Siltronic
Annual Report 2019

Plain-text annual report

2019 ANNUAL REOR TABLE OF CONTENTS 2019 ANNUAL REPORT West African Resources Limited ABN 70 121 539 375 TABLE OF CONTENTS Page CORPORATE INFORMATION ................................................................................................................................ 1 CHAIRMAN’S MESSAGE ....................................................................................................................................... 2 DIRECTORS’ REPORT ............................................................................................................................................ 3 REMUNERATION REPORT (AUDITED) ................................................................................................................ 16 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ............................ 27 CONSOLIDATED STATEMENT OF FINANCIAL POSITION .................................................................................... 28 CONSOLIDATED STATEMENT OF CASH FLOWS ................................................................................................. 29 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ..................................................................................... 30 NOTES TO THE FINANCIAL STATEMENTS .......................................................................................................... 31 DIRECTORS’ DECLARATION ................................................................................................................................ 67 AUDITOR’S INDEPENDENCE DECLARATION....................................................................................................... 68 INDEPENDENT AUDITOR’S REPORT ................................................................................................................... 69 ADDITIONAL INFORMATION .............................................................................................................................. 73 SUMMARY OF TENEMENTS ............................................................................................................................... 75 CORPORATE INFORMATION Company West African Resources Limited Website www.westafricanresources.com ABN 70 121 539 375 Directors Richard Hyde (Executive Chairman and CEO) Lyndon Hopkins (Executive Director and COO) Mark Connelly (Non-Executive Director) Simon Storm (Non-Executive Director) Nigel Spicer (Non-Executive Director) Rod Leonard (Non-Executive Director) Company Secretary Simon Storm Principal place of business Level 1, 1 Alvan Street Subiaco WA 6008 Australia Registered office Level 1, 1 Alvan Street Subiaco WA 6008 Australia T: +61 (8) 9481 7344 Burkina Faso office Secteur 27, Quartier Ouayalghin, Parcelles 07/08, Lot 22, Section SL, Ouagadougou, Burkina Faso T: +226 25 36 73 84 Share registry Computershare Investor Services Pty Ltd Level 11, 172 St George’s Terraces Perth WA 6000 Australia T: 1300 787 272 Solicitors Australia Allion Partners 9/863 Hay Street Perth WA 6000 Canada Stikeman Elliiot Suite 1700, Park Place 666 Burrard Street Vancouver BC V6C 2X6 Auditors HLB Mann Judd Level 4, 130 Stirling Street Perth WA 6000 Australia Security exchange Australian Securities Exchange Ltd (ASX) Level 40, Central Park 152-158 St George’s Terrace Perth WA 6000 ASX trading code WAF P a g e | 1 CHAIRMAN’S MESSAGE Dear Fellow Shareholders, I am pleased to present the 2019 Annual Report for West African Resources Limited (ASX: WAF) as our Company has just achieved its goal of becoming West Africa’s newest gold producer. Our rapid transformation from small explorer to West African gold producer has been exceptional. We discovered ultra- high-grade gold at the M1 South deposit in 2016; obtained the Mining Permit in 2017; secured project financing in 2018 and commenced construction of Sanbrado in early 2019. It is extremely satisfying to have come this far on the journey of our Company and I look forward to reporting positive profits and operational cash flows over the coming year. First gold was poured at Sanbrado on 18 March 2020, well ahead of our original schedule and under budget. Such a result is a testament to the talent and dedication of our team in Burkina Faso and Australia. Getting any mining project into development in Africa is not an easy task – achieving it in just four years following the M1 South discovery is rare indeed. Sanbrado was forecast to be the highest margin gold project under construction in West Africa over the past year, and now it should produce about 300,000 ounces of gold in its first 12 months of operation at the lowest quartile production costs globally. At the prevailing gold price Sanbrado is expected to generate significant cash flows and repay its project debt ahead of schedule. In the coming years we aim to significantly improve the project’s production and cost economics, creating further value for our shareholders and stakeholders. We broke ground to start major works at Sanbrado in January 2019, and our project team, led by Executive Director Lyndon Hopkins and Chief Development Officer Matthew Wilcox, have kept the project on track and on budget. This achievement resoundingly demonstrates the commercial and technical capabilities of West African’s team and our determination to deliver on our promises, and do it in an efficient, considered and cost-effective manner. Although there has been some unrest in Burkina Faso, the area of the country in which West African operates continues to be stable and our progress at Sanbrado has been unimpeded. Our Company remains committed to Burkina Faso and to delivering a project that will provide widespread economic benefits for the Burkina Faso Government, the regional communities, and our other stakeholders. As the COVID-19 global pandemic has escalated, the gold price has held up very well as a safe haven asset and shareholders can be assured that West African’s management and contractors are doing everything possible to maintain gold production at Sanbrado while this global crisis runs its course. I would like to thank our dedicated site team who have committed to keep Sanbrado operating in these uncertain times. We are also looking ahead to further grow Sanbrado through targeted drilling and exploration. We are confident there is plenty of upside at Sanbrado and in our surrounding project area. We will aim to increase the underground mine life to at least 10 years, to match the open-pit mine plan, by exploring the M1 South gold system where mineralisation remains open at depth to ensure we extract full value from the project. I would like to thank my fellow Board members for their support through the past year, as well as the whole West African team who have worked tirelessly to achieve our goals. I also thank our shareholders, especially those who have been long-term holders of WAF, for their loyalty and belief that we could deliver on what we set out to do. It is an exciting time for our Company, and I look forward to our future as a gold producer! RICHARD HYDE Executive Chairman West African Resources Limited P a g e | 2 DIRECTORS’ REPORT The Directors present the financial report of West African Resources Limited (the “Company”) and its controlled subsidiaries (the “Group”, “West African” or “WAF”) for year ended 31 December 2019. INFORMATION ON DIRECTORS AND COMPANY SECRETARY The names of Directors who held office during or since the end of the year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. CURRENT DIRECTORS Richard Hyde BSc (Geology and Geophysics), MAusIMM, MAIG Lyndon Hopkins BSc (Geology), MAusIMM, MAIG Simon Storm BCom, BCompt (Hons) FGIA, CA Executive Chairman and Chief Executive Officer Executive Director and Chief Operating Officer Non-Executive Director and Company Secretary Richard Hyde is a geologist with 24 years’ experience in the mining industry and more than 19 years of experience in West large Africa. Richard has managed exploration and development projects for gold and base metals in Australia, Africa and Eastern Europe. He has led the Company from incorporation in 2006, IPO in 2010 and through the discovery and development of the Sanbrado Gold Project. He has coordinated all of the debt and equity funding for the Company in A$78m equity and culminating US$200m in senior debt in 2018 to fully- fund the Sanbrado Gold Project to is Member of the production. He Institute of Mining and Australian Metallurgy and a Member of the Australian Institute of Geoscientists. Mr Hyde is a founding shareholder and commenced as a Director in 2006. of aspects Lyndon Hopkins is a geologist with more in gold than 30 years’ experience exploration, and development production. Mr Hopkins was Chief Operating Officer of Equigold NL’s Ivory Coast operations and managed the in- country project development and feasibility study for the Bonikro Gold Mine which commenced production in 2008. More recently, he was Mine Manager for the construction of Regis Resources Ltd’s Rosemont Gold involved with Mine. He has been numerous gold operations in Australia and Africa in various roles with Equigold and Regis. the Mr Hopkins has been West African’s Chief Operating Officer since 2015 and joined the Board on 6 September 2019. Committee memberships: Technical Committee memberships: Technical Other ASX listed directorship: Nil Previous ASX listed directorship in the last 3 years: Nil Interest in shares: 18,280,769 Interest in options: 3,660,899 Other ASX listed directorship: Nil Previous ASX listed directorship in the last 3 years: Nil Interest in shares: 3,032,250 Interest in options: 1,516,949 international experience Simon Storm is a Chartered Accountant with more than 30 years of Australian and in the accounting profession and commerce. He commenced his career with Deloitte Haskins & Sells in Africa then London before joining Price Waterhouse in Perth. He has held various senior finance and company secretarial roles with listed and in the agribusiness, unlisted entities construction, banking, telecommunications, property development and funds management industries. In the last 17 years he has provided consulting services covering accounting, company financial and secretarial matters to various companies in these sectors. resources, Mr Storm November 2007. joined the Board on 15 Committee memberships: Audit (Chair), Remuneration Other ASX listed directorship: Nil Previous ASX listed directorship in the last 3 years: Nil Interest in shares: 2,590,769 Interest in options: 827,855 P a g e | 3 West African Resources Limited Directors’ Report Mark Connelly BBus, MAICD Nigel Spicer BSc (Mining), CEng, MAusIMM Rod Leonard BSc and MSc (Metallurgical Engineering), MAusIMM, MSME Non-Executive Director Non-Executive Director Non-Executive Director Mark Connelly has more than 30 years of experience in the mining industry and has held senior executive positions with Newmont Mining Corporation and Inmet Mining Corporation. He is the former Managing Director and Chief Executive Officer of Papillon Resources Limited, a Mali-based gold developer which merged with B2Gold Corp in a US$570 million deal. He was Chief Operating Officer of Endeavour Mining Corporation following its merger with Adamus Resources, where he was Managing Director and CEO. Mark has extensive experience in financing, development, construction and operation of mining projects in a variety of commodities including gold, base metals and other resources in West Africa, Australia, North America and Europe. Mr Connelly joined the Board on 23 June 2015. Nigel Spicer is a Mining Engineer with more than 40 years’ experience in mining and has held operational and executive management positions with mining companies in Africa, UK, Australia, Indonesia, PNG, Brazil and Philippines. He has extensive open pit and underground (narrow vein and bulk tonnage) mining experience across a range of commodities, including gold and copper. He has significant experience managing both owner and contract mining fleets and has been involved in the successful commissioning of a number of gold mines in Australia and Africa. Mr Spicer September 2019. joined the Board on 6 Rod Leonard is one of the founding Directors of Lycopodium (ASX: LYL) and served as an Executive Director of Lycopodium Limited from 2004 to 2019. He has more than 30 years’ experience in the operation and project development of major projects in North and South America, Africa, Asia and Australia. He has been involved in many aspects of the mineral processing industry from process development, feasibility studies, and design as commissioning of projects. assignments as well Mr Leonard has been directly involved with Lycopodium’s strong track record in Burkina Faso, recently delivering EPCM projects at the Hounde and Karma gold projects Endeavour Mining, Natougou gold project for Semafo, Bissa and Bouly gold projects for Nordgold as well as other many other recent projects in West Africa. for Mr Leonard September 2019. joined the Board on 6 Audit, memberships: Committee Remuneration (Chair) Other ASX listed directorship: Calidus Resources Limited, Oklo Resources Limited, Primero Group Limited, Tao Commodities Ltd Previous ASX listed directorship in the last 3 years: Cardinal Resources Limited, Perenti Global (previously Ausdrill Ltd), Saracen Mineral holdings Limited, Tiger Resources Limited Interest in shares: 60,000 Interest in options: 2,103,806 Limited memberships: Committee Technical Other ASX listed directorship: Nil Audit, Committee memberships: Remuneration, Technical (Chair) Other Lycopodium Limited directorship: listed ASX Previous ASX listed directorship in the last 3 years: Nil Previous ASX listed directorship in the last 3 years: Nil Interest in shares: Nil Interest in options: Nil Interest in shares: Nil Interest in options: Nil P a g e | 4 West African Resources Limited Directors’ Report PAST DIRECTORS WHO RESIGNED DURING THE YEAR Ian Kerr BE (Civil) Hons II, MIE Aus Non-Executive Director Ian Kerr is an engineer with more than 30 years’ experience in mining construction and operations with several Australian and international mining companies including Placer Dome and EMC. He has also held senior positions with engineering firms Lycopodium and Mintrex. Mr Kerr resigned as a director on 6 September 2019. Committee memberships: Other ASX listed directorship Previous ASX listed directorship in the last 3 years: Interest in shares: Interest in options: Audit, Remuneration Nil Gascoyne Resources Limited, Tiger Resources Limited Nil 577,855 P a g e | 5 West African Resources Limited Directors’ Report PRINCIPAL ACTIVITIES The principal activities of the Group during the year were: • development of the Sanbrado Gold Project; and • mineral exploration in Burkina Faso OPERATING AND FINANCIAL REVIEW REVIEW OF OPERATIONS BACKGROUND The Company and its subsidiaries (the “Group”, “West African” or “WAF”) are engaged in mineral exploration and development in West Africa. The Group’s key asset is the Sanbrado Gold Project (“Sanbrado”), located in Burkina Faso. West African owns a 90% beneficial interest in Société des Mines de Sanbrado SA (“SOMISA”), which owns Sanbrado. The government of Burkina Faso retains a 10% carried interest. The Group’s mineral portfolio also includes gold and copper-gold exploration permits in Burkina Faso. SANBRADO CONSTRUCTION During the year, West African made substantial progress in advancing Sanbrado towards gold production. By the date of this report, the project has been commissioned, the first gold was poured on 18 March 2020, and open pit mining had ramped up at both the M5 and M1 South pits. As at 31 December 2019, the following project development milestones have been achieved: • Construction of the processing plant and other project infrastructure for Sanbrado was more than 90% complete. • Underground decline of M1 South advanced 1,390m in the year to be 153m below surface by year end. • The open pit mining contractor had mobilised to site and commenced mining in December 2019. Processing plant P a g e | 6 West African Resources Limited Directors’ Report Ball and SAG mill M1 South underground development P a g e | 7 West African Resources Limited Directors’ Report SANBRADO OVERVIEW The project is located in Burkina Faso 90 km east-southeast of the capital city of Ouagadougou and is accessed via a sealed highway (RN4) which runs between the capital and Koupela. An existing gravel road intersects the highway near the village of Zempasgo and crosses through the south-eastern corner of the Sanbrado tenement. P a g e | 8 West African Resources Limited Directors’ Report The Sanbrado Gold Project will mine three deposits: M1, M3 and M5. The figure below presents the layout of the project, showing the relative positions of the mining areas and the principal infrastructure. Sanbrado Gold Project layout The Company announced the results of its optimised Feasibility Study for Sanbrado on 16 April 2019. The study envisages an initial 10-year mine life, including 6.5 years of underground mining. Details of the study are available on the Company’s website at www.westafricanresources.com. Sanbrado Gold Project ore reserves were updated in the Feasibility Study to a Probable Ore Reserve of 21.6Mt at 2.4g/t Au for 1.65Moz of gold. The Project comprises several open pits, all within 1-2km of the plant site, and an underground mine accessed through a box-cut and portal immediately to the south west of the M1 South open pit. The plant comprises a conventional SABC (semi-autogenous, ball, crush) milling circuit, gravity and carbon in leach processing with a nominal throughput capacity of 2.2Mtpa and average LOM recovery estimated to be 92.9%. The Feasibility Study envisages that underground mining will be completed in Year 6 of gold production and open-pit mining continues through until mid-way through Year 10 of production with processing carried out for a full 10 years. Mining and processing of the high grade M1 South Probable Ore Reserve is prioritised, generating significant early cashflow. The operating costs for Sanbrado in the Feasibility Study reflect that the project is a conventional, low cost operation. Life of mine (“LOM”) all in sustaining costs (“AISC”) are estimated to be US$633/oz. This is a result of high-grade ore from M1 South and the significant proportion of oxide and transition material in the mine schedule and the free milling nature of all ore types, low reagent consumption and a high component of gravity recoverable gold. P a g e | 9 West African Resources Limited Directors’ Report Sanbrado Gold Project December 2019 Resource Indicated Resource Inferred Resource Resource Area Category Cutoff (Au g/t) O/P <180mRL M1 South U/G >180mRL 0.5 3 Tonnes 850,000 1,000,000 Total Combined 1,850,000 M5 M1 North M3 O/P O/P O/P 0.5 0.5 0.5 36,650,000 750,000 150,000 Grade (Au g/t) 6.4 21.9 14.7 1.2 2.0 2.0 Total 1.9 Combined *Due to rounding ounces may not precisely calculate to the amounts provided. 