ABN : 42 127 042 773 ANNUAL FINANCIAL REPORT 2016 CONTENTS Company Information Operations and Strategic Review Directors’ Report Auditor’s Independence Declaration Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Details Interest in Exploration Leases Corporate Governance Statement Company Information – Scotland AND CONTROLLED ENTITIES 3 4 13 22 23 24 25 26 27 48 49 51 54 55 56 Scotgold Resources Limited Page 2 COMPANY INFORMATION ABN Directors 42 127 042 773 Nathaniel le Roux Richard Gray Chris Sangster Phillip Jackson Gabriel Chiappini Company Secretary Gabriel Chiappini Registered Office 50 Ord Street West Perth WA 6005 AND CONTROLLED ENTITIES Non-Executive Chairman Managing Director Non-Executive Director Non-Executive Director Non-Executive Director Telephone: Facsimile: Email: +61 8 9463 3260 +61 8 9463 6630 sgz@scotgoldresources.com Share Registry Computershare Investor Services Pty Ltd Level 11 172 St Georges Terrace Perth, WA 6000 Telephone: Facsimile: +61 8 9323 2000 +61 8 9323 2033 HLB Mann Judd Level 4, 130 Stirling Street Perth, WA 6000 Telephone: Facsimile: +61 8 9227 7500 +61 8 9227 7533 Westpac Banking Corporation 1257 Hay Street West Perth WA 6005 Auditor Bankers Securities Exchange Listing Scotgold Resources Limited shares are listed on the Australian Securities Exchange and on the AIM board of the London Stock Exchange. The home exchange is Perth, Western Australia. ASX Code: AIM Code: Shares Shares SGZ SGZ Website www.scotgoldresources.com.au Scotgold Resources Limited Page 3 OPERATIONS and STRATEGIC REVIEW FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES ABOUT SCOTGOLD Scotgold Resources Limited (“the Company”) was established in 2007 and listed on the Australian Securities Exchange (ASX:SGZ) in January 2008. The Company’s shares were admitted to trading on the AIM market of the London Stock Exchange (AIM:SGZ) in February 2010. On 18 August 2016, the Company announced its intention to voluntarily delist from the ASX, subject to ASX approval. The Company’s principal objective, since listing, has been the advancement of the Cononish Gold and Silver Project in Scotland’s Grampian Highlands to a production decision and the ongoing exploration of the highly prospective tenements comprising the Grampian Gold Project (which is described in greater detail below) with the view of identifying further project opportunities. Although the Company’s initial application for planning permission to develop the project in 2010 was rejected, the Company submitted a revised application and on 25th October 2011, the Board of the Loch Lomond and the Trossachs Parks (“the Parks Board”) unanimously approved the application subject to the conclusion of various legal agreements and agreement on a number of outstanding conditions. These were successfully concluded and on 15th February 2012, the Parks Board issued the Decision Letter granting planning permission for the development. The Crown Estate Commissioners unconditional grant of the Crown Lease was confirmed in May 2012. During 2014, the Company made an application to vary this planning permission (relating to hours of operation of the processing plant and work on site) and on 24 January 2015, the Board of the Loch Lomond and the Trossachs National Park again voted unanimously to approve the Company’s application. As a variation to a condition of the existing consent, this approval also has the effect of extending the date by which development should commence to January 2018. In January 2015 the Company completed a Mineral Resource Estimate and subsequently in August 2015 completed a Bankable Feasibility Study for the Cononish Project. On 24 February 2016 the Company announced its intention to conduct a Bulk Processing Trial (“BPT”) and on 27 August 2016 the first official gold pour from the BPT was announced. The results and experience gained from the BPT will allow the Company to investigate whether a “phased” mine development approach would be viable and could achieve higher returns to shareholders with a lower peak funding requirement. Whilst the Company continues to examine financing options to bring the project to a development decision, it is not expected that financing agreements will be entered into prior to the outcomes of the BPT being fully considered. The Grampian Gold Project comprises Crown Option agreements covering some 4100 km2 in the south west Grampians of Scotland and covers some of the most prospective areas of the Dalradian geological sequence in the UK. This sequence extends westward from the UK to the eastern seaboard of Canada and the Appalachian belt in the US, and eastward into Sweden and Norway, has been identified by the British Geological Survey as being highly prospective for both significant gold and base metal deposits. On a more local scale, the Dalradian sequence extends to the south west from Scotland into Northern Ireland where it hosts other gold resources at Cavancaw (c. 0.8 Moz of gold) and Curraghinalt (c. 3.5M oz of gold). The Company is conducting a regional stream sediment sampling program over the wider Grampian gold project area whilst continuing to evaluate a number of previously identified high grade outcrops in the vicinity of the Cononish project. In May 2016, the Company announced the acquisition of the Pomar licence area in eastern central Portugal by its wholly owned Portuguese subsidiary, Scotgold Resources Portugal Ltda. OPERATIONAL REVIEW The Company’s business is directed by the Board and managed by the Chief Executive Officer, supported by an executive team comprising CFO and Technical Director, and by the non-executive Chairman. The Executive team and Chairman are UK resident and day-to-day activities are managed from the Company’s representative office in Tyndrum, Scotland. Scotgold Resources Limited Page 4 OPERATIONS and STRATEGIC REVIEW FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES In addition to the Chairman, CEO and Technical Director, the Board has 2 further non-executive directors based in Perth, Western Australia, where the Company also has its registered address and Company Secretary located. CONONISH GOLD AND SILVER PROJECT During the year, the Company focussed on the completion the Bankable Feasibility Study (“BFS”), following a review and optimisation of the 2013 Cononish development plan. This BFS now forms the basis for discussions with possible finance providers in order to advance the project to production. The key inputs to the BFS included A revised Mineral Resource Estimate for the project completed by CSA Global (UK) Limited A gap analysis of the 2013 Cononish Development Plan to identify areas requiring further input to meet BFS standards A trade off study examining alternative mining methods and means of access to optimise project returns A variation to the existing planning permission to facilitate 24 hour / 6 day plant operations (as opposed to 16 hour / 6 day) Based on the results of the above studies, a Bankable Feasibility Study (BFS) was completed for the project by Bara Consulting Ltd, highlights of which are shown in Table 1 below Table 1: Cononish Gold and Silver Project BFS Highlights PRODUCTION Average Production 72,000 tonne per annum Average LoM Grade (Au Eq) 11.8 gram/tonne Average Metal Produced 23,370 ounces equivalent gold* per annum Life of Mine 8 years FINANCIAL (at Gold US$1,100/oz & Silver US$15/oz) Peak Funding Requirement Total LoM Capital Expenditure Unit Operating Costs EBITDA NPV (10%) pre-tax IRR pre-tax Payback Period £18.5M £24M £327/ ounce equivalent gold (US$523/ ounce equivalent gold) £67M £23M 45% 19 months * Ounces equivalent gold = ounces gold + ounces silver*15/1100 – ratio calculated at base case prices of $1100/oz Au and $15.00/oz Ag The study demonstrates: Robust Project economics using a base case gold price of US$1,100/ounce (£688/ounce) with an EBITDA of £67.4M, a pre-tax free cashflow of £43.4M, pre-tax NPV(10%) of £22.5M and a pre-tax IRR of 45%. Scotgold Resources Limited Page 5 OPERATIONS and STRATEGIC REVIEW FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES Low operating costs with Life of Mine (‘LoM’) average of £327/ounce equivalent gold (US$523/ounce equivalent gold) (including Royalties) and Project breakeven (0% IRR) at US$689/ ounce equivalent gold Peak Funding Requirement of £18.5M and all in LoM Capital including contingencies, replacements etc. of £24.0M Average annual gold production of 23,370 ounce equivalent gold with peak production in Year 2 of 28,540 ounce equivalent gold. Average LoM grade of 11.8 grams equivalent gold / tonne and peak grade of 15.4 grams equivalent gold / tonne in year 2. Rapid Implementation schedule of 16 months post contract and finance completion and short Payback Period of 19 months from full production. Details of the material assumptions considered in the derivation of the production target and forecast financial the BFS Study Executive Summary are provided on Scotgold’s website at information above and www.scotgoldresources.com.au– ASX releases – 05/08/2015 – Cononish Gold and Silver Project Bankable Feasibility Study and Bankable Feasibility Study – Executive Summary. Mineral Resources The Mineral Resource Estimate (“MRE”) is classified as Measured, Indicated and Inferred Mineral Resources, (adhering to guidelines set out in the JORC Code (2012 Edition)), and is reported at a cut-off grade of 3.5 g/t gold as is presented in Table 2 below. Table 2 also serves as the Company’s Annual Mineral Resource Statement. Table 2: Annual Mineral Resource Statement as at 30/06/2016 Cononish Main Vein Gold and Silver Mineral Resources, prepared in accordance with the JORC code (2012 Edition) and reported at a 3.5 g/t Au cut-off as at 12/01/2015, which remain current. K Tonnes Classification Scotgold Resources Limited ‐ Cononish Gold Project Mineral Resource Estimate as at 12 January, 2015 Reported at a cut‐off grade of 3.5 g/t gold Grade Grade Ag g/t Au g/t 71.5 15.0 58.7 14.3 39.0 7.9 59.9 14.3 21.9 7.4 55.3 13.4 Measured ‐ In‐situ Indicated ‐ In situ Indicated ‐ Mined Stockpile Sub‐total M&I Inferred ‐ In‐situ Total MRE Reported from 3D block model with grades estimated by Ordinary Kriging with 15 m x 15 m SMU Local Uniform Conditioning adjustment. Minimum vein width is 1.2 m.Totals may not appear to add up due to appropriate rounding. Metal Ag Koz 139 895 9 1,043 53 1,096 In‐situ Dry BD 2.72 2.72 2.72 2.72 2.72 2.72 Metal Au Koz 29 217 2 248 18 266 60 474 7 541 75 617 Note: Mineral Resources presented above include Ore Reserves stated below. There is no change in the Mineral Resources reported as at 30/06/2015. An internal review of the Mineral Resource Estimate concluded that the estimation techniques and parameters employed remained appropriate. Scotgold Resources Limited Page 6 OPERATIONS and STRATEGIC REVIEW FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES The Cononish mineralisation remains open at depth down plunge and to the west along strike. There is therefore potential to add to the resource by further extensional drilling. In addition to the currently defined Mineral Resources, Scotgold believes that there is additional resource development potential close to the Cononish mine, subject to appropriate and successful further work. Extensive gold-in-soil anomalies, mineralisation associated with outcrops and trenching and geophysical anomalies close to the current resource clearly warrant further follow up. In addition, there are indications that other reefs are present in the area too. At this stage, such figures are highly conceptual and there is no guarantee that further exploration will define additional Mineral Resources. Ore Reserves As part of initial work towards developing the BFS, Bara Consulting Ltd completed a thorough review of the 2013 Cononish Development plan in order to identify opportunities to not only improve on the plan but to also improve the confidence in the plan. As a result of this review, further work was undertaken on the mining methodology, access design, geotechnical evaluation and overall mine design. The outcome of this work was that an Ore Reserve Estimate was completed on 25 May 2015, in accordance with the JORC code (2012 Edition) based on the Mineral Resource Estimate (MRE) issued in January 2015. There is no change to the Ore Reserves reported for the project as of 30/06/2015. An internal review of the Ore Reserve Statement concluded that the modifying factors used in determining the Ore Reserve remained appropriate and negligible depletion had occurred in the period. Table 3 Annual Ore