Siemens Energy
Annual Report 2018

Plain-text annual report

ANNUAL REPORT 2018 ABN 47 109 815 796 COR PORATE DI RECTORY Directors Paul Chapman Will Robinson Peter Bewick Non-Executive Chairman Managing Director Exploration Director Jonathan Hronsky Non-Executive Director Company Secretaries Kevin Hart Dan Travers Principal and Registered Office Level 7, 600 Murray Street West Perth, Western Australia 6005 Stock Exchange Listing The Company’s shares are quoted on the Australian Securities Exchange. The home exchange is Perth, Western Australia. Telephone (08) 9486 9455 Facsimilie (08) 9486 8366 Web www.enrl.com.au Auditor Crowe Horwath Perth Level 5, 45 St Georges Terrace Perth, Western Australia 6000 Share Registry Security Transfer Registrars Pty Ltd 770 Canning Highway Applecross, Western Australia 6153 Telephone (08) 9315 2333 Facsimilie (08) 9315 2233 ASX Code ENR – Ordinary shares Company Information The Company was incorporated and registered under the Corporations Act 2001 in Western Australia on 30 June 2004 and became a public company on 26 May 2005. The Company is domiciled in Australia. CONTENTS Letter from the Chairman & Managing Director 4 Exploration Review Summary of Tenements Directors’ Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report ASX Additional Information 6-20 22 24-33 34 35 36 37 38 39-62 63 64-67 68-69 Encounter remains one of the most dedicated and active mineral exploration companies in Australia. We are focused on generating value for our shareholders through leading edge exploration for new Tier 1 mineral assets in favourable mining jurisdictions like Australia. Encounter is disciplined in its approach to capital management and we are steadfast in our commitment to systematic exploration that can create enduring value for our shareholders. Our exploration plans remain well funded and, importantly, we have an extremely capable and experienced team that is dedicated to realising the potential of our portfolio. In closing, we would like to thank our local communities, employees, joint venture and alliance partners, suppliers and other business partners. We also would take this opportunity to thank our fellow shareholders for your ongoing support. Yours sincerely Paul Chapman Chairman Will Robinson Managing Director LETTER FROM THE CHAIRMAN AND MANAGING DIRECTOR Dear Fellow Shareholder, We are pleased to present the 2018 Annual Report for Encounter Resources Ltd (“Encounter”). It has been a highly active and expansionary year for Encounter. Encounter has complemented its activities in the Paterson Province with a major new portfolio in the Tanami-West Arunta region. This is being done via five new joint ventures with Newcrest Mining Ltd (“Newcrest” ASX:NCM), Australia’s largest gold producer. Newcrest brings with it significant financial, technical and operating capability. As a consequence, Encounter has significant leverage to multiple, well funded, exploration programs in one of Australia’s most highly sought-after gold districts. Furthermore, in the event of a decision to mine, Encounter can elect to participate with an experienced developer and operator in Newcrest. Encounter was also delighted to extend our project generation alliance with Newcrest for a further 12 months to July 2019. We hope to build on the five joint ventures already established which provide a pipeline of projects with the potential to host major gold deposits. Encounter continues to build its exciting gold portfolio in regions that have demonstrated potential for large scale, high quality gold deposits. The Laverton belt is one of Australia’s most productive and prospective gold regions. Extensions of this belt, where it extends under shallow cover, have been a focus of Encounter’s ongoing targeting activities. Innovative new targeting and exploration approaches are being applied to the under-cover southern extension of the Laverton Tectonic Zone. Encounter has continued with its activities on gold projects near Newcrest’s gold-copper mine at Telfer. During the year, the first drilling completed by Encounter at the N31 Reef at East Thomson’s Dome intersected high grade, shallow gold mineralisation. In addition, drilling at Telfer West has extended the length of the mineral system to over 5km. We have also continued with base metals activities at Yeneena copper-cobalt-zinc projects in the Paterson Province. We are actively seeking a partner with the financial and technical capability to advance Yeneena with us. With the strengthening and expansion of our portfolio, we look forward to 2019 with optimism. Our portfolio includes high quality opportunities in three of Australia’s most prospective gold regions: the Tanami-West Arunta, the Paterson Province and the Laverton Tectonic Zone. This gold portfolio is complemented by base metals projects in the Paterson Province, where recent activity by a number of major mining houses highlights and validates the enormous potential of the region. 4 ANNUAL REPORT 2018 EXPLORATION REVIEW Tanami and West Arunta Gold Encounter completed five new joint ventures with Newcrest in the Tanami and West Arunta regions of WA. Encounter has significant leverage to multiple, well funded, projects in one of the most highly sought-after gold districts in Australia. In the event of a decision to mine, Encounter can elect to enter a production joint venture with an experienced developer and operator in Newcrest Joint ventures covering 100km of strike along the Trans-Tanami Structure (Selby, Watts, Lewis) Selby Joint Venture (1,534km2) including: • • Bandicoot – discrete 2km long magnetic anomaly with coincident gold/arsenic geochemical anomaly Camel – 7.2m @ 3.1g/t Au from 95m in last drill program (2010) Watts Joint Venture (552km2) including: • • Hutch’s Find – significant zone of gold/arsenic anomalism in colluvium over 5km of strike (19m @ 2.3g/t Au from 98m and 10m @ 5.4 g/t Au from 123m in limited deep drilling) Sunset Ridge – 8km long arsenic anomaly defined in shallow drilling Lewis Joint Venture (619km2) including: • 20 strike km of untested Trans-Tanami Structure Phillipson Joint Venture (1,570km2) • Large scale gold target in unexplored Neoproterozoic corridor in the southern Tanami Aileron Joint Venture (187km2) • IOCG-style target located in the West Arunta region Paterson Province Gold The first drilling completed by Encounter at the N31 Reef at East Thomson’s Dome intersected high grade, shallow gold mineralisation in hole ETG0151 (3m @ 39g/t Au from 9m) Laverton Tectonic Zone Gold Encounter secured a prospective new gold project in the Laverton Tectonic Zone. Nazare is located at the southern extension of the interpreted greenstone/gneissic corridor and is situated south-east of the recent Bombora gold discovery by Apollo Consolidated Limited (ASX:AOP) Yeneena Copper-Cobalt Corridor Encounter controls 70 strike kilometres of Yeneena basin that is prospective for Proterozoic copper-cobalt deposits similar to the deposits of the Central African Copperbelt. This corridor also contains the Aria IOCG-style prospect Corporate Exploration Development Incentive credits of $776,652 were distributed to Encounter shareholders in January 2018 Encounter successfully undertook a share placement in May 2018 of approximately 46 million ordinary fully paid shares at $0.06 each to raise approximately $2.75 million before costs The project generation alliance with Newcrest was extended for a further 12 months from July 2018 Encounter was successful in its application for the Federal Government Junior Mineral Exploration Incentive (JMEI) up to an amount of $750,000 in 2017/18 and up to $1.24 million that may be distributed in a capital raising in 2018/19 6 ANNUAL REPORT 2018Tanami and West Arunta One of Australia’s most prospective gold regions Fast-tracking exploration via 5 joint ventures with Newcrest Paterson Province New discoveries being made near the 30Moz giant at Telfer Recent activity of majors highlights province potential Laverton Tectonic Zone Innovative generative program in a world class gold province Covers 40km extension of major structural corridor Figure 1: Encounter Projects - Location Plan TANAMI AND WEST ARUNTA GOLD 50:50 JV Encounter/Newcrest – E80/5045, E80/5129, E80/5132, E80/5137, E80/5145, E80/5146, E80/5147, E80/5152, ELA80/5169, ELA80/5186 Encounter has entered five separate unincorporated joint ventures with a wholly owned subsidiary of Newcrest Mining Limited. Joint Venture Summary Terms • Newcrest and Encounter have entered into five separate joint ventures (Selby, Watts, Lewis, Phillipson and Aileron), initially on a 50:50 basis, that cover a total area of ~4,400km2. While these are separate joint ventures, each joint venture is on the same or largely similar terms. • Newcrest made payments totalling $500,000 to Encounter following execution of the Phillipson Joint Venture Agreement and following the grant of tenement E80/5045; and will make a further payment of $500,000 if Newcrest elects to continue activity on tenement E80/5045 beyond 12 months from grant being 30 August 2019. • Newcrest will be the Manager of each joint venture. • • Encounter has the option to maintain its 50% interest in any or all of the joint ventures by contributing to its share of exploration expenditure. This election will be made after reviewing the first joint venture budget for each project covering the period to 30 June 2019. Should Encounter elect not to contribute on a 50:50 basis on any given joint venture, Newcrest may increase its interest to 80% in that relevant joint venture by sole funding exploration activities and delivering a JORC Inferred Resource of greater than 1 million ounces of gold or gold equivalent. • Upon notification of the JORC Inferred Resource, Encounter can elect to maintain its 20% interest in the joint venture by funding its portion of future expenditure or Newcrest will acquire Encounter’s joint venture interest for fair value (being an amount agreed or as determined by independent experts). • Prior to a decision to mine being made, if Encounter elects not to contribute to expenditure at any time after previously contributing, then standard industry dilution formulas will apply down to a 10% interest. If Encounter’s interest dilutes below 10%, the interest will be transferred to Newcrest and Encounter will be entitled to a 2% net smelter royalty. 7 ANNUAL REPORT 2018EXPLORATION REVIEW (continued) • • • If Newcrest elects at any time to withdraw from the joint venture or its interest in the joint venture dilutes to below 10%, Newcrest’s interest will be transferred to Encounter. After the completion of a feasibility study, Encounter can elect to participate in mine development in proportion to its joint venture interest by voting to approve a decision to mine. Should Encounter vote against a decision to mine, Newcrest can acquire Encounter’s joint venture interest for fair value (being an amount agreed or as determined by independent experts). Encounter can elect to sell its joint venture interest to a third party subject to Newcrest having a pre-emptive right. Encounter also retains a pre-emptive right in the event Newcrest wishes to sell its joint venture interest to a third party. Tanami Corridor Projects – Three Joint Ventures to Fast-Track exploration: The Selby, Watts and Lewis joint ventures cover in total, 100km of strike along the major structural corridor (Trans-Tanami Structure) that extends through the Tanami region from the Northern Territory into WA (see Figure 2). The three joint venture areas have been subject to sporadic and fragmented exploration in the past. Encounter has consolidated ground holdings that total ~2,600km2. The limited surficial historical exploration has produced highly encouraging results identifying a series of large scale gold/arsenic regolith anomalies. Although only limited deeper drilling has been completed across these regional scale geochemical anomalies, a number of high grade, near surface drill intersections confirm the potential of the area to produce high grade gold. Encounter has acquired a 100km long section of a well mineralised, emerging gold province that is significantly underexplored, particularly on the WA side of the border. Figure 2 – Tanami Joint Venture areas with gold occurrences over regional gravity data 1. Selby Joint Venture The Selby joint venture covers the most western end of the West Tanami project area. Selby includes a number of regional scale geochemical anomalies defined in shallow drilling, discrete geophysical targets and historical high grade gold intersections in limited deeper drilling. While target generation and prioritisation is ongoing, prospects at Selby include: Bandicoot – discrete 2km magnetic anomaly with coincident gold/arsenic geochemical anomaly Camel – 7.2m @ 3.1g/t Au from 95m in last drill program (2010) (source Tanami Gold NL Quarterly Report September 2010) • • 8 ANNUAL REPORT 20182. Watts Joint Venture The Watts joint venture covers the central corridor of targets where a regional scale north-north-east structure defined in the January 2018 Geological Survey of Western Australia (“GSWA”) gravity survey intersects the Trans-Tamami Structure. Watts includes the Hutch’s Find and Sunset Ridge prospects as well as a number of untested anomalies in historical geochemical drilling: • Hutch’s Find – significant zone of gold/arsenic anomalism over 5km of strike (Figures 3a and 3b). Max-in-hole geochemical plans cover an area of ~120km2 and include 3,615 holes of which 95% are RAB, aircore or vacuum geochemical holes with an average depth of 11m. The limited RC and diamond drilling that has occurred is well mineralised and contains high grade gold intersections that remain open down plunge and along strike including: HFDD4 – hole depth 184m • 19m @ 2.3g/t Au from 98m; • 10m @ 5.4 g/t Au from 123m; and • 0.5m @ 17.2g/t Au from 164.3m (source Tanami Gold NL Quarterly Report September 2010) • Sunset Ridge – 8km long arsenic anomaly defined in shallow drilling Figure 3a – Hutch’s Find prospect. Maximum arsenic (As) in hole over TMI magnetics Figure 3b – Hutch’s Find prospect. Maximum gold (Au) in hole over TMI magnetics 3. Lewis Joint Venture The Lewis joint venture covers over 20km of strike of untested Trans-Tanami Structure. This structure has been enhanced and defined in the GSWA January 2018 gravity survey. Vast areas along this highly prospective structure have never seen a soil sample or a drill hole. This is a first mover opportunity into a newly defined area on a prolific regional structure. 9 ANNUAL REPORT 2018 EXPLORATION REVIEW (continued) Phillipson Range Joint Venture (Southern Tanami) The Phillipson JV consists of three large tenements spanning ~1,570km2. The western end of this area was the subject of a regional scale pre-competitive geochemical soil survey completed by the GSWA that outlined a peak gold soil anomaly up to 63ppb Au in a 5km x 5km helicopter-supported auger sampling survey. This is a significant and standout gold anomaly in the regional geochemical survey and occurs in an area with absolutely no previous exploration. The Phillipson anomaly is also supported by the next sample taken 5km north that returned up to 7ppb Au. The anomaly is more than 5km long with supporting multi-element anomalism in the area with arsenic, bismuth and cobalt (As up to 90ppm, Bi up to 2.9ppm and Co up to 13ppm) indicating a possible magmatic origin to the mineralising fluid. The anomaly remains open to the south (Figure 4). GSWA geochemical sampling has been integral in a number of important recent mineral discoveries in WA. The GSWA geochemical mapping of the Fraser Range collected the highly anomalous Ni-Cu-Co sample proximal to the Nova-Bollinger nickel-copper deposit now owned by Independence Group NL (ASX:IGO). A gold anomaly of similar amplitude anomaly to that at Phillipson Range, obtained in a broad regional geochemical program was also integral to the discovery of the 8Moz Tropicana gold mine. Figure 4 – Phillipson JV – GSWA 250K geology and regional soil sampling program (Au ppb) 10 ANNUAL REPORT 2018A GSWA airborne gravity survey released in January 2018 indicates that the Phillipson anomaly is located on a major regional north-north-east structure and also on a structure sub-parallel to the main Trans-Tanami structural corridor to the north. This potentially provides important structural context for the anomaly (see Figure 2). Following tenement grant, a heritage assessment will be completed and further geochemical sampling undertaken to refine the geochemical anomaly. Aileron Joint Venture (West Arunta) The Aileron JV is located in the West Arunta district of WA, ~600km west of Alice Springs. There has been no previous mineral exploration on the tenement although gold/copper mineralisation has been identified within the region. The project contains a discrete magnetic anomaly consistent with the scale of an Ernest Henry or Carrapateena style system (Figures 5 & 6). Figure 5 – Aileron Project Location Plan (tenement shown in magenta outline) on TMI background ANNUAL REPORT 2018 11 EXPLORATION REVIEW (continued) The anomaly has been modelled as a steeply dipping magnetic body and is approximately 400m in diameter, starting from approximately 150m below surface and plunging to 1km. The interpreted structural architecture adjacent to the magnetic anomaly is conducive to major fluid flow. Following the grant of the tenement, a heritage survey will be completed to prepare for potential diamond drilling to test the anomaly. Figure 6 – Aileron magnetic anomaly (TMI) PATERSON PROVINCE GOLD 100% Encounter – E45/4613, E45/3446, P45/2750 to P45/2752, P45/3032, E45/4757, E45/4758 and ELA45/5138 Encounter holds a highly prospective and strategic ground holding in the Paterson Province that hosts Newcrest’s major gold- copper operation at Telfer. East Thomson’s Dome Project (100% Encounter) Background East Thomson’s Dome is located just 5km from the major gold-copper mine at Telfer (Figure 7). The domal structure at East Thomson’s Dome has a core of Malu Formation with the fold axis trending WNW. The majority of surface gold and reef style mineralisation at East Thomson’s Dome has been discovered in the overlying Telfer Formation sediments. This geological setting is similar to that of the high grade reefs at Telfer. Fold Closure Prospect A 15 hole program of RC drilling was completed at the Fold Closure prospect in November 2017. New zones of reef-style mineralisation have been identified across the 200m by 200m drill area. Near surface intersections include (refer ASX release 21 December 2017): • • • • 6m @ 2.7g/t Au from 39m in ETG0125 4m @ 4.3g/t Au from surface in ETG0109 4m @ 3.5g/t Au from 17m in ETG0110 2m @ 5.4g/t Au from 46m in ETG0106 The reefs at the Fold Closure prospect remain open to the north-west and south-east. 12 ANNUAL REPORT 2018N31 Reef The N31 Reef is located 1.5km north-west of the Fold Closure Prospect near the interpreted boundary between the Telfer Formation and the underlying Malu Formation. Previous historical drilling at the N31 Reef consists of nine RC drill holes (average depth of 61m) and one deep stratigraphic diamond hole drilled by Barrick Gold in 2005 (to a depth of 1,011m). Results from this limited previous drilling include: • • • 1m @ 10.4g/t Au from 59m in BTDD0004 2m @ 6.9g/t Au from 6m in NTR32 4m @ 3.5g/t Au from 8m in NTR31 (refer ASX release 30 November 2017) Figure 7 – East Thomson’s Dome Summary Plan Three RC holes were completed at the N31 Reef in June 2018. One of these holes, ETG0151, intersected gold mineralisation significantly higher grade than previously drilled (3m @ 39g/t Au from 9m including 1m at 109g/t from 9m) (refer ASX release 2 August 2018). A nine hole RC/diamond drill program was completed at the N31 Reef during August-September 2018. A number of the drill holes contained gold anomalism (in the range of 0.1-0.5g/t Au) towards bottom of hole but drilling did not establish an extension of the high grade gold intersected in ETG0151. 