39,400,000 Au Oz* Tonnes 178,000 697,000 875,000 50,000 300,000 350,000 1,470,000 14,600,000 49,000 11,000 500,000 200,000 2,405,000 15,650,000 Grade (Au g/t) 5.2 11.2 10.7 1.1 2.0 1.5 1.3 Au Oz* 5,000 117,000 122,000 520,000 32,000 9,000 683,000 Mining Category Open Pit Underground Total Probable Mineral Reserve* Proven Provable Proven Provable Sanbrado Gold Project Mineral Reserve by Category Tonne Mt 0.0 19.5 0.0 2.0 21.6 Gold Grade g/t 0.0 Contained Gold koz* 0 1.6 0.0 10.2 2.4 1,004 0 646 1,650 *Due to rounding the totals may not precisely add up to, and ounces may not precisely calculate to, the amounts provided. SAFETY, ENVIRONMENTAL AND SUSTAINABILITY There were no significant safety or environmental incidents during the year. The LTIFR for the project at the end of the period was 0.4, with more than 2.4 million hours worked. West African has 375 employees at Sanbrado as at 31 December 2019, comprised of 95% Burkinabés of which 25% are women. Sanbrado will contribute significant direct economic benefits to Burkina Faso through various taxes, royalties and fees, including a community development fund of 1% of revenue. In addition, the Company is continuing to develop its environmental and sustainability management programs that are aimed at achieving the IFC Performance Standards. New homes under construction for affected people P a g e | 10 West African Resources Limited Directors’ Report CORPORATE Debt facility A project debt facility with a drawdown limit of US$200 million (A$285 million) was executed during the year with Taurus Funds Management Pty Ltd (“Taurus”) for the development of the Sanbrado Gold Project. Interest is charged at 7.75% per annum on drawn amounts and 2% per annum on the undrawn balance and is payable quarterly. The facility is secured against the assets of the Group and contains no mandatory hedging requirements. The balance drawn at 31 December 2019 under the facility was US$175 million. The remaining US$25 million was drawn in March 2020, making the facility fully drawn as at the date of this report. The facility contains a repayment schedule comprised of sixteen quarterly repayments commencing March 2021 and ending December 2024, and can be repaid early at any time without penalty. The finance facility also contains a contractual commitment for payment of a fee on the first 1.25 million ounces of gold sold from the Sanbrado Gold Project. The fee for each ounce of gold sold will be calculated as the spread between the LBMA quoted am fix price on the date the refined gold is credited to the Company’s metals account and the lowest LBMA quoted gold price (am fix or pm fix) during the preceding 8 business day period. The Group has the option to terminate the product fee commitment at any time by paying the net present value (applying a 5% annual discount rate, and assuming the timing of gold sales as set out in the mine production schedule) of the pre-agreed price per ounce for the remaining committed ounces. Board composition changes In September 2019, WAF announced several changes to its Board as it prepared for gold production at Sanbrado. Richard Hyde, the founder of West African Resources, transitioned to the role of Executive Chairman and continues as full-time CEO. Lyndon Hopkins joined the Board as Executive Director and continues as the Company’s Chief Operating Officer. Rod Leonard and Nigel Spicer joined the Board as Independent Non-Executive Directors. Mark Connelly transitioned from Non-Executive Chairman to Non-Executive Director. Simon Storm continues as a Non-Executive Director and Company Secretary. Ian Kerr resigned from the Board. Delisting from TSX On 22 February 2019, the Company announced the voluntarily delisting of its ordinary shares from trading on the TSX Venture Exchange (“TSXV”) effective from close of trading on 8 March 2019. The Company took this decision due to several factors, including the limited trading volume of its shares on the TSXV over a sustained period. As a result, the Board considered the regulatory and other costs associated with maintaining the TSXV listing were unnecessary. No change occurred to the quotation and trading of the Company’s shares on the Australian Securities Exchange (“ASX”) and they remain available for trading on the ASX under the code WAF. OTHER PROJECTS No work was completed during the year on the Group’s projects other than Sanbrado. P a g e | 11 West African Resources Limited Directors’ Report RESULTS FOR THE YEAR The net loss of the Group for year ended 31 December 2019 of $4,334,000 was $783,000 higher than the $3,551,000 net loss of the comparative 6-month period. This is mainly due to $3,152,000 higher corporate costs, $550,000 higher exploration costs and $986,000 higher realised foreign exchange losses partially offset by $834,000 higher interest income and $2,537,000 higher unrealised foreign exchange gains. The above increase in corporate costs (including personnel, consultants, travel, and overheads) reflects a combination of a full year of costs in the reporting period versus a half year in the comparative period, and the growth of the Company during the current year as development of Sanbrado ramped up. The $246,350,000 increase in total assets during the year was fully offset by the $249,883,000 increase in total liabilities resulting in a $3,533,000 decrease in net assets over the year. The asset increase is mainly related to the construction of Sanbrado which is reflected in a $223,646,000 increase in mine properties, while the liabilities increase is mainly related to the financing of the construction of Sanbrado, which is reflected in a $235,063,000 increase in loans and borrowings. Cash increased from $66,355,000 at the start of the period to $83,584,000 at 31 December 2019. This $17,009,000 cash increase is mainly due to a $232,564,000 net cash inflow from financing activities, partially offset by a $208,968,000 net cash outflow from investing activities and a $6,587,000 net cash outflow from operating activities. Cash outflows from operating activities mainly represents corporate administration and non-Sanbrado exploration costs. Cash usage in financing activities during the year mainly reflects expenditures for the construction of Sanbrado and capitalisation of interest paid on Sanbrado project debt. The cash inflows from financing activities in the year mainly reflects $251,799,000 of drawdowns under the project debt facility, partially offset by $19,077,000 of cash outflows for project debt facility transaction costs. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS The Group significantly advanced construction and development of the Sanbrado Gold Project during the year, funded by drawdowns under the Company’s project debt facility with Taurus. SIGNIFICANT EVENTS AFTER BALANCE SHEET DATE First gold pour On 19 March 2020 West African announced that it has completed commissioning of the Sanbrado project and poured its maiden gold bars weighing 23.9 kg (768 troy oz). COVID-19 global pandemic Since early February the Company has been following the Western Australia Health Department guidelines for the COVID-19 global pandemic and has been updating staff and contractors regularly as the situation evolves. At the time of this report no staff or contractors of the Group have tested positive to the virus (SARS-CoV-2) nor have there been any suspected cases. WAF executive and site management undertook a COVID-19 risk assessment workshop on site at Sanbrado in mid-March 2020. WAF’s site management team includes key people who worked through the Ebola crisis in Guinea in 2014-2015. WAF medical staff are monitoring the body temperatures of all people entering site and will implement a self-isolation policy for anyone suspected of being COVID-19 positive. Site management has prepared an isolation block within camp for any suspected cases and have qualified medical personnel and sufficient supplies to deal with a COVID-19 situation. The Company has taken early action to maintain production at Sanbrado. From a supply perspective, key reagents and consumables are on site for the next three to six months of production and the fuel farm is near full capacity and is receiving regular deliveries. In terms of international travel restrictions, the necessary staff are on site to manage production for the next few months and West African has received assurance from its mining contractors that they are doing everything possible to maintain their services to the project. The gold price has been holding up well due to its status as a safe haven asset during times of uncertainty and therefore the Company does not consider that there is an indication that any assets of the Group may be impaired as a result of the COVID-19 global pandemic. P a g e | 12 West African Resources Limited Directors’ Report LIKELY DEVELOPMENTS AND EXPECTED RESULTS In the opinion of the Directors, likely developments in and expected results of the operations of the Group have been disclosed in the “Review of Operations” and “Significant Events After Balance Sheet Date” sections of this report. Disclosure of any further information regarding likely developments in the operations of the Group in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the Company. SHARE OPTIONS AND PERFORMANCE RIGHTS1 At the date of this report the unissued ordinary shares of the Company under option are: Issue date 12-May-17 18-Oct-17 03-Nov-17 29-Mar-18 26-Sep-18 28-Nov-18 28-Dec-18 28-Dec-18 28-Dec-18 28-Dec-18 14-Feb-19 05-Mar-19 07-Jul-19 20-Jan-20 20-Jan-20 20-Jan-20 20-Jan-20 Total Exercise price $0.2400 $0.3750 $0.2400 $0.4100 $0.3100 $0.3100 $0.3200 $0.0000 $0.0000 $0.4300 $0.0000 $0.2950 $0.0000 $0.0000 $0.0000 $0.0000 $0.0000 Expiry date 12-May-20 18-Oct-20 09-Nov-20 29-Mar-21 26-Sep-21 28-Nov-21 28-Dec-21 28-Dec-21 28-Dec-23 28-Dec-22 14-Feb-21 05-Mar-22 07-Jul-22 20-Jan-23 20-Jan-23 20-Jan-25 20-Jan-24 Number of options 500,000 750,000 2,750,000 1,250,000 500,000 1,000,000 2,500,000 1,022,565 944,167 1,223,828 259,516 1,000,000 61,047 963,948 263,157 131,578 131,578 15,251,384 1Performance rights are granted subject to various performance hurdles. DIVIDENDS No dividends have been paid or declared since the start of the financial year and the Directors do not recommend the payment of a dividend in respect of the financial year. NON-AUDIT SERVICES The Group may decide to employ the external auditor, HLB Mann Judd, on assignments additional to their statutory audit duties where the auditor's expertise and experience with the Group are important. Fees that were paid or payable for non-audit services provided by the auditor of the parent entity during the year are outlined in Note 22 of the accompanying financial statements. The Directors are satisfied that the provision of non-audit services during the year by the auditor are compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services as disclosed in the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professionals and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. P a g e | 13 West African Resources Limited Directors’ Report DIRECTORS’ MEETINGS The number of Directors’ meetings held during the year and the number of meetings attended by each director were as follows: Directors’ Meetings Audit Committee Meetings Remuneration Committee Meetings Technical Committee Meetings Director Richard Hyde Lyndon Hopkins Simon Storm Mark Connelly Nigel Spicer Rod Leonard Ian Kerr A – the number of meetings held whilst a Director B – the number of meetings the Director attended A 7 1 7 7 1 1 5 B 7 1 7 7 1 1 4 A - - 2 2 1 - 1 B - - 2 2 1 - 1 A - - 1 1 - 1 - B - - 1 1 - 1 - A 1 1 1 1 1 1 - B 1 1 - - 1 1 - ROUNDING OF AMOUNTS The Company is of a kind referred to in “ASIC Corporations (Rounding in Financial/Directors’ Report) Instrument 2016/191”, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report and accompanying financial statements. Amounts in the Directors’ Report and accompanying financial statements have been rounded off in accordance with that Rounding Instrument to the nearest thousand dollars, or in certain noted cases, to the nearest dollar. P a g e | 14 West African Resources Limited Directors’ Report Qualified/Competent Person’s Statement Information contained in this report that relates to exploration results, exploration targets or mineral resources is based on, and fairly represents, information and supporting documentation prepared by Mr Brian Wolfe, an independent consultant specialising in mineral resource estimation, evaluation and exploration. Mr Wolfe is a Member of the Australian Institute of Geoscientists. Mr Wolfe has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person (or “CP”) as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code) and a Qualified Person under Canadian National Instrument 43-101. Mr Wolfe has reviewed the contents of this news release and consents to the inclusion in this announcement of all technical statements based on his information in the form and context in which they appear. Information contained in this report that relates to open pit ore reserves is based on, and fairly represents, information and supporting documentation prepared by Mr Stuart Cruickshanks, a full-time employee. Mr Cruickshanks is a Fellow of the Australian Institute of Mining and Metallurgy. Mr Cruickshanks has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person (or “CP”) as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code) and a Qualified Person under Canadian National Instrument 43-101. Mr Cruickshanks has reviewed the contents of this news release and consents to the inclusion in this announcement of all technical statements based on his information in the form and context in which they appear. Information contained in this report that relates to underground ore reserves is based on, and fairly represents, information and supporting documentation prepared by Mr Peter Wade, an independent specialist mining consultant. Mr Wade is a Fellow of the Australian Institute of Mining and Metallurgy. Mr Wade has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person (or “CP”) as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code) and a Qualified Person under Canadian National Instrument 43-101. Mr Wade has reviewed the contents of this news release and consents to the inclusion in this announcement of all technical statements based on his information in the form and context in which they appear. Any other information contained in this report that relates to exploration results, exploration targets or mineral resources is based on information compiled by Mr Richard Hyde, a Director, who is a Member of The Australian Institute of Mining and Metallurgy and Australian Institute of Geoscientists. Mr Hyde has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a CP as defined in JORC Code and a QP under National Instrument 43-101. Hyde has reviewed and approved the scientific and technical information and contents of this presentation, and consents to the inclusion in this presentation of the statements based on his information in the form and context in which they appear. P a g e | 15 West African Resources Limited Remuneration Report REMUNERATION REPORT (AUDITED) Contents: 1. Remuneration report overview 2. 