annual report Table of Contents 01. Letter from the Chairman & Managing Director 02. Exploration Review 03. Summary of Tenements 04. Directors’ Report Auditor’s Independence Declaration Consolidated Financial Statements 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 Audit Report ASX Additional Information Corporate Directory 2 4 23 26 39 40 41 42 43 44 45 74 75 79 82 2 0 2 1 A N N U A L R E P O R T 2 0 2 1 A N N U A L R E P O R T 1. 1. 01. Letter from the Chairman and Managing Director 01. Letter from the Chairman & Managing Director Dear Fellow Shareholder, Encounter’s assets include: We are pleased to present the 2021 Annual Report for Encounter Resources Ltd (“Encounter”). Encounter is one of Australia’s leading mineral exploration companies listed on the ASX. Encounter’s primary focus is on discovering major copper and gold deposits in Australia. Our project generator business model facilitates exploration of an expansive project pipeline through a mix of alliances, earn-ins and joint ventures as well as sole funded exploration. Our business model allows Encounter to pursue multiple large scale gold and base metal discovery opportunities in parallel. This provides leverage to well-funded projects in world class mineral belts while minimising the funding demands on our shareholders. Encounter is a fast mover and early adopter of new technologies and new datasets which provide us with key insights into new exploration frontiers. In recent years, Encounter has teamed up with leading mid- tier and major producers to advance projects in our portfolio including through farm-in and joint venture agreements with some of the world’s leading mining companies in BHP, IGO, Newcrest and Antofagasta. • A large project portfolio in the Paterson Province of WA where we are exploring for copper-gold deposits at the 100% owned Lamil Project and for copper-cobalt deposits at the Yeneena project with IGO Limited; • A series of camp scale, first mover copper opportunities in the Northern Territory. This includes the Elliott copper project which is being advanced in partnership with BHP via a $22m earn-in and joint venture; • The Aileron IOCG project in the West Arunta region of WA; and • An extensive land position in the West Tanami region in Western Australia covering over 100km of strike along a major prospective structural corridor in WA which Encounter intends to demerge into a new company, “Hamelin Gold Limited” and post demerger, Hamelin will seek to list on ASX. The 2021 year has been a transformational period for Encounter, with the rapid expansion of our copper portfolio, including the major ground acquisitions in the NT and a farm-in agreement with BHP and the decision to demerge our highly prospective West Tanami gold assets. 2 E N C O U N T E R R E S O U R C E S L I M I T E D Letter from the Chairman & Managing Director 01. Hamelin Gold will be a gold focused exploration company holding the West Tanami Project which is a belt scale gold project covering 2,277km2 of a well-endowed, emerging gold province that remains significantly underexplored. The tenement package represents one of the largest contiguous land holdings in the Granites Tanami Orogen containing the prospective Stubbins Formation, the time equivalent geological package that hosts Newmont’s +14Moz Callie gold deposit across the border in the Northern Territory. Post Hamelin Gold demerger, Encounter will continue to channel its resources towards its primarily copper focused portfolio in the Paterson Province in Western Australia, the Greater McArthur Superbasin in the Northern Territory and the West Arunta region of Western Australia. In May 2021 BHP exercised its option to enter into a farm-in and joint venture agreement covering the 4,500km2 Elliott copper project in the Northern Territory. Under the terms of the initial deal BHP may earn up to a 75% interest in Elliott by spending up to $22 million over 10 years Elliott represents a compelling exploration opportunity in the vastly underexplored Greater McArthur Superbasin that contains the key ingredients for the formation of large sedimentary copper deposits. An extensive exploration program, including seismic surveys and drilling, is planned at Elliott to rapidly advance understanding of basin architecture and to define prospective deposition sites for sediment-hosted copper mineralisation. New district scale, high potential projects like Elliott provide Encounter with exceptional leverage to the premium front end of the copper value chain. At the same time Encounter continues to advance and build its commanding 100% owned copper exploration portfolio in the NT covering a further 19,000km2. Encounter has also accelerated activity on its 100% owned exploration projects in 2021. This included a major diamond drill hole program at Dune prospect at the Lamil Project in the Paterson Province in Western Australia. Lamil is located 25km northwest of the major gold-copper mine at Telfer. Previous RC drilling at the Dune defined an expansive copper- gold system over 1km of strike. The diamond drill program completed in September 2021 was highly successful, defining a depth extensive stockwork corridor that contains high grade copper mineralisation, as well as opening up a new and potential significant, mineral system to the north of Dune. Encounter remains one of the most dedicated and active mineral exploration companies listed on the ASX. We are focused on generating value for our shareholders through leading edge exploration for major mineral deposits in 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 2 0 2 1 A N N U A L R E P O R T 3 02. Exploration Review 2021 Highlights: Paterson Province WA • A ten hole RC drill program (2,077m) was completed in February 2021 at the Dune Prospect, part of the 100% owned Lamil Copper-Gold Project (“Lamil”). The results included strong and cohesive copper-gold intersections indicating that drilling is vectoring towards the core of the mineralised system • • In June 2021 a follow up EIS co-funded diamond drill program commenced at Lamil which: − extended a number of February 2021 RC holes at the Dune Prospect which contain strengthening copper- gold mineralisation towards end of hole and; − tested new geophysical features identified in the northern part of Dune. Initial observations and results from the Lamil drill program include: − Diamond tails at the Dune prospect extended the sub- vertical stockwork corridor with initial priority assays confirming high-grade copper grades of: > 1.5m @ 19.1% Cu from 409.1m sitting directly above 3.9m @ 1.6g/t Au from 410.6m (ETG0226) − Drilling 200m north of ETG0226 extended the mineralised corridor and intersected multiple zones of quartz carbonate veining with pyrite and chalcopyrite (copper sulphide) (ETG0243) 4 E N C O U N T E R R E S O U R C E S L I M I T E D − Drilling of a previously untested 1km long magnetic anomaly north of Dune has intersected a +25m wide pyrrhotite dominant (+ chalcopyrite) quartz-sulphide breccia zone (ETG0241) • Diamond drilling was completed at the Millennium Joint Venture (Encounter 75% / Hampton Hill Mining 25% (ASX:HHM)) to tested downdip of a +800m long zone of copper anomalism. • Diamond drilling and magneto-telluric (MT) surveys completed at the Yeneena Copper-Cobalt Project (“Yeneena”) as part of the $15M exploration earn-in with IGO Limited (ASX:IGO). Northern Territory Copper • In May 2021 BHP (ASX:BHP) exercised its option to enter into a farm-in and joint venture agreement covering the 4,500km2 Elliott Copper Project (“Elliott”) in the Northern Territory (“NT”) where BHP may earn up to a 75% interest in Elliott by spending up to $22 million over 10 years • An extensive exploration program, including seismic surveys and drilling, is planned at Elliott to rapidly advance understanding of basin architecture and to define prospective deposition sites for sediment-hosted copper mineralisation • Encounter continues to advance and build its commanding 100% owned copper exploration portfolio in the Exploration Review 02. 2021 Highlights: NT covering a further 19,000km2. Interpretation and interrogation of new government datasets and systematic pXRF analysis of historical drilling continued through the year and has resulted in exciting developments including: • A gravity survey was completed at Aileron in August 2021. Results are being integrated with existing geophysical datasets to design follow up exploration plans. − Jessica – Aircore/auger drill program planned to West Tanami Gold – Hamelin Gold Demerger determine the lateral extent of the near surface high grade copper mineralisation identified in water bore cuttings; • − Sandover – Copper anomalism identified by handheld XRF analysis in multiple water bore cuttings and consequently the project area has been significantly expanded; − Carrara – Copper and zinc sulphide mineralisation observed in the NDI Carrara1 stratigraphic diamond drill hole completed in the National Drilling Initiative (“NDI”). West Arunta – WA • Diamond drilling at Aileron located in the West Arunta region of WA intersected hydrothermal hematite-altered mafic intrusions and granite with a distinctive IOCG geochemical signature under shallow cover (10m). Assays include zones of anomalism in copper (up to 0.1% Cu), gold (up to 48ppb Au) and molybdenum (up to 155ppm Mo). Furthermore, highly elevated rare earth elements consistent with the targeted IOCG deposit model were identified including lanthanum (La) up to 0.2% and cerium (Ce) up to 0.3%. In July 2021 Encounter announced its intention, subject to shareholder approval, to demerge and launch an initial public offering (“IPO”) of its wholly owned subsidiary, Hamelin Gold Limited (“Hamelin”). • Hamelin holds a 100% interest in the West Tanami Gold Project (“West Tanami”) in WA. This is a belt scale gold project covering 2,277km2 of a well-endowed, emerging gold province that remains significantly underexplored. • To implement the modern exploration program required at West Tanami, Encounter considers the best outcome for shareholders is that a new corporate entity drive a gold focused business forward. • Encounter will remain focused on its expansive copper portfolio in the Paterson Province of WA, the Greater McArthur Superbasin in the NT and the West Arunta region of WA, which includes farm-in agreements with BHP and IGO. 2 0 2 1 A N N U A L R E P O R T 5 Figure 1 – Encounter Projects – Location Plan Paterson Province Copper-Gold Lamil Project Background Lamil covers an area of ~61km2 and is located 25km northwest of the major gold-copper mine at Telfer, owned by Newcrest Mining Ltd (ASX:NCM). Lamil is adjacent to a major regional gravity lineament which marks the location of a significant structure and deformation zone that would have acted as a pathway for ore forming fluids during the formation of the Proterozoic aged deposits. A seven hole diamond drill program was completed in September 2021, including three diamond tails on existing RC holes and four new diamond holes from the surface. Three separate target areas were drilled at Dune including a previously untested magnetic anomaly located north of the main Dune corridor. 6 ENCOUNTER RESOURCES LIMITED Exploration Review02. Figure 2 – Drillhole collar location plan on magnetic image (TMI Analytical Signal) draped over air photo Figure 3 – Dune prospect (Max in hole Au) 3 4 5 7 2021 ANNUAL REPORTExploration Review02. Paterson Province Copper-Gold (Continued) Photos 1 to 3 - Examples of semi-massive pyrite – chalcocite mineralisation drilled from 409.1 to 410.6m in ETG0226 Dune Prospect Dune sits in the northwest of the Lamil project area and consists of a laterally-extensive gold-copper system, outlined by broad spaced RC drilling over 1km of strike. The mineralisation at Dune is located on the north-westerly plunging fold axis of the Lamil Dome. The RC drill program completed in February 2021 at Dune extended the copper-gold system both to the south and east and contained strong copper-gold intersections including: • 132m @ 0.31g/t Au and 0.11% Cu from 87m to end of hole in ETG02271 − including 22m @ 0.51g/t Au and 0.24% Cu from 181m Diamond tail of ETG0226 The diamond tail of ETG0226 (located on the same section 80m south-west of ETG0227) was completed to a depth of 710m. This hole intersected a thick zone of quartzite containing zones of intense alteration, silica flooding, veining and brecciation. ETG0226 includes a 1.5m intersection of semi-massive pyrite and chalcocite from 409.1m (see photos 1-3). Two zones totaling 44.6m of core were selected from ETG0226 for priority analysis to determine the copper and gold grade of the semi-massive pyrite and chalcocite zone. This analysis returned: − 1.5m @ 19.1% Cu from 409.1m sitting directly above; − 3.9m @ 1.6g/t Au from 410.6m2. Assays from the remainder of ETG0226 and ETG0227 are pending with results expected in October/November 2021. 