Annual Report 2016 Sipa Resources Limited Sipa Resources Limited (ASX:SRI) Sipa Resources Limited ABN 26 009 448 980 Contents Chairman’s Address Social Responsibility Review of Operations 1 2 12 Board of Directors 14 16 17 Directors’ Report 21 29 Auditor Independence and Non-Audit Services Remuneration Report (Audited) Financial Report www.sipa.com.au Sipa Resources Limited 30 Consolidated Statement of Comprehensive Income 31 Consolidated Statement of Financial Position 32 Consolidated Statement of Cash Flows 33 Consolidated Statement of Changes in Equity 34 Notes to the Financial Statements 62 Directors’ Declaration 63 65 Additional Statutory Information 67 Corporate Directory Independent Auditor’s Report Chairman’s Address The Paterson North project provides balance and an important new dimension to Sipa’s exploration portfolio in terms of commodity, and jurisdictional exposure alongside our exciting 100 per cent owned Kitgum Pader base metal project in Uganda. Dear shareholder, I am pleased to report on what has been a positive and productive year for Sipa. The Company has expanded and diversified its project portfolio, whilst making strong progress from our drilling programs and completing a successful $4.5 million capital raising. A key development during the year was the signing of a joint venture with Ming Gold Limited to earn an 80 per cent interest in the Great Sandy copper gold project, part of our Paterson North project located in the strongly endowed and emerging Paterson Province, some 120km north of the giant Telfer gold-copper mine in Western Australia. The Paterson North project provides a greater balance and an important new dimension to Sipa’s exploration portfolio in terms of commodity, and jurisdictional exposure alongside our exciting 100 per cent owned Kitgum Pader base metal project in Uganda. In August, we commenced our maiden drill program at Paterson North, with initial results indicating a large copper gold mineralized system. While still very early days, the results have exceeded our expectations and we look forward to digesting the full results of this drill program and planning the next. We also made significant progress during the year in Uganda, with a highly successful program of follow-up drilling at the Akelikongo nickel copper discovery. This drilling returned some of the best assay results we have seen from the project, giving us growing confidence that we have a nickel-copper system of significant scale and potential. At the time of writing, we had just embarked on another key phase of drilling at Akelikongo which we are optimistic will lead us closer to making a commercial discovery. While nickel and copper are the primary mineral targets at Akelikongo, the Pamwa zinc lead discovery is a tantalising opportunity which gives the region status as a multi commodity terrain. Our approach is always to ensure that technical excellence is combined with commercial rigour in order to have the best chance of achieving commercial success and enhance shareholder value. On the corporate front, the Company was able to take advantage of an improvement in investor sentiment in the junior resource sector to complete a $4.5 million capital raising. The level of support from existing shareholders for this raising was exceptional, and I would like to take this opportunity to express my thanks to those who participated. As a result of this raising, the Company is in a strong position to execute its key exploration programs over the coming year. There are many people who have contributed to the Company’s success. These include Lynda Burnett, our highly committed and very capable Managing Director, who has adopted a hands-on approach to the management of the Company’s exploration activities both in Africa and Australia. Lynda is ably assisted by Tara Robson, our CFO and Company Secretary in Perth, and Bill Willmott, who is a most competent in-country manager and Director. I would also like to thank my fellow board members for their contributions throughout the year and to acknowledge the support and contribution of Joshua Tuhumwire, our Ugandan Chairman, and Sameer Thakkar and his team at UHY Thakkar & Associates. I would also like to take this opportunity to thank Dalton Gooding, who retired as a Director on 31 March 2016 after 13 years on the Board. His guidance and input to the Company over a long period has been invaluable. On behalf of the Board I would also like to thank a number of other key stakeholders for their contribution, including the Government of Uganda and Department of Geological Survey and Mines, the Northern Ugandan Acholi people, in whose region we operate, and our team of very capable geological and geophysical consultants. Finally, my thanks to you as shareholders for your continued support. With a strong balance sheet and high quality project portfolio now evenly split between an emerging mineral province in Africa and a world class mineral province in Australia. I am optimistic about the future of our company and look forward to a year of increasing activity as we strive to deliver results and value for our shareholders. Yours faithfully, Craig Ian McGown Annual Report 2016 1 Review of Operations Review of Operations 2 Sipa Resources Limited Key Highlights Uganda – Nickel Copper Sulphide and Lead-Zinc- Silver mineralisation – Deep diamond drilling undertaken at the Akelikongo nickel-copper prospect successfully defined the nature and orientation of the “chonolith” host to the nickel-copper mineralisation, with wide-spaced drilling confirming a shallow plunge to the system and confirming the presence of multiple ultramafic intrusions. – Subsequent RC drilling successfully tested the sparsely drilled area immediately under the peak of the soil anomaly, returning the highest grade and widest matrix to semi-massive intercepts drilled at the project to date, including: – 10m grading 1% Ni, 0.22% Cu and 0.05% Co from 63m down-hole in the footwall of the disseminated mineralisation in hole AKC004. – The RC drilling also returned some of the widest disseminated intercepts obtained to date from the project including 119m @ 0.4% Ni, 0.12% Cu and 0.02% Co from surface in disseminated mineralisation in hole AKC005. – Sipa’s enhanced understanding of the geometry and plunge of the chonolith structure at Akelikongo, together with the identification of an embayment in the footwall (which explains the larger volumes of shallow mineralisation), provides a vector for follow-up drilling targeting a basal high-grade massive sulphide position. – Assay results continue to indicate a large (>1km long and >300m wide) chonolith or intrusive pipe at Akelikongo, hosting disseminated and massive nickel and copper sulphides similar to other nickel systems of economic interest elsewhere in the world. – At the nearby Pamwa zinc-lead-silver prospect, 10km to the south, broad anomalous intercepts of strongly anomalous zinc and lead plus silver and cadmium have provided further evidence of a primary zinc-lead-silver system. Paterson Province, Australia – Copper-Gold Exploration – Farm-in and Joint Venture Agreement completed with Ming Gold Limited (Ming) enabling Sipa to earn up to 80% in the Great Sandy copper-gold project (E45/3599) located in the Paterson Province of Western Australia by expending $3M over up to four years. The project immediately adjoins Antipa Minerals’ (ASX: AZY) Citadel project to the south, where Rio Tinto Exploration is spending up to $60M to earn a 75% interest. – West Australian Government Exploration Incentive Scheme (EIS) grant up to the value of $150,000 awarded to co-fund drilling at Paterson North. – Maiden aircore/RC drilling program commenced, and completed, at the Great Sandy project subsequent to the end of the reporting period, targeting the >4km long Obelisk copper-gold anomaly. – Highly encouraging initial results from this program, with strong copper-gold-silver-molybdenum-tungsten anomalism returned over +1km of strike. – Copper values of >250ppm Cu and gold values of >20ppb Au were returned in 15 of the 19 wide-spaced reconnaissance holes assayed to date, with the more significant mineralised intercepts including: – 4m at 0.42g/t Au from 85m in PNA007; and – 8m at 0.28g/t Au, 0.44g/t Ag, 0.11% Cu, 36ppm Mo and 141ppm W from 86m including 1m at 1.26g/t Au from 89m in PNA014. – The high tenor of widespread anomalism, together with high gold values of up to 1.26g/t and the presence of significant copper silver molybdenum and tungsten, is analogous to the metal associations other discoveries in the district, such as the >1Moz Calibre and Magnum deposits. – The mineral system at Obelisk remains open in all directions. Annual Report 2016 3 Review of Operations Uganda: Kitgum-Pader Nickel-Copper and Base Metal Project (Sipa 100%) Sipa’s Kitgum-Pader Project is located in northern Uganda on the north-east margin of the Congo super-craton. In Uganda, two new mineral discoveries were made by Sipa during 2014 and 2015: the Akelikongo intrusive hosted nickel-copper sulphide discovery and the Pamwa Broken Hill Type-style lead-zinc-silver prospect. Figure 1 – Location of tenements in northern Uganda showing location of drilled prospects Akelikongo and Pamwa 4 Sipa Resources Limited Akelikongo D uring the year, the Company made major breakthroughs in advancing exploration at the Akelikongo nickel-copper-cobalt prospect towards economic discovery. In the first part of the year, a program of deep diamond drilling was undertaken to define the nature of the main gravity anomaly. This program was successful in defining the nature and orientation of the host “chonolith”, the conduit through which the mineralising ultramafic magmas have intruded. Two 200m spaced section lines of diamond holes were completed with holes AKD013, 014, 015 and 016 testing the entire width or diameter of the intrusion. The drilling indicated that the plunge of the system is shallow (less than 25 degrees) to the north-west. The drilling also showed multiple intrusions within the conduit as well as zones of xenomelt (melted country rock) within the chonolith. Nickel and copper sulphides are generally best developed at the margins of the chonolith, and the work undertaken to define its overall geometry and orientation has assisted the Company in vectoring into potential higher grade zones. In early CY2016, Sipa was able to successfully source a Reverse Circulation (RC) rig capable of drilling quality dry samples to the depths required. The RC drill program was designed to improve the Company’s understanding of the controls on the mineralisation in the sparsely drilled area immediately under the peak of the soil anomaly. Results from this program included the highest grade and widest matrix to semi-massive intercepts drilled at the project to date, including a significant semi-massive sulphide intercept of 10m grading 1% Ni, 0.22% Cu and 0.05% Co from 63m down-hole in the footwall of the disseminated mineralisation in hole AKC004. This drilling also returned some of the widest disseminated intercepts obtained to date from the project, including 119m @ 0.4% Ni, 0.12% Cu and 0.02% Co from surface in disseminated mineralisation in hole AKC005. Figure 2 – Akelikongo drill plan and section lines over gravity with local soil data image (inset) Figure 3 – Akelikongo section F-F’ The footwall matrix to semi-massive zones contain assays greater than 1% Ni or 1% Cu and range from 1m up to 10m wide. These zones are interpreted to represent the high-grade basal position at the time of the formation of the Akelikongo Ultramafic Complex, and lie at the footwall of the wide and shallow zones of disseminated sulphides. This sequence has been intersected in hole AKD004 in the south up to AKC001, approximately 250m to the north, and is open to the north-west. The basal position in other, better- understood nickel deposits is where massive sulphides (which have higher grades of nickel and copper) originally pooled during the initial formation of the deposit. The discovery of an embayment in the footwall during this drill program, plus the knowledge of the existence of higher and thicker grades within the embayment and the identification of this as being the basal position, now provides a clear focus for future drilling of this mineralised position along the shallow north-westerly plunge of the chonolith. Annual Report 2016 5 The mineralised zones generally occur around a stratigraphic contact in a biotite hornblende gneiss beneath a garnet gneiss. The soil anomaly is thought to represent a folded or thrust repeated horizon and the drilling completed to date confirms this view. It is thought that the eastern limb dips shallowly to the east whilst the western limb is overturned and dips more steeply to the east. The wider and better grade zinc, lead and silver intersections are located on the eastern limb. Figure 4 – Pb plus Zn in soils with strong anomalies labelled with drill hole locations and location of section A-A’ Figure 5 – Section A-A’ Review of Operations Akelikongo North L aboratory results from holes AKD012 and AKD003, which were drilled approximately 1.5km north of the surface soil expression of the main Akelikongo mineralisation, confirm nickel, copper, and PGE anomalism in migmatitic gneisses. These rocks are the same garnet-biotite rich paragneisses as the country rocks drilled in the footwall of the Akelikongo mineralisation. In AKD012, assays averaged 174ppm Ni and 95ppm Cu from 151m to 173m. The AKD012 assays have a 92% correlation between Ni and Cu and an 83% correlation between Cu, Ni and Pd. The most anomalous >100ppm Cu and >200ppm Ni assays correlate with 3PGE (Au+Pt+Pd) assays of between 20ppb and 48ppb. pXRF spot analyses of the same cores also show strongly anomalous levels of nickel and copper anomalism in the sulphides of the gneisses. The strong correlation of nickel, copper and PGEs is a typical signature of a nickel sulphide system. This strongly anomalous geochemistry now points to the possibility that holes AKD003 and AKD012 have intersected migmatitic gneisses which are proximal to the Akelikongo chonolith conduit. The information provides a vector and confidence in the extension of strike and orientation of the conduit to the north west of the known mineralisation. Pamwa A t the Pamwa base metal prospect, located 10km south of Akelikongo, drilling during the year intersected further primary sphalerite and galena intersections in lithostratigraphic horizons within a large >2km elongate Zn, Pb, Ag, Cd, Mn soil anomaly. A total of 22 aircore holes for 534m and three RC holes for 202m were drilled. The program consisted of shallow RAB and RC drill testing of highly anomalous soil peaks (>500ppm Zn + Pb). The assay results indicate broad zones (>25m) of strongly anomalous zinc plus lead (>1000ppm), silver and cadmium, with thinner, higher-grade zones (1-7m wide) of up to 3.9% combined Pb plus Zn and up to 20 g/t Ag. 6 Sipa Resources Limited Regional Targets A large number of additional nickel-copper targets have been identified during the course of Sipa’s exploration around Akelikongo. These include various gravity highs in the vicinity of Akelikongo identified during recent gravity surveys, which are as yet untested by drilling (Akelikongo and Akelikongo West are both located on gravity highs). Fixed and moving loop EM plus some of the down-hole EM surveys have identified further conductors which have not yet been tested. In addition, the Katunguru target, located 12km north-west of Akelikongo, has not been sufficiently tested in the area of the highest anomalism. More regionally a number of nickel targets in the western Aswa greenstone belt are untested but currently of lower priority (Figure 6). Figure 6 – Regional Geology and prospect locations Annual Report 2016 7 Review of Operations Australia: Paterson North (Sipa earning up to 80%) Sipa’s new Paterson North opens up an exciting new front of exploration for the Company in one of the most highly endowed yet under- explored mineral provinces in Australia. The project consists of one wholly-owned Sipa tenement and an earning interest (up to 80%) in Ming Gold’s Great Sandy copper gold project (E45/3599) by spending $3M on exploration over four years. Figure 7 – Paterson North location and tenements 8 Sipa Resources Limited I n June 2016, Sipa completed a Farm-in and Joint Venture Agreement with Ming Gold Limited (Ming) enabling Sipa to earn up to 80% in the Great Sandy copper gold project (E45/3599), located in the Paterson Province of Western Australia by expending $3 million over up to four years. The tenement is adjacent to Sipa’s recently pegged Anketell tenement (ELA45/4697), which together comprise the Paterson North project. The Company’s Paterson North exploration initiative is consistent with its strategic focus on value-creation through exploration targeting early-stage discovery opportunities in world-class mineral provinces. The Paterson Province is globally recognised as a strongly endowed and highly prospective mineral belt for gold and copper, including world- class deposits such as Newcrest’s giant Telfer gold-copper mine; Antipa Minerals’ Magnum and Calibre gold and copper deposits; the Nifty copper deposit; the Kintyre uranium deposit and the O’Callaghans skarn-hosted tungsten deposit. The Company also secured a West Australian Government Exploration Incentive Scheme (EIS) grant to co-fund its maiden drilling program at Paterson North up to the value of $150,000. The Great Sandy tenement hosts the newly discovered Obelisk copper gold prospect. The geology is interpreted to be the same prospective Proterozoic Yeneena sedimentary sequence and contains granite and gabbroic intrusions known to be associated with much of the known mineralisation elsewhere. Figure 8 is an image of magnetic data showing the continuity of the underlying Paterson Province geology from Telfer in the south and then north through Antipa Minerals’ land-holding and onto Sipa’s ground. Recently, Antipa Minerals announced significant anomalous results from IP surveys on its adjacent ground to the south. The work is being funded by Rio under a farm-in joint venture with Antipa Minerals worth up to $60 million. Figure 8 – Mineralised geological corridor extending north from Telfer to Magnum, Calibre onto the Paterson North project The results have revealed a series of IP chargeability anomalies within a corridor extending north from the Magnum and Calibre deposits through to its Meekus chargeability, magnetic and VTEM anomaly. The Meekus chargeability anomaly is situated 5km from Sipa’s tenement boundary along this same trend. The chargeability at Meekus also co-incides with a magnetic anomaly in the halo of an interpreted non- magnetic granitic, domal feature. The margins of non-magnetic granites form key targeting criteria for locating many of the gold and copper systems in the Paterson province. The combined use of gravity and magnetics assists with the identification of such granites and explains the location of the Telfer deposits and the O’Callaghan’s skarn system. Annual Report 2016 9 Review of Operations Figure 9 shows the granite which is spatially located with the Magnum and Calibre deposits and other Antipa Minerals prospects such as Meekus. Figure 10 shows the granite spatially associated with the Obelisk anomaly on the Sipa/Ming tenement. In late 2015 intersections from wide spaced reconnaissance drilling by Ming returned up to 0.32% Cu 30ppb Au and 25ppm Bi within an anomaly known known as the Obelisk prospect over 4km long with anomalous copper (>250ppm) and gold (>10ppb Au) (refer ASX announcement dated 17 March 2016). The mineralisation is hosted in a metamorphosed and altered gabbro associated with a strong gravity feature immediately to the south of an interpreted non-magnetic granite intrusion. The mineralisation is also associated with magnetite alteration. Subsequent to the reporting period, Sipa completed its maiden Aircore/ RC drill program, which further tested the Obelisk prospect. Initial results from 15/19 of the first drillholes in the 45 hole 4,500m program returned strong copper-gold-silver-molybdenum- tungsten (W) anomalism over +1km of strike. The more significant intercepts include: – 4m at 0.42g/t Au from 85m in PNA007; and – 8m at 0.28g/t Au, 0.44g/t Ag, 0.11% Cu, 36ppm Mo and 141ppm W from 86m including 1m at 1.26g/t Au from 89m in PNA014. Figure 9 – Interpreted granite (marked in yellow line) spatially related to Antipa Minerals’ copper-Gold deposits/Prospects Figure 10 – Interpreted granite (marked in yellow line) spatially related to Sipa/Ming Obelisk copper gold prospect The information in this report that relates to the exploration results previously reported in the ASX Announcements dated 30 June 2015, 27 July 2015, 24 August 2015, 27 August 2015, 8 October 2015, 28 October 2015, 13 November 2015, 9 December 2015, 17 March 2016, 4 April 2016, 20 May 2016, 2 June and 15 June 2016 , and 5 September 2016. The Company is not aware of any new information or data that materially affects the information included in those relevant market announcements. 