3. 4. 5. 6. 7. Remuneration governance Non-Executive Director remuneration Executive remuneration Performance and executive remuneration outcomes Executive employment arrangements Additional statutory disclosures 1) REMUNERATION REPORT OVERVIEW The Directors of West African Resources Limited present the Remuneration Report (“the Report”) for the Group for the year ended 31 December 2019. This Report forms part of the Director’s Report and has been prepared in accordance with the Corporations Act 2001. The Report details the remuneration arrangements for West African’s Key Management Personnel (“KMP”), being: • the Non-Executive Directors (“NEDs”); • • the Executive Directors; and the senior executives with authority for planning, directing and controlling the major activities of the Consolidated Entity. The KMP are set out below: Name Position Non-Executive Directors Appointed Resigned Non-Executive Director & Company Secretary November 2007 Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director June 2015 September 2019 September 2019 June 2018 September 2019 Executive Chairman and Chief Executive Officer Executive Director and Chief Operating Officer September 2006 September 20191 Simon Storm Mark Connelly Nigel Spicer Rod Leonard Ian Kerr Executive Directors Richard Hyde Lyndon Hopkins Senior Executives Padraig O’Donoghue Chief Financial Officer Matthew Wilcox Chief Development Officer 1 Date appointed a Director (employed from 1 January 2017). June 2018 September 2018 Performance on shareholder wealth Period ending December 2019 December 2018 June 2018 Reporting period length EPS (cents) Dividends (cents per share) Net profit / loss ($’000) Share price ($) 12 months (0.5) Nil (4,334) 0.430 6 months (0.5) Nil (3,551) 0.250 12 months (4.3) Nil (25,300) 0.380 June 2017 12 months (3.0) Nil (14,324) 0.355 June 2016 12 months (2.6) Nil (7,805) 0.210 P a g e | 16 - - - - - - - - West African Resources Limited Remuneration Report 2) A. REMUNERATION GOVERNANCE REMUNERATION COMMITTEE RESPONSIBILITY The Remuneration Committee is a subcommittee of the Board. It is primarily responsible for making recommendations to the Board on: • Non-Executive Director fees; • Executive remuneration, including executive directors and other senior executives; and • The executive remuneration framework and incentive plan policies. The Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of non-executive directors and executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high performing director and executive team. B. USE OF REMUNERATION ADVISORS During the prior year the Remuneration Committee engaged BDO Remuneration and Reward Pty Ltd (“BDO”) to review and provide recommendations on the Consolidated Entity’s executive remuneration framework and policies. Both BDO and the Remuneration Committee were satisfied the advice received from BDO was free from undue influence from the KMP to whom the recommendations applied. The BDO recommendations were provided to the Committee as an input into decision making only and were used to assist the Board in structuring remuneration packages in a form suitable for the Company. The Committee considered the BDO recommendations along with other factors in making its remuneration decisions. The fees paid to BDO for the remuneration recommendations were $Nil (2018: $22,500 (GST exclusive)). C. REMUNERATION FRAMEWORK Following the BDO remuneration review the following remuneration framework overview was recommended by the Remuneration Committee and adopted by the Board with effect from 1 January 2019. Category Total fixed remuneration Definition of pay category Pay which is linked to the present value or market rate of the role. Elements Total fixed remuneration Purpose Pay for meeting role requirements Incentive pay Reward pay Pay for delivering the plan and growth agenda for WAF which must create value for shareholders. Incentive pay will be linked to the achievement of ‘line-of-sight’ performance goals. It reflects ‘pay for performance’. Pay for creating value for shareholders. Reward pay is linked to shareholder returns. It reflects ‘pay for results’. Short term incentive Long term incentive Incentive for the achievement of annual objectives and sustained business value Reward for executive performance over the long term The Company tabled and had approved at the Annual General Meeting (“AGM”) in November 2018, the Incentive Option & Performance Rights Plan" (Incentive Plan) which provides for the granting of incentive and reward-based remuneration. P a g e | 17 West African Resources Limited Remuneration Report The West African Resources Incentive Plan is comprised of: • A Short-term and Deferred Incentive (“STI”) Plan designed to incentivize and reward Executives for the attainment of short- term objectives, and to enable the executive to accumulate equity in the business, which not only ensures a better alignment with shareholders (i.e. ‘skin in the game’), but also provides a retentive benefit. The ‘Short Term and Deferred Incentive Plan’ will be ‘reset’ on an annual basis (i.e. a cash and option award opportunity will be made available at the beginning of each year). • A Long-term Incentive (“LTI”) Scheme is designed to ‘reward’ Executives for the creation of long-term shareholder value as evidenced by market and non-market measures. A single award will be made at the beginning of year ‘0’ and will represent a performance period of 3 years (i.e. it will not be ‘reset’ annually). At the end of this 3-year period, the Company will have evolved from project development status to a fully-fledged producer. The 3-year long-term goal communicated a clear direction as to what shareholders require from management at the end of 3 years. 3) NON-EXECUTIVE DIRECTOR REMUNERATION A. NED REMUNERATION POLICY West African Resources Limited’s NED fee policy is designed to attract and retain high calibre directors who can discharge the roles and responsibilities required in terms of good governance, strong oversight, independence and objectivity. The Company’s constitution and the ASX listing rules specify that the NED fee pool limit shall be a pproved periodically by shareholders. The last determination at an AGM was an aggregate fee pool of $500,000 per year. At the forthcoming AGM in May 2020 shareholder approval will be sought to increase the aggregate fee pool to $900,000 per year to provide for the Company’s transitions into production and the consequential considerations related to changes to the Board’s overall skillset and composition. The Remuneration Committee considered advice from the BDO remuneration review regarding the amount of the aggregate remuneration and the manner in which it is paid to NEDs and this was based on a review against comparable development stage Non-Executive Director fees will be reviewed once commercial production is achieved. B. NED REMUNERATION STRUCTURE The remuneration of NEDs consists of director’s fees. There is no scheme to provide retirement benefits to NEDs other than statutory superannuation. Aside from receiving 30% of their fees in the form of share options, NEDs will not participate in any performance related incentive programs. Whilst WAF has no minimum shareholding policy for NEDs, the BDO remuneration review recommended that each NED held a percentage of their total fees in equity to align their interests with the Company’s shareholders. This recommendation was put to the AGM in November 2018 and the issue of Options in lieu of 30% of Directors fees was approved. This fee structure supports NEDs in building their shareholding in the company they represent and assists in facilitating NEDs building a ‘meaningful’ shareholding in the company. It should be noted that this equity component: 1. does not increase the NED fee above that of the market. It aligns NED fees with market median based on the time, responsibilities and calibre of the incumbent; and 2. does not contain any performance conditions and the equity issued is in lieu of cash fees. Fees paid to NEDs cover all activities associated with their role on the Board and any sub -committees. No additional fees are paid to NEDs for being a Chair or Member of a sub-committee. However, NEDs are entitled to fees or other amounts as the Board determines where they perform special duties or otherwise perform extra services on behalf of the Company. They may also be reimbursed for out-of-pocket expenses incurred as a result of their Directorships. P a g e | 18 West African Resources Limited Remuneration Report 4) A. EXECUTIVE REMUNERATION EXECUTIVE REMUNERATION POLICY In determining executive remuneration, the Board aims to ensure that remuneration practices are: • competitive and reasonable, enabling the Company to attract and retain high calibre talent; • aligned to the Company’s performance, strategic and business objectives and the creation of shareholder value; • • acceptable to shareholders. transparent and easily understood; and The Company’s approach to remuneration ensures that remuneration is competitive, performance focused, clearly links appropriate reward with desired business performance, and is simple to administer and understand by executives and shareholders. In line with the remuneration policy, remuneration levels are reviewed annually to ensure alignment to the market and the Company’s stated objectives. B. EXECUTIVE REMUNERATION STRUCTURE The Company’s remuneration structure provides for a combination of fixed and variable pay with the following components: • • • fixed remuneration; short-term incentives (“STI”); and long-term incentives (“LTI”). In accordance with the Company’s objective to ensure that executive remuneration is aligned to Company performance, a portion of executives’ remuneration is placed “at risk”. The relative proportion of total remuneration packages to be split between the fixed and variable remuneration is shown below: Executive Managing Director Chief Operating Officer Other Executives Fixed remuneration 42% 45% 50-54% STI 23% 23% 30% LTI 35% 32% 16-20% The total income opportunities available to the Company’s Executives are as follows: Level 1 Position Executive Chairman/CEO 2 3 Chief Operating Officer Senior Executives Total income opportunity 140% 120% 85-100% STIP: 1 Year 20% 20% STIP: 2 Year 35% 30% LTIP: 3 Year 85% 70% 10-20% 35-40% 30-40% C. (i) ELEMENTS OF REMUNERATION Fixed remuneration Total fixed remuneration (‘TFR’) consists of base salary, superannuation and other non-monetary benefits and is designed to reward for: • • • the scope of the executive’s role; the executive’s skills, experience and qualifications; and individual performance. P a g e | 19 West African Resources Limited Remuneration Report (ii) Short-term Incentive (STI) arrangements Under the STI, all executives have the opportunity to earn an annual incentive award. The STI recognises and rewards achievement of annual Short-Term Incentive (‘STI’) performance metrics. These are paid in the form of a cash bonus (up to 20% of TFR) and Zero Exercise Priced Options (ZEPOs) (up to 30-40% of TFR). The performance metrics under the STI are set out below. To ensure overall goal alignment amongst the executives and the Company, a major component of the performance metrics is consistent amongst all the Executives. 2019 Performance metrics Company performance (80%) The Company set out the following performance metrics for achievement within 12 months of the date the STI ZEPOs were issued: Gateway hurdle: Completion of project finance, documentation and first debt drawdown. Weighted hurdles: If the gateway hurdle is achieved, the number of options that will vest will be determined by the Board relative to the maximum considering the extent to which the following weighted hurdles are achieved: • 20%: DFS update to mineral resources, reserves and project optimisation; • 20%: Commencement of box cut, portal establishment and decline development; • 20%: Formal investment decision; • 20%: Detailed design and commencement of construction; and • 20%: Lost Time Injury Frequency Rate (LTIFR) of less than 1, and trending downwards. 2020 Performance metrics Gateway hurdle: Sanbrado reaches commercial production in 2020. Weighted hurdles: If the gateway hurdle is achieved, the number of 2020 STI ZEPOs that will vest will be determined by the Board relative to the maximum considering the extent to which the following weighted hurdles are achieved: • 30%: Sanbrado construction completed within Board approved budget and schedule; • 30%: A minimum of 150,000 ounces of gold is poured in 2020; • 20%: There is no default of the Taurus loan facility agreement; • 10%: There are no significant social or environmental incidents; and • 10%: The Sanbrado Total Injury Frequency Rate (TIFR) is less than the industry standard in Western Australia. Individual performance (20%) Individual performance is measured in relation to achievement of individual and departmental specific goals and supervisory discretion. (iii) Long-term Incentive (LTI) arrangements Long Term Incentive (‘LTI’) performance metrics are associated with achieving the vesting criteria for the associated option prior to the option expiry date as follows: • Premium Exercise Priced Options (‘PEPO’) for achieving a market measure (absolute share price appreciation , being a minimum of 145% at the end of a 4-year performance period and service) which, in relation to the 2020 LTI ZEPOs, is 60.61 cents (2019: 43 cents); and • Zero Exercise Priced Options (‘ZEPO’) for achieving a non-market measure (at least 500,000 ounces of gold poured within 3 years of the date the LTI ZEPOs are issued and will expire 5 years from the date of issue). P a g e | 20 West African Resources Limited Remuneration Report 5) PERFORMANCE AND EXECUTIVE REMUNERATION OUTCOMES The remuneration of the KMP for the year ended 31 December 2019 is detailed below. Please note that the prior period relates to the 6 months ending 31 December 2018. Fixed remuneration Variable remuneration Performance based % of remuneration Annual and Long Service Leave $ - - Super $ - - 26,027 10,845 52,588 29,107 Executive Directors Richard Hyde 31 Dec 19 31 Dec 18 31 Dec 19 Lyndon Hopkins1 31 Dec 18 Non-Executive Directors 31 Dec 19 Simon 31 Dec 18 Storm 31 Dec 19 Mark 31 Dec 18 Connelly Nigel Spicer Rod Leonard Ian Kerr 31 Dec 19 31 Dec 18 31 Dec 19 31 Dec 18 31 Dec 19 31 Dec 18 Executives 31 Dec 19 Padraig O’Donoghue 31 Dec 18 31 Dec 19 Matthew 31 Dec 18 Wilcox 31 Dec 19 31 Dec 18 Total Cash salary and fees $ 400,000 150,000 273,973 114,155 80,850 46,495 100,000 32,500 60,292 - 20,358 - 70,445 15,982 251,142 105,023 273,973 84,475 1,531,033 548,630 1Mr Hopkins was part of the Executives in the prior year. - - - - - - 1,934 - 6,507 1,518 23,858 9,977 26,027 8,025 84,353 30,365 Total $ 400,000 150,000 352,588 154,107 80,850 46,495 100,000 32,500 60,292 - 22,292 - 76,952 17,500 - - - - - - - - - - 32,132 10,966 24,631 2,787 109,351 42,860 307,132 125,966 324,631 95,287 1,724,737 621,855 Cash Bonus $ - - - - - - - - - - - - - - - - - - - - Options $ 122,881 48,913 39,979 15,632 55,951 18,261 175,068 13,956 - - - - 58,940 284 48,540 9,442 86,938 16,764 588,297 123,252 Performance rights (ZEPOs) $ Fixed remuneration % Total $ Remuneration linked to performance % 158,147 1,300 97,188 799 - - - - - - - - - - 29,131 239 - - 284,466 2,338 281,028 50,213 137,167 16,431 55,951 18,261 175,068 13,956 - - - - 58,940 284 77,672 9,681 86,938 16,764 872,764 125,590 59% 75% 72% 90% 59% 72% 36% 70% 100% 0% 100% 0% 57% 98% 80% 93% 79% 85% 66% 83% 41% 25% 28% 10% 41% 28% 64% 30% 0% 0% 0% 0% 43% 2% 20% 7% 21% 15% 34% 17% P a g e | 21 West African Resources Limited Remuneration Report STI performance and outcomes for 2019 For the year ended 31 December 2019 actual average performance and achievement of the performance metrics set out in section 4(C)(ii) above for the KMP was 100% of target performance. 