8 ENCOUNTER RESOURCES LIMITED Exploration Review02. ETG0243 – Testing the mineralised corridor 200m along strike of ETG0226 and ETG0227 ETG0243 was drilled to test the stockwork corridor intersected in ETG0226 and ETG0227, 200m along strike to the north-west. This hole intersected a similar geological sequence as seen in ETG0226 being altered siltstones and brecciated quartzite with interbedded siltstones. Both of these units contain quartz carbonate veining with pyrite and chalcopyrite (copper sulphide) (Photos 4 & 5). The September 2021 diamond drill program successfully outlined a broad, steeply dipping zone of stockwork veining that remains open to the north and south. High grade copper mineralisation intersected in ETG0226 and numerous quartz sulphide veins in ETG0243 indicate drilling is vectoring into the core of the mineralised system at Dune. Core samples from ETG0243 have been submitted for priority analysis with results expected in October/November 2021. Photo 4 – Example of semi-massive pyrite/chalcopyrite Photo 5 – Example of brecciated quartzite containing pyrite ~ 347m in ETG0243 with fine chalcopyrite ~ 519m in ETG0243 ETG0241 – Testing a large magnetic anomaly north of Dune ETG0241 was the first hole drilled into a new target located to the north of the Dune corridor. The hole was designed to test a +1km long, east-west trending magnetic anomaly (see Figure 2). ETG0241 successfully tested the modelled anomaly and intersected a ~25m wide zone of pyrrhotite-dominant quartz-sulphide breccia that contains disseminations and blebs of chalcopyrite from 310m. This quartz-sulphide breccia zone becomes progressively more sulphide rich to 335m with intervals of up to ~50% sulphide (pyrrhotite dominant) (Photos 6, 7 & 8). 9 2021 ANNUAL REPORTExploration Review02. Paterson Province Copper-Gold (Continued) Photos 6 & 7 – Examples of quartz sulphide breccia with pyrrhotite at ~320m & ~330m in ETG0241 Photos 8 – Example of semi-massive pyrrhotite with blebs of chalcopyrite at ~334m in ETG0241 10 ENCOUNTER RESOURCES LIMITED Exploration Review02. Paterson Province Copper-Gold (Continued) 1. 2. 3. 4. 5. refer ASX release 21 April 2021 refer ASX release 6 September 2021 refer ASX release 19 January 2017 refer ASX release 18 December 2020 refer ASX release 26 April 2017 Figure 4 – Dune Prospect cross section through A-A’ 11 2021 ANNUAL REPORTExploration Review02. Northern Territory – Copper Background Utilising new government datasets (GA, NTGS) Encounter moved early and aggressively to secure a leading copper project portfolio that currently covers ~26,500km2. Encounter now controls eight large projects in the Northern Territory targeted for major sediment-hosted and IOCG style copper deposits (Figure 5). The projects are primarily located in the highly prospective but vastly underexplored Greater McArthur Superbasin and located between the major copper-gold producing districts of Mt Isa and Tennant Creek. Figure 5 – Project Location Plan 12 ENCOUNTER RESOURCES LIMITED Exploration Review02. Northern Territory – Copper (Continued) Elliott Copper Project (“Elliott”) Elliott was the first project secured by Encounter in the NT and comprises seven tenements covering more than 4,500km2. The project is located 200km north of Tennant Creek on the Stuart Highway which runs along the western margin of the project. Elliott is located at a major structural intersection on the southwestern margin of the Beetaloo Basin which is part of the Greater McArthur Superbasin that hosts the giant sediment-hosted base metal deposit at McArthur River. The basin contains thick, petroleum bearing, reduced sediments which are an ideal trap sequence and the major structures bounding the basin are considered ideal structural fluid pathways for major sediment-hosted copper deposits. The project encompasses key conceptual criteria for the formation of large scale copper deposits with the target sequence undercover and untested. New datasets released in 2019 and 2020 have supported the conceptual and structural targeting model at Elliott. The standout, copper-in-groundwater anomaly (order of magnitude above background) in the extensive sampling program is located at Elliott. The jointly designed validation program at Elliott has been completed. This work program involved the compilation, interpretation, modeling and integration of new and existing data packages at Elliott including seismic, airborne EM, magnetics, gravity, surface gechemistry and hydro-geochemistry. The validation program has provided further support for the potential of Elliott. As a result, BHP has exercised its option to negotiate and enter into an earn-in and joint venture agreement. Farm-in and Joint Venture Agreement Key Terms The key terms for the farm-in and joint venture agreement are: • Staged farm-in where BHP has the right to earn up to a 75% interest in Elliott by sole funding up to A$22 million of exploration expenditure within 10 years. • Upon BHP completing the earn-in, a 75:25 joint venture will be formed and the parties must contribute funds based on their percentage interest to maintain their respective interests or dilute according to a standard dilution formula. Should a party’s interest dilute to below 10% it shall automatically convert to a net smelter royalty. • During the farm-in phase, BHP has the right to be the Manager of the project. With the exercise of the option, the parties are in the process of finalising of a formal earn-in and joint venture agreement. Next steps The upcoming exploration program at Elliott will be focused on the deployment of leading edge technologies, initially applying the expertise and knowledge developed during oil and gas exploration of similar basins. The extensive exploration work program planned at Elliott will include seismic surveys and drilling and is designed to rapidly advance the understanding of basin architecture and prospective deposition locations for sediment-hosted copper deposits. Jessica Copper Project (“Jessica”) Jessica covers ~5,500km2 along key structural corridors east of Tennant Creek and is prospective for sediment-hosted copper and IOCG style deposits. Systematic assessment of drill chips from water bores at Jessica has been conducted by Encounter and a previous explorer utilising handheld XRF machines. Areas of copper anomalism were selected for chemical analysis and for the sample interval 0-3m in RN28419 (No. 39 water bore) which returned 1.5% copper (refer ASX release 19 August 2020). Preparations are progressing for an aircore/auger drill program to confirm the copper mineralisation identified in the water bore cuttings and determine the lateral extent of the near surface copper mineralisation. In addition, Encounter is planning to complete infill gravity surveys over a series of high priority magnetic targets at Jessica in conjunction with an extensive regional gravity survey being completed by the NTGS in the coming months. 13 2021 ANNUAL REPORTExploration Review02. Carrara Copper/Zinc Project (“Carrara”) Carrara was secured following the release of the South Nicholson Seismic Survey, a foundational dataset acquired as part of the GA Exploring for the Future Program. A key finding of this study is the correlation of prospective stratigraphic units from the Isa Superbasin into the Carrara Sub-basin that extend the Mount Isa Province to the west. Carrara is located at an interpreted structural offset of the western margin of the Carrara Sub-basin where the prospective Isa Superbasin has been modelled closer to surface. Late in 2020 a 1,751m deep stratigraphic hole (NDI Carrara-1) was completed as part of the National Drilling Initiative funded by the Minex CRC. This hole was designed to validate the interpretation of the South Nicholson Seismic Survey. This drill hole was located within Encounter’s large Carrara project. At the AGES Geological Conference held in Alice Springs in April 2021, the drill hole data from NDI Carrara1 was released and small sections of drill core were on display. An initial inspection of the drill core and assessment of the portable XRF data has been highly encouraging and informative. The NDI Carrara1 stratigraphic drill hole supports the interpretation that the geology of the Isa Superbasin extends throughout the Carrara Sub-basin. The presence of copper and zinc sulphide mineralisation (Figure 6) demonstrates that sediment-hosted copper and zinc mineralising processes occur within the prospective host unit (refer ASX release 28 April 2021). The reprocessing of the GA seismic line that extends through Carrara will be completed to provide greater detail of the geology and structure in the upper 1,000m along the western margin of the sub-basin. The NTGS will complete an additional gravity survey over Carrara in 2021 to reduce the station spacing to 2km x 2km. The core in these pictures is from government drill hole NDI Carrara1. It is not the property of the Company. Figure 6 – Carrara Project - South Nicholson Seismic Survey 14 ENCOUNTER RESOURCES LIMITED Exploration Review02. West Arunta – Copper-Gold Aileron Copper-Gold-Rare Earths Project Aileron is located in the West Arunta region of WA ~600km west of Alice Springs. The project contains a number of structural targets identified through aerial magnetic surveys and the initial drill hole, EAL001 targeted a discrete magnetic anomaly. EAL001 was completed in October 2020 and intersected hydrothermal hematite-altered mafic intrusions and granite with a distinctive IOCG geochemical signature under shallow cover. Assays from EAL001 include zones of anomalism in copper (up to 0.1% Cu), gold (up to 48ppb Au), molybdenum (up to 155ppm Mo) and highly elevated rare earth elements (up to 0.8% TREO, including lanthanum up to 0.2%, cerium up to 0.3%)6, consistent with the targeted IOCG deposit model. The metal anomalism in the hole is associated with the most intense hematite altered zones (up to 15% Fe). IOCG mineralisation often has a strong density contrast to background and may be identifiable through the application of gravity surveys. Accordingly, a detailed ground gravity survey was completed in July 2021. The results of this survey are being integrated with existing geophysical datasets to design follow up exploration plans. Additional gravity coverage and geochemical sampling is planned to be completed prior to an EIS co funded diamond drilling program proposed for the first half of 2022. Figure 7 – Aileron IOCG project – July 2021 gravity survey location plan 6. refer ASX release 28 January 2021 15 2021 ANNUAL REPORTExploration Review02. Paterson Province – Copper-Cobalt Background Yeneena comprises a major land position covering more than 1,600km2 in the highly prospective Paterson Province, targeting copper-cobalt mineralisation. IGO can sole fund $15 million in exploration expenditure over a maximum of seven years to earn a 70% interest in Yeneena. Diamond drilling Two geophysical targets were tested by IGO at Yeneena during 2021: • One diamond hole at the Windsor EM/MT target (adjacent to the BM1 Cu-Co prospect) was completed at 917.5m. The hole was paused at the end of the 2020 field season prior to reaching full depth. Though minimal copper was intersected, results validate the use of MT to map conductive units in the basin. • A 737.4m DD hole was completed at the Aria target, a coincident EM and magnetic anomaly. Drilling tested for copper around the margin of an interpreted breccia pipe, following up a vein-hosted copper intersection in a nearby hole. No significant copper was intersected. • In addition, a stratigraphic drill hole was completed by IGO to a depth of 973.1m to test the contact between basal oxidised sandstones of the Coolbro Formation and overlying reduced shales and carbonates of the Broadhurst Formation. Analysis of the continuous sequence across these units will improve understanding of the regional stratigraphic framework, thus facilitating accurate target evaluation. Magneto-telluric (MT) survey A regional ground magneto-telluric (MT) survey commenced during the June 2021 quarter. The results will help define relationships between regional scale geology, including the prospective units, and key structures. 16 Figure 8 – Encounter’s Paterson Province project location plan ENCOUNTER RESOURCES LIMITED Exploration Review02. Paterson Province – Copper/Zinc (Millennium Project) Background The Millennium Project is located 40km south-west of Newcrest’s Telfer gold/copper mine and is being explored via a 75:25 joint venture with Hampton Hill Mining (“HHM”). Millennium is situated at a key structural intersection on the regionally significant Tabletop Fault on the margin of an interpreted sedimentary sub-basin. Millennium is located on the Tabletop Fault in an area of no outcrop, with up to 20m of transported overburden. This structure is known to be metallogenically important and is closely associated with the position of the Nifty copper deposit, 50km along strike to the north-west. Previous drilling defined a broad zone of copper anomalism (+0.25% Cu) over a strike extent of +800m (Figure 9). RC drill hole EPT1140 collared in the core of the copper anomaly, returned a copper sulphide intersection: • 26m @ 0.60% Cu from 100m incl. 10m @ 0.92% Cu from 100m7 Diamond Drill Program The +800m long copper anomaly identified in prior drilling at Millennium is interpreted to be leakage up the Tabletop Fault from a primary copper position at depth. The planned diamond drill program will target primary copper mineralisation deposited at the base of a thick carbonaceous shale within the Broadhurst Formation. The target position is interpreted as a syncline adjacent to the Tabletop Fault, analogous to the Nifty copper deposit located 50km north-west (see Figure 10). A 400m diamond drill tail to extend EPT2278 to test the targeted position adjacent to the regionally significant Tabletop Fault was completed in July 2021. Assay results expected in October 2021. Figure 9 – Millennium drill hole location plan (max in hole Cu) 17 2021 ANNUAL REPORTExploration Review02. Figure 10 – Millennium schematic cross section through A-A’ (regolith anomaly projected onto section) 7. refer ASX release 19 July 2012 * Reported pursuant to the 2004 Edition of the JORC Code. 18 ENCOUNTER RESOURCES LIMITED Exploration Review02. Paterson Province – Gold East Thomson’s Dome Project East Thomson’s Dome is located 5km from Telfer in the Paterson Province of WA. 