13 ANNUAL REPORT 2018EXPLORATION REVIEW (continued) Telfer West (100% Encounter) Telfer West (E45/4613) covers an area of approximately 121km2 and is located 25km north west of Telfer. Telfer West covers an 8km by 5km domal formation of Proterozoic sediments bounded to the north-west and south-east by late stage granitic intrusions. The domal structure has a core of Isdell Formation overlain by the Malu Formation, Telfer Formation and sediments of the Puntapunta Formation. Integration of geological and geophysical data in 3D suggests that the surface geochemical anomaly targeted by RC hole ETG0094 and an IP anomaly located beneath ETG0002 (39m @ 1g/t Au from 333m and 36m @ 0.6g/t from 396m) (refer ASX release 19 January 2017) might represent a single, steep, north-plunging, high grade shoot (see Figure 9). Two diamond drill holes were completed at Telfer West in August-September 2018 targeting this interpreted high grade shoot. RC hole ETG0094 was extended with a diamond tail by a further 141 metres and ETG0184 was completed from surface to test an IP anomaly located beneath ETG0002. Diamond drill hole ETG0184 intersected a 70m (downhole) zone of silicified and fractured quartzite with multiple quartz stockwork style veins containing pyrite and arsenopyrite (see Photo 1). This intersection is consistent with the style of the stockwork mineralisation seen in previous drilling at Telfer West. Photo 1 – Drill core from ETG0184 at Telfer West from approximately 307-310m - silicified and fractured quartzite with multiple quartz stockwork style veins containing pyrite and arsenopyrite 14 ANNUAL REPORT 2018Figure 8 – Telfer West Stockwork Corridor – Drill Location Plan with aeromagnetic background (TMI 1VD pseudo colour image) 15 ANNUAL REPORT 2018EXPLORATION REVIEW (continued) Figure 9 – Telfer West Egg Stockwork Corridor – Long Section looking towards the south west Figure 10 – Telfer West Cross Section - Egg Stockwork Corridor 16 ANNUAL REPORT 2018A section of eight aircore holes (ETG0086-ETG0093) completed in November 2017 successfully outlined a zone of supergene gold anomalism that extended the stockwork gold corridor by 1.5km to the southeast (see Figure 8) (refer ASX release 21 December 2017) and included: • • 8m @ 0.52g/t Au from 78m and 13m @ 0.09g/t Au from 98m to EOH in ETG0086 8m @ 0.42g/t Au from 108m and 2m @ 0.31g/t Au from 124m in ETG0088 Four lines of aircore drilling (12 holes) were completed at the southern supergene gold anomaly in June 2018 with the goal of providing a primary target for deeper drilling. Additional gold supergene anomalism was intersected and deeper RC drilling was completed at the prospect in August 2018. LAVERTON TECTONIC ZONE GOLD 100% Encounter – E28/2709, ELA28/2762, ELA28/2763 and ELA28/2810 Encounter continues to build its exciting gold portfolio in regions that have demonstrated potential for large scale, high quality gold deposits. The Laverton Tectonic Zone is one of Australia’s most productive and prospective gold regions and extensions of this corridor, where it extends under shallow cover, have been a focus of Encounter’s ongoing targeting activities. Encounter has acquired a prospective new gold project located at the southern extension of the Laverton Tectonic Zone in Western Australia (“WA”) (see Figure 11). Exploration licence E28/2709 was recently granted and covers an area of 98km2 in the north of the Nazare Project. The project is located approximately 150km east-north-east of Kalgoorlie. Exploration at the project will initially focus on a structural intersection where an interpreted structure extending south-east from the AOP’s Bombora gold discovery intersects with the interpreted greenstone/gneissic extension of the Laverton Tectonic Zone in an area of cover and no prior gold exploration (see Figure 12). The only prior drilling completed within the granted tenement is a single RC hole drilled more than 10 years ago by a uranium explorer that was not assayed for gold. An initial soil sampling program was completed in July 2018 within E28/2709 to assess the amenability of geochemistry to assist the drill target prioritisation. The program successfully defined gold anomalies with significant contrast to background. Further geochemistry is planned to better define these anomalies and when additional tenements are granted, the program will be expanded to cover the southern structural targets within the Nazare project (see Figure 12). The three additional tenements applied for to the south of E28/2709 cover an interpreted additional 30 strike kilometres of the Laverton Tectonic Zone and in total the project area now covers 689km2. Figure 11 – Nazare regional location plan, regional TMI magnetics and major gold mines 17 ANNUAL REPORT 2018EXPLORATION REVIEW (continued) YENEENA COPPER-COBALT-ZINC • Yeneena Copper-Cobalt Project: 100% Encounter – E45/2500, E45/2502, E45/2657, E45/2658, E45/2805, E45/2806, E45/3768, ELA45/4861, ELA45/5333 and ELA45/5334 • Millennium Zinc Project: 75% Encounter / 25% Hampton Hill Mining (“HHM”) – E45/2501, E45/2561 and the four eastern sub-blocks of E45/2500 Encounter holds exploration tenure over 1,900km² of the Paterson Province in Western Australia (WA), that hosts the Telfer gold-copper mine and the Nifty copper mine. Encounter is actively exploring for gold- copper deposits in the Telfer region as well as copper-cobalt and zinc- lead deposits at Yeneena (Figure 13). The copper-cobalt and zinc-lead prospects identified at Yeneena are located adjacent to major regional faults and have been identified through electromagnetics, geochemistry and structural targeting. BM1–BM7 (100% Encounter) BM1-BM7 is a 14km long copper system, discovered and wholly owned by Encounter, that contains high grade copper-cobalt sulphide mineralisation and a coherent zone of near surface copper oxide mineralisation. Considering the improving market outlook for both copper and cobalt, Encounter is assessing potential partnership opportunities. Figure 12 – Nazare target summary over airborne TMI magnetics image Figure 13: Yeneena and Telfer region tenements 18 ANNUAL REPORT 2018Lookout Rocks/Fishhook Copper Project (100% Encounter) The Lookout Rocks/Fishhook Copper Project is located in the north-west of Yeneena. The Central African Copperbelt is the world’s largest source of cobalt and one of the world’s largest sources of copper. These Proterozoic aged, sediment hosted deposits are of a similar age and geological setting to the Yeneena basin. The first drill hole at Lookout Rocks (diamond hole EPT2282) was completed in June 2016. EPT2282 successfully intersected narrow zones of disseminated copper sulphide mineralization, up to 1% Cu, at the targeted “first reductant” position. This copper-cobalt mineralisation is hosted by black, reduced carbonaceous sediments, located directly above an oxidised “red bed” stratigraphic unit, a stratigraphic position similar to that of many major copper deposits of the Zambian Copperbelt. EPT2282 confirmed the targeted mineralisation model at Lookout Rocks, focused at a stratigraphic contact “first reductant” interface. Surface mapping indicates that this stratigraphic contact, which is the focus of the copper-cobalt mineralisation, is relatively flat and extends laterally over a large part of Lookout Rocks. Lookout Rocks/Fishhook contain an interpreted 50km of strike of the stratigraphic contact that hosts the “first reductant” copper sulphide mineralisation intersected at Lookout Rocks (refer ASX release 28 July 2016). A two RC hole drill test of an ironstone/gossan at Lookout Rocks was completed in June 2018. These drill holes intersected low level copper anomalism within the regolith and an interpreted shear zone at depth. The faulted position is currently being assessed to determine future exploration plans. The process of identifying a suitable partner to advance the exploration at Yeneena copper-cobalt-zinc prospects continues. Millennium Zinc Project (Encounter 75% / Hampton Hill Mining (“HHM”) 25% in E45/2501, E45/2561 and the four eastern sub-blocks of E45/2500) The Millennium Project is located in the north-east of Yeneena where previous aircore and RC drilling by Encounter has defined a +3km long zinc regolith anomaly that remains open to the SE. Diamond drilling at Millennium has intersected a thick zinc gossan at the contact between a brecciated carbonate and a thick sequence of carbonaceous shales of the Broadhurst Formation. Previous assay results from the gossan include (refer ASX release 9 July 2015): • • EPT2201 38.7m @ 0.9% Zn from 255.8m; and EPT2203 91.8m @ 1.6% Zn from 344.4m High tenor zinc sulphide mineralisation, in the form of sphalerite, has been intersected below the gossanous unit and returned assays of (refer ASX releases 12 January 2015 and 13 December 2013): • • EPT1854 0.7m @ 36.7% Zn from 430m; and EPT2198 7m @ 4.8% Zn from 233m A single RC hole, EPT2305, was drilled during the December 2017 quarter at the Southern Structural Target located at the south eastern end of the 3km long zinc regolith anomaly at Millennium (see Figure 14). The hole was designed to test an interpreted SE to SSE flexure within the Tabletop Fault. The vertical hole was drilled to a depth of 220m where it ended in Permian cover. This RC hole may be used as a pre-collar for a diamond hole to test the defined structural target. The potential application of a Magnetotellurics (MT) geophysical survey in the south east of the Millennium project is also being evaluated. 19 ANNUAL REPORT 2018 EXPLORATION REVIEW (continued) Figure 14: Drill hole collar location – Millennium The information in this report that relates to Exploration Results is based on information compiled by Mr. Peter Bewick who is a Member of the Australasian Institute of Mining and Metallurgy. Mr. Bewick holds shares and options in and is a full time employee of Encounter Resources Ltd and has sufficient experience which is relevant to the style of mineralisation under consideration to qualify as a Competent Person as defined in the 2012 Edition of the 'Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr. Bewick consents to the inclusion in the report of the matters based on the information compiled by him, in the form and context in which it appears. The Company confirms that it is not aware of any new information or data that materially affects the information in the relevant ASX releases and the form and context of the announcement has not materially changed. The Company confirms that the form and context in which the Competent Persons findings are presented have not been materially modified from the original market announcements. 20 ANNUAL REPORT 2018SUMMARY OF TENEMENTS Lease Lease Name Project Name Area km2 Managing Company Encounter Interest E45/2500 E45/2501 E45/2502 E45/2561 E45/2657 E45/2658 E45/2805 E45/2806 E45/4757 E45/4758 ELA45/4861 ELA45/5333 ELA45/5334 E45/3768 E45/4613 Yeneena Yeneena Yeneena Yeneena Yeneena Yeneena Yeneena Yeneena Sussex Sussex Yeneena Yeneena Yeneena Yeneena Telfer West E45/3446 East Thomson’s Dome P45/2750 East Thomson’s Dome P45/2751 East Thomson’s Dome P45/2752 East Thomson’s Dome P45/3032 East Thomson’s Dome E28/2709 Nazare E80/5045 Phillipson Range JV E80/5129 E80/5132 E80/5137 E80/5145 E80/5146 E80/5147 Phillipson Range JV Selby JV Selby JV Watts JV Lewis Selby JV E80/5152 Phillipson Range JV ELA80/5169 ELA80/5186 ELA45/5138 ELA28/2762 ELA28/2763 ELA28/2810 ELA38/3333 ELA38/3342 ELA38/3347 ELA59/2339 ELA59/2345 Aileron JV Lewis JV Sussex Nazare Nazare Nazare Mt Sefton Mt Sefton Mt Sefton Bunnawarra Bunnawarra Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Yilgarn Tanami Tanami Tanami Tanami Tanami Tanami Tanami Tanami Tanami Tanami Paterson Yilgarn Yilgarn Yilgarn Yilgarn Yilgarn Yilgarn Yilgarn Yilgarn 107.3 19.12 117.8 50.95 156 95.4 85.8 35 12.8 19.2 328 254.6 102.1 149.7 60.7 6 198 HA 177 HA 199 HA Encounter Operations Pty Ltd Encounter Operations Pty Ltd Encounter Operations Pty Ltd Encounter Operations Pty Ltd Encounter Operations Pty Ltd Encounter Operations Pty Ltd Encounter Operations Pty Ltd Encounter Operations Pty Ltd Encounter Operations Pty Ltd Encounter Operations Pty Ltd Encounter Operations Pty Ltd Encounter Operations Pty Ltd Encounter Operations Pty Ltd Encounter Yeneena Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd 113.80 HA Hamelin Resources Pty Ltd 98 283 643 646 613 552 548 275 643.5 187.6 70.96 6.4 206.8 206.9 177.5 562.4 451.6 118.4 210.8 210.7 Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Hamelin Resources Pty Ltd Encounter Resources Limited Encounter Resources Limited Encounter Resources Limited Encounter Resources Limited Summary of tenements as of 12 October 2018 * Tenement subject to Hampton Hill JV (only includes 4 eastern blocks on E45/2500) see ASX announcement April 23, 2015 22 75%* 75%* 100% 75%* 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% ANNUAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS For the Year Ended 30 June 2018 23 ANNUAL REPORT 2018DIRECTORS’ REPORT The Directors present their report on Encounter Resources Limited (the Company) and the entities it controlled (the Group) at the end of, and during the year ended 30 June 2018. DIRECTORS The names and details of the Directors of Encounter Resources Limited during the financial year and until the date of this report are: Paul Chapman – B.Comm, ACA, Grad. Dip. Tax, MAICD, MAusIMM Non-Executive Chairman appointed 7 October 2005 Mr Chapman is a chartered accountant with over 30 years’ experience in the resources sector gained in Australia and the United States. Mr Chapman has experience across a range of commodity businesses including gold, nickel, uranium, manganese, bauxite/alumina and oil/gas and has held managing director and other senior management roles in public companies. Mr Chapman was a founding shareholder/director of the following ASX listed companies: Reliance Mining; Encounter Resources; Rex Minerals; Paringa Resources; Silver Lake Resources and Black Cat Syndicate. Mr Chapman is currently a director of Western Australia based explorer, Black Cat Syndicate Limited (ASX:BC8) and resigned as non-executive director of Brazilian copper/gold producer Avanco Resources Limited (ASX:AVB) on 10 August 2018 following a successful takeover by OZ Minerals Limited. Will Robinson – B.Comm, MAusIMM Managing Director (Executive) appointed 30 June 2004 Mr Robinson has worked in the resources industry in Australia and Canada for over twenty years. Mr Robinson’s experience includes senior management roles at a large international resources company and executive roles in the junior mining and exploration sector. Mr Robinson is also president of the resources industry advocacy body, the Association of Mining and Exploration Companies (AMEC). Peter Bewick – B.Eng (Hons), MAusIMM Exploration Director (Executive) appointed 7 October 2005 Mr Bewick is an experienced geologist and has held a number of senior mine and exploration geological roles during a fourteen year career with WMC. These roles include Exploration Manager and Geology Manager of the Kambalda Nickel Operations, Exploration Manager for St Ives Gold Operation, Exploration Manager for WMC’s Nickel Business Unit and Exploration Manager for North America based in Denver, Colorado. Whilst at WMC, Mr Bewick gained extensive experience in project generation for a range of commodities including nickel, gold and bauxite. Mr Bewick has been associated with a number of brownfields exploration successes at Kambalda and with the greenfield Collurabbie Ni-Cu-PGE discovery. Jonathan Hronsky - BAppSci, PhD, MAusIMM, FSEG Non-executive director appointed 10 May 2007 Dr. Hronsky has more than twenty five years of experience in the mineral exploration industry, primarily focused on project generation, technical innovation and exploration strategy development. Dr. Hronsky has particular expertise in targeting for nickel sulfide deposits, but has worked across a diverse range of commodities. His work led to the discovery of the West Musgrave nickel sulfide province in Western Australia. Dr. Hronsky was most recently Manager-Strategy & Generative Services for BHP Billiton Mineral Exploration. Prior to that, he was Global Geoscience Leader for WMC Resources Ltd. He is currently a Director of exploration consulting group Western Mining Services and Chairman of the board of management of the Centre for Exploration Targeting at the University of Western Australia. During the last 3 years Dr Hronsky has been a director of Cassini Resources Limited (appointed 3 April 2014). COMPANY SECRETARIES Kevin Hart – B.Comm, FCA Mr Hart is a Chartered Accountant and was appointed to the position of Company Secretary on 4 November 2005. Mr Hart has over 30 years experience in accounting and the management and administration of public listed entities in the mining and exploration industry. Mr Hart is currently a partner in an advisory firm, Endeavour Corporate, which specialises in the provision of company secretarial and accounting services to ASX listed entities. 24 ANNUAL REPORT 2018Dan Travers – BSc (Hons), FCCA Mr Travers is a Fellow of the Association of Chartered Certified Accountants and was appointed to the position of Joint Company Secretary on 20 November 2008. Mr Travers is an employee of Endeavour Corporate, which specialises in the provision of company secretarial and accounting services to ASX listed entities in the mining and exploration industry. DIRECTORS’ INTERESTS As at the date of this report the Directors’ interests in shares and unlisted options of the Company are as follows: Director P Chapman W Robinson P Bewick J Hronsky Directors’ Interests in Ordinary Shares Directors’ Interests in Unlisted Options Options vested at the reporting date 8,622,500 24,769,098 6,800,000 200,000 - - 3,000,000 1,000,000 - - 3,000,000 1,000,000 Included in the Directors’ interests in Unlisted Options, there are 4,000,000 options that are vested and exercisable as at the date of signing this report. DIRECTORS’ MEETINGS The number of meetings of the Company’s Directors held during the year ended 30 June 2018, and the number of meetings attended by each Director are as follows: Director P Chapman W Robinson P Bewick J Hronsky Board of Directors’ Meetings Held 11 11 11 11 Attended 11 11 11 10 PRINCIPAL ACTIVITIES The principal activity of the Company during the financial year was mineral exploration in Western Australia. There were no significant changes in these activities during the financial year. RESULTS OF OPERATIONS The consolidated net loss after income tax for the financial year was $10,136,263 (2017: $1,313,269). Included in the consolidated loss for the current year is a write-off of deferred and uncapitalised exploration and joint venture expenditure totalling $9,975,754 (2017: $208,666). REVIEW OF ACTIVITIES Exploration Exploration activities during the financial year have been primarily focussed on the Company’s wholly owned gold projects in the Paterson Province of Western Australia and expanding the Company’s portfolio of West Australian gold prospects. In addition, the Company entered into a project generation alliance with Newcrest Mining Limited, which has resulted in the formation of five separate joint ventures in the Tanami and West Arunta regions of Western Australia. During the year the Company also continued its copper-cobalt exploration programs at its 100% owned Yeneena project in the Paterson Province. The Company also continued to carry out exploration pursuant to the farm-in agreement with Hampton Hill NL (HHM) during the year at the Millennium zinc project. Full details of the Company’s exploration activities are available in the Exploration Review in the Annual Report. Financial Position At the end of the financial year the Group had $2,860,071 (2017: $3,631,091) in cash and at call deposits. Capitalised mineral exploration and evaluation expenditure is $11,638,248 (2017: $18,624,668). 25 ANNUAL REPORT 2018DIRECTORS’ REPORT (continued) Expenditure was principally focused on the exploration for gold at the Company’s Paterson Gold Projects and base metals at the Company’s Yeneena Project in the Paterson Province of Western Australia. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Other than the below, there have been no significant changes in the state of affairs of the Company and Group during or since the end of the financial year. » During the year the Company issued 49,173,548 ordinary fully paid shares pursuant to share placements. OPTIONS OVER UNISSUED CAPITAL Unlisted Options As at the date of this report 12,741,429 unissued ordinary shares of the Company are under option as follows: Number of Options Granted Exercise Price 1,250,000 750,000 500,000 5,441,429 400,000 2,025,000 750,000 825,000 800,000 23 cents 31 cents 16 cents 21 cents 14 cents 13 cents 17.5 cents 10.5 cents 10 cents Expiry Date 27 November 2018 27 November 2019 31 January 2019 30 September 2018 28 February 2020 24 November 2020 24 November 2021 1 November 2021 31 May 2022 All options on issue at the date of this report are vested and exercisable. No options on issue are listed. During the financial year: » » » » 1,625,000 options (2017: 2,775,000) were granted over unissued shares to employees, directors and consultants of the Company; no options (2017: 700,000) were cancelled on the cessation of employment; 1,245,000 options (2017: 2,000,000) were cancelled on expiry of the exercise period; and no (2017: Nil) ordinary shares were issued on the exercise of options. Since the end of the financial year: » » » no options have been issued by the Company no options have been exercised; and no options have been cancelled due to the lapse of the exercise period. Options do not entitle the holder to participate in any share issue of the Company or any other body corporate. The holders of unlisted options are not entitled to any voting rights until the options are exercised into ordinary shares. ISSUED CAPITAL Ordinary fully paid shares Number of Shares on Issue 2018 238,375,092 2017 188,951,544 26 ANNUAL REPORT 2018DIVIDENDS No dividend has been paid since the end of the previous financial year and no dividend is recommended for the current year. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR On 17 September 2018 the Company advised that it had received $400,000 from Newcrest Mining Limited following the grant of an exploration tenement in relation to the Phillipson joint venture. Other than the above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company to affect substantially the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS The Company expects to maintain exploration programs at its Paterson Gold and Yeneena copper-cobalt-zinc projects, and commence exploration in joint venture with Newcrest Mining Limited in the Tanami and West Arunta regions of Western Australia. Disclosure of any further information has not been included in this report because, in the reasonable opinion of the Directors to do so would be likely to prejudice the business activities of the Group and is dependent upon the results of the future exploration and evaluation. ENVIRONMENTAL REGULATION AND PERFORMANCE The Group holds various exploration licences to regulate its exploration activities in Australia. These licences include conditions and regulations with respect to the rehabilitation of areas disturbed during the course of its exploration activities. So far as the Directors are aware, all exploration activities have been undertaken in compliance with all relevant environmental regulations. REMUNERATION REPORT (AUDITED) Remuneration paid to Directors and Officers of the Company is set by reference to such payments made by other ASX listed companies of a similar size and operating in the mineral exploration industry. In addition, reference is made to the specific skills and experience of the Directors and Officers. Details of the nature and amount of remuneration of each Director, and other Key Management Personnel if applicable, are disclosed annually in the Company’s Annual Report. Remuneration Committee The Board has adopted a formal Remuneration Committee Charter which provides a framework for the consideration of remuneration matters. The Company does not have a separate remuneration committee and as such all remuneration matters are considered by the Board as a whole, with no Member deliberating or considering such matter in respect of their own remuneration. In the absence of a separate Remuneration Committee, the Board is responsible for: 1. Setting remuneration packages for Executive Directors, Non-Executive Directors and other Key Management Personnel; and 2. Implementing employee incentive and equity based plans and making awards pursuant to those plans. Non-Executive Remuneration The Company’s policy is to remunerate Non-Executive Directors, at rates comparable to other ASX listed companies in the same industry, for their time, commitment and responsibilities. Non-Executive Remuneration is not linked to the performance of the Company, however to align Directors’ interests with shareholders’ interests, remuneration may be provided to Non-Executive Directors in the form of equity based long term incentives. 1. Fees payable to Non-Executive Directors are set within the aggregate amount approved by shareholders at the Company’s Annual General Meeting; 2. Non-Executive Directors’ fees are payable in the form of cash and superannuation benefits; 3. Non-Executive superannuation benefits are limited to statutory superannuation entitlements; and 27 ANNUAL REPORT 2018DIRECTORS’ REPORT (continued) 4. Participation in equity based remuneration schemes by Non-Executive Directors is subject to consideration and approval by the Company’s shareholders. The maximum Non-Executive Directors fees, payable in aggregate are currently set at $200,000 per annum. Executive Director and Other Key Management Personnel Remuneration Executive remuneration consists of base salary, plus other performance incentives to ensure that: 1. Remuneration packages incorporate a balance between fixed and incentive pay, reflecting short and long term performance objectives appropriate to the Company’s circumstances and objectives; and 2. A proportion of remuneration is structured in a manner to link reward to corporate and individual performances. Executives are offered a competitive level of base salary at market rates (based on comparable ASX listed companies) and are reviewed regularly to ensure market competitiveness. To date, the Company has not engaged external remuneration consultants to advise the Board on remuneration matters. Incentive Plans The Company provides long term incentives to Directors and Employees pursuant to the Encounter Resources Employee Share Option Plan, which was last approved by shareholders at the Annual General Meeting held on 27 November 2015. The Board, acting in remuneration matters: 1. Ensures that incentive plans are designed around appropriate and realistic performance targets and provide rewards when those targets are achieved; 2. Reviews and approves existing incentive plans established for employees; and 3. Approves the administration of the incentive plans, including receiving recommendations for, and the consideration and approval of grants pursuant to such incentive plans. Engagement of Non-Executive Directors Non-Executive Directors conduct their duties under the following terms: 1. A Non-Executive Director may resign from his/her position and thus terminate their contract on written notice to the Company; and 2. A Non-Executive Director may, following resolution of the Company’s shareholders, be removed before the expiration of their period of office (if applicable). Payment is made in lieu of any notice period if termination is initiated by the Company, except where termination is initiated for serious misconduct. In consideration of the services provided by Dr Jon Hronsky as Non-Executive Director the Company will pay him $50,000 plus statutory superannuation per annum. In consideration of the services provided by Mr Paul Chapman as Non-Executive Chairman the Company will pay him $60,000 plus statutory superannuation per annum. During the financial year ended 30 June 2018, $20,000 in fees were voluntarily foregone by Mr Chapman. Messrs Chapman and Hronsky are also entitled to fees for other amounts as the Board determines where they perform special duties or otherwise perform extra services or make special exertions on behalf of the Company. There were no such fees paid during the financial year ended 30 June 2018. Engagement of Executive Directors The Company has entered into executive service agreements with Mr Will Robinson and Mr Peter Bewick on the following material terms and conditions: Mr Robinson’s current service agreement with the Company, in respect of his engagement as Managing Director, is effective from 23 January 2013. Mr Robinson will receive a base salary of $290,000 per annum plus statutory superannuation. Mr Bewick’s current service agreement with the Company, in respect of his engagement as Exploration Director, is effective from 23 January 2013. Mr Bewick will receive a base salary of $270,000 per annum plus statutory superannuation. Messrs Robinson and Bewick may also receive an annual short term performance based bonus which may be calculated as a percentage of their current base salary, the performance criteria, assessment and timing of which is negotiated annually with the Non-Executive Directors. 28 ANNUAL REPORT 2018Messrs Robinson and Bewick may, subject to shareholder approval, participate in the Encounter Resources Employee Share Option Plan and other long term incentive plans adopted by the Board. Short Term Incentive Payments Each year, the Non-Executive Directors set the Key Performance Indicators (KPI’s) for the Executive Directors. The KPI’s are chosen to align the reward of the individual Executives to the strategy and performance of the Company. Performance objectives, which may be financial or non-financial, or a combination of both, are weighted when calculating the maximum short term incentives payable to Executives. At the end of the year, the Non-Executive Directors will assess the actual performance of the Executives against the set Performance Objectives. The maximum amount of the short term Incentive, or a lesser amount depending on actual performance achieved is paid to the Executives as a cash payment. No short term incentives are payable to Executives where it is considered that the actual performance has fallen below the minimum requirement. Shareholding Qualifications The Directors are not required to hold any shares in Encounter Resources under the terms of the Company’s constitution. Group Performance In considering the Company’s performance, the Board provides the following indices in respect of the current financial year and previous financial years: Profit/(Loss) for the year attributable to shareholders $(10,129,591) $(1,313,269) $(5,803,036) $523,915 $(748,166) Closing share price at 30 June $0.053 $0.115 $0.13 $0.19 $0.20 2018 2017 2016 2015 2014 As an exploration company the Board does not consider the profit/(loss) attributable to shareholders as one of the performance indicators when implementing Short Term Incentive Payments. In addition to economic and technical exploration success, the Board considers more appropriate indicators of management performance for the 2018 financial period to include: » » corporate management and business development (including the acquisition of high quality projects); project and operational performance (including safety and environmental management); » management of the Company’s farm-in and alliance arrangements; » » cash flow and funding management; and share price performance. Remuneration Disclosures The Key Management Personnel of the Company have been identified as: Mr Paul Chapman Mr Will Robinson Mr Peter Bewick Dr Jon Hronsky Non-Executive Chairman Managing Director Exploration Director Non-Executive Director The details of the remuneration of each Director and member of Key Management Personnel of the Company is as follows: 29 ANNUAL REPORT 2018DIRECTORS’ REPORT (continued) 30 June 2018 Short Term Post Employment Other Long Term Base Salary $ Short Term Incentive $ Superannuation Contributions $ Value of Options $ Total $ Value of Options as Proportion of Remuneration % Paul Chapman 40,000 - Will Robinson1 Peter Bewick Jon Hronsky 266,019 259,096 50,000 29,000 27,000 - Total 615,115 56,000 3,800 28,117 27,179 4,750 63,846 - - - - - 43,800 323,136 313,275 54,750 734,961 - - - - 1Included in remuneration for Mr Robinson for the year ended 30 June 2018 is accrued salary of $79,388. 30 June 2017 Short Term Post Employment Other Long Term Base Salary $ Short Term Incentive $ Superannuation Contributions $ Value of Options $ Total $ Paul Chapman 60,000 Will Robinson Peter Bewick Jon Hronsky Total 300,225 274,107 50,000 684,332 - - - - - 5,700 28,521 26,040 4,750 65,011 - - 50,982 16,791 67,773 65,700 328,746 351,129 71,541 817,116 Details of Performance Related Remuneration During the period, short term incentive payments were paid to the executive directors as follows: Value of Options as Proportion of Remuneration % - - 14.5% 23.5% Short term incentive payments - cash bonuses paid 2017/18 financial year 2016/17 financial year Will Robinson Peter Bewick $29,000 $27,000 $nil $nil In addition to economic and technical exploration success, the Board considers more appropriate indicators of management performance for the 2018 financial period to include: » » corporate management and business development (including the acquisition of high quality projects); project and operational performance (including safety and environmental management); » management of the Company’s farm-in and alliance arrangements; » » cash flow and funding management; and share price performance. Options Granted as Remuneration During the financial year ended 30 June 2018 nil options (2017: 2,000,000) were granted to Directors or Key Management Personnel of the Company. The fair value of options issued as remuneration is allocated to the relevant vesting period of the options. Options are provided at no cost to the recipients. No options were exercised by Directors or Key Management Personnel during the financial year. Exercise of Options Granted as Remuneration During the year, no ordinary shares were issued in respect of the exercise of options previously granted as remuneration to Directors or Key Management Personnel of the Company. 30 ANNUAL REPORT 2018Equity instrument disclosures relating to key management personnel Option holdings Key Management Personnel have the following interests in unlisted options over unissued shares of the Company. 2018 Name Directors P. Chapman W. Robinson P. Bewick J. Hronsky 2017 Name Directors P. Chapman W. Robinson P. Bewick J. Hronsky Balance at start of the year Received during the year as remuneration Other changes during the year1 Balance at the end of the year Vested and exercisable at the end of the year - - 3,750,000 1,000,000 - - - 500,000 - - - - - - (750,000) - 3,000,000 1,000,000 3,000,000 1,000,000 Balance at start of the year Received during the year as remuneration Other changes during the year1 Balance at the end of the year Vested and exercisable at the end of the year - - - - - - - - - - 3,000,000 1,000,000 1,500,000 500,000 (750,000) (500,000) 3,750,000 1,000,000 3,750,000 1,000,000 1 Options lapsing unexercised at the end of the exercise period. Share holdings The number of shares in the Company held during the financial year by key management personnel of the Company, including their related parties are set out below. There were no shares granted during the reporting period as compensation. 2018 Name Directors P. Chapman W. Robinson P. Bewick J. Hronsky 2017 Name Directors P. Chapman W. Robinson P. Bewick J. Hronsky Balance at start of the year Received during the year on exercise of options Other changes during the year Balance at the end of the year 5,707,142 22,275,470 5,209,142 - - - - - 2,915,358 2,493,628 1,590,858 200,000 8,622,500 24,769,098 6,800,000 200,000 Balance at start of the year Received during the year on exercise of options Other changes during the year Balance at the end of the year 5,707,142 22,275,470 5,209,142 - - - - - - - - - 5,707,142 22,275,470 5,209,142 - 31 ANNUAL REPORT 2018DIRECTORS’ REPORT (continued) Loans made to key management personnel No loans were made to key personnel, including personally related entities during the reporting period. Other transactions with key management personnel There were no other transactions with key management personnel. End of Remuneration Report PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company or Group, or to intervene in any proceedings to which the Company or Group is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company or Group with leave of the Court under section 237 of the Corporations Act 2001. OFFICERS’ INDEMNITIES AND INSURANCE During the year the Company paid an insurance premium to insure certain officers of the Company. The officers of the Company covered by the insurance policy include the Directors named in this report. The Directors and Officers Liability insurance provides cover against all costs and expenses that may be incurred in defending civil or criminal proceedings that fall within the scope of the indemnity and that may be brought against the officers in their capacity as officers of the Company. The insurance policy does not contain details of the premium paid in respect of individual officers of the Company. Disclosure of the nature of the liability cover and the amount of the premium is subject to a confidentiality clause under the insurance policy. The Company has not provided any insurance for an auditor of the Company. NON-AUDIT SERVICES During the year Crowe Horwath the Company’s auditor, has not performed any other services in addition to their statutory duties. Total remuneration paid to auditors during the financial year: Audit and review of the Company’s financial statements 2018 $ 29,100 2017 $ 28,500 The board considers any non-audit services provided during the year by the auditor and satisfies itself that the provision of any non-audit services during the year by the auditor is compatible with, and does not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: all non-audit services are reviewed by the board to ensure they do not impact the impartiality and objectivity of the auditor; and the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they do not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. • • 32 ANNUAL REPORT 2018AUDITOR’S INDEPENDENCE DECLARATION A copy of the Auditor’s Independence Declaration as required under Section 307C of the Corporations Act is set out on the following page. This report is made in accordance with a resolution of the Directors. Dated at Perth this 27th day of September 2018. Will Robinson Managing Director 33 ANNUAL REPORT 2018AUDITOR’S INDEPENDENCE DECLARATION In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Encounter Resources Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and AUDITOR’S INDEPENDENCE DECLARATION (b) no contraventions of any applicable code of professional conduct in relation to the audit. In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Encounter Resources Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been: (a) CROWE HORWATH PERTH no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. SEAN MCGURK Partner CROWE HORWATH PERTH Dated at Perth this 27th day of September 2018 SEAN MCGURK Partner Dated at Perth this 27th day of September 2018 Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. 