The consolidated financial statements for the year ended 30 June 2020 comprise the Company and its controlled entities (together referred to as the “Group”). The consolidated financial statements are presented in Australian dollars which is the Company's functional and presentation currency. The consolidated financial statements were approved by the Board of Directors on 30 September 2020. The principal accounting policies are set out below. These policies have been consistently applied unless otherwise noted. 2 a Summary of significant accounting policies Basis of preparation These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and comply with other requirements of the law. For the purposes of preparing the consolidated financial statements, the Company is a for-profit listed public entity. Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the company and the Group comply with International Financial Reporting Standards ('IFRS'). The consolidated financial statements have been prepared on the basis of historical cost, except where assets or liabilities are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. All amounts are presented in Australian dollars. b New or amended Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. c Going concern The directors have prepared financial statements on a going concern basis which contemplates the continuity of normal business activity and the realisation of assets and settlement of liabilities in the normal course of business. For the 12 months ended 30 June 2020 the Group reported a loss after taxation of $3,128,112 (2018: $4,160,253), and net cash used by operating activities was $2,207,947 (2019: $1,461,922). The directors intend to raise funds of approximately $2,000,000 in February 2021 through the issue of shares. During the current phase of development, the generation of sufficient funds from operating and financing activities in accordance with the Group’s current business plan and growth forecasts is dependent on its ability to raise capital or to access other sources of finance. Annual Report June 2020 21 Notes to the Financial Statements For the year ended 30 June 2020 These factors indicate a material uncertainty which may cast significant doubt as to whether the Group will continue as a going concern and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. The directors believe that there are reasonable grounds to believe that the Group will be able to continue as a going concern, after consideration of the following factors: (i) the Group's current assets of $1,798,018 (2019: $1,074,174) were more than current liabilities of $454,476 (2019: $1,659,020) at balance date; (ii) the group has a cash balance of $1,356,267 at balance date; (iii) the availability of equity and financing facilities to fund working capital requirements; (iv) realising value from its assets through joint ventures or outright sale; (v) the ability for the directors to scale back activities in order to preserve cash when required; and (vi) continuing financial support from directors or related parties. The directors are of the opinion that the use of the going concern basis of accounting is appropriate as they are satisfied regarding the Group's ability to maintain the continued financial support of its directors, current financiers, creditors and shareholders. The financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern. d Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved when the Company: • has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Annual Report June 2020 22 Notes to the Financial Statements For the year ended 30 June 2020 e Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners and the equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non- controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non- controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. f Significant accounting judgements, estimates and assumptions The preparation of the Group's consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. The key assumptions concerning the future and other key sources of estimate uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur. Carrying value of exploration, evaluation and development assets The Group capitalises expenditure relating to exploration, evaluation and mine development where it is considered likely to be recoverable or where the activities have not reached a stage which permits a reasonable assessment of the existence of reserves. While there are certain areas of interest from which no reserves have been extracted, the directors are of the continued belief that such expenditure should not be written off since feasibility studies in such areas have not yet concluded. The Group reclassifies exploration and evaluation expenditure to mine development assets when the Board assess that the mine has reached a point where it is certain that extraction of ore will commence in the immediate future. Capitalised expenditure for exploration and evaluation is carried at the end of the reporting period at $6,732,509 (2019: $5,138,321). Follwing the sale of its mine during the reporting period that was under development, capitalised expenditure for mine development was nil at the end of the reporting period (2019: $3,647,061). Annual Report June 2020 23 Notes to the Financial Statements For the year ended 30 June 2020 Determination of mineral resources and ore reserves The Group estimates its Mineral Resources and Ore Reserves in accordance with the Australasian Code of Reporting of Exploration Results, Mineral Resources and Ore Reserves (“the JORC Code”). The information on mineral resources and ore reserves is prepared by or under the supervision of Competent Persons as defined in the JORC Code. The amounts presented in the statement of Mineral Resources and Ore Reserves are determined under the JORC Code where is information is available. When a resource or reserve amount prepared in accordance with the JORC Code for a particular mine is not available, then no amounts are disclosed. For the purposes of impairment testing of assets the Board applies JORC Code verified information when it is available, or otherwise management estimates of potential resources. There are numerous uncertainties inherent in estimating mineral resources and ore reserves and assumptions that are valid at the time of estimation which may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated. Such changes in reserves could impact depreciation and amortisation rates, asset carrying values and impairment assessments. Amortisation of mine development expenditure Mine development costs are amortised on a units of production basis over the life of the mine to which they relate and during the financial year costs of $57,640 were amortised. In applying a units of production method, amortisation is calculated using the expected total contained ounces with the mine to achieve a consistent amortisation rate per ounce. To achieve this the amortisation rate is based on the ratio of the annual ounces produced over the expected total contained ounces. Going concern The financial statements have been prepared on the basis that the Group is a going concern, refer to Note 2(c) for discussion on the basis of this assumption. Equity component of converting loans The equity component that arises from the ability of loan providers to convert their loans into ordinary shares of the Company is calculated with reference to a market rate of interest. Due to the lack of a readily available debt market for the Company at its stage of development, an estimated market rate has been determined. Share based payments The costs of the share-based payments are calculated on the basis of the fair value of the equity instrument at grant date. Determining the fair value assumes choosing the most suitable valuation model for these equity instruments, by which the characteristics of the grant have a decisive influence. This assumes also the input into the valuation model of some relevant judgments, like the estimated expected life of the share option and the market volatility of the Company's ordinary shares. No share-based payments were issued during the year. The judgments made and the model used are further detailed in Note 19. Annual Report June 2020 24 Notes to the Financial Statements