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. Broad spaced RC drilling completed at the 45 Reef at East Thomson’s Dome intersected: • 6m @ 9.0g/t Au from 178m including − 2m @ 26.0g/t Au from 178m in ETG0045 8 • 16m @ 0.6g/t Au from 154m in ETG0044 8 These results were followed by an aircore drill program targeting the up dip continuation of the 45 Reef A >700m long surface gold anomaly was identified. A diamond drill program to be completed at East Thomson’s Dome has been deferred into 2022. The program will target the south west extension of the high-grade reef intersected in ETG0045. Additional drilling is also planned on section and along strike of ETG0045. 19 2021 ANNUAL REPORTExploration Review02. Yilgarn Province – Gold Encounter holds two exploration projects in the Yilgarn region of WA prospective for gold mineralisation. Mt Sefton Project The Mt Sefton gold project covers the southern half of the Cosmo Newbury Greenstone belt that is located between the Laverton and the Yamarna greenstone belts. This 600km2 project area is situated 80km east of Laverton. Previous exploration in this area has been limited to surface rock chip sampling and shallow auger geochemical drilling. The tenure is currently under application. The Company intends to progress a Land Access Agreement prior to the grant of tenure. Rani Project The Rani gold project is located 40km west of Menzies. The 220km2 project is situated adjacent to Ora Banda Mining’s (ASX:OBM) Riverina gold deposits (Figure 11). The tenure covers 30 strike kilometres of folded and highly metamorphosed greenstone stratigraphy on the eastern side of the Ida Fault Zone. The area is predominantly under cover and has been subject to minimal historical exploration. Encounter has completed a fine fraction soil sampling trial in areas of shallow sand cover. The fine fraction soil sampling program has demonstrated contrast to background in gold and related pathfinder elements coincident a number of higher priority structural targets at Rani. Figure 11 – Rani Gold Project location plan (TMI background) 9 8. refer ASX release 16 August 2017 9. Refer to Ora Banda Mining - Investor Presentation 21 October 2020 20 ENCOUNTER RESOURCES LIMITED Exploration Review02. West Tanami – Gold – Hamelin Gold Demerger Background West Tanami is a belt scale gold project that covers over 100km of strike along the major structural corridor (Trans-Tanami Structure) that extends through the Tanami region of WA. Encounter’s ground holdings in the Tanami cover 2,277km2 of a well mineralised, emerging gold province that is significantly underexplored. West Tanami has been subject to sporadic and fragmented exploration in the past. The attraction of the project area was enhanced by new datasets provided by the Geological Survey of WA and material new near mine gold discoveries at Newmont Corporation’s +14Moz Callie gold mine. 10 West Tanami contains open, high-grade gold intersections under shallow cover, significant kilometre scale unexplored geochemical anomalies and a suite of untested geophysical targets with supporting geochemistry in a Tier 1 jurisdiction. High-grade gold intersections under shallow cover: • Hutch’s Find Prospect: − Gold/arsenic anomalism in colluvium over 5km of strike − Limited drilling has returned 19m @ 2.3g/t Au from 98m and 10m @ 5.4g/t Au from 123m 11 • Camel Prospect: − Significant zone of gold/arsenic anomalism in shallow drilling over 2km of strike − 7.2m @ 3.1g/t Au from 95m 11 Large geophysical targets with supporting geochemistry: • Bandicoot and Quenda Prospect: − Two large untested magnetic anomalies coincident with gold-arsenic geochemical anomalism adjacent to an interpreted major structure − EIS co-funded diamond drilling program planned in the first half of 2022 Kilometre scale unexplained geochemical anomalies: • Afghan Prospect: a +7.5km long gold anomaly in shallow RAB drilling • Fremlins Prospect: a 6km long zone of gold and arsenic anomalism located along NNE trending regional structure 10km south of the Coyote gold mine • Mojave Prospect: a +7km long gold-arsenic anomaly that includes thick mineralised drill intersections strengthening at bottom of hole 21 2021 ANNUAL REPORTExploration Review02. 02. Exploration Review West Tanami – Gold – Hamelin Gold Demerger (Continued) Figure 12 – Hamelin’s West Tanami gold project with gold occurrences over regional gravity data 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. Certain exploration drilling results for BM1 were first disclosed under JORC code 2004. It has not been updated since to comply with the JORC code 2012 on the basis that the information has not materially changed. 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 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 2004 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. 10. Refer to Newmont Tanami Operations AGES Paper 20 March 2018 11. Refer to ASX Release 3 May 2018 22 E N C O U N T E R R E S O U R C E S L I M I T E D Summary of Tenements 03. 03. Summary of Tenements Lease Lease Name Project Name Area km2 Managing Company Encounter Interest Paterson 107.3 IGO Limited 19.12 Encounter Operations Pty Ltd 75%* 75%* E45/2500 Yeneena E45/2501 Yeneena E45/2502 Yeneena E45/2561 Yeneena E45/2657 Yeneena E45/2658 Yeneena E45/2805 Yeneena E45/2806 Yeneena E45/4861 Yeneena E45/5333 Yeneena E45/5334 Yeneena E45/3768 Yeneena E45/5379 Yeneena E45/5686 Yeneena ELA45/5630 Yeneena E45/4613 Lamil Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Paterson Cu/Au 117.8 IGO Limited 100% IGO earning up to 70% 50.95 Encounter Operations Pty Ltd 75%* 156 IGO Limited 95.4 IGO Limited 85.8 IGO Limited 35 IGO Limited 328 IGO Limited 127.2 IGO Limited 102.1 IGO Limited 149.7 IGO Limited 235.3 IGO Limited 100% IGO earning up to 70% 100% IGO earning up to 70% 100% IGO earning up to 70% 100% IGO earning up to 70% 100% IGO earning up to 70% 100% IGO earning up to 70% 100% IGO earning up to 70% 100% IGO earning up to 70% 0% ** Option to Purchase 108.4 Encounter Operations Pty Ltd 100% IGO earning up to 70% 86.6 Encounter Paterson Pty Ltd 60.7 Encounter Paterson Pty Ltd E45/3446 East Thomson’s Dome Paterson 6 Encounter Paterson Pty Ltd P45/2750 East Thomson’s Dome Paterson 198 HA Encounter Paterson Pty Ltd P45/2751 East Thomson’s Dome Paterson 177 HA Encounter Paterson Pty Ltd P45/2752 East Thomson’s Dome Paterson 199 HA Encounter Paterson Pty Ltd P45/3032 East Thomson’s Dome Paterson Encounter Paterson Pty Ltd 113.80 HA 100% 100% 100% 100% 100% 100% 100% 2 0 2 1 A N N U A L R E P O R T 23 03. Summary of Tenements Lease Lease Name Project Name Area km2 Managing Company E80/5132 West Tanami Tanami 381.2 Hamelin Resources Pty Ltd E80/5137 West Tanami Tanami 532.8 Hamelin Resources Pty Ltd E80/5145 West Tanami Tanami 471.3 Hamelin Resources Pty Ltd E80/5146 West Tanami Tanami 277.4 Hamelin Resources Pty Ltd E80/5147 West Tanami Tanami 274.7 Hamelin Resources Pty Ltd E80/5186 West Tanami Tanami 70.96 Hamelin Resources Pty Ltd E80/5323 West Tanami Tanami 100.3 Hamelin Resources Pty Ltd E80/5571 West Tanami Tanami 167.9 Hamelin Resources Pty Ltd E80/5169 Aileron West Arunta 187.6 Encounter Aileron Pty Ltd E80/5469 Aileron West Arunta 534.3 Encounter Aileron Pty Ltd E80/5470 Aileron West Arunta 613.9 Encounter Aileron Pty Ltd E80/5522 Aileron West Arunta 429.2 Encounter Aileron Pty Ltd ELA38/3657 Mt Sefton E30/517 E30/527 EL32156 EL32157 EL32158 EL32159 EL32226 EL32329 EL32437 Rani Rani Elliott Elliott Elliott Elliott Elliott Elliott Elliott Yilgarn Yilgarn Yilgarn 605 Encounter Paterson Pty Ltd 208.8 Baudin Resources Pty Ltd 6 Baudin Resources Pty Ltd Northern Territory 807.26 Baudin Resources Pty Ltd 100% BHP earning up to 75% Northern Territory 696.31 Baudin Resources Pty Ltd 100% BHP earning up to 75% Northern Territory 793.71 Baudin Resources Pty Ltd 100% BHP earning up to 75% Northern Territory 723.9 Baudin Resources Pty Ltd 100% BHP earning up to 75% Northern Territory 813.56 Baudin Resources Pty Ltd 100% BHP earning up to 75% Northern Territory 136.99 Baudin Resources Pty Ltd 100% BHP earning up to 75% Northern Territory 601.11 Baudin Resources Pty Ltd 100% BHP earning up to 75% EL32273 Jessica Northern Territory 750.46 Baudin Resources Pty Ltd EL32317 Jessica Northern Territory 738.6 Baudin Resources Pty Ltd EL32338 Jessica Northern Territory 783.5 Baudin Resources Pty Ltd EL32339 Jessica Northern Territory 791.42 Baudin Resources Pty Ltd 100% 100% 100% 100% 24 E N C O U N T E R R E S O U R C E S L I M I T E D Encounter Interest 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Summary of Tenements 03. Lease Name Project Name Area km2 Managing Company Sandover Northern Territory 795.4 Baudin Resources Pty Ltd Lease EL32374 EL32421 EL32386 EL32387 EL32388 EL32493 EL32476 EL32477 Sandover Northern Territory Zeta Zeta Zeta Playford Carrara Carrara Northern Territory Northern Territory Northern Territory Northern Territory Northern Territory Northern Territory ELA32478 Brunchilly Northern Territory ELA32581 The Oval 1 Northern Territory ELA32686 The Edge Northern Territory ELA32687 The Edge Northern Territory ELA32694 Sandover Northern Territory ELA32695 Sandover Northern Territory 792.67 814.55 814.94 813.76 811.55 805.42 805.21 798.52 493.6 820.3 819.1 792.71 787.39 ELA32701 Carrara Northern Territory ELA32703 The Oval Northern Territory ELA32721 Broadmere Northern Territory ELA32723 Dunmarra Northern Territory ELA32724 Dunmarra Northern Territory ELA32727 Maryfield Northern Territory ELA32728 Maryfield Northern Territory ELA32729 Elliott North Northern Territory ELA32730 Elliott North Northern Territory 801.69 756.11 816.73 823.05 821.54 795.65 826.95 672.64 757.92 Baudin Resources Pty Ltd 100% Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd Encounter Interest 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% ELA32696 Sandover Northern Territory 763.6 Baudin Resources Pty Ltd Baudin Resources Pty Ltd Baudin Resources Pty Ltd 100% ELA32813 Carrara Northern Territory 22.72 Baudin Resources Pty Ltd * Tenement subject to Hampton Hill JV (only includes 4 eastern blocks on E45/2500) see ASX announcement April 23, 2015 ** Shumwari Option IGO JV Summary of tenements as of 30th September 2021. 2 0 2 1 A N N U A L R E P O R T 25 04. 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 2021. 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 explorers, Black Cat Syndicate Limited (ASX:BC8), Dreadnought Resources Limited (ASX:DRE) and Queensland focussed explorer Sunshine Gold Limited (ASX:SHN). 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-five 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 former president of the resources industry advocacy body, the Association of Mining and Exploration Companies (AMEC) a member of the Strategic Advisory Board at the Centre for Exploration Targeting University of Western Australia and was a member of the Australian Government’s Resources 2030 Taskforce. Mr Robinson is a non-executive director of Hampton Hill Mining NL. 26 ENCOUNTER RESOURCES LIMITED Directors’ Report04. 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. Mr Bewick is currently a non- executive director of Mincor Resources Limited (ASX:MCR). Jonathan Hronsky OAM - BAppSci, PhD, MAusIMM, FSEG Non-executive director appointed 10 May 2007 Dr. Hronsky has more than thirty 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 former 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 until its acquisition by Oz Minerals Limited in 2020 and a director of Azumah Resources Limited between 7 November 2019 to its delisting on 19 February 2020. Dr Hronsky is currently a non-executive director of Caspin Resources Limited (ASX:CPN). Philip Crutchfield – B. Comm, LL.B (Hons), LL.M LSE Non-executive director appointed 9 October 2019 Mr Crutchfield is a prominent and highly respected barrister specialising in commercial law. Philip was Non-Executive Chairman of highly successful financial services company Zip Co Limited (ASX:Z1P) (resigned 2nd March 2021) and is a non-executive director of Applyflow Limited (ASX:AFW). Mr Crutchfield joined the Board of Western Australian gold focused Black Cat Syndicate Limited (ASX:BC8) on 6 April 2021. Mr Crutchfield is a board member of the Bell Shakespeare Theatre Company and the Victorian Bar Foundation Limited. Philip is also a former partner of Mallesons Stephen Jaques (now King & Wood Mallesons). 