34 Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. ANNUAL REPORT 2018 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the financial year ended 30 June 2018 Other income Total income Employee expenses Consolidated Note 2018 $ 5 143,518 143,518 2017 $ 130,866 130,866 (1,280,225) (1,211,790) Employee expenses recharged to exploration 1,001,607 964,020 Equity based remuneration expense 19 (37,922) (86,709) Non-executive Director’s fees (90,000) (110,000) Gain/(loss) in fair value of financial assets 6,11 522,731 (338,238) Profit/(loss) on disposal of assets Depreciation expense Corporate expenses Administration and Other expenses Exploration costs written off and expensed Profit/(Loss) before income tax Income tax benefit Profit/(Loss) after tax Other comprehensive income Total comprehensive income/(loss) for the year Earnings per share for loss attributable to the ordinary equity holders of the Company Basic earnings/(loss) per share Diluted earnings/(loss) per share 296 (288) - (7,060) (67,034) (62,600) (353,192) (383,092) (9,975,754) (208,666) (10,136,263) (1,313,269) - - (10,136,263) (1,313,269) - - (10,136,263) (1,313,269) (5.2) (5.2) (0.8) (0.8) 6 6 7 19 29 29 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 35 ANNUAL REPORT 2018CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2018 Current assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets Non-current assets Other financial assets Property, plant and equipment Capitalised mineral exploration and evaluation expenditure Total non-current assets Total assets Current liabilities Trade and other payables Employee benefits Total current liabilities Total liabilities Net assets Equity Issued capital Accumulated losses Equity remuneration reserve Total equity Note 8 9(a) 9(b) 11 12 13 15 16 17 19 19 Consolidated 2018 $ 2017 $ 2,860,071 3,631,091 80,844 242,614 306,991 30,459 3,183,529 3,968,541 953,216 55,515 430,485 82,855 11,638,248 18,624,668 12,646,979 19,138,008 15,830,508 23,106,549 629,889 288,568 918,457 918,457 847,040 246,616 1,093,656 1,093,656 14,912,051 22,012,893 40,676,386 37,678,887 (26,075,127) (16,052,305) 310,792 386,311 14,912,051 22,012,893 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 36 ANNUAL REPORT 2018CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the financial year ended 30 June 2018 Consolidated Issued capital $ Accumulated losses $ Equity remuneration reserve $ Total $ 2017 Balance at the start of the financial year 34,401,834 (14,963,883) 524,449 19,962,400 Comprehensive income for the financial year Movement in equity remuneration reserve in respect of options vested Transfer to accumulated losses on cancellation of vested options Transactions with equity holders in their capacity as equity holders: Shares issued (net of costs) - - - (1,313,269) - (1,313,269) - 86,709 86,709 224,847 (224,847) - 3,277,053 - - 3,277,053 Balance at the end of the financial year 37,678,887 (16,052,305) 386,311 22,012,893 2018 Balance at the start of the financial year 37,678,887 (16,052,305) 386,311 22,012,893 Comprehensive income for the financial year Movement in equity remuneration reserve in respect of options vested Transfer to accumulated losses on cancellation of vested options Transactions with equity holders in their capacity as equity holders: Shares issued (net of costs) - - - (10,136,263) - (10,136,263) - 37,922 37,922 113,441 (113,441) - 2,997,499 - - 2,997,499 Balance at the end of the financial year 40,676,386 (26,075,127) 310,792 14,912,051 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 37 ANNUAL REPORT 2018CONSOLIDATED STATEMENT OF CASH FLOWS For the financial year ended 30 June 2018 Cash flows from operating activities Project generation fee received State Government funded drilling rebate R&D tax concession tax refund Interest received Note Consolidated 2018 $ 2017 $ 100,000 - 384,878 268,558 127,640 443,694 20,275 32,912 Payments to suppliers and employees (681,812) (809,797) Net cash from/(used in) operating activities 28 (49,019) (64,633) Cash flows from investing activities Contributions received from farm-in partners 491,423 404,050 Payments for exploration and evaluation (4,089,333) (3,748,056) Proceeds from sale of plant and equipment Payments for plant and equipment 6,364 - (5,119) (2,000) Net cash used in investing activities (3,596,665) (3,346,006) Cash flows from financing activities Proceeds from the issue of shares Payments for share issue costs 2,960,326 3,407,286 (85,662) (49,947) Net cash from/(used in) financing activities 2,874,664 3,357,339 Net increase/(decrease) in cash held (771,020) (53,300) Cash at the beginning of the financial year 3,631,091 3,684,391 Cash at the end of the financial year 8(a) 2,860,071 3,631,091 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 38 ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 30 June 2018 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes financial statements for the consolidated entity consisting of Encounter Resources Limited and its subsidiaries (“Group”). (a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian Equivalents to International Financial Reporting Standards (“AIFRS”), other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. The financial report is presented in Australian dollars and all values are rounded to the nearest dollar. The separate financial statements of the parent entity have not been presented within this financial report as permitted by the Corporations Act 2001. The financial report of the Group was authorised for issue in accordance with a resolution of Directors on 27th September 2018. Statement of Compliance The consolidated financial report of Encounter Resources Limited complies with Australian Accounting Standards, which include AIFRS, in their entirety. Compliance with AIFRS ensures that the financial report also complies with International Financial Reporting Standards (“IFRS”) in their entirety. Adoption of new and revised Accounting Standards The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (“AASB”) that are mandatory for the current reporting period. The adoption of the Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. New standards and interpretations not yet adopted The AASB has issued new and amended Accounting Standards and Interpretations that have mandatory application date or future reporting periods and which the Group has decided not to early adopt. A discussion of those future requirements and their impact on the Group is as follows: • AASB 9 Financial Instruments This standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. AASB 9 Financial Instruments introduces new classification and measurement models for financial assets. The Group currently accounts for its non-cash financial assets at Fair Value through Profit or Loss, which is consistent with a treatment permitted under AASB 9 Financial Instruments. The Group currently has no material exposure to other financial assets and financial liabilities affected by the requirements of AASB 9 Financial Instruments. This standard is applicable to annual reporting periods beginning on or after 1 January 2018 and as such the Group will adopt this standard from 1 July 2018. Whilst at this time the Group does not consider there to be any material impact from the adoption of AASB 9 Financial Instruments, it will make an assessment of potential effects over the next 12-month period. 39 ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 30 June 2018 (continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) • AASB 15 Revenue from Contracts with Customers The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and prescribes specific presentation and disclosure requirements. The Group does not currently have any contracts with customers in place and as such its exposure to the requirements of AASB 15 Revenue from Contracts with Customers is limited. This standard is applicable to annual reporting periods beginning on or after 1 January 2018 and as such the Group will adopt this standard from 1 July 2018. Whilst at this time the Group does not consider there to be any material impact from the adoption of AASB 15 Revenue from Contracts with Customers, it will make an assessment of potential effects over the next 12-month period. • AASB 16 Leases The standard replaces AASB 117 ‘Leases’ and for lessees will eliminate the classifications of operating leases and finance leases, and requires, subject to certain exemptions, the recognition of a ‘right-of-use asset’ and a corresponding lease liability, and the subsequent depreciation of the ‘right-of-use’ asset. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The Group is currently not party to any operating or finance lease arrangements and as such its exposure to the requirements of AASB 16 Leases is limited. This standard is applicable to annual reporting periods beginning on or after 1 January 2019 and as such the Group will adopt this standard from 1 July 2019. Whilst at this time the Group does not consider there to be any material impact from the adoption of AASB 16 Leases, it will make an assessment of potential effects over the next 12-month period. Reporting basis and conventions These financial statements have been prepared under the historical cost convention, and on an accrual basis. Critical accounting estimates The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Principles of consolidation The financial statements of subsidiary companies are included in the consolidated financial statements from the date control commences until the date control ceases. The financial statements of subsidiary companies are prepared for the same reporting period as the parent company, using consistent accounting policies. Inter-entity balances resulting from transactions with or between controlled entities are eliminated in full on consolidation. Investments in subsidiary companies are accounted for at cost in the individual financial statements of the Company. (b) Segment reporting Operating segments are identified and segment information disclosed, where appropriate, on the basis of internal reports reviewed by the Company’s board of directors, being the Group’s Chief Operating Decision Maker, as defined by AASB 8. Adoption of AASB 8 by the Group has not resulted in a redefinition of previously reported operating segments. (c) Revenue recognition and receivables Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, allowances and amounts collectable on behalf of third parties. 40 ANNUAL REPORT 2018Interest income Interest income is recognised on a time proportion basis and is recognised as it accrues. Option fee income Revenue is recognised for option fee income at such time that the option fee becoming receivable by the Company occurs. Management fee income Revenue is recognised for management fees from farm-in and alliance partners during the period in which the Company provided the relevant service. (d) Income tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to the temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary timing differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantially enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to those timing differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. (e) Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases (note 25). Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight line basis over the period of the lease. (f) Impairment of assets Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Non- financial assets, other than goodwill, that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. (g) Cash and cash equivalents For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (h) Government grants Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets are deducted from the carrying value of the relevant asset. 41 ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 30 June 2018 (continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) Government grants (continued) Amounts receivable from the Australian Tax Office in respect of research and development tax concession claims are recognised in the year in which the claim is lodged with the Australian Tax Office. Amounts receivable are allocated in the financial statements against the corresponding expense or asset in respect of which the research and development concession claim has arisen. (i) Fair value estimation The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. (j) Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the assets. 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 economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation of property, plant and equipment is calculated using the straight line and diminishing value methods to allocate their cost, net of residual values, over their estimated useful lives, as follows: Asset Class Field Equipment and Vehicles Office Equipment Leasehold Improvements Depreciation Rate 33% 33% Over the term of the lease The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet 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 (note 1(f)). Gains and losses on disposal are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement. (k) Mineral exploration and evaluation expenditure Mineral exploration and evaluation expenditure is written off as incurred or accumulated in respect of each identifiable area of interest and capitalised. These costs are carried forward only if they relate to an area of interest for which rights of tenure are current and in respect of which: • • such costs are expected to be recouped through the successful development and exploitation of the area of interest, or alternatively by its sale; or exploration and/or evaluation activities in the area have not reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active or significant operations in, or in relation to, the area of interest are continuing. In the event that an area of interest is abandoned or if the Directors consider the expenditure to be of reduced value, accumulated costs carried forward are written off in the year in which that assessment is made. 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. Immediate restoration, rehabilitation and environmental costs necessitated by exploration and evaluation activities are expensed as incurred and treated as exploration and evaluation expenditure. Exploration activities resulting in future obligations in respect of restoration costs result in a provision to be made by capitalising the estimated costs, on a discounted cash basis, of restoration and depreciating over the useful life of the asset. The unwinding of the effect of the discounting on the provision is recorded as a finance cost in the income statement. 42 ANNUAL REPORT 2018Farm-in arrangements (in the exploration and evaluation phase) For exploration and evaluation asset acquisitions (farm-in arrangements) in which the Group has made arrangements to fund a portion of the selling partner’s (farmor’s) exploration and/or future development expenditures (carried interests), these expenditures are reflected in the financial statements as and when the exploration and development work progresses. Farm-out arrangements (in the exploration and evaluation phase) The Group does not record any expenditure made by the farmee on its account. It also does not recognise any gain or loss on its exploration and evaluation farm-out arrangements but designates any costs previously capitalised in relation to the whole interest as relating to the partial interest retained. Monies received pursuant to farm-in agreements are treated as a liability on receipt and until such time as the relevant expenditure is incurred. (l) Joint ventures and joint operations Joint ventures A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Investments in joint ventures are accounted for using the equity method. Under the equity method, the share of the profits or losses of the joint venture is recognised in profit or loss and the share of the movements in equity is recognised in other comprehensive income. Investments in joint ventures are carried in the statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets of the joint venture. Goodwill relating to the joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. Income earned from joint venture entities reduces the carrying amount of the investment. Joint operations A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. The Group has recognised its share of jointly held assets, liabilities, revenues and expenses of joint operations. These have been incorporated in the financial statements under the appropriate classifications. Details of these interests are shown in Note 14. (m) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and usually paid within 30 days of recognition. (n) Employee benefits Wages, salaries and annual leave Liabilities for wages and salaries, including non-monetary benefits, and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future salaries, experience of employee departures and periods of service. Expected future payments are discounted at the corporate bond rate with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Share based payments Share based compensation payments are made available to Directors and employees. The fair value of options granted is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free rate for the term of the option. A discount is applied, where appropriate, to reflect the non-marketability and non-transferability of unlisted options, as the Black-Scholes option pricing model does not incorporate these factors into its valuation. 43 ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 30 June 2018 (continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (n) Employee benefits (continued) The fair value of the options granted is adjusted to reflect market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. Upon the exercise of options, the balance of the share based payments reserve relating to those options is transferred to share capital and the proceeds received, net of any directly attributable transaction costs, are credited to share capital. Upon the cancellation of options on expiry of the exercise period, or lapsing of vesting conditions, the balance of the share based payments reserve relating to those options is transferred to accumulated losses. (o) Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (p) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the earnings attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (q) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as a part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the taxation authority, are presented as operating cash flow. (r) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (s) Investments and other financial assets Recognition When financial assets are recognised initially, they are measured at fair value, plus in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end. All regular way purchases and sales of financial assets are recognised on the trade date, i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the marketplace. 44 ANNUAL REPORT 2018(i) Financial assets at fair value through profit or loss A financial asset designated on initial recognition as one to be measured at fair value with fair value changes in profit and loss is included in the category ‘financial assets at fair value through profit or loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in profit or loss. (ii) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has the positive intention and ability to hold to maturity. Investments included to be held for an undefined period are not included in this classification. Investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost. This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through the amortisation process. (iii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method. (iv) Financial liabilities Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation. Fair value hierarchy The Group’s investments and other financial assets, are measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability (t) Fair value estimation A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods: Investments in equity securities The fair value of financial assets at fair value through profit or loss, is determined by reference to their quoted bid price at the reporting date. For investments with no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions, reference to the current market value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. 45 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 30 June 2018 (continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (t) Fair value estimation (continued) Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. NOTE 2. FINANCIAL RISK MANAGEMENT The Group has exposure to a variety of risks arising from its use of financial instruments. This note presents information about the Company’s exposure to the specific risks, and the policies and processes for measuring and managing those risks. The Board of Directors has the overall responsibility for the risk management framework and has adopted a Risk Management Policy. (a) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from transactions with customers and investments. Trade and other receivables The nature of the business activity of the Group does not result in trading receivables. The receivables that the Group does experience through its normal course of business are short term and the most significant recurring by quantity is receivable from the Australian Taxation Office, the risk of non-recovery of receivables from this source is considered to be negligible. Cash deposits The Directors believe any risk associated with the use of predominantly only one bank is addressed through the use of at least an A-rated bank as a primary banker and by the holding of a portion of funds on deposit with alternative A-rated institutions. Except for this matter the Group currently has no significant concentrations of credit risk. (b) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages its liquidity risk by monitoring its cash reserves and forecast spending. Management is cognisant of the future demands for liquid finance resources to finance the Company’s current and future operations, and consideration is given to the liquid assets available to the Company before commitment is made to future expenditure or investment. (c) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising any return. Interest rate risk The Group has significant cash assets which may be susceptible to fluctuations in changes in interest rates. Whilst the Group requires the cash assets to be sufficiently liquid to cover any planned or unforeseen future expenditure, which prevents the cash assets being committed to long term fixed interest arrangements; the Group does mitigate potential interest rate risk by entering into short to medium term fixed interest investments. 