Reserve Statement as at 30/06/2016 As at 25 May 2015 (JORC 2012 Code) Tonnes (‘000) Au Grade (g/t) Au Metal (k oz) Ag Grade (g/t) Ag Metal (k oz) Classification Proven Probable Total 555 490 11.1 11.1 198 174 47.7 47.2 851 743 (Bara Consulting Limited Ore Reserve Statement dated May 2015) 65 11.5 24 51.5 108 For greater detail on the parameters derived from this work and used for the Ore Reserve estimation process, refer to ASX release (26/05/2015 – Cononish Gold Project Study Update and Reserve Estimate) on the Company’s website. Both the Mineral Resource Estimate and Ore Reserve statement were compiled by suitably qualified Independent Competent Persons (see below) Bulk Processing Trial In February 2016 the Company announced its intention to undertake a Bulk Processing Trial” (BPT) at Cononish. The principal objectives of the BPT are to demonstrate the marketability and profitability of Scottish gold production from Cononish. It will also give further confidence to metallurgical test-work already completed and to provide a basis for a review of the current development plan under the current Bankable Feasibility Study. The planning application for the BPT was approved by the Loch Lomond & The Trossachs National Park Planning Authority in April 2016 and a small scale pilot plant was installed and commissioned by June 2016. This plant will treat around 2,400t (approximately 1,200 m3) over approximately a six-month period, sourced from a stockpile of approximately 7000t of ore grading around 7.9g/t Au and 39g/t Ag stockpiled on the mine ‘platform’ at Cononish. The Scotgold Resources Limited Page 7 OPERATIONS and STRATEGIC REVIEW FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES material to be treated forms part of the Probable Reserves for the project (refer ASX and AIM announcements dated 25/05/2015 and 26/05/2015 respectively). The process employed will be purely physical by crushing of the ore and using gravity separation via a centrifugal device to separate the high grade gold concentrate, similar to the planned full scale plant. However, the flotation circuit process has been replaced by a spiral bank to generate a sulphide, gold rich concentrate. This concentrate is then further upgraded via a shaking table and the final gold rich output from both the centrifugal device and spiral are smelted to produce a small quantity of doré (an impure bullion ‘bar’). As no chemicals are being used on site as part of the BPT this gold generated can be classified as “ethical”. The majority of the gold however remains in the sulphide concentrate which for the purposes of the BPT will be sold without further processing once economic shipping quantities have been produced. Metallurgical recovery and unit processing costs in the BPT are not expected to achieve the planned results of the full scale gravity/float plant process in the Cononish Bankable Feasibility Study. They may, however, prove sufficiently attractive to justify investigating a lesser scale, lower upfront capital, earlier commercial production phase in advance of the full production phase as originally planned. This can only be assessed once the initial results of the BPT are known. At that stage a revised mining plan, infrastructure development plan, capital/operating costs estimates and project returns can be determined. If a viable phased development route can be identified, it is likely to have a significantly lower peak financing requirement than the current BFS, as certain capital expenditures may either be able to be deferred or “self-funded” through early cashflow. It should be noted that any such revised plan would require consultation with various stakeholders, including Loch Lomond & The Trossachs National Park Planning Authority and The Crown Estate, among others. GRAMPIAN GOLD PROJECT The Company continues to actively pursue exploration activities on its substantial land position in the Dalradian group of the south west Grampians, a terrain highly prospective for both gold and potential base metal occurrences. The majority (85%) of the area currently under option to Scotgold is located outside the Loch Lomond and the Trossachs National Park. Whilst advancing the Cononish project to production, the Company’s strategy has been to conduct early stage regional exploration over the Grampian Gold project area in conjunction with follow up work on the more advanced prospects close to the Cononish project area. The Grampian Gold project encompasses a large area (~4100 km2) of the highly prospective Dalradian sequence. Basic exploration data, including gravity and airborne magnetics, is available from government surveys but is of a quality and spacing that does not adequately reflect the prospectivity of the area. This, and the general lack of previous exploration over the area (other than early stage exploration in the vicinity of the Cononish project), has dictated the Company’s approach to exploration. In order to advance its understanding of the regional setting the Company embarked on a regional scale stream sediment sampling program. In an initial wide spaced regional program, in excess of 750 stream sediment samples were taken across the project area. Interpretation of these results continues and this program has been followed up by a more detailed infill sampling program in the anomalous result areas in order to further target areas for detailed fieldwork and prospecting. To date in excess of 1200 samples have been collected with interpretation of these results on-going, in conjunction with work undertaken by Drs. Gumiel and Arias (see below). In parallel with this regional program, Scotgold continues to evaluate previously identified high grade outcrop samples identified by previous exploration close to the Cononish project. Initially, the Company conducted a re-sampling Scotgold Resources Limited Page 8 OPERATIONS and STRATEGIC REVIEW FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES program to verify previously identified occurrences and this program confirmed the presence of a large number of high grade gold / silver vein outcrops in an area located between two major regional faults, the Tyndrum – Glen Fyne fault and the Ericht - Laidon fault, and associated with the fractures generated by movement along these faults. Considerable follow up work has been undertaken to examine the extent of these occurrences through further fieldwork, detailed rock chip sampling, initial short surface drilling and (in some cases) deeper diamond drilling and the Company believe that further significant exploration expenditure is justified on many of these prospects when financing is available. The most advanced of these prospects include: 1) 2) the River Vein area - diamond drilling below exceptionally high grade surface rock chip samples has proved structural continuity of a vein structure to a depth of approximately 100m and a similar strike extent as defined by current drilling and remains open along strike and at depth: this warrants further diamond drilling (see Press Release – Exploration Progress at River Vein – 30/01/2012). the Sron Garbh mafic / ultramafic complex – short surface drilling intersected highly anomalous grades of Gold, Platinum, Palladium, Copper Nickel and Cobalt, in and close to the ‘Gabbroic / Appinitic’ zone of the complex. Mineralisation is seen to be contained in ‘sulphide blebs’ in a ‘leopard rock’ textured zone. These characteristics are diagnostic of the worldwide ‘magmatic Cu – Ni – PGE – Au’ group of deposits associated with mafic / ultramafic intrusives such as Aguablanca in Spain, certain parts of the Sudbury mines in Ontario, Canada; Voisey’s Bay in Labrador Canada and Lac des Isles in Quebec, Canada. Such deposits occur as sulphide concentrations (massive through to disseminated sulphides) associated with a variety of mafic and ultramafic magmatic rocks (see Press Release – Highly Anomalous Platinum Group Metals Gold and Base metals – 07/03/2012). 3) the Auch / Beinn Odhar veins – shallow surface drilling below one of the identified high grade outcrops confirmed its prospectivity and a considerable number of the other currently identified outcrops require initial short surface drilling as a precursor to further more intensive drilling. In June 2015, Scotgold Resources Ltd engaged the services of Dr. Pablo Gumiel and Dr. Monica Arias, of Consulting de Geología y Minería, S.L., to conduct a structural study and initial analysis of Scotgold’s extensive GeographicInformation System (GIS) database covering the Grampian Gold project. The study aimed to develop a structural model, focused on the Cononish deposit, to improve the understanding of the evolution of gold and silver mineralisation in the Tyndrum area. The study then combined the extensive existing geochemical database with structural data from Drs Gumiel and Arias’ recent fieldwork, using new analytical techniques to assess various aspects of prospectivity and develop an initial prospectivity map. The map uses techniques that take account of a number of geological parameters identified in the study as critical to locating potential economic mineralisation, including: High grade rock outcrop data Fracture density Typology (characteristics) of the vein structures / systems Other GIS based historic data Through 3 Dimensional (3D) geological and GIS modelling, a preliminary prospectivity map was developed for the study area to identify areas of high priority and potential, using a weighted gridding method. Based on the resulting prospectivity map, the study has identified a series of high priority targets, with 6 being located within a 2.5 km radius of Cononish, including 2 outside the Loch Lomond and Trossachs National Park (LLTNP). A further 5 have been identified within the studied area, all of which are outside the LLTNP. Close to the Cononish deposit, Coire Nan Sionnach and Kilbridge are highlighted as highly prospective, along with two further parallel anomalies between the Cononish deposit and Coire Nan Sionnach. Outside this area, the map has re-highlighted the Beinn Udlaidh and Arrivain areas in particular as important targets for ongoing exploration. Based on the ranking in the study, the map shows the area to have a prospectivity at least comparable, if not higher, than the Cononish deposit. In addition, Glen Orchy (River Vein and Tom a Chro), Sron Garbh and Coire Chailein are indicated to have a high ranking warranting further exploration. Scotgold Resources Limited Page 9 OPERATIONS and STRATEGIC REVIEW FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES The study has distinguished a number of high priority vein systems / structures from those less likely to carry economic mineralisation and indicates the high potential for Cononish style mineralisation in the Glen Orchy option area. Further work is being planned for these targets during 2017 and will include applying the techniques used in this study to veins / structures in the highly prospective areas, in addition to traditional exploration techniques. POMAR PROJECT In May 2016, the Company announced the acquisition of the Pomar licence area in eastern central Portugal by its wholly owned Portuguese subsidiary, Scotgold Resources Portugal Ltda. Subsequent to this announcement a party of Scotgold staff and independent consultants visited the licence area to conduct an initial site visit. The Scotgold party was accompanied by independent consultant, Mr. Peter Flindell, an exploration geologist with a background in a wide range of commodities and of bringing exploration projects to commercial production. The Pomar licence area includes the historic antimony mines of das Gatas, Pomar and Casalinho, in addition to numerous small scale trials and occurrences. Re-evaluation of the mineralisation during the site visit indicated there may be two separate mineralising events, an early antimony and later gold event. This opens up the potential for undiscovered gold prospects in zones with quartz-only mineralisation, given previous exploration efforts have focused on antimony mineralisation in the region. The initial program proposed for the Pomar licence area is modest (cica £30,000) and consists of historical data collection & analysis, a mapping program and a soil sampling assay program. There is significant historical data available from previous exploration companies, including Billiton and Indumetal, comprising assay results and geophysical data. The Company intends to access and evaluate the historical data available in the licence area to aid further exploration