For the year ended 30 June 2020 g Revenue recognition The core principle of AASB 15 is that revenue is recognised on a basis that reflects the transfer of promised goods or services to customers at an amount that reflects the consideration the Group expects to receive in exchange for those goods or services. Revenue is recognised by applying a five-step model as follows: 1. identifying the contract with a customer; 2. identifying the performance obligations; 3. determining the transaction price; 4. allocating the transaction price to the performance obligations; and 5. recognising revenue when/as performance obligation(s) are satisfied. Sale of goods Revenue from sales of gold is recognised when control of the goods has transferred, being the point in time when the goods have been shipped to the customer. Revenue is only recognised where it is highly probable that a significant reversal of revenue will not occur and control gets completely passed on to the customers. Costs to obtain a contract Costs incurred that would have been incurred regardless of whether the contract was won are expensed, unless those costs are explicitly chargeable to the customer in any case (whether or not the contract is won). Other income Other income is recognised on an accruals basis when the Company is entitled to it. h Borrowing costs Borrowing costs are recognised as an expense when incurred. i j Cash and short-term deposits Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand, short-term deposits and highly liquid investments with a maturity of three months or less. For the purposes of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits as defined above. Financial Instruments Financial instruments are recognised initially on the date that the Group becomes party to the contractual provisions of the instrument. On initial recognition, all financial instruments are measured at fair value plus transaction costs (except for instruments measured at fair value through profit or loss where transaction costs are expensed as incurred). Financial assets All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets. Annual Report June 2020 25 Notes to the Financial Statements For the year ended 30 June 2020 Classification On initial recognition, the Group classifies its financial assets at amortised cost. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets. Assets measured at amortised cost are financial assets where the business model is to hold assets to collect contractual cash flows and the contractual terms give rise on specified dates to cash flows are solely payments of principal and interest on the principal amount outstanding. The Group's financial assets measured at amortised cost comprise trade and other receivables and cash and cash equivalents in the statement of financial position. Subsequent to initial recognition, these assets are carried at amortised cost using the effective interest rate method less provision for impairment. Interest income, foreign exchange gains or losses and impairment are recognised in profit or loss. Gain or loss on derecognition is recognised in profit or loss. Impairment of financial assets Impairment of financial assets is recognised on an expected credit loss (ECL) basis for financial assets measured at amortised cost. When determining whether the credit risk of a financial assets has increased significant since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Group's historical experience and informed credit assessment and including forward looking information. Credit losses are measured as the present value of the difference between the cash flows due to the Group in accordance with the contract and the cash flows expected to be received. This is applied using a probability weighted approach. Impairment of trade and other receivables have been determined using the simplified approach in AASB 9 which uses an estimation of lifetime expected credit losses. The Group has determined the probability of non- payment of the receivable and contract asset and multiplied this by the amount of the expected loss arising from default. Financial liabilities The Group measures all financial liabilities initially at fair value less transaction costs, subsequently financial liabilities are measured at amortised cost using the effective interest rate method. The financial liabilities of the Group comprise trade and other payables, borrowings and finance lease liabilities. (i) Financial assets Financial assets are classified as financial assets as fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition based on the nature and purpose of a financial asset. Annual Report June 2020 26 Notes to the Financial Statements For the year ended 30 June 2020 (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in the income statement in finance costs for loans or other operating expenses for receivables. (iii) Impairment of financial assets The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset (an incurred "loss event") and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. (iv) Financial liabilities Financial liabilities are classified as trade and other payables, loans and borrowings. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in AASB 139 are satisfied. The Group has not designated any financial liability as, at fair value through profit or loss. (v) Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the income statement. k Income tax Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income. Annual Report June 2020 27 Notes to the Financial Statements For the year ended 30 June 2020 Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred income tax liabilities are recognised for all taxable temporary differences except: when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised, except: when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. l Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Annual Report June 2020 28 Notes to the Financial Statements For the year ended 30 June 2020 Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. m Property, plant and equipment Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. Depreciation is calculated using a combination of straight-line and diminishing-value basis over the estimated useful life of all assets. An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. Property, plant and equipment are depreciated over periods of three to five years. n Exploration and evaluation expenditure Exploration and evaluation activity involves the search for mineral resources, including gold and copper, and includes assessing all available geophysical data including gravity, magnetic and seismic and collation of additional data; exploratory drilling; determining and examining the volume and grade of the resource; and cost of acquisition of exploration tenements. Administration costs that are not directly attributable to a specific exploration area are charged to the profit or loss. Licence costs paid in connection with a right to explore in an existing exploration area are capitalised and amortised over the term of the permit. Exploration and evaluation expenditure is capitalised in respect of each identifiable area of interest as the exploration and evaluation activity has not reached a stage which permits a reasonable assessment of the existence of commercially recoverable gold deposits that are of sufficient scale to support the project concept. As the asset is not available for use, it is not depreciated. All capitalised exploration and evaluation expenditure is monitored for indication of impairment. Where a potential impairment is indicated, assessment is performed for each area of interest in conjunction with the group of operating assets (representing a cash generating unit) to which the exploration is attributed. When production commences, the assets 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. Accumulated exploration and evaluation expenditure in relation to an abandoned area are written-off in full in profit and loss in the period in which the decision of abandon the area is made. Annual Report June 2020 29 Notes to the Financial Statements For the year ended 30 June 2020 o Site restoration Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal and rehabilitation of the site in accordance with the requirements of the mining permits. Such costs are determined using estimates of future costs, current legal requirements and technology. Costs of site restoration are recognised in full at present value as a non-current liability. An equivalent amount is capitalised as part of the cost of the asset when an obligation arises to decommission or restore a site to a certain condition after abandonment as a result of bringing the assets to its present location. In determining the costs of site restoration there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. p Impairment of non-financial assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's ("CGU's") fair value less costs to sell and its value-in-use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre- tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group's CGU's to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses of continuing operations are recognised in the income statement in expenses. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset's or CGU's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. q Assets held for sale A discontinued operation is a component of the consolidated entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the statement of profit or loss and other comprehensive income. Annual Report June 2020 30 Notes to the Financial Statements For the year ended 30 June 2020 r Share-based payment transactions Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instrument at the grant date. Fair value is measured by use of either a binominal or Black Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. Further details on how the fair value of equity-settled share-based transactions has been determined can be found in Note 19. No share-based payments were issued during the year. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods and services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service. For cash-settled share-based payments, a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each reporting date, with any changes in fair value recognised in profit or loss for the year. s Employee benefits provision Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave, and long service leave. Liabilities arising in respect of wages and salaries, annual leave and any other short-term employee benefits are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the market yield as at the reporting date on national government bonds, which have terms to maturity approximating the terms of the related liability, are used. t Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. u Comparatives Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures. Annual Report June 2020 31 Notes to the Financial Statements For the year ended 30 June 2020 v New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2020. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below. Conceptual Framework for Financial Reporting (Conceptual Framework) The revised Conceptual Framework is applicable to annual reporting periods beginning on or after 1 January 2020 and early adoption is permitted. The Conceptual Framework contains new definition and recognition criteria as well as new guidance on measurement that affects several Accounting Standards. Where the consolidated entity has relied on the existing framework in determining its accounting policies for transactions, events or conditions that are not otherwise dealt with under the Australian Accounting Standards, the consolidated entity may need to review such policies under the revised framework. At this time, the application of the Conceptual Framework is not expected to have a material impact on the consolidated entity's financial statements. Annual Report June 2020 32 Notes to the Financial Statements (continued) For the year ended 30 June 2020 3 Segment information As at the date of this report, the Group has two operating segments: gold mine exploration and development and other activities (primarily corporate costs). The Group has identified its operating segments based on internal reports that are reviewed and used by the chief operating decision maker in assessing performance. The accounting policies and amounts reported for internal reporting are consistent with the financial information in this financial report. 2020 Segment revenue Revenue Segment expenses Mine operating costs Depreciation, impairment and amortisation Administration and employment costs Finance costs (net interest income) Gold $ Other $ Total $ - - - - - - 27,206 - 27,206 - 3,106,398 3,106,398 (5,700) - 27,206 3,100,698 3,127,904 (5,700) Income tax benefit - - - Loss after tax from continuing operations (27,206) (3,100,698) (3,127,904) Segment assets Segment liabilities 2019 Segment revenue Interest income Segment expenses Mine operating costs Administration and employment costs Depreciation, impairment and amortisation Finance costs (net interest income) 6,763,438 454,476 1,798,018 632,194 8,561,456 1,086,670 434,612 - 434,612 862,883 - 862,883 74,783 - 74,783 - 3,331,343 3,331,343 - 322,457 322,457 937,666 3,653,800 4,591,466 Income tax benefit - - - Loss after tax from continuing operations (503,054) (3,653,800) (4,156,854) Segment assets Segment liabilities 9,190,802 1,659,020 1,074,173 1,203,728 10,264,976 2,862,748 Annual Report June 2020 33 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Note 2020 $ 2019 $ 4 Revenue and expenses (a) Revenue (i) Gold sales (ii) Other income Gain on acquisition Write back of management fees payable to related party 22 20 (b) Cost of sales Mine operating costs Depreciation and amortisation expense (c) Employee benefits expense Wages and salaries Superannuation benefits Total employee benefits expense (d) Finance costs Interest expense - Project Development Notes Project Development Notes - equity component amortisation Interest expense - related party (refer Note 23) Less: interest income Finance costs (net) 5 Income tax - - - - - - - 188,608 59,272 247,880 (4,831) - - (869) (5,700) 434,612 271,945 493,964 765,909 862,883 22,635 885,518 370,629 41,689 412,318 (129,774) 446,538 5,940 (247) 322,457 Income tax expense - tax benefit written off - - The Group has tax losses as at the 30 June 2020 of $15,463,530 (2019: $12,435,620). The benefit relating to these and the current year losses has not been recognised in the financial report at 30 June 2020 as it is not probable that future taxable profit will be available against which the Group would be able to utilise these losses. Tax returns for the Group for the year ended 30 June 2020 are in progress at the date of this report. Annual Report June 2020 34 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Current and prior year tax losses will only be available to offset against future profits if: (i) the Group and the Company derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised; (ii) the Group and the Company continue to comply with the conditions for deductibility imposed by tax legislation; and (iii) no changes in tax legislation adversely affect the Group and the Company in realising the benefit from the The Company and its wholly owned entities have not formed a consolidated income tax group as of 30 June 2020. 6 Discontinued operations On 1 August 2019 the Group publicly announced a farm-in agreement had been signed in respect of its Radio Gold mine. Subsequently the agreement was amended to be an outright sale of 100% of the Group's interests in Radio Gold. As at 30 June 2020 a remaining balance of $400,000 was owing in respect of the sale, which was received on 15 July 2020, at which point title to Radio Gold's tenements was transferred to the acquirer (subject to Ministerial Consent). Accordingly, as of 30 June 2020 Radio Gold was classified as a disposal held for sale and a discontinued operation. The results of Radio Gold for the year are presented below: Total sale consideration Carrying amount of net assets disposed Loss for year from discontinued operations 7 Cash and cash equivalents (a) Cash and bank balances Cash at bank earns interest at floating rates based on daily bank deposit rates. 