46 ANNUAL REPORT 2018Equity risk The Group has exposure to price risk in respect of its holding of ordinary securities in Hampton Hill NL (ASX: HHM), which has a carrying value at 30 June 2018 of $953,216 (2017: $430,485). The investment is classified at fair value through profit or loss and as such any movement in the market value of HHM shares will be recognised as a benefit of expense in profit or loss. No specific hedging activities are undertaken into this investment. Foreign exchange risk The Group enters into earn-in arrangements that may be denominated in currencies other than Australian Dollars. Whilst the Group does not recognise assets or liabilities in respect of these earn-in arrangements and accordingly fluctuations in foreign exchange rates will have no direct impact on the Group’s net assets, movements in foreign exchange may favourably or adversely affect future amounts to be incurred by the Group or its earn-in partners pursuant to such agreements. Other than the above, the Group does not have any direct contact with foreign exchange fluctuations other than their effect on the general economy. NOTE 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances. Accounting for capitalised exploration and evaluation expenditure The Group’s accounting policy is stated at 1(k). There is some subjectivity involved in the carrying forward as capitalised or writing off to the income statement exploration and evaluation expenditure, however management give due consideration to areas of interest on a regular basis and are confident that decisions to either write off or carry forward such expenditure reflect fairly the prevailing situation. Accounting for share based payments The values of amounts recognised in respect of share based payments have been estimated based on the fair value of the equity instruments granted. Fair values of options issued are estimated by using an appropriate option pricing model. There are many variables and assumptions used as inputs into the models. If any of these assumptions or estimates were to change this could have a significant effect on the amounts recognised. See note 18 for details of inputs into option pricing models in respect of options issued during the reporting period. NOTE 4. SEGMENT INFORMATION The Group has identified its operating segments based on the internal reports that are reviewed and used by the board of directors in assessing performance and determining the allocation of resources. Reportable segments disclosed are based on aggregating operating segments, where the segments have similar characteristics. The Group’s sole activity is mineral exploration and resource development wholly within Australia, therefore it has aggregated all operating segments into the one reportable segment being mineral exploration. The reportable segment is represented by the primary statements forming these financial statements. NOTE 5. OTHER INCOME Operating activities Project generation fees Management fees from farm-in partners Interest receivable Other income Consolidated 2018 $ 100,000 19,183 20,275 4,060 143,518 2017 $ 97,754 32,912 200 130,866 47 ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 30 June 2018 (continued) NOTE 6. LOSS FOR THE YEAR Loss before income tax includes the following specific benefits/(expenses): Depreciation: Office equipment Total exploration and joint venture costs not capitalised and written off (Loss)/Gain in fair value of financial assets1 Consolidated 2018 $ 2017 $ (288) (9,975,754) 522,731 (7,060) (208,666) (338,238) 1 Adjustment to carrying value of investment in Hampton Hill NL, based on ASX closing price as at 30 June 2018. The gain/(loss) on investment has been recognised in the Statement of Profit or Loss. Refer note 11. NOTE 7. INCOME TAX a) Income tax expense Current income tax: Current income tax charge (benefit) Current income tax not recognised Deferred income tax: Consolidated 2018 $ 2017 $ (1,033,689) (1,304,262) 1,033,689 1,304,262 Relating to origination and reversal of timing differences Deferred income tax benefit not recognised Income tax expense/(benefit) reported in the income statement (1,447,464) 1,447,464 - - - - b) Reconciliation of income tax expense to prima facie tax payable Profit/(Loss) from continuing operations before income tax expense (10,136,263) (1,313,269) Tax at the Australian rate of 30% (2016 – 30%) (2,787,472) (393,981) Tax effect of permanent differences: Non-deductible share based payment Unrealised movement in fair value of financial assets Exploration costs written off Capital raising costs claimed Net deferred tax asset benefit not brought to account Tax (benefit)/expense 10,429 (143,751) 2,684,744 (9,006) 245,056 - 26,013 101,471 234 (8,312) 274,575 - 48 ANNUAL REPORT 2018c) Deferred tax – Balance Sheet Liabilities Prepaid expenses Capitalised exploration expenditure Assets Consolidated 2018 $ 2017 $ (66,719) (9,138) (3,200,518) (5,587,400) (3,267,237) (5,596,538) Revenue losses available to offset against future taxable income 8,324,029 9,246,002 Employee provisions Accrued expenses Deductible equity raising costs Net deferred tax asset not recognised d) Deferred tax – Income Statement Liabilities Prepaid expenses Capitalised exploration expenditure Assets Deductible equity raising costs Accruals Increase in tax losses carried forward Employee provisions 79,356 22,052 29,965 73,985 436 16,816 8,455,402 9,337,239 5,188,165 3,740,701 (57,581) 2,386,882 13,149 21,616 (921,973) 5,371 (6,302) (740,412) 6,672 (13,023) 293,320 1,460 Deferred tax benefit/(expense) movement for the period not recognised 1,447,464 (458,285) The deferred tax benefit of tax losses not brought to account will only be obtained if: (i) (ii) (iii) The Company derives future assessable income of a nature and an amount sufficient to enable the benefit from the tax losses to be realised; The Company continues to comply with the conditions for deductibility imposed by tax legislation; and No changes in tax legislation adversely affect the Company realising the benefit from the deduction of the losses. All unused tax losses of $27,746,763 (2017: $26,715,166) were incurred by Australian entities. During the 2018 financial year the Company’s eligible shareholders received tax credits up to a total of $776,652 in respect of the Company’s participation in the Exploration Development Incentive scheme (EDI) for the 2017 financial year, a total of $2,824,189 tax losses has been cancelled in respect of the EDI credits received by the Company’s shareholders. The Company will issue Junior Mineral Exploration Incentive (JMEI) credits to eligible shareholders in respect of the 2018 financial year amount to $750,000, a total of $2,727,273 in tax losses has been cancelled as at 30 June 2018 in the above notes in respect of this issue. 49 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 30 June 2018 (continued) NOTE 8. CURRENT ASSETS - CASH AND CASH EQUIVALENTS Cash at bank and on hand Deposits at call Consolidated 2018 $ 2,785,821 74,250 2,860,071 2017 $ 3,556,972 74,119 3,631,091 a) Reconciliation to cash at the end of the year The above figures are reconciled to cash at the end of the financial year as shown in the statement of cash flows as follows: Cash and cash equivalents per statement of cash flows 2,860,071 3,631,091 b) Deposits at call Amounts classified as deposits at call are short term deposits depending upon the immediate cash requirements of the Group, and earn interest at the respective short term interest rates. c) Cash balances not available for use Included in cash and cash equivalents above are amounts pledged as guarantees for the following: Office lease bond guarantee (Note 24) 23,000 23,000 The Company has recognised liabilities in the financial statements for unspent farm-in contributions (Note 15). NOTE 9. CURRENT ASSETS - RECEIVABLES a) Trade and other receivables Funds due from farm-in partner Other receivables GST recoverable b) Other current assets Prepaid tenement costs Details of fair value and exposure to interest risk are included at note 20. Consolidated 2018 $ 7,677 31,912 41,255 80,844 2017 $ 1,753 215,515 89,723 306,991 242,614 9,453 50 ANNUAL REPORT 2018NOTE 10. NON-CURRENT ASSETS - INVESTMENT IN CONTROLLED ENTITIES a) Investment in controlled entities The following amounts represent the respective investments in the share capital of Encounter Resources Limited’s wholly owned subsidiary companies: Company 2018 $ 2017 $ Encounter Operations Pty Ltd Hamelin Resources Pty Ltd Encounter Yeneena Pty Ltd Baudin Resources Pty Ltd Subsidiary Company Country of Incorporation Encounter Operations Pty Ltd Hamelin Resources Pty Ltd Encounter Yeneena Pty Ltd Baudin Resources Pty Ltd Australia Australia Australia Australia 2 1 2 10 2 1 2 10 Ownership Interest 2018 100% 100% 100% 100% 2017 100% 100% 100% 100% • • • • Encounter Operations Pty Ltd was incorporated in Western Australia on 27 November 2006. Hamelin Resources Pty Ltd was incorporated in Western Australia on 24 November 2009. Encounter Yeneena Pty Ltd was incorporated in Western Australia on 23 May 2013. Baudin Resources Pty Ltd was incorporated in Western Australia on 7 April 2017. The ultimate controlling party of the group is Encounter Resources Limited. b) Loans to controlled entities The following amounts are payable to the parent company, Encounter Resources Limited at the reporting date: Encounter Operations Pty Ltd Hamelin Resources Pty Ltd Encounter Yeneena Pty Ltd 2018 $ 2017 $ 21,170,709 20,596,334 3,684,164 662,128 1,680,921 523,935 The loans to Encounter Operations Pty Ltd, Hamelin Resources Pty Ltd and Encounter Yeneena Pty Ltd, to fund exploration activity are non-interest bearing. The Directors of Encounter Resources Limited do not intend to call for repayment within 12 months. NOTE 11. OTHER FINANCIAL ASSETS - INVESTMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS Balance at the start of the financial year1 Gain on investments recognised through profit & loss2 Balance at the end of the financial year Consolidated 2018 $ 430,485 522,731 953,216 2017 $ 768,723 (338,238) 430,485 1 The investment relates to the shares received from Hampton Hill NL in relation to an option fee pursuant to an election made under an earn-in agreement in respect of the Company’s Millennium project. 2 Adjustment to carrying value of investment in Hampton Hill NL, based on ASX closing price as at 30 June 2018. The gain on investment has been recognised in the Statement of Profit or Loss. Refer note 6. Investments designated at fair value through profit or loss have been measured at level 1 in the fair value measurement hierarchy, refer accounting policy 1(s). 51 ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 30 June 2018 (continued) NOTE 12. NON-CURRENT ASSETS - PROPERTY, PLANT AND EQUIPMENT Field equipment At cost Accumulated depreciation Office equipment At cost Accumulated depreciation Leasehold improvements At cost Accumulated depreciation Reconciliation Field equipment Net book value at start of the year Cost of additions Net book value of disposals Depreciation charged Net book value at end of the year Office equipment Net book value at start of the year Cost of additions Depreciation charged Net book value at end of the year No items of property, plant and equipment have been pledged as security by the Group. Consolidated 2018 $ 2017 $ 844,631 (790,900) 53,731 111,107 (109,323) 1,784 22,137 (22,137) - 55,515 82,855 3,046 (6,068) (26,102) 53,731 - 2,072 (288) 1,784 900,825 (817,970) 82,855 109,035 (109,035) - 22,137 (22,137) - 82,855 126,633 2,000 - (45,778) 82,855 7,060 - (7,060) - 52 ANNUAL REPORT 2018NOTE 13. NON-CURRENT ASSETS - CAPITALISED MINERAL EXPLORATION AND EVALUATION EXPENDITURE Consolidated 2018 $ 2017 $ In the exploration and evaluation phase Capitalised exploration costs at the start of the period 18,624,668 16,156,627 Total acquisition and exploration costs for the period (i) Exploration costs funded by EIS grant Research and development tax credits (ii) Total exploration and joint venture costs written off and expensed for the period Capitalised exploration costs at the end of the period 3,317,996 (204,052) (127,640) (9,972,724) 11,638,248 3,229,305 (303,122) (249,476) (208,666) 18,624,668 The recoverability of the carrying amount of the exploration and evaluation assets is dependent upon successful development and commercial exploitation, or alternatively, sale of the respective areas of interest. The capitalised exploration expenditure written off includes expenditure written off on surrender of or intended surrender of tenements for both the group entities and the Group’s proportionate share of the exploration written off by the joint venture entities. (i) Does not include costs incurred by farm-in partners in respect of spend incurred on assets the subject of farm-in arrangements. During the financial period, the Company’s farm-in partner Hampton Hill NL (see Note 14b) incurred costs of $112,021 (2017: $413,526) in respect of exploration and evaluation costs on the Company’s assets in addition to the amounts stated above. (ii) Amounts receivable pursuant to research and development tax credit (R&D) claims lodged during the period. The activities the subject of the R&D claims are subject to review by AusIndustry prior to being submitted. R&D submissions may or may not be subject to future review or audit by AusIndustry or the Australian Taxation Office. NOTE 14. INTEREST IN JOINT VENTURES AND FARM-IN ARRANGEMENTS a) Joint Venture Agreements – Joint Operations Joint venture agreements may be entered into with third parties. Assets employed by these joint ventures and the Group’s expenditure in respect of them is brought to account initially as capitalised exploration and evaluation expenditure until a formal joint venture agreement is entered into. Thereafter, investment in joint ventures is recorded distinctly from capitalised exploration costs incurred on the company’s 100% owned projects. The Company was party to the following farm-in and joint venture arrangements during the financial year ended 30 June 2018: b) Farm-in Arrangements Millennium Zinc Project – Hampton Hill NL (HHM) Earning-in Encounter Resources Limited has entered into a farm-in agreement with HHM pursuant to which HHM may earn up to a 25% interest in the Company’s Millennium zinc project, comprising exploration licences EL45/2501, EL45/2561 and four blocks of EL45/2500 in the Paterson Province of Western Australia. Significant terms of the farm-in arrangement as follows: • • HHM must spend a minimum of $500,000 on exploration before withdrawal. Upon meeting this minimum commitment, HHM will acquire a 10% interest in Millennium (“Initial Earn-in Phase”). At that point, HHM (10%) and Encounter (90%) will form a joint venture. To preserve its initial 10% interest and maintain the right to earn a further 15% interest, HHM may then elect to sole fund an additional $500,000 (“Second Earn-in Phase”). At completion, HHM will have contributed $1,000,000 and retained its 10% interest in Millennium. The timing of this additional expenditure will be as determined by Encounter. 53 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 30 June 2018 (continued) NOTE 14. INTEREST IN JOINT VENTURES AND FARM-IN ARRANGEMENTS (CONTINUED) b) Farm-in Arrangements (continued) • • • • • • • HHM may then elect to contribute a further $1,000,000 out of the next $2,000,000 of exploration expenditure to earn a further 15% interest in Millennium (“Additional Earn-in Phase”). The timing of this expenditure will be determined by Encounter. At that point, after contribution of a total of $2,000,000 of exploration expenditure, HHM would hold a 25% and Encounter would hold a 75% interest in the joint venture. Industry standard expenditure contribution or dilution formulas would apply. If a party’s interest is diluted to less than 10%, that interest would convert to a 1% Net Profit Royalty. Encounter will be the Operator If, after the Initial Earn-in Phase, HHM elects to maintain its 10% interest, but forfeit their right to further earn-in, then at that point, HHM will issue 5% of the issued capital of Hampton to Encounter. If, after the Initial Earn in Phase, HHM elects to proceed with the Second Earn-in Phase, then at that point, HHM will issue 15% of the issued capital of HHM to Encounter. If this election is made then Encounter will have the right to appoint a member to the board of HHM. The earn-in and joint venture agreement is conditional upon Encounter obtaining all necessary consents and approvals to the grant of the earn-in rights to HHM. During the year ended 30 June 2018 HHM completed its earn-in of a 25% interest in the Millennium project and the Millennium project is now a contributing 75:25 joint venture. NOTE 15. CURRENT LIABILITIES - TRADE AND OTHER PAYABLES Share issue liability1 Unspent farm-in contributions (Note 8c) Trade payables and accruals Other payables Consolidated 2018 $ - 223,741 344,847 61,301 629,889 2017 $ 101,536 - 705,200 40,304 847,040 Liabilities are not secured over the assets of the Group. Details of fair value and exposure to interest risk are included at note 20. 1 Share subscription funds received prior to 30 June 2017 in respect of a share placement completed on 12 July 2017. 54 ANNUAL REPORT 2018NOTE 16. EMPLOYEE BENEFITS a) Current liabilities Liability for annual leave Liability for long service leave NOTE 17. ISSUED CAPITAL a) Ordinary shares Consolidated 2018 $ 147,007 141,561 288,568 2017 $ 116,599 130,017 246,616 The Company is a public company limited by shares. The Company was incorporated in Perth, Western Australia. The Company’s shares are limited whereby the liability of its members is limited to the amount (if any) unpaid on the shares respectively held by them. Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Ordinary shares have no par value. There is no limit to the authorised share capital of the Company. b) Share capital Issued share capital c) Share movements during the year Issue price 2018 No. 2017 No. 2018 $ 2017 $ 238,375,092 188,951,544 40,676,386 37,678,887 Balance at the start of the financial year 188,951,544 188,951,544 37,678,887 34,401,834 Shares issued to acquire exploration assets $0.085 Share placement Share purchase plan Share placement Shares issued to acquire exploration assets Share placement Less share issue costs $0.10 $0.10 $0.10 $0.082 $0.06 - - - 250,000 26,230,000 6,827,500 - - - 21,250 2,623,000 682,750 2,806,216 250,000 46,367,332 - - - - - 280,622 20,500 2,782,040 - - - (85,662) (49,947) Balance at the end of the financial year 238,375,092 188,951,544 40,676,386 37,678,887 NOTE 18. OPTIONS AND SHARE BASED PAYMENTS The establishment of the Encounter Resources Limited Directors, Officers and Employees Option Plan (‘the Plan”) was last approved by a resolution at the Annual General Meeting of shareholders of the Company on 27 November 2015. All eligible Directors, executive officers and employees of Encounter Resources Limited who have been continuously employed by the Company are eligible to participate in the Plan. The Plan allows the Company to issue free options to eligible persons. The options can be granted free of charge and are exercisable at a fixed price in accordance with the Plan. a) Options issued during the year During the financial year the Company granted 1,625,000 options (2017: 2,775,000) over unissued shares. b) Options exercised during the year During the financial year the Company issued no shares (2017: Nil) on the exercise of unlisted employee options. 