efforts. The soil sampling program is based around existing samples taken by the previous licence holder. These samples were not analysed, providing a great opportunity for Scotgold to gain a large volume of data quickly and cost- effectively and gather an overview of gold occurrences in the licence area. This field work will be supervised by our Country Manager Joao Barros, a geologist with extensive local knowledge and previous work experience of the Pomar licence area, under the guidance of Scotgold Projects Geologist Dr Nyree Hill. A mapping program will focus on stratigraphic and structural mapping to identify the possibility for more wide scale gold occurrences and aid understanding the controls on mineralisation types across the Pomar licence area. This work is anticipated to be completed by Dr. Pablo Gumiel and Dr. Monica Arias, who have an existing working relationship with the Company having carried out the highly successful structural study within the Grampian Project last year. Competent Persons Statement: The information in this report that relates to Exploration Results is based on information compiled by Mr David Catterall, Pr Sci Nat, who is a member of the South African Council for Natural Scientific Professions. Mr Catterall is employed as a consultant to Scotgold Resources Ltd. Mr Catterall has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking 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 Catterall consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. Note: No new exploration results are presented in this report. All results have been previously notified under JORC 2004 and are contained in Scotgold Annual reports 2008 - 2015 and various corresponding market releases. Scotgold Resources Limited Page 10 OPERATIONS and STRATEGIC REVIEW FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES The information in this report that relates to the 2015 Mineral Resources for Cononish Gold Project (refer ASX release - Resource Estimate Update – 22/01/2015) is based on information compiled by Malcolm Titley, a Competent Person who is a Member of The Australasian Institute of Mining and Metallurgy. Mr Titley is employed by CSA Global (UK) Limited, an independent consulting company. Mr Titley has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking 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 Titley consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. The information in this report that relates to the 2015 Ore Reserves for Cononish Gold Project (refer ASX announcement dated 26/05/2015) is based on information compiled by Pat Willis, a Competent Person who is registered as a Professional Engineer (Pr.Eng.) with the Engineering Council for South Africa (ECSA) and a Fellow in good standing and Past President of the Southern Africa Institute of Mining and Metallurgy (FSAIMM). Mr Willis is employed by Bara Consulting Limited, an independent consulting company. Mr Willis has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking 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 Willis consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. Further, the Company confirms it is not aware of any new information or data that materially affects the information contained in the original announcements and that all material assumptions and technical parameters underpinning the estimate of Resources and Reserves continue to apply and have not materially changed. Tenement details The Company holds a lease (100%) from the Crown Estate Commissioners over Cononish Farm, county of Perth, Scotland UK. The Company holds a lease (100%) from the landowner over Cononish Farm, county of Perth, Scotland UK. The Company holds five Mines Royal Option Agreements (100%) with the Crown Estate Commissioners as detailed below: Glen Orchy: Location – counties of Perth and Argyll, Scotland UK Glen Lyon: Location – counties of Perth and Argyll, Scotland UK Inverliever: Location – counties of Dunbarton, Argyll and Perth, Scotland UK Knapdale: Location – county of Argyll, Scotland UK Ochils: Location – county of Clackmannan, Perth, Kinross and Stirling, Scotland UK The Company announced on 12 May 2016 that wholly owned Portuguese subsidiary, Scotgold Resources Portugal Ltda, had been granted the Pomar Licence. The Company now owns a 100% interest in the Pomar Licence which is valid for 3 years (with an option to extend) and covers 264km2 in eastern central Portugal, near Castelo Branco. No other beneficial interests are held in any farm-in or farm-out agreements. No other beneficial interests in farm-in or farm out agreements were acquired or disposed of during the period. Scotgold Resources Limited Page 11 OPERATIONS and STRATEGIC REVIEW FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES STRATEGIC REVIEW The Company’s goal is to become a profitable long term gold producer, operating in low risk environments. To this end our immediate focus is the development of the advanced Cononish Gold and Silver Project in Scotland. To provide longevity beyond Cononish, and potentially growth in overall production, the Company is developing a pipeline of projects that we anticipate will meet our criteria. First and foremost of these is our Grampian Project which consists of 5 Option Agreements (“Exploration Licences”) in Scotland and includes the highly prospective ground in the vicinity of Cononish. In addition we have this year acquired the Pomar Licence in Portugal and we are pursuing opportunities in France. Since the recapitalisation of the Company in 2014, we have made excellent progress at Cononish, including new Mineral Resource Estimate, Ore Reserve Estimate, Bankable Feasibility Study (BFS) and most recently the Bulk Processing Trial (BPT). The BFS demonstrated the viability of Cononish and the next logical step would have been its finance and construction. The environment in 2015 however proved difficult, with limited appetite for a project of our relatively small size in the natural resource sector and in gold in particular. As a result we had not secured a funding package on terms acceptable to our shareholders by the end of the calendar year. At the beginning of 2016 a decision was taken to advance the project on a more modest scale and the BPT was announced and then successfully implemented. Over the last 6 months in particular, we believe the finance market for gold projects has significantly improved. The BFS was conducted as a base case gold price of $1,100/oz or £687/oz, whereas the current price (6/9/2016) is approx. $1,340 which now equates to approx. £1,000/oz. In addition to the improved finance market, early indications from the BPT are that there will be opportunities to improve the project’s development plan, through a phased development approach that will reduce the peak funding requirement. Furthermore the experienced gained from operating the pilot plant is reducing future technical risk and the anticipated premium that will be achieved on “Scottish” gold will further enhance the projects upside. With regards to the future pipeline of projects, we have also made good progress. The structural study completed over Cononish and areas of the Grampian project has enabled us to prioritise the prospects and it is expected that this will enable us to more cost effectively progress these going forward. Similarly the Pomar project has a significant dataset available which will enable us to cost effectively asses its prospectivity and inform our future strategy accordingly. The Board of directors has also made strides to adapt the Company to best serve our geographical, operational focus and goals. The Company Secretarial function performed in Perth, Western Australia has been outsourced and we are in the process of moving our financial accounting function to the UK. This will become more critical as the level of activity associated with the Cononish project continues to build. Also as previously mentioned, the Company has applied to the ASX to voluntarily delist. The decision to de-list from the ASX is due to a number of factors including the limited trading volume of securities in Scotgold on the ASX over a sustained period of time. Over the past 6 months approximately 98% of the securities trading occurred on AIM. Further, approximately 87% of the securities in Scotgold are held by UK residents or already registered as DIs on AIM. The voluntary delisting from the ASX will significantly reduce associated costs and management time, as well as consolidate trading onto one market that our UK based management team is best placed to serve. Scotgold Resources Limited Page 12 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES DIRECTORS’ REPORT Your Directors submit their report on the consolidated entity consisting of Scotgold Resources Limited and its controlled entities (“Scotgold”) for the financial year ended 30 June 2016. DIRECTORS The following persons were Directors of Scotgold Resources Limited during the whole of the financial year and up to the date of this report unless otherwise stated: Nathanial le Roux Richard Gray Chris Sangster Phillip Jackson Richard Harris Gabriel Chiappini Non Executive Chairman Managing Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director In office from 18/03/2015 10/10/2014 10/10/2014 14/08/2007 10/10/2014 27/05/2016 In office to present present present present 3/04/2016 present PARTICULARS OF CURRENT DIRECTORS AND COMPANY SECRETARY Nathaniel le Roux Non-Executive Chairman MSc (Hons) Qualifications and experience Mr Nathaniel “Nat” le Roux has spent most of his career in financial markets and was Chief Executive of IG Group plc between 2002 and 2006. He served as an independent director of the London Metal Exchange from 2008-2016 and is a trustee of various charities. Nat was born in Scotland and was educated in Edinburgh. He holds an MA in Law from Cambridge University and an MSc is Anthropology from University College London. Interest in Shares and Options Fully Paid Shares Options Special Responsibilities Overall strategic guidance and UK Capital markets. Directorships held in ASX listed entities in the last three years None 576,120,806 45,656,433 Scotgold Resources Limited Page 13 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES Richard Gray Managing Director BSc (Hons) Qualifications and experience Mr Richard Gray most recently served as Head of Mining & Expansion at Avocet Mining PLC. He has extensive international experience, in both underground and open pit mine operations, and brings considerable operational knowledge and management experience and skills to the Company, particularly in the development and implementation of gold mining projects. He has previously held various roles at both majors and juniors within the gold mining sector and his successful career has included 15 years working in South Africa for Gencor Ltd and 10 years in West Africa for Golden Star Resources Ltd. Whilst at Golden Star he served as General Manager of Bogoso Gold Limited, General Manager of Golden Star Wassa Limited and Senior Vice President Operations of Golden Star Resources Ltd. He holds a BSc (Hons) Mining Engineering from the Royal School of Mines, Imperial College and an MBA from the Graduate School of Business, Cape Town University. Interest in Shares and Options Fully Paid Shares Options Special Responsibilities 4,204,240 291,294 Mr Gray is the CEO / Managing Director and is responsible for the day to day running of the company. Directorships held in ASX listed entities in the last three years None Christopher Sangster Non-executive Director BSc (Hons), ARSM, GDE Qualifications and experience Mr Sangster is a mining engineer with over 30 years experience in the mining industry. He has a Bachelor of Science (Honours) Degree in Mining Engineering from the Royal School of Mines, Imperial College in London and a GDE in Mineral Economics from the University of Witwatersrand. He currently lives close to the Company’s exploration licences at Comrie in Scotland. Mr Sangster’s career covers extensive production and technical experience at senior levels in both junior and multi- national companies in gold, diamonds and base metals in Africa, UK and Canada and covers a wide range of mining applications. Between 1996 and 1999 Mr Sangster was General Manager for Caledonia Mining Corporation for the Cononish Gold Project and a Director of Fynegold Exploration, where he was responsible for all aspects of the project including feasibility study preparation, project due diligence, finance negotiations, exploration