2020 $ 2019 $ 2,000,000 - (3,681,834) - (1,681,834) - 1,356,267 1,035,939 Annual Report June 2020 35 Notes to the Financial Statements (continued) For the year ended 30 June 2020 (b) Reconciliation from the net profit after tax to the net cash flows from operations Loss from continuing operations after tax (1,446,278) (4,160,253) Adjustments for: Depreciation and amortisation Share-based payments Project development notes - equity component amortisation Value of incremental shares issued on conversion of project development notes Gain on acquisition Other 27,206 14,130 - - - 33,055 74,783 - 446,538 2,715,524 (271,945) 111,482 Changes in operating assets and liabilities, net of effects from purchase of controlled entity Decrease/(increase) in receivables (Decrease)/increase in payables (Decrease)/increase in other liabilities Net cash used in operating activities 8 Other assets Deposits Deposits of $20,000 (2019: $20,000) are subject to a charge refer Note 20. (3,516) (831,893) (651) 31,019 (424,124) 15,054 (2,207,947) (1,461,922) 20,000 20,000 Annual Report June 2020 36 Notes to the Financial Statements (continued) For the year ended 30 June 2020 9 Property, plant and equipment At 30 June 2020 Cost Accumulated depreciation Net carrying amount Movement in property, plant and equipment Carrying amount at the beginning of the year Additions - other Assets held for sale Depreciation charge for the year Carrying amount at the end of the year At 30 June 2019 Cost Accumulated depreciation Net carrying amount Movement in property, plant and equipment Carrying amount at the beginning of the year Additions - other Depreciation charge for the year Carrying amount at the end of the year 10 Exploration and evaluation assets At 30 June 2020 Cost Accumulated depreciation and impairment Net carrying amount Movement in exploration and evaluation assets Carrying amount at the beginning of the year Additions - other Carrying amount at the end of the year Freehold land Plant and equipment 30,000 - 30,000 13,610 (12,681) 929 30,000 - - - 30,000 Freehold land 30,000 - 30,000 375,420 929 (348,214) (27,206) 929 Plant and equipment 524,629 (149,209) 375,420 Total 43,610 (12,681) 30,929 405,420 929 (348,214) (27,206) 30,929 Total 554,629 (149,209) 405,420 30,000 - - 30,000 427,568 - (52,148) 375,420 457,568 - (52,148) 405,420 Total 6,732,509 - 6,732,509 5,138,321 1,594,188 6,732,509 Annual Report June 2020 37 Notes to the Financial Statements (continued) For the year ended 30 June 2020 At 30 June 2019 Cost Accumulated depreciation and impairment Net carrying amount Movement in exploration and evaluation assets Carrying amount at the beginning of the year Acquisition of a subsidiary (refer Note 22) Additions - prepayment for drilling services Additions - other Recognition of mine rehabilitation liability Carrying amount at the end of the year Total 5,138,321 - 5,138,321 1,712,668 2,371,945 500,000 37,810 515,898 5,138,321 Exploration licenses are carried at cost of acquisition less impairment losses. The recoverability of the carrying amount of the exploration and evaluation assets is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest. The recoverable amount of development expenditure is determined as the higher of its fair value less costs to sell and its value in use. 11 Mine development assets At 30 June 2020 Cost Accumulated amortisation and impairment Net carrying amount Movement in exploration and evaluation assets Carrying amount at the beginning of the year Assets held for sale Amortisation charge for the year Carrying amount at the end of the year At 30 June 2019 Cost Accumulated amortisation and impairment Net carrying amount Movement in exploration and evaluation assets Carrying amount at the beginning of the year Additions Amortisation charge for the year Carrying amount at the end of the year Total - - - 3,647,061 (3,647,061) - - Total 3,704,701 (57,640) 3,647,061 3,659,784 9,912 (22,635) 3,647,061 The Group sold its interest in the Radio Gold for a cash consideration of $2,000,000, of which $1,600,000 had been received prior to 30 June 2020 and the balance of $400,000 was received on 15 July 2020. The loss on sale is shown as part of loss from discontinued operations (refer Note 6) Annual Report June 2020 38 Notes to the Financial Statements (continued) For the year ended 30 June 2020 12 Trade and other payables Amounts owed to director Amounts owed to supplier Other payables 13 Interest-bearing loans and borrowings Current - unsecured Borrowings - project development notes issue 1 Non-current - unsecured Borrowings - other (i) 2020 $ - - 419,597 2019 $ 106,147 40,000 1,105,343 419,597 1,251,490 2020 $ 2019 $ - 372,000 116,296 104,630 (i) Borrowings - Other Other borrowings are repayable on demand and interest is payable monthly at a rate of 10% per annum. 14 Provisions Current Employee entitlements Non-Current Rehabilitation provision Total provisions Movement in provisions 2020 $ 2019 $ 34,879 35,530 515,898 1,099,098 550,777 1,134,628 At 30 June 2020 Carrying amount at the beginning of the year Remeasurement of provision Employee benefits 35,530 (651) Rehabilitation Total 1,099,098 1,134,628 (651) Reversal of provision on discontinued operations - (583,200) (583,200) Carrying amount at the end of the year 34,879 515,898 550,777 Annual Report June 2020 39 Notes to the Financial Statements (continued) For the year ended 30 June 2020 At 30 June 2019 Carrying amount at the beginning of the year Remeasurement of provision 20,476 15,054 583,200 515,898 603,676 530,952 Carrying amount at the end of the year 35,530 1,099,098 1,134,628 15 Issued capital 387,680,770 fully paid ordinary shares (2019: 295,722,070) Movements in fully paid ordinary shares 2020 $ 2019 $ 31,326,704 28,535,748 Date $/share Number $ $/share 2020 2019 Number $ Balance at the beginning of the financial year 295,722,070 28,535,748 98,143,845 14,712,060 Share placement 29/08/2019 Share placement 11/10/2019 Director fees 11/10/2019 $0.04 $0.04 $0.04 28,000,000 1,120,000 47,000,000 1,880,000 3,603,700 144,148 Conversion of project development notes Settlement of services contracts Settlement of director fees and expenses Menzies acquisition Settlement of project development notes Settlement of short term loans Settlement of short term loans Share placement Share placement 11/10/2019 $0.05 3,780,000 189,000 11/10/2019 $0.04 8,325,000 307,000 13/12/2019 $0.04 1,250,000 50,000 21/12/2018 $0.05 32,400,000 1,620,000 17/05/2019 $0.05 87,920,000 4,396,000 17/05/2019 $0.05 17/05/2019 17/05/2019 17/05/2019 $0.05 $0.05 $0.05 4,208,225 210,411 15,000,000 750,000 54,550,000 1,000,000 2,697,500 50,000 Annual Report June 2020 40 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Date $/share Number $ $/share 2020 2019 Number $ 17/05/2019 $0.05 10,000,000 500,000 17/05/2019 17/05/2019 - - - - 2,715,524 999,310 26/06/2019 (7,500,000) - Settlement of services contract Value of incremental shares issued on conversion of project development notes Transfer from reserve on conversion of project development notes Buyback of shares subject to performance conditions Cost of equity issues (899,192) - (115,057) Balance at the end of the financial year 387,680,770 31,326,704 295,722,070 28,535,748 16 Reserves Share option reserve Balance at the beginning of the financial year De-recognition of equity component on issue of project development notes on early repayment Transfer to equity on conversion of project development notes Share based payment Cancellation of performance shares Capital raising cost Balance at the end of the financial year 2020 $ 2019 $ 214,309 - 1,575,267 (361,648) - 42,388 (28,259) 395,585 624,023 (999,310) - - - 214,309 (i) Reserve arises on the issue of options in payment for services or fees. Further information on options issued is shown in Note 19 to the financial statements. Annual Report June 2020 41 Notes to the Financial Statements (continued) For the year ended 30 June 2020 17 Asset backing and earnings per share 2020 cents per share 2019 cents per share Basic and diluted earnings per share (continuing operations) (cents per share) (0.86) (3.08) Basic and diluted assets per share (continuing operations) (cents per share) The following reflects the income and share data used in the basic and diluted per share calculations: 2.05 2020 $ 5.49 2019 $ Loss attributable to shareholders of the Company used in the calculation of basic and diluted earnings per share (3,127,904) (4,156,854) Weighted average number of ordinary shares for basic earnings per share Effect of dilution of share options on issue (i) 364,876,136 - 134,889,713 - Weighted average number of ordinary shares adjusted for the effect of dilution 364,876,136 134,889,713 (i) Share options on issue that have been assessed as being dilutive for the purpose of calculating earnings per share have been excluded from the calculation of earnings per share as the Group has incurred a loss after tax. In that circumstance the inclusion of share options would reduce the earnings per share (loss) and present a misleading result. 