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. 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. 27 2021 ANNUAL REPORTDirectors’ Report04. 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 P Crutchfield Directors’ Interests in Ordinary Shares Directors’ Interests in Unlisted Options Options vested at the reporting date 9,948,816 25,695,414 7,950,000 475,714 3,040,557 1,570,000 1,100,000 4,850,000 1,470,000 2,270,000 1,570,000 1,100,000 4,850,000 1,470,000 2,270,000 Included in the Directors’ Interests in Unlisted Options are 11,260,000 options that are vested and exercisable as at the date of signing this report. Principal Activities The principal activity of the Company during the financial year was project generation, mineral exploration and project development in Western Australia and the Northern Territory. There were no significant changes in these activities during the financial year. Directors’ Meetings The number of meetings of the Company’s Directors held during the year ended 30 June 2021, and the number of meetings attended by each Director are as follows: Director P Chapman W Robinson P Bewick J Hronsky P Crutchfield Results of Operations Board of Directors’ Meetings Held Attended 8 8 8 8 8 8 8 8 8 8 The consolidated net loss after income tax for the financial year was $1,533,150 (2020: $1,126,275). Included in the consolidated loss for the current year is a write-off of deferred and uncapitalised exploration and joint venture expenditure totalling $296,128 (2020: $284,403). During the financial year the Group received $6,299,997 on the placement of 33,157,879 shares at $0.19 per share and issued a further 2,273,677 shares on the exercise of options at various prices. 28 ENCOUNTER RESOURCES LIMITED Directors’ Report04. Review of Activities Exploration Encounter’s primary focus is on discovering major gold and copper deposits in Australia. Encounter’s exploration activities during the year were directed towards: • A series of camp scale, first mover copper opportunities in the Northern Territory. This includes the Elliott copper project which is being advanced in partnership with BHP via a $22m earn-in and joint venture; • A large project portfolio in the Paterson Province of WA where it is exploring for copper-gold deposits at its 100% owned Lamil Project and for copper-cobalt deposits at the Yeneena project with IGO Limited (ASX:IGO); • The Aileron IOCG project in the West Arunta in WA which Encounter regained 100% control of in February 2021 following the withdrawal of Newcrest from the Aileron joint venture; and • An extensive land position in the West Tanami region covering over 100km of strike along a major prospective structural corridor in WA which Encounter intends to demerge into a new company, “Hamelin Gold Limited” and post demerger, Hamelin will seek to list on ASX. Financial Position At the end of the financial year the Group had $5,686,505 (2020: $1,865,502) in cash and term deposits. Capitalised mineral exploration and evaluation expenditure is $15,212,300 (2020: $13,963,789). Significant Changes in the State of Affairs Other than stated 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 Group entered into a farm-in and joint venture agreement with BHP Group Ltd in relation to the Elliott copper project in the Northern Territory pursuant to which BHP may earn up to a 75% interest in the Elliott project by spending $22 million over 10 years. Matters Subsequent to the End of the Financial Year The impact of the Coronavirus (COVID-19) pandemic is ongoing and while it has delayed the commencement of certain exploration programs, is has not materially financially impacted the Group up to 30 June 2021. It is not practicable to estimate the potential impact, positive or negative, after the reporting date. • Subsequent to the end of the financial year the Group announced the intention to demerge the West Tanami Gold project and distribute its shares in the proposed listing vehicle, Hamelin Gold Limited (a wholly owned subsidiary of Encounter Resources Limited), to eligible Encounter Resources shareholders on a pro-rata basis. Effective 14 September 2021 the Company has undertaken an internal restructure within the Group such that Hamelin Resources Pty Ltd, holding solely the West Tanami Gold Project assets, has been acquired by Hamelin Gold Limited in preparation for the proposed demerger. The Carrying value of the West Tanami Gold Project capitalised exploration assets amounting to $135,636, has been reclassified as Assets Reclassified as Held for Sale to reflect the intention of the assets to depart the Encounter Group on demerger. A notice of meeting for the Company’s shareholders to approve the demerger and also an Initial Public Offer prospectus was lodged with ASX on 17 September 2021. On successful completion of the proposed demerger and subsequent Initial Public Offer of Hamelin Gold Limited, a return of capital in the form of an in-specie distribution of 60,000,000 shares (with a fair value of $12,000,000) in Hamelin Gold Limited will be made to eligible shareholders. 29 2021 ANNUAL REPORTDirectors’ Report04. Matters Subsequent to the End of the Financial Year (Continued) Other than as already stated in this report, 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. Options over Unissued Capital Unlisted Options As at the date of this report 16,700,000 unissued ordinary shares of the Company are under option as follows: Number of Options Granted Exercise Price 750,000 425,000 475,000 2,900,000 1,500,000 5,050,000 650,000 1,500,000 2,450,000 1,000,000 17.5 cents 10.5 cents 10 cents 9 cents 12 cents 20 cents 22 cents 22.8 cents 26 cents 25 cents Expiry Date 24 November 2021 1 November 2021 31 May 2022 30 November 2022 30 November 2023 31 October 2023 30 June 2024 30 October 2021 26 November 2024 30 April 2025 All options on issue at the date of this report are vested and exercisable. No options on issue are listed. During the financial year: • 5,850,000 options (2020: 5,300,000) were granted over unissued shares of the Company; • 500,000 options (2020: nil) were cancelled on the cessation of employment; • nil options (2020: 1,075,000) were cancelled on expiry of the exercise period; and • 2,600,000 (2020: Nil) options were exercised. Included in options exercised is an amount of 326,323 options foregone in consideration given on exercise (2020: Nil). Since the end of the financial year: • nil (2020: 900,000) options have been issued by the Company to employees pursuant to the Company’s Employee Option Plan; • 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. 30 ENCOUNTER RESOURCES LIMITED Directors’ Report04. Issued Capital Number of Shares on Issue Ordinary fully paid shares 2021 316,256,523 2020 280,824,968 Likely Developments and Expected Results of Operations The Group expects to maintain exploration programs at its 100% owned Paterson copper-gold project, Northern Territory base metals projects and West Arunta IOCG project. In addition, the Group will continue to collaborate with its partners at the Yeneena copper-cobalt-zinc projects (with IGO Limited) and at the Elliott copper project in the Northern Territory (BHP Group) pursuant to farm-in and joint venture arrangements. Subsequent to the end of the financial year the Group announced the intention to demerge the West Tanami Gold project and distribute its shares in the proposed listing vehicle, Hamelin Gold Limited (a wholly owned subsidiary of Encounter Resources Limited), to eligible Encounter Resources shareholders on a pro-rata basis. 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. Dividends No dividend has been paid since the end of the previous financial year and no dividend is recommended for the current year. 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 financial position of the Company and 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. 31 2021 ANNUAL REPORTDirectors’ Report04. Remuneration Report (Audited)(Continued) 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 4. Non-executive directors are offered an annual election to receive cash remuneration or an equivalent amount in unlisted options. The annual election relates to the remuneration period from 1 December to 30 November of the relevant year and is subject to approval by the Company’s shareholders. 5. 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 $300,000 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 30 November 2018. 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. 32 ENCOUNTER RESOURCES LIMITED Directors’ Report04. Engagement of Non-Executive Directors Non-Executive Directors conduct their duties under the following terms: 1. A Non-Executive Director may resign from their 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 Mr Paul Chapman as Non-Executive Chairman, Dr Jon Hronsky and Mr Philip Crutchfield as Non-Executive Directors, the Company pays them $50,000 plus statutory superannuation per annum. Non-Executive Directors 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. During the year the Group incurred costs of $13,800 (2020: nil), for geological consulting services from Western Mining services, an entity associated with Dr Jon Hronsky. For the period 1 December 2020 to 30 November 2021, Non-Executive Directors Mr Paul Chapman and Mr Philip Crutchfield elected to receive options in lieu of directors’ fees paid in cash. A total of 800,000 options were issued in respect of this election following shareholder approval at the Company’s 2020 annual general meeting (for further details refer to the notice of meeting lodged with ASX on 26 October 2020). 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 1 October 2019. Mr Robinson will receive a base salary of $270,000 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 1 October 2019. 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. Either party may give the other six months notice in writing to terminate the Services Agreement or with payment or forfeiture in lieu. The Company may terminate the respective services agreements without notice for serious misconduct by Mr Robinson or Mr Bewick. 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. Shareholding Qualifications The Directors are not required to hold any shares in Encounter Resources under the terms of the Company’s constitution. However, Directors have made their own investment decisions to hold shares in Encounter Resources which are shown in this report. 33 2021 ANNUAL REPORTDirectors’ Report04. Remuneration Report (Audited)(Continued) 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 2021 2020 2019 2018 2017 $(1,533,150) $(1,126,275) $(1,064,491) $(10,129,591) $(1,313,269) Closing share price at 30 June $0.155 $0.15 $0.07 $0.053 $0.115 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 2021 financial period to include: • corporate management and business development (including the identification and acquisition of high quality projects); • project and operational performance (including safety and environmental management); • management of the Company’s farm-in and alliance arrangements; and • cash flow and funding management. 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 Mr Philip Crutchfield Non-Executive Director The details of the remuneration of each Director and member of Key Management Personnel of the Company is as follows: 30 June 2021 Base Salary Short Term Incentive Superannuation Contributions Value of Options Short Term Post Employment Other Long Term $ - 270,000 264,288 50,000 - $ - 47,250 47,250 - - $ - 25,650 25,107 4,750 - $ 66,297 46,524 46,524 19,773 66,297 584,288 94,500 55,507 245,415 979,710 Value of Options as Proportion of Remuneration 100.0% 11.9% 12.1% 26.5% 100.0% Total $ 66,297 389,424 383,169 74,523 66,297 Paul Chapman Will Robinson Peter Bewick Jon Hronsky Philip Crutchfield Total 34 ENCOUNTER RESOURCES LIMITED Directors’ Report04. 30 June 2020 Paul Chapman Will Robinson Peter Bewick Jon Hronsky Philip Crutchfield Total Short Term Post Employment Other Long Term Base Salary $ 23,333 264,442 267,314 50,000 4,167 609,256 Short Term Incentive Superannuation Contributions Value of Options $ - 13,500 13,500 - - 27,000 $ 2,217 25,122 25,395 4,750 396 57,880 $ 70,800 49,560 49,560 21,240 120,360 311,520 Total $ Value of Options as Proportion of Remuneration 96,350 352,624 355,769 75,990 124,923 1,005,656 73.5% 14.0% 13.9% 28.0% 96.3% Details of Performance Related Remuneration During the period, short term incentive payments were paid to the executive directors as follows: Will Robinson Peter Bewick Short term incentive payments - cash bonuses paid 2020/21 financial year 2019/20 financial year $47,250 $47,250 $13,500 $13,500 Equity instrument disclosures relating to key management personnel Options Granted as Remuneration During the financial year ended 30 June 2021 2,110,000 (2020: 4,400,000) were granted to Directors or Key Management Personnel of the Company, as follows: Options issued in lieu of payment of director fees: Paul Chapman Philip Crutchfield Incentive options: Paul Chapman Will Robinson Peter Bewick Jon Hronsky Philip Crutchfield 400,000 400,000 170,000 400,000 400,000 170,000 170,000 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. Exercise of Options Granted as Remuneration During the year, 1,025,714 (2020: nil) ordinary shares were issued in respect of the exercise of options previously granted as remuneration to Directors or Key Management Personnel of the Company, as follows: KMP Peter Bewick Jon Hronsky Number of shares issued on exercise of options 750,000 275,7141 Option details Options exercisable at $0.13 expiring 18 November 2020 1. 