initiatives and planning permission applications. After 1999, Mr Sangster moved to the Zambian Copperbelt with Anglo American Plc / KCM Plc where he attained the position of Vice President of Mining Services and in 2005 joined Australian Mining Consultants as a Principal Mining Engineer. More recently, Mr Sangster was employed as General Manager for an AIM – listed company European Diamonds Plc. Scotgold Resources Limited Page 14 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 Interest in Shares and Options Fully Paid Shares Options Special Responsibilities AND CONTROLLED ENTITIES 18,204,484 493,333 Advice on technical and planning matters. Mr Sangster provides consulting services at commercial rates to the Company under a management agreement with the Company Directorships held in ASX listed entities in the last three years None Phillip Jackson Non-executive Director BJuris LLB MBA FAICD Qualifications and experience Mr Jackson is a barrister and solicitor with over 25 years legal and international corporate experience, especially in the areas of commercial and contract law, mining law and corporate structuring. He has worked extensively in the Middle East, Asia and the United States of America. In Australia, he was formerly managing legal counsel for a major international mining company, and in private practice specialised in small to medium resource companies. Mr Jackson was managing region legal counsel Asia-Pacific for a leading oil services company for 13 years. He is now General Counsel for a major international oil and gas company. He has been a Director of a number of Australian public companies, particularly mining companies. He has been Chairman of Aurora Minerals Limited since it listed in 2004 and Peninsula Mines Limited, since it listed in August 2007. His experience includes management, finance, accounting and human resources. Interest in Shares and Options Fully Paid Shares Special Responsibilities 4,331,250 Mr Jackson is Chairman of the Audit Committee and is responsible for legal matters. Directorships held in ASX listed entities in the last three years Company Name Aurora Minerals Limited Peninsula Mines Limited Predictive Discovery Limited Appointed 24 September 2003 12 December 2006 4 December 2014 Gabriel Chiappini Non-Executive Director ACA Qualifications and experience Gabriel Chiappini is a Chartered Accountant with over 20 years’ experience as a finance professional and a member of the Australian Institute of Company Directors. For the last 12 years Mr Chiappini has been managing his own Consulting Firm offering Non Executive Director and Company Secretarial services to a variety of ASX listed Scotgold Resources Limited Page 15 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES companies. Mr Chiappini has provided advice and services on equity raisings and divestment and acquisition strategies. Mr Chiappini is an experienced company director and is currently also a non-executive director of a number of ASX-listed companies. Interest in Shares and Options Fully Paid Shares Special Responsibilities Company Secretary Nil Directorships held in ASX listed entities in the last three years Company Name Fastbrick Robotics Limited Black Rock Mining Limited Interpose Holdings Limited Global Geoscience Limited SHARES UNDER OPTION Appointed 15 December 2011 21 March 2012 12 August 2015 3 November 2015 At the date of this report unissued shares of the Company under option are: Number of shares under option Exercise price Expiry date 3,000,000 30,000,000 123,637,118 $0.0800 $0.0069 £0.0100 31 March 2022 22 September 2017 30 September 2017 OPERATING AND FINANCIAL REVIEW A review of the operations of the consolidated entity during the financial year is contained in the Operations and Strategic Review section of this Financial Report. The Company’s strategy in Scotland continues to focus on advancing the 100% owned Cononish Gold and Silver Project to production whilst continuing to explore its large, highly prospective land position around Cononish and elsewhere in Scotland which extends to some 4,300km2. The consolidated entity also holds exploration interests in France and Portugal. PRINCIPAL ACTIVITIES The principal activity of the consolidated entity during the year was mineral exploration and undertaking feasibility studies in relation to its Cononish project in Scotland. Scotgold Resources Limited Page 16 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES Operating Results The consolidated loss after income tax for the financial year was $1,505,592 (2015: $2,112,965). Financial Position At 30 June 2016 the Company had cash reserves of $738,866 (2015: $802,649). Dividends No dividends were paid during the year and no recommendation is made as to dividends. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the opinion of the Directors, there were no significant changes in the state of affairs of the consolidated entity that occurred during the financial year under review not otherwise disclosed in this report or in the consolidated financial statements. LIKELY DEVELOPMENTS AND EXPECTED RESULTS The Company intends to continue its exploration activities with a view to the commencement of mining operations as soon as possible. Further information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the Directors believe it would be likely to result in unreasonable prejudice to the Company. MEETINGS OF DIRECTORS The following table sets out the number of meetings of the Company’s Directors held during the year ended 30 June 2016, and the number of meetings attended by each Director. These meetings included matters relating to the Remuneration and Nomination Committees of the Company. Nathaniel le Roux Richard Gray Richard Harris Chris Sangster Phillip Jackson Gabriel Chiappini AUDIT COMMITTEE Number eligible to attend Number attended 5 5 4 5 5 1 5 5 4 5 5 1 The Audit Committee is comprised of Mr Jackson who chaired one meeting of the audit committee during the year ended 30 June 2016. Scotgold Resources Limited Page 17 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES REMUNERATION REPORT (audited) This report details the nature and amount of remuneration for each director and executive of Scotgold Resources Limited. Remuneration policy The board policy is to remunerate Directors at market rates for time, commitment and responsibilities. The Board determines payments to the Directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of Directors’ fees that can be paid is subject to approval by shareholders in general meeting, from time to time. Fees for Non- Executive Directors are not linked to the performance of the consolidated entity. However, to align Directors’ interests with shareholders’ interests, the Directors are encouraged to hold securities in the Company. The Company’s aim is to remunerate at a level that will attract and retain high-calibre Directors and employees. Company officers and Directors are remunerated to a level consistent with size of the Company. All remuneration paid to key management personnel is valued at the cost to the company and expensed. Performance-based remuneration The company does not pay any performance-based component of salaries. Details of remuneration for year ended 30 June 2016 Directors’ Remuneration No salaries, commissions, bonuses or superannuation were paid or payable to Directors during the year. Remuneration was by way of fees paid monthly in respect of invoices issued to the Company by the Directors or companies associated with the Directors in accordance with agreements between the Company and those entities. Details of the agreements are set out below. Agreements in respect of remuneration of Directors: Executive Directors Richard Gray (Managing Director) is on a contract dated 23 March 2015 which provides for a fixed salary and benefits, with a termination period of six months. The remuneration is reviewed annually. At the date of this report the annual remuneration for Richard Gray is £100,000 plus pension contribution. In the event of a termination of contract giving less notice than provided for in this contract, the remaining notice period will be paid in full. Non-Executive Directors The Company’s constitution provides that the Non-Executive Directors may collectively be paid as remuneration for their services a fixed sum not exceeding the aggregate sum determined by a general meeting. The aggregate remuneration has been set at an amount of $300,000 per annum. A Director may be paid fees or other amounts as the Directors determine where a Director performs special duties or otherwise performs services outside the scope of the ordinary duties of a Director. A Director may also be reimbursed for out of pocket expenses incurred as a result of their directorship or any special duties. Executive Directors may be paid on commercial terms as the Directors see fit. Scotgold Resources Limited Page 18 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES The total remuneration paid to key management personnel is summarised below: Director/Executive Associated Company Year ended 30 June 2015 John Bentley Sandy Littlejohn Nat le Roux Richard Gray Richard Harris Chris Sangster Phillip Jackson Peter Newcomb Ptarmigan Natural Resources Ltd Golden Matrix Holdings Pty Ltd Holihox Pty Ltd Symbios Pty Ltd Year ended 30 June 2016 Nat le Roux Richard Gray Richard Harris Chris Sangster Phillip Jackson Gabriel Chiappini Peter Newcomb David Swan Golden Matrix Holdings Pty Ltd Holihox Pty Ltd Laurus Corporate Services Pty Ltd Symbios Pty Ltd Key management personnel share holdings Short-term benefits Fees $ $ Consulting Employment Post $ - - - - - - 61,590 - - 61,590 - 2,037 - - - - - - 2,037 Total $ 16,531 12,532 29,799 139,292 27,265 297,110 35,850 170,100 728,479 32,308 205,703 60,350 178,643 22,187 23,564 104,137 32,587 659,479 16,531 12,532 29,799 - 27,265 92,646 35,850 - 214,623 32,308 - 17,100 18,843 22,187 1,616 - - 92,054 - - - 139,292 - 142,874 - 170,100 452,266 - 203,666 43,250 159,800 - 21,948 104,137 32,587 565,388 Balance 30 June 2014 Date of appointment Purchase and Sales Date of resignation Balance 30 June 2015 Year ended 30 June 2015 John Bentley Sandy Littlejohn Nat le Roux Richard Gray Richard Harris Chris Sangster Phillip Jackson Peter Newcomb 3,434,375 - - - - 11,266,938 1,312,500 10,254,513 26,268,326 - 2,666,667 87,333,333 - 29,874,933 - - - 119,874,933 9,111,228 2,666,667 369,231,040 2,912,946 13,125,066 5,883,275 3,018,750 1,666,666 407,615,638 (12,545,603) (5,333,334) - - - - - - (17,878,937) - - 456,564,373 2,912,946 42,999,999 17,150,213 4,331,250 11,921,179 535,879,960 Scotgold Resources Limited Page 19 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES Balance 30 June 2015 Purchase and Conversion of Sales Note Date of resignation Balance 30 June 2016 Year ended 30 June 2016 Nat le Roux Richard Gray Richard Harris Chris Sangster Phillip Jackson David Swan Peter Newcomb 456,564,373 2,912,946 42,999,999 17,150,213 4,331,250 - 11,921,179 535,879,960 45,656,433 1,291,294 - 1,054,271 - 1,000,000 774 49,002,772 73,900,000 - - - - - - 73,900,000 - - (42,999,999) - - - (11,921,953) (54,921,952) 576,120,806 4,204,240 - 18,204,484 4,331,250 1,000,000 - 603,860,780 Key management personnel option holdings Free attaching options Purchase and Sales Expiry or exercise of options Date of resignation Balance 30 June 2016 Nat le Roux Richard Gray Chris Sangster Peter Newcomb 102,502,587 291,294 493,333 774 103,287,988 (20,593,750) 1,000,000 - - (20,593,750) (36,252,404) (1,000,000) - - (37,252,404) - - - (774) (774) 45,656,433 291,294 493,333 - 46,441,060 No options were held by Directors during the year ended June 2015. The consolidated entity does not have any full time Executive officers, other than the Managing Director as detailed above. Aggregate amounts payable to Directors and their personally related entities for remuneration. Consolidated Entity 2016 $ Consolidated Entity 2015 $ Accounts payable 86,707 54,182 There were no performance related payments made during the year. End of remuneration report. ENVIRONMENTAL ISSUES The consolidated entity has conducted exploration activities on mineral tenements. The right to conduct these activities is granted subject to environmental conditions and requirements. The consolidated entity aims to ensure a high standard of environmental care is achieved and, as a minimum, to comply with relevant environmental regulations. There have been no known breaches of any of the environmental conditions. Scotgold Resources Limited Page 20 