10 Sipa Resources Limited Annual Report 2016 11 Board Profiles Board of Directors Craig Ian McGown Karen Lesley Field A strong Board with a solid cross section of skills and experience. Lynda Margaret Burnett Paul Gerard Kiley Tara Robson (Company Secretary) 12 Sipa Resources Limited Board of Directors continued Craig Ian McGown Non-Executive Director, Chairman since 11 March 2015 Qualifications BComm, FCA, ASIA Mr McGown is an investment banker with over 35 years of experience consulting to companies in Australia and internationally, particularly in the natural resources sector. He holds a Bachelor of Commerce degree, is a Fellow of the Institute of Chartered Accountants and an Affiliate of the Financial Services Institute of Australasia. Mr McGown is an executive director of the corporate advisory business New Holland Capital Pty Ltd (New Holland) and prior to that appointment was the chairman of DJ Carmichael Pty Limited. Mr McGown is also the Non-Executive Chairman for Pioneer Resources Limited (13 June 2008 – present) and in the past three years has held directorships in Bass Metals Ltd (7 July 2004 to 4 October 2013), and Peel Mining Limited (1 February 2008 to 9 April 2013). Through his role as executive director of New Holland, Mr McGown had been consulting to the Company from the period October 2014 until his appointment in March 2015. In accordance with the Company’s policy on assessing the independence of directors, Mr McGown is not considered to be an independent director by virtue of this consulting arrangement. As a result, the Board has appointed a Senior Independent Director to fulfil the role of Chair, in situations where Mr McGown may be conflicted. This position was held by Mr Dalton Gooding until his retirement on 31 March 2016 and is currently held by Mrs Karen Field. The mandate which outlines the terms of the consulting arrangement was terminated subsequent to year end, however a continuing obligation of 6% of funds raised from introduced parties remains until 23 September 2017. Mr McGown is a member of the Nomination and Compensation Committee since his appointment on 11 March 2015. Lynda Margaret Burnett Managing Director since 24 July 2014 Qualifications BSc (Hons) GAICD, MAusIMM, MSEG Mrs Burnett is a geologist with over 30 years’ experience in the mineral exploration industry. Prior to joining Sipa she was most recently Director – Exploration Australia for Newmont Asia Pacific. During her nine year tenure with Newmont, Lynda was responsible for the strategic planning, management and oversight of all Newmont’s generative exploration projects, as well as business development, in the Asia Pacific region including the discovery of the plus 3Moz McPhillamy’s Gold Deposit in NSW. Prior to her roles at Newmont, Lynda has worked for a number of mining and exploration companies including executive director of Summit Resources Ltd, for Newmont Pty Ltd at the Telfer Gold Mine and Worsley Alumina at the Boddington gold mine at its commencement. Lynda is currently on the advisory board of the Centre for Exploration Targeting based at the University of WA. During the past three years Mrs Burnett has not been a director of any other listed company. Karen Lesley Field Independent Non-Executive Director (Appointed 16 September 2004) Qualifications BEc, FAICD Mrs Field has over three decades experience in the mining industry and has held executive roles in a variety of industry sectors in Australia and South America. She has a strong background in strategy, human resources and project management. Mrs Field is the Senior Independent Director and a member of the Nomination and Compensation Committee (Chair since 11 March 2015). During the past three years Mrs Field has also served as a director Aurizon Holdings Limited (director from 19 April 2012). Paul Kiley Independent Non-Executive Director (Appointed 23 September 2014) Qualifications B Ec. CPA Mr Kiley has over three decades of experience in the mining and oil and gas industries, including seventeen years with Normandy/ Newmont, the last six years of which was as the Director for Corporate Development for Newmont’s Asia Pacific region. Upon leaving Newmont, Mr Kiley established a consulting business which has principally been involved in providing commercial and business development advice and also managing the commercial infrastructure aspects of projects through the prefeasibility and feasibility phases. In December 2015 he was appointed the Chief Financial Officer of Hillgrove Resources Limited. Mr Kiley has been a member of the Audit & Risk Committee since his appointment. During the past three years Mr Kiley has not been a director of any other listed companies. COMPANY SECRETARY The company secretary is Ms Tara Robson, B.A. Accounting. Ms Robson was appointed company secretary on 8 April 2004. Before joining Sipa Resources Limited, she served as consultant to the Company. She has held a similar role with other listed entities since 1997, including Anvil Mining Limited and Brockman Resources Limited. Prior to that Ms Robson was a senior audit manager with a major accounting practice. Annual Report 2016 13 Social Responsibilty Social Responsibility S ipa only operates in areas where it is invited and welcomed by the local community. Before every program of work and in every district we explore, meetings are held to discuss the nature, the timing of the program, and local labour requirements to facilitate a mutually beneficial program. In Australia Sipa has long enjoyed successful collaboration with the traditional owners of lands we have been invited. In Uganda this ethos continues and is expanded by our residential presence in the community. In Uganda Sipa is investing in a number of community measures designed to improve health and education levels in the community. At the forefront is Sipa’s participation in the Days for Girls program. Since early 2015 Sipa has visited 20 primary schools in the wider region of Lamwo (around Akelikongo). The program aims to keep girls in school post puberty, which is normally the time when school participation by girls drops drastically. The program consists of classroom education and the distribution of reusable sanitary protection. The program involves follow up to determine the program effectiveness and to make any improvements required. Sipa has also assisted in the training and commencement of new local businesses in the form of affordable liquid soap making, donated desks to a local school in Palabek, issued stationary supplies, sporting equipment and books to other schools in the Lamwo district. Sipa also patronises of many local businesses around Kitgum and employs local labour. On the 28th of April 2016 Sipa was proud to host a delegation for the opening of Padwat community school buildings near Palabek Ogili, within Sipa’s tenement area. The project, which was funded by the Australian Department of Foreign Affairs and Trade, arose from Sipa’s close relationship with Missionary Ventures East Africa Limited. Sipa identified the project as fulfilling the requirements of the funding grant, completed the funding application and ensured that correct governance was in place to complete the project. The community were heavily involved in the process and donated the land for the school buildings and has since donated more land to ensure the school will have adequate area for growth. We would like to thank AAMEG (African Australia Mining and Energy Group) who alerted us to the existence of the scheme and coordinated the funding application on our behalf. 14 Sipa Resources Limited Annual Report 2016 15 Financial Report Financial Report Your Directors submit their report on the consolidated entity (referred to hereafter as the Group) consisting of Sipa Resources Limited and the entities it controlled at the end of, or during, the year ended 30 June 2016. Contents Remuneration Report (Audited) 17 Directors’ Report 21 29 Auditor Independence and Non-Audit Services 30 Consolidated Statement of Comprehensive Income 31 Consolidated Statement of Financial Position 32 Consolidated Statement of Cash Flows 33 Consolidated Statement of Changes in Equity 34 Notes to the Financial Statements 62 Directors’ Declaration 63 Independent Auditor’s Report 16 Sipa Resources Limited Directors’ Report for the year ended 30 June 2016 Your Directors submit their report on the consolidated entity (referred to hereafter as the Group) consisting of Sipa Resources Limited and the entities it controlled at the end of, or during, the year ended 30 June 2016. (cid:8)ire(cid:36)tors (cid:103) (cid:18)ames(cid:84) (cid:23)uali(cid:41)(cid:36)ations(cid:84) Experien(cid:36)e and Spe(cid:36)ial (cid:24)esponsi(cid:35)ilities The names and details of the Company’s directors in office during the financial year and up to the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. (cid:6)raig (cid:13)an M(cid:36)(cid:11)o(cid:62)n(cid:84) B(cid:6)omm(cid:84) (cid:10)(cid:6)(cid:3)(cid:84) (cid:3)S(cid:13)(cid:3) (cid:103) (cid:18)on(cid:102)Exe(cid:36)utive (cid:8)ire(cid:36)tor (cid:108)(cid:6)(cid:44)airman sin(cid:36)e (cid:136)(cid:136) Mar(cid:36)(cid:44) (cid:137)(cid:135)(cid:136)(cid:140)(cid:109) Mr. McGown is an investment banker with over 35 years of experience consulting to companies in Australia and internationally, particularly in the natural resources sector. He holds a Bachelor of Commerce degree, is a Fellow of the Institute of Chartered Accountants and an Affiliate of the Financial Services Institute of Australasia. Mr. McGown is an executive director of the corporate advisory business New Holland Capital Pty Ltd (New Holland) and prior to that appointment was the chairman of DJ Carmichael Pty Limited. Mr. McGown is also the Non-Executive Chairman for Pioneer Resources Limited (13 June 2008 – present) and in the past three years has held directorships in Bass Metals Ltd (7 July 2004 to 4 October 2013), and Peel Mining Limited (1 February 2008 to 9 April 2013). Through his role as executive director of New Holland, Mr. McGown had been consulting to the Company from the period October 2014 until his appointment in March 2015. The mandate which outlines the terms of the consulting arrangement was terminated subsequent to year end, however a continuing obligation of 6% of funds raised from introduced parties remains until 23 September 2017. In accordance with the Company’s policy on assessing the independence of directors, Mr. McGown is not considered to be an independent director by virtue of this consulting arrangement. As a result, the Board has appointed a Senior Independent Director to fulfil the role of Chair, in situations where Mr. McGown may be conflicted. This position was held by Mr. Dalton Gooding until his retirement on 31 March 2016 and is currently held by Mrs Karen Field. Mr. McGown is a member of the Nomination and Compensation Committee since his appointment on 11 March 2015. Lynda Margaret Burnett(cid:84) BS(cid:36) (cid:108)(cid:12)ons(cid:109) (cid:11)(cid:3)(cid:13)(cid:6)(cid:8)(cid:84) M(cid:3)us(cid:13)MM(cid:84) MSE(cid:11) (cid:108)Managing (cid:8)ire(cid:36)tor sin(cid:36)e (cid:137)(cid:139) (cid:14)uly (cid:137)(cid:135)(cid:136)(cid:139)(cid:109) Mrs Burnett is a geologist with over 30 years’ experience in the mineral exploration industry. Prior to joining Sipa she was most recently Director – Exploration Australia for Newmont Asia Pacific. During her nine year tenure with Newmont, Lynda was responsible for the strategic planning, management and oversight of all Newmont’s generative exploration projects, as well as business development, in the Asia Pacific region including the discovery of the plus 3Moz McPhillamy’s Gold Deposit in NSW. Prior to her roles at Newmont, Lynda has worked for a number of mining and exploration companies including executive director of Summit Resources Ltd, and for Newmont Pty Ltd at the Telfer Gold Mine and Worsley Alumina at the Boddington gold mine at its commencement. Lynda is currently on the advisory board of the Centre for Exploration Targeting based at the University of WA. During the past three years Mrs Burnett has not been a director of any other listed company. (cid:15)aren Lesley (cid:10)ield(cid:84) BE(cid:36)(cid:84) (cid:10)(cid:3)(cid:13)(cid:6)(cid:8) (cid:103) (cid:13)ndependent (cid:18)on(cid:102) Exe(cid:36)utive (cid:8)ire(cid:36)tor (cid:108)(cid:3)ppointed (cid:136)(cid:164) Septem(cid:35)er (cid:137)(cid:135)(cid:135)(cid:139)(cid:109) Mrs Field has over three decades experience in the mining industry and has held executive roles in a variety of industry sectors in Australia and South America. She has a strong background in strategy, human resources and project management. Mrs Field is the Senior Independent Director and a member of the Nomination and Compensation Committee (Chair since 11 March 2015). During the past three years Mrs Field has also served as a director Aurizon Holdings Limited (director from 19 April 2012). (cid:22)aul (cid:15)iley(cid:84) BE(cid:36)(cid:87) (cid:6)(cid:22)(cid:3) (cid:103) (cid:13)ndependent (cid:18)on(cid:102)Exe(cid:36)utive (cid:8)ire(cid:36)tor (cid:108)(cid:3)ppointed (cid:137)(cid:138) Septem(cid:35)er (cid:137)(cid:135)(cid:136)(cid:139)(cid:109) Mr. Kiley has over three decades of experience in the mining and oil and gas industries, including seventeen years with Normandy/Newmont, the last six years of which was as the Director for Corporate Development for Newmont’s Asia Pacific region. Upon leaving Newmont, Mr. Kiley established a consulting business which has principally been involved in providing commercial and business development advice and also managing the commercial infrastructure aspects of projects through the prefeasibility and feasibility phases. In December 2015 he was appointed the Chief Financial Officer of Hillgrove Resources Limited. Mr. Kiley has been a member of the Audit & Risk Committee since his appointment. During the past three years Mr. Kiley has not been a director of any other listed companies. (cid:8)alton Leslie (cid:11)ooding(cid:84) B(cid:87)B(cid:27)S(cid:84) (cid:10)(cid:6)(cid:3) (cid:103) (cid:13)ndependent (cid:18)on(cid:102) Exe(cid:36)utive (cid:8)ire(cid:36)tor (cid:108)(cid:3)ppointed (cid:136) May (cid:137)(cid:135)(cid:135)(cid:138) (cid:103) (cid:24)etired (cid:138)(cid:136) Mar(cid:36)(cid:44) (cid:137)(cid:135)(cid:136)(cid:164)(cid:109) Mr. Gooding is a chartered accountant with over 30 years’ experience within the corporate and business sector including 14 years as a partner of Ernst & Young before starting his own practice of Gooding Partners (formerly Gooding Pervan) in 1998. Mr. Gooding was the Chairman of the Audit & Risk Committee and served as the Senior Independent Director until his retirement on 31 March 2016. During the past three years Mr. Gooding has also served as a director of the following other listed companies: – TFS Corporation Ltd (director since October 2014, chairman since November 2014) – Avita Medical Limited (director since November 2002 – 1 July 2014) – Katana Capital Limited (director since November 2005) – Brierty Limited (director since October 2007) Annual Report 2016 17 Financial Report Directors’ Report continued for the year ended 30 June 2016 (cid:6)ompany Se(cid:36)retary The company secretary is Ms Tara Robson, B.A. Accounting. Ms Robson was appointed company secretary on 8 April 2004. Before joining Sipa Resources Limited, she served as consultant to the Company. She has held a similar role with other listed entities since 1997, including Anvil Mining Limited and Brockman Resources Limited. Prior to that Ms Robson was a senior audit manager with a major accounting practice. (cid:13)nterests in t(cid:44)e S(cid:44)ares and (cid:19)ptions o(cid:40) t(cid:44)e (cid:6)ompany As at the date of this report, the interests of the directors in the shares and options of Sipa Resources Limited were: Directors C McGown L Burnett K Field P Kiley (cid:10)ully (cid:22)aid (cid:19)rdinary S(cid:44)ares S(cid:44)are (cid:19)ptions 1,592,500 – 2,592,500 1,575,000 1,592,500 1,592,500 – – There were no options issued during the year. Subsequent to year end L Burnett was issued 1,575,000 Options exerciseable at $0.11 pursuant to the Sipa Resources Employee Share Option Plan. Further details are found in Note 15. (cid:8)ividends No dividend has been paid or declared by the Group in respect of the financial year ended 30 June 2016 (30 June 2015: nil) and the directors do not recommend the payment of a dividend in respect of the financial year. (cid:22)rin(cid:36)ipal (cid:3)(cid:36)tivities The principal activities of the companies in the Group during the period were the acquisition and exploration of mineral tenements. (cid:24)evie(cid:62) and (cid:24)esults o(cid:40) (cid:19)perations After sale of the Thaduna project to Sandfire Resources in the previous year, the Group continued with exploration activities on its mineral tenements in Uganda. In addition the Group executed a Farm-in Agreement with Ming Gold Limited (“Ming”) to earn up to 80% in Ming’s Great Sandy copper gold project in the Paterson province of Western Australia, for expenditure of $3 million over 4 years. The tenement is adjacent to an additional tenement pegged by Sipa, which together form the Paterson North project. Under the terms of the Agreement, Sipa has the right to earn a 51% interest in the Ming ground for $1 million of exploration expenditure within two years of commencement, inclusive of a minimum commitment of $250k. In addition Sipa has the right to earn a further 29% interest in the tenement for a further $2 million of exploration expenditure within 4 years of commencement. The consolidated entity’s loss after tax for the financial year ended 30 June 2016 was $4,597,538 (2015: Loss $3,526,807). (cid:6)ontinuing (cid:19)perations Revenue Other income Gain on sale of Thaduna project Loss on disposal of property, plant and equipment Exploration expenditure Administrative expenses Impairment loss on available for sale assets Share of net loss of jointly controlled entity (cid:18)et loss (cid:40)or t(cid:44)e year At 30 June 2016 the Group’s cash and cash equivalents balance was $1,577,382 and there was no debt. 18 Sipa Resources Limited Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ 82,957 69,382 (cid:137)(cid:135)(cid:136)(cid:140) $ 58,570 201,762 – – 2,221,642 (29,053) (3,374,437) (3,363,107) (1,372,340) (1,688,701) (3,100) (2,800) – (925,120) (4,597,538) (3,526,807) (cid:19)perating and (cid:10)inan(cid:36)ial (cid:24)evie(cid:62) Over its nearly 30 year history, Sipa has discovered and developed mineral deposits including the Panorama copper zinc VMS project, the Ashburton gold project, where the Company produced profitable gold from 1999 – 2004, and the Enigma secondary copper system at Thaduna, which it sold to copper producer Sandfire Resources in 2015. Sipa has long been recognised as a leader in greenfields exploration, and based on this reputation, has been able to attract the interest and funding of many of the industry’s largest companies, including Newmont, Newcrest, Antofagasta and Outokumpu. Sipa is continuing with its record of successful project generation with the Kitgum Pader Basemetals project in Uganda and more recently at the Paterson North project in Western