500,000 STI PEPOs vested during the year ended 31 December 2019 and 963,948 STI ZEPO remain unvested. Shareholder approval will be sought for 334,927 of the unvested 2019 STI ZEPOs that Executive Directors, Richard Hyde and Lyndon Hopkins, have elected to receive in place of the cash component of the STI entitlement. LTI performance and outcomes for 2019 For the year ended 31 December 2019 actual average performance and achievement of the performance metrics set out in section 4(C)(iii) above for the KMP was 56% of target performance. 1,223,828 (LTI PEPOs) have vested and 944,167 (LTI ZEPOs) remain unvested. Clawback of remuneration In the event of serious misconduct, the Board has the discretion to reduce, cancel or clawback any unvested short -term or long- term incentives. 6) EXECUTIVE EMPLOYMENT ARRANGEMENTS A summary of the key terms of employment agreements for executives is set out below. There is no fixed term for executive service agreements and all executives are entitled to participate in the Company’s STI and LTI plans. The Company may terminate employment agreements immediately for cause, in which the executive is not entitled to any payment other than the value of fixed remuneration and accrued leave entitlements up to the termination date. Name Richard Hyde (Executive Director and CEO)1 Lyndon Hopkins (Executive Director and COO) Padraig O’Donoghue (Chief Financial Officer) Matthew Wilcox (Chief Development Officer) Salary (inclusive of Super) $400,0002 $300,000 $275,000 $300,000 Notice period 3-6 months3 Termination payment 3-6 months salary4 2 months 1 month 2 months per NES5 per NES5 per NES5 Notes 1Executive service agreement (ESA) entered into post year end and effective from 1 March 2020 2ESA provides for a salary increase from $400,000 to $585,000 starting from the date of commercial production of Sanbrado 33 months’ notice period if terminated by Director or 6 months’ notice period if terminated by Company 43months salary in lieu of notice if terminated by Director or 6 months’ salary if terminated by Company 5NES are National Employment Standards as defined in the Fair Work Act 2009 (Cth) P a g e | 22 West African Resources Limited Remuneration Report 7) ADDITIONAL STATUTORY DISCLOSURES This section sets out the additional disclosures required under the Corporations Act 2001. A. SHARE-BASED COMPENSATION Options granted as compensation during the year Grant date 14-Feb-2019 Total Number granted Value per option at grant date Value of options at grant date 259,516 259,516 $0.2890 $75,000 $75,000 Options forfeited / lapsed during the year Director Mark Connelly Lyndon Hopkins Total Grant date 03-Jun-2016 03-Jun-2016 Number forfeited / lapsed during the period 1,000,000 500,000 1,500,000 Share holdings of Key Management Personnel Balance 1 Jan 2019 Issued as remuneration Issued on exercise of options Net change other Balance 31 Dec 2019 Directors Richard Hyde Lyndon Hopkins Simon Storm Mark Connelly Nigel Spicer Rod Leonard Ian Kerr1 Executives Padraig O'Donoghue Matthew Wilcox Total 18,280,769 3,000,000 3,090,769 60,000 - - - 112,995 400,000 24,944,533 1Mr Kerr resigned as a Director on 6 September 2019. - - - - - - - - - - - - - - - - - - - - - - (500,000) - - - - - - 18,280,769 3,000,000 2,590,769 60,000 - - - 112,995 400,000 (500,000) 24,444,533 P a g e | 23 West African Resources Limited Remuneration Report Option holdings of Key Management Personnel Directors Richard Hyde Lyndon Hopkins Simon Storm Mark Connelly Nigel Spicer Rod Leonard Ian Kerr1 Executives Padraig O'Donoghue Matthew Wilcox Total Balance 1 Jan 2019 Granted as remuneration Options exercised Net change other Balance 31 Dec 2019 Total Vested Unvested At 31 December 2019 3,660,899 2,016,949 750,000 3,000,000 - - 500,000 1,012,712 1,000,000 11,940,560 - - 77,855 103,806 - - 77,855 - - 259,516 - - - - - - - - - - - (500,000) - (1,000,000) - - (577,855) - - (2,077,855) 3,660,899 1,516,949 827,855 2,103,806 - - - 3,660,899 1,516,949 827,855 2,103,806 - - - 588,235 355,932 - - - - - 1,012,712 1,000,000 10,122,221 1,012,712 1,000,000 10,122,221 279,661 500,000 1,723,828 3,072,664 1,161,017 827,855 2,103,806 - - - 733,051 500,000 8,398,393 1Mr Kerr resigned as a Director on 6 September 2019. P a g e | 24 West African Resources Limited Remuneration Report B. LOANS TO KEY MANAGEMENT PERSONNEL A loan of $290,000 was provided to Richard Hyde in a prior year to exercise 2,000,000 options at 14.5 cents. The loan charges interest at 5.5% per annum and the maturity date has been extended from 31 December 2018 to 30 June 2020. At year end, the balance due was $319,673 (31 December 2018: $303,723). C. ADDITIONAL DISCLOSURES RELATING TO KEY MANAGEMENT PERSONNEL Consolidated 31 December 2019 31 December 2018 $'000 $'000 Directors Transaction: Fees paid to Dorado Corporate Services Pty Ltd which has provided company secretarial and accounting services (ceased in 2019) to the company on normal commercial terms, for whom Mr Storm, a Director and Company Secretary, is a director and shareholder. This excludes fees included as remuneration noted under 5. Balance: Amount payable to Dorado Corporate Services Pty Ltd at balance date $Nil (31 December 2018: $14,967). Transaction: The Executive Chairman Richard Hyde’s spouse rented office premises to the Company for $440 per week at 14 Southbourne Street, Scarborough, Western Australia until 28 October 2018. Balance: Amount payable to Executive Chairman’s spouse at balance date $Nil (31 December 2018: $Nil). End of Audited Remuneration Report. - - - 18 11 29 P a g e | 25 West African Resources Limited Directors’ Report AUDITOR INDEPENDENCE Section 307C of the Corporations Act 2001 requires our auditors, HLB Mann Judd, to provide the Directors of the Company with an Independence Declaration in relation to the audit of the financial report. This written Auditor’s Independence Declaration is set out on page 66 and forms part of this Directors’ Report. Signed in accordance with a resolution of the Directors. RICHARD HYDE Executive Chairman Perth, 26 March 2020 P a g e | 26 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2019 Revenue from continuing operations Personnel costs Consultants Contractors Occupancy costs Legal costs Travel and accommodation Exploration and evaluation expenses Listed entity costs Overheads Interest expense – lease Forex realised gain (loss) Forex unrealised gain (loss) Other expenses Impairment of other receivables Depreciation expense Loss before tax Income tax expense Loss after tax Note 3(a) 3(b) 3(c) 4 OTHER COMPREHENSIVE INCOME: Items that may be reclassified subsequently to profit or loss: Foreign currency translation differences for foreign operations Other comprehensive profit (loss), net of income tax Total comprehensive profit (loss) for the period Profit (loss) attributable to: Owners of the parent Non-controlling interest Total comprehensive loss attributable to: Owners of the parent Non-controlling interest Basic and diluted loss per share (cents per share) 5 Consolidated Twelve months ended 31 December 2019 $'000 Six months ended 31 December 2018 $'000 1,239 (2,918) (628) (16) (71) (22) (318) (2,221) (194) (370) (5) (987) 2,361 - - (184) (4,334) - (4,334) (1,213) (1,213) (5,547) (4,275) (59) (4,334) (5,488) (59) (5,547) (0.5) 405 (639) (283) (4) (42) (110) (71) (1,672) (176) (99) - - (175) (13) (582) (90) (3,551) - (3,551) 717 717 (2,834) (3,536) (15) (3,551) (2,819) (15) (2,834) (0.5) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. P a g e | 27 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 Note 31 December 2019 31 December 2018 Consolidated CURRENT ASSETS Cash and cash equivalents Trade and other receivables Financial assets Total current assets NON-CURRENT ASSETS Property, plant and equipment Right-of-use assets Mine properties Other non-current assets Total non-current assets TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Loans and borrowings Lease liabilities Total current liabilities NON-CURRENT LIABILITIES Loans and borrowings Lease liabilities Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Accumulated losses Equity attributable to owners of the parent Non-controlling interest 6 7 8 9 10 11 12 13 14 13 14 15 16 17 $'000 83,584 1,501 38 85,123 224 8,135 242,477 - 250,836 335,959 13,890 22 1,866 15,778 235,063 6,609 4,278 245,950 261,728 74,231 162,919 7,373 (93,940) 76,352 (2,121) $'000 66,355 851 37 67,243 388 - 18,830 3,148 22,366 89,609 9,690 - - 9,690 - - 2,155 2,155 11,845 77,763 161,947 7,544 (89,640) 79,851 (2,088) TOTAL EQUITY 74,231 77,763 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. P a g e | 28 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019 Consolidated Note 31 December 2019 $'000 31 December 2018 $'000 OPERATING ACTIVITIES Payments to suppliers and employees Exploration and evaluation expenditure Interest received Interest paid Finance costs Other income Net cash outflow from operating activities INVESTING ACTIVITIES Payments for plant and equipment Development expenditure Capitalised interest paid during construction Net cash outflow from investing activities FINANCING ACTIVITIES Proceeds from issue of shares Proceeds from exercise of share options Proceeds from borrowings Payments for share issue costs Payments for lease liabilities Transaction costs related to loans and borrowings Net cash inflow from financing activities 6 13 13 Net increase (decrease) in cash held Cash at the beginning of the financial period Effect of exchange rate changes on the balance of cash held in foreign currencies Cash at the end of the financial period 6 (6,398) (1,452) 1,266 (5) - 2 (6,587) (54) (200,027) (8,887) (208,968) 219 770 251,799 (17) (1,130) (19,077) 232,564 17,009 66,355 220 83,584 (1,777) (2,880) 428 - (1) - (4,230) (116) (11,756) - (11,872) 43,175 - - (2,043) - (1,066) 40,066 23,965 42,565 (175) 66,355 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. P a g e | 29 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019 Balance at 1 July 2018 Loss after tax Other comprehensive income Total comprehensive loss for the period Shares issued during the period net of transaction costs Transfer to non-controlling interest Share-based payments Balance at 31 December 2018 Balance at 1 January 2019 Loss after tax Other comprehensive loss for the year Total comprehensive loss for the year Shares issued during the year net of transaction costs Transfer to non-controlling interest Share-based payments Balance at 31 December 2019 Consolidated Issued capital $'000 Accumulated losses $'000 Foreign currency translation reserve $'000 Share-based payments reserve $'000 Non-controlling interest $'000 120,815 - - - 41,132 - - 161,947 161,947 - - - 972 - - 162,919 (88,176) (3,536) - (3,536) - 2,073 - (89,639) (89,639) (4,275) - (4,275) - (26) - (93,940) (47) - 717 717 - - - 670 670 - (1,213) (1,213) - - - (543) 6,701 - - - - - 172 6,873 6,873 - - - - - 1,043 7,916 - (15) - (15) - (2,073) - (2,088) (2,088) (59) - (59) - 26 - (2,121) The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. Total $'000 39,292 (3,551) 717 (2,834) 41,132 - 172 77,763 77,763 (4,334) (1,213) (5,547) 972 - 1,042 74,231 P a g e | 30 West African Resources Limited Notes to the Financial Statements NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 1) A. BASIS OF PREPARATION BASIS OF ACCOUNTING These financial statements are presented in Australian dollars and are general purpose financial statements which have been prepared in accordance with applicable accounting standards, the Corporations Act 2001 and mandatory professional reporting requirements in Australia (including the Australian equivalents of International Financial Reporting Standards). They have also been prepared on the basis of historical cost and do not take into account changing money values. The accounting policies are consistent with those of the previous financial period, unless otherwise stated. On 13 November 2018, the Company announced a change in its financial year end from 30 June to 31 December. This change more closely aligns the Company’s reporting period with its subsidiaries’ operations in Burkina Faso. The Company is therefore reporting on a twelve-month accounting period from 1 January 2019 to 31 December 2019 with comparative accounting period being the 6 months from 1 July 2018 to 31 December 2018. West African Resources Limited (the “Company”) is a public company, incorporated and operating in Australia. The Company was incorporated on 1 September 2006 as a proprietary company and converted to a public company on 16 November 2007. The Company listed on the Australian Securities Exchange Ltd on 11 June 2010. Information for West African Resources Limited as an individual parent entity is provided in Note 27. B. PRINCIPLES OF CONSOLIDATION The consolidated financial statements comprise the financial statements of the Group. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which West African Resources Limited has control. C. ROUNDING OF AMOUNTS The Company is of a kind referred to in Rounding Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that Rounding Instrument to the nearest thousand dollars ($000’s), unless otherwise stated. D. STATEMENT OF COMPLIANCE These consolidated financial statements are general purpose financial statements prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and Interpretations, International Financial Reporting Standards and complies with other requirements of the law. The consolidated financial statements were authorised for issue on 26 March 2020. P a g e | 31 West African Resources Limited Notes to the Financial Statements 1) BASIS OF PREPARATION (CONTINUED) E. SIGNIFICANT ACCOUNTING JUDGEMENTS AND KEY ESTIMATES The preparation of this financial report requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. In preparing this financial report, the following key judgements, estimates and assumptions were made by management in applying the Group’s accounting policies: Accounting for leases • Assessment of contracts to determine whether they contain a lease and if so, whether they also contain non-lease components. • Estimated useful lives and depreciation of right-of-use assets. • Discount rate of the lease used in the calculation of lease liabilities. Exploration and evaluation expenditure • Whether a decision had been made to proceed with development in respect of a particular area of interest. Mine rehabilitation provision • Best estimate of future cash flows to settle mine restoration obligations. • Discount rate used in the calculation of the rehabilitation provision. Property plant and equipment • The useful lives and depreciation rates for plant and equipment. • Assessment of assets for impairment of their carrying value. Consolidation • Functional currency of each entity in the Group. F. EXPLORATION AND EVALUATION EXPENDITURE Mineral exploration and evaluation costs are expensed as incurred. Acquisition costs will normally be expensed but will be assessed on a case by case basis and if appropriate may be capitalised. These acquisition costs are only carried forward to the extent that they are expected to be recouped through the successful development or sale of the tenement. Accumulated acquisition costs in relation to an abandoned tenement are written off in full against profit or loss in the year in which the decision to abandon the tenement is made. Where a decision has been made to proceed with development in respect of a particular area of interest, all future costs are recorded as a development asset. Following the issuance of the updated exploitation permit for the Sanbrado Gold Project on 18 July 2018, exploration and evaluation costs incurred within the Sanbrado mining licence subsequent to that date have been recorded as a development asset. P a g e | 32 West African Resources Limited Notes to the Financial Statements 1) BASIS OF PREPARATION (CONTINUED) G. MINE PROPERTIES Mines under construction Exploration and evaluation costs are added to ‘Mines under construction’ which is a sub-category of ‘Mine properties’ after a decision has been made to proceed with development in respect of a particular area of interest and such development receives appropriate approvals. All subsequent expenditure on the construction, installation or completion of infrastructure facilities is capitalised in ‘Mines under construction’. Development expenditure is net of proceeds from the sale of ore extracted during the development phase to the extent that it is considered integral to the development of the mine. Any costs incurred in testing the assets to determine if they are functioning as intended, are capitalised, net of any proceeds received from selling any product produced while testing. Where these proceeds exceed the cost of testing, any excess is recognised in the statement of profit or loss and other comprehensive income. After production starts, all assets included in ‘Mines under construction’ are then transferred to ’Producing mines’ which is also a sub-category of ‘Mine properties’. No mine under construction costs were recognised prior to the transition period. H. CASH AND CASH EQUIVALENTS Cash comprises cash at bank and in hand. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above. I. INCOME TAX The income tax expense or benefit for the year is based on the profit or loss for the year adjusted for any non-assessable or disallowed items. It is calculated using tax rates that have been enacted or are substantially enacted as at balance date. Deferred tax is provided on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxation profit or loss. Deferred income tax assets are recognised to the extent that it is probable that the future tax profits will be available against which deductible temporary differences will be utilised. The amount of the benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in the income taxation legislation and the anticipation that the economic unit will derive sufficient future assessable income to enable the benefits to be realised and comply with the conditions of deductibility imposed by law. J. OTHER TAXES Revenues, expenses and assets are recognised net of the amount of GST except: • when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables, which are stated with the amount of GST included. • The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. P a g e | 33 West African Resources Limited Notes to the Financial Statements 1) BASIS OF PREPARATION (CONTINUED) K. PLANT AND EQUIPMENT Each class of property, plant and equipment is carried at cost or fair value, less where applicable, any accumulated depreciation and impairment losses. The carrying amount of the plant and equipment is reviewed annually by the Directors to ensure it is not in excess of the recoverable amount of these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employed and their subsequent disposal. The expected net cash flows have been discounted to their present value in determining recoverable amounts. Depreciation The depreciable amount of all fixed assets including buildings and capitalised leased assets, but excluding freehold land, is depreciated on a straight-line basis over their useful lives to the Company commencing from the time the asset is held ready for use. The asset’s residual value and useful lives are reviewed and adjusted if appropriate, at each balance sheet date. An asset’s carrying value is written down immediately to its recoverable amount if the asset’s carrying value is greater than the estimated recoverable amount. Gains and losses on disposal are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of profit or loss and other comprehensive income. L. RECOVERABLE AMOUNT OF NON-CURRENT ASSETS The carrying amounts of non-current assets are reviewed annually by Directors to ensure they are not in excess of the recoverable amounts from those assets. The recoverable amount is assessed on the basis of the expected net cash flows, which will be received from the assets employed and subsequent disposal. The expected net cash flows have been or will be discounted to present values in determining recoverable amounts. M. TRADE AND OTHER ACCOUNTS PAYABLE Trade and other accounts payable represent the principal amounts outstanding at balance date, plus, where applicable, any accrued interest. N. BORROWINGS Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. O. ISSUED CAPITAL Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the cost of the acquisition as part of the purchase consideration. P a g e | 34 West African Resources Limited Notes to the Financial Statements 1) BASIS OF PREPARATION (CONTINUED) P. EMPLOYEE BENEFITS Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave, and long service leave. Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits expected to be settled within 12 months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the market yield as at the reporting date on national government bonds, which have terms to maturity approximating the terms of the related liability, are used. Q. SHARE-BASED PAYMENTS The Group provides benefits to employees (including Directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (“equity-settled transactions”). The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by a valuation using Black-Scholes or Binomial option pricing models. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the Directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award. R. FOREIGN CURRENCY TRANSLATION Both the functional and presentation currency of West African Resources Limited and its Australian subsidiary are Australian dollars. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date. All exchange differences in the consolidated financial report are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also recognised in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. P a g e | 35 West African Resources Limited Notes to the Financial Statements 1) BASIS OF PREPARATION (CONTINUED) R. FOREIGN CURRENCY TRANSLATION (CONTINUED) The functional currency of the foreign subsidiaries, Wura Resources Pty Ltd SARL, West African Resources Development SARL, Tanlouka SARL and Société des Mines de Sanbrado SARL, is the Communaute Financière Africaine Franc (CFA). The functional currency of the foreign subsidiary, Channel Resources Ltd is the Canadian Dollar (CAD). The functional currency of the foreign subsidiaries, Channel Resources (Cayman I) Ltd and Channel Resources (Cayman II) Ltd is the United States Dollar (USD). As at the reporting date the assets and liabilities of the subsidiaries are translated into the presentation currency of West African Resources Limited at the rate of exchange ruling at the balance date and their income and expenses are translated at the average exchange rate for the year. The exchange differences arising on the translation are taken directly to a separate component of equity, being recognised in the foreign currency translation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in profit or loss. S. FINANCIAL ASSETS Financial assets are classified, at initial recognition, and subsequently measured at amortised cost, at fair value through other comprehensive income (OCI), or fair value through profit or loss (FVTPL). The classification of financial assets at initial recognition that are debt instruments depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financial component or for which the Group has applied the practical expedient for contracts that have a maturity of one year or less, are measured at the transaction price determined under AASB 15. In order for a financial asset to be classified and measured at amortised cost of fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset. Subsequent measurement For the purposes of subsequent measurement, financial assets are classified in four categories: i. ii. iii. Financial assets at amortised cost (debt instruments) Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) iv. Financial assets at fair value through profit or loss P a g e | 36 West African Resources Limited Notes to the Financial Statements 1) BASIS OF PREPARATION (CONTINUED) S. FINANCIAL ASSETS (CONTINUED) Financial assets at amortised cost (debt instruments) This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met: • The financial asset is held within a business model with the objectives to hold financial assets in order to collect contractual cash flows; and • The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Interest received is recognised as part of finance income in the statement of profit or loss and other comprehensive income. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. Financial assets at fair value through profit or loss Financial assets that do not meet the criteria for amortised cost are measured at fair value through profit or loss. T. INTANGIBLE ASSETS Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised. U. PARENT ENTITY FINANCIAL INFORMATION The financial information for the parent entity, West African Resources Limited, disclosed in Note 27 has been prepared on the same basis as the Group. P a g e | 37 West African Resources Limited Notes to the Financial Statements 2) SEGMENT REPORTING AASB 8 requires a “management approach” under which segment information is presented on the same basis as that used for internal reporting purposes. Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Board of West African Resources Limited. The Group operates in only one business and geographical segment being predominantly in the area of mineral exploration and development in Burkina Faso, Africa. The Group considers its business operations in mineral exploration and development to be its primary reporting function. 3) REVENUE AND EXPENSES (a) Revenue Interest received (b) Personnel costs Salaries and wages Other employment expenses (c) Depreciation expense Plant and equipment Right-of-use asset Consolidated Twelve months ended 31 December 2019 $'000 Six months ended 31 December 2018 $'000 1,239 1,239 1,791 1,127 2,918 89 95 184 405 405 345 294 639 90 - 90 P a g e | 38 West African Resources Limited Notes to the Financial Statements 4) A. B. INCOME TAX INCOME TAX RECOGNISED IN PROFIT OR LOSS No income tax is payable by the consolidated entity as it recorded losses for income tax purposes for the year. NUMERICAL RECONCILIATION BETWEEN INCOME TAX EXPENSE AND THE LOSS BEFORE INCOME TAX. The prima facie income tax benefit on pre-tax accounting loss from operations reconciles to the income tax benefit in the financial statements as follows: Consolidated Twelve months ended Six months ended 31 December 2019 31 December 2018 Accounting loss before tax Income tax benefit at 27.5% Non-deductible expenses: Foreign exchange (gain) loss Share-based payments Impairment of loan to third party Impairment of other receivables Other non-deductible expenses Temporary differences not recognised Income tax benefit not recognised Tax losses utilised not previously brought to account Income tax benefit attributable to loss from ordinary activities before tax Unrecognised deferred tax balances Tax losses attributable to members of the group - revenue Potential tax benefit at 27.5% Deferred tax liabilities Taxable temporary differences: - accrued interest - prepayments Deferred tax asset not booked Amounts recognised in profit and loss: - accrued expenses - provisions - share issue costs Net unrecognised deferred tax asset at 27.5% $’000 (4,334) 1,192 (601) 268 - - (4) (1,456) - 601 - 87,076 23,946 (13) (100) 1,503 1,841 1,191 28,368 $’000 (3,551) 976 41 (47) (4) (160) (1) (292) (493) - 75,185 20,676 - - 807 1,290 1,187 23,960 P a g e | 39 West African Resources Limited Notes to the Financial Statements 5) LOSS PER SHARE Consolidated Twelve months ended 31 December 2019 $ Six months ended 31 December 2018 $ Basic and diluted loss per share (cents per share) (0.5) (0.5) The loss and weighted average number of ordinary shares used in the calculation of basic earnings per share is as follows: Loss for the year (4,333,608) (3,550,653) Weighted average number of shares outstanding during the year used in calculations of basic loss per share 868,631,331 707,811,612 6) CASH AND CASH EQUIVALENTS Consolidated 31 December 2019 $'000 31 December 2018 $'000 Cash at bank and in hand Short-term deposits 83,584 - 83,584 CASHFLOW RECONCILIATION Reconciliation of net profit (loss) after income tax to net cashflows from operating activities Profit (Loss) after income tax Depreciation Share-based payments Foreign exchange (gain) loss Impairment of non-current assets and other receivables Changes in assets and liabilities (Increase) Decrease in trade and other receivables (Decrease) Increase in trade and other payables Net cashflows from operating activities (4,334) 184 1,043 (2,363) - (5,470) 173 (1,290) (6,587) 7,297 59,058 66,355 (3,551) 90 172 175 595 (2,519) (377) (1,334) (4,230) P a g e | 40 West African Resources Limited Notes to the Financial Statements 7) TRADE AND OTHER RECEIVABLES Current Interest receivable Prepayments Other receivables Loan to Director Allowance for impairment Consolidated 31 December 2019 $'000 31 December 2018 $'000 45 362 2,858 320 (2,084) 1,501 91 204 2,417 304 (2,166) 851 Other receivables include value added taxes receivable of $2,084,487 from the revenue authorities of Burkina Faso. An allowance for impairment for this amount has been made pending the outcome of a submission to the revenue authorities in Burkina Faso. Movement in the allowance for doubtful debts Balance at the beginning of the year Impairment losses and reversals recognised on receivables Balance at the end of the year Ageing of past due but not impaired 30 - 60 days 60 - 90 days 90 - 120 days Total Consolidated 31 December 2019 $'000 31 December 2018 $'000 (2,166) 82 (2,084) 819 - 320 1,139 (1,584) (582) (2,166) 343 - 304 647 P a g e | 41 West African Resources Limited Notes to the Financial Statements 8) PROPERTY, PLANT AND EQUIPMENT Consolidated 31 December 2019 $'000 31 December 2018 $'000 Buildings Gross carrying amount at cost Accumulated depreciation Net carrying amount Office equipment Gross carrying amount at cost Accumulated depreciation Net carrying amount Plant and equipment Gross carrying amount at cost Accumulated depreciation Net carrying amount Motor vehicle Gross carrying amount at cost Accumulated depreciation Net carrying amount Total property, plant and equipment owned 188 (137) 51 302 (246) 56 1,665 (1,580) 85 928 (896) 32 224 191 (89) 102 264 (214) 50 1,690 (1,503) 187 933 (885) 48 388 P a g e | 42 West African Resources Limited Notes to the Financial Statements 8) PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Consolidated 31 December 2019 $'000 31 December 2018 $'000 Movement in property, plant and equipment owned Buildings At the beginning of the year Additions Depreciation expensed for the year Depreciation capitalised for the year Effects of movement in foreign exchange At 31 December net of accumulated depreciation Office equipment At the beginning of the year Additions Depreciation expensed for the year Depreciation capitalised for the year Effects of movement in foreign exchange At 31 December net of accumulated depreciation Plant and equipment At the beginning of the year Additions Depreciation expensed for the year Depreciation capitalised for the year Effects of movement in foreign exchange At 31 December net of accumulated depreciation Motor vehicle At the beginning of the year Additions Depreciation expensed for the year Depreciation capitalised for the year Effects of movement in foreign exchange At 31 December net of accumulated depreciation At 31 December The useful life of the assets is estimated as 3 years. 102 - (3) (47) (1) 51 50 40 (12) (22) - 56 188 - (50) (51) (2) 85 48 8 (24) - - 32 224 123 1 (25) 3 102 19 40 (9) - 50 230 - (47) 5 188 3 54 (9) - 48 388 P a g e | 43 West African Resources Limited Notes to the Financial Statements 9) RIGHT-OF-USE ASSETS Balance at 1 January 2019 Additions Depreciation charge for the year Effects of movement in foreign exchange Balance at 31 December 2019 10) MINE PROPERTIES Mines under construction Balance at the start of the period Additions Change in rehabilitation provision Effects of movement in foreign exchange Balance at the end of the period 11) OTHER NON-CURRENT ASSETS Transaction costs Property $'000 Equipment $'000 - 127 (95) - 32 - 9,479 (1,391) 15 8,103 Total $'000 - 9,606 (1,486) 15 8,135 Consolidated 31 December 2019 $'000 31 December 2018 $'000 18,830 222,878 2,098 (1,329) 242,477 - 16,555 2,121 154 18,830 Consolidated 31 December 2019 $'000 31 December 2018 $'000 - - 3,148 3,148 At 31 December 2018, the transaction costs represent amounts directly attributable to establishing the project debt facility prior to execution and drawdown of the facility. These amounts were reclassified to loans and borrowings upon initial drawdown of the facility in the year ended 31 December 2019 (refer to Note 13A). 