TALGA RESOURCES LTD AND CONTROLLED ENTITIES ABN 32 138 405 419 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 Table of Contents Corporate Directory ....................................................................................................................... 3 Directors’ Report ............................................................................................................................. 4 Auditor’s Independence Declaration ..................................................................................... 22 Consolidated Statement of Profit or Loss and Other Comprehensive Income ......... 23 Consolidated Statement of Financial Position .................................................................... 24 Consolidated Statement of Changes in Equity .................................................................... 25 Consolidated Statement of Cash Flows .................................................................................. 26 Notes to the Financial Statements ........................................................................................... 27 Directors’ Declaration ................................................................................................................. 53 Independent Audit Report ........................................................................................................ 54 Additional Shareholder Information ..................................................................................... 58 Corporate Governance Statement ........................................................................................... 62 Schedule of Mineral Tenements .............................................................................................. 69 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 CORPORATE DIRECTORY DIRECTORS Terry Stinson (Chairman)(Appointed 8/2/2017) Mark Thompson (Managing Director) Grant Mooney (Non-Executive Director) Steve Lowe (Non-Executive Director) Ola Morkved Rinnan (Appointed 7/8/2017) Keith Coughlan (Resigned 8/2/2017) COMPANY SECRETARY Dean Scarparolo REGISTERED OFFICE & PRINCIPAL PLACE OF BUSINESS Suite 3, First Floor 2 Richardson Street WEST PERTH WA 6005 Phone: +618 9481 6667 Facsimile: +618 9322 1935 EMAIL & WEBSITE Email: Website: www.talgaresources.com admin@talgaresources.com ABN 32 138 405 419 SECURITIES EXCHANGE LISTING The Company is listed on ASX Home Exchange: Perth ASX Codes: TLG (Shares) TLGOA (Options) SHARE REGISTRY Security Transfer Registrars Pty Ltd 770 Canning Highway APPLECROSS WA 6153 Telephone: (08) 9315 2333 Facsimile: (08) 9315 2233 AUDITORS Stantons International Level 2, 1 Walker Avenue WEST PERTH WA 6005 Page 3 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 DIRECTORS’ REPORT The Directors present their report, together with the financial statements of Talga Resources Ltd (“Talga” or “the Company”) and its controlled entities (“Group”), for the financial year ended 30 June 2017. 1. BOARD OF DIRECTORS The following persons were directors of Talga Resources Ltd during the financial year and up to the date of this report, unless otherwise stated: Directors Terry Stinson Position Non-Executive Chairman Mark Thompson Managing Director Grant Mooney Stephen Lowe Non-Executive Director Non-Executive Director Ola Mørkved Rinnan Non-Executive Director Keith Coughlan Non-Executive Chairman 2. INFORMATION ON DIRECTORS Date of Appointment Appointed 8th February 2017 Appointed 21st July 2009 Appointed 20th February 2014 Appointed 17th December 2015 Appointed 7th August 2017 Appointed 27th September 2013 Resigned 8th February 2017 The names and details of directors in office during the financial year and up to the date of this report are as follows: Terry Stinson (Non-Executive Chairman) (Appointed 8th February 2017) Mr Stinson has over 35 years of international experience in engineering and technology commercialisation and industrial products, mining and management across the automotive, aerospace, defence, maritime, manufacturing sectors. Previous roles include Vice-President and General Manager of Siemens VDO, CEO and board member of Synerject LLC and Vice-President Manufacturing for Outboard Marine. Mr Stinson has a Bachelor of Business Administration, majoring in Operations Management, from Marian University in Wisconsin, US and is a former National Young Manufacturing Engineer of the Year for the North American-based Society of Manufacturing Engineers. He is a fellow of the Australian Institute of Company Directors and currently serves as a Non-Executive Director of Orbital Corporation Limited. Mark Thompson (Managing Director) (Appointed 21st July 2009) Mr Thompson has more than 26 years’ industry experience in exploration and mining management, working extensively on Australian and international resource projects. He is a member of the Australian Institute of Geoscientists and