18 Financial instruments Financial risk management objectives (a) The Group’s financial instruments consist mainly of deposits with banks, accounts receivable and payable, loans, convertible instruments and derivatives. The main purpose of non-derivative financial instruments is to raise finance for Group operations. The directors consider that the limited risks mean there is no need to enter into risk management strategies involving derivative instruments. The Group is exposed to credit risk, liquidity risk and interest rate risk. There have been no substantive changes in the types of risks the Group is exposed to, how these risks arise, or the Board’s objectives, policies and processes for managing or measuring the risks from the previous period. The Group manages liquidity risk by a combination of maintaining cash reserves, banking facilities and continuously monitoring forecast and actual cash flows. Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. Risks are managed through sensitivity analysis to model the impact of changes upon the Group’s profits. The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date of recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements. (b) Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 2 to the financial statements. Annual Report June 2020 42 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Fair value of financial instruments (c) The fair values of financial assets and financial liabilities are determined as follows: - - the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis. (d) Categories of financial instruments The following table details the carrying amounts and fair values of the Group's financial assets and financial liabilities. The directors consider that the carrying amounts of financial assets and liabilities recorded at amortised cost in the financial statements approximate their fair values. Financial assets Cash and cash equivalents Assets held for sale Trade and other receivables Financial liabilities Liabilities measured at amortised cost: Trade and other payables Borrowings Liabilities measured at fair value - Level 3 (i) Borrowings - project development notes Note 2020 $ 2019 $ 7 1,356,267 1,035,939 400,000 21,751 18,235 1,378,018 1,054,174 Note 2020 $ 2019 $ 419,597 1,251,490 116,296 - 13 - 372,000 535,893 1,623,490 (i) Financial instruments that are measured subsequent to initial recognition at fair value, are grouped into Levels 1 to 3 based on the degree to which the fair value is observable. Level 1 - fair value measurements are those derived from quoted sources (unadjusted) in active markets for identical assets or liabilities. Level 2 - fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset of liability that are not based on observable market data (unobservable inputs). The fair value of derivative instruments is significantly affected by movements in interest rates. Sensitivity of the valuation of the derivative liabilities to changes in these factors is shown below at item (j). Annual Report June 2020 43 Notes to the Financial Statements (continued) For the year ended 30 June 2020 (e) Credit risk exposures Credit risk arises principally from the Group’s receivables and cash and bank balances. Credit risk is kept continually under review and managed to reduce the incidence of material losses being incurred by the non-receipt of monies due. The Group’s financial assets include trade and other receivables and loans to related entities. The maximum exposure to credit risk on financial assets of the Group which has been recognised on the balance sheets is generally the carrying amount, net of any provisions for doubtful debts. The Group has no significant concentrations of credit risk with any single counterparty or group of counterparties. The Group's financial assets are limited to credit risk exposures to Australia on a geographical basis. Trade and other receivables that are neither past due nor impaired are limited to a few counterparties which are considered credit worthy. 2020 Cash and cash equivalents Assets held for sale Receivables 2019 Cash and cash equivalents Receivables Contractual repayment amount 6mths or less Interest rates 6-12 mths 1-5 years 2.0% 1,356,267 1,356,267 - - na 400,000 21,751 400,000 21,751 - - - - Contractual repayment amount 6mths or less 6-12 mths 1-5 years 2.0% 1,035,939 1,035,939 - - na 18,235 18,235 - - (f) Liquidity risk management The board has put in place liquidity risk management policies for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by having a combination of: - - - continuously monitoring forecast and actual cash flows; having in place loan facilities structured to grow as the size of the business increases; and arranging issues of securities as required. Annual Report June 2020 44 Notes to the Financial Statements (continued) For the year ended 30 June 2020 To the extent possible maturity profiles of financial assets and liabilities are matched. The board reviews the capital structure on a regular basis. The board does not have a set debt level target however the level of borrowings is in line with expectations. The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group could be required to pay. The table includes principal and interest cash flows at the face value of the amount owing and therefore the figures differ from those shown in the financial statements. 2020 Trade payables Borrowings - other (fixed rate) Interest rate 10% Contractual repayment amount 419,597 116,296 Less than 1 year 1-5 years 419,597 - - 116,296 535,893 419,597 116,296 2019 Trade payables Borrowings - other (fixed rate) Interest rate 8%-12% Contractual repayment amount 1,251,490 382,463 Less than 1 year 1-5 years 1,251,490 382,463 - - 1,633,953 1,633,953 - The table below reflects an undiscounted view of the contractual maturity for financial liabilities and cash flows expected to be realised from financial assets. Actual timing may differ from that disclosed. The timing of the cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates. Within 1 Year 2019 $ 2020 $ 1 to 5 Year 2019 $ 2020 $ Total 2020 $ 2019 $ Group financial liabilities due for payment Trade payables Borrowings - fixed rate 419,597 1,251,490 - - 382,463 116,296 - 419,597 1,251,490 - 116,296 382,463 Total contractual and expected outflows 419,597 1,633,953 116,296 - 535,893 1,633,953 Group financial assets - cash flows realisable Cash and Assets held for sale Receivables 1,356,267 1,035,939 400,000 21,751 18,235 - - - - - 1,356,267 1,035,939 - 400,000 - 21,751 18,235 - Total 1,778,018 1,054,174 - - 1,778,018 1,054,174 Net outflow/(inflows) (1,358,421) 579,779 116,296 - (1,242,125) 579,779 Annual Report June 2020 45 Notes to the Financial Statements (continued) For the year ended 30 June 2020 (g Interest rate The Group has borrowed funds at fixed rate of interest and therefore currently has limited exposure to movements in interest rates. (h Foreign currency risk management At its current stage of development the Group is indirectly exposed to foreign currency risk, in respect of the market price for gold which is based in US dollars. (i) Commodity price risk management At its current stage of development the Group is indirectly exposed to commodity price risk, in respect of the market price for gold. (j) Sensitivity analysis of risk factors At 30 June 2020, the effect on profit and equity as a result of changes in interest rates, with all other variables remaining constant, would not have a material impact. Annual Report June 2020 46 Notes to the Financial Statements (continued) For the year ended 30 June 2020 19 Share-based payments The Company has the following share options outstanding under share based plans: 2020 2019 Weighted average exercise price Number of options Weighted average exercise price Number of options Balance at the beginning of the