12) TRADE AND OTHER PAYABLES Current Trade payables Accruals Other payables Consolidated 31 December 2019 $'000 31 December 2018 $'000 8,091 5,465 334 13,890 6,383 2,936 371 9,690 Trade payables are non-interest bearing and are normally settled on 30-day terms. P a g e | 44 West African Resources Limited Notes to the Financial Statements 13) LOANS AND BORROWINGS Current Non-current A. PROJECT DEBT FACILITY Non-current Project debt facility Consolidated 31 December 2019 $'000 31 December 2018 $'000 22 235,063 235,085 - - - Consolidated 31 December 2019 $'000 31 December 2018 $'000 230,325 230,325 - - A project debt facility with a drawdown limit of US$200 million was executed during the year with Taurus Funds Management Pty Ltd for the development of the Sanbrado gold project. The facility is secured against the assets of the Group, with interest charged at 7.75% per annum on drawn amounts and 2% per annum on the undrawn amount. The balance drawn at 31 December 2019 was US$175 million (A$251,799,000), with US$25 million (A$33 million) remaining undrawn. The Group is also obligated to pay a product fee under the facility (refer to Note 19(C)(i)). B. SUPPLIER LOAN FACILITIES Current Non-current Consolidated 31 December 2019 $'000 31 December 2018 $'000 22 4,738 4,760 - - - A loan facility was entered into with Byrnecut Burkina Faso SARL as a component of the Sanbrado underground mining services contract, with a limit of US$10 million. Interest is charged at a rate of 9.75% per annum. The balance outstanding under the facility, inclusive of interest, at 31 December 2019 was US$3.3 million (A$4,760,000). The interest is payable half-yearly and the principal is due 6 months before termination of the 5-year services contract. Loans and borrowings repayment profile The principal repayment plus interest profile of the project debt and supplier facilities at 31 December 2019 appears in the table below. Project debt facility Supplier facility Total 6 months or less $'000 6-12 months $'000 10,708 22 10,730 11,291 - 11,291 1-5 years $'000 312,631 4,738 317,369 More than 5 years $'000 - - - P a g e | 45 West African Resources Limited Notes to the Financial Statements 14) LEASES Current Non-current Amounts recognised in profit or loss Interest on lease liabilities Expenses relating to short-term leases Amounts recognised in the statement of cash flows Consolidated 31 December 2019 $'000 31 December 2018 $'000 1,866 6,609 8,475 - - - Consolidated 31 December 2019 $'000 31 December 2018 $'000 5 70 75 - 39 39 Consolidated 31 December 2019 $'000 31 December 2018 $'000 Total cash outflow for leases 784 - Maturity analysis – contractual undiscounted cash flows Leases Less than one year $'000 2,387 1-5 years More than 5 years $'000 - $'000 7,417 Changes in liabilities arising from financing activities Loans and borrowings $’000 Consolidated Lease liabilities $’000 Balance at the beginning of the year Net cash from (used in) financing activities Transfer of prior year capitalised borrowing costs Amortisation of borrowing costs Effects of movement in foreign exchange Other changes Supplier facility utilised Leases entered into during the year Balance at the end of the year - 232,722 (1,066) 1,208 (2,511) (28) 4,760 - 235,086 127 (1,130) - - - - - 9,478 8,475 Total $'000 9,804 Total $’000 127 231,592 (1,066) 1,208 (2,511) (28) 4,760 9,478 243,560 P a g e | 46 West African Resources Limited Notes to the Financial Statements 15) PROVISIONS Non-current Long service leave provision Rehabilitation provision Reconciliation of movements in rehabilitation provision: Balance at the start of the period Increase in rehabilitation provision during the period Balance at the end of the period Consolidated 31 December 2019 $'000 31 December 2018 $'000 60 4,218 4,278 2,121 2,098 4,218 35 2,121 2,155 - 2,121 2,121 The rehabilitation provision is the best estimate of the present value of the future cash flows required to settle the Sanbrado mine site restoration obligations at the reporting date, based on current legal requirements and technology. The amount provided each period is also capitalised as an asset in mine properties. 16) ISSUED CAPITAL Fully paid ordinary shares (a) Number of shares At start of period Issue of shares 13 December 2018 Issue of shares 30 January 2019 Issue of shares 27 March 2019 Issue of shares on exercise of options Balance at end of period (b) Value of shares At start of period Issue of shares 13 December 2018 Issue of shares 30 January 2019 Issue of shares 27 March 2019 Issue of shares on exercise of options Share issue costs Balance at end of period Consolidated 31 December 2019 $'000 31 December 2018 $'000 162,919 161,947 No. No. 863,524,727 - 876,000 5,000,000 6,078,125 870,478,852 $'000 161,947 - 219 423 347 (17) 162,919 690,824,727 172,700,000 - - - 863,524,727 $'000 120,815 43,175 - - - (2,043) 161,947 P a g e | 47 West African Resources Limited Notes to the Financial Statements 17) RESERVES Consolidated 31 December 2019 $'000 31 December 2018 $'000 Reserves 7,373 7,544 Reserves comprise the following: (a) Foreign currency translation reserve At start of period Currency translation differences Balance at end of period (b) Share-based payments reserve At start of period Options issued - share based payment expense Options issued in lieu of directors fees Balance at end of period Nature and purpose of reserves (a) Foreign currency translation reserve 670 (1,213) (543) 6,874 974 68 7,916 (47) 717 670 6,701 172 - 6,873 The foreign currency translation reserve is used to record exchange differences arising from the translation of loans to foreign subsidiaries that are expected to be repaid in the long term and the translation of the financial statements of foreign subsidiaries. (b) Shared-based payments reserve The shared-based payments reserve is used to recognise the fair value of options issued to Directors, employees and other suppliers or consultants but not exercised. 18) DIVIDENDS No dividends have been paid or declared payable during the reporting period (31 December 2018: $Nil). P a g e | 48 West African Resources Limited Notes to the Financial Statements 19) COMMITMENTS AND OTHER CONTINGENCIES A. EXPLORATION AND MINING LEASE COMMITMENTS In order to maintain current rights of tenure to exploration tenements, the Group is required to outlay rental fees and to meet the minimum expenditure requirements. These discretionary costs are not provided for in the financial statements and will be payable as follows: Due within 1 year Due after 1 year but not more than 5 years Due after 5 years B. CAPITAL COMMITMENTS Consolidated 31 December 2019 31 December 2018 $'000 424 33 - 457 $'000 697 539 - 1,236 Capital commitments in relation to the construction of the Sanbrado Gold Project mine site will be payable as follows: Consolidated 31 December 2019 31 December 2018 $'000 21,626 - - 21,626 $'000 22,336 - - 22,336 Due within 1 year Due after 1 year but not more than 5 years Due after 5 years C. (i) CONTINGENT LIABILITIES Product fee (Taurus cash-settled offtake) Under the project finance facility for the Sanbrado Gold project the Group has a contractual commitment to pay a fee on the first 1.25 million ounces of gold sold from the Sanbrado Gold project. The fee for each ounce of gold sold will be calculated as the spread between the LBMA quoted am fix price on the date the refined gold is credited to the Company’s metals account and the lowest LBMA quoted gold price (am fix or pm fix) during the preceding 8 business day period. The Group has the option to terminate the product fee commitment at any time by paying the net present value (applying a 5% annual discount rate, and assuming the timing of gold sales as set out in the mine production schedule) of an agreed price per ounce for the remaining committed ounces. (ii) Other contingent liabilities There were no other material contingent liabilities at the end of the year (31 December 2018: nil). P a g e | 49 West African Resources Limited Notes to the Financial Statements 20) INTEREST IN SUBSIDIARIES The consolidated financial statements include the financial statements of West African Resources Limited and the subsidiaries listed in the following table: Controlled entities Parent Entity: West African Resources Limited Subsidiaries of West African Resources Limited: WAF Finance Pty Ltd Wura Resources Pty Ltd SARL West African Resources Development SARL Channel Resources Ltd which owns Channel Resources (Cayman I) Ltd which owns Channel Resources (Cayman II) Ltd which owns Tanlouka SARL Société des Mines de Sanbrado SA 1 Country of incorporation Australia Australia Burkina Faso Burkina Faso Canada Cayman Islands Cayman Islands Burkina Faso Burkina Faso Ownership interest 31 December 2019 31 December 2018 % % 100 100 100 100 100 100 100 90 - 100 100 100 100 100 100 90 1The remaining 10% of Société des Mines de Sanbrado SA is held by the government of Burkina Faso which is entitled to a free carried 10% interest in the project. Intercompany transactions between the parent entity and its subsidiaries are eliminated on consolidation. Consolidated Parent Entity 31 December 2019 $'000 31 December 2018 $'000 31 December 2019 $'000 31 December 2018 $'000 Amounts owed by/(to) related parties Subsidiaries WAF Finance Pty Ltd Wura Resources Pty Ltd SARL Société des Mines de Sanbrado SA West African Resources Development SARL Tanlouka SARL Channel Resources (Cayman I) Ltd Channel Resources (Cayman II) Ltd Channel Resources Ltd Total Provision for impairment Amounts payable to Directors for directors' fees (including GST) Amounts payable to Directors for consulting fees (including GST) - - - - - - - - - - - - - - - - - - - - - - - - 10 42 Further information with respect to related party transactions are included in Note 23. 14,212 22,788 44,150 560 18,717 43 44 (8) 100,506 (54,806) 45,700 - - - 21,865 30,576 503 17,525 - 26 (23) 70,472 (70,469) 3 16 42 P a g e | 50 West African Resources Limited Notes to the Financial Statements 20) INTEREST IN SUBSIDIARIES (CONTINUED) Summarised financial information for Société des Mines de Sanbrado SA before intragroup eliminations, is set out below. STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Revenue - 867 Twelve months ended 31 December 2019 $'000 Six months ended 31 December 2018 $'000 Profit (Loss) for the period: Attributable to owners of the parent Attributable to non-controlling interest STATEMENT OF FINANCIAL POSITION Assets Current assets Non-current assets Liabilities Current liabilities Non-current liabilities Equity Attributable to owners of the parent Attributable to non-controlling interest STATEMENT OF CASH FLOWS Net used in operating activities Net used in investing activities Net cash from (used in) financing activities (621) (59) (680) 1,860 214,887 216,747 225,354 12,600 237,954 (19,086) (2,121) (21,207) (1,436) (164,211) 165,571 (76) (138) (15) (153) 1,636 10,372 12,008 32,892 - 32,892 (18,796) (2,088) (20,884) (245) (10,184) 11,019 590 P a g e | 51 West African Resources Limited Notes to the Financial Statements 21) SUBSEQUENT EVENTS AFTER THE BALANCE DATE First gold pour On 19 March 2020 West African announced that it has completed commissioning of the Sanbrado project and poured its maiden gold bars weighing 23.9 kg (768 troy oz). COVID-19 global pandemic Since early February the Company has been following the Western Australia Health Department guidelines for the COVID-19 global pandemic and has updated staff and contractors regularly as the situation evolved. At the time of this report no staff or contractors of the Group have tested positive for the virus (SARS-CoV-2) nor have there been any suspected cases. WAF executive and site management undertook a COVID-19 risk assessment workshop on site at Sanbrado in mid-March 2020. WAF’s site management team includes key people who worked through the Ebola crisis in Guinea in 2014-2015. WAF medical staff are monitoring the body temperatures of all people entering site and will implement a self-isolation policy for anyone suspected of being COVID-19 positive. Site management has prepared an isolation block within camp for any suspected cases and have qualified medical personnel and sufficient supplies to deal with a COVID-19 situation. The Company has taken early action to maintain production at Sanbrado. From a supply perspective, key reagents and consumables are on site for the next three to six months of production and the fuel farm is near full capacity and is receiving regular deliveries. In terms of international travel restrictions, the necessary staff are at site to manage production for the next few months and West African has received the assurance of its mining contractors that they are doing everything possible to maintain their services to the project. 22) AUDITORS’ REMUNERATION The auditor of West African Resources Limited is HLB Mann Judd Audit or review of the financial statements All other services Amounts received or due and receivable by non HLB Mann Judd audit firms Audit or review of the Burkina Faso financial reports Consolidated 31 December 2019 $'000 31 December 2018 $'000 46 - 46 18 18 18 1 19 5 5 P a g e | 52 West African Resources Limited Notes to the Financial Statements 23) DIRECTORS AND EXECUTIVE DISCLOSURES A. DETAILS OF KEY MANAGEMENT PERSONNEL Non-Executive Directors Simon Storm Mark Connelly Nigel Spicer Rod Leonard Ian Kerr Executive Directors Richard Hyde Lyndon Hopkins* Other Executives (KMPs) Non-Executive Director and Company Secretary Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Executive Chairman and CEO Executive Director and COO Padraig O’Donoghue Chief Financial Officer Matthew Wilcox Chief Development Officer *Date appointed a Director (employed since January 2017). Appointed November 2007 June 2015 September 2019 September 2019 June 2018 September 2006 September 2019 June 2018 September 2018 Resigned - - - - September 2019 - - - - B. COMPENSATION OF KEY MANAGEMENT PERSONNEL Short-term employee benefits Post-employment benefits Share-based payments Consolidated Twelve months ended 31 December 2019 $'000 Six months ended 31 December 2018 $'000 1,640 84 873 2,597 592 30 125 747 C. COMPENSATION BY CATEGORY OF KEY MANAGEMENT PERSONNEL FOR THE YEAR ENDED 31 DECEMBER 2019 Consulting fees were paid to Directors, details of which are included in the Remuneration Report in the Director’s Report. A salary was paid to the Chief Operating Officer, Chief Financial Officer and Chief Development Officer, details of which are included in the Remuneration Report in the Director’s Report. D. LOANS TO KEY MANAGEMENT PERSONNEL A loan of $290,000 with 5.5% interest per annum was provided to the Mr Richard Hyde in a prior year to fund the exercise of 2,000,000 options at 14.5 cents. During the year the maturity date of the loan was extended from 31 December 2019 to 30 June 2020. The loan balance outstanding at 31 December 2019 was $311,632 (31 December 2018: $303,723). P a g e | 53 West African Resources Limited Notes to the Financial Statements 23) DIRECTOR AND EXECUTIVE DISCLOSURES (CONTINUED) E. OTHER TRANSACTIONS AND BALANCES WITH KEY MANAGEMENT PERSONNEL Transaction: Fees paid to Dorado Corporate Services Pty Ltd which has provided company secretarial and accounting services to the company on normal commercial terms, for whom Mr Storm, Director and Company Secretary, is a director and shareholder. This excludes fees included as remuneration noted under 6(a). Balance: Amount payable to Dorado Corporate Services Pty Ltd at balance date $Nil (31 December 2018: $14,967). Transaction: The Executive Chairman, Richard Hyde's spouse rented office premises to the Company for $440 per week at 14 Southbourne Street, Scarborough, Western Australia until 28 October 2018. Balance: Amount payable to Executive Chairman’s spouse at balance date $Nil (31 December 2018: $Nil). 