275,714 ordinary fully paid shares issued on the exercise of 500,000 options pursuant to the cash less exercise provisions of the options. 35 2021 ANNUAL REPORTDirectors’ Report04. Remuneration Report (Audited)(Continued) Option holdings Key Management Personnel have the following interests in unlisted options over unissued shares of the Company: 2021 Name P. Chapman W. Robinson P. Bewick J. Hronsky P. Crutchfield 2020 Name P. Chapman W. Robinson P. Bewick J. Hronsky P. Crutchfield Balance at start of the year Received during the year as remuneration Other changes during the year1 Balance at the end of the year 1,000,000 700,000 5,200,000 1,800,000 1,700,000 570,000 400,000 400,000 170,000 570,000 - - (750,000) (500,000) - 1,570,000 1,100,000 4,850,000 1,470,000 2,270,000 Balance at start of the year Received during the year as remuneration Other changes during the year1 Balance at the end of the year - - 5,250,000 1,500,000 1,000,000 700,000 700,000 300,000 - 1,700,000 - - (750,000) - - 1,000,000 700,000 5,200,000 1,800,000 1,700,000 Vested and exercisable at the end of the year 1,570,000 1,100,000 4,850,000 1,470,000 2,270,000 Vested and exercisable at the end of the year 1,000,000 700,000 5,200,000 1,800,000 1,700,000 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. 2021 Name P. Chapman W. Robinson P. Bewick J. Hronsky P. Crutchfield 2020 Name P. Chapman W. Robinson P. Bewick J. Hronsky P. Crutchfield 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 9,422,500 25,169,098 7,200,000 200,000 2,514,241 - - 750,000 275,714 - 526,316 526,316 - - 526,316 9,948,816 25,695,414 7,950,000 475,714 3,040,557 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 8,622,500 24,769,098 6,800,000 200,000 - - - - - - 800,000 400,000 400,000 - 2,514,2411 9,422,500 25,169,098 7,200,000 200,000 2,514,241 1. Shares held as at the date of appointment as a director. 36 ENCOUNTER RESOURCES LIMITED Directors’ Report04. 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 During the year the Group incurred costs of $13,800, for geological consulting services from Western Mining services, an entity associated with Dr Jon Hronsky. 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. 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 Perth the Company’s auditor, has not performed any other services in addition to their statutory duties. The total remuneration paid to Crowe Perth for 2021 includes audits of the subsidiary companies Hamelin Gold Limited for the period ended 30 June 2021 and Hamelin Resources Pty Ltd for the three financial years ended 30 June 2019, 2020 and 2021, undertaken as part of the proposed demerger of Hamelin Gold Limited as described in note 29. Total remuneration paid to auditors during the financial year: Audit and review of the Company’s financial statements 2021 $ 54,750 2020 $ 32,000 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. 37 2021 ANNUAL REPORTDirectors’ Report04. 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 30th day of September 2021. W Robinson Managing Director 3838 E N C O U N T E R R E S O U R C E S L I M I T E D Directors’ DeclarationENCOUNTER RESOURCES LIMITED Auditor’s Independence Declaration Auditor’s Independence Declaration DECLARATION OF INDEPENDENCE BY SUWARTI ASMONO TO THE DIRECTORS OF ENCOUNTER RESOURCES LIMITED As lead auditor for the audit of Encounter Resources Limited for the year ended 30 June 2021, 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 (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Encounter Resources Limited and the entities it controlled during the year. Crowe Perth Suwarti Asmono Partner Dated at Perth this 30th day of September 2021 Findex (Aust) Pty Ltd, trading as Crowe Australasia is a member of Crowe Global, a Swiss verein. Each member firm of Crowe Global is a separate and independent legal entity. Findex (Aust) Pty Ltd and its affiliates are not responsible or liable for any acts or omissions of Crowe Global or any other member of Crowe Global. Crowe Global does not render any professional services and does not have an ownership or partnership interest in Findex (Aust) Pty Ltd. Services are provided by Crowe Perth, an affiliate of Findex (Aust) Pty Ltd. © 2021 Findex (Aust) Pty Ltd 2 0 2 1 A N N U A L R E P O R T 39 Consolidated Financial Statements For the Year Ended 30 June 2021 40 E N C O U N T E R R E S O U R C E S L I M I T E D Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Profit or Loss and Other Comprehensive Income For the financial year ended 30 June 2021 Interest income Other income Total income Employee expenses Employee expenses recharged to exploration Equity based remuneration expense Non-executive Directors’ fees (Loss)/Gain in fair value of financial assets Profit/(loss) on disposal of fixed assets Profit/(loss) on disposal of exploration assets Depreciation and amortisation 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 Consolidated 2021 $ 17,660 215,555 233,215 2020 $ 38,930 96,529 135,459 (1,345,583) (1,146,709) 1,121,452 (466,124) (50,000) (202,162) - - (24,678) (78,520) (424,622) (296,128) 933,396 (375,240) (77,500) 276,740 19,545 (130,430) (633) (71,613) (404,887) (284,403) (1,553,150) (1,126,275) - - (1,533,150) (1,126,275) - - (1,533,150) (1,126,275) (0.5) (0.5) (0.4) (0.4) Note 5 21 6,11 6 6,15 7 21 31 31 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 2 0 2 1 A N N U A L R E P O R T 41 Consolidated Statement of Financial Position As at 30 June 2021 Current assets Cash and cash equivalents Trade and other receivables Other current assets Assets reclassified as held for sale Total current assets Non-current assets Security bonds and deposits Financial assets Property, plant and equipment Capitalised mineral exploration and evaluation expenditure Right of use assets - leases Total non-current assets Total assets Current liabilities Trade and other payables Employee benefits Lease Liabilities Total current liabilities Total non-current liabilities Lease Liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Accumulated losses Equity remuneration reserve Total equity Note 8 9(a) 9(b) 29 11 12 14 13 16 17 18 18 19 21 21 Consolidated 2021 $ 2020 $ 5,686,505 1,865,502 330,291 72,787 135,636 57,888 147,994 - 6,225,219 2,071,384 75,652 566,561 64,238 - 768,723 85,195 15,212,300 13,963,789 174,493 16,093,244 22,318,463 - 14,817,707 16,889,091 322,703 310,971 60,469 694,143 116,954 116,954 811,097 241,014 313,175 - 554,189 - - 554,189 21,507,366 16,334,902 50,000,566 43,828,235 (29,535,096) (28,069,977) 1,041,896 21,507,366 576,644 16,334,902 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 42 ENCOUNTER RESOURCES LIMITED Consolidated Statement of Financial Position $ $ Consolidated Statement of Changes in Equity For the financial year ended 30 June 2021 2020 Issued capital $ Balance at the start of the financial year 42,465,654 (27,011,196) 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: - - - Consolidated Accumulated \losses Equity remuneration reserve $ 268,898 - (1,126,275) - 375,240 Total $ 15,723,356 (1,126,275) 375,240 67,494 (67,494) - Shares issued (net of costs) 1,362,581 - - Balance at the end of the financial year 43,828,235 (28,069,977) 576,644 1,362,581 16,334,902 2021 Issued capital $ Balance at the start of the financial year 43,828,235 (28,069,977) Consolidated Accumulated losses Equity remuneration reserve (1,533,150) - - - 582,398 $ 576,644 - Total $ 16,334,902 (1,533,150) 582,398 49,115 68,031 (117,146) - Comprehensive income for the financial year Movement in equity remuneration reserve in respect of options vested Transfer on exercise and/or cancellation of vested options Transactions with equity holders in their capacity as equity holders: Shares issued (net of costs) 6,123,216 - - Balance at the end of the financial year 50,000,566 (29,535,096) 1,041,896 6,123,216 21,507,366 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 43 Consolidated Statement of Changes in Equity2021 ANNUAL REPORT Consolidated Statement of Cash Flows For the financial year ended 30 June 2021 Cash flows from operating activities Other income Interest received Payments to suppliers and employees Net cash used in operating activities Cash flows from investing activities Payments for security bonds and deposits Contributions received from project generation alliance and farm-in partners Payments for exploration and evaluation State Government funded drilling rebate R&D tax concession for exploration activities Proceeds from sale of fixed assets Proceeds from sale of exploration assets Payments for plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from the issue of shares Payments for share issue costs Repayment of Lease Liability Net cash from financing activities Net increase/(decrease) in cash held Cash at the beginning of the financial year Cash at the end of the financial year Consolidated 2021 $ 71,069 17,660 (800,669) (711,940) (75,652) 2,466,184 2020 $ 55,578 38,930 (742,316) (647,808) - 663,223 (4,420,473) (2,360,289) 239,715 117,377 - - (9,768) 120,000 253,168 19,545 60,000 (85,197) (1,682,617) (1,329,550) 6,524,997 (285,508) (23,929) 6,215,560 3,821,003 1,865,502 5,686,505 1,383,740 (21,160) - 1,362,580 (614,778) 2,480,280 1,865,502 Note 30 8(a) The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 44 ENCOUNTER RESOURCES LIMITED Consolidated Statement of Cash Flows Notes to the Financial Statements Note 1 Summary of significant accounting policies 46 Note 16 Current liabilities – Trade and other payables 63 Note 2 Financial risk management Note 3 Critical accounting estimates and judgements Note 4 Segment information Note 5 Other income Note 6 Loss for the year Note 7 Income tax 52 53 53 54 54 54 Note 8 Current assets – Cash and cash equivalents 56 Note 9 Current assets – Receivables Note 10 Non-current assets – Investment in controlled entities Note 11 Financial assets – Investments Designated at Fair Value through Profit or Loss Note 12 Non-current assets – Property, plant and equipment Note 13 Non-current assets – Right of use assets - leases Note 14 Non-current assets – Capitalised mineral exploration and evaluation expenditure Note 15 Interest in joint ventures and farm-in arrangements 57 58 59 60 61 61 62 Note 17 Current liabilities – Employee benefits Note 18 Current liabilities – Lease liabilities Note 19 Issued capital Note 20 Options and share based payments Note 21 Reserves and accumulated losses Note 22 Financial instruments Note 23 Dividends Note 24 Key management personnel disclosures Note 25 Remuneration of auditors Note 26 Contingencies Note 27 Commitments Note 28 Related party transactions 63 63 64 65 66 67 68 69 69 70 70 71 Note 29 Events occurring after the balance sheet date 71 Note 30 Reconciliation of loss after tax to net cash inflow from operating activities Note 31 Earnings per share Note 32 Parent entity information 72 72 73 45 Notes to the Financial Statements2021 ANNUAL REPORT Note 1 Summary of significant accounting policies 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. (a) 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. (b) Other income Interest income Interest income is recognised on a time proportion basis and is recognised as it accrues. Option fee income Recognised for option fee income at such time that the option fee becoming receivable by the Company occurs. Management fee income Recognised for management fees from farm-in and alliance partners during the period in which the Company provided the relevant service. 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”). 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 30th September 2021. 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 these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group during the financial year. New standards and interpretations not yet adopted The AASB has issued new and amended Accounting Standards and Interpretations that have mandatory application date for future reporting periods and which the Group has decided not to early adopt. Reporting basis and conventions 46 Notes to the Financial StatementsENCOUNTER RESOURCES LIMITED (c) 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. (d) Lease Liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the consolidated entity’s incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. (e) Right of use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. (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. 47 Notes to the Financial Statements2021 ANNUAL REPORT Note 1 Summary of significant accounting policies (Continued) (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. 