financial year Granted Expired Cancelled 14,100,000 16,117,500 (1,000,000) (3,100,000) $0.127 - $0.050 $0.000 48,709,524 - (1,000,000) (33,609,524) $0.117 $0.000 $0.050 $0.120 Balance at the end of the financial year 26,117,500 $0.126 14,100,000 $0.127 Exercisable at the end of the financial year 26,117,500 $0.126 14,100,000 $0.126 1,000,000 options expired unexercised and 3,100,000 options were cancelled during the financial year upon conversion of amounts owing under project development notes (refer Note 13) . No options were exercised during the financial year. Share options outstanding at the end of the year have the following expiry date and exercise prices Class Vesting Conditions Grant date Expiry date Exercise price Class D Class E Class F Class G Class H Class I Class J Class K Class L Class M Class N Class O Vested Cancelled na Vested Cancelled Vested Vested Cancelled Vested Vested Vested Vested 9/11/2015 22/04/2016 20/06/2016 20/06/2016 6/12/2016 6/12/2016 6/12/2016 10/11/2017 18/12/2017 18/12/2017 11/10/2019 11/10/2019 31/12/2019 Cancelled 31/03/2021 31/03/2021 Cancelled 31/03/2021 31/03/2021 Cancelled 15/12/2022 15/12/2022 11/10/2022 28/06/2022 $0.120 $0.120 $0.120 $0.120 $0.140 $0.120 $0.140 $0.140 $0.140 $0.140 $0.080 $0.075 Number of share options 2020 - - 5,000,000 2,500,000 - 250,000 250,000 - 1,000,000 1,000,000 15,000,000 1,117,500 Number of share options 2019 1,000,000 3,100,000 5,000,000 2,500,000 - 250,000 250,000 - 1,000,000 1,000,000 - - 26,117,500 14,100,000 Annual Report June 2020 47 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Details of share options granted during the current year: Grant date Expiry date Exercisable from Exercise price Number of options issued Fair value at grant date Fair value at grant date per option Vesting conditions Class N 11/10/2019 11/10/2022 11/10/2022 $0.08 15,000,000 $369,000 $0.025 na Class O 11/10/2019 28/06/2022 28/06/2022 $0.08 1,117,500 $26,584 $0.024 na The fair values of the share options were determined using the following parameters: Expected volatility of ordinary shares Risk free interest rate Underlying share price at valuation date Weighted average life of option Exercise price Valuation method % % $/share years $/share Class N 113% 0.69% $0.043 Class O 113% 0.69% $0.043 3.0 2.7 $0.08 Black- scholes $0.08 Black- scholes The Company has the following performance rights outstanding under share based plans: 2020 Number of performanc e rights Weighted average exercise price 2019 Number of performance rights Weighted average exercise price Balance at the beginning of the financial year Granted Cancelled1 - 34,500,000 (22,500,000) $0.000 $0.000 $0.000 Balance at the end of the financial year 12,000,000 $0.000 Exercisable at the end of the financial year - $0.000 - - - - - $0.000 $0.000 $0.000 $0.000 $0.000 Note 1: 22,500,000 performance rights were cancelled upon resignation of the Chief Executive Officer. Annual Report June 2020 48 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Performance rights outstanding at the end of the year have the following expiry date and exercise prices Issue Vesting Conditions Grant date Expiry date Number of performance rights 2020 Number of performance rights 2019 Tranche A Tranche B Tranche C Ordinary shares achieving 30- day volume weighted average price of more than 8 cents within 3 years from date of issue Ordinary shares achieving 30- day volume weighted average price of more than 16 cents within 4 years from date of issue Ordinary shares achieving 30- day volume weighted average price of more than 32 cents within 5 years from date of issue 17/12/2019 17/12/2022 2,000,000 17/12/2019 17/12/2023 4,000,000 17/12/2019 17/12/2024 6,000,000 Details of performance rights granted during the current year: Grant date Expiry date Number of performance rights issued Fair value at grant date Fair value at grant date per right Vesting conditions Ordinary shares achieving 30-day volume weighted average price within 3 years from date of issue of more than Tranche A 17/12/2019 17/12/2022 7,000,000 $84,000 $0.0120 Tranche B 17/12/2019 17/12/2023 11,500,000 $109,250 $0.0095 12,000,000 Tranche C 17/12/2019 17/12/2024 16,000,000 $113,600 $0.0071 $0.08 $0.16 $0.32 - - - - The fair values of the share options were determined using the following parameters: Volatility Risk free interest rate Underlying share price at valuation date Trinomial steps Valuation method % % $/share Tranche A 103.98% 0.77% $0.026 1,000 Tranche B 103.98% 0.80% $0.026 1,000 Monte Carlo simulation Monte Carlo simulation Tranche C 103.98% 0.85% $0.026 1,000 Monte Carlo simulation Annual Report June 2020 49 Notes to the Financial Statements (continued) For the year ended 30 June 2020 20 Contingent liabilities 2020 $ 2019 $ Corporate and management fees 493,364 493,364 Amounts invoiced by a director related entity (refer Note 23) are not payable unless and until the Group has a proven mineral resources of gold or the equivalent value of another mineral as follows: a) $246,682 when the Company has announced a resource of 400,000 ounces of gold; and b) $246,682 when the Company has announced a resource of 600,000 ounces of gold. Bank guarantees 20,000 20,000 Bank guarantees are issued on behalf of the Group by its bankers. The guarantees provide that the financier will honour the Group's obligations under specific agreements and are secured against monies held on deposit of $20,000 (2019: $20,000) (refer Note 8). No material losses are expected. There are no other contingent liabilities as at 30 June 2020 (2019: nil). 21 Tenement lease commitments Minimum expenditure commitment on tenement leases The Group held exploration mineral licences in relation to its mines Mount Mackenzie, Radio Gold and East Menzies for which minimum expenditure is required to comply with license conditions. Amounts committed but not provided for and payable: 2020 $ 2019 $ Within one year One year or later and no later than for five years 784,603 2,579,886 474,450 1,551,863 3,364,489 2,026,313 Annual Report June 2020 50 Notes to the Financial Statements (continued) For the year ended 30 June 2020 22 Business Combination On 21 December 2018 the Company acquired 100% of the issued share capital of Menzies Goldfield Pty Limited (formerly Menzies Goldfield Limited), which owns mining lease interests in the region east of the township of Menzies, Western Australia. Details of the purchase consideration, the net assets acquired and goodwill are as follows: Purchase consideration: Cash payable Ordinary shares issued Total purchase consideration $ 480,000 1,620,000 2,100,000 The fair value of the 32,400,000 ordinary shares issued as part of the consideration for Menzies Goldfield Pty Limited (previously Menzies Goldfield Limited) ($2,100,000) was based on the price the Company was able to raise capital by the issue of shares. The assets and liabilities recognised as a result of the acquisition are as follows: Assets acquired at fair value - exploration expenditure Liabilities acquired at fair value Net assets and liabilities acquired at fair value Discount on acquisition recognised in profit or loss Total purchase consideration Purchase consideration - outflow of cash to acquire Menzies Goldfield Limited Cash consideration Amount unpaid at reporting date Net cash flow Fair value $ 2,900,000 (528,055) 2,371,945 (271,945) 2,100,000 480,000 (480,000) - Acquisition related costs of $285,000 that were not directly attributable to the issue of shares are in included in other expenses in profit or loss and in operating cash flows in the statement of cash flows. The accounting for the acquisition of Menzies Goldfield Pty Limited has been determined on a provisional basis as at 30 June 2019 as the fair value assigned to the acquiree's identifiable assets and liabilities has only been determined provisionally. Any adjustment to these provisional values as a result of completing work on the fair value of assets and liabilities acquired will be recognised within 12 months of the acquisition date and will be recognised as if they had occurred as at the date of the acquisition. Annual Report June 2020 51 Notes to the Financial Statements (continued) For the year ended 30 June 2020 23 Key management personnel disclosures Key management personnel are those having authority and responsibility for planning, directing and controlling the activities of the Group. Key management personnel consists of the directors of the Company and senior management of the Group as defined in the Remuneration Report section of the Directors' Report. (a) Compensation of Key Management Personnel The aggregate compensation made to key management personnel of the Group is set out below (i). The remuneration shown includes all amounts incurred for the year. Further details of the compensation of key management personnel is contained in the Directors' Report in the Remuneration Report section. (i) Mr Kember was appointed on 8 August 2016 and his remuneration forms part of the fees charged by a director related entity. Details of the nature of the engagement and the amount of fees charged are provided below. Short-term Post employment (b) Shareholdings 2020 $ 2019 $ 352,787 6,489 359,276 231,000 9,975 240,975 The number of ordinary shares in the Company held during the financial year by a director of the Company or senior management of the Group, including their personally related parties, are set out below. 