24) FINANCIAL INSTRUMENTS Financial assets Cash and cash equivalents (Note 6) Trade and other receivables (Note 7) Financial assets Financial liabilities Trade and other payables (Note 12) Loans and borrowings* (Note 13) Lease liabilities (Note 14) Consolidated Twelve months ended 31 December 2019 $'000 Six months ended 31 December 2018 $'000 - - - 18 11 29 Consolidated 31 December 2019 $'000 31 December 2018 $'000 83,584 1,501 38 85,123 (13,890) (256,559) (8,475) (278,924) 66,355 851 37 67,243 (9,690) - - (9,690) *Loan and borrowings amount as disclosed in Note 13 includes capitalised transaction costs of $21,473,000. P a g e | 54 West African Resources Limited Notes to the Financial Statements 25) FINANCIAL RISK MANAGEMENT The Group's activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. A. MARKET RISK (i) Interest rate risk The Group’s main interest rate risk arises from its cash balances. Cash held at variable rates expose the Group to cash flow interest rate risk while cash deposits at fixed rates expose the Group to fair value interest rate risk. During the period, the Group’s cash deposits at variable rates were denominated in Australian Dollars (“AUD”), United States Dollars (“USD”), Euros, and Communaute Financière Africaine Francs (“CFA”). The tables below analyse the Group's financial assets and financial liabilities into maturity groupings based on the remaining period at the reporting date to the contractual maturity date. Consolidated Fixed Interest Rate Maturing Weighted Average Effective Interest Rate Floating Interest Rate $’000 Within Year $’000 1 to 5 Years $’000 Over 5 Years $’000 Non- interest bearing $’000 Total $’000 31 December 2018 Financial assets Cash and cash equivalents Trade and other receivables Financial assets Total financial assets Financial liabilities Trade and other payables Total financial liabilities 31 December 2019 Financial assets Cash and cash equivalents Trade and other receivables Financial assets Total financial assets Financial liabilities Trade and other payables Loans and borrowings Lease liabilities Total financial liabilities 1.7% 5.5% 2.7% 7,297 - - 7,297 51,821 304 37 52,162 - - - - 1.7% 5.5% 2.7% 76,366 - - 76,366 - 320 38 358 - - - - - - - - - - - - - - - 21,315 1,866 - 235,244 6,609 23,181 241,853 - - - - - - - - - - - - - - 7,237 547 - 7,784 66,355 851 37 67,243 9,690 9,690 9,690 9,690 7,218 1,181 - 8,399 83,584 1,501 38 85,123 13,890 - 13,890 256,559 - 8,475 13,890 278,924 P a g e | 55 West African Resources Limited Notes to the Financial Statements 25) FINANCIAL RISK MANAGEMENT (CONTINUED) A. MARKET RISK (CONTINUED) (ii) Interest rate sensitivity At 31 December 2019, if variable interest rates for the full year were -/+ 0.5% from the year-end rate with all other variables held constant, pre-tax profit for the year would have moved as per the table below. 31 December 2019 31 December 2018 +0.5% $'000 374 174 -0.5% $'000 (374) (174) The sensitivity is calculated using the average cash position for the year ended 31 December 2019. The interest income in Note 3(a) of $1,239,000 (31 December 2018: $405,000) reflects cash balances in the period that ranged between $30,480,000 and $83,584,000 (31 December 2018: $33,480,000 and $66,354,000). (iii) Foreign currency risk The Group operates internationally and is exposed to foreign exchange risk primarily arising from costs denominated in CFA and USD, and loans and borrowings denominated in USD. The Group also has transactional currency exposures. Such exposure arises from purchases by an operating entity in currencies other than the functional currency. The Group does not have a policy to enter into forward contracts or other hedge derivatives. At 31 December 2019 and 31 December 2018, the Group had the following exposure to CFA, Euro, and USD foreign currencies expressed in AUD equivalents: Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Loans and borrowings Lease liabilities Consolidated 31 December 2019 $'000 31 December 2018 $'000 76,484 2,272 78,756 16,134 258,946 8,442 283,522 14,269 2,166 16,435 2,352 - - 2,352 P a g e | 56 West African Resources Limited Notes to the Financial Statements 25) FINANCIAL RISK MANAGEMENT (CONTINUED) A. MARKET RISK (CONTINUED) (iv) Exchange rate sensitivity A 10 per cent strengthening of the AUD against the following currencies at 31 December would have increased (decreased) profit or loss by the amounts shown in the below table. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for the year ended 31 December 2018. USD CFA EUR Profit or Loss Twelve months ended 31 December 2019 $'000 Six months ended 31 December 2018 $'000 17,413 1,854 (651) (488) (148) (645) A 10 per cent weakening of the Australian dollar against the same currencies at 31 December would have had the effect shown below, on the basis that all other variables remain constant. USD CFA EUR B. CREDIT RISK Profit or Loss Twelve months ended 31 December 2019 $'000 Six months ended 31 December 2018 $'000 (21,282) (2,266) 796 488 148 645 Credit risk arises primarily from the Group’s cash and cash equivalents held with financial institutions. The banks the Group uses for cash deposits and transactions are limited to high credit quality financial institutions. The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised at the beginning of this note. P a g e | 57 West African Resources Limited Notes to the Financial Statements 25) FINANCIAL RISK MANAGEMENT (CONTINUED) C. LIQUIDITY RISK Liquidity risk is the risk the Group will not be able to meet its financial obligations as they fall due. Liquidity risk management involves maintaining sufficient cash on hand or undrawn credit facilities to meet the operating requirements of the business. This is currently managed through cash and cash equivalents ($83,584,000 as at 31 December 2019) combined with the undrawn balance of the project finance debt (US$25 million as at 31 December 2019) and prudent cash flow and financial commitment management. The tables below analyse the Group's financial assets and liabilities into maturity groupings based on the remaining period at the reporting date to the contractual maturity date. Maturity analysis of financial assets and liability based on management's expectation Consolidated <6 months $'000 6-12 months $'000 1-5 years $'000 >5 years $'000 Total $'000 31 December 2018 Financial assets Cash and cash equivalents Trade and other receivables Financial assets Total financial assets Financial liabilities Trade and other payables Total financial liabilities Net maturity 31 December 2019 Financial assets Cash and cash equivalents Trade and other receivables Financial assets Total financial assets Financial liabilities Trade and other payables Loans and borrowing Lease liabilities Total financial liabilities Net maturity 66,355 851 37 67,243 (9,690) (9,690) 57,553 83,584 1,501 38 85,123 (13,890) (8,058) (915) (22,863) 62,260 - - - - - - - - - - - - - - - - - - - - - - - (13,257) (951) (14,208) (14,208) - (235,244) (6,609) (241,853) (241,853) - - - - - - - - - - - - - - - - 66,355 851 37 67,243 (9,690) (9,690) 57,553 83,584 1,501 38 85,123 (13,890) (256,559) (8,475) (278,924) (193,801) P a g e | 58 West African Resources Limited Notes to the Financial Statements 26) SHARE-BASED PAYMENTS A. RECOGNISED SHARE-BASED PAYMENTS The expenses recognised for services received during the year are shown in the table below: Share-based payments to Directors Share-based payments to employees Share-based payments to third party Consolidated Twelve months ended 31 December 2019 $'000 Six months ended 31 December 2018 $'000 708 330 5 1,043 83 84 6 172 The share-based payment plans are described below. There have been no cancellations or modifications to the plan during the year. B. TRANSACTIONS SETTLED USING SHARES No transactions were settled in the current year using shares. C. EMPLOYEE SHARE AND OPTION PLAN Under the Incentive Options and Performance Rights Plan, grants are made to senior executives and other staff members who have made an impact on the Group’s performance. Grants are delivered in the form of share options or performance rights which vest over periods as determined by the Board of Directors. D. PERFORMANCE RIGHTS Performance rights are issued for nil consideration in the form of zero exercise price options (ZEPO) and premium exercise price options (PEPO). Performance rights are subject to vesting conditions as determined by the Board of Directors. Any performance rights that do not vest by their expiry date will lapse. Upon vesting, these performance rights will be settled in ordinary fully paid shares of the Company. (a) Summary of performance rights granted under the Employee Share and Option Plan Outstanding at the beginning of the year Granted during the year Exercised during the year Lapsed/cancelled during the year Outstanding at the end of the year Exercisable at the end of the year *WAEP = weighted average exercise price 2019 Number 2019 WAEP* 2018 Number 2018 WAEP* 3,190,560 61,047 - - 3,251,607 1,223,828 $0.1649 - - - $0.1618 $0.4300 - 3,190,560 - - 3,190,560 - - - - - $0.1649 - The performance rights outstanding at the end of the year had a weighted average remaining contractual life of 1,027 days (31 December 2018: 1,449 days) P a g e | 59 West African Resources Limited Notes to the Financial Statements 26) SHARE-BASED PAYMENTS (CONTINUED) D. PERFORMANCE RIGHTS (CONTINUED) (b) Fair value of performance rights granted The fair value of the performance rights granted during the period was determined using the Black-Scholes pricing method. Further details of the basis of valuation appear below. During the year the company issued 61,047 performance rights, with fair value of $22,893, to employees of the company pursuant to the terms and conditions of the West African Resources Limited’s Incentive Options and Performance Rights Plan (31 December 2018: 3,190,560). Number issued 61,047 Grant date Expected life of rights Dividend yield Expected volatility Risk-free interest rate 05-Jul-19 2 years 0% 71% 1.65% Exercise price $0.0000 Share price on grant date $0.3750 E. SHARE OPTIONS Share options are issued for nil consideration. The exercise price, vesting conditions and expiry date are determined by the Board of Directors. Any options that are not exercised by the expiry date will lapse. Upon vesting, these options will be settled in ordinary fully paid shares of the Company. (a) Summary of options granted by the Group Outstanding at the beginning of the year Granted during the year Exercised during the year Lapsed/cancelled during the year Outstanding at the end of the year Exercisable at the end of the year *WAEP = weighted average exercise price 2019 Number 2019 WAEP* 2018 Number 2018 WAEP* 17,728,125 1,259,516 (6,078,125) (2,000,000) 10,909,516 - $0.2231 $0.2342 $0.1267 $0.1250 $0.2960 - 14,728,125 5,250,000 - (2,250,000) 17,728,125 - $0.1692 $0.3386 - $0.1400 $0.2231 - The share options outstanding at the end of the year had a weighted average remaining contractual life of 469 days (31 December 2018: 671 days) (b) Fair value of options granted The fair value of the options granted during the period was determined using the Black-Scholes pricing method. Further details of the basis of valuation appear below. During the year the company issued 1,259,516 options, with a fair value of $200,000, to Directors and employees of the company pursuant to the terms and conditions of the West African Resources Limited’s Incentive Options and Performance Rights Plan (31 December 2018: 5,250,000). Number issued 259,516 1,000,000 Grant date 14-Feb-19 09-Mar-19 Expected life of rights 2 years 3 years Dividend yield 0% 0% Expected volatility 71% 71% Risk-free interest rate 1.65% 1.65% Exercise price $0.0000 $0.2950 Share price on grant date $0.2600 $0.2800 P a g e | 60 West African Resources Limited Notes to the Financial Statements 26) SHARE-BASED PAYMENTS (CONTINUED) E. SHARE OPTIONS (CONTINUED) The outstanding balance of options and rights as at 31 December 2019 is represented by the following table: Grant date Vesting date ZEPOs 28-Dec-18 28-Dec-18 When the Company achieves the certain milestones in relation to its Sanbrado Gold Project within 12 months of the date the performance rights are issued First gold pour and commercial production Hold continuous office as a director of the Company for 1 year from the date the options were issued 14-Feb-19 07-Jul-19 When KPIs are achieved PEPOs 21-Mar-17 12-May-17 First gold production First gold production 18-Oct-17 03-Nov-17 First gold production First gold production 29-Mar-18 26-Sep-18 First gold production First gold production 28-Nov-18 28-Dec-18 28-Dec-18 First gold production and first concrete pour for the plant First gold pour and commercial production When the company’s share price first equals the option exercise price ($0.43) 05-Mar-19 First gold pour and commercial production Total Expiry date Exercise price Granted Lapsed / Cancelled Exercised On issue Vested Number of options and rights 28-Dec-21 28-Dec-23 $0.0000 $0.0000 1,022,565 944,167 14-Feb-21 01-Jun-22 $0.0000 $0.0000 21-Mar-20 12-May-20 18-Oct-20 09-Nov-20 29-Mar-21 26-Sep-21 28-Nov-21 28-Dec-21 28-Dec-22 05-Mar-22 $0.2400 $0.2400 $0.3750 $0.2400 $0.4100 $0.3100 $0.3100 $0.3200 $0.4300 $0.2950 259,516 61,047 2,287,295 400,000 500,000 750,000 2,750,000 1,250,000 500,000 1,000,000 2,500,000 1,223,828 1,000,000 14,161,123 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,022,565 944,167 259,016 61,047 2,287,295 400,000 500,000 750,000 2,750,000 1,250,000 500,000 1,000,000 2,500,000 - - - - - - - 500,000 - 1,223,828 1,223,828 - 14,161,123 - 1,723,828 P a g e | 61 27) PARENT ENTITY FINANCIAL INFORMATION The individual financial statements for the parent entity show the following aggregate amounts: BALANCE SHEET Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity PROFIT (LOSS) FOR THE REPORTING PERIOD Income tax benefit Total comprehensive loss Parent 31 December 2019 $'000 31 December 2018 $'000 18,258 77,011 95,269 1,998 57 2,056 93,213 162,919 7,917 (77,623) 93,213 23,219 - 23,219 65,367 11,854 77,221 7,086 2,155 9,241 67,980 161,947 6,875 (100,842) 67,980 (757) - (757) Net assets of the parent entity are greater than that of the Group due to the Board’s assessment of future recoverability of intercompany loans of $45.7 million. Guarantees, commitments and contingencies There are no guarantees, commitments or contingencies in the parent entity other than $187,006 of rental property lease commitments due within one year (31 December 2018: $178,130). 