Australia. At the (cid:15)itgum(cid:102)(cid:22)ader Basemetals pro(cid:47)e(cid:36)t where it holds over 5815sq km of exploration tenements in central northern Uganda, two standout targets are being delineated: – The Akelikongo Intrusive hosted nickel copper system and surrounding district. – The Pamwa Broken Hill type zinc lead silver system and surrounding base metal anomalies. At (cid:22)aterson (cid:18)ort(cid:44) pro(cid:47)e(cid:36)t, Sipa has an interest in two tenements: the Anketell tenement which is wholly owned and the Great Sandy tenement in which Sipa is farming in with expenditure of $3 million over 4 years. The Farmin, together with Sipa’s wholly owned tenement, provides a foothold into an emerging gold-copper province, with strong discovery credentials in the Paterson Province of Western Australia. The geology is interpreted to be the same prospective geological sequence which also hosts world class gold and copper deposits such as Newcrest’s giant Telfer gold-copper mine 120 km to the south. Exploration activity remained steady during the period, as the Group continued exploration efforts on the Company’s Kitgum Pader project. The increase in loss is attributed entirely to the prior year gain on sale of the Thaduna project to Sandfire Resources Ltd (Sandfire) for $2 million worth of Sandfire shares and a 1% Net Smelter Royalty. The total income realised from the transaction was $2.22 million which included the gain on sale of the Sandfire shares and a pro-rata entitlement of rents and rates previously paid by the Company. Signi(cid:41)(cid:36)ant (cid:6)(cid:44)anges in State o(cid:40) (cid:3)(cid:248)airs During the financial year there was no significant change in the state of affairs of the consolidated entity other than as follows: During the period, the Group executed a term sheet for a Farm-in Agreement with Ming Gold Limited (“Ming”) to earn up to 80% in Ming’s Great Sandy copper gold project for expenditure of $3 million over 4 years. The tenement is adjacent to an additional tenement pegged by Sipa, which together form the Paterson North project. Under the terms of the Agreement, Sipa has the right to earn a 51% interest in the Ming ground for $1 million of exploration expenditure within two years of commencement, inclusive of a minimum commitment of $250k. In addition Sipa has the right to earn a further 29% interest in the tenement for a further $2 million of exploration expenditure within 4 years of commencement. Events Su(cid:35)se(cid:55)uent to Balan(cid:36)e (cid:8)ate There has not been any matter or circumstance, other than that referred to in the financial statements or notes thereto, that has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years, except for the following: In July 2016, Sipa announced a private placement (Placement) to exempt offerees and a Share Purchase Plan (SPP) at a price of $0.02 per share. The SPP was heavily oversubscribed resulting in a scale back. A total of 225,091,290 Shares were issued through the combined Placement and SPP and raised $4,501,826 before costs. On 1 September 2016, 4,659,000 Options exerciseable at $0.11 were issued pursuant to the Sipa Resources Employee Share Option Plan. The Options vest on 31 August 2019 and expire on 31 August 2021. Further details are found in Note 15. (cid:10)uture (cid:8)evelopments The proceeds of the Placement and SPP, together with Sipa’s cash reserves ((cid:120)$1.6 million at the end of the June (cid:23)uarter), will ensure that the Company is in a strong position to progress the maiden aircore drill program at the recently acquired and highly prospective Paterson North project in WA and will also enable Sipa to undertake the next important phase of exploration at the exciting Akelikongo nickel discovery in Uganda, where further drilling is planned to delineate higher grade massive sulphide zones in the important basal position. The consolidated entity intends to continue its current operations of tenement acquisition and mineral exploration with a view to commercial development. Likely developments that are included elsewhere in this report or the financial statements will, amongst other things, depend upon the success of the exploration and development programs. Sa(cid:40)ety and Environmental (cid:24)egulations The entity has a responsibility to provide a safe and healthy environment for all of our sites which should exceed expectation of regulations. In the course of its normal mining and exploration activities the consolidated entity promotes an environmentally responsible culture and adheres to environmental regulations of the Department of Minerals and Petroleum for Australian operations and to the Department of Geological Survey and Minerals for Ugandan operations, particularly those regulations relating to ground disturbance and the protection of rare and endangered flora and fauna. The consolidated entity has complied with all material environmental requirements up to the date of this report. Annual Report 2016 19 Financial Report Directors’ Report continued for the year ended 30 June 2016 S(cid:44)are (cid:19)ptions (cid:27)nissued s(cid:44)ares As at the date of this report, there were 4,659,000 unissued ordinary shares under options (Nil at reporting date). Refer to the remuneration report for further details of the options outstanding for Key Management Personnel (KMP). Option holders do not have any right, by virtue of the option, to participate in any share issue of the company or any related body corporate. S(cid:44)ares issued as a result o(cid:40) t(cid:44)e exer(cid:36)ise o(cid:40) options There were 49,108 fully paid ordinary shares issued pursuant to the exercise of listed options during and nil since the end of the financial year. (cid:13)ndemni(cid:40)ying (cid:19)(cid:259)(cid:36)er By way of Deed, the Company has agreed to indemnify each of the directors and executive officers from liabilities incurred while acting as a director and to grant certain rights and privileges to the director and executive officers to the extent permitted by law. The Company has not, during or since the end of the financial year, in respect of any person who is or has been an officer of the Company or a related body corporate incurred any expense in relation to the indemnification. The Company has also paid premiums to insure each of the directors and officers against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director or officer of the Company or a controlled entity in the consolidated entity, other than conduct involving a wilful breach of duty in relation to the consolidated entity. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. (cid:13)ndemni(cid:41)(cid:36)ation o(cid:40) (cid:3)uditors To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. (cid:8)ire(cid:36)tors(cid:90) (cid:3)ttendan(cid:36)e at Meetings (cid:18)um(cid:35)er o(cid:40) meetings (cid:44)eld (cid:18)um(cid:35)er o(cid:40) meetings attended C McGown L Burnett K Field P Kiley D Gooding (Retired 31 March 2016) Eligi(cid:35)le to (cid:3)ttend Directors’ Meetings (cid:3)udit Committee* (cid:18)omination and (cid:6)ompensation Committee 12 11 10 11 11 7 2 N/A N/A N/A 2 2 11 10 11 11 8 3 3 N/A 3 – N/A (cid:114) Since the retirement of Mr. Gooding on 31 March 2016, the role of the Audit Committee is being conducted by the entire Board. 20 Sipa Resources Limited Remuneration Report ((cid:3)udited) for the year ended 30 June 2016 The information in this section of the Directors’ Report has been audited. This report outlines the remuneration arrangements in place for Key Management Personnel (KMP) of Sipa Resources Limited (the Company) in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report KMP of the Group includes Non-Executive Directors and those Executives having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group. The details of the KMP during the year are as follows: Name C McGown L Burnett K Field P Kiley D Gooding T Robson (cid:22)osition Non-Executive Chairman Managing Director Non-Executive Director Non-Executive Director Non-Executive Director Chief Financial Officer and Company Secretary (cid:26)erm as (cid:15)M(cid:22) Full financial year Full financial year Full financial year Full financial year Retired 31 March 2016 Full financial year Ba(cid:36)(cid:48)ground In 2015 Sipa undertook a comprehensive review of its Remuneration practices and has implemented a new Executive Remuneration Policy which comprises a more structured approach based on components of Fixed Remuneration and a Long Term Incentive Plan. The review, which was undertaken by the Nomination and Compensation Committee on behalf of the Board, was based largely on a review of our peers and a basket of comparable companies. Given the amount of third party information available, no remuneration consultants were used in the process. This review has resulted in significant changes to our remuneration framework, with the new remuneration structure in place since the beginning of the financial year. The key initiatives arising from the review were: – Developing a remuneration framework to formalise incentive structures to guide remuneration practices going forward; – Benchmarking executive and non-executive remuneration with peer companies to determine the competitiveness of current remuneration arrangements; – Designing a new equity based long term incentive (LTI) plan for executives to encourage long-term sustainable performance. At the Annual General Meeting in November 2015, the Company received 88.68% of the total voted shares in favour of the Remuneration Report. (cid:19)vervie(cid:62) o(cid:40) t(cid:44)e approa(cid:36)(cid:44) to Exe(cid:36)utive (cid:24)emuneration (cid:137)(cid:135)(cid:136)(cid:140) and (cid:35)eyond Following the 2015 review of remuneration practices, the Board has implemented a new executive remuneration structure which became effective 1 July 2015. Remuneration at Sipa should: – Align and contribute to delivering strategic projects on time and on budget; – Assist Sipa in attracting and retaining the right people to execute the business strategy; – Align the interests of executives with the interest of shareholders; – Be contingent on both individual and Company performance; and – Be simple and easy to administer. There are two components to Remuneration Policy: Fixed Remuneration and Long Term Incentives. There are no short term incentives paid to KMP. Annual Report 2016 21 Financial Report Remuneration Report ((cid:3)udited) continued for the year ended 30 June 2016 Fixed Remuneration During the year ended 30 June 2015, benchmarking of the Fixed Remuneration component of Executive salaries was conducted against a custom peer group of similar size (by market capitalisation), and ASX-listed mineral exploration companies with overseas projects, in order to ensure that the remuneration levels set meet the objectives of enabling the Company to attract and retain key talent and are aligned to broader market trends in the minerals industry. Fixed Remuneration typically includes base salary, (structured as a total employment cost package which may be delivered as a mix of cash and other benefits at the Executives’ discretion), and superannuation at the prescribed legislative rates. Fixed Remuneration is to be reviewed annually by the Managing Director, within parameters established by the Board, or in the case of the Managing Director and Company Secretary, by the Board based on the recommendation of the Nomination and Compensation Committee. Long Term Incentive Plan Long Term Incentive (LTI) grants will be made to executives on an annual basis to align with typical market practice, and to align executives’ interests with those of shareholders and the generation of long-term sustainable value. The LTI grants are delivered through participation in the Sipa Employee Share Option Plan (ESOP), as approved by shareholders at the Annual General Meeting held 15 November 2015. The value of the LTI grants made under the plan will be made with reference to a set percentage of Base Salary with Executives’ performance assessed against pre-determined performance hurdles. The performance hurdles are a combination of market (share price based) and non-market (internal) hurdles to optimise share performance against exploration targets, the annual operating budget, successful communication with stakeholders, improved access to capital markets, stock liquidity and register profile. The threshold levels are suitably stretched to be consistent with the objectives of the LTI plan. The LTI as a percentage of Base Salary is 75% for the Managing Director and 30-50% for other participating personnel. Performance hurdles are measured at the end of the financial year with vesting occurring at the end of 3 years and expiry of the grants at the end of 5 years. Non-Executive Directors do not participate in the LTI. No Options were issued under the ESOP during the period, however, subsequent to year end, 4,659,000 Options exercisable at $0.11 were issued pursuant to the ESOP. The Options vest on 31 August 2019 and expire on 31 August 2021. Further details are found in Note 15. The plan rules do not provide for automatic vesting in the event of a change of control. The board may in its discretion determine the manner in which the unvested incentives will be dealt with in the event of a change of control. The holder of an Option does not have any rights to dividends, rights to vote or rights to the capital of the Company as a shareholder as a result of holding an Option. The performance hurdles in place for the 2015/2016 financial year are outlined below. 22 Sipa Resources Limited Strategi(cid:36) o(cid:35)(cid:47)e(cid:36)tives (cid:22)er(cid:40)orman(cid:36)e measure Weight M(cid:8) Weight (cid:19)t(cid:44)er (cid:15)M(cid:22) Total Shareholder Return (TSR) Comparison of TSR with a group of peer companies(1): 35% 20% Exploration Discovery – Below 50th percentile – 0% vest – Between 50th - 70% percentile – 15% vest – Above 70th percentile – entire 35% vest Substantially advance one or more company exploration projects via ore grade intersections of mineable width in a geologically compelling environment thus leading towards an initial mineral resource. Capital Management and Financial Strength Company adequately funded to achieve exploration objectives Corporate and Social Responsibility, incorporating metrics under environmental, safety, and community Enhanced Company profile Successful management of all stakeholders including government, community, and shareholders to achieve targeted outcomes whilst maintaining a safe working environment. Successful management of public relations to achieve targeted outcomes with respect to liquidity and register profile 35% 0% 10% 10% 50% 10% 10% 20% (1) The peer group includes Metals of Africa Ltd, Golden Rim Resources Ltd, Oklo Resources Ltd, Rift Valley Resources Ltd, Buxton Resources Limited and Burey Gold Limited. Nomination and Compensation Committee The Nomination and Compensation Committee of the Board of Directors of the Company is responsible for reviewing remuneration arrangements for the Directors, the Managing Director (CEO) and the Company Secretary. The Nomination and Compensation Committee assesses the appropriateness of the philosophy, nature and amount of remuneration of Directors and Senior Executives on an annual basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and Executive team. Non-Executive Director compensation Fees and payments to Non-Executive Directors reflect the demands which are made on, and the responsibilities of, the directors and have the objective of ensuring maximum benefit for Sipa by the retention of a high quality Board with the relevant skills mix to optimise overall performance. Non-Executive Directors’ fees and payments are determined within an aggregate Directors’ fee pool limit, which is periodically recommended by the Nomination and Compensation Committee for approval by shareholders. The pool limit maximum currently stands at $300,000, as approved by shareholders in November 2014. It is at the discretion of the Board to distribute this pool amongst the Non-Executive Directors based on the responsibilities assumed. During the year $181,111 of the pool was utilised. On 1 May 2016 Non-Executive Directors resolved to voluntarily and temporarily reduce their fees by 33%. The reduction will continue until 1 May 2017, unless market conditions improve significantly. No performance based fees are paid to Non-Executive Directors, nor are Non-Executive Directors entitled to participate in Sipa’s Employee Share Option Plan. Retirement benefits are limited to statutory superannuation at the rate prescribed under the Superannuation Guarantee legislation and entitlements earned under the Directors Retirement Scheme prior to 30 June 2008. The compensation of Non-Executive Directors for the period ending 30 June 2016 is detailed in Table 1 of this report. Annual Report 2016 23 Financial Report Remuneration Report ((cid:3)udited) continued for the year ended 30 June 2016 (cid:24)emuneration o(cid:40) (cid:15)M(cid:22) (cid:40)or t(cid:44)e year ended (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:164) and (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:140) The actual remuneration earned by executives during the year is set out below in Table 1. This provides shareholders with a view of the remuneration actually paid to KMPs for performance in the year and the value of LTIs that vested during the period. Performance against LTI measures year ended 30 June 2016 LTI’s were tested against a combination of market (share price based) and non-market (internal) hurdles to measure performance against exploration targets, the annual operating budget, successful communication with stakeholders, improved access to capital markets, stock liquidity and register profile. The threshold levels are suitably stretched to be consistent with the objectives of the LTI plan. (cid:13)ndi(cid:36)ative (cid:28)aluation (cid:137)(cid:135)(cid:136)(cid:140)(cid:99)(cid:137)(cid:135)(cid:136)(cid:164) Base Salary Percentage of Base for Performance Salary Incentive value (Stretch) Indicative value of each Option Maximum number of Options Percentage achieved against strategic objectives Number of LTI’s vested(1)(2) M(cid:8) $ 300,000 75% $ 225,000 $ 0.035 6,300,000 25% 1,575,000 (1) Vested describes the LTI’s earned for the period. They are not exercisable until 31 August 2019. (2) Actual awards were issued subsequent to year end but are included in remuneration for the current year as they were approved by shareholders during the period and a common understanding between the employee and the Company existed from 1 July 2015. At the end of the 2016 financial year, the Nomination and Compensation Committee measured the performance against the targets noting the following: Strategi(cid:36) o(cid:35)(cid:47)e(cid:36)tives Total Shareholder Return (TSR) Exploration Discovery Capital Management and Financial Strength Corporate and Social Responsibility, incorporating environmental, safety, and community Enhanced Company profile Total Weight M(cid:8) (cid:3)(cid:36)(cid:44)ieved M(cid:8) 35% 35% 10% 10% 10% 0% 5% 4% 8% 8% 100% 25% In considering the relationship between the consolidated entity’s performance and the benefits for shareholder wealth, the Board believes that, at this stage of development, there is no relevant direct link between revenue and profitability and the advancement of shareholder wealth as demonstrated in the table below which shows the share price is not directly linked to the Net Loss for the year, but moves independently of it. (cid:3)s at (cid:138)(cid:135) (cid:14)une Share price (cents per share) Net loss per year ended (cid:137)(cid:135)(cid:136)(cid:164) (cid:137)(cid:135)(cid:136)(cid:140) (cid:137)(cid:135)(cid:136)(cid:139) (cid:137)(cid:135)(cid:136)(cid:138) (cid:137)(cid:135)(cid:136)(cid:137) $0.019 $0.069 $0.049 $0.058 $0.087 $4,597,538 $3,526,807 $4,504,830 $5,717,678 $5,151,591 24 Sipa Resources Limited (cid:24)emuneration o(cid:40) (cid:15)M(cid:22) (cid:40)or t(cid:44)e year ended (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:164) and (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:140) (cid:108)(cid:26)a(cid:35)le (cid:136)(cid:109) S(cid:44)ort(cid:102)term (cid:35)ene(cid:40)its (cid:22)ost(cid:102)employment (cid:6)as(cid:44) Salary and (cid:10)ees Super(cid:102) annuation (cid:24)etirement (cid:22)rovision # (cid:19)t(cid:44)er long(cid:102)term (cid:35)ene(cid:40)its Long Servi(cid:36)e Leave S(cid:44)are(cid:102)(cid:35)ased payment (cid:19)ptions Total % (cid:22)er(cid:40)orman(cid:36)e (cid:24)elated % (cid:19)ptions Name (cid:18)on(cid:102)Exe(cid:36)utive (cid:8)ire(cid:36)tors C McGown (Appointed 11 March 2015) P Pearce (Retired 11 March 2015) D Gooding (Retired 31 March 2016) K Field P Kiley (Appointed 23 September 2014) D Williams (Resigned 23 September 2014) – – – 2016(cid:114)(cid:114) 2015 75,555 24,300 7,178 2,309 2016 2015(cid:114) 2016 2015(cid:114) 2016(cid:114)(cid:114) 2015(cid:114) 2016(cid:114)(cid:114) 2015 2016 2015(cid:114) – – 56,751 5,391 (104,048) 30,000 36,519 37,778 25,711 37,778 28,644 2,850 3,469 3,589 2,476 3,589 2,721 – – (52,500) – – – – – – 8,885 844 (64,167) Exe(cid:36)utive (cid:8)ire(cid:36)tor L Burnett(1) M Doepel(2) (Resigned 12 September 2014) (cid:19)t(cid:44)er (cid:15)M(cid:22) T Robson 2016 2015 2016 2015 296,543 275,000 – 28,172 26,125 – 27,525 2,615 2016 2015 187,578 17,820 175,912 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 82,733 26,609 – (41,906) (19,650) 39,988 41,367 28,187 41,367 31,365 – (54,438) 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 13,656 338,371 4.0% 4.0% – – – – – 301,124 – 30,140 205,398 175,912 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% (cid:114) (cid:114)(cid:114) (cid:134) (1) The Non-Executive Directors waived a portion of their fees for a period during the year ended 30 June 2015 whilst funding opportunities were considered. On 1 May 2016 Non-Executive Directors resolved to voluntarily and temporarily reduce their fees by 33% in response to market conditions. The reduction will continue until 1 May 2017, unless market conditions improve significantly. The Directors’ Retirement Scheme, approved by a meeting of shareholders, was frozen in the year ended 30 June 2008 with no further provision being made after that date. During the year ended 30 June 2016, Mr. Gooding waived his entire entitlement of $52,500 at retirement. During the year ended 30 June 2015, an amount of $42,618 was paid to Mr. Pearce for a benefit earned prior to June 2008, with a further $104,048 being waived by Mr. Pearce at retirement. Mr. Williams waived his entire entitlement of $64,167 at retirement in September 2014. On 24 July 2014, Ms Lynda Burnett was appointed as Managing Director. Prior to that date she held the position of Exploration Manager and was included in Sipa’s KMP grouping. (2) On 24 July 2014, Mr. Doepel retired from the position of Managing Director and on that same date was appointed a Non-Executive Director of the Company. Mr. Doepel resigned from the position of Non-Executive Director on 12 September 2014. Annual Report 2016 25 Financial Report Remuneration Report ((cid:3)udited) continued for the year ended 30 June 2016 Options granted, vested and lapsed during the year Long term incentives are administered through participation in the Sipa Resources Employee Share Option Plan (the “ESOP”). The ESOP meets the conditions of the ASIC class order for an eligible scheme and was last approved by members at the 19 November 2015 AGM for the purposes of Listing Rule 7.1. 1,575,000 Options were granted during the period, no options vested or lapsed during the period. 3,000,000 options lapsed in the previous financial year. There were no alterations to the terms and conditions of options awarded as remuneration since their award date. There were 4,659,000 Options issued to KMP and other employees subsequent to year end. Details can be found in Note 15. Shares issued on exercise of options There were no shares provided on exercise of remuneration options during the financial year ended 30 June 2016. Other The Company prohibits KMP from entering into any arrangement which has the effect of limiting their exposure in relation to the risk inherent in issued options. The Company’s Share Trading Policy governs when Sipa employees, directors, contractors, and consultants may deal in the Company’s securities and the procedures that must be followed for such dealings. A copy of the policy is located at sipa.com.au. Service Agreements Employment terms for the Managing Director and other KMP are formalised in service agreements. Each of these agreements provide for the provision of cash salary and participation, when eligible, in the Sipa Resources Limited Employee Option Plan. Other major provisions are set out below. L M Burnett, Managing Director – Term of agreement is continuing. – Base salary of $275,000 and $26,125 superannuation per annum. A comparative industry review in July 2015 has led to an increase in the base salary and superannuation to $300,000 and $28,500 respectively, effective 24 July 2015, in conjunction with the annual performance review. On 1 May 2016 Mrs Burnett agreed to voluntarily and temporarily reduce her base salary by $45,000, taking her base salary to $255,000 and $24,225 superannuation. The reduction will continue until 1 May 2017, unless market conditions improve significantly. – Termination notice of 6 months by the company or 3 months by the Managing Director. – Payment of termination benefit on early termination by the employer other than for gross misconduct equal to 6 months the annual remuneration package. – Mrs Burnett may terminate the agreement by 1 months’ notice in the event she is demoted from her position without good cause, or is requested, without good cause to assume responsibilities or perform tasks not reasonably consistent with her position. In this instance, she will, subject to shareholder approval if necessary, be entitled to a payout equivalent to 1 year base salary. T A Robson, Chief Financial Officer and Company Secretary On 1 July 2015, Ms Robson entered into an employment agreement with the Company, the significant terms of which are follows: – Term of agreement is continuing and is based on .8 of a full time equivalent employee. – Base salary of $188,000 and $17,860 superannuation per annum for .8 of a full time equivalent. – Termination notice of 3 months by either the company or Ms Robson. – Ms Robson may terminate the agreement by 1 months’ notice in the event she is demoted from her position without good cause, or is requested, without good cause to assume responsibilities or perform tasks not reasonably consistent with her position. In this instance, she will, subject to shareholder approval if necessary, be entitled to a payout equivalent to 6 months base salary. 26 Sipa Resources Limited S(cid:44)are(cid:44)oldings o(cid:40) (cid:15)M(cid:22) (cid:108)in(cid:36)luding nominees(cid:109) The numbers of shares in the company held during the financial year by each director of Sipa Resources Limited and other KMP of the Group, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation. Balan(cid:36)e at t(cid:44)e start o(cid:40) t(cid:44)e year (cid:24)e(cid:36)eived during t(cid:44)e year on exer(cid:36)ise o(cid:40) options (cid:3)(cid:36)(cid:55)uisition pursuant to (cid:22)la(cid:36)ement(cid:119) (cid:18)et (cid:19)t(cid:44)er (cid:6)(cid:44)ange Balan(cid:36)e at t(cid:44)e end o(cid:40) t(cid:44)e year (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:164) Directors C McGown K Field P Kiley L Burnett (cid:15)M(cid:22) T Robson (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:164) Directors C McGown K Field P Kiley L Burnett (cid:15)M(cid:22) T Robson – 750,000 700,000 300,000 3,096,118 Balan(cid:36)e at start o(cid:40) the year – 750,000 – – – – – – – – 1,000,000 250,000 300,000 300,000 – – – 1,400,000(cid:114) 1,000,000 1,000,000 1,000,000 2,000,000 3,096,118 – – (396,621)# – (cid:10)ormer (cid:8)ire(cid:36)tors and (cid:15)M(cid:22) D Gooding 396,621 (cid:119) Relates to shares purchased by Directors at fair value through the placement approved by shareholders on 2 July 2015. (cid:134) Ceased to be a director during the period and as such no further reporting is required for these holdings. (cid:114) Acquired on market during the period. (cid:19)ption (cid:44)oldings o(cid:40) (cid:15)M(cid:22) (cid:11)ranted as remuneration (cid:19)ptions exer(cid:36)ised Lapsed (cid:62)it(cid:44)out exer(cid:36)ise Balan(cid:36)e at t(cid:44)e end o(cid:40) the year (cid:28)ested (cid:108)Exer(cid:36)isa(cid:35)le(cid:109) (cid:27)nvested (cid:108)(cid:18)on(cid:102) exer(cid:36)isa(cid:35)le(cid:109) 300,000 1,575,000(3) – – – – – – – – – – (750,000)(2) – – – (300,000)(2) 1,575,000 – (64,673)(1) – – – – – – – – – – 1,575,000 – – (cid:10)ormer (cid:8)ire(cid:36)tors and (cid:15)M(cid:22) D Gooding 64,673 (1) Ceased to be a director during the period and as such no further reporting is required for these holdings. (2) Options held were acquired as part of an entitlement issue undertaken by the Company in 2014 and do not represent compensation options. (3) Actual awards were issued subsequent to year end but are included in remuneration for the current year as they were approved by shareholders during the period. Annual Report 2016 27 Financial Report Remuneration Report ((cid:3)udited) continued for the year ended 30 June 2016 (cid:19)t(cid:44)er transa(cid:36)tions (cid:62)it(cid:44) (cid:15)M(cid:22) Mr. McGown, the Chairman and a director of the company, is an executive director of the corporate advisory business New Holland Capital Pty Ltd. In the previous year and prior to his appointment as director, New Holland Capital Pty Ltd was paid fees in the amount of $30,000 pursuant to a fundraising mandate, which was equivalent to 6% of funds raised. The Board believes that this agreement is a market rate and is an arm’s length agreement. No fees have been paid in accordance with the mandate since appointment in March 2015. As at 30 June 2016 a balance of $Nil remained outstanding (30 June 2015: Nil).The mandate which outlines the terms of the consulting arrangement was terminated subsequent to year end, however a continuing obligation of 6% of funds raised from introduced parties remains until 23 September 2017. In the previous year, the Company paid consulting fees to Xagus Pty Ltd. Mr. Paul Kiley, a director of the company, is principal of Xagus Pty Ltd. All fees paid to Xagus are at competitive market rates. The total services recognised as an expense for the previous year amounted to $6,000. As at 30 June 2016 a balance of Nil (30 June 2015: $2,311) remained outstanding. In the previous year, the Company paid legal fees to the legal practice Williams and Hughes Pty Ltd. Mr. D J Williams, a former director of the company, is a commercial counsel with the Williams and Hughes Pty Ltd. All transactions with Williams and Hughes are at competitive market rates and performed primarily by staff of Williams and Hughes Pty Ltd. The total services recognised as an expense for the previous year amounted to $2,482. As at 30 June 2016 a balance of $Nil (30 June 2015: Nil) remained outstanding. There were no other transactions with KMP during the current year. This is the end of the Remuneration Report Signed in accordance with a resolution of the directors. On behalf of the Board L M Burnett Managing (cid:8)ire(cid:36)tor DATED: 22 September 2016 28 Sipa Resources Limited (cid:3)uditor Independence and Non-(cid:3)udit Services (cid:26)he directors received the following declaration from the auditor of the Company(cid:87) (cid:18)(cid:19)(cid:18)(cid:102)(cid:3)(cid:27)(cid:8)(cid:13)(cid:26) SE(cid:24)(cid:28)(cid:13)(cid:6)ES There were no non-audit services provided by the entity’s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Annual Report 2016 29 Financial Report Consolidated Statement of Comprehensive Income for the year ended 30 June 2016 Revenue Other income Gain on sale of Thaduna project Loss on disposal of property, plant and equipment Exploration expenditure Administrative expenses Impairment loss on available for sale assets Share of net loss of joint venture Loss (cid:35)e(cid:40)ore in(cid:36)ome tax Income tax expense (cid:18)et loss (cid:40)or t(cid:44)e year Items that may subsequently be classified through profit and loss Exchange differences arising on translation of foreign operations (cid:26)otal (cid:36)ompre(cid:44)ensive loss (cid:40)or t(cid:44)e year Loss per s(cid:44)are (cid:108)(cid:36)ents per s(cid:44)are(cid:109) – Basic loss per share for the year – Diluted loss per share for the year Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ 82,957 69,382 (cid:137)(cid:135)(cid:136)(cid:140) $ 58,570 201,762 – – 2,221,642 (29,053) (3,374,437) (3,363,107) (1,372,340) (1,688,701) (3,100) (2,800) – (925,120) (4,597,538) (3,526,807) – – (4,597,538) (3,526,807) 14,735 15,103 (4,582,803) (3,511,704) (0.65) (0.65) (0.57) (0.57) Notes 3 3 3 22 4 16 16 The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 30 Sipa Resources Limited Consolidated Statement of (cid:10)inancial Position as at 30 June 2016 (cid:3)SSE(cid:26)S (cid:6)urrent (cid:3)ssets Cash and cash equivalents Term deposits Trade and other receivables Prepayments (cid:26)otal (cid:6)urrent (cid:3)ssets (cid:18)on(cid:102)(cid:6)urrent (cid:3)ssets Available-for-sale financial assets Investment in joint venture Exploration and evaluation Other financial assets Property, plant and equipment (cid:26)otal (cid:18)on(cid:102)(cid:6)urrent (cid:3)ssets (cid:26)(cid:19)(cid:26)(cid:3)L (cid:3)SSE(cid:26)S L(cid:13)(cid:3)B(cid:13)L(cid:13)(cid:26)(cid:13)ES (cid:6)urrent Lia(cid:35)ilities Trade and other payables Provisions (cid:26)otal (cid:6)urrent Lia(cid:35)ilities (cid:18)on(cid:102)(cid:6)urrent Lia(cid:35)ilities Provisions (cid:26)otal (cid:18)on(cid:102)(cid:6)urrent Lia(cid:35)ilities (cid:26)(cid:19)(cid:26)(cid:3)L L(cid:13)(cid:3)B(cid:13)L(cid:13)(cid:26)(cid:13)ES (cid:18)E(cid:26) (cid:3)SSE(cid:26)S E(cid:23)(cid:27)(cid:13)(cid:26)(cid:31) Contributed equity Equity benefits reserve Foreign currency translation reserve Accumulated losses (cid:26)(cid:19)(cid:26)(cid:3)L E(cid:23)(cid:27)(cid:13)(cid:26)(cid:31) Notes Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ 5 6 7 8 22 11 9 10 12 13 13 1,577,382 6,233,336 20,000 32,559 54,244 40,000 22,644 10,697 1,684,185 6,306,677 2,100 5,200 – – 581,037 581,037 19,570 188,419 791,126 44,245 233,255 863,737 2,475,311 7,170,414 143,472 314,043 197,205 259,969 340,677 574,012 14,597 14,597 43,217 43,217 355,274 617,229 2,120,037 6,553,185 14 99,630,651 99,494,652 1,216,690 1,203,034 1,948 (12,787) (98,729,252) (94,131,714) 2,120,037 6,553,185 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. Annual Report 2016 31 Financial Report Consolidated Statement of Cash (cid:10)lows for the year ended 30 June 2016 (cid:6)as(cid:44) (cid:10)lo(cid:62)s (cid:40)rom (cid:19)perating (cid:3)(cid:36)tivities Payments to suppliers and employees Expenditure on exploration interests Interest received Receipt from miscellaneous Notes Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ (1,393,835) (1,771,199) (3,474,837) (3,373,271) 89,195 16,881 62,975 89,073 (cid:18)et (cid:6)as(cid:44) used in operating a(cid:36)tivities 17 (4,762,596) (4,992,422) (cid:6)as(cid:44) (cid:10)lo(cid:62)s (cid:40)rom (cid:13)nvesting (cid:3)(cid:36)tivities Proceeds from sale of exploration tenements Payment for purchases of property, plant and equipment Proceeds received for sale of property, plant and equipment Cash released from term deposits reserved for rehabilitation Disbursement to jointly controlled entity (cid:18)et (cid:36)as(cid:44) (cid:108)used in(cid:109)(cid:99)provided (cid:35)y investing a(cid:36)tivities (cid:6)as(cid:44) (cid:10)lo(cid:62)s (cid:40)rom (cid:10)inan(cid:36)ing (cid:3)(cid:36)tivities Proceeds from issuance of shares Share issue expenses (cid:18)et (cid:36)as(cid:44) provided (cid:35)y (cid:40)inan(cid:36)ing a(cid:36)tivities (cid:18)et (cid:108)(cid:8)e(cid:36)rease(cid:109)(cid:99)(cid:13)n(cid:36)rease in (cid:6)as(cid:44) and (cid:6)as(cid:44) E(cid:55)uivalents (cid:6)as(cid:44) and (cid:6)as(cid:44) E(cid:55)uivalents at Beginning o(cid:40) (cid:31)ear (cid:6)as(cid:44) and (cid:6)as(cid:44) E(cid:55)uivalents at (cid:26)(cid:44)e End o(cid:40) t(cid:44)e (cid:31)ear – 2,161,119 (49,357) (33,333) – 20,000 20,000 122,368 – (883,698) (29,357) 1,386,456 137,813 5,914,680 (1,814) (89,191) 135,999 5,825,489 (4,655,954) 2,219,523 6,233,336 4,013,814 5 1,577,382 6,233,336 The above Consolidated Statement of Cash Flow should be read in conjunction with the accompanying notes. 32 Sipa Resources Limited Consolidated Statement of Changes in E(cid:55)uity for the year ended 30 June 2016 (cid:6)onsolidated (cid:3)t (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:139) Loss for the year Other comprehensive profit/(loss) Total comprehensive loss for the year Shares issued Cost of issuing shares (cid:3)t (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:140) Loss for the year Other comprehensive profit/(loss) Total comprehensive loss for the year Shares issued Cost of issuing shares Share Based Payment (cid:3)t (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:164) Notes (cid:13)ssued (cid:36)apital $ (cid:3)(cid:36)(cid:36)umulated losses $ E(cid:55)uity (cid:35)ene(cid:40)its reserve $ (cid:10)oreign (cid:6)urren(cid:36)y (cid:26)ranslation (cid:24)eserve $ Total $ 93,169,829 (90,604,907) 1,203,034 (27,890) 3,740,066 – – (3,526,807) – (3,526,807) 6,414,014 (89,191) – – – – – – – – (3,526,807) 15,103 15,103 15,103 (3,511,704) – – 6,414,014 (89,191) 99,494,652 (94,131,714) 1,203,034 (12,787) 6,553,185 – – (4,597,538) – (4,597,538) 137,813 (1,814) – – – – – – – – – 13,656 – (4,597,538) 14,735 14,735 14,735 (4,582,803) – – – 137,813 (1,814) 13,656 99,630,651 (98,729,252) 1,216,690 1,948 2,120,037 14 14 14 14 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. Annual Report 2016 33 Financial Report Notes to the (cid:10)inancial Statements for the year ended 30 June 2016 (cid:136)(cid:87) (cid:6)orporate (cid:13)n(cid:40)ormation The consolidated financial report of Sipa Resources Limited and its subsidiaries (collectively, the Group) for the year ended 30 June 2016 was authorised for issue in accordance with a resolution of the directors on 22 September 2016. Sipa Resources Limited (the Company or the parent) is a for profit company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the company are described in the Directors’ report. (cid:137)(cid:87) Summary o(cid:40) Signi(cid:41)(cid:36)ant (cid:3)(cid:36)(cid:36)ounting (cid:22)oli(cid:36)ies (cid:137)(cid:87)(cid:136)(cid:87) Basis o(cid:40) preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on a historical cost basis, except for available for sale financial assets that have been measured at fair value. (cid:137)(cid:87)(cid:137)(cid:87) (cid:6)omplian(cid:36)e statement The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. (cid:137)(cid:87)(cid:138)(cid:87) (cid:6)(cid:44)anges in a(cid:36)(cid:36)ounting poli(cid:36)ies(cid:84) dis(cid:36)losures(cid:84) standards and interpretations Changes in accounting policies, new and amended standards and interpretations The accounting policies adopted are consistent with those of the previous financial year. From 1 July 2015 the Group has adopted all accounting Standards and Interpretations, mandatory for annual periods beginning on or before 1 July 2015, including: (cid:24)e(cid:40)eren(cid:36)e Title AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments The Standard contains three main parts and makes amendments to a number Standards and Interpretations. Part A of AASB 2013-9 makes consequential amendments arising from the issuance of AASB CF 2013-1. Part B makes amendments to particular Australian Accounting Standards to delete references to AASB 1031 and also makes minor editorial amendments to various other standards. AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality The Standard completes the AASB’s project to remove Australian guidance on materiality from Australian Accounting Standards. AASB 2015-4 Amendments to Australian Accounting Standards – Financial Reporting Requirements for Australian Groups with a Foreign Parent The amendment aligns the relief available in AASB 10 Consolidated Financial Statements and AASB 128 Investments in Associates and Joint Ventures in respect of the financial reporting requirements for Australian groups with a foreign parent. Adoption of these standards and interpretations did not have any material effect on the financial position or performance of the Group. The Group has not elected to early adopt any new standards or amendments. 