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the consolidated financial report of Scotgold Resources Limited for the year ended 30 June 2016, I declare that to the best of my knowledge and belief, there have been no contraventions of: a) b) 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. Perth, Western Australia 14 September 2016 M R W Ohm Partner Scotgold Resources Limited Page 22 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES Notes CONSOLIDATED 2016 $ 2015 $ Revenue 2 1,459 10,607 Administration costs Interest expense Unwinding of convertible note discount Depreciation and profit on disposal of property, plant and equipment Exploration expensed as incurred Employee and consultant costs Listing and share registry costs Legal fees Borrowing costs Share-based payments Office and communication costs Other expenses 11 3 14 (438,021) (983) (215,526) (15,376) (131,303) (278,702) (229,571) (84,417) - - (71,549) (41,603) (380,663) (91,909) (110,338) (19,097) (393,196) (290,597) (174,758) (185,448) (174,419) (13,615) (106,503) (183,029) LOSS BEFORE INCOME TAX BENEFIT (1,505,592) (2,112,965) Income tax benefit LOSS FOR THE YEAR Other Comprehensive Income Items that may be reclassified to Profit or Loss 4 - - (1,505,592) (2,112,965) Exchange difference on translation of foreign subsidiaries (94,490) 25,466 Total comprehensive result for the year (1,600,082) (2,087,499) Basic (loss) per share (cents per share) 24 (0.12) (0.25) These financial statements should be read in conjunction with the accompanying notes. Scotgold Resources Limited Page 23 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 AND CONTROLLED ENTITIES Notes CONSOLIDATED 2016 $ 738,866 63,004 26,993 21,109 2015 $ 802,649 38,440 - 23,712 849,972 864,801 89,977 348,626 15,730,586 102,649 104,605 14,794,913 16,169,189 15,002,167 17,019,161 15,866,968 157,835 121,439 1,124,409 1,403,683 343,853 71,920 - 415,773 - - 1,353,783 1,353,783 1,403,683 1,769,556 15,615,478 14,097,412 25,829,677 344,515 (10,558,714) 22,711,529 1,463,805 (10,077,922) 15,615,478 14,097,412 5 6 7 8 6 9 10 11 11 12 12 13 14 14 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventory Other current assets Total Current Assets NON-CURRENT ASSETS Trade and other receivables Plant and equipment Mineral exploration and evaluation Total Non Current assets TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Other current liabilities Interest bearing liabilities NON-CURRENT LIABILITIES Interest bearing liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY These financial statements should be read in conjunction with the accompanying notes. Scotgold Resources Limited Page 24 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES CONSOLIDATED Issued Capital Accumulated Losses Options Reserve Convertible Note Reserve Foreign Currency Translation Reserve Total Equity Year Ended 30 June 2015 $ $ $ $ $ Balance 1 July 2014 Placements (Note 13) Entitlements Issue (Note 13) Options issued Share issue expenses Equity portion of notes issued (Note 12) Total comprehensive result for the year As at 30 June 2015 18,463,121 1,586,215 2,861,177 - (198,984) - - 22,711,529 (7,964,957) - - - - - (2,112,965) (10,077,922) 1,038,154 - - 103,615 - - - 1,141,769 - - - - - 356,555 - 356,555 (59,985) - - - - - 25,466 (34,519) 11,476,333 1,586,215 2,861,177 103,615 (198,984) 356,555 (2,087,499) 14,097,412 Year Ended 30 June 2016 $ $ $ $ $ Balance 1 July 2015 Placements (Note 13) Entitlements Issue (Note 13) Options exercised Share issue expenses Equity portion of notes converted Options expiry Total comprehensive result for the year As at 30 June 2016 22,711,529 1,053,904 1,476,010 254,388 (109,554) 443,400 - - 25,829,677 (10,077,922) - - - - 107,800 917,000 (1,505,592) (10,558,714) 1,141,769 - - - - - (917,000) - 224,769 356,555 - - - - (107,800) - - 248,755 (34,519) - - - - - (94,490) (129,009) 14,097,412 1,053,904 1,476,010 254,388 (109,554) 443,400 - (1,600,082) 15,615,478 These financial statements should be read in conjunction with the accompanying notes. Scotgold Resources Limited Page 25 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES Notes CONSOLIDATED 2016 $ 2015 $ CASH FLOWS FROM OPERATING ACTIVITIES Payment to suppliers Interest income received (1,343,403) 326 (1,106,066) 5,709 Net Cash Outflow From Operating Activities 19 (1,343,077) (1,100,357) CASH FLOWS FROM INVESTING ACTIVITIES Payments for exploration expenditure Purchase of property, plant and equipment (1,050,176) (259,398) (1,274,409) (2,400) Net Cash Outflow From Investing Activities (1,309,574) (1,276,809) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares and options Share and option issue transaction costs Borrowings net of costs Loan repayments Net Cash Inflow From Financing Activities Net increase in cash held 2,784,301 (109,553) - - 4,136,178 (198,984) 1,600,000 (3,031,286) 2,674,748 2,505,908 22,097 128,742 Effect of exchange rate fluctuations on cash and cash equivalents (85,880) 33,050 Cash and cash equivalents at the beginning of this financial year 802,649 640,857 Cash and cash equivalents at the end of this financial year 5 738,866 802,649 These financial statements should be read in conjunction with the accompanying notes. Scotgold Resources Limited Page 26 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES NOTE 1 – STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation These financial statements are general purpose financial statements, which have been prepared in accordance with the requirements of the Corporations Act 2001, Accounting Standards and Interpretations and comply with other requirements of the law. Cost is based on the fair value of the consideration given in exchange for assets. The financial statements have also been prepared on a historical cost basis. The financial statements are presented in Australian dollars. The company is a listed public company, incorporated in Australia and operating in Australia, Scotland France and Portugal. The entity’s principal activity is mineral exploration. The accounting policies detailed below have been consistently applied to all of the years presented unless otherwise stated. The financial statements are for the consolidated entity consisting of Scotgold Resources Limited and its subsidiaries. Reporting Basis and Conventions The financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes the commercial realisation of the future potential of the consolidated entity’s assets and the discharge of their liabilities in the normal course of business. At balance date, the consolidated entity had current assets of $849,972 and current liabilities of $1,403,683. Subsequent to balance date, additional cash funds of $880,000 have been raised through the placement of shares. In addition, the conversion into share capital of $220,000 of Convertible Notes has reduced current liabilities by this amount. The consolidated entity is also anticipating revenues over the ensuing twelve month period from gold sales derived from its Bulk Processing Trial. The conversion of some or all of the remaining Convertible Notes (refer Note 12) would further enhance the financial position of the Consolidated entity. While the Board considers that the consolidated entity is a going concern it is also recognised that additional funding may be required to ensure that the consolidated entity can continue to fund its operations and further their mineral exploration and evaluation activities during the twelve-month period from the date of this financial report. Such additional funding can potentially be derived from either one or a combination of the following: Loan funds Exercise of outstanding Share Options The placement of securities under the ASX Listing Rule 7.1 or otherwise; An excluded offer pursuant to the Corporations Act 2001; or The sale of assets. Accordingly, the Directors believe the consolidated entity will obtain sufficient funding to enable it and the consolidated entity to continue as going concerns and that it is appropriate to adopt that basis of accounting in the preparation of the financial report. However, the existence of the above conditions constitutes a material uncertainty that may cast significant doubt in relation to the consolidated entity’s ability to continue as a going concern and whether it will therefore realise its assets and extinguish its liabilities in the normal course of business. Scotgold Resources Limited Page 27 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES Statement of Compliance The financial report was authorised for issue on 14 September 2016. The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). Adoption of new and revised standards Changes in accounting policies on initial application of Accounting Standards In the year ended 30 June 2016, the Directors have reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to the consolidated entity’s operations and effective for the current annual reporting period. It has been determined by the Directors that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change is necessary to consolidated entity accounting policies. The Directors have also reviewed all new Standards and Interpretations that have been issued but are not yet effective for the year ended 30 June 2016. As a result of this review the Directors have determined that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on the consolidated entity’s business and, therefore, no change necessary to the consolidated entity’s accounting policies. Accounting Policies (a) Basis of Consolidation A controlled entity is any entity controlled by Scotgold Resources Limited. Control exists where Scotgold Resources Limited has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with Scotgold Resources Limited to achieve the objectives of Scotgold Resources Limited. All controlled entities have a 30 June financial year-end. All intercompany balances and transactions between entities in the consolidated entity, including any unrealised profit or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity. Where controlled entities have entered or left the consolidated entity during the year, their operating results have been included from the date control was obtained or until the date control ceased. (b) Income Tax The charge for current income tax expenses is based on the profit for the year adjusted for any non-assessable or disallowable items. It is calculated using tax rates that have been enacted or are substantively enacted by the balance date. Deferred tax is accounted for using the liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amount in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Scotgold Resources Limited Page 28 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the statement of comprehensive income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary difference can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the consolidated entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. (c) Plant and Equipment Each class of plant and equipment is carried at cost less, where applicable, any accumulated depreciation. Plant and equipment are measured on the cost basis less depreciation and impairment losses. The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future benefits associated with the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including capitalised lease assets, but excluding computers, is depreciated on a reducing balance commencing from the time the asset is held ready for use. Computers are depreciated on a straight line basis over their useful lives to the consolidated entity commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset: Plant and Equipment Depreciation Rate: 15 – 50% The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings / accumulated losses. (d) Exploration and Evaluation Expenditure Exploration and evaluation expenditure incurred is either written off as incurred or accumulated in respect of each identifiable area of interest. Tenement acquisition costs are initially capitalised. Costs are only carried forward to the extent that they are expected to be recouped through the successful development of the areas, sale of the Scotgold Resources Limited Page 29 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES respective areas of interest or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the areas is made. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. Exploration and evaluation expenditure is reclassified to development expenditure once the technical feasibility and commercial viability of extracting the related mineral reserve is demonstrable. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Restoration, rehabilitation and environmental costs necessitated by exploration and evaluation activities are expensed as incurred and treated as exploration and evaluation expenditure. (e) Impairment of Assets At each reporting date, the Directors review the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the assets, being the higher of the asset’s fair value less costs to sell and value-in-use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of comprehensive income. Where it is not possible to estimate the recoverable amount of an individual asset, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. (f) Provisions Provisions are recognised where there is a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. (g) Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. (h) Revenue Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. (i) Goods and Services Tax (GST) and Value Added Tax (VAT) Revenues, expenses and assets are recognised net of the amount of GST or VAT, except where the amount of GST or VAT incurred is not recoverable from the relevant authority. In these circumstances the GST or VAT is recognised as part of the cost of acquisition of the asset or as part of an item in expenses. Receivables and payables in the statement of financial position are shown inclusive of GST or VAT. Scotgold Resources Limited Page 30 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 (j) Issued Capital AND CONTROLLED ENTITIES Issued and paid up capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. (k) Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (l) Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments has been identified as the Board of Directors of Scotgold Resources Limited. (m) Share based payments – shares and options The fair value of shares and share options granted is recognised as an expense with a corresponding increase in equity. Fair value is measured at grant date and recognised over the period during which the grantees become unconditionally entitled to the shares or share options. The fair value of share grants at grant date is determined by reference to the share price at that time. The fair value of share options at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, any vesting and performance criteria, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk free rate for the term of the option. Upon the exercise of the option, the balance of the share-based payments reserve relating to the option is transferred to share capital. (n) Foreign currency translation The presentation currency of the consolidated financial statements is Australian dollars. In addition, functional currency is determined for each entity in the Group and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date. All exchange differences in the consolidated financial report are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also recognised in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Scotgold Resources Limited Page 31 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES The functional currency of the foreign operation, Scotgold Resources is Pounds Sterling (£). The functional currency of SGZ France SAS and Scotgold Resources Portugal is the Euro (€). As at the balance date the assets and liabilities of these subsidiaries are translated into the presentation currency of the consolidated financial statements at the rate of exchange ruling at the balance date and income and expense items are translated at the average exchange rate for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. The exchange differences arising on the translation are taken directly to a separate component of equity, being recognised in the foreign currency translation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in profit or loss. In addition, in relation to the partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e. partial disposals of associates or jointly controlled entities that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss. (o) Critical accounting estimates and judgements The application of accounting policies requires the use of judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. Key Estimates – Impairment The Directors assess impairment at each reporting date by evaluating conditions specific to the consolidated entity that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. Impairment of mineral exploration and evaluation AASB 6 Exploration for and Evaluation of Mineral Resources requires an assessment of recoverable amount to be completed whenever facts and circumstance suggest that the carrying amount of an exploration asset may exceed its recoverable amount. Recoverable amount is defined within AASB 136 Impairment of Assets as the higher of fair value less costs to sell and value-in-use. Value-in-use is determined on a pre-tax basis and is the present value of the future cash flows expected to be derived from the asset or cash-generating unit. At 30 June 2016, the Group had capitalised mineral exploration and evaluation expenditure of $15,639,785 (2015: $14,794,913). The Directors do not believe and indications of impairment are present. The Company announced on ASX on 5 August 2015, a Bankable Feasibility Study on the Cononish Gold and Silver Project which reported a base case (US$1,100 per ounce) net present value of the project of £23 million. Classification of exploration and evaluation The Bulk Processing Trial is designed to demonstrate technical feasibility and commercial viability, so the criteria to reclassify any exploration to development have not been met. Scotgold Resources Limited Page 32 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES 2016 $ 2015 $ NOTE 2 – REVENUE Revenue Interest received Other income Total revenue NOTE 3 - LOSS FROM ORDINARY ACTIVITIES BEFORE TAX EXPENSES Expenses Borrowing costs expensed Total borrowing cost expensed Depreciation of non-current assets Plant and Equipment Motor vehicles Office furniture and equipment Total depreciation of non-current assets NOTE 4 - INCOME TAX 1,459 - 1,459 5,709 4,898 10,607 - - 174,419 174,419 11,749 3,598 29 15,376 14,534 4,530 33 19,097 The prima facie tax benefit at 30% on loss from ordinary activities is reconciled to the income tax benefit in the financial statements as follows: Loss from ordinary activities Prima facie income tax benefit at 30% Tax effect of permanent differences Option based payments Share issue costs amortised Other non-deductible expenses (1,505,592) (2,112,965) 451,678 633,890 - 27,368 (667) (31,085) 24,389 (144) Income tax benefit adjusted for permanent differences 478,379 627,050 Deferred tax asset not brought to account (478,379) (627,050) Income tax benefit - - Scotgold Resources Limited Page 33 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 INCOME TAX BENEFIT AND CONTROLLED ENTITIES The directors estimate the cumulative unrecognised deferred tax asset attributable to the company and its controlled entity at 30% is as follows: UNRECOGNISED DEFERRED TAX ASSETS Revenue losses after permanent differences Capital raising costs yet to be claimed 2016 $ 2015 $ 2,474,823 65,076 2,539,899 1,941,836 66,151 2,007,987 The potential deferred tax asset has not been brought to account in the financial report at 30 June 2016 as the Directors do not believe it is appropriate to regard the realisation of the asset as probable. This asset will only be obtained if: (a) (b) (c) The company and its controlled entity derive future assessable income of an amount and type sufficient to enable the benefit from the deductions for the tax losses and the un-recouped exploration expenditure to be realised; The company and its controlled entity continue to comply with the conditions for deductibility imposed by tax legislation; and No changes in tax legislation adversely affect the company and its controlled entity in realising the benefit from the deductions for the tax losses and un-recouped exploration expenditure. Franking Credits No franking credits are available at balance date for the subsequent financial year. NOTE 5 – CASH AND CASH EQUIVALENTS Cash at bank and on hand 738,866 802,649 NOTE 6 – TRADE AND OTHER RECEIVABLES Current GST / VAT receivable Other receivables Non-current Bond on Tenement NOTE 7 – INVENTORY Inventory 61,825 1,179 63,004 35,095 3,345 38,440 89,997 102,649 26,993 - Scotgold Resources Limited Page 34 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 8 – OTHER CURRENT ASSETS AND CONTROLLED ENTITIES Prepayments 21,109 23,712 NOTE 9 – PLANT AND EQUIPMENT Plant and equipment Cost Accumulated Depreciation Movement for the year Opening balance Additions Depreciation expensed Closing balance NOTE 10 – MINERAL EXPLORATION AND EVALUATION Opening balance Bulk processing trial expenditure Other expenditure during the year Expenditure expensed as incurred Closing balance 610,947 (262,321) 348,626 351,550 (246,945) 104,605 104,605 259,397 (15,376) 348,626 121,301 2,401 (19,097) 104,605 14,794,913 90,801 976,175 (131,303) 15,730,586 13,894,769 - 1,293,340 (393,196) 14,794,913 The ultimate recoupment of exploration expenditure carried forward is dependent upon successful development and commercial exploitation, or sale of the respective areas. NOTE 11 – TRADE AND OTHER PAYABLES Trade creditors Other accruals Trade creditors and accruals relating to exploration expenditure Trade creditors and accruals relating to administration 157,835 121,439 279,274 115,142 164,132 279,274 343,853 71,920 415,773 140,927 274,846 415,773 Trade creditors are non-interest bearing and are normally settled on 30 day terms (2015: 30 days). Scotgold Resources Limited Page 35 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 12 – INTEREST BEARING LIABILITIES Convertible Notes AND CONTROLLED ENTITIES The Company entered into Convertible Note Agreements (Convertible Notes) on the terms and conditions set out in the Company’s Notice of Meeting dated 23 June 2014 (and approved by Shareholders at the General Meeting on 30 July 2014). Options to acquire ordinary shares in the Company and attaching to certain of the Convertible Notes have all expired and are no longer available. During the year on 22 March 2016, $443,400 Convertible Notes were converted into 73,900,000 ordinary shares of the Company at the conversion price of $0.006 per share. This partial conversion reduced the principal amount due under the Convertible Notes by the same amount. Subsequent to year end on 2 September 2016 a further $220,000 Convertible Notes were converted into 36,666,667 ordinary shares of the Company at the conversion price of $0.006 per share. The remaining outstanding balances of the Convertible Notes comprise $336,600 with a conversion price of $0.006 per ordinary share and £300,000 ($600,000) with a conversion price of £0.006. The repayment dates are 23 September, and 30 September 2016, respectively. The balance outstanding at 30 June 2016 is made up as follows: Principal sum drawn Equity component taken to reserves Unwinding of discount Partial Conversion Interest paid First draw 23 September, 2014 $ Second draw 30 March, 2015 $ 1,000,000 (243,121) 225,785 (443,400) (1,500) 537,764 600,000 (113,434) 100,079 - - 586,645 Total $ 1,600,000 (356,555) 325,864 (443,400) (1,500) 1,124,409 Scotgold Resources Limited Page 36 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES 2016 $ 2015 $ NOTE 13 – ISSUED CAPITAL (a) Issued capital 1,437,697,714 ordinary shares fully paid (2015: 1,135,392,472) 25,829,678 22,711,529 (b) Movements in ordinary share capital of the Company were as follows: Date Details Shares Value (cents) $ Balance at 30 June 2014 06/08/2014 06/08/2014 24/09/2014 26/11/2014 15/12/2014 06/05/2015 Placement Placement Placement Entitlements Issue Entitlements Issue Shortfall Placement Transaction costs arising on share issues Balance at 30 June 2015 Entitlements Issue Entitlements Issue Shortfall Placement 07/10/2015 28/10/2015 24/10/2015 20/01/2016 Options conversion 22/03/2016 29/03/2016 14/04/2016 Options conversion 15/06/2016 Options conversion Loan conversion Placement 483,889,318 56,874,933 18,765,318 9,000,000 194,965,196 281,897,707 90,000,000 - 1,135,392,472 95,295,889 18,243,341 10,556,659 12,000 73,900,000 83,333,333 20,593,750 370,271 0.7500 1.0000 0.8000 0.6000 0.6000 1.0000 1.3000 1.3000 1.3000 1.9000 0.6000 1.1000 1.2000 1.9000 Transaction costs arising on share issues Balance at 30 June 2016 1,437,697,715 Shares issued for non-cash consideration amounted to Nil during the year (2015: $311,215). 