2020 Mr Gavin Rezos Mr Richard Poole Ms Virginia Bruce Mr Warren Kember 2019 Mr Gavin Rezos Mr Richard Poole Ms Virginia Bruce Mr James Croser Balance at the start of the year 10,250,000 67,987,302 50,000 - Balance at the start of the year 250,000 14,067,302 50,000 3,597,022 Granted as compensation Net other change - - - - 4,353,700 - 500,000 625,000 Granted as compensation Net other change - - - - 10,000,000 53,920,000 - (1,798,511) Balance at the end of the year 14,603,700 67,987,302 550,000 625,000 Balance at the end of the year 10,250,000 67,987,302 50,000 1,798,511 Annual Report June 2020 52 Notes to the Financial Statements (continued) For the year ended 30 June 2020 (c) Share option holdings The number of share options in the Company held during the financial year by a director of the Company or senior management of the Group, including their personally related parties, are set out below. Details of share options granted during the year are provided at Note 19. 2020 Mr Gavin Rezos Mr Christian Price 2019 Mr Gavin Rezos Mr Richard Poole Mr Christian Price Balance at the start of the year 7,500,000 2,500,000 Balance at the start of the year 11,666,667 6,250,000 2,500,000 Granted as compensation Granted on subscription to loan Net other change Balance at the end of the year - - - - - 7,500,000 - 2,500,000 Granted as compensation Granted on subscription to loan Net other change Balance at the end of the year - - - - - - (4,166,667) 7,500,000 (6,250,000) - - 2,500,000 (d) Other transactions with key management personnel Richard Poole Transactions with, or with persons or entities associated with, Mr Richard Poole, a director and the chief executive officer of the Company, during the financial year were as follows: The Company has entered into a Corporate Advisory and Business Development Mandate (Agreement) with entities ultimately controlled by interests associated with Mr Richard Poole (Arthur Phillip). The Agreement provides for the payment of fees for the raising of debt or equity capital and the charging of costs associated with the administration of the Group. Arthur Phillip invoiced fees and expenses for the provision of management, accounting, office administration, consulting and company secretarial services to the Company, amounting to $245,000 (2019: $264,000), consisting of: Directors fees Office rent Accounting and company secretarial services Management services 2020 $ 33,000 60,000 65,000 87,000 2019 $ 33,000 60,000 84,000 87,000 245,000 264,000 At the end of the financial year an amount of $493,364 for fees owing in prior years, which is subject to performance conditions, is included as a contingent liability (refer Note 20). Annual Report June 2020 53 Notes to the Financial Statements (continued) For the year ended 30 June 2020 24 Related party disclosures The consolidated financial statements include the financial statements of the Company and its controlled entities listed in the following table. The Company is the ultimate Australian parent entity and the ultimate parent of the Group. Name Mount Mackenzie Pty Limited Radio Gold Pty Limited (formerly Brightsun Enterprises Pty Limited) Resource & Energy Operations Pty Limited Menzies Goldfield Pty Limited (previously Menzies Goldfield Limited) Country of incorporation Australia Australia Australia Australia % Equity interest 2020 100.00% 100.00% 100.00% 100.00% 2019 100.00% 100.00% 100.00% 100.00% Deep Energy Pty Limited Australia 51.85% 51.85% 25 Auditors' remuneration Fees charged by the auditor of the Company for auditing or reviewing the financial report 26 Parent entity financial information 2020 $ 2019 $ $55,000 55,213 (a) Summary financial information The individual financial statements for the Company (parent entity) show the following aggregate amounts: Balance Sheet Current Assets Total Assets Current Liabilities Total Liabilities Net Assets Shareholders' contributed equity Reserves Accumulated Losses Profit or Loss for the year 2020 $ 2019 $ 1,366,883 8,621,042 (192,080) (308,376) 8,929,419 1,555,985 10,930,405 1,507,545 1,491,212 9,439,195 31,326,705 826,274 (19,033,733) 13,119,246 24,820,913 1,213,619 (16,724,856) 9,309,676 Total comprehensive income/(loss) for the year (4,806,579) (1,700,297) (b) Contingent Liabilities of the Parent The Company did not have any contingent liabilities as at 30 June 2020 or in the prior financial year. Annual Report June 2020 54 Notes to the Financial Statements (continued) For the year ended 30 June 2020 27 Dividend No dividend has been declared or paid during the financial year or the prior period. The directors do not recommend the payment of a dividend for the year ended 30 June 2020. 28 Events after balance sheet date On 15 July 2020 the Company received $400,000 in respect of the final balance owing from the sale of its interest in the Radio Gold mining tenements. On 10 August 2020 12,000,000 performance rights were cancelled upon the resignation of an employee. There have been no other significant events occurring after the balance date which may affect either the Group's operations, results of those operations or the Group's state of affairs. Annual Report June 2020 55 Directors' Declaration In accordance with a resolution of the directors of Resources & Energy Group Limited, the directors declare that: (a) The financial statements and notes of the company are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company's financial position as at 30 June 2020 and of its performance for the year ended on that date; and (ii) complying with Accounting Standards and Corporations Regulations 2001, including compliance with International Financial Reporting Statements as issued by the International Accounting Standards Board as stated in Note 2 of the financial statements. (b) The Chief Executive Officer has declared that: (i) the financial records of the Company for the financial year have been properly maintained in accordance with Section 286 of the Corporations Act 2001; (ii) the financial statements and notes for the financial year comply with the Accounting Standards; and (iii) the financial statements and notes for the financial year give a true and fair view. (c) There are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. On behalf of the Board, Mr Gavin Rezos Chairman Sydney, 30 September 2020 Annual Report June 2020 56 RSM Australia Partners Level 13, 60 Castlereagh Street Sydney NSW 2000 GPO Box 5138 Sydney NSW 2001 T +61 (0) 2 8226 4500 F +61 (0) 2 8226 4501 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Resources & Energy Group Limited for the year ended 30 June 2020, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) (ii) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS C J Hume Partner Sydney, NSW Dated: 30 September 2020 THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation 57 RSM Australia Partners Level 13, 60 Castlereagh Street Sydney NSW 2000 GPO Box 5138 Sydney NSW 2001 T +61 (0) 2 8226 4500 F +61 (0) 2 8226 4501 www.rsm.com.au INDEPENDENT AUDITOR’S REPORT To the Members of Resources & Energy Group Limited and its controlled subsidiaries Opinion We have audited the financial report of Resources & Energy Group Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2020, 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 financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial performance for the year then ended; and (ii) 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 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 and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. 