34 Sipa Resources Limited (cid:137)(cid:87) Summary o(cid:40) Signi(cid:41)(cid:36)ant (cid:3)(cid:36)(cid:36)ounting (cid:22)oli(cid:36)ies (cid:108)(cid:36)ontinued(cid:109) Accounting Standards and Interpretations issued (cid:35)ut not yet e(cid:248)ective Australian Accounting Standards and interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ended 30 June 2016. The Group have not yet determined the impact of new and amended accounting standards and interpretations. These are outlined in the table below: (cid:24)e(cid:40)eren(cid:36)e Title Summary AASB 9 Financial Instruments AASB 9 (December 2014) is a new standard which replaces AASB 139. This new version supersedes AASB 9 issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and measurement, a single, forward-looking (cid:89)expected loss’ impairment model and a substantially-reformed approach to hedge accounting. AASB 9 is effective for annual periods beginning on or after 1 January 2018. However, the Standard is available for early adoption. The own credit changes can be early adopted in isolation without otherwise changing the accounting for financial instruments. Classification and measurement AASB 9 includes requirements for a simpler approach for classification and measurement of financial assets compared with the requirements of AASB 139. There are also some changes made in relation to financial liabilities. The main changes are described below. Financial assets a. Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. b. Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. c. Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. Financial liabilities Changes introduced by AASB 9 in respect of financial liabilities are limited to the measurement of liabilities designated at fair value through profit or loss (FVPL) using the fair value option. Where the fair value option is used for financial liabilities, the change in fair value is to be accounted for as follows: – The change attributable to changes in credit risk are presented in other comprehensive income (OCI). – The remaining change is presented in profit or loss. (cid:3)ppli(cid:36)ation date o(cid:40) standard (cid:3)ppli(cid:36)ation date (cid:40)or (cid:11)roup 1 January 2018 1 July 2018 Annual Report 2016 35 Financial Report Notes to the (cid:10)inancial Statements continued for the year ended 30 June 2016 (cid:137)(cid:87) Summary o(cid:40) Signi(cid:41)(cid:36)ant (cid:3)(cid:36)(cid:36)ounting (cid:22)oli(cid:36)ies (cid:108)(cid:36)ontinued(cid:109) (cid:24)e(cid:40)eren(cid:36)e Title Summary (cid:3)ppli(cid:36)ation date o(cid:40) standard (cid:3)ppli(cid:36)ation date (cid:40)or (cid:11)roup AASB 9 also removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value. This change in accounting means that gains or losses attributable to changes in the entity’s own credit risk would be recognised in OCI. These amounts recognised in OCI are not recycled to profit or loss if the liability is ever repurchased at a discount. Impairment The final version of AASB 9 introduces a new expected-loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses on a more timely basis. Hedge accounting Amendments to AASB 9 (December 2009 & 2010 editions and AASB 2013-9) issued in December 2013 included the new hedge accounting requirements, including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and disclosures. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7, AASB 2010-10 and AASB 2014-1 – Part E. AASB 2014-7 incorporates the consequential amendments arising from the issuance of AASB 9 in Dec 2014. AASB 2014-8 limits the application of the existing versions of AASB 9 (AASB 9 (December 2009) and AASB 9 (December 2010)) from 1 February 2015 and applies to annual reporting periods beginning on after 1 January 2015. AASB 2014-3 Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations (cid:110)AASB 1 & AASB 11(cid:111) AASB 2014-3 amends AASB 11 to provide guidance on the accounting for acquisitions of interests in joint operations in which the activity constitutes a business. The amendments require: 1 January 2016 1 July 2016 a. the acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in AASB 3 Business Combinations, to apply all of the principles on business combinations accounting in AASB 3 and other Australian Accounting Standards except for those principles that conflict with the guidance in AASB 11; and b. the acquirer to disclose the information required by AASB 3 and other Australian Accounting Standards for business combinations. This Standard also makes an editorial correction to AASB 11 36 Sipa Resources Limited (cid:137)(cid:87) Summary o(cid:40) Signi(cid:41)(cid:36)ant (cid:3)(cid:36)(cid:36)ounting (cid:22)oli(cid:36)ies (cid:108)(cid:36)ontinued(cid:109) (cid:24)e(cid:40)eren(cid:36)e Title Summary (cid:3)ppli(cid:36)ation date o(cid:40) standard (cid:3)ppli(cid:36)ation date (cid:40)or (cid:11)roup AASB 2014-4 Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to AASB 116 and AASB 138) AASB 15 Revenue from Contracts with Customers AASB 116 and AASB 138 both establish the principle for the basis of depreciation and amortisation as being the expected pattern of consumption of the future economic benefits of an asset. 1 January 2016 1 July 2016 The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The amendment also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. AASB 15 Revenue from Contracts with Customers replaces the existing revenue recognition standards AASB 111 Construction Contracts, AASB 118 Revenue and related Interpretations (Interpretation 13 Customer Loyalty Programmes, Interpretation 15 Agreements for the Construction of Real Estate, Interpretation 18 Transfers of Assets from Customers, Interpretation 131 Revenue— Barter Transactions Involving Advertising Services and Interpretation 1042 Subscriber Acquisition Costs in the Telecommunications Industry). AASB 15 incorporates the requirements of IFRS 15 Revenue from Contracts with Customers issued by the International Accounting Standards Board (IASB) and developed jointly with the US Financial Accounting Standards Board (FASB). AASB 15 specifies the accounting treatment for revenue arising from contracts with customers (except for contracts within the scope of other accounting standards such as leases or financial instruments). The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: a. Step 1: Identify the contract(s) with a customer b. Step 2: Identify the performance obligations in the contract c. Step 3: Determine the transaction price d. Step 4: Allocate the transaction price to the performance obligations in the contract e. Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation AASB 2015-8 amended the AASB 15 effective date so it is now effective for annual reporting periods commencing on or after 1 January 2018. Early application is permitted. AASB 2014-5 incorporates the consequential amendments to a number Australian Accounting Standards (including Interpretations) arising from the issuance of AASB 15. 1 January 2018 1 July 2018 Note A Annual Report 2016 37 Financial Report Notes to the (cid:10)inancial Statements continued for the year ended 30 June 2016 (cid:137)(cid:87) Summary o(cid:40) Signi(cid:41)(cid:36)ant (cid:3)(cid:36)(cid:36)ounting (cid:22)oli(cid:36)ies (cid:108)(cid:36)ontinued(cid:109) (cid:24)e(cid:40)eren(cid:36)e Title Summary (cid:3)ppli(cid:36)ation date o(cid:40) standard (cid:3)ppli(cid:36)ation date (cid:40)or (cid:11)roup 1 January 2016 1 July 2016 AASB 2016-3 Amendments to Australian Accounting Standards – Clarifications to AASB 15 amends AASB 15 to clarify the requirements on identifying performance obligations, principal versus agent considerations and the timing of recognising revenue from granting a licence and provides further practical expedients on transition to AASB 15. AASB 2014-10 amends AASB 10 Consolidated Financial Statements and AASB 128 to address an inconsistency between the requirements in AASB 10 and those in AASB 128 (August 2011), in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require: a. a full gain or loss to be recognised when a transaction involves a business (whether it is housed in a subsidiary or not); and b. a partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. AASB 2014-10 also makes an editorial correction to AASB 10. AASB 2014-10 applies to annual reporting periods beginning on or after 1 January 2016. Early adoption permitted. The subjects of the principal amendments to the Standards are set out below: 1 January 2016 1 July 2016 AASB 5 Non-current Assets Held for Sale and Discontinued Operations: – Changes in methods of disposal – where an entity reclassifies an asset (or disposal group) directly from being held for distribution to being held for sale (or vice versa), an entity shall not follow the guidance in paragraphs 27–29 to account for this change. AASB 7 Financial Instruments: Disclosures: – Servicing contracts – clarifies how an entity should apply the guidance in paragraph 42C of AASB 7 to a servicing contract to decide whether a servicing contract is (cid:89)continuing involvement’ for the purposes of applying the disclosure requirements in paragraphs 42E–42H of AASB 7. – Applicability of the amendments to AASB 7 to condensed interim financial statements – clarify that the additional disclosure required by the amendments to AASB 7 Disclosure–Offse(cid:2487)ng Financial Assets and Financial Liabilities is not specifically required for all interim periods. However, the additional disclosure is required to be given in condensed interim financial statements that are prepared in accordance with AASB 134 Interim Financial Reporting when its inclusion would be required by the requirements of AASB 134. AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012–2014 Cycle 38 Sipa Resources Limited (cid:137)(cid:87) Summary o(cid:40) Signi(cid:41)(cid:36)ant (cid:3)(cid:36)(cid:36)ounting (cid:22)oli(cid:36)ies (cid:108)(cid:36)ontinued(cid:109) (cid:24)e(cid:40)eren(cid:36)e Title Summary (cid:3)ppli(cid:36)ation date o(cid:40) standard (cid:3)ppli(cid:36)ation date (cid:40)or (cid:11)roup AASB 119 Employee Benefits: – Discount rate: regional market issue – clarifies that the high quality corporate bonds used to estimate the discount rate for post-employment benefit obligations should be denominated in the same currency as the liability. Further it clarifies that the depth of the market for high quality corporate bonds should be assessed at the currency level. AASB 134 Interim Financial Reporting: – Disclosure of information (cid:89)elsewhere in the interim financial report’ – amends AASB 134 to clarify the meaning of disclosure of information (cid:89)elsewhere in the interim financial report’ and to require the inclusion of a cross-reference from the interim financial statements to the location of this information. The Standard makes amendments to AASB 101 Presentation of Financial Statements arising from the IASB’s Disclosure Initiative project. The amendments are designed to further encourage companies to apply professional judgment in determining what information to disclose in the financial statements. For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. The amendments also clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures. AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 AASB 16 Leases The key features of AASB 16 are as follows: Lessee a(cid:36)(cid:36)ounting – Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. – A lessee measures right-of-use assets similarly to other non- financial assets and lease liabilities similarly to other financial liabilities. – Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation- linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. – AASB 16 contains disclosure requirements for lessees. 1 January 2016 1 July 2016 1 January 2019 1 July 2019 Annual Report 2016 39 Financial Report Notes to the (cid:10)inancial Statements continued for the year ended 30 June 2016 (cid:137)(cid:87) Summary o(cid:40) Signi(cid:41)(cid:36)ant (cid:3)(cid:36)(cid:36)ounting (cid:22)oli(cid:36)ies (cid:108)(cid:36)ontinued(cid:109) (cid:24)e(cid:40)eren(cid:36)e Title Summary Lessor a(cid:36)(cid:36)ounting (cid:3)ppli(cid:36)ation date o(cid:40) standard (cid:3)ppli(cid:36)ation date (cid:40)or (cid:11)roup – AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. – AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk. AASB 16 supersedes: a. AASB 117 Leases b. Interpretation 4 Determining whether an Arrangement contains a Lease c. SIC-15 Operating Leases(cid:104)Incentives d. SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16. This Standard amends AASB 112 Income Taxes (July 2004) and AASB 112 Income Taxes (August 2015) to clarify the requirements on recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value. 1 January 2017 1 July 2017 This Standard amends AASB 107 Statement of Cash Flows (August 2015) to require entities preparing financial statements in accordance with Tier 1 reporting requirements to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. 1 January 2017 1 July 2017 1 January 2018 1 July 2018 This standard amends to IFRS 2 Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for: – The effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments. – Share-based payment transactions with a net settlement feature for withholding tax obligations. – A modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. 2016-1 2016-2 IFRS 2 (Amendments) Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses (cid:110)AASB 112(cid:111) Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107 Classification and Measurement of Share-based Payment Transactions (cid:110)Amendments to IFRS 2(cid:111) 40 Sipa Resources Limited (cid:137)(cid:87) Summary o(cid:40) Signi(cid:41)(cid:36)ant (cid:3)(cid:36)(cid:36)ounting (cid:22)oli(cid:36)ies (cid:108)(cid:36)ontinued(cid:109) (cid:137)(cid:87)(cid:140)(cid:87) Signi(cid:41)(cid:36)ant a(cid:36)(cid:36)ounting (cid:47)udgements(cid:84) estimates and assumptions (cid:137)(cid:87)(cid:139)(cid:87) Basis o(cid:40) (cid:36)onsolidation The consolidated financial statements comprise the financial statements of Sipa Resources Limited (the “Company” or “parent entity”) and its subsidiaries (“the Group” or “Sipa”) as at 30 June each year. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: – Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) – Exposure, or rights, to variable returns from its involvement with the investee, and – The ability to use its power over the investee to affect its returns When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: – The contractual arrangement with the other vote holders of the investee – Rights arising from other contractual arrangements – The Consolidated Entity’s voting rights and potential voting rights The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-Group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. (i) Significant accounting judgements In the process of applying the Group’s accounting policies, management has made no judgements, apart from those involving estimations, which have a significant effect on the amounts recognised in the financial statements except as follows: Impairment of available-for-sale-investments In determining the amount of impairment of financial assets, the Group has made judgments in identifying financial assets whose decline in fair value below cost is considered “significant” or “prolonged”. A significant decline is assessed based on the historical volatility of the share price. The higher the historical volatility, the greater the decline in fair value required before it is likely to be regarded as significant. A prolonged decline is based on the length of time over which the share price has been depressed below cost. A sudden decline followed by immediate recovery is less likely to be considered prolonged compared to a sustained fall of the same magnitude over a longer period. The Group considers a less than a 10% decline in fair value is unlikely to be considered significant for investments actively traded in a liquid market, whereas a decline in fair value of greater than 20% will often be considered significant. For less liquid investments that have historically been volatile (standard deviation greater than 25%), a decline of greater than 30% is usually considered significant. Generally, the Group does not consider a decline over a period of less than three months to be prolonged. However, where the decline in fair value is greater than six months for liquid investments and 12 months for illiquid investments, it is usually considered prolonged. (ii) Significant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Share-based payment transactions The Group measures the cost of these equity-settled transactions with participants is measured by reference to the fair value of the equity instruments at the date at which they are granted using an appropriate valuation model, further details of which are given in Note 15. Annual Report 2016 41 Financial Report Notes to the (cid:10)inancial Statements continued for the year ended 30 June 2016 (cid:137)(cid:87) Summary o(cid:40) Signi(cid:41)(cid:36)ant (cid:3)(cid:36)(cid:36)ounting (cid:22)oli(cid:36)ies Group as a lessee (cid:108)(cid:36)ontinued(cid:109) Impairment of acquired exploration and evaluation assets The ultimate recoupment of the value of exploration and evaluation assets which is acquired upon acquisition is dependent on the successful development and commercial exploitation, or alternatively, sale, of the exploration and evaluation assets. Impairment tests are carried out on a regular basis to identify whether the asset carrying values exceed their recoverable amounts. There is significant estimation and judgement in determining the inputs and assumptions used in determining the recoverable amounts. The key areas of judgement and estimation include: – Recent exploration and evaluation results and resource estimates; – Environmental issues that may impact on the underlying tenements; – Fundamental economic factors that have an impact on the operations and carrying values of assets and liabilities. (cid:137)(cid:87)(cid:164)(cid:87) (cid:24)evenue (cid:24)e(cid:36)ognition Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Interest income Revenue is recognised as the interest accrues (using the effective interest method, which is the method that exactly discounts estimated future cash receipts through the life of the financial asset) to the net carrying amount of the financial asset. (cid:137)(cid:87)(cid:141)(cid:87) Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in the income statement. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Lease incentives are recognised in the income statement as an integral part of total lease expense (cid:137)(cid:87)(cid:165)(cid:87) (cid:6)as(cid:44) and (cid:36)as(cid:44) e(cid:55)uivalents Cash and cash equivalents in the Consolidated Statement of Financial Position comprise cash at bank and in hand and short- term deposits with an original maturity of three months or less. For purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above. (cid:137)(cid:87)(cid:142)(cid:87) (cid:26)erm deposits provided as se(cid:36)urity Term deposits provided as security are classified as other receivables with an original maturity of three to twelve months or less. (cid:137)(cid:87)(cid:136)(cid:135)(cid:87) (cid:26)rade and ot(cid:44)er re(cid:36)eiva(cid:35)les Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less any allowance for uncollectible amounts. An allowance for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Financial difficulties of the debtor, default payments or debts more than 60 days overdue are considered objective evidence of impairment. Bad debts are written off when identified. (cid:137)(cid:87)(cid:136)(cid:136)(cid:87) (cid:8)ere(cid:36)ognition o(cid:40) (cid:41)nan(cid:36)ial instruments The derecognition of a financial instrument takes place when the Group no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party. 