28) NEW STANDARDS AND INTERPRETATIONS A. ADOPTED In the period ended 31 December 2019, the Directors have reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to the Company and effective for the current reporting periods beginning on or after 1 January 2019. As a result of this review, the Group has initially applied AASB 16 from 1 January 2019. AASB 16: Leases AASB 16 replaces: • AASB 117: Leases, • • • Interpretation 4: Determining whether an Arrangement contains a Lease, Interpretation 115: Operating Leases-Incentives; and Interpretation 127: Evaluating the Substance of Transactions Involving the Legal Form of a Lease. P a g e | 62 28) NEW STANDARDS AND INTERPRETATIONS (CONTINUED) A. ADOPTED (CONTINUED) For the lessee, AASB 16 removes the classification of leases as either operating leases or finance leases, effectively treating all leases as finance leases. Most leases will be capitalised on the balance sheet by recognising a lease liability for the present value obligation and a 'right-of-use' asset. The right-of-use assets are calculated based on the lease liability plus initial direct costs, prepaid lease payments and estimated restoration costs less lease incentives received. This results in an increase in the recognised assets and liabilities in the statement of financial position as well as a change in expense recognition, with interest and deprecation replacing operating lease expense. There are exemptions for short-term leases and leases of low-value items. For the lessor, the accounting remains similar to current practice, i.e. lessors continue to classify leases as finance and operating leases. The Group has applied AASB 16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under AASB 117. Policy applicable from 1 January 2019 At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether: • • • the contract involves the use of an identified asset – this may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and the Group has the right to direct the use of the asset. The Group has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Group has the right to direct the use of the asset if either: ▪ ▪ the Group has the right to operate the asset; or the Group designed the asset in a way that predetermines how and for what purpose it will be used. This policy is applied to contracts entered into, or changed, on or after 1 January 2019. At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. However, for the leases of land and buildings in which it is a lessee, the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component. Policy applicable prior to 1 January 2019 For contracts entered into before 1 January 2019, the Group determined whether the arrangement was or contained a lease based on the assessment of whether: • • the fulfilment of the arrangement was dependent on the use of a specific asset or assets; and the arrangement had conveyed a right to use the asset. An arrangement conveyed the right to use the asset if one of the following was met: ▪ ▪ ▪ the purchaser had the ability or right to operate the asset while obtaining or controlling more than an insignificant amount of the output; the purchaser had the ability or right to control physical access to the asset while obtaining or controlling more than an insignificant amount of the output; or facts and circumstances indicated that it was more remote that other parties would take more than an insignificant amount of the output, and the price per unit was neither fixed per unit of output nor equal to the current market price per unit of output. P a g e | 63 28) NEW STANDARDS AND INTERPRETATIONS (CONTINUED) A. ADOPTED (CONTINUED) As a lessee The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. Lease payments included in the measurement of the lease liability comprise the following: • fixed payments, including in-substance fixed payments; • variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; • amounts expected to be payable under a residual value guarantee; and • the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise and extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of- use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Group presents right-of-use assets that do not meet the definition of investment property in ‘property, plant and equipment’ and lease liabilities in the statement of financial position. Short-term leases and leases of low-value assets The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases of property and equipment that have a lease term of 12 months or less and leases of low-value assets, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. B. NOT YET ADOPTED The Directors have also reviewed all of the new and revised Standards and Interpretations in issue not yet adopted for the period ended 31 December 2019. As a result of this review the Directors have determined that there is no material impact of the Standards and Interpretations in issue not yet adopted on the Group and, therefore, no change is necessary to Group accounting policies. P a g e | 64 29) CHANGES IN ACCOUNTING POLICIES Except for the changes below, the Group has consistently applied the accounting policies to all periods presented in this financial report. The Group applied AASB 16 with a date of initial application of 1 January 2019. As a result, the Group has changed its accounting policy for lease contracts as detailed below. The Group applied AASB 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 January 2019. The details of the changes in accounting policies are disclosed below. Definition of a lease Previously, the Group determined at contract inception whether an arrangement is or contains a lease under AASB 117. Under AASB 16, the Group assess whether a contract is or contains a lease based on the definition of a lease, as explained in Note 29(A). On transition to AASB 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied AASB 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under AASB 117 were not reassessed for whether there is a lease. Therefore, the definition of a lease under AASB 16 was applied only to contracts entered into or changed on or after 1 January 2019. As a lessee As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Group. Under AASB 16, the Group recognises right-of-use assets and lease liabilities for most leases – i.e. these leases are on-balance sheet. The Group decided to apply recognition exemptions to short-term leases of machinery, IT equipment and leases of property. For leases of other assets, which were classified as operating under AASB 117, the Group recognised right-of-use assets and lease liabilities. Leases classified as operating leases under AASB 117 At transition, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate as at 1 January 2019. Right-of-use assets are measured at either: • their carrying amount as if AASB 16 had been applied since the commencement date, discounted using the lessee’s incremental borrowing rate at the date of initial application – the Group applied this approach to its property and equipment leases; or • an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments. The Group used the following practical expedients when applying AASB 16 to leases previously classified as operating leases under AASB 117. • Applied a single discount rate to a portfolio of leases with similar characteristics. • Adjusted the right-of-use assets by the amount of onerous contract provision provided in AASB 137 immediately before the date of initial application, as an alternative to an impairment review. • Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term. • Excluded initial direct costs from measuring the right-of-use asset at the date of initial application. • Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease. P a g e | 65 29) CHANGES IN ACCOUNTING POLICY (CONTINUED) A. PRACTICAL EXPEDIENTS APPLIED In applying AASB 16 for the first time, the Group has used the following practical expedients permitted by the standard: • The accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short- term leases, with no right-of-use asset nor lease liability recognised; and • The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease. B. MEASUREMENT OF LEASE LIABILITIES Operating lease commitments disclosed as at 31 December 2018 Discounted using the lessee’s incremental borrowing rate at the date of initial application Less: short-term leases recognised on a straight-line basis as an expense Less: low value leases recognised on a straight-line basis as an expense Less: outgoings Add: adjustment as a result of a different treatment of extension and termination options Lease liability as at 1 January 2019 Current lease liabilities Non-current lease liabilities C. MEASUREMENT OF RIGHT-OF-USE ASSETS The recognised right-of-use asset relate to the following types of assets: Property leases Equipment D. IMPACT ON FINANCE LEASES 2019 $'000 573 (32) (290) - (124) - 127 31 December 2019 $'000 1,866 6,609 8,475 31 December 2019 $'000 32 8,103 8,135 Based on an analysis of the Group’s finance leases as at 31 December 2019 on the basis of the facts and circumstances that exist at that date, the Directors of the Company have assessed that the impact of this change will not have an impact on the amounts recognised in the Group’s interim financial statements. E. IMPACT ON LESSOR ACCOUNTING Based on an analysis of the Group’s leases as at 31 December 2019 on the basis of the facts and circumstances that exist at that date, the Directors of the Company have assessed that the impact of this change will not have an impact on the amounts recognised in the Group’s financial statements. P a g e | 66 DIRECTORS’ DECLARATION In the opinion of the Directors: a. The financial statements, notes and the additional disclosures included in the Directors' Report designated as audited, of the consolidated entity are in accordance with the Corporations Act 2001 including: (i) giving a true and fair view of the Group’s financial position as at 31 December 2019 and of its performance for the year then ended; and (ii) complying with Accounting Standards and Corporations Regulations 2001. b. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. c. The financial statements also comply with International Financial Reporting Standards as disclosed in Note 1(D). This declaration has been made after receiving the declarations required to be made to the Directors in accordance with Section 295A of the Corporations Act 2001 for the year ended 31 December 2019. This declaration is signed in accordance with a resolution of the Board of Directors. RICHARD HYDE Executive Chairman 26 March 2020 P a g e | 67 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the consolidated financial report of West African Resources Limited for the year ended 31 December 2019, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (a) the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (b) any applicable code of professional conduct in relation to the audit. Perth, Western Australia 26 March 2020 B G McVeigh Partner P a g e | 68 INDEPENDENT AUDITOR’S REPORT To the members of West African Resources Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of West African Resources Limited (“the Company”) and its controlled entities (“the Group”), which comprises the consolidated statement of financial position as at 31 December 2019, the consolidated statement of 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 31 December 2019 and of its financial performance for the year then ended; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (“the Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. P a g e | 69 Key Audit Matter How our audit addressed the key audit matter Carrying amount of development expenditure Note 10 to the financial report As at 31 December 2019, the carrying value of the Group’s mine properties was $242,477,000 and is a material asset of the Group. At balance date the Group had one mine property being a 90% share in the Sanbrado Gold Project. This asset is still under development. There is a risk that costs are incorrectly capitalised to the development asset. Further per AASB 136 Impairment of Assets, development assets are required to be tested for impairment indicators, as such there is a risk that the development expenditure is not recoverable. Our procedures included but were not limited to the following: • We considered if there were any indicators of impairment at balance date with no such indicators noted. • We considered the Directors’ assessment of potential indicators of impairment. • In relation to the substantial capitalisation of expenditure during the year as mine properties, we performed detailed testing, including verifying the authorisation, accuracy and completeness of the recording and classification of capital expenditure. • We examined the disclosures made in the financial report. Adoption of AASB 16 Leases Notes 9, 14 and 29 to the financial report AASB 16 Leases is effective for annual reporting beginning on or after 1 January 2019. The Company decided to apply the modified retrospective approach the transition accounting. for AASB 16 is significant to our audit, as the balances recorded are material, the update of the accounting policy requires policy elections, the implementation process to identify and process all relevant data associated with the pre-existing leases as well as new contracts entered into is complex and the measurement of the right-of-use asset and is based on assumptions such as discount rates and the lease termination and renewal options. including liability terms, lease Our procedures included but were not limited to the following: • We reviewed the commitments in place as at the date of initial application and determined if any of the recognition exemptions outlined in AASB 16 were applicable. • We reviewed contracts entered during the year ended 31 December 2019 and where leases were identified ensured that they were brought to account • We have assessed the reasonableness of the assumptions included in the lease calculations. • We have reviewed management’s calculations of the lease liability and right to use asset and ensured that they have been calculated correctly. • We examined the disclosures made in the financial report. Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 31 December 2019, 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 accordingly we do not express any form of assurance conclusion thereon. P a g e | 70 In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with 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 the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: - Identify and assess the risks of material misstatement of the 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 and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. - 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. P a g e | 71 We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included within the directors’ report for the year ended 31 December 2019. In our opinion, the Remuneration Report of West African Resources Limited for the year ended 31 December 2019 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 HLB Mann Judd Chartered Accountants Perth, Western Australia 26 March 2020 B G McVeigh Partner P a g e | 72 ADDITIONAL INFORMATION Additional information required by the Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 18 March 2020. DISTRIBUTION OF SHARES Category (size of holding) 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,000 – 100,000 100,001 – and over Number of holders 172 863 604 1,157 379 3,175 The number of shareholdings held in less than marketable parcels is 181. TWENTY LARGEST SHAREHOLDERS The names of the twenty largest holders of quoted shares are: Shareholders CITICORP NOMINEES PTY LIMITED CS THIRD NOMINEES PTY LIMITED ZERO NOMINEES PTY LTD BNP PARIBAS NOMINEES PTY LTD STICHTING LICHFIELD US\C 1 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 2 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 3 NATIONAL NOMINEES LIMITED 4 5 6 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA 7 8 9 10 MR PHILLIP RICHARD PERRY 11 BNP PARIBAS NOMINEES PTY LTD 12 ALOHA INVESTMENTS PTY LTD 13 AIGLE ROYAL CAPITAL PTY LTD 14 MR RICHARD HYDE 15 AMP LIFE LIMITED 16 EXPLORATION CAPITAL PARTNERS 2014 LIMITED PARTNERSHIP 17 MR GRAEME JOHN HAINES + MRS SHARNI GAY HAINES 18 19 NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT> 20 MR PHILLIP RICHARD PERRY + MRS TETYANA PERRY LUJETA PTY LTD No. of shares held 230,465,362 160,732,638 41,416,423 39,526,401 36,916,917 30,660,554 22,450,000 13,821,956 13,250,000 12,989,129 12,181,855 10,050,000 8,900,000 7,730,769 5,037,343 4,806,250 4,763,000 3,846,154 3,707,582 3,377,719 666,630,052 % Holding 26.48% 18.46% 4.76% 4.54% 4.24% 3.52% 2.58% 1.59% 1.52% 1.49% 1.40% 1.15% 1.02% 0.89% 0.58% 0.55% 0.55% 0.44% 0.43% 0.39% 76.58% STOCK EXCHANGE LISTING Listing has been granted for the ordinary shares (ASX code: WAF) of the Company on the Australian Securities Exchange Limited "ASX") with 870,478,852 ordinary shares on the Company’s register. P a g e | 73 SUBSTANTIAL SHAREHOLDERS The names of substantial shareholders are: Shareholder Mitsubishi UFJ Financial Group, Inc. VanEck Associates Corporation Number of shares 76,365,270 56,970,000 VOTING RIGHTS All shares carry one vote per unit without restriction. UNLISTED OPTIONS 15,251,384 options and performance rights are held by 18 option holders. Options do not carry a right to vote. There are no holders of more than 20% of the unlisted options and performance rights. P a g e | 74 SUMMARY OF TENEMENTS AT 18 MARCH 2020 Registered Holder % Held Tenement Number Grant Date Expiry Date Tenement Type Tenement Area km2 Geographical Location Tenement Name Damongto Wura Resources Pty Ltd SARL 100% No 2018-184/MMC/SG/DGCM 05/09/2018 01/03/2021 Goudré Wura Resources Pty Ltd SARL 100% No 2018-186/MMC/SG/DGCM 05/09/2018 23/03/2021 Manessé Tanlouka SARL 100% N2017/014/MEMC/SG/DGCMIM 13/01/2017 13/01/2020 Sartenga West African Resources Development SARL Toghin Vedaga Bollé Wura Resources Pty Ltd SARL Wura Resources Pty Ltd SARL Wura Resources Pty Ltd SARL Zam Sud Wura Resources Pty Ltd SARL Sanbrado Société des Mines de Sanbrado SA 100% No 2018-190/MMC/SG/DGMC 05/08/2017 04/08/2020 100% No 17 - 182/MMC/SG/DGCM 18/07/2017 17/07/2020 100% No 17 - 232/MMC/SG/DGCM 18/07/2017 17/07/2020 100% No 17 – 223//MMC/SG/DGCM 21/11/2017 20/11/2020 100% No 2018-183/MMC/SG/DGCM 05/09/2018 01/03/2021 90% Décret No 2017 – 104/PRES/PM/MEMC/MINEFID/MEEVCC Arrêté No 2018-139/MMC/SG/DGMG 13/03/2017 12/03/2024 ML 25.9 Ganzourgou Province P a g e | 75 EL EL EL EL EL EL EL EL 26 Ganzourgou Province 175 Ganzourgou Province 90.35 Ganzourgou Province 130.7 Namentenga Province 166 Ganzourgou Province 154.7 Gnagna, Kouritenga Provinces 205.5 Ganzourgou Province 17.46 Ganzourgou Province