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 Depreciation Rate Field equipment and vehicles Office equipment 33% 33% Leasehold improvements 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) Non-Current Assets Classified as Held for Sale Non-current assets that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. They are measured at the lower of their carrying amount and fair value less cost to sell. For assets to be classified as held for sale, they must be available for immediate sale in their present condition and their sale must be highly probable. Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of assets held for sale continue to be recognised. Assets classified as held for sale are presented separately on the face of the statement of financial position, in current assets. (l) 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. 48 Notes to the Financial StatementsENCOUNTER RESOURCES LIMITED 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. 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. (m) 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 15. (n) 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. (o) 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. 49 Notes to the Financial Statements2021 ANNUAL REPORT Note 1 Summary of significant accounting policies (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. (p) 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. (q) 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 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. (s) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (t) Investments and other financial assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless, an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, it’s carrying value is written off. Financial assets at fair value through profit or loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: 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. (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss. (r) Goods and services tax (GST) Impairment of financial assets 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. The consolidated entity recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the 50 Notes to the Financial StatementsENCOUNTER RESOURCES LIMITED loss allowance depends upon the consolidated entity’s assessment at the end of each reporting period as to whether the financial instrument’s credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset’s lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. 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. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset’s lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. 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 financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss. (u) 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: 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. (v) Current versus non-current classification The Group presents assets and liabilities in the statement of financial position based on a current or non-current classification. An asset is current when it is: • Expected to be realized, or intended to be sold or consumed in the Group’s normal operating cycle; • Expected to be realized within twelve months after the reporting period; or • Cash or a cash equivalents (unless restricted for at least twelve months after the reporting period. A liability is current when it is: • Expected to be settled in the Group’s normal operating cycle; • It is due to be settled within twelve months after the reporting date; or • There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. All other assets and liabilities are classed as non-current. 51 Notes to the Financial Statements2021 ANNUAL REPORT Note 2 Financial risk management (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. 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 2021 of $566,561 (2020: $768,723). The investment is classified at fair value through profit or loss and as such any movement in the 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. 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. 52 Notes to the Financial StatementsENCOUNTER RESOURCES LIMITED 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. The judgements estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: 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. Accounting for capitalised exploration and evaluation expenditure The reportable segment is represented by the primary statements forming these financial statements. The Group’s accounting policy is stated at 1(l). There is some subjectivity involved in the carrying forward as capitalised or writing off to the income statement exploration and evaluation expenditure. Key judgements applied include determining which expenditures relate directly to exploration and evaluation activities and allocating overheads between those that are expensed and capitalised. 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 20 for details of inputs into option pricing models in respect of options issued during the reporting period. Coronavirus (COVID-19) pandemic Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the Group based on known information. This consideration extends to the nature of the Group’s activities, staffing and geographic regions in which the Group operates. Whilst there has been delay to the commencement of certain exploration activities, there does not currently appear to be direct material impact upon the financial statements as at the reporting date as a result of the Coronavirus (COVID-19) pandemic. 53 Notes to the Financial Statements2021 ANNUAL REPORT Note 5 Other income Operating activities Cash flow assistance grant Management fees from farm-in and project generation alliance partners Other income Note 6 Loss for the year Consolidated 2021 $ 67,500 144,486 3,569 215,555 2020 $ 50,000 42,001 4,528 96,529 Loss before income tax includes the following specific benefits/(expenses): Depreciation and amortisation: Office equipment Right of use assets – leases Total exploration and joint venture costs not capitalised and written off Superannuation expense – defined contribution (Loss)/Gain in fair value of financial assets1 Note 12 13 14 Consolidated 2021 $ (2,866) (21,812) (24,678) (296,128) (109,895) (202,162) 2020 $ (633) - (633) (284,403) (101,566) 276,740 1. Adjustment to carrying value of investment in Hampton Hill NL, based on the Company’s share of net assets as at 30 June 2021. 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: Relating to origination and reversal of timing differences Deferred income tax benefit/(liability) not recognised Income tax expense/(benefit) reported in the income statement 54 Consolidated 2021 $ 2020 $ (552,721) 552,721 (649,960) 649,960 (6,022) 6,022 - 1,172,779 (1,172,779) - Notes to the Financial StatementsENCOUNTER RESOURCES LIMITED b) Reconciliation of income tax expense to prima facie tax payable Profit/(Loss) from continuing operations before income tax expense Tax at the Australian rate of 26% (2020 – 27.5%) 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 c) Deferred tax – Balance Sheet Liabilities Prepaid expenses Exploration assets reclassified as held for sale Capitalised exploration expenditure Assets Consolidated 2021 $ (1,533,150) (398,619) 2020 $ (1,126,275) (309,726) 121,192 52,562 2,077 (29,603) 252,391 - 103,191 (76,103) 13,036 (10,452) 280,054 - (18,924) (35,265) (3,955,198) (4,009,387) (40,698) - (3,840,042) (3,880,740) Revenue losses available to offset against future taxable income 9,157,880 9,107,450 Employee provisions Accrued expenses Deductible equity raising costs Net deferred tax asset not recognised 80,852 13,433 92,442 9,344,607 5,335,220 86,123 9,813 18,596 9,221,981 5,341,241 55 Notes to the Financial Statements2021 ANNUAL REPORT Note 7 Income tax (Continued) d) Deferred tax – Income Statement Liabilities Prepaid expenses Exploration assets reclassified as held for sale Capitalised exploration expenditure Assets Deductible equity raising costs Accruals Increase/(decrease) in tax losses carried forward Employee provisions Deferred tax benefit/(expense) movement for the period not recognised The deferred tax benefit of tax losses not brought to account will only be obtained if: Consolidated 2021 $ 21,774 (35,265) (115,156) 73,846 3,620 50,430 (5,271) (6,022) 2020 $ 336 - (262,689) (4,725) 8,724 1,431,661 (528) 1,172,779 (i) The Company derives future assessable income of a nature and an amount sufficient to enable the benefit from the tax losses to be realised; (ii) The Company continues to comply with the conditions for deductibility imposed by tax legislation; and (iii) No changes in tax legislation adversely affect the Company realising the benefit from the deduction of the losses. All unused tax losses were incurred by Australian entities. The Company intends to issue Junior Mineral Exploration Incentive (JMEI) credits to eligible shareholders in respect of the 2021 financial year. Note 8 Current assets - Cash and cash equivalents Cash at bank and on hand Term Deposits Consolidated 2021 $ 486,505 5,200,000 5,686,505 2020 $ 488,373 1,377,129 1,865,502 (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 5,686,505 1,865,502 (b) Term Deposits Amounts classified as term deposits are short term deposits with maturity of three months or less, and earn interest at the respective short term interest rates. 56 Notes to the Financial StatementsENCOUNTER RESOURCES LIMITED (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 26 Consolidated 2021 $ - 2020 $ 23,000 The security deposit in relation to the Group’s lease on its office at 1 Alvan Street, Subiaco, Western Australia of $25,652 is included in non-current assets. An amount of $50,000 held on deposit in relation to the Group’s corporate credit card facility is included in non-current assets. The Company recognises liabilities in the financial statements for unspent farm-in contributions (Note 16). Note 9 Current assets – Receivables a) Trade and other receivables Funds due from project generation and farm-in partners Trade and other receivables GST recoverable b) Other current assets Prepaid administration costs Prepaid tenement costs Details of fair value and exposure to interest risk are included at note 22. Consolidated 2021 $ 100,824 227,346 2,121 330,291 5,982 66,805 72,787 2020 $ 6,927 41,271 9,690 57,888 - 147,994 147,994 57 Notes to the Financial Statements2021 ANNUAL REPORT 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 at 30 June 2021: Encounter Operations Pty Ltd Hamelin Resources Pty Ltd Encounter Yeneena Pty Ltd Baudin Resources Pty Ltd Hamelin Gold Limited Hamelin Tanami Pty Ltd1 1. Hamelin Tanami Pty Ltd is a wholly owned subsidiary of Hamelin Gold Limited. Subsidiary Company Encounter Operations Pty Ltd Hamelin Resources Pty Ltd Encounter Yeneena Pty Ltd Baudin Resources Pty Ltd Hamelin Gold Limited Hamelin Tanami Pty Ltd Country of Incorporation Australia Australia Australia Australia Australia Australia Consolidated 2021 2020 $ 2 2 2 10 1 1 Ownership Interest 2021 100% 100% 100% 100% 100% 100% $ 2 2 2 10 - - 2020 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. • Hamelin Gold Limited was incorporated in Western Australia on 24 May 2021. • Hamelin Tanami Pty Ltd was incorporated in Western Australia on 26 May 2021. The ultimate controlling party of the group is Encounter Resources Limited. Subsequent to the end of the year two further companies were formed as wholly owned subsidiaries of Encounter Resources Limited: • Encounter Paterson Pty Ltd was incorporated in Western Australia on 9 July 2021. • Encounter Aileron Pty Ltd was incorporated in Western Australia on 9 July 2021. 58 Notes to the Financial StatementsENCOUNTER 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 Baudin Resources Pty Ltd 2021 $ 22,096,992 5,939,158 881,285 478,143 2020 $ 22,051,111 4,944,451 881,285 120,661 The loans to Encounter Operations Pty Ltd, Hamelin Resources Pty Ltd, Encounter Yeneena Pty Ltd and Baudin Resources 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 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 2021 $ 768,723 (202,162) 566,561 2020 $ 491,983 276,740 768,723 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 the Company’s share of net assets. The (loss)/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 3 in the fair value measurement hierarchy, refer accounting policy 1(u). 59 Notes to the Financial Statements2021 ANNUAL REPORT 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 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. 