the Society of Economic Geologists, and a guest professor in Mineral Exploration Technology at both the Chengdu University of Technology and the Southwest University of Science and Technology in China. Mr Thompson founded and served on the Board of ASX listed Catalyst Metals Limited and is a Non-Executive Director of POZ Minerals Limited. Grant Mooney (Non-Executive Director) (Appointed 20th February 2014) Mr Mooney has a background in corporate advisory with a wealth of experience in resources and technology markets that will benefit Talga as it proceeds with the Company’s dual graphene/graphite project development at its world-class deposits in Sweden. Mr Mooney serves as a Non-Executive Director to several ASX listed companies including renewable energy, battery storage and micro-grid developer, Carnegie Clean Energy Limited and ASX-listed resource companies, Barra Resources Limited and POZ Minerals Limited. Mr Mooney is a member of the Institute of Chartered Accountants in Australia. Page 4 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 Stephen Lowe (Non-Executive Director) (Appointed 17th December 2015) Mr Lowe’s background is in business management and taxation and he has over 19 years’ experience consulting to a range of corporate and high wealth clients. Mr Lowe is currently a Non-Executive Director of Coziron Resources Ltd. Mr Lowe holds a Bachelor of Business, majoring in Accounting, a Post Graduate Diploma in Advanced Taxation and a Masters of Taxation from the UNSW. Mr Lowe is a fellow of the Taxation Institute of Australia and a member of the Australian Institute of Company Directors. Ola Mørkved Rinnan (Non-Executive Director) (Appointed 7th August 2017) Mr Rinnan has extensive commercialisation and management experience covering Europe and predominantly Scandinavia. Previous roles include CEO at Eidsiva Energi AS, CEO at Norgeskreditt AS, CFO for Moelven Industrier AS and regional MD for DNB ASA along with further previous positions as CFO and board member to a number of European listed companies and financial institutions. Mr Rinnan holds a Master’s Degree in Construction and Materials Technology, as well as a Bachelor’s Degree in Economics, and his current board positions include Non-Executive Directorships in Smedvig group (Talga’s largest shareholder) companies. Mr Rinnan is a Non-Executive Director of Nordavind DC Sites AS and DFCU Bank (where he represents the largest shareholder Norfund), serves as the Chairman of Avinor AS and is a member of the advisory board for DLA Piper in Norway. Keith Coughlan (Non-Executive Chairman) (Appointed 27th September 2013. Resigned 8th February 2017) Mr Coughlan has over 30 years' experience in stockbroking and funds management where he has been largely involved in the funding and promoting of resource companies listed on the ASX, AIM and TSX. He has advised various companies on the identification and acquisition of resource projects and was previously employed by one of Australia's then largest funds management organisations. Mr Coughlan is a current Executive Director of ASX listed European Metals Holdings Limited. 3. INFORMATION ON COMPANY SECRETARY Dean Scarparolo (Appointed 5th February 2015) Mr Scarparolo is a member of CPA Australia and has a wealth of experience developing and managing the finance departments of ASX listed companies within the resources sector. Mr Scarparolo is also the Financial Controller for the Company. 4. CORPORATE STRUCTURE Talga Resources Ltd is a company limited by shares incorporated and domiciled in Australia. Talga Resources Ltd has a 100% interest in Talga Mining Pty Ltd, Talga Advanced Materials GmbH (a German company,) and Talga Technologies Limited (a UK company). 5. PRINCIPAL ACTIVITIES AND SIGNIFICANT CHANGES IN STATE OF AFFAIRS The principal activities of the Group during the financial year comprised graphite exploration and development, including trial mining in Sweden and graphite/graphene research, process and product development through the Group’s test facility in Germany and technology operation in the UK. Significant changes in the state of affairs of the Group during the financial year were as follows: • • • • Strategic shift to manufacture value-added ‘fit for purpose’ graphitic carbon products in addition to raw materials; Commercial undertakings including collaboration and joint development agreements with significant industrial end users that validate Talga’s products and strategy; Commissioning of Phase 2 test facility in Germany; Completion of second trial mining campaign in Sweden, followed by completion of rehabilitation exercise; • Appointment of European project manager and senior product development/technology staff; Page 5 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 • • • Positive advancements across all graphene process and product research/partnering programs; Increased size, grade and status of Vittangi graphite mineral resource in Sweden; Established a graphene product development facility in Cambridge with the incorporation of the UK subsidiary, Talga Technologies Limited; • Appointment of new Chairman, Terry Stinson; • • • Completed the sale of Talga’s Pilbara based gold projects in Western Australia; Capital initiatives raising a combined ~$13.2m; and Significant exploration drilling results and commencement of evaluation campaign across Talga’s cobalt and copper projects in north Sweden. Further details are provided in the Review of Operations. 