55 ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 30 June 2018 (continued) NOTE 18. OPTIONS AND SHARE BASED PAYMENTS (CONTINUED) c) Options cancelled during the year During the year: no options (2017: 700,000) were cancelled upon termination of employment; and 1,245,000 options (2017: 2,000,000) were cancelled on expiry of exercise period. d) Options on issue at the balance date The number of options outstanding over unissued ordinary shares at 30 June 2018 is 12,741,429 (2017: 12,361,429). The terms of these options are as follows: Number of options outstanding Exercise price 1,250,000 750,000 500,000 5,441,429 400,000 2,025,000 750,000 825,000 800,000 12,741,429 23 cents 31 cents 16 cents 21 cents 14 cents 13 cents 17.5 cents 10.5 cents 10 cents Expiry date 27 November 2018 27 November 2019 31 January 2019 30 September 2018 28 February 2020 24 November 2020 24 November 2021 1 November 2021 31 May 2022 e) Subsequent to the balance date No options have been granted subsequent to the balance date and to the date of signing this report. No options have been exercised subsequent to the balance date to the date of signing this report. Subsequent to the balance date no options have been cancelled on expiry of the exercise period. Reconciliation of movement of options over unissued shares during the period including weighted average exercise price (WAEP) 2018 2017 No. WAEP (cents) No. WAEP (cents) Options outstanding at the start of the year Options granted during the year Options exercised during the year Options cancelled and expired unexercised during the year 12,361,429 1,625,000 - (1,245,000) Options outstanding at the end of the year 12,741,429 20.3 10.3 - 32.2 18.5 12,286,429 2,775,000 - (2,700,000) 12,361,429 38.8 14.2 - 29.4 20.3 Weighted average contractual life The weighted average contractual life for un-exercised options is 25.3 months (2017: 28.0 months). Basis and assumptions used in the valuation of options. The remuneration related options issued during the year were valued using the Black-Scholes option valuation methodology. 56 ANNUAL REPORT 2018Date granted 9 Nov 2017 8 Jun 2018 Number of options granted 825,000 800,000 Exercise price (cents) Expiry date Risk free interest rate used Volatility applied Value of Options 10.5 10 1 Nov 2021 31 May 2022 1.95% 2.35% 83% 70% $21,846 $16,076 Historical volatility has been used as the basis for determining expected share price volatility. A discount of 30% in respect of a lack of marketability has been applied to the Black-Scholes option valuation to reflect the non-negotiability and non-transferability of the unlisted options granted. NOTE 19. RESERVES AND ACCUMULATED LOSSES Consolidated 2018 2017 Accumulated losses $ Equity remuneration reserve (i) $ Accumulated losses $ Equity remuneration reserve (i) $ Balance at the beginning of the year (16,052,305) 386,311 (14,963,883) 524,449 Profit/(Loss) for the period (10,136,263) - (1,313,269) - Movement in equity remuneration reserve in respect of options issued - 37,922 - 86,709 Transfer to accumulated losses on cancellation of options 113,441 (113,441) 224,847 (224,847) Balance at the end of the year (26,075,127) 310,792 (16,052,305) 386,311 (i) The equity remuneration reserve is used to recognise the fair value of options issued and vested but not exercised. NOTE 20. FINANCIAL INSTRUMENTS Credit risk The Directors do not consider that the Group’s financial assets are subject to anything more than a negligible level of credit risk, and as such no disclosures are made, note 2(a). Impairment losses The Directors do not consider that any of the Group’s financial assets are subject to impairment at the reporting date. No impairment expense or reversal of impairment charge has occurred during the reporting period, other than the write off of deferred exploration assets at note 13. Interest rate risk At the reporting date the interest profile of the Group’s interest-bearing financial instruments was: Fixed rate instruments Financial assets Variable rate instruments Financial assets Carrying amount ($) 2018 - 2017 - 2,860,071 3,631,091 57 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 30 June 2018 (continued) NOTE 20. FINANCIAL INSTRUMENTS (CONTINUED) Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant. Profit or loss Equity 1% increase 1% decrease 1% increase 1% decrease 2018 Variable rate instruments 28,601 (28,601) 28,601 (28,601) 2017 Variable rate instruments 36,311 (36,311) 36,311 (36,311) Liquidity risk The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements, note 2(b): Consolidated 2018 Carrying amount $ Contractual cash flows $ < 6 months $ 6-12 months $ 1-2 years $ 2-5 years $ > 5 years $ Trade and other payables 344,847 344,847 344,847 344,847 344,847 344,847 2017 Trade and other payables 703,747 703,747 703,747 703,747 703,747 703,747 - - - - - - - - - - - - - - - - Fair values Fair values versus carrying amounts The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet are as follows: Cash and cash equivalents Other financial assets Trade and other payables Consolidated 2017 2016 Carrying amount $ Fair value $ Carrying amount $ Fair value $ 2,860,071 2,860,071 3,631,091 3,631,091 953,216 (344,847) 3,468,440 953,215 430,485 430,485 (344,847) (703,747) (703,747) 3,468,440 3,357,829 3,357,829 The Group’s policy for recognition of fair values is disclosed at note 1(s). NOTE 21. DIVIDENDS No dividends were paid or proposed during the financial year ended 30 June 2018 or 30 June 2017. The Company has no franking credits available as at 30 June 2018 or 30 June 2017. 58 ANNUAL REPORT 2018NOTE 22. KEY MANAGEMENT PERSONNEL DISCLOSURES (a) Directors and key management personnel The following persons were directors of Encounter Resources Limited during the financial year: i) Chairman – non-executive Paul Chapman ii) Executive directors Will Robinson, Managing Director Peter Bewick, Exploration Director iii) Non-executive directors Jonathan Hronsky, Director There were no other persons employed by or contracted to the Company during the financial year, having responsibility for planning, directing and controlling the activities of the Company, either directly or indirectly. (b) Key management personnel compensation A summary of total compensation paid to key management personnel during the year is as follows: Total short-term employment benefits Total share based payments Total post-employment benefits NOTE 23. REMUNERATION OF AUDITORS Audit and review of the Company’s financial statements NOTE 24. CONTINGENCIES (i) Contingent liabilities 2018 $ 671,115 - 663,846 734,961 2018 $ 29,100 2017 $ 684,332 67,773 65,011 817,116 2017 $ 28,500 There were no material contingent liabilities not provided for in the financial statements of the Group as at 30 June 2018 or 30 June 2017 other than: Yeneena Project Gold Claw-back Included in the agreement for the Group’s acquisition of the remaining 25% interest of certain licences in the Yeneena Project is a gold claw-back right in the event of a major discovery of a deposit of minerals dominant in gold, with gold revenue measured in a mining study equal to or exceeding 65% of total revenue and where a JORC compliant mineral resources exceeds 4,000,000 ounces of gold or gold equivalent, or is capable of producing at least 200,000 ounces of gold or gold equivalent per year for 10 years. Under the agreement Barrick (Australia Pacific) Limited retains the right to regain an interest of between 70 and 100% in the gold discovery at a price of between US$40-100 per ounce, with a 1.5% net smelter royalty to Encounter Resources. The Yeneena Project Gold Claw-back relates to the following exploration licences: E45/2500, E45/2501, E45/2502, E45/2561, E45/2657, E45/2658, E45/2805 and E45/2806. Telfer West Production Royalty The Group is subject to a production unit royalty of $1 per dry metric tonne of ore mined and sold from licence E45/4613 at its Telfer West Gold Project. Native Title and Aboriginal Heritage The Group has Land Access and Mineral Exploration Agreements with Western Desert Lands Aboriginal Corporation in relation to the tenements comprising the Yeneena Base Metals Project and the Paterson Gold Projects. Western Desert Lands Aboriginal Corporation ((Jamukurnu-Yapalikunu/WDLAC) is the Prescribed Body Corporate for the Martu People of the Central Western Desert region in Western Australia. 59 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 30 June 2018 (continued) NOTE 24. CONTINGENCIES (CONTINUED) Native title claims have been made with respect to areas which include tenements in which the Group has an interest. The Group is unable to determine the prospects for success or otherwise of the claims and, in any event, whether or not and to what extent the claims may significantly affect the Group or its projects. Agreement is being or has been reached with various native title claimants in relation to Aboriginal Heritage issues regarding certain areas in which the Group has an interest. Bank guarantees ANZ Bank has provided unconditional bank guarantees (refer Note 8) as follows: $23,000 in relation to the lease over the Company’s office premises at Level 7, 600 Murray Street, West Perth. (ii) Contingent assets There were no material contingent assets as at 30 June 2018 or 30 June 2017. NOTE 25. COMMITMENTS (a) Exploration The Group has certain obligations to perform minimum exploration work on mineral leases held. These obligations may be varied as a result of renegotiations of the terms of the exploration licences or their relinquishment. The minimum exploration obligations are less than the normal level of exploration expected to be undertaken by the Group. As at balance date, total exploration expenditure commitments on tenements held by the Group have not been provided for in the financial statements and which cover the following twelve month period amount to $1,231,520 (2017: $1,438,960). The exploration expenditure obligations stated above include amounts that are funded by third parties pursuant to various farm-in agreements (Note 14). (b) Operating Lease Commitments There are no material operating lease commitments as at 30 June 2018 or 30 June 2017 not otherwise disclosed in the Financial Statements. (c) Contractual Commitment There are no material contractual commitments as at 30 June 2018 or 30 June 2017 not otherwise disclosed in the Financial Statements. NOTE 26. RELATED PARTY TRANSACTIONS Transactions with Directors during the year are disclosed at Note 22 – Key Management Personnel. There are no other related party transactions, other than those already disclosed elsewhere in this financial report. NOTE 27. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE On 17 September 2018, the Company advised that it had received $400,000 from Newcrest Mining Limited following the grant of an exploration tenement in relation to the Phillipson joint venture. Other than the above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company to affect substantially the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years. 60 ANNUAL REPORT 2018NOTE 28. RECONCILIATION OF LOSS AFTER TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES Profit/(Loss) from ordinary activities after income tax (10,136,263) (1,313,269) Consolidated 2018 $ 2017 $ Research and development tax credit Depreciation Exploration cost written off and expensed Share based payments expense Unrealised loss on investments Contribution to overheads from farm-in partner EIS grant funding offset against capitalised exploration Movement in assets and liabilities: (Increase)/decrease in receivables Increase/(decrease) in payables Net cash outflow from operating activities NOTE 29. EARNINGS PER SHARE a) Basic earnings per share Profit/(Loss) attributable to ordinary equity holders of the Company b) Diluted earnings per share 127,640 288 9,975,754 37,922 (522,731) (19,183) 219,053 178,041 90,460 (49,019) 443,694 7,060 209,962 86,709 338,238 (97,754) 219,053 (44,216) 1,821 (64,633) Consolidated 2018 cents (5.2) 2017 cents (0.8) Profit/(Loss) attributable to ordinary equity holders of the Company (5.2) (0.8) c) Loss used in calculation of basic and diluted loss per share Consolidated profit/(loss) after tax from continuing operations (10.136,236) (1,313,269) $ $ d) Weighted average number of shares used as the denominator Weighted average number of shares used as the denominator in calculating basic earnings per share 195,825,899 158,749,688 Weighted average number of shares used as the denominator in calculating diluted earnings per share 195,825,899 158,749,688 At 30 June 2018, the Company has on issue 12,741,429 options (2017: 12,361,429) over ordinary shares that are not considered to be dilutive. No. No. 61 ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 30 June 2018 (continued) NOTE 30. PARENT ENTITY INFORMATION Financial position Assets Current assets Non-current assets Total Assets Liabilities Current liabilities Non-current liabilities Total Liabilities NET ASSETS Equity Issued Capital Equity remuneration reserve Accumulated losses TOTAL EQUITY Financial performance Profit/(Loss) for the year Other comprehensive income Total comprehensive income Company 2017 $ 2016 $ 3,134,397 12,700,711 15,835,108 3,878,618 19,237,863 23,116,481 923,057 1,103,588 - - 923,057 1,103,588 40,676,386 37,678,887 310,792 386,311 (26,075,127) (16,052,305) 14,912,051 22,012,893 (10,136,263) (1,313,899) - - (10,136,263) (1,313,899) Guarantees entered into by the parent entity in relation to the debts of its subsidiaries No guarantees have been entered into by the parent entity in relation to the debts of its subsidiary companies. Contingent liabilities For full details of contingencies see Note 24. Commitments For full details of commitments see Note 25. 62 62 ANNUAL REPORT 2018 ANNUAL REPORT 2018DIRECTORS’ DECLARATION In the opinion of the Directors of Encounter Resources Limited (“the Company”) (a) the financial statements and notes set out on pages 35 to 62 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Accounting Standards and the Corporations Regulations 2001 and other mandatory professional reporting requirements; and give a true and fair view of the financial position as at 30 June 2018 and of the performance for the year ended on that date of the Group. the remuneration disclosures that are contained in the Remuneration Report in the Directors Report comply with Australian Accounting Standard AASB 124 Related Party Disclosures, The Corporations Act 2001 and the Corporations Regulations 2001. there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. (b) (c) (d) the financial statements comply with International Financial Reporting Standards as set out in Note 1. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2018. This declaration is made in accordance with a resolution of the Directors. Signed at Perth this 27th day of September 2018. W Robinson Managing Director ANNUAL REPORT 2018 63 63 ANNUAL REPORT 2018 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED INDEPENDENT AUDITORS REPORT INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED Report on the Audit of the Financial Report TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED INDEPENDENT AUDITORS REPORT Report on the Audit of the Financial Report Opinion TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED Report on the Audit of the Financial Report Opinion We have audited the financial report of Encounter Resources Limited (the Company) and its Report on the Audit of the Financial Report Opinion subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 We have audited the financial report of Encounter Resources Limited (the Company) and its Opinion We have audited the financial report of Encounter Resources Limited (the Company) and its June 2018, the consolidated statement of profit or loss and other comprehensive income, the subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 consolidated statement of changes in equity and the consolidated statement of cash flows for the year We have audited the financial report of Encounter Resources Limited (the Company) and its June 2018, the consolidated statement of profit or loss and other comprehensive income, the June 2018, the consolidated statement of profit or loss and other comprehensive income, the then ended, and notes to the financial statements, including a summary of significant accounting subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 consolidated statement of changes in equity and the consolidated statement of cash flows for the year consolidated statement of changes in equity and the consolidated statement of cash flows for the year policies, and the directors’ declaration. June 2018, the consolidated statement of profit or loss and other comprehensive income, the then ended, and notes to the financial statements, including a summary of significant accounting then ended, and notes to the financial statements, including a summary of significant accounting consolidated statement of changes in equity and the consolidated statement of cash flows for the year policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations policies, and the directors’ declaration. then ended, and notes to the financial statements, including a summary of significant accounting Act 2001, including: In our opinion, the accompanying financial report of the Group is in accordance with the Corporations policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its (a) Act 2001, including: In our opinion, the accompanying financial report of the Group is in accordance with the Corporations financial performance for the year then ended; and giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its (a) Act 2001, including: giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its (a) financial performance for the year then ended; and complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) financial performance for the year then ended; and giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its (a) complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) Basis for Opinion financial performance for the year then ended; and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) Basis for Opinion those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Report section of our report. We are independent of the Group in accordance with the auditor those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial independence requirements of the Corporations Act 2001 and the ethical requirements of the We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Report section of our report. We are independent of the Group in accordance with the auditor Report section of our report. We are independent of the Group in accordance with the auditor Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial independence requirements of the Corporations Act 2001 and the ethical requirements of the independence requirements of the Corporations Act 2001 and the ethical requirements of the Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also Report section of our report. We are independent of the Group in accordance with the auditor Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional fulfilled our other ethical responsibilities in accordance with the Code. independence requirements of the Corporations Act 2001 and the ethical requirements of the Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis fulfilled our other ethical responsibilities in accordance with the Code. Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also for our opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters for our opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in for our opinion. Key Audit Matters our audit of the financial report of the current period. These matters were addressed in the context of Key audit matters are those matters that, in our professional judgement, were of most significance in Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report of the current period. These matters were addressed in the context of a separate opinion on these matters. For each matter below, our description of how our audit Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide addressed the matter is provided in that context. our audit of the financial report of the current period. These matters were addressed in the context of a separate opinion on these matters. For each matter below, our description of how our audit a separate opinion on these matters. For each matter below, our description of how our audit our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide addressed the matter is provided in that context. addressed the matter is provided in that context. How we addressed the Key Audit Matter a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. How we addressed the Key Audit Matter How we addressed the Key Audit Matter Key Audit Matter Key Audit Matter Consideration of impairment of capitalised mineral exploration and evaluation expenditure Key Audit Matter How we addressed the Key Audit Matter Key Audit Matter Consideration of impairment of capitalised mineral exploration and evaluation expenditure Consideration of impairment of capitalised mineral exploration and evaluation expenditure Our procedures included, but were not limited to: Impairment of the carrying value of the Group’s Capitalised Mineral Exploration and Consideration of impairment of capitalised mineral exploration and evaluation expenditure Our procedures included, but were not limited to: Impairment of the carrying value of the Impairment of the carrying value of the Our procedures included, but were not limited to: Group’s Capitalised Mineral Exploration and Group’s Capitalised Mineral Exploration and Impairment of the carrying value of the Group’s Capitalised Mineral Exploration and Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. omissions of financial services licensees. Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. Our procedures included, but were not limited to: 64 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED Report on the Audit of the Financial Report Opinion We have audited the financial report of Encounter Resources Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. Key Audit Matter How we addressed the Key Audit Matter Consideration of impairment of capitalised mineral exploration and evaluation expenditure Impairment of the carrying value of the Our procedures included, but were not limited to: Group’s Capitalised Mineral Exploration and Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. ANNUAL REPORT 2018INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED INDEPENDENT AUDITORS REPORT INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED Report on the Audit of the Financial Report INDEPENDENT AUDITORS REPORT Report on the Audit of the Financial Report TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED Report on the Audit of the Financial Report Opinion Opinion Opinion We have audited the financial report of Encounter Resources Limited (the Company) and its Report on the Audit of the Financial Report Opinion subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 We have audited the financial report of Encounter Resources Limited (the Company) and its We have audited the financial report of Encounter Resources Limited (the Company) and its June 2018, the consolidated statement of profit or loss and other comprehensive income, the subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 consolidated statement of changes in equity and the consolidated statement of cash flows for the year We have audited the financial report of Encounter Resources Limited (the Company) and its June 2018, the consolidated statement of profit or loss and other comprehensive income, the June 2018, the consolidated statement of profit or loss and other comprehensive income, the then ended, and notes to the financial statements, including a summary of significant accounting subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 consolidated statement of changes in equity and the consolidated statement of cash flows for the year consolidated statement of changes in equity and the consolidated statement of cash flows for the year policies, and the directors’ declaration. June 2018, the consolidated statement of profit or loss and other comprehensive income, the then ended, and notes to the financial statements, including a summary of significant accounting then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. consolidated statement of changes in equity and the consolidated statement of cash flows for the year In our opinion, the accompanying financial report of the Group is in accordance with the Corporations policies, and the directors’ declaration. then ended, and notes to the financial statements, including a summary of significant accounting In our opinion, the accompanying financial report of the Group is in accordance with the Corporations In our opinion, the accompanying financial report of the Group is in accordance with the Corporations policies, and the directors’ declaration. Act 2001, including: Act 2001, including: Act 2001, including: (a) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its In our opinion, the accompanying financial report of the Group is in accordance with the Corporations financial performance for the year then ended; and Act 2001, including: giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its (a) (a) (b) (a) financial performance for the year then ended; and complying with Australian Accounting Standards and the Corporations Regulations 2001. financial performance for the year then ended; and giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its (b) Basis for Opinion complying with Australian Accounting Standards and the Corporations Regulations 2001. complying with Australian Accounting Standards and the Corporations Regulations 2001. financial performance for the year then ended; and (b) Basis for Opinion Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) Basis for Opinion those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Report section of our report. We are independent of the Group in accordance with the auditor those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial independence requirements of the Corporations Act 2001 and the ethical requirements of the We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Report section of our report. We are independent of the Group in accordance with the auditor Report section of our report. We are independent of the Group in accordance with the auditor Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial independence requirements of the Corporations Act 2001 and the ethical requirements of the independence requirements of the Corporations Act 2001 and the ethical requirements of the Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also Report section of our report. We are independent of the Group in accordance with the auditor Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional fulfilled our other ethical responsibilities in accordance with the Code. independence requirements of the Corporations Act 2001 and the ethical requirements of the Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis fulfilled our other ethical responsibilities in accordance with the Code. Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. for our opinion. Key Audit Matters for our opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis Key audit matters are those matters that, in our professional judgement, were of most significance in Key Audit Matters for our opinion. Key Audit Matters Key Audit Matters our audit of the financial report of the current period. These matters were addressed in the context of Key audit matters are those matters that, in our professional judgement, were of most significance in Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report of the current period. These matters were addressed in the context of a separate opinion on these matters. For each matter below, our description of how our audit Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide addressed the matter is provided in that context. our audit of the financial report of the current period. These matters were addressed in the context of a separate opinion on these matters. For each matter below, our description of how our audit a separate opinion on these matters. For each matter below, our description of how our audit our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide addressed the matter is provided in that context. addressed the matter is provided in that context. Key Audit Matter How we addressed the Key Audit Matter a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. Key Audit Matter Key Audit Matter How we addressed the Key Audit Matter How we addressed the Key Audit Matter Consideration of impairment of capitalised mineral exploration and evaluation expenditure Key Audit Matter Consideration of impairment of capitalised mineral exploration and evaluation expenditure Consideration of impairment of capitalised mineral exploration and evaluation expenditure How we addressed the Key Audit Matter Our procedures included, but were not limited to: Impairment of the carrying value of the Group’s Capitalised Mineral Exploration and Consideration of impairment of capitalised mineral exploration and evaluation expenditure Our procedures included, but were not limited to: Our procedures included, but were not limited to: Impairment of the carrying value of the Impairment of the carrying value of the Group’s Capitalised Mineral Exploration and Group’s Capitalised Mineral Exploration and Impairment of the carrying value of the Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and Group’s Capitalised Mineral Exploration and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or Our procedures included, but were not limited to: Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. omissions of financial services licensees. omissions of financial services licensees. INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED Report on the Audit of the Financial Report Opinion ▪ Key Audit Matter How we addressed the Key Audit Matter We have audited the financial report of Encounter Resources Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 INDEPENDENT AUDITORS REPORT June 2018, the consolidated statement of profit or loss and other comprehensive income, the TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED Consideration of impairment of capitalised mineral exploration and evaluation expenditure consolidated statement of changes in equity and the consolidated statement of cash flows for the year Report on the Audit of the Financial Report then ended, and notes to the financial statements, including a summary of significant accounting Evaluation Expenditure assets was material policies, and the directors’ declaration. Opinion to our audit and represented an area of significant estimate and judgement within the financial report. As outlined in Note 6, the Group recorded an expense in respect to exploration expenditure of $9.98m for the year ended 30 June 2018. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations We have audited the financial report of Encounter Resources Limited (the Company) and its Act 2001, including: subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its (a) ▪ Corroborating representations made by consolidated statement of changes in equity and the consolidated statement of cash flows for the year financial performance for the year then ended; and management with available external data then ended, and notes to the financial statements, including a summary of significant accounting and evidence obtained by us during the complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) policies, and the directors’ declaration. course of our audit; and Evaluating management’s documented assessment of the existence or otherwise of impairment indicators from both internal and external sources; This matter is considered a key audit matter due to the high degree of judgement required by the directors to assess whether impairment indicators are present for specified tenements held and due to the significance of the capitalised amount of $11.64m at 30 June 2018. Basis for Opinion In our opinion, the accompanying financial report of the Group is in accordance with the Corporations ▪ Considering the appropriateness of relevant Act 2001, including: We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under disclosures in the notes to the financial those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial statements. giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its (a) Report section of our report. We are independent of the Group in accordance with the auditor financial performance for the year then ended; and independence requirements of the Corporations Act 2001 and the ethical requirements of the (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also Basis for Opinion fulfilled our other ethical responsibilities in accordance with the Code. The conditions and assessment undertaken in relation to impairment are disclosed in the Group’s accounting policy in Notes 1(f), 1(k) and 13 of the financial report. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial for our opinion. Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Key Audit Matters Other Information Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Key audit matters are those matters that, in our professional judgement, were of most significance in The directors are responsible for the other information. The other information comprises the Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also our audit of the financial report of the current period. These matters were addressed in the context of information included in the Group’s annual report for the year ended 30 June 2018, but does not fulfilled our other ethical responsibilities in accordance with the Code. our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide include the financial report and our auditor’s report thereon. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis a separate opinion on these matters. For each matter below, our description of how our audit Our opinion on the financial report does not cover the other information and accordingly we do not for our opinion. addressed the matter is provided in that context. express any form of assurance conclusion thereon. Key Audit Matters In connection with our audit of the financial report, our responsibility is to read the other information Key audit matters are those matters that, in our professional judgement, were of most significance in and, in doing so, consider whether the other information is materially inconsistent with the financial Consideration of impairment of capitalised mineral exploration and evaluation expenditure our audit of the financial report of the current period. These matters were addressed in the context of report or our knowledge obtained in the audit or otherwise appears to be materially misstated. our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide If, based on the work we have performed, we conclude that there is a material misstatement of this a separate opinion on these matters. For each matter below, our description of how our audit Impairment of the carrying value of the other information; we are required to report that fact. We have nothing to report in this regard. addressed the matter is provided in that context. Group’s Capitalised Mineral Exploration and Our procedures included, but were not limited to: How we addressed the Key Audit Matter Key Audit Matter Key Audit Matter How we addressed the Key Audit Matter Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or Consideration of impairment of capitalised mineral exploration and evaluation expenditure omissions of financial services licensees. Impairment of the carrying value of the Group’s Capitalised Mineral Exploration and Our procedures included, but were not limited to: Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and omissions of financial services licensees. independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. 65 ANNUAL REPORT 2018INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED Responsibilities of the Directors for the Financial Report Report on the Audit of the Financial Report INDEPENDENT AUDITORS REPORT The directors of the Group are responsible for the preparation of the financial report that gives a true Opinion TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED and fair view in accordance with Australian Accounting Standards, International Financial Reporting Standards and the Corporations Act 2001 and for such internal control as the directors determine is We have audited the financial report of Encounter Resources Limited (the Company) and its Report on the Audit of the Financial Report necessary to enable the preparation of the financial report that gives a true and fair view and is free subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 from material misstatement, whether due to fraud or error. June 2018, the consolidated statement of profit or loss and other comprehensive income, the Opinion consolidated statement of changes in equity and the consolidated statement of cash flows for the year In preparing the financial report, the directors are responsible for assessing the ability of the Group to We have audited the financial report of Encounter Resources Limited (the Company) and its then ended, and notes to the financial statements, including a summary of significant accounting continue as a going concern, disclosing, as applicable, matters related to going concern and using the subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 policies, and the directors’ declaration. going concern basis of accounting unless the directors either intend to liquidate the Group or to cease June 2018, the consolidated statement of profit or loss and other comprehensive income, the operations, or have no realistic alternative but to do so. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations consolidated statement of changes in equity and the consolidated statement of cash flows for the year Act 2001, including: then ended, and notes to the financial statements, including a summary of significant accounting Auditor’s Responsibilities for the Audit of the Financial Report policies, and the directors’ declaration. giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its (a) Our objectives are to obtain reasonable assurance about whether the financial report as a whole is financial performance for the year then ended; and In our opinion, the accompanying financial report of the Group is in accordance with the Corporations free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that Act 2001, including: includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) an audit conducted in accordance with the Australian Auditing Standards will always detect a material giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its (a) Basis for Opinion misstatement when it exists. Misstatements can arise from fraud or error and are considered material financial performance for the year then ended; and if, individually or in the aggregate, they could reasonably be expected to influence the economic We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under decisions of users taken on the basis of this financial report. complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor As part of an audit in accordance with Australian Auditing Standards, we exercise professional Basis for Opinion independence requirements of the Corporations Act 2001 and the ethical requirements of the judgement and maintain professional scepticism throughout the audit. We also: We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional ▪ Identify and assess the risks of material misstatement of the financial report, whether due to those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fraud or error, design and perform audit procedures responsive to those risks, and obtain audit Report section of our report. We are independent of the Group in accordance with the auditor fulfilled our other ethical responsibilities in accordance with the Code. evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not independence requirements of the Corporations Act 2001 and the ethical requirements of the We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis detecting a material misstatement resulting from fraud is higher than for one resulting from Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional for our opinion. error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also override of internal control. fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters ▪ Obtain an understanding of internal control relevant to the audit in order to design audit We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis Key audit matters are those matters that, in our professional judgement, were of most significance in procedures that are appropriate in the circumstances, but not for the purpose of expressing an for our opinion. our audit of the financial report of the current period. These matters were addressed in the context of opinion on the effectiveness of the entity’s internal control. our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide Key Audit Matters ▪ a separate opinion on these matters. For each matter below, our description of how our audit Evaluate the appropriateness of accounting policies used and the reasonableness of accounting Key audit matters are those matters that, in our professional judgement, were of most significance in addressed the matter is provided in that context. estimates and related disclosures made by the directors. our audit of the financial report of the current period. These matters were addressed in the context of ▪ Conclude on the appropriateness of the directors’ use of the going concern basis of accounting our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide How we addressed the Key Audit Matter in the preparation of the financial report. We also conclude, based on the audit evidence a separate opinion on these matters. For each matter below, our description of how our audit obtained whether a material uncertainty exists related to events and conditions that may cast addressed the matter is provided in that context. Consideration of impairment of capitalised mineral exploration and evaluation expenditure significant doubt on the entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the How we addressed the Key Audit Matter Key Audit Matter Our procedures included, but were not limited to: Impairment of the carrying value of the disclosures in the financial report about the material uncertainty or, if such disclosures are Group’s Capitalised Mineral Exploration and inadequate, to modify the opinion on the financial report. However, future events or conditions Consideration of impairment of capitalised mineral exploration and evaluation expenditure may cause an entity to cease to continue as a going concern. Key Audit Matter Impairment of the carrying value of the Group’s Capitalised Mineral Exploration and Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. Our procedures included, but were not limited to: 66 Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. ▪ Evaluate the overall presentation, structure and content of the financial report, including the disclosures and whether the financial statements represent the underlying transactions and INDEPENDENT AUDITORS REPORT events in a manner that achieves fair presentation. TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED We communicate with the directors regarding, among other matters, the planned scope and timing of Report on the Audit of the Financial Report the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Opinion We are also required to provide the directors with a statement that we have complied with relevant We have audited the financial report of Encounter Resources Limited (the Company) and its ethical requirements regarding independence, and to communicate with them all relationships and subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 other matters that may reasonably be thought to bear on our independence, and where applicable, June 2018, the consolidated statement of profit or loss and other comprehensive income, the related safeguards. consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting From the matters communicated to the directors, we determine those matters that were of most policies, and the directors’ declaration. significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public In our opinion, the accompanying financial report of the Group is in accordance with the Corporations disclosure about the matter or when, in extremely rare circumstances, we determine that a matter Act 2001, including: should be communicated in our report because the adverse consequences of doing so would (a) reasonably be expected to outweigh the public interest benefits of such communication. giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and Report on the Remuneration Report (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Opinion on the Remuneration Report Basis for Opinion We have audited the Remuneration Report included in pages 27 to 32 of the directors’ report for the We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under year ended 30 June 2018. those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial In our opinion, the Remuneration Report of Encounter Resources Limited for the year ended 30 June Report section of our report. We are independent of the Group in accordance with the auditor 2018, complies with section 300A of the Corporations Act 2001. independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Responsibilities Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. The directors of the Group 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 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian for our opinion. Auditing Standards. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide CROWE HORWATH PERTH a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. Key Audit Matter How we addressed the Key Audit Matter SEAN MCGURK Partner Consideration of impairment of capitalised mineral exploration and evaluation expenditure Dated at Perth this 27th day of September 2018 Impairment of the carrying value of the Our procedures included, but were not limited to: Group’s Capitalised Mineral Exploration and Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. ANNUAL REPORT 2018INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED Responsibilities of the Directors for the Financial Report Report on the Audit of the Financial Report INDEPENDENT AUDITORS REPORT The directors of the Group are responsible for the preparation of the financial report that gives a true TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED and fair view in accordance with Australian Accounting Standards, International Financial Reporting Opinion Standards and the Corporations Act 2001 and for such internal control as the directors determine is We have audited the financial report of Encounter Resources Limited (the Company) and its Report on the Audit of the Financial Report necessary to enable the preparation of the financial report that gives a true and fair view and is free subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 from material misstatement, whether due to fraud or error. June 2018, the consolidated statement of profit or loss and other comprehensive income, the Opinion consolidated statement of changes in equity and the consolidated statement of cash flows for the year In preparing the financial report, the directors are responsible for assessing the ability of the Group to We have audited the financial report of Encounter Resources Limited (the Company) and its then ended, and notes to the financial statements, including a summary of significant accounting continue as a going concern, disclosing, as applicable, matters related to going concern and using the subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 policies, and the directors’ declaration. going concern basis of accounting unless the directors either intend to liquidate the Group or to cease June 2018, the consolidated statement of profit or loss and other comprehensive income, the operations, or have no realistic alternative but to do so. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations consolidated statement of changes in equity and the consolidated statement of cash flows for the year Act 2001, including: then ended, and notes to the financial statements, including a summary of significant accounting Auditor’s Responsibilities for the Audit of the Financial Report policies, and the directors’ declaration. (a) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its Our objectives are to obtain reasonable assurance about whether the financial report as a whole is In our opinion, the accompanying financial report of the Group is in accordance with the Corporations free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that financial performance for the year then ended; and Act 2001, including: includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) (a) an audit conducted in accordance with the Australian Auditing Standards will always detect a material giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its misstatement when it exists. Misstatements can arise from fraud or error and are considered material Basis for Opinion financial performance for the year then ended; and if, individually or in the aggregate, they could reasonably be expected to influence the economic (b) We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under decisions of users taken on the basis of this financial report. complying with Australian Accounting Standards and the Corporations Regulations 2001. those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor As part of an audit in accordance with Australian Auditing Standards, we exercise professional Basis for Opinion independence requirements of the Corporations Act 2001 and the ethical requirements of the judgement and maintain professional scepticism throughout the audit. We also: We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also Identify and assess the risks of material misstatement of the financial report, whether due to ▪ Report section of our report. We are independent of the Group in accordance with the auditor fraud or error, design and perform audit procedures responsive to those risks, and obtain audit fulfilled our other ethical responsibilities in accordance with the Code. independence requirements of the Corporations Act 2001 and the ethical requirements of the evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis detecting a material misstatement resulting from fraud is higher than for one resulting from Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional for our opinion. Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the fulfilled our other ethical responsibilities in accordance with the Code. override of internal control. Key Audit Matters ▪ ▪ ▪ We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis Obtain an understanding of internal control relevant to the audit in order to design audit Key audit matters are those matters that, in our professional judgement, were of most significance in procedures that are appropriate in the circumstances, but not for the purpose of expressing an our audit of the financial report of the current period. These matters were addressed in the context of opinion on the effectiveness of the entity’s internal control. for our opinion. our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide Key Audit Matters a separate opinion on these matters. For each matter below, our description of how our audit Evaluate the appropriateness of accounting policies used and the reasonableness of accounting Key audit matters are those matters that, in our professional judgement, were of most significance in addressed the matter is provided in that context. estimates and related disclosures made by the directors. our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide Conclude on the appropriateness of the directors’ use of the going concern basis of accounting How we addressed the Key Audit Matter Key Audit Matter a separate opinion on these matters. For each matter below, our description of how our audit in the preparation of the financial report. We also conclude, based on the audit evidence addressed the matter is provided in that context. obtained whether a material uncertainty exists related to events and conditions that may cast Consideration of impairment of capitalised mineral exploration and evaluation expenditure significant doubt on the entity’s ability to continue as a going concern. If we conclude that a Key Audit Matter material uncertainty exists, we are required to draw attention in the auditor’s report to the How we addressed the Key Audit Matter Impairment of the carrying value of the Our procedures included, but were not limited to: disclosures in the financial report about the material uncertainty or, if such disclosures are Group’s Capitalised Mineral Exploration and inadequate, to modify the opinion on the financial report. However, future events or conditions Consideration of impairment of capitalised mineral exploration and evaluation expenditure may cause an entity to cease to continue as a going concern. Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and Our procedures included, but were not limited to: Impairment of the carrying value of the independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or Group’s Capitalised Mineral Exploration and omissions of financial services licensees. Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED ▪ Report on the Audit of the Financial Report Evaluate the overall presentation, structure and content of the financial report, including the disclosures and whether the financial statements represent the underlying transactions and INDEPENDENT AUDITORS REPORT Opinion events in a manner that achieves fair presentation. TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED We have audited the financial report of Encounter Resources Limited (the Company) and its We communicate with the directors regarding, among other matters, the planned scope and timing of Report on the Audit of the Financial Report subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 the audit and significant audit findings, including any significant deficiencies in internal control that we June 2018, the consolidated statement of profit or loss and other comprehensive income, the identify during our audit. Opinion consolidated statement of changes in equity and the consolidated statement of cash flows for the year We are also required to provide the directors with a statement that we have complied with relevant We have audited the financial report of Encounter Resources Limited (the Company) and its then ended, and notes to the financial statements, including a summary of significant accounting ethical requirements regarding independence, and to communicate with them all relationships and subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 policies, and the directors’ declaration. other matters that may reasonably be thought to bear on our independence, and where applicable, June 2018, the consolidated statement of profit or loss and other comprehensive income, the In our opinion, the accompanying financial report of the Group is in accordance with the Corporations related safeguards. consolidated statement of changes in equity and the consolidated statement of cash flows for the year Act 2001, including: then ended, and notes to the financial statements, including a summary of significant accounting From the matters communicated to the directors, we determine those matters that were of most policies, and the directors’ declaration. (a) significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public In our opinion, the accompanying financial report of the Group is in accordance with the Corporations disclosure about the matter or when, in extremely rare circumstances, we determine that a matter Act 2001, including: (b) should be communicated in our report because the adverse consequences of doing so would giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its (a) reasonably be expected to outweigh the public interest benefits of such communication. Basis for Opinion financial performance for the year then ended; and giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Report on the Remuneration Report We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Opinion on the Remuneration Report Report section of our report. We are independent of the Group in accordance with the auditor Basis for Opinion independence requirements of the Corporations Act 2001 and the ethical requirements of the We have audited the Remuneration Report included in pages 27 to 32 of the directors’ report for the We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional year ended 30 June 2018. those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also In our opinion, the Remuneration Report of Encounter Resources Limited for the year ended 30 June Report section of our report. We are independent of the Group in accordance with the auditor fulfilled our other ethical responsibilities in accordance with the Code. 2018, complies with section 300A of the Corporations Act 2001. independence requirements of the Corporations Act 2001 and the ethical requirements of the We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Responsibilities for our opinion. Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. The directors of the Group are responsible for the preparation and presentation of the Remuneration Key Audit Matters Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis Key audit matters are those matters that, in our professional judgement, were of most significance in an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian for our opinion. our audit of the financial report of the current period. These matters were addressed in the context of Auditing Standards. our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide Key Audit Matters a separate opinion on these matters. For each matter below, our description of how our audit Key audit matters are those matters that, in our professional judgement, were of most significance in addressed the matter is provided in that context. our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide CROWE HORWATH PERTH a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. Consideration of impairment of capitalised mineral exploration and evaluation expenditure How we addressed the Key Audit Matter Key Audit Matter Key Audit Matter Impairment of the carrying value of the Group’s Capitalised Mineral Exploration and Consideration of impairment of capitalised mineral exploration and evaluation expenditure How we addressed the Key Audit Matter Our procedures included, but were not limited to: SEAN MCGURK Partner Dated at Perth this 27th day of September 2018 Our procedures included, but were not limited to: Impairment of the carrying value of the Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and Group’s Capitalised Mineral Exploration and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. 67 ANNUAL REPORT 2018ASX ADDITIONAL INFORMATION Pursuant to the Listing Requirements of the Australian Securities Exchange, the shareholder information set out below was applicable as at 2 October 2018. A. DISTRIBUTION OF EQUITY SECURITIES Analysis of numbers of shareholders by size of holding: Ordinary Fully Paid Shares Distribution 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 More than 100,000 Totals Number of shareholders Securities held 103 181 130 457 240 1,111 41,577 561,303 1,073,502 19,641,395 217,057,315 238,375,092 There are 358 shareholders holding less than a marketable parcel of ordinary shares. B. SUBSTANTIAL SHAREHOLDERS An extract of the Company’s Register of Substantial Shareholders (who hold 5% or more of the issued capital) is set out below: Shareholder Name William Michael Robinson Eye Investment Fund Limited Tiga Trading PL Deutsche Balaton Aktiengesellschaft C.. TWENTY LARGEST SHAREHOLDERS The names of the twenty largest holders of quoted shares are listed below: Shareholder Name William Michael Robinson HSBC Custody Nominees Australia Limited UBS Nominees Pty Ltd Deutsche Balaton Aktiengesellschaft Citicorp Nominees Pty Ltd Merrill Lynch Australia Nominees Pty Ltd Stone Poneys Nominees Pty Ltd Silver Lake Resources Limited Wythenshawe Pty Ltd Sundin Pty Ltd Solvista Pty Ltd Kiki Super Fund Hillboi Nominees Pty Ltd Thirty Fifth Celebration Pty Ltd 68 Issued Ordinary Shares Number of shares % of shares 24,769,098 13,350,000 12,850,000 12,500,000 10.40% 5.60% 5.39% 5.24% Ordinary Shares - Quoted Number of shares % of Shares 16,216,900 13,350,000 12,850,000 12,500,000 9,389,892 9,112,024 8,600,000 8,300,000 6,000,000 5,580,000 5,000,000 3,062,000 2,705,661 2,600,604 6.80% 5.60% 5.39% 5.24% 3.94% 3.82% 3.61% 3.48% 2.52% 2.34% 2.10% 1.28% 1.14% 1.09% ANNUAL REPORT 2018Shareholder Name Jorge Bernhard HSBC Custody Nominees Australia Limited Paul Meathrel J C O’Sullivan Pty Ltd Wythenshawe Pty Ltd P&S Bewick Total D. UNQ UOTED SECURITIES Options over Unissued Shares Ordinary Shares - Quoted Number of shares % of Shares 2,490,000 2,004,339 1,913,850 1,900,000 1,894,750 1,800,000 1.04% 0.84% 0.80% 0.80% 0.79% 0.76% 127,270,020 53.38% Number of Options Exercise Price Expiry Date Number of Holders 1,250,000 750,000 500,000 400,000 2,025,000 750,000 825,000 800,000 750,000 7,300,000 23 cents 31 cents 16 cents 14 cents 13 cents 17.5 cents 10.5 cents 10 cents 17.5 cents 27 November 2018 27 November 2019 31 January 2019 28 February 2020 24 November 2020 24 November 2021 1 November 2021 31 May 2022 24 November 2021 2 1 4 4 11 1 7 6 1 E. VOTING RIGHTS In accordance with the Company’s Constitution, voting rights in respect of ordinary shares are on a show of hands whereby each member present in person or by proxy shall have one vote and upon a poll, each share will have one vote. There are no voting rights in respect of options over unissued shares. F. RESTRICTED SECURITIES There are no restricted securities. 69 ANNUAL REPORT 2018NOTES 70 ANNUAL REPORT 201870 ANNUAL REPORT 2018www.enrl.com.au 70 ANNUAL REPORT 2018 71 ANNUAL REPORT 2018

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