18,463,121 426,562 187,653 72,000 1,169,791 1,691,386 900,000 (198,984) 22,711,529 1,238,847 237,163 137,237 228 443,400 916,667 247,125 7,035 (109,554) 25,829,677 (c) Movements in options were as follows: Balance at 30 June 2014 Options vesting – Incentive options Options expiring 30 September 2017 Balance at 30 June 2015 Options expired during the year 24 July 2015 Options expired during the year 7 December 2015 Options expired during the year 28 March 2016 Options issued expiring 30 September 2017 Options exercised Options issued on part conversion of note Note options exercised 31 March 2016 Note options expired 31 March 2016 Balance at 30 June 2016 Scotgold Resources Limited Number $ 36,486,494 - 30,000,000 66,486,494 (26,222,222) (153,161) (7,111,111) 124,095,889 (382,271) 56,846,154 (20,593,750) (36,252,404) 156,713,618 1,038,154 13,615 90,000 1,141,769 (785,000) (7,000) (125,000) - - - - 224,769 Page 37 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES Option exercise dates and prices Number Exercise Price Expiry Date 3,000,000 30,000,000 123,713,618 $0.0800 £0.0069 £0.0100 31 March 2022 22 September 2017 30 September 2017 (d) Voting and dividend rights Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At shareholder’s meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. NOTE 14 – RESERVES AND ACCUMULATED LOSSES Accumulated Losses Balance at beginning of the year Net loss from ordinary activities Movement on Convertible Note Reserve Options expiry Balance at end of the year Foreign Currency Translation Reserve Balance at beginning of the year Reserve arising on translation of foreign currency subsidiary Balance at end of the year Share Option Reserve Balance at beginning of the year Options expiry Options vesting – Incentive options Reserve arising on Black Scholes valuation of options Balance at end of the year 2016 $ 2015 $ (10,077,922) (1,505,952) 107,800 917,000 (10,558,714) (7,964,957) (2,112,965) - - (10,077,922) 2016 $ 2015 $ (34,519) (94,490) (129,009) (59,985) 25,466 (34,519) 1,141,769 (917,000) - - 224,769 1,038,154 - 13,615 90,000 1,141,769 Scotgold Resources Limited Page 38 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES Convertible Note Reserve Balance at beginning of the year Partial conversion of convertible note Reserve arising on issue of convertible notes Balance at end of the year Nature and purpose of reserves Foreign currency translation reserve 356,555 (107,800) - 248,755 - - 356,555 356,555 The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. Share Option Reserve The share option reserve is used to record the assessed value of options issued. Convertible Note Reserve The convertible note reserve is used to account for the equity component of the convertible notes. NOTE 15 – SHARE BASED PAYMENTS During the current and prior year share based payments in the form of shares and options were made as follows. Grant Date Purpose of issue Options 24/9/2014 RMB Facility extension options Shares 6/8/2014 6/8/2014 24/9/2014 Directors’ fees settled in shares Consultant’s fee settled in shares RMB Facility extension shares 2016 Number 2016 Value each (cents) - - - - - -- - -- -- -- 2015 Number 30,000,000 30,000,000 18,765,318 6,874,933 9,000,000 34,640,251 2015 Value each (cents) - Total ($) 187,653 51,562 72,000 311,215 The share options outstanding at the end of the year had a weighted average exercise price of 1.8 cents per option (2015: 1.9 cents per option). The weighted average fair value of options granted or vested during 2015 was 3.0 cents per option. The options granted during the year were free attaching options and as such no value was attributed to them. Scotgold Resources Limited Page 39 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 16 - COMMITMENTS FOR EXPENDITURE (a) Mineral Tenement Leases AND CONTROLLED ENTITIES In order to maintain current rights of tenure to mining tenements, the consolidated entity will be required to outlay in the year ending 30 June 2017 amounts of $760,000 in respect of tenement expenditure commitments and lease rentals. The commitments have the caveat that they are dependent on exploration success and subject to review. The obligations are not provided for in the financial report and are payable as follows : Not later than one year Later than 1 year but not later than 2 years Later than 2 years but not later than 5 years Minimum expenditure $ 710,000 860,000 4,400,000 5,970,000 Licence Fee $ 50,000 50,000 150,000 250,000 Total $ 760,000 910,000 4,550,000 6,220,000 The Company has a number of avenues available to continue the funding of its current exploration program and as and when decisions are made, the Company will disclose this information to shareholders. NOTE 17 - CONTINGENT LIABILITIES The Company has entered into a donations agreement with the Strathfillan Community Development Trust (”SCDT”) pursuant to which the Company will work with SCDT to provide additional facilities and opportunities for the community served by SCDT and provide funding in respect of the same of up to £350,000. This liability is contingent upon starting the development as defined under the Planning conditions and Decision letter. Scotgold Resources Limited and its controlled entities have no other known material contingent liabilities as at 30 June 2016. NOTE 18 - INVESTMENT IN CONTROLLED ENTITIES Parent Registered Number Country of Incorporation Interest Held Value of investment $ Scotgold Resources Limited 42 127 042 773 Australia 100% N/A Subsidiary Scotgold Resources Limited SGZ France SAS Scotgold Resources Portugal Ltda Subsidiary of subsidiary SC 309525 804 686 582 513 303 057 Scotland France Portugal 100% 100% 100% 5,491,881 288,434 1,490 Fynegold Exploration Limited SC 084497 Scotland 100% - Scotgold Resources Limited Page 40 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 19 - SEGMENT INFORMATION AND CONTROLLED ENTITIES Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of Scotgold Resources Limited. Year ending 2015 Segment revenues Segment loss Segment assets Segment liabilities Included in segment result: Interest expense Depreciation Capitalised exploration Acquisition of fixed assets Year ending 2016 Segment revenues Segment loss Segment assets Segment liabilities Scotland $ 5,020 398,130 15,506,846 223,846 832 18,563 900,144 2,401 Scotland $ 1,133 492,999 16,869,064 141,274 Included in segment result: Interest expense Depreciation Capitalised exploration Acquisition of fixed assets 983 14,734 895,454 259,397 Australia $ 5,587 1,243,811 262,290 1,463,953 91,077 534 - - Australia $ 326 810,756 72,550 1,231,156 - 642 - - Other $ - 471,024 97,832 81,757 - - - - Other $ - 201,837 77,547 31,253 - - 40,219 - Total $ 10,607 2,112,965 15,866,968 1,769,556 91,909 19,097 900,144 2,401 Total $ 1,459 1,505,592 17,019,161 1,403,683 983 15,376 935,673 259,397 Analysis excludes intercompany indebtedness and for the parent includes corporate expenses incurred in UK. Scotgold Resources Limited Page 41 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES 2016 $ 2015 $ NOTE 20 - NOTES TO THE STATEMENT OF CASH FLOWS Reconciliation of loss after income tax to net operating cash flows Loss from ordinary activities (1,505,592) (2,112,965) Depreciation Exploration expenditure expensed Share-based payments Unwinding of convertible note discount Non-cash movement on reserves Movement in assets and liabilities Receivables Inventory Other current assets Payables Revaluation effect of foreign currency working capital Net cash used in operating activities NOTE 21 - KEY MANAGEMENT PERSONNEL (a) Directors 15,376 131,303 - 215,526 - (1,143,387) (11,892) (26,993) 2,603 (110,714) (52,694) (1,343,077) 19,097 393,196 311,215 110,338 103,615 (1,175,504) 119,236 - (10,687) (41,566) 8,164 (1,100,357) The names and positions of Directors in office at any time during the financial year are: Nathanial le Roux Richard Gray Chris Sangster Phillip Jackson Richard Harris Gabriel Chiappini Non Executive Chairman Managing Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director (b) Remuneration Polices In office from 18/03/2015 10/10/2014 10/10/2014 14/08/2007 10/10/2014 27/05/2016 In office to present present present present 3/04/2016 present Remuneration policies are disclosed in the Remuneration Report which is contained in the Directors’ Report. (c) Key management personnel remuneration Remuneration was by way of fees paid monthly in respect of invoices issued to the Company by the Directors or Companies associated with the Directors in accordance with agreements between the Company and those entities. The Directors are entitled to reimbursement of out-of-pocket expenses incurred whilst on company business. Scotgold Resources Limited Page 42 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES The aggregate compensation made to key management personnel of the group is set out below. Short-term employee benefits Post-employment benefits Share-based payments Consolidated 2016 $ 657,442 2,037 - 659,479 2015 $ 479,236 61,590 187,653 728,479 (d) Aggregate amounts payable to Directors and their personally related entities for remuneration. Consolidated Entity 2016 $ Consolidated Entity 2015 $ Accounts payable 86,707 54,182 NOTE 22 - RELATED PARTY INFORMATION Transactions within the Consolidated Entity Aggregate amount receivable within the consolidated entities at balance date Parent Entity 2016 $ Parent Entity 2015 $ Total non-current receivables Write down of loans attributable to losses of subsidiaries Non-current receivables in parent entity 18,811,307 (7,909,829) 10,901,478 16,546,972 (7,029,702) 9,517,270 NOTE 23 - REMUNERATION OF AUDITORS Auditing and reviewing of the financial statements of Scotgold Resources Limited and of its controlled entities. Consolidated 2016 $ 36,750 36,750 2015 $ 36,250 36,250 Scotgold Resources Limited Page 43 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 24 - LOSS PER SHARE AND CONTROLLED ENTITIES Consolidated 2016 $ 2015 $ Earnings used in calculation of earnings per share (1,505,592) (2,112,965) Weighted average number of ordinary shares outstanding during the year used in the calculation of basic loss per share 1,273,583,261 840,098,450 Number Number There are no potential ordinary shares on issue at the date of this report. NOTE 25 - FINANCIAL INSTRUMENTS (a) Financial Risk Management Policies The consolidated entity’s financial instruments consist mainly of deposits with banks, accounts receivable, accounts payable and hire purchase liabilities. The Board’s overall risk management strategy seeks to assist the Group in meeting its financial targets, whilst maintaining potential adverse effects on financial performance. The Group has developed a framework for a risk management policy and internal compliance and control systems that covers the organisational, financial and operational aspects of the group’s affairs. The Chairman is responsible for ensuring the maintenance of, and compliance with, appropriate systems. Financial Risk Exposures and Management The main risks the group is exposed to through its financial instruments are interest rate risk, foreign currency risk and liquidity risk. Interest Rate Risk The consolidated entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of change in the market, interest rate and the effective weighted average interest rate on these financial assets, is as follows: Financial Assets Cash at Bank Trade and other receivables Total Financial Assets Financial Liabilities Trade and other payables Total Financial Liabilities Scotgold Resources Limited Weighted Average Effective Interest Rate 2016 2015 0.05% 1.03% - - - Floating Interest Rate 2016 $ 2015 $ 738,866 174,090 912,956 157,835 157,835 802,649 141,089 943,738 343,853 343,853 Page 44 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 AND CONTROLLED ENTITIES The aggregate net fair values and carrying amounts of financial assets and financial liabilities are disclosed in the statement of financial position and in the notes to and forming part of the financial statements. Interest Rate Sensitivity Analysis The Group has performed a sensitivity analysis relating to its exposure to interest rate risk. This sensitivity analysis demonstrates the effect on the current year results and equity which could result in a change in these risks. At 30 June 2016 the effect on the loss and equity as a result of a change in the interest rate of 1% with all other variables remaining constant is not material. Foreign Currency Risk The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows: Currency Liabilities Assets Liabilities Assets 2016 $ 141,276 31,253 172,529 2016 $ 747,462 37,327 784,789 2015 $ 223,847 81,757 305,604 2015 $ 514,960 95,560 610,520 £ Sterling € Euro Foreign currency Other than translational risk the Group has no significant exposure to foreign currency risk at the balance date. Liquidity Risk The group manages liquidity risk by monitoring forecast cash flows. Credit Risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date, is the carrying amount net of any provisions for doubtful debts, as disclosed in the statement of financial position and notes to the financial statement. In the case of cash deposited, credit risk is minimised by depositing with recognised financial intermediaries such as banks, subject to Australian Prudential Regulation Authority supervision. The consolidated entity does not have any material risk exposure to any single debtor or group of debtors under financial instruments entered into by it. Scotgold Resources Limited Page 45 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 Capital Management Risk AND CONTROLLED ENTITIES Management controls the capital of the Group in order to maximise the return to shareholders and ensure that the group can fund its operations and continue as a going concern. Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of expenditure and debt levels and share and option issues. There have been no changes in the strategy adopted by management to control capital of the Group since the prior year. Net Fair Values For financial assets and liabilities, the net fair value approximates their carrying value. The consolidated entity has no financial assets or liabilities that are readily traded on organised markets at balance date and has no financial assets where the carrying amount exceeds net fair values at balance date. NOTE 26 - MATTERS SUBSEQUENT TO THE END OF FINANCIAL YEAR Other than as set out below there are no other matters or circumstances that have arisen after the balance date that have significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future periods. On 4 August 2016 the Company announced the placement of 62,500,000 shares to raise funds of £500,000 (A$880,000). On 18 August the Company announced its intention to voluntarily de-list from ASX. On 2 September 2016 the Company announced a full conversion of Convertible Notes into Ordinary Shares at a rate of $0.006 per share as approved by shareholders at a meeting held on 30 July 2014. Details of the conversion are: Noteholder Richard Harris Golden Matrix Holdings Pty Ltd Alexander Littlejohn Loan Value $ 75,000 75,000 70,000 Shares Issued 12,500,000 12,500,000 11,666,667 Nat le Roux has remaining Notes to the value of $336,600 and £300,000 (A$600,000) with repayment / conversion dates of 23 September and 30 September 2016 respectively. Scotgold Resources Limited Page 46 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 27 - PARENT ENTITY DISCLOSURES Financial Position CURRENT ASSETS Cash and cash equivalents Trade and other receivables Total Current Assets NON CURRENT ASSETS Plant and equipment Investment in subsidiary Loan to subsidiaries Total Non-Current assets TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Interest bearing loan Total Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY Financial Performance AND CONTROLLED ENTITIES 2016 $ 2015 $ 61,661 3,523 249,160 5,121 65,184 254,281 7,366 5,781,805 10,992,279 8,008 5,781,805 9,517,270 16,781,450 15,307,083 16,846,634 15,561,364 106,747 1,124,409 110,169 1,353,783 1,231,156 1,463,952 1,231,156 1,463,952 15,615,478 14,097,412 29,907,169 581,324 (14,873,015) 26,789,021 1,498,324 (14,189,933) 15,615,478 14,097,412 Loss for the year attributable to the parent Total comprehensive loss 1,600,082 1,600,082 2,087,655 2,087,655 Loss attributable to the parent entity includes write down of loans to subsidiaries caused by subsidiary losses of $789,326 (2015: $843,844). The parent entity has not entered into any guarantees in relation to debts of its subsidiaries, has no contingent liabilities, and has no commitments for acquisition of property, plant and equipment. Scotgold Resources Limited Page 47 INDEPENDENT AUDITOR’S REPORT To the members of Scotgold Resources Limited Report on the Financial Report We have audited the accompanying financial report of Scotgold Resources Limited (“the company”), which comprises the statement of financial position as at 30 June 2016, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, the consolidated financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the consolidated entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s and its controlled entities’ internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Our audit did not involve an analysis of the prudence of business decisions made by directors or management. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Scotgold Resources Limited Page 49 Auditor’s opinion In our opinion: (a) the financial report of Scotgold Resources Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Emphasis of matter Without modifying our opinion, we draw attention to Note 1 in the financial report, which indicates that additional funding is required to ensure that the consolidated entity can continue to fund its operations and further mineral exploration and evaluation activities during the twelve month period from the date of approval of this financial report. These conditions, along with other matters as set forth in Note 1, indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity’s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business. Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2016. 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. Auditor’s opinion In our opinion, the Remuneration Report of Scotgold Resources Limited for the year ended 30 June 2016 complies with section 300A of the Corporations Act 2001. HLB Mann Judd Chartered Accountants M R W Ohm Partner Perth, Western Australia 14 September 2016 Scotgold Resources Limited Page 50 SHAREHOLDER DETAILS AND CONTROLLED ENTITIES ANALYSIS OF SHAREHOLDING Shareholding ASX AIM Total Number of Shareholders 1 1,001 5,001 10,001 100,001 1,000 - 5,000 - - 10,000 - 100,000 - or more Shareholding 1 1,001 5,001 10,001 100,001 Total on Issue Voting Rights 1,000 - 5,000 - - 10,000 - 100,000 - or more 68 65 109 593 247 1,082 4 2 7 47 102 162 72 67 116 640 349 1,244 Number of Shares 15,121 220,485 933,236 22,998,773 880,519,138 904,686,753 1,117 4,160 45,091 2,083,029 630,120,731 632,254,128 16,238 224,645 978,327 25,081,802 1,510,639,869 1,536,940,881 Article 16 of the Constitution specifies that on a show of hands every member present in person, by attorney or by proxy shall have : a) b) for every fully paid share held by him one vote for every share which is not fully paid a fraction of the vote equal to the amount paid up on the share over the nominal value of the shares Substantial Shareholders The following substantial shareholders have notified the Company in accordance with Corporations Act 2001. Mr Nat le Roux Mr Richard Milne Harris Directors’ Shareholding 576,120,806 67,999,999 37.48% 4.42% The interest of each director in the share capital of the Company is detailed in the Directors’ Report. Scotgold Resources Limited Page 51 SHAREHOLDER DETAILS TOP TWENTY SHAREHOLDERS Name MR NAT LE ROUX HSDL NOMINEES LIMITED HARGREAVES LANSDOWN (NOMINEES) LIMITED JIM NOMINEES LIMITED TD DIRECT INVESTING NOMINEES (EUROPE) LIMITED BARCLAYSHARE NOMINEES LIMITED MR GRAHAM DONALDSON + MRS CHRISTINE DONALDSON BEAUFORT NOMINEES LIMITED SVS (NOMINEES) LIMITED GOLDEN MATRIX HOLDINGS PTY LTD INVESTOR NOMINEES LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 SHARE NOMINEES LTD ALLIANCE TRUST SAVINGS NOMINEES LIMITED WEALTH NOMINEES LIMITED MR ALEXANDER LITTLEJOHN MR RICHARD MILNE HARRIS MR RICHARD ROBIN DAVID NAIRN MR WILLIAM STYSLINGER MRS DORITA MARIA THOMSON AND CONTROLLED ENTITIES % Shares 576,120,806 37.48% 94,755,344 6.17% 89,317,959 5.81% 69,233,241 4.50% 67,786,430 4.41% 42,749,758 2.78% 34,736,709 2.26% 34,408,355 2.24% 29,380,803 1.91% 25,499,999 1.66% 25,245,326 1.64% 21,055,480 1.37% 19,873,414 1.29% 19,790,645 1.29% 17,647,192 1.15% 17,000,001 1.11% 15,000,000 0.98% 13,000,000 0.85% 13,000,000 0.85% 12,611,832 0.82% 1,238,213,294 80.56% Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 ASX AIM AIM AIM AIM AIM ASX AIM AIM ASX AIM ASX AIM AIM AIM ASX ASX ASX ASX ASX Scotgold Resources Limited Page 52 SHAREHOLDER DETAILS TOP TWENTY OPTIONHOLDERS Name MR NAT LE ROUX MR ALAN STANLEY STARKEY MR WILLIAM STYSLINGER BARCLAYSHARE NOMINEES LIMITED JIM NOMINEES LIMITED HSDL NOMINEES LIMITED INVESTOR NOMINEES LIMITED MR GRAHAM DONALDSON & INVESTOR NOMINEES LIMITED MR KARL ALAN STARKEY NR ADAM JAMES STARKEY HSDL NOMINEES LIMITED TD DIRECT INVESTING NOMINEES BREWIN 1762 NOMINEES LIMITED HARGREAVES LANSDOWN (NOMINEES) HARGREAVES LANSDOWN (NOMINEES) TD DIRECT INVESTING NOMINEES HARGREAVES LANSDOWN (NOMINEES) JIM NOMINEES LIMITED HSDL NOMINEES LIMITED AND CONTROLLED ENTITIES Shares 45,656,433 10,000,000 10,000,000 9,170,195 4,581,346 3,702,881 3,439,008 2,776,022 2,526,987 2,500,000 2,500,000 2,146,740 1,664,349 1,501,900 1,353,612 1,140,413 1,086,766 1,022,929 944,259 912,477 108,626,317 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 % 36.9% 8.1% 8.1% 7.4% 3.7% 3.0% 2.8% 2.2% 2.0% 2.0% 2.0% 1.7% 1.3% 1.2% 1.1% 0.9% 0.9% 0.8% 0.8% 0.7% 86.9% ASX ASX ASX ASX ASX ASX ASX ASX ASX ASX ASX ASX ASX ASX ASX ASX ASX ASX ASX ASX Scotgold Resources Limited Page 53 INTEREST IN EXPLORATION LEASES AND CONTROLLED ENTITIES Scotland Location Agreement Grant Date Cononish Glen Orchy Cononish Glen Orchy Cononish Glen Orchy Glen Lyon Inverliever Knapdale Ochils Landholder Lease Crown Lease Option Agreement Option Agreement Option Agreement Option Agreement Option Agreement 23 July 2009 31 May 2012 5 November 2015 5 November 2015 5 November 2015 5 November 2015 5 November 2015 Area 20 sq km 975 sq km 1,369 sq km 660 sq km 676 sq km 426 sq km Portugal Location Agreement Grant Date Area Pomar MN/PP/001/16 Exploration Contract 21 April 2016 264 sq km Mining Leases in Scotland – general information The mineral rights to gold and silver in most of Britain, including Scotland, are generally held by the Crown, In order to explore for gold and silver, an option agreement is required to be concluded with the Crown which entitles the holder to explore for gold and silver (subject to access agreements with the landowner (see below)) and on the grant of planning permission (and other conditions), to take out a lease for exploitation of these metals. Surface rights (and other minerals rights) are generally held by the landowner with whom access and lease agreements must separately be obtained. Mineral developments in Scotland are governed by the Town and Country Planning (Scotland) Act, with responsibility for planning control exercised by the local Authority. Statutory designations inform as to the appropriate levels of environmental assessment to be carried out. Scotgold Resources Limited Page 54 CORPORATE GOVERNANCE STATEMENT AND CONTROLLED ENTITIES The Board of Directors of Scotgold Resources Limited is responsible for the corporate governance of the Company. The Board guides and monitors the business and affairs of Scotgold Resources Limited on behalf of the shareholders by whom they are elected and to whom they are accountable. The statement reports on Scotgold Resources Limited’s key governance principles and practices. Details of the Corporate Governance Statement can be found on the Scotgold Resources Limited’s website at http://www.scotgoldresources.com.au/corporate/corporate-governance/ Scotgold Resources Limited Page 55 COMPANY INFORMATION - SCOTLAND AND CONTROLLED ENTITIES Exploration Office Upper Tyndrum Station Tyndrum, Stirlingshire Scotland FK20 8RY Phone +44(0) 183 840 0306 Nominated Adviser (NOMAD) Stockdale Securities Limited Beaufort House 15 St. Botolph Street London EC3A 7BB Phone +44(0) 207 601 6114 Share Registry Computershare Investor Services PLC Auditor The Pavilions Bridgwater Road Bristol BS99 6ZZ Phone +44(0) 870 703 6300 Scott-Moncrieff Exchange Place 3 Semple Street Edinburgh EH3 8BL Phone +44(0) 131 473 3500 Solicitors Harper McLeod LLP Bankers The Ca’d’oro Glasgow G1 3PE Phone +44(0) 141 221 8888 Bank of Scotland Shandwick Place Edinburgh EH11 1YH Phone +44(0) 870 850 1671 Media Bankside Consultants 6 Middle Street London EC1A Phone +44(0) 207 367 8888 Scotgold Resources Limited Page 56