42 Sipa Resources Limited (cid:137)(cid:87) Summary o(cid:40) Signi(cid:41)(cid:36)ant (cid:3)(cid:36)(cid:36)ounting (cid:22)oli(cid:36)ies (cid:108)(cid:36)ontinued(cid:109) The Group’s investments in its joint venture is accounted for using the equity method. (cid:137)(cid:87)(cid:136)(cid:137)(cid:87) (cid:13)mpairment o(cid:40) (cid:3)ssets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to dispose and its value in use and is determined for an individual asset, unless that asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset’s value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit (CGU) to which it belongs. When the carrying amount of an asset or cash- generating unit exceeds its recoverable amount, the asset or cash generating unit is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators. An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. (cid:137)(cid:87)(cid:136)(cid:138)(cid:87) (cid:13)nterest in a (cid:47)oint venture A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The considerations made in determining joint control are similar to those necessary to determine control over subsidiaries. Under the equity method, the investment in a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the joint venture since the acquisition date. The statement of profit or loss reflects the Group’s share of the results of operations of the joint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the joint venture are eliminated to the extent of the interest in the joint venture. The aggregate of the Group’s share of profit or loss of a joint venture is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax. The financial statements of the joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value, then recognises the loss as (cid:89)Share of profit of a joint venture’ in the statement of profit or loss. Upon loss of joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the joint venture upon loss of joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss (cid:137)(cid:87)(cid:136)(cid:139)(cid:87) (cid:10)oreign (cid:36)urren(cid:36)y translation The Group’s consolidated financial report is presented in Australian Dollars, which is also the parent company’s functional currency. Each entity in the Group and its joint venture determines its own functional currency and items included in the financial statements of each entity is measured using that functional currency. The assets and liabilities of foreign operations are translated into Australian Dollars at the rate of exchange prevailing at the reporting date and their income statements are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the income statement. Annual Report 2016 43 Financial Report Notes to the (cid:10)inancial Statements continued for the year ended 30 June 2016 (cid:137)(cid:87) Summary o(cid:40) Signi(cid:41)(cid:36)ant (cid:3)(cid:36)(cid:36)ounting (cid:22)oli(cid:36)ies (cid:108)(cid:36)ontinued(cid:109) (cid:137)(cid:87)(cid:136)(cid:140)(cid:87) (cid:13)n(cid:36)ome tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax liabilities relate to the same taxable entity and the same taxation authority. (cid:137)(cid:87)(cid:136)(cid:164)(cid:87) (cid:11)S(cid:26) 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 – when the deferred income tax liability arises from the – receivables and payables are stated with the amount initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or – when the taxable temporary difference is associated with investments in subsidiaries, or interest in joint ventures and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilised except: – when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or – when the deductible temporary difference is associated with investments in subsidiaries or interest in joint venture, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. 44 Sipa Resources Limited 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 Consolidated Statement of Financial Position. Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (cid:137)(cid:87)(cid:136)(cid:141)(cid:87) (cid:22)lant and E(cid:55)uipment Plant and equipment is carried at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows: – Plant and equipment The assets residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end. 2 – 15 years Derecognition An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the period the item is derecognised. (cid:137)(cid:87)1(cid:165)(cid:87) (cid:9)xploration and (cid:9)valuation Exploration and evaluation expenditure incurred by or on behalf of the consolidated entity is accumulated separately for each prospect area. The consolidated entity has a policy of writing off all exploration expenditure in the financial year in which it is incurred, unless its recoupment out of revenue to be derived from the successful development of the prospect, or from sale of that prospect, is assured beyond reasonable doubt. (cid:137)(cid:87) Summary o(cid:40) Signi(cid:41)(cid:36)ant (cid:3)(cid:36)(cid:36)ounting (cid:22)oli(cid:36)ies (cid:108)(cid:36)ontinued(cid:109) (cid:137)(cid:87)(cid:136)(cid:142)(cid:87) (cid:13)nvestments and ot(cid:44)er (cid:41)nan(cid:36)ial assets Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available- for-sale financial assets, as appropriate. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss on initial recognition. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Gains or losses on investments held for trading are recognised in the income statement. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Available-for-sale financial assets Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the three preceding categories. After initial recognition available- for-sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in the income statement. The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the reporting date. For investments with no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions, reference to the current market value of another instrument that is substantially the same, and discounted cash flow analysis. (cid:137)(cid:87)(cid:137)(cid:135)(cid:87) (cid:13)mpairment o(cid:40) (cid:41)nan(cid:36)ial assets The Group assesses at each reporting date whether a financial asset or group of financial assets is impaired. (i) Financial assets carried at amortised cost If there is objective evidence that an impairment loss on held-to-maturity investments or loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (ie the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in income statement. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. (ii) Financial assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value (because its fair value cannot be reliably measured), or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for a similar financial asset. (iii) Availa(cid:35)le-for-sale investments If there is objective evidence that an available-for-sale investment is impaired, an amount comprising the difference between its cost and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to the income statement. Reversals of impairment losses for equity instruments classified as available-for-sale are not recognised in profit. A significant or prolong decline in market value is considered as objective evidence. Reversals of impairment losses for debt instruments are reversed through the income statement if the increase in an instrument’s fair value can be objectively related to an event occurring after the impairment loss was recognised in profit or loss. (cid:137)(cid:87)(cid:137)(cid:136)(cid:87) (cid:26)rade and (cid:19)t(cid:44)er (cid:22)aya(cid:35)les Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. Annual Report 2016 45 Financial Report Notes to the (cid:10)inancial Statements continued for the year ended 30 June 2016 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 Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition. If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification that increases the total fair value of the share- based payment arrangement or is otherwise beneficial to the employee, as measured at the date of modification. If an equity-settled award is cancelled (other than for reason of forfeiture), 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, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share. (cid:137)(cid:87)(cid:137)(cid:140)(cid:87) (cid:6)ontri(cid:35)uted E(cid:55)uity 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. (cid:137)(cid:87)(cid:137)(cid:164)(cid:87) Earnings (cid:22)er S(cid:44)are Basic EPS is calculated as net profit/loss attributable to members, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net profit/loss attributable to members, adjusted for: – costs of servicing equity (other than dividends); – the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and – other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (cid:137)(cid:87) Summary o(cid:40) Signi(cid:41)(cid:36)ant (cid:3)(cid:36)(cid:36)ounting (cid:22)oli(cid:36)ies (cid:108)(cid:36)ontinued(cid:109) (cid:137)(cid:87)(cid:137)(cid:137)(cid:87) (cid:22)rovisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. (cid:137)(cid:87)(cid:137)(cid:138)(cid:87) Employee Bene(cid:41)ts Provision is made for amounts expected to be paid to employees of the Group in respect of their entitlement to annual leave and long service leave arising from services rendered by employees to the reporting date. Employee benefits due to be settled within one year arising from wage and salaries and annual leave have been measured at the amounts due to be paid when the liabilities are expected to be settled and included in provisions. Long service leave entitlements payable later than one year have been measured at the present value of the estimated future cash outflows to be made in respect of services provided by employees up to the reporting date. Under the terms of the Directors’ Retirement Scheme (applicable to Non-Executive Directors only), approved by a meeting of shareholders, provision has been made for the retirement or loss of office of eligible Non- Executive Directors of Sipa Resources Limited. The amount payable under the Scheme is equal to one year’s remuneration for each three years of completed service as a director of the Company up to a maximum benefit of 3 years remuneration. (cid:137)(cid:87)(cid:137)(cid:139)(cid:87) S(cid:44)are(cid:102)(cid:35)ased payment transa(cid:36)tions The Group provides benefits to employees (including directors) of the Group in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares ((cid:89)equity-settled transactions’). Equity-settled transactions with employees and directors are administered through the Sipa Resources Employee Share Option Plan which was approved by shareholders. The cost of these equity-settled transactions with participants is measured by reference to the fair value of the equity instruments at the date at which they are granted using an appropriate valuation model, further details of which are given in Note 15. 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 ((cid:89)vesting date’). 46 Sipa Resources Limited (cid:138)(cid:87) (cid:24)evenues and Expenses (cid:24)evenue and Expenses (a) Revenue Interest revenue (b) Other income Gain on extinguishment of provision(1) Other Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ 82,957 82,957 52,500 16,882 69,382 58,570 58,570 168,215 33,547 201,762 (1) Gain on extinguishment of provision relates to the reversal of the previously provided for directors retirement benefit that was waived by retiring directors during the year. (c) Gain on sale of Thaduna project In February 2015, the Group completed the sale of the Thaduna project to Sandfire Resources Ltd (Sandfire) for $2 million worth of Sandfire shares and a 1% Net Smelter Royalty. Under the terms of the Agreement, Sandfire acquired the entire legal and beneficial interest in E52/1673, E52/1674, E52/1858, E52/2356, E52/2357, and E52/2405 including the rights and benefits which Sipa is entitled to under heritage agreements and native title contracts, and all mining information which is relevant to the Tenements. The Group subsequently sold the Sandfire shares on market for $2.16 million in 2015. (d) Other expenses Employee benefits expense Wages and salaries Superannuation Provision for annual leave Share based payments Provision for long service leave Workers compensation insurance Employee benefits expense included in: Exploration expenditure Administrative expenses Depreciation of plant and equipment Rental expenses on operating lease Loss on disposal of fixed assets Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ 1,377,191 1,426,963 146,937 145,802 13,656 6,194 3,050 125,757 79,560 – 15,571 5,112 1,692,830 1,652,963 1,079,270 1,078,128 613,560 574,835 1,692,830 1,652,963 79,036 46,063 147,454 170,359 15,156 29,053 Annual Report 2016 47 Financial Report Notes to the (cid:10)inancial Statements continued for the year ended 30 June 2016 (cid:139)(cid:87) (cid:13)n(cid:36)ome (cid:26)ax (cid:108)a(cid:109) Ma(cid:47)or (cid:36)omponents o(cid:40) in(cid:36)ome tax expense (cid:40)or t(cid:44)e years ended (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:164) and (cid:137)(cid:135)(cid:136)(cid:140) are(cid:86) (cid:13)n(cid:36)ome Statement Current income tax Current income tax benefit Under/over provision Deferred income tax Relating to origination and reversal of temporary differences Deferred tax assets not recognised Income tax expense reported in income statement (cid:108)(cid:35)(cid:109) (cid:3) re(cid:36)on(cid:36)iliation o(cid:40) in(cid:36)ome tax expense appli(cid:36)a(cid:35)le to a(cid:36)(cid:36)ounting loss (cid:35)e(cid:40)ore in(cid:36)ome tax at t(cid:44)e statutory in(cid:36)ome tax rate to in(cid:36)ome tax expense at t(cid:44)e (cid:11)roup(cid:90)s e(cid:248)e(cid:36)tive in(cid:36)ome tax rate (cid:40)or t(cid:44)e years ended (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:164) and (cid:137)(cid:135)(cid:136)(cid:140) is as (cid:40)ollo(cid:62)s(cid:86) Accounting loss before tax At statutory income tax rate of 28.5% (2015: 30%) Adjustment for difference in foreign tax rate Non-deductible items Other deductible amounts not recognised Under/(overprovision) in prior year Unrecognised deferred tax assets Income tax expense reported in income statement (cid:108)(cid:36)(cid:109) (cid:8)e(cid:40)erred in(cid:36)ome tax Deferred income tax at 30 June relates to the following: (cid:8)e(cid:40)erred tax lia(cid:35)ilities Other (cid:8)e(cid:40)erred tax assets Provision for employee entitlements Superannuation provision Accruals Carried forward losses Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ – – – – – – – – – – (4,597,538) (3,526,807) (1,310,298) (1,058,042) (35,868) – 298,641 786,320 – (35,953) 2,236 349 1,045,289 307,326 – – Statement of Financial Position Profit or Loss (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ (655) (655) (2,561) (2,561) 1,906 1,321 60,364 3,748 6,498 34,664 3,520 10,800 25,700 228 (4,302) (93,903) (2,038) 300 11,002,614 11,613,509 (610,895) 401,645 11,073,223 11,662,493 Unrecognised deferred tax assets (11,072,569) (11,659,932) (464,028) (307,325) Net deferred tax asset Deferred tax expense 48 Sipa Resources Limited 655 – 2,561 – – – (cid:139)(cid:87) (cid:13)n(cid:36)ome (cid:26)ax (cid:108)(cid:36)ontinued(cid:109) Deferred Tax Assets on the Tax losses not recognised 12,165,375 11,613,509 Directors do not believe it is appropriate to regard realisation of the deferred tax asset as probable as at 30 June 2016. These benefits will only be obtained if: Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ i. the Consolidated Entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deduction for the loss to be realised; the Consolidated Entity continues to comply with the conditions for the deductibility imposed by law; and ii. iii. no changes in tax legislation adversely affect the Consolidated Entity in realising the benefit from the deduction for the loss. (cid:108)d(cid:109) (cid:26)ax (cid:6)onsolidation The Company and its 100% owned subsidiaries formed a tax consolidated group effective 1 July 2003. The head entity of the tax consolidated group is Sipa Resources Limited. The Sipa group currently does not intend to enter into a Tax Sharing or Tax Funding Agreement. The group allocation method is used to allocate any tax expense incurred. (cid:140)(cid:87) (cid:6)as(cid:44) and (cid:6)as(cid:44) E(cid:55)uivalents Cash at bank and in hand Short-term deposits 527,382 133,336 1,050,000 6,100,000 1,577,382 6,233,336 Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The carrying value approximates fair value. (cid:164)(cid:87) (cid:26)erm (cid:8)eposits (cid:24)eserved (cid:40)or (cid:24)e(cid:44)a(cid:35)iliation Term deposits provided for security(1) Term deposits reserved for rehabilitation(2) 20,000 – 20,000 20,000 20,000 40,000 (1) Represents amounts provided to secure the company’s credit card facility. (2) In the previous period Bankwest had given a guarantee to the Department of Minerals and Energy in respect of performance bonds totalling $20,000 for which the bank has a lien on an equivalent amount of the company’s term deposits. (cid:141)(cid:87) (cid:26)rade and (cid:19)t(cid:44)er (cid:24)e(cid:36)eiva(cid:35)les Interest receivable(1) Other receivables(2) 2,297 30,262 32,559 8,536 14,108 22,644 Interest receivable represents interest due on the Group’s term deposits. (1) (2) Other receivables are non-interest bearing and due in 30 days generally. An allowance for doubtful debts is made when there is objective evidence that a receivable is impaired. No such allowance has been recognised as an expense for the current or previous year. (cid:165)(cid:87) (cid:3)vaila(cid:35)le(cid:102)(cid:40)or(cid:102)Sale (cid:10)inan(cid:36)ial (cid:13)nvestments (cid:3)t (cid:40)air value Shares in listed entities(1)(2) 2,100 2,100 5,200 5,200 (1) The fair value of listed available for sale investments has been determined directly by reference to published price quotations in an active market and classified as Level 1. (2) During the current year, $3,100 was recognised in the profit and loss due to decrease in share price. Annual Report 2016 49 Financial Report Notes to the (cid:10)inancial Statements continued for the year ended 30 June 2016 (cid:142)(cid:87) (cid:19)t(cid:44)er (cid:10)inan(cid:36)ial (cid:3)ssets Security deposits(a) Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ 19,570 19,570 (cid:137)(cid:135)(cid:136)(cid:140) $ 44,245 44,245 (a) The terms and conditions of the security deposits are non-interest bearing and refundable upon completion of performance obligations associated with completion of the lease term. (cid:136)(cid:135)(cid:87) (cid:22)lant and E(cid:55)uipment At beginning of the year, net of accumulated depreciation Additions Disposals Depreciation expense At end of the year, net of accumulated depreciation (cid:3)t end o(cid:40) year Cost Accumulated depreciation Net book value at end of year (cid:136)(cid:136)(cid:87) Exploration (cid:3)nd Evaluation Exploration and evaluation acquired 233,255 295,038 49,357 (15,157) (79,036) 33,333 (49,053) (46,063) 188,419 233,255 965,958 931,758 (777,539) (698,503) 188,419 233,255 581,037 581,037 581,037 581,037 In January 2015, a wholly owned subsidiary of Sipa completed the acquisition of the remaining 20% of shares in SiGe East Africa Pty Ltd, from Geocrust Pty Ltd to become the 100% holder of the Kitgum-Pader base and precious metals project in Uganda, East Africa in exchange for ordinary fully paid Sipa shares to the value of A$499k. The number of Sipa shares issued was determined by reference to the volume weighted average price of Sipa shares in the 30 trading days immediately prior to agreement. The