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 1 in the financial report, which indicated that the For the 12 months ended 30 June 2020 the Group reported a loss after taxation of $3,128,112 (2018: $4,160,253), and net cash used by operating activities was $2,207,947 (2019: $1,461,922). The ability to continue as a going concern and realise its exploration and evaluation expenditure asset is dependent on a number of factors, the most significant of which is obtaining additional funding to complete its exploration activities. As stated in Note 1, these events or conditions, along with other matters as set forth in Note1, indicate that a material uncertainty exists that may cast significant doubt on the consolidated entity’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation 58 Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key Audit Matter How our audit addressed this matter Carrying value of capitalised exploration and evaluation Refer to Note 10 in the financial statements As disclosed in note 10, the Group held capitalised exploration of evaluation $6,732,509 as at 30 June 2020 which represents a significant asset of the Group. expenditure and The carrying value of exploration and evaluation assets is subjective based on Group’s ability, and intention, to continue to explore the asset. The carrying value may also be impacted by the mineral reserves and resources may not be commercially viable for extraction. This creates a risk that the amounts stated in the financial statements may not be recoverable. Provision for site restoration obligations Refer to Note 14 in the financial statements The Consolidated Statement of Financial Position of the Group includes a provision for site restoration of $515,898 as at 30 June 2020. The group has obligations to restore the land on which it has conducted drilling activities. The provision is for future costs associated with the rehabilitation activities and requires significant judgement in respect of asset lives, timing of restoration being undertaken legislation requirements. This is considered as a key audit matter due to the significant judgement involved and the materiality of the balance. environmental and and assessing Our audit procedures included the following:  Considering the Group’s right to explore in the included relevant exploration area which obtaining supporting documentation such as obtaining independent searches of the company’s tenement holdings  Considering the Group’s intention to carry out significant exploration and evaluation activity in the relevant exploration area which included an assessment of the Group's future cash flow forecasts and enquired of management and the Board of Directors as to the intentions and strategy of the Group Assessing recent exploration activity in a given exploration license area to determine if there are any negative indicators that would suggest a potential capitalized exploration and evaluation expenditure Assessing the commercial viability of results relating to exploration and evaluation activities carried out in the relevant license area Assessing the ability to finance any planned future exploration and evaluation activity. impairment the of    for the provision Our audit procedures in relation to provision for site restoration obligations included:  Understanding management’s process to determine restoration and ensuring it was consistent with our understanding of the activities associated with those tenements. the estimation of rehabilitation of related tenements supporting and ensuring documents were available to support the cost estimates.  Assessing the cost elements used that appropriate  Reviewing the Group’s the adequacy of disclosures in respect of this area. in 59 Other Information 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 2020, but does not include the financial report and the auditor's report thereon. Our opinion on the 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 financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. 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 Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the 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 have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the 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 financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar2_2020.pdf This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 12 to 16 of the directors' report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Resources & Energy Group Limited, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. 60 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. C J Hume Partner RSM Australia Partners Sydney, NSW 30 September 2020 61 Security Holders' Information Additional information included in accordance with the Listing Rules of the Australian Securities Exchange Ltd. The information provided is current as of 29 August 2020. 1. Ordinary share holders (a) Top 20 shareholders The names of the 20 largest holders of ordinary shares as shown in the Company's share register are listed below. Name HSBC Custody Nominees (Australia) Limited Fontelina Pty Limited Arthur Phillip Nominees Pty Ltd Mr Gavin Rezos Riqo Pty Limited Vanavo Pty Limited Mrs Emma Bacci Mrs Natalie Risinger Sanjur Pty Limited Citicorp Nominees Pty Limited Larca Pty Limited Yucaja Pty Limited Minerva Geological Pty Limited Australian Mineral Partners Pty Limited One Design & Stiff Sales Pty Limited Mr Paul Healey Lien Pty Limited Seefeld Pty Limited Limits Pty Limited Hestian Pty Limited Total top 20 holders Other holders Total ordinary shares on issue (b) Shareholder analysis Number of Shares % of Issued Shares 68,213,334 39,920,000 29,637,283 14,353,700 10,000,000 8,171,905 6,497,150 6,497,150 5,596,747 4,677,033 4,172,366 4,165,596 4,095,385 4,000,000 4,000,000 3,000,000 3,000,000 2,980,000 2,675,000 2,500,000 17.6% 10.3% 7.6% 3.7% 2.6% 2.1% 1.7% 1.7% 1.4% 1.2% 1.1% 1.1% 1.1% 1.0% 1.0% 0.8% 0.8% 0.8% 0.7% 0.6% 228,152,649 159,528,121 387,680,770 58.9% 41.1% 100.0% An analysis of the numbers of ordinary share holders by size of holding is shown below Size of holding range 1 1,001 5,001 10,001 100,001 and 1,000 5,000 10,000 100,000 Over - - - - Number of holders 15 141 60 304 312 832 Percentage of holders Units held 1.8% 2,386 16.9% 402,750 7.2% 578,875 36.5% 15,048,890 37.5% 371,647,869 100.0% 387,680,770 There were 292 shareholders that held less than a marketable parcel of ordinary shares. Annual Report June 2020 62 Security Holders' Information (c) Substantial shareholders Holders of more than 5% of the ordinary shares who have lodged substantial shareholder notices are listed below. Name of shareholder Ordinary shares held Percentage of total ordinary shares on issue Richard Poole and family Gaffwick Pty Limited 67,987,302 68,213,334 17.5% 17.6% (d) Voting rights There are no restrictions on voting rights attached to the ordinary shares. On a show of hands every member present in person shall have one vote and upon a poll, every member present or by proxy shall have one vote every share held. (e) Share buyback There were no share buybacks during or subsequent to the end of the financial year. 2 Share options The names of holders of more than 20% of each class of unlisted share options are shown below. Share options do not have voting rights until converted into ordinary shares. Class Name of holder F G I J L M N O Vivien Enterprises Pte Ltd Vivien Enterprises Pte Ltd Employee options Employee options Employee options Employee options 3VL Pty Ltd Mr Mark Sandford Others less than 20% Nascent Capital Partners Pty Ltd Total share options on issue Number of holders Share options issued Percentage held of each class 1 1 1 1 1 1 1 1 7 1 5,000,000 2,500,000 250,000 250,000 1,000,000 1,000,000 4,862,464 4,097,421 6,040,115 1,117,500 26,117,500 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 32.4% 27.3% 40.3% 100.0% Annual Report June 2020 63 

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