60 Consolidated 2021 $ 805,219 (749,504) 55,715 2020 $ 805,219 (721,645) 83,574 121,938 (113,415) 8,523 112,170 (110,549) 1,621 - - - 22,137 (22,137) - 64,238 85,195 Consolidated 2021 $ 83,574 - (27,859) 55,715 1,621 9,768 (2,866) 8,523 2020 $ 35,818 84,133 (36,377) 83,574 1,191 1,063 (633) 1,621 Notes to the Financial StatementsENCOUNTER RESOURCES LIMITED Note 13 Non-current assets – Right of use assets - leases Leases Carrying value at start of the year ROU assets recognised in the year Amortisation charged Carrying value at end of the year Consolidated 2021 $ - 196,305 (21,812) 174,493 2020 $ - - - - A right of use asset has been recognised in respect of the Group’s lease of its office at Suite 2, 1 Alvan Street, Subiaco, Western Australia. The lease is for a term of three years commencing 1 March 2021 with an option to extend for three further years. Management have determined that based on all available information, it is not reasonably certain that they will exercise the option to renew the lease at the end of the initial three-year term. Refer to Note 18 for details of the corresponding right of use liability arising from the above mentioned lease. Note 14 Non-current assets – Capitalised mineral exploration and evaluation expenditure In the exploration and evaluation phase Consolidated 2021 $ 2020 $ Capitalised exploration costs at the start of the period 13,963,789 13,008,555 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 1,902,054 (239,715) (117,700) (296,128) 1,612,805 (120,000) (253,168) (284,403) Capitalised exploration costs at the end of the period 15,212,300 13,963,789 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. (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. 61 Notes to the Financial Statements2021 ANNUAL REPORT Note 15 Interest in joint ventures and farm-in arrangements Earn-in and Joint Venture Agreement – Elliott Copper Project (“Elliott”)– BHP Group Ltd (BHP) The key terms for the farm-in and joint venture agreement are: • Staged farm-in where BHP has the right to earn up to a 75% interest in Elliott by sole funding up to A$22 million of exploration expenditure within 10 years. • Upon BHP completing the earn-in, a 75:25 joint venture will be formed and the parties must contribute funds based on their percentage interest to maintain their respective interests or dilute according to a standard dilution formula. Should a party’s interest dilute to below 10% it shall automatically convert to a net smelter royalty. • During the farm-in phase, BHP has the right to be the Manager of the project. 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. b) Joint Venture and Farm-in Arrangements Millennium Zinc Project – Hampton Hill NL (HHM) Joint Venture Encounter Resources Limited has a 75:25 contributing joint venture with HHM covering 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. • HHM hold a 25% and Encounter holds 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 is the Operator. Earn-in and Joint Venture Agreement - Yeneena Copper-Cobalt Project (“Yeneena”)– IGO Limited NL (IGO) The key terms of the earn-in and joint venture agreement are as follows: • IGO may earn a 70% interest in the project by sole funding $15 million of expenditure over 7 years; • During the earn-in, IGO shall have the right to be the Manager of the project; • Upon IGO completing the earn-in a 70:30 joint venture will be formed, and the parties must contribute funds based on their percentage interest to maintain their respective interests; and • Standard dilution clauses will apply to the parties’ interests. Should a party’s interest dilute to below 10% it shall automatically convert to a Net Smelter Royalty. 62 Notes to the Financial StatementsENCOUNTER RESOURCES LIMITED Note 16 Current liabilities – Trade and other payables Trade payables and accruals Unspent funds advanced by joint venture partner Other payables Consolidated 2021 $ 229,371 40,785 52,547 322,703 2020 $ 174,757 - 66,257 241,014 Liabilities are not secured over the assets of the Group. Details of fair value and exposure to interest risk are included at note 22. Note 17 Current liabilities - Employee benefits Liability for annual leave Liability for long service leave Note 18 Current liabilities – Lease liabilities Leases Carrying value at start of the year Lease liabilities recognised in the year Lease payments made Lease interest charged to profit or loss Carrying value at end of the year Lease liabilities are split between current and non-current liabilities at the balance date as follows: Lease liabilities due < 1 year Lease liabilities due > 1 year Total Lease liabilities Consolidated 2021 $ 112,182 198,789 310,971 2020 $ 112,815 200,360 313,175 Consolidated 2021 $ - 196,305 (23,929) 5,047 177,423 60,469 116,954 177,423 2020 $ - - - - - - - A lease liability has been recognised in respect of the Group’s lease of its office at Suite 2, 1 Alvan Street, Subiaco, Western Australia. Refer to Note 13 for details of the corresponding right of use asset arising from the abovementioned lease. 63 Notes to the Financial Statements2021 ANNUAL REPORT Note 19 Issued capital a) Ordinary shares 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 Issue price 2021 No. 2020 No. 2021 $ 2020 $ Issued share capital 316,256,523 280,824,968 50,000,566 43,828,235 c) Share movements during the year Balance at the start of the financial year Share placement Share placement Exercise of options1 Exercise of options1 Exercise of options1 Exercise of options1 Less share issue costs Balance at the end of the financial year $0.075 $0.19 $0.13 $0.09 $0.10 $0.105 1. Refer Note 20 for details of options exercised. 280,824,968 262,375,092 43,828,235 42,465,654 - 18,449,876 - 1,383,741 33,157,878 1,580,857 192,820 250,000 250,000 - - - - - - - 316,256,523 280,824,968 6,299,997 205,511 17,354 25,000 26,250 (401,781) 50,000,566 - - - - - (21,160) 43,828,235 64 Notes to the Financial StatementsENCOUNTER RESOURCES LIMITED Note 20 Options and share based payments The establishment of the Encounter Resources Limited Employee Share Option Plan (“the Plan”) was last approved by a resolution at the Annual General Meeting of shareholders of the Company on 30 November 2018. 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 5,850,000 options (2020: 5,300,000) over unissued shares. b) Options exercised during the year d) Options on issue at the balance date The number of options outstanding over unissued ordinary shares at 30 June 2021 is 16,700,000 (2020: 13,950,000). The terms of these options are as follows: Number of options outstanding Exercise price Expiry date 750,000 425,000 475,000 2,900,000 1,500,000 5,050,000 650,000 1,500,000 2,450,000 1,000,000 16,700,000 17.5 cents 10.5 cents 10 cents 9 cents 12 cents 20 cents 22 cents 24 November 2021 1 November 2021 31 May 2022 30 November 2022 30 November 2023 31 October 2023 30 June 2024 22.8 cents 30 October 2021 26 cents 25 cents 26 November 2024 30 April 2025 During the financial year the Company issued shares on the exercise of 2,600,000 (2020: Nil) unlisted options, as follows: e) Subsequent to the balance date Number of options exercised Details of options exercised 1,850,000 250,000 250,000 250,000 Exercisable at $0.13 and expiring 18 November 2020 Exercisable at $0.09 and expiring 30 November 2022 Exercisable at $0.10 and expiring 31 May 2022 Exercisable at $0.105 and expiring 1 November 2021 Included in options exercised above is an amount of 326,323 options foregone in consideration given on exercise (2020: Nil). c) Options cancelled during the year During the year 500,000 options (2020: nil) were cancelled upon termination of employment; and nil options (2020: 1,075,000) were cancelled on expiry of exercise period. No (2020: 900,000) 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. Weighted average contractual life The weighted average contractual life for un-exercised options is 22.1 months (2020: 28.4 months). Basis and assumptions used in the valuation of options. The options issued during the year were valued using the Black-Scholes option valuation methodology. 65 Notes to the Financial Statements2021 ANNUAL REPORT Note 20 Options and share based payments (Continued) Date granted 1 Jul 2020 30 Oct 2020 27 Nov 2020 3 May 2021 Number of options granted 900,000 1,500,0002 2,450,000 1,000,000 Exercise price (cents) 22 22.8 26 25 Expiry date 30 Jun 2024 31 Oct 2021 26 Nov 2024 30 Apr 2025 Risk free interest rate used 0.4% 0.7% 0.7% 0.7% Volatility applied1 108.4% 111.6% 110.4% 90.4% Value of Options $87,370 $116,274 $284,960 $93,794 1. Historical volatility has been used as the basis for determining expected share price volatility. 2. Issued in respect of capital raising advisory services. Reconciliation of movement of options over unissued shares during the period including weighted average exercise price (WAEP) 2021 No. WAEP (cents). 2020 $ 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 13,950,000 5,850,000 (2,600,000) (500,000) Options outstanding at the end of the year 16,700,000 14.6 24.4 12.1 21.0 22.1 9,725,000 5,300,000 - (1,075,000) 13,950,000 12.9 20.0 - 25.9 14.6 Included in options exercised above is an amount of 326,323 options foregone in consideration given on exercise (2020: Nil). Note 21 Reserves and accumulated losses Consolidated 2021 2020 Accumulated losses Equity remuneration reserve1 Accumulated losses Equity remuneration reserve (i) Balance at the beginning of the year Profit/(Loss) for the period (28,069,977) (1,553,150) 576,644 (27,011,196) - (1,126,275) $ $ $ $ 268,898 - Movement in equity remuneration reserve in respect of options issued Transfer to accumulated losses on cancellation of options Transfer to share capital on exercise of options - 582,398 - 375,240 68,031 (68,031) 67,494 (67,494) - (49,115) - - Balance at the end of the year (29,535,096) 1,041,896 (28,069,977) 576,644 1. The equity remuneration reserve is used to recognise the fair value of options issued and vested but not exercised. 2. Transfer to issued capital in respect of the deemed exercise price receivable on the exercise of options pursuant to cash less exercise provisions. 66 Notes to the Financial StatementsENCOUNTER RESOURCES LIMITED Note 22 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 14. 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 ($) 2021 2020 $ - $ - 5,686,505 1,865,502 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. 2021 Variable rate instruments 2020 Variable rate instruments Profit or loss Equity 1% increase 1% decrease 1% increase 1% decrease $ 56,865 $ (56,865) $ 56,865 $ (56,865) Profit or loss Equity 1% increase 1% decrease 1% increase 1% decrease $ 18,655 $ (18,655) $ 18,655 $ (18,655) 67 Notes to the Financial Statements2021 ANNUAL REPORT Note 22 Financial instruments (Continued) 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): 2021 Carrying amount Contractual cash flows < 6 months 6-12 months 1-2 years 2-5 years > 5 years Consolidated Trade and other payables 177,704 177,704 177,704 $ $ $ $ - $ - $ - Lease liabilities 177,723 177,723 29,281 355,127 355,127 206,985 31,188 31,188 67,713 67,713 49,241 49,241 $ - - - 2020 Carrying amount Contractual cash flows < 6 months 6-12 months 1-2 years 2-5 years > 5 years Consolidated Trade and other payables 174,757 174,757 174,757 174,757 174,757 174,757 $ $ $ $ - - $ - - $ - - $ - - 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 Financial assets Lease liabilities Trade and other payables Consolidated 2021 2020 Carrying amount Fair value Carrying amount Fair value $ 5,686,505 566,561 (177,723) (177,704) 5,897,639 $ 5,686,505 566,561 (177,723) (177,704) 5,897,639 $ 1,865,502 768,723 - (174,757) 2,459,468 $ 1,865,502 768,723 - (174,757) 2,459,468 The Group’s policy for recognition of fair values is disclosed at note 1(u). Note 23 Dividends No dividends were paid or proposed during the financial year ended 30 June 2020 or 30 June 2021. The Company has no franking credits available as at 30 June 2020 or 30 June 2021. 68 Notes to the Financial StatementsENCOUNTER RESOURCES LIMITED Note 24 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 Philip Crutchfield, 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 2021 $ 678,788 245,415 55,507 979,710 2020 $ 636,256 311,520 57,880 1,005,656 During the year the Group incurred costs of $13,800, for geological consulting services from Western Mining services, an entity associated with Dr Jon Hronsky. Note 25 Remuneration of auditors Audit and review of the Company’s financial statements Consolidated 2021 $ 54,750 2020 $ 32,000 The total remuneration paid to Crowe Perth for 2021 includes audits of the subsidiary companies Hamelin Gold Limited for the period ended 30 June 2021 and Hamelin Resources Pty Ltd for the three financial years ended 30 June 2019, 2020 and 2021, undertaken as part of the proposed demerger of Hamelin Gold Limited as described in note 29. 69 Notes to the Financial Statements2021 ANNUAL REPORT Note 26 Contingencies (i) Contingent liabilities There were no material contingent liabilities not provided for in the financial statements of the Group as at 30 June 2020 or 30 June 2021 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. 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 an unconditional bank guarantee amounting to $25,652 in relation to the lease over the Company’s office premises at Suite 2, 1 Alvan Street, Subiaco, Western Australia. A bank guarantee exists, and a corresponding amount of $50,000 held on deposit, in relation to the Group’s corporate credit card facility. These amounts are not reported as a cash asset in these financial statements, and are classified within bonds in non- current assets. (ii) Contingent assets There were no material contingent assets as at 30 June 2020 or 30 June 2021. Telfer West Production Royalty Note 27 Commitments 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 Lamil Copper-Gold Project. (a) Exploration 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. The Company has entered into the Mineral Exploration and Land Access Deed of Agreement with the Parna Ngururrpa (Aboriginal Corporation) RNTBC in relation to the Aileron project in the West Arunta. The Company has entered into the Tjurabalan Native Title Land Aboriginal Corporation and Hamelin Resources Pty Ltd, Native Title, Heritage Protection and Mineral Exploration Agreement for Tjurabalan Lands relating to the West Tanami project tenements. 