exploration and evaluation acquired represents the value of the acquisition at that date. (cid:136)(cid:137)(cid:87) (cid:26)rade and (cid:19)t(cid:44)er (cid:22)aya(cid:35)les (cid:108)(cid:6)urrent(cid:109) Trade payables – unsecured Accrued expenses 53,204 90,268 155,491 158,552 143,472 314,043 Trade and other payables and accrued expenses are non-interest bearing and are usually settled in 30 days. 50 Sipa Resources Limited (cid:136)(cid:138)(cid:87) (cid:22)rovisions Consolidated At 1 July 2015 Arising during the year Utilised during the year Extinguishment of provision(b) Balance at 30 June 2016 Current 2016 Non-Current 2016 Current 2015 Non-Current 2015 (cid:3)nnual Leave Long Servi(cid:36)e Leave Directors (cid:24)etirement Bene(cid:40)it (cid:108)a(cid:109) Total 108,463 145,802 (185,236) 107,223 87,500 303,186 6,194 (5,644) – – 151,996 (190,880) – – (52,500) (52,500) 69,029 107,773 35,000 211,802 69,029 – 93,176 14,597 35,000 197,205 – 14,597 69,029 107,773 35,000 211,802 108,463 – 64,006 43,217 87,500 – 259,969 43,217 108,463 107,223 87,500 303,186 (a) (b) Under the terms of the Directors’ Retirement Scheme, approved by a meeting of shareholders, provision has been made for the retirement or loss of office of eligible Non-Executive Directors of Sipa Resources Limited. The Directors resolved to freeze the scheme with no further provisions being made, in the financial year ended 30 June 2008, or subsequently. There is currently no anticipated date for payment of the remaining provision but a constructive obligation exists. Gain on extinguishment of provision relates to the reversal of the previously provided for directors retirement benefit that was waived by Dalton Gooding on his retirement, effective 31 March 2016. (cid:136)(cid:139)(cid:87) (cid:6)ontri(cid:35)uted E(cid:55)uity and (cid:24)eserves (cid:108)a(cid:109) (cid:19)rdinary s(cid:44)ares Issued and fully paid shares Movements in s(cid:44)ares on issue Balance at beginning of year Placement for the acquisition of SiGe East Africa Pty Ltd Placement to exempt investors(1) Share purchase plan(1) Placement to Directors(2) Pursuant to exercise of listed options Less transaction costs Balance at end of financial year Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ 99,630,651 99,494,652 2016 No $ 2015 No $ 702,963,898 99,494,652 608,578,509 93,169,829 – – – – – – 12,803,447 9,205,291 499,334 667,384 72,369,239 5,246,740 1,850,000 134,125 49,108 – 3,688 (1,814) – 7,412 – 556 – (89,191) 704,863,006 99,630,651 702,963,898 99,494,652 (1) In May 2015, Sipa announced a placement to exempt investors and a Share Purchase Plan (SPP) for eligible shareholders at a price of $0.0725 per share. (2) In July 2015, a placement to Directors was approved and made at the same price of $0.0725 per share as per the SPP. Annual Report 2016 51 Financial Report Notes to the (cid:10)inancial Statements continued for the year ended 30 June 2016 (cid:136)(cid:139)(cid:87) (cid:6)ontri(cid:35)uted E(cid:55)uity and (cid:24)eserves (cid:108)(cid:36)ontinued(cid:109) (cid:19)rdinary s(cid:44)ares Ordinary shares have the right to receive dividends as declared and, in the event of winding up of the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number and amounts paid up on shares held. On a show of hands one vote for every registered shareholder and on a poll, one vote for each share held by a registered shareholder. S(cid:44)are (cid:19)ptions (cid:19)ptions (cid:13)ssued (cid:31)ear ended (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:164) There were no options issued during the year ended 30 June 2016. Subsequent to year end, 4,659,000 Options exercisable at $0.11 were issued pursuant to the ESOP. The Options vest on 31 August 2019 and expire on 31 August 2021. Further details are found in Note 15. (cid:19)ptions (cid:13)ssued (cid:31)ear ended (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:140) There were no options issued during the year ended 30 June 2015. (cid:8)ividends There were no dividends paid or proposed during the year ended 30 June 2016 (2015: Nil). The amount of franking credits available to the Company at 30 June 2016 is Nil (2015: Nil). (b) Equity benefits reserve This reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. Refer to Note 15 for further detail of the plan. (c) Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of financial statements of foreign controlled entities. (cid:6)apital Management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so as to maintain a strong capital base sufficient to maintain future exploration and development of its projects. In order to maintain or adjust the capital structure, the Group may return capital to shareholders, issue new shares or sell assets to increase cash. The Group’s focus has been to raise sufficient funds through equity to fund exploration and evaluation activities. The Group monitors capital on the basis of the gearing ratio, however there are no external borrowings as at balance date. Management manages shareholder equity $2,120,037 (2015: $6,553,185) as capital. There were no changes in the Group’s approach to capital management during the year. Risk management policies and procedures are established with regular monitoring and reporting. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. (cid:136)(cid:140)(cid:87) S(cid:44)are Based (cid:22)ayment (cid:22)lans Sipa (cid:24)esour(cid:36)es Employee S(cid:44)are (cid:19)ption (cid:22)lan The LTI grants are delivered through participation in the Sipa Employee Share Option Plan 2015, as approved by shareholders at the Annual General Meeting held 15 November 2015. The value of the LTI grants made under the plan will be made with reference to a set percentage of Base Salary with Executives’ performance assessed against pre-determined performance hurdles. The performance hurdles are a combination of market (share price based) and non-market (internal) hurdles to optimise share performance against exploration targets, the annual operating budget, successful communication with stakeholders, improved access to capital markets, stock liquidity and register profile. The threshold levels are suitably stretched to be consistent with the objectives of the LTI plan. (i) Options outstanding and movements in share options during the year (cid:137)(cid:135)(cid:136)(cid:164)(cid:114) (cid:11)rant date Expiry date Exer(cid:36)ise pri(cid:36)e 19/11/15 31/8/21 11 cents – 1,575,000 Balan(cid:36)e at start o(cid:40) year (cid:13)ssued during year* – – 1,575,000 1,575,000 Lapsed(cid:99) (cid:36)an(cid:36)elled during year – – Balan(cid:36)e at end o(cid:40) year Exer(cid:36)isa(cid:35)le at end o(cid:40) year 1,575,000 – (cid:114) Includes amounts granted to the Managing Director at the meeting of shareholders held on 19 November 2015 but issued subsequent to year end. 52 Sipa Resources Limited (cid:136)(cid:140)(cid:87) S(cid:44)are Based (cid:22)ayment (cid:22)lans (cid:108)(cid:36)ontinued(cid:109) (cid:137)(cid:135)(cid:136)(cid:140) (cid:11)rant date Expiry date Exer(cid:36)ise pri(cid:36)e Balan(cid:36)e at start o(cid:40) year (cid:13)ssued during year 30/9/10 29/9/14 17.5 cents 25/11/10 24/11/14 21 cents 7,250,000 2,000,000 9,250,000 – – – Lapsed(cid:99) (cid:36)an(cid:36)elled during year (7,250,000) (2,000,000) (9,250,000) Balan(cid:36)e at end o(cid:40) year Exer(cid:36)isa(cid:35)le at end o(cid:40) year – – – – – – (cid:19)ptions (cid:13)ssued (cid:31)ear ended (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:164) The fair value of the equity-settled share options (ESOs) granted to the Managing Director was estimated as at 1 July 2015, approved by shareholders on 19 November 2015 and granted on 1 September 2016 and was made with a reference to the set percentage of base salary (75%) and contemplated a combination of both market hurdles (Share Price Based) and non-market hurdles (Internal). In estimating the fair value of the Market Based ESOs, the Monte Carlo simulation based models was used, whilst the Performance ESOs were valued using the Black-Scholes Merton mode. The following table sets out the key assumptions adopted to value the Options. Valuation method Valuation date Closing share price at valuation date Exercise price Expected life of option Dividend yield Expected volatility Historical volatility Risk-free interest rate Fair value of options issued Mar(cid:48)et (cid:22)er(cid:40)orman(cid:36)e Monte Carlo 1/7/15 $0.032 $0.11 5 years 0% 75.36% 75.36% Black- Scholes Merton 1/7/15 $0.032 $0.11 5 years 0% 75.36% 75.36% 2.03-2.20% 2.03-2.20% $0.010 $0.012 (ii) Options exercised No options were exercised during the financial years ended 30 June 2016 and 30 June 2015. (iii) Weighted average remaining contractual life The weighted average remaining contractual life for the share options outstanding as at 30 June 2016 is Nil years (2015: 0.30 years). Annual Report 2016 53 Financial Report Notes to the (cid:10)inancial Statements continued for the year ended 30 June 2016 (cid:136)(cid:164)(cid:87) Loss (cid:22)er S(cid:44)are Basic loss per share amounts are calculated by dividing the net loss for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted loss per share amounts are calculated by dividing the net loss attributable to ordinary equity holders of the Company adjusted for the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The following reflects the income and share data used in the basic and diluted loss per share computations: Net loss attributable to the ordinary equity holders of the Company Weighted average number of ordinary shares before the Placement Adjustment for dilutive effect of Placement to Geocrust Adjustment for dilutive effects of Placement and SPP Share Options exercised Effect of dilution: Share Options Consolidated (cid:137)(cid:135)(cid:136)(cid:164) (cid:137)(cid:135)(cid:136)(cid:140) (4,597,538) (3,511,704) 702,963,898 608,578,509 – 5,822,938 1,819,589 5,005,178 31,769 – – Weighted average number of ordinary shares adjusted for dilution 704,815,256 619,406,625 The Nil options (2015: 133,999,414) are considered to be potential ordinary shares and have not been included in the determination of diluted earnings per share as they are anti- dilutive for the periods presented. Details relating to the options are set out in Notes 14 and 15. (cid:136)(cid:141)(cid:87) (cid:24)e(cid:36)on(cid:36)iliation o(cid:40) Loss to (cid:18)et (cid:6)as(cid:44) (cid:10)lo(cid:62)s (cid:40)rom (cid:19)perations Net Loss Depreciation of plant and equipment Loss on disposal of fixed assets Loss on write-down of available for sale financial assets Gain on extinguishment of provision Profit on disposal of non-current assets Foreign exchange loss Share of net loss of jointly controlled entity Share based payments (cid:6)(cid:44)anges in assets and lia(cid:35)ilities Refund of bonds Decrease in trade and other receivables Decrease in prepayments (Decrease)/increase in provisions (Decrease)/increase in trade and other payables Net cash flow used in operating activities 54 Sipa Resources Limited (4,597,538) (3,526,807) 79,036 15,156 3,100 46,063 29,053 2,800 (52,500) (168,215) – (2,161,119) 14,735 4,843 – 925,120 13,656 – 24,675 (9,915) (43,546) 57,547 24,549 (38,883) (144,794) (170,571) (81,462) (4,762,595) (4,992,422) (cid:136)(cid:165)(cid:87) (cid:24)elated (cid:22)arty (cid:8)is(cid:36)losure The consolidated financial statements include the financial statements of Sipa Resources Limited and the subsidiaries listed in the following table: Name Sipa Gold Limited Sipa Copper Pty Ltd Sipa Resources (1987) Limited Sipa Exploration NL Sipa Management Pty Ltd Sipa – Gaia NL Ashling Resources NL Topjest Pty Limited Sipa –Wysol Pty Ltd Sipa East Africa Pty Ltd SiGe East Africa Pty Ltd# Sipa Exploration Uganda Limited# Sipa Resources Tanzania Limited# (cid:9)(cid:55)uity Interest (cid:6)ountry o(cid:40) (cid:13)n(cid:36)orporation (cid:137)(cid:135)(cid:136)(cid:164) % (cid:137)(cid:135)(cid:136)(cid:140) % Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Uganda Tanzania 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 # Entities were accounted for as a joint venture prior to acquisition of remaining interest on 15 January 2015. (cid:136)(cid:142)(cid:87) (cid:15)ey Management (cid:22)ersonnel (cid:8)is(cid:36)losures Name C McGown L Burnett K Field P Kiley D Gooding T Robson (cid:22)osition Non-Executive Chairman Managing Director Non-Executive Director Non-Executive Director Non-Executive Director (cid:26)erm as (cid:15)M(cid:22) Full financial year Full financial year Full financial year Full financial year Retired 31 March 2016 Chief Financial Officer and Company Secretary Full financial year (cid:6)ompensation (cid:35)y (cid:6)ategory(cid:86) (cid:15)M(cid:22) Short-term employee benefits Post employment benefits Share based payments Other long term benefits Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ 665,232 670,055 10,698 (121,272) 13,656 – – – 689,586 548,783 Annual Report 2016 55 Financial Report Notes to the (cid:10)inancial Statements continued for the year ended 30 June 2016 (cid:136)(cid:142)(cid:87) (cid:15)ey Management (cid:22)ersonnel (cid:8)is(cid:36)losures (cid:108)(cid:36)ontinued(cid:109) (cid:19)t(cid:44)er transa(cid:36)tions (cid:62)it(cid:44) (cid:15)M(cid:22) Mr. McGown, the Chairman and a director of the company, is an executive director of the corporate advisory business New Holland Capital Pty Ltd. In the previous year and prior to his appointment as director, New Holland Capital Pty Ltd was paid fees in the amount of $30,000 pursuant to a fundraising mandate, which was equivalent to 6% of funds raised. The Board believes that this agreement is a market rate and is an arm’s length agreement. No fees have been paid in accordance with the mandate since appointment in March 2015. As at 30 June 2016 a balance of $Nil remained outstanding (30 June 2015: Nil).The mandate which outlines the terms of the consulting arrangement was terminated subsequent to year end, however a continuing obligation of 6% of funds raised from introduced parties remains until 23 September 2017. In the previous year, the Company paid consulting fees to Xagus Pty Ltd. Mr. Paul Kiley, a director of the company, is principal of Xagus Pty Ltd. All fees paid to Xagus are at competitive market rates. The total services recognised as an expense for the previous year amounted to $6,000. As at 30 June 2015 a balance of $2,311 remained outstanding. In the previous year, the Company paid legal fees to the legal practice Williams and Hughes Pty Ltd. Mr. D J Williams, a former director of the company, is a commercial counsel with the Williams and Hughes Pty Ltd. All transactions with Williams and Hughes are at competitive market rates and performed primarily by staff of Williams and Hughes Pty Ltd. The total services recognised as an expense for the previous year amounted to $2,482. As at 30 June 2015 a balance of $Nil remained outstanding. There were no other transactions with KMP during the current year. (cid:137)(cid:135)(cid:87) (cid:6)ommitments (cid:40)or Expenditure (cid:108)a(cid:109) (cid:19)perating Lease (cid:103) (cid:11)roup as Lessee The Company has obligations under the terms of the lease of its office premises for a term of 2 years, plus a further 2 year option, from and including 1st day of May 2016. Lease payments are payable in advance by 12 equal monthly instalments due on the 1st day of each month. Under the lease agreement the lessee provides for a rent review based on CPI each anniversary date. Due not later than one year Due later than one year and not later than five years Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ 76,343 63,620 (cid:137)(cid:135)(cid:136)(cid:140) $ 216,316 – 139,963 216,316 (cid:108)(cid:35)(cid:109) Exploration Expenditure (cid:6)ommitments The consolidated entity has minimum statutory commitments as conditions of tenure of certain mining tenements. In addition it has commitments to perform and expend funds towards retaining an interest in formalised agreements with partners. If all existing areas of interest were maintained on the terms in place at 30 June 2016, the Directors estimate the minimum expenditure commitment for the ensuing twelve months to be $2,147,411 (2015: $4,152,000). However the Directors consider that the actual commitment is likely to be less as these commitments are reduced continuously for such items as exemption applications to the Department of Geological Survey and Mines, Uganda and the Department of Mines and Petroleum, Western Australia, withdrawal from tenements, and other farm-out transactions. In any event these expenditures do not represent genuine commitments as the ground can always be surrendered in lieu of payment of commitments. This estimate may be varied as a result of the granting of applications for exemption. (cid:108)(cid:36)(cid:109) (cid:6)ommitment to (cid:6)ontrolled Entities The Company has advised its controlled entities that it will continue to provide funds to meet those entities’ working capital requirements for at least the next twelve months. (cid:108)d(cid:109) (cid:24)emuneration (cid:6)ommitments A remuneration commitment arises for Ms Burnett in the event of early termination of her employment contract other than for gross misconduct equal to 6 months total remuneration package. Ms Burnett may terminate the agreement by 1 month notice in the event she is demoted from her position without good cause, or is requested, without good cause to assume responsibilities or perform tasks not reasonably consistent with her position. In this instance, she will, subject to shareholder approval if necessary, be entitled to a payout of 1 year base salary. Ms Burnett’s total annual remuneration package is base salary of $300,000, plus superannuation of $28,500. On 1 May 2016 Mrs Burnett agreed to voluntarily and temporarily reduce her base salary by $45,000, taking her base salary to $255,000 and $24,225 superannuation. The reduction will continue until 1 May 2017, unless market conditions improve significantly. 56 Sipa Resources Limited (cid:137)(cid:135)(cid:87) (cid:6)ommitments (cid:40)or Expenditure (cid:108)(cid:36)ontinued(cid:109) A remuneration commitment arises for Ms Robson in the event of early termination of her employment contract other than for gross misconduct equal to 3 months total remuneration package. Ms Robson may terminate the agreement by 1 months’ notice in the event she is demoted from her position without good cause, or is requested, without good cause to assume responsibilities or perform tasks not reasonably consistent with her position. In this instance, she will, subject to shareholder approval if necessary, be entitled to a payout of 6 months base salary. Ms Robson’s total annual remuneration package is base salary of $188,000, plus superannuation of $17,860. (cid:137)(cid:136)(cid:87) (cid:13)nterests in (cid:14)oint (cid:19)perations (cid:26)(cid:44)e (cid:36)onsolidated entity (cid:44)as an interest in t(cid:44)e (cid:40)ollo(cid:62)ing (cid:14)ointly (cid:19)perations(cid:86) (cid:3)rrangement (cid:6)ommitments (cid:22)rin(cid:36)ipal (cid:3)(cid:36)tivities Mortlock River JV NIL Gold/Copper Exploration Percentage Interest (cid:137)(cid:135)(cid:136)(cid:164) 49% (cid:137)(cid:135)(cid:136)(cid:140) 49% All of the above joint operations are for the purposes of exploration activities and holding of tenement interests. (cid:137)(cid:137)(cid:87) (cid:13)nvestment in (cid:14)oint (cid:28)enture The Group previously held an 80% interest in the issued share capital of SIGE East Africa Pty Ltd (SiGe), a company involved in exploration activities in Uganda, which it jointly controlled and accounted for as a joint venture. In January 2015, Sipa completed the acquisition of the remaining 20% of shares in SiGe from Geocrust Pty Ltd to become the 100% holder of the Kitgum-Pader base and precious metals project in Uganda, East Africa in exchange for ordinary fully paid Sipa shares to the value of A$499,334. From this date, this entity was accounted for as a subsidiary. (cid:137)(cid:138)(cid:87) Segment (cid:13)n(cid:40)ormation For management purposes, the Company is organised into one main operating segment, which involves mining exploration for gold and other minerals. All of the Company’s activities are interrelated, and discrete financial information is reported to the Board (Chief Operating Decision Makers) as a single segment. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment. The financial results from this segment are equivalent to the financial statements of the Company as a whole. All of the Company’s revenues are derived in Australia. The Company’s non current assets are located in Australia and Africa. (cid:18)on(cid:102)(cid:36)urrent operating assets Australia Africa Total (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ 140,026 205,183 629,433 769,459 609,109 814,292 Non-current assets for this purpose consist of property, plant and equipment, and exploration and evaluation. (cid:137)(cid:139)(cid:87) (cid:10)inan(cid:36)ial (cid:24)is(cid:48) Management (cid:19)vervie(cid:62) This note presents information about the Company’s and Group’s exposure to credit, liquidity and market risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. The Company and the Group does not use any form of derivatives as it is not at a level of exposure that requires the use of derivatives to hedge its exposure. Exposure limits are reviewed by management on a continuous basis. The group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Management monitors and manages the financial risks relating to the operations of the group through regular reviews of the risks. (cid:6)redit ris(cid:48) Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s cash and cash equivalents and trade and other receivables. Annual Report 2016 57 Financial Report Notes to the (cid:10)inancial Statements continued for the year ended 30 June 2016 (cid:137)(cid:139)(cid:87) (cid:10)inan(cid:36)ial (cid:24)is(cid:48) Management (cid:108)(cid:36)ontinued(cid:109) Cash and cash equivalents (including term deposits reserved for rehabilitation) The Group limits its exposure to credit risk by only investing in liquid securities and only with counterparties that have an acceptable credit rating. Cash is held with recognised financial institutions with AA credit rating. Trade and other receivables As the Group operates primarily in exploration activities, its trade receivables are limited to interest receivable and other minor advances therefore reduces the exposure to credit risk in relation to trade receivables. At the reporting date there were no significant concentrations of credit risk. Other receivables consist primarily of GST refundable from the ATO and interest due on the Group’s term deposits. Given the acceptable credit ratings of both parties, management does not expect any either party to fail to meet its obligations. Exposure to (cid:36)redit ris(cid:48) The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure to credit risk at the reporting date was: Cash and cash equivalents Term deposits reserved for rehabilitation Trade and other receivables Other financial assets Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ 1,577,382 6,233,336 20,000 32,559 19,570 40,000 22,644 44,245 1,649,511 6,340,225 Impairment losses None of the Group’s other receivables are past due (2015: nil). Li(cid:55)uidity ris(cid:48) Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages liquidity risk by maintaining adequate cash reserves from funds raised in the market and by continuously monitoring forecast and actual cash flows. The Group does not have any external borrowings. In July 2016, Sipa announced a private placement (Placement) to exempt offerees and a Share Purchase Plan (SPP) at a price of $0.02 per share. The SPP was heavily oversubscribed resulting in a scale back. A total of 225,091,290 Shares were issued through the combined Placement and SPP and raised $4,501,826 before costs. As a result, the Company does anticipate a need to raise additional capital in the next 12 months to meet forecast operational and exploration activities. The decision on how the Company will raise future capital will depend on market conditions existing at that time. The following are the contractual maturities of financial liabilities, including estimated interest payments (undiscounted) and excluding the impact of ne(cid:2487)ng agreements: (cid:6)onsolidated (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:164) Trade and other payables (cid:138)(cid:135) (cid:14)une (cid:137)(cid:135)(cid:136)(cid:140) Trade and other payables (cid:6)arrying amount (cid:6)ontra(cid:36)tual (cid:36)as(cid:44) (cid:40)lo(cid:62)s 143,472 143,472 143,472 143,472 (cid:164) mt(cid:44)s or less 143,472 143,472 314,043 314,043 314,043 314,043 314,043 314,043 Mar(cid:48)et (cid:24)is(cid:48) Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. 58 Sipa Resources Limited (cid:137)(cid:139)(cid:87) (cid:10)inan(cid:36)ial (cid:24)is(cid:48) Management (cid:108)(cid:36)ontinued(cid:109) (cid:10)oreign (cid:36)urren(cid:36)y ris(cid:48) Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s exploration activities (when exploration and administration expense is denominated in a foreign currency, namely US Dollars and Ugandan Shillings) and the Group’s net investments in foreign subsidiaries. Surplus funds are held primarily in Australian Dollars with the Group ensuring that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term requirements. (cid:13)nterest rate ris(cid:48) The Group is exposed to interest rate risk (primarily on its cash and cash equivalents), which is the risk that a financial instrument’s value will fluctuate as a result of changes in the market interest rates on interest-bearing financial instruments. The Group does not use derivatives to mitigate these exposures. The Group adopts a policy of ensuring that as far as possible it maintains excess cash and cash equivalents in short term deposit at interest rates maturing over 90 day rolling periods. Profile At the reporting date the Group had the following mix of financial assets held at Australian Fixed and Floating interest rates. There were no financial liabilities exposed to interest rate risk. (cid:10)loating rate instruments Cash and cash equivalents (cid:10)ixed rate instruments (cid:103) (cid:18)o interest rate ris(cid:48) Term deposits reserved for rehabilitation Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ 1,577,382 6,233,336 1,577,382 6,233,336 20,000 20,000 40,000 40,000 Fair value sensitivity analysis for fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, Therefore a change in interest rates for financial instruments with short term maturity at the reporting date would not affect the carrying amount or profit or loss. Cash flow sensitivity analysis for variable rate instruments The Group’s exposure to variable rate instruments is in cash and cash equivalents. A 100 basis point favourable and unfavourable change in interest rates will affect comprehensive income by $15,774 and $(15,774) (2015 $62,333 and $(62,333)) respectively. (cid:10)air values Fair values versus carrying amounts Due to their short term nature, the carrying amounts of financial assets and liabilities approximate fair value. (cid:19)t(cid:44)er Mar(cid:48)et (cid:22)ri(cid:36)e (cid:24)is(cid:48) Other Equity price risk is the risk that the value of the instrument will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. Investments are managed on an individual basis and material buy and sell decisions are approved by the Board of Directors. The primary goal of the Group’s investment strategy is to maximise investment returns. The Group’s investments are solely in equity instruments. These instruments are classified as available-for-sale and carried at fair value with fair value changes recognised directly in equity, unless they are impaired, until derecognised. Annual Report 2016 59 Financial Report Notes to the (cid:10)inancial Statements continued for the year ended 30 June 2016 (cid:137)(cid:139)(cid:87) (cid:10)inan(cid:36)ial (cid:24)is(cid:48) Management (cid:108)(cid:36)ontinued(cid:109) The following table details the breakdown of the investment assets and liabilities held by the Group: Shares in listed entities (level 1) Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ 2,100 2,100 (cid:137)(cid:135)(cid:136)(cid:140) $ 5,200 5,200 Sensitivity analysis The Group’s Available-For-Sale investments are listed on the Australian Stock Exchange. A 2.6% increase in stock prices at 30 June 2016 would have increased equity by $54 (2015: $67); an equal change in the opposite direction would have increased the net loss by the same amount. 2.6% is representative of the fluctuation of the ASX All Ordinaries Index for the period 1 July 2015 to 30 June 2016 (2015:1.29%) Commodity Price Risk The Group operates primarily in the exploration and evaluation phase and accordingly the Group’s financial assets and liabilities are subject to minimal commodity price risk. (cid:137)(cid:140)(cid:87) (cid:3)uditors(cid:90) (cid:24)emuneration Consolidated (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ The auditor of Sipa Resources Limited is Ernst & Young. Amounts received or due and receivable by Ernst & Young for: – an audit or review of the financial report of the entity and any other entity in the consolidated entity 41,625 58,226 – other services in relation to the entity and any other entity in the consolidated entity – tax compliance – – 41,625 58,226 There were no payments made or due to any other audit firms other than Ernst & Young for any audit or other accounting service. (cid:137)(cid:164)(cid:87) (cid:6)ontingent (cid:3)ssets and Lia(cid:35)ilities In February 2015, the Company completed the sale of the Thaduna project to Sandfire Resources Ltd (Sandfire) for $2 million worth of Sandfire shares and a 1% Net Smelter Royalty. Under the terms of the Agreement, Sandfire acquired the entire legal and beneficial interest in E52/1673, E52/1674, E52/1858, E52/2356, E52/2357, and E52/2405 including the rights and benefits which Sipa is entitled to under heritage agreements and native title contracts, and all mining information which is relevant to the Tenements. No contingent asset has been recognised as it is not virtually certain at 30 June 2016, economic benefits will be received by the company. During the year ended 30 June 2013 the Panorama Exploration Project Joint Operation partners (Sipa 40% - CBH Resources Limited 60%) sold the Kangaroo Caves Mining Lease (ML45/587) and regional exploration tenements (P45/2607, P45/2609-2614, and P45/2616) to Venturex Resources Limited (Venturex), for the consideration of $2 per dry tonne of all ore mined and treated by Venturex. No contingent asset has been recognised as it is not virtually certain at 30 June 2016 economic benefits will be received by the company. During the year ended 30 June 2011, Sipa sold its 100% interest in the Ashburton Gold project to Northern Star Resources Limited. Under the terms of the agreement, Northern Star will pay Sipa a 1.75% gross royalty on all gold production from the tenements, except the Merlin tenements, which will earn a 0.75% gross royalty on all gold production from the Merlin tenements. No contingent asset has been recognised as it is not virtually certain at 30 June 2016 economic benefits will be received by the company. During the year ended 30 June 2005, Sipa sold its interest in the Sulphur Springs Tenements (M45/0494, M45/0653, M45/1000) to CBH Sulphur Springs Pty Ltd. Under the terms of the agreement, Sulphur Springs Pty Ltd will pay Sipa $2 per tonne of ore processed from the Sulphur Springs Tenements. CBH Sulphur Springs was sold in 2011 to Venturex Limited and changed its name to Venturex Sulphur Springs Pty Ltd. No contingent asset has been recognised as it is not virtually certain at 30 June 2016, economic benefits will be received by the company. 60 Sipa Resources Limited (cid:137)(cid:141)(cid:87) (cid:13)n(cid:40)ormation (cid:24)elating to Sipa (cid:24)esour(cid:36)es Limited Current assets Total assets Current liabilities Total liabilities Retained earnings Total equity Loss of the parent entity Total comprehensive loss of the parent entity Details of any guarantees entered into by the parent entity in relation to the debts of its subsidiaries Details of any contingent liabilities of the parent entity Details of any contractual commitments by the parent entity for the acquisition of property, plant or equipment (cid:137)(cid:135)(cid:136)(cid:164) $ (cid:137)(cid:135)(cid:136)(cid:140) $ 1,052,197 6,108,513 1,054,308 6,113,724 – – – – (99,793,032) (94,537,870) 1,054,308 6,113,724 5,255,162 3,584,233 5,255,162 3,584,233 NIL NIL NIL NIL NIL NIL (cid:137)(cid:165)(cid:87) Events Su(cid:35)se(cid:55)uent to Balan(cid:36)e (cid:8)ate There has not been any matter or circumstance, other than that referred to in the financial statements or notes thereto, that has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years, except for as follows: In July 2016, Sipa announced a private placement (Placement) to exempt offerees and a Share Purchase Plan (SPP) at a price of $0.02 per share. The SPP was heavily oversubscribed resulting in a scale back. A total of 225,091,290 Shares were issued through the combined Placement and SPP and raised $4,501,826 before costs. On 1 September 2016, 4,659,000 Options exerciseable at $0.11 were issued pursuant to the Sipa Resources Employee Share Option Plan. The Options vest on 31 August 2019 and expire on 31 August 2021. Further details are found in Note 15. Annual Report 2016 61 Financial Report Directors(cid:90) Declaration In accordance with a resolution of the directors of Sipa Resources Limited, I state that: In the opinion of the directors: (a) the financial statements and notes of the consolidated entity for the financial year ended 30 June 2016 are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 2; and (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (d) 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 financial year ending 30 June 2016. On behalf of the Board L M Burnett Managing (cid:8)ire(cid:36)tor Perth, Western Australia DATED: 22 September 2016 62 Sipa Resources Limited Independent (cid:3)uditor(cid:90)s Report Annual Report 2016 63 Financial Report Independent (cid:3)uditor(cid:90)s Report continued 64 Sipa Resources Limited (cid:3)dditional Statutory Information The following information is provided in accordance with the listing requirements of the ASX Limited. All information is current as of 6 September 2016 unless otherwise noted. (cid:136)(cid:87) Su(cid:35)stantial (cid:12)olders There are presently no substantial shareholders who have notified the company in accordance with section 671B of the Corporations Act 2001. (cid:137)(cid:87) (cid:26)op (cid:137)(cid:135) S(cid:44)are(cid:44)olders (cid:24)an(cid:48) Name (cid:27)nits 37,492,874 RODIV NSW P/L (cid:149)RODIV PENSION FUND A/C> MR TERRENCE WILLIAM KAHLER + MRS SUZANNE KAHLER (cid:149)KAHLER SUPER FUND A/C> 21,200,001 CITICORP NOMINEES PTY LIMITED GEOCRUST PTY LTD (cid:149)GEOCRUST A/C> MR KENG HUAT GOH EVOLUS PTY LTD (cid:149)THE SUSHAMES S/F A/C> MICHAEL GLEN DOEPEL SANDHURST TRUSTEES LTD (cid:149)JMFG CONSOL A/C> MR TERRENCE WILLIAM KAHLER + MRS SUZANNE KAHLER (cid:149)KAHLER FAMILY SUPER FUND A/C> FNL INVESTMENTS PTY LTD (cid:149)SUPERANNUATION FUND A/C> MEGALOCONOMOS PTY LTD (cid:149)MEGALOCONOMOS S/F A/C> MR BRUCE LANKSHEAR (cid:149)LANKSHEAR S/F A/C> SOUTHERN CROSS CAPITAL PTY LTD 12,803,823 12,803,447 8,500,000 7,196,500 6,899,352 5,592,500 5,099,999 5,003,531 5,000,000 4,950,000 4,500,000 MR TERENCE WILLIAM KAHLER + MRS SUZANNE KAHLER (cid:149)KAHLER SUPER FUND A/C> 4,400,000 ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD (cid:149)CUSTODIAN A/C> DEAN PROPERTY TEAM ASSET PTY LTD ANDREW DUNCAN MURDOCH RON STANLEY HOLDINGS PTY LTD MRS CHRISTINE EMILY COGHLAN MR SAMUEL KAH TECK NG 4,248,638 4,242,500 4,200,000 4,137,931 4,092,500 4,000,000 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. (cid:166) o(cid:40) (cid:27)nits 4.03 2.28 1.38 1.38 0.91 0.77 0.74 0.60 0.55 0.54 0.54 0.53 0.48 0.47 0.46 0.46 0.45 0.44 0.44 0.43 (cid:26)otals(cid:86) (cid:26)op (cid:137)(cid:135) (cid:12)olders o(cid:40) (cid:19)(cid:24)(cid:8)(cid:13)(cid:18)(cid:3)(cid:24)(cid:31) (cid:10)(cid:27)LL(cid:31) (cid:22)(cid:3)(cid:13)(cid:8) S(cid:12)(cid:3)(cid:24)ES (cid:1223)(cid:26)(cid:19)(cid:26)(cid:3)L(cid:1224) (cid:26)otal (cid:24)emaining (cid:12)olders Balan(cid:36)e 166,363,596 763,590,264 17.89 82.11 (cid:138)(cid:87) (cid:19)ptions on issue As at 5 September 2016 there are 4,659,000 unlisted options, having an exercise price of $0.11, expiry 31 August 2021, on issue. The options are held by 4 persons and were issued pursuant to the Company’s Employee Share Option Plan. Annual Report 2016 65 Financial Report (cid:3)dditional Statutory Information continued (cid:139)(cid:87) Es(cid:36)ro(cid:62)ed se(cid:36)urities There are presently no securities subject to escrow. (cid:140)(cid:87) (cid:8)istri(cid:35)ution o(cid:40) s(cid:44)are(cid:44)older(cid:90)s (cid:44)oldings at (cid:138)(cid:136) (cid:3)ugust (cid:137)(cid:135)(cid:136)(cid:164) (cid:24)ange 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001 and over (cid:24)ounding Total (cid:26)otal (cid:44)olders (cid:27)nits (cid:166) o(cid:40) (cid:13)ssued (cid:6)apital 275 245 766 2,478 1,404 44,338 815,800 6,437,439 104,757,089 817,899,194 0.00 0.09 0.69 11.26 87.95 (cid:135)(cid:87)(cid:135)(cid:136) (cid:140)(cid:84)(cid:136)(cid:164)(cid:165) (cid:142)(cid:137)(cid:142)(cid:84)(cid:142)(cid:140)(cid:138)(cid:84)(cid:165)(cid:164)(cid:135) (cid:136)(cid:135)(cid:135)(cid:87)(cid:135)(cid:135) There are 2,268 shareholders who hold less than a marketable parcel of 26,316 (cid:164)(cid:87) Sto(cid:36)(cid:48) Ex(cid:36)(cid:44)ange listing(cid:87) (cid:23)uotation has been granted for all the ordinary shares of the Company on all Member Exchanges of the ASX Limited. (cid:141)(cid:87) (cid:13)n(cid:36)ome tax Sipa Resources Limited is taxed as a public company. (cid:26)o (cid:35)e supplied (cid:165)(cid:87) (cid:28)oting rig(cid:44)ts On show of hands one vote for every registered shareholder and on a poll, one vote for each share held by a registered shareholder. (cid:142)(cid:87) S(cid:36)(cid:44)edule o(cid:40) tenements as at (cid:164) Septem(cid:35)er (cid:137)(cid:135)(cid:136)(cid:164) (cid:22)ro(cid:47)e(cid:36)ts Kitgum-Pader Lo(cid:36)ation Uganda (cid:26)enements 1048, 1049, 1052, 1220, 1221, 1229, 1270, 1271, 1321, 1322, 1389, 1487 and 1513 (cid:13)nterest 100% Paterson North (Great Sandy) Western Australia Paterson North (Anketel) Western Australia EL45/3599 ELA45/4697 Earning up to 80% 100% 66 Sipa Resources Limited Corporate Directory Directors (cid:6)raig M(cid:36)(cid:11)o(cid:62)n BComm, FCA, ASIA (Non-Executive Chairman) Lynda Burnett BSc (Hons) GAICD, MAusIMM, MSEG (Managing Director) (cid:15)aren (cid:10)ield B Ec, FAICD (Non-Executive Director, Senior Independent Director) Paul Kiley B Ec. CPA (Non-Executive Director) (cid:6)ompany Se(cid:36)retary Tara Robson BA (Accounting), CPA (USA) (cid:24)egistered (cid:19)(cid:259)(cid:36)e Unit 8, First Floor 12-20 Railway Road Subiaco WA 6008 Telephone Facsimile (08) 9388 1551 (08) 9381 5317 Ban(cid:48)ers Ban(cid:48) o(cid:40) (cid:29)estern (cid:3)ustralia Ltd Level 11, Bankwest Place 300 Murray Street Perth WA 6000 Soli(cid:36)itors (cid:11)il(cid:35)ert (cid:123) (cid:26)o(cid:35)in 1202 Hay Street West Perth WA 6005 (cid:3)uditors Ernst (cid:123) (cid:31)oung 11 Mounts Bay Road Perth WA 6000 (cid:26)ax (cid:3)dvisors Staloest (cid:22)ty Ltd Level 4, 44 Parliament Place West Perth WA 6005 S(cid:44)are (cid:24)egistry (cid:6)omputers(cid:44)are Level 11, 172 St Georges Terrace Perth WA 6000 Enquiries (within Australia) 1300 850 505 (outside Australia) 61 3 9415 4000 www.investorcentre.com/contact (cid:29)e(cid:35)site www.sipa.com.au (cid:26)o (cid:35)e supplied Annual Report 2016 67 (cid:62)(cid:62)(cid:62)(cid:87)sipa(cid:87)(cid:36)om(cid:87)au Sipa Resources Limited Unit (cid:165) 1(cid:137)-(cid:137)(cid:135) Railway Road Su(cid:35)iaco (cid:29)estern Australia 6(cid:135)(cid:135)(cid:165) (cid:144)61 ((cid:135))(cid:165) (cid:142)(cid:138)(cid:165)(cid:165) 1(cid:140)(cid:140)1