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 $2,888,687 (2020: $2,302,520). The exploration expenditure obligations stated above include amounts (approximately $1.1m (2020: approximately $1.9m)) that are funded by third parties pursuant to various farm-in agreements (Note 15). Hence current expenditure commitment on Encounter 100% owned projects is approximately $1.8m (2020: approximately $0.4m). 70 Notes to the Financial StatementsENCOUNTER RESOURCES LIMITED Other than as already stated in this report, 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. (c) Contractual Commitment There are no material contractual commitments as at 30 June 2020 or 30 June 2021 not otherwise disclosed in the Financial Statements. Note 28 Related party transactions Transactions with Directors during the year are disclosed at Note 24 – Key Management Personnel. There are no other related party transactions, other than those already disclosed elsewhere in this financial report. Note 29 Events occurring after the balance sheet date The impact of the Coronavirus (COVID-19) pandemic is ongoing and while it has delayed the commencement of certain exploration programs, is has not materially financially impacted the Group up to 30 June 2021. It is not practicable to estimate the potential impact, positive or negative, after the reporting date. • Subsequent to the end of the financial year the Group announced the intention to demerge the West Tanami Gold project and distribute its shares in the proposed listing vehicle, Hamelin Gold Limited (a wholly owned subsidiary of Encounter Resources Limited), to eligible Encounter Resources shareholders on a pro-rata basis. Effective 14 September 2021 the Company has undertaken an internal restructure within the Group such that Hamelin Resources Pty Ltd, holding solely the West Tanami Gold Project assets, has been acquired by Hamelin Gold Limited in preparation for the proposed demerger. The Carrying value of the West Tanami Gold Project capitalised exploration assets amounting to $135,636, have been reclassified as Assets Reclassified as Held for Sale to reflect the intention of the assets to depart the Encounter Group on demerger. A notice of meeting for the Company’s shareholders to approve the demerger and also an Initial Public Offer prospectus was lodged with ASX on 17 September 2021. On successful completion of the proposed demerger and subsequent Initial Public Offer of Hamelin Gold Limited, a return of capital in the form of an in-specie distribution of 60,000,000 shares (with a fair value of $12,000,000) in Hamelin Gold Limited will be made to eligible shareholders. 71 Notes to the Financial Statements2021 ANNUAL REPORT Note 30 Reconciliation of loss after tax to net cash inflow from operating activities Profit/(Loss) from ordinary activities after income tax (1,533,150) (1,126,275) Consolidated 2021 $ 2020 $ (Profit)/loss on disposal of assets Depreciation and amortisation Exploration cost written off and expensed Share based payments expense Unrealised (gain)/loss on investments Contribution to overheads from farm-in and project alliance partners Lease interest Movement in assets and liabilities: (Increase)/decrease in receivables Increase/(decrease) in payables Net cash outflow from operating activities Note 31 Earnings per share a) Basic earnings per share Profit/(Loss) attributable to ordinary equity holders of the Company b) Diluted earnings per share Profit/(Loss) attributable to ordinary equity holders of the Company c) Loss used in calculation of basic and diluted loss per share - 24,678 296,128 466,124 202,162 (144,486) 5,047 (53,075) 24,632 (711,940) 110,885 663 284,403 375,240 (276,740) (42,001) - (3,959) (29,976) (647,808) Consolidated 2021 Cents (0.5) Cents (0.5) 2020 Cents (0.4) Cents (0.4) $ $ Consolidated profit/(loss) after tax from continuing operations (1,533,150) (1,126,275) 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 Weighted average number of shares used as the denominator in calculating basic earnings per share 72 No. No. 303,846,344 280,192,048 No. No. 303,846,344 280,192,048 Notes to the Financial StatementsENCOUNTER RESOURCES LIMITED Note 32 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 2021 $ 6,086,957 16,231,508 22,318,465 694,145 116,954 811,099 2020 $ 2,061,193 14,834,189 16,895,382 560,480 - 560,480 21,507,366 16,334,902 50,000,566 1,041,896 43,828,235 576,644 (29,535,096) (28,069,977) 21,507,366 16,334,902 (1,524,973) (1,126,275) - - (1,524,973) (1,126,275) 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 26. Commitments For full details of commitments see Note 27. 73 Notes to the Financial Statements2021 ANNUAL REPORT Directors’ Declaration In the opinion of the Directors of Encounter Resources Limited (“the Company”) (a) the financial statements and notes set out on pages 41 to 73 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards and the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the financial position as at 30 June 2021 and of the performance for the year ended on that date of the Group. (b) 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. (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (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 2021. This declaration is made in accordance with a resolution of the Directors. Signed at Perth this 30th day of September 2021. W Robinson Managing Director 74 E N C O U N T E R R E S O U R C E S L I M I T E D Independent Audit Report Independent Audit Report 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 2021, 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 2021 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 (including Independence Standards) (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. Findex (Aust) Pty Ltd, trading as Crowe Australasia is a member of Crowe Global, a Swiss verein. Each member firm of Crowe Global is a separate and independent legal entity. Findex (Aust) Pty Ltd and its affiliates are not responsible or liable for any acts or omissions of Crowe Global or any other member of Crowe Global. Crowe Global does not render any professional services and does not have an ownership or partnership interest in Findex (Aust) Pty Ltd. Services are provided by Crowe Perth, an affiliate of Findex (Aust) Pty Ltd. © 2021 Findex (Aust) Pty Ltd 2 0 2 1 A N N U A L R E P O R T 75 Key Audit Matter How we addressed the Key Audit Matter Consideration of impairment of capitalised mineral exploration and evaluation expenditure Our procedures included, but were not limited to: • Reviewed management’s documented assessment of the existence or otherwise of impairment indicators from both internal and external sources; • Corroborated representations made by management with available external data and evidence obtained by us during the course of our audit; and • Considered the appropriateness of relevant disclosures in the notes to the financial statements. The consideration of impairment of the carrying value of the Group’s Capitalised Mineral Exploration and Evaluation Expenditure assets was material to our audit and represented an area of significant estimate and judgement within the financial report. 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 $15.2m at 30 June 2021. The conditions and assessment undertaken in relation to impairment are disclosed in the Group’s accounting policy in Notes 1 and 14 of the financial report. Information Other than the Financial Report and the Audit’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Group’s 2021 Annual Report for the year ended 30 June 2021 but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based upon the work we have performed, we conclude that there is material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards, International Financial Reporting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. 76 2 Independent Audit ReportENCOUNTER RESOURCES LIMITED In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting in the preparation of the financial report. We also conclude, based on the audit evidence obtained whether a material uncertainty exists related to events and conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the disclosures in the financial report about the material uncertainty or, if such disclosures are inadequate, to modify the opinion on the financial report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the group financial report. The auditor is responsible for the direction, supervision and performance of the group audit. The auditor remains solely responsible for the audit opinion. 3 77 Independent Audit Report2021 ANNUAL REPORT Independent Audit Report We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may be reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated to the directors, we determine those matters that were of most 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 disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should be communicated in the auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 31 to 37 of the directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Encounter Resources Limited for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Crowe Perth Suwarti Asmono Partner Dated at Perth this 30th day of September 2021 78 E N C O U N T E R R E S O U R C E S L I M I T E D 4 ASX Additional Information Pursuant to the Listing Requirements of the Australian Securities Exchange, the shareholder information set out below was applicable as at 1 October 2021. 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 116 324 248 713 273 1,674 41,813 1,073,438 1,999,248 29,512,293 283,629,731 316,256,523 There are 190 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 Zero Nominees Pty Lltd William Michael Robinson Deutsche Balaton Aktiengesellschaft Silver Lake Resources Limited Issued Ordinary Shares Number of shares % of shares 25,700,000 25,695,414 17,728,071 16,684,210 8.13% 8.12% 5.61% 5.28% 2 0 2 1 A N N U A L R E P O R T 79 C. Twenty Largest Shareholders The names of the twenty largest holders of quoted shares are listed below: Shareholder Name Zero Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited Deutsche Balaton Aktiengesellschaft Silver Lake Resources Limited William Michael Robinson HSBC Custody Nominees (Australia) Limited – GCSO UBS Nominees Pty Ltd Stone Poneys Nominees Pty Ltd Picton Cove Pty Ltd Solvista Pty Ltd Sundin Pty Ltd Domain Investment Holdings Pty Ltd Fifty Second Celebration Pty Ltd Precision Opportunities Fund Limited Wythenshawe Pty Ltd Citicorp Nominees Pty Ltd Kiki Super Fund J C O’Sullivan Pty Ltd Paul Meathrel Bewick Super Fund Total Ordinary Shares - Quoted Number of shares % of Shares 25,700,000 21,552,213 17,728,071 16,684,210 16,216,900 15,679,600 15,140,527 8,998,816 6,039,074 5,750,000 5,580,000 5,225,475 4,843,063 4,552,632 4,000,000 3,148,742 3,000,000 2,263,160 2,216,812 2,200,000 8.13% 6.81% 5.61% 5.28% 5.13% 4.96% 4.79% 2.85% 1.91% 1.82% 1.76% 1.65% 1.53% 1.44% 1.26% 1.00% 0.95% 0.72% 0.70% 0.70% 186,519,295 58.97% 80 ASX Additional InformationENCOUNTER RESOURCES LIMITED D. Unquoted Securities Options over Unissued Shares Number of Options Exercise Price Expiry Date Number of Holders 22.8 cents 10.5 cents 17.5 cents 10 cents 9 cents 20 cents 12 cents 22 cents 26 cents 25 cents 30 October 2021 1 November 2021 24 November 2021 31 May 2022 30 November 2022 31 October 2023 30 November 2023 30 June 2024 26 November 2024 30 April 2025 11 4 1 4 5 8 1 3 7 4 1,500,000 425,000 750,000 475,000 2,900,000 5,050,000 1,500,000 650,000 2,450,000 1,000,000 16,700,000 1. Held by Zenix Nominees Pty Ltd 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. 81 ASX Additional Information2021 ANNUAL REPORT Corporate Directory Directors Share Registry Paul Chapman Non-Executive Chairman Automic Group Will Robinson Managing Director Address Peter Bewick Exploration Director Jonathan Hronsky Non-Executive Director Philip Crutchfield Non-Executive Director Level 2, 267 St Georges Terrace Perth, Western Australia 6000 Telephone 1300 288 664 Company Secretaries Securities Exchange Listing Kevin Hart Dan Travers The Company’s shares are quoted on the Australian Securities Exchange. The home exchange is Perth, Western Australia. Principal and Registered Office ASX Code Encounter Resources Limited ENR – Ordinary shares Address Suite 2, 1 Alvan Street Subiaco, Western Australia 6008 Telephone (08) 9486 9455 Web www.enrl.com.au Auditor Crowe Perth Address Company Information Level 5, 45 St Georges Terrace Perth, Western Australia 6000 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. 82 E N C O U N T E R R E S O U R C E S L I M I T E D Notes 2 0 2 1 A N N U A L R E P O R T 83 Notes 84 E N C O U N T E R R E S O U R C E S L I M I T E D Suite 2/1 Alvan Street Subiaco WA 6008 +61 8 9486 9455 contact@enrl.com.au www.enrl.com.au