6. REVIEW OF OPERATIONS During the financial year the Group’s principal activities related to development of vertically integrated operations across mineral resource exploration and development in Sweden, process flowsheet scale-up and optimisation in Germany and product development in the United Kingdom. A summary of the major operational highlights is provided below: COMMERCIAL DEVELOPMENT Graphene products business strategy • Strategic decision made to manufacture targeted value-added ‘fit for purpose’ graphene products to complement supply of bulk raw graphene and graphite materials; and • Goal to pursue revenue opportunities during pilot processing stages, prior to full-scale production. Industry Partnerships • Range of commercial agreements with end users of conductive additives provide further validation of Talga’s products and strategy; • • Exclusive graphene supply and first revenue pursuant to Joint Development Agreement (JDA) with Chemetall, a global business unit of BASF Coatings Division. Under the JDA Talga and Chemetall aim to co- develop and commercialise graphene enhanced metal surface coatings; JDA executed with Zinergy UK Limited to co-develop and supply graphene conductive inks for electrodes in the world’s thinnest, flexible printed batteries; • Memorandum of understanding signed with Heidelberg Cement (subsequent to year end) to jointly explore business opportunities using Talga’s graphite and graphene based materials in concrete for the building and construction sector; and • Graphene collaboration agreement signed with JenaBatteries GmbH targeting graphene enhanced polymer flow batteries for commercial scale grid energy storage. Processing Development • • Phase 2 graphene test facility in Germany successfully commissioned. Demonstrates significant increases in graphene yield and numerous processing improvements; and Continued test facility processing capacity scale-up and new exfoliation cell design installed and commissioned. Ongoing development to maximize efficiencies, reduce costs and improve recoveries while testing designs for future automated operations. Process results feed into studies, project and product planning and permitting applications. Page 6 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 Product Development • • Talga product development strategy in action across four key sectors: Coatings, Energy/Batteries, Construction/Concrete and Polymer Composites; Targeted products are developed with in-house technology team, industry partners and third party academic and industry bodies. Prototype products tested to industry standard level to attract partners for next stage development work and commercialisation; and • Multiple patent applications pending on graphene product formulations and process, as well as trade-mark registration for ‘Talphite’ (graphitic carbon brand) and ‘Talphene’ (graphene brand). Coatings • Results of published scientific study demonstrate Talga’s graphene increases corrosion protection of steel by up to 74%; and • The first Talga functionalised graphene coating prototype was produced and delivered following the JDA signed with Chemetall. Energy/Batteries • Ongoing testing of Talga graphite and graphene in Lithium-ion (“Li-ion”) batteries at the Warwick Manufacturing Group’s Energy Innovation Centre; and • Results deliver industry standard battery anode performance using Talga graphite material without requiring energy intensive milling or shaping steps. Higher performance seen in follow-up graphene anode Li-ion battery test results. Construction/Concrete • • Excellent concrete thermal conductivity and high strength test results achieved from initial prototype concrete formulations; and Test results opens dialogues and collaboration with large industry participants. Polymer Composites • In-house testing commenced and industry dialogues advanced on specific composite related applications that benefit from Talga graphene enhancement. MINERAL RESOURCES / EXPLORATION / MINE PLANNING Exploration • Successful Swedish graphite drilling program completed with outstanding high grade graphite assays including zones exceeding 40% graphitic carbon; and • Multi-tiered cobalt evaluation programs commenced using modern techniques across historic and new prospective zones in Talga’s base metal projects. Trial Mining • Talga’s second trial graphite mining program in Sweden was successfully completed with new contractors, equipment and efficiencies providing valuable input for future mine planning. Resources • Vittangi graphite project JORC (2012) mineral resource (Nunasvaara – see Mineral Resources and Ore Reserve Statement Table 2) was increased in size, grade and status to 12.3 million tonnes grading 25.5% graphite using a 17% lower cut-off. Page 7 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 Mine Planning • • Permitting and feasibility studies advancing; and Consultation and pre-planning processes underway with Swedish regulators and stakeholders regarding future mine options. Corporate • • Strengthening of the Board with the appointment to Chairman role of regarded technology commercialisation expert, Terry Stinson; Expanded executive team with the appointment of Project Manager – Europe, Martin Phillips (subsequent to year end becoming the Group Chief Operating Officer); • Raised combined ~$13.2 million through a $0.9 million options entitlement offer and subsequent $12.3 million share placement to institutions and major shareholders; • • Talga presentations, finance and end user roadshows delivered by the Company’s Perth and European- based managers at a range of national and international industry and investor events; and Completed sale of Pilbara based gold projects in Western Australia. FUTURE OUTLOOK AND STRATEGY Talga is a vertically integrated technology minerals company with a unique 100% owned carbon source. The Company has a rare opportunity to mass produce graphene and its derivatives to enable industrial scale uptake of both raw graphite and graphene materials as well as value added graphene products. Talga is developing rapidly and becoming more analogous to a ‘specialty chemicals’ business rather than flake graphite peers and now has operations in four countries, a vertically integrated business model and a growing team to reflect the skills required to bring a project to fruition. Talga’s board and senior executives have invested significant time in what will be an ongoing process of strategic planning. The Company has a strong handle on its strengths and weaknesses, opportunities and threats, and while addressing these is actively forging a path to realise both near and long term commercial outcomes. In the foreground, Talga is following a step-wise approach to scale up and de-risk its process. It is working on a handful of targeted products within four diversified sectors (coatings, energy/batteries, construction/concrete and polymer composites) and it is building commercial relationships with large volume potential customers. In the background, Talga is busy on its full scale mining concession work plan which dovetails into the project feasibility process. The Company’s broader project goals are now less about research and development breakthroughs and more closely associated with commercial milestones. Talga has achieved several of these milestones during 2017 that support its strategy and highlight the type of global companies who are looking for performance enhancing additives. Commercial partnerships direct with end users are a significant point of difference and support the opportunity to validate materials, generate early ‘product’ related sales and develop supply commitments for future full scale development. Based on what Talga is seeing in industry, the demand backdrop for graphene and its derivatives continues to grow and the near term large volume opportunities remain in additive products. Talga is well funded to advance its goals and the Company’s process and product development initiatives are supplied with stockpiled ore for the foreseeable future. Future development and investment decisions will be based on real world data to hand. In addition to Talga’s core graphitic carbon projects, the Company has stated its desire to advance its Swedish cobalt mineral opportunities so it is fully informed to make well measured decisions on how best to monetize those assets. Given the backdrop for battery minerals globally and specifically in Europe, Talga sees multiple avenues to bolster its funding strategy through the future commercialisation of its cobalt rich base metal assets. Page 8 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 7. MINERAL RESOURCES AND ORE RESERVE STATEMENT This statement represents the Mineral Resources and Ore Reserves (“MROR”) for Talga Resources Ltd as at 30 June 2017. This MROR statement has been compiled and reported in accordance with the guidelines of the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (JORC Code). This statement is to be reviewed and updated annually in accordance with Section 15 of the 2012 JORC Code. The nominated annual review date for this MROR statement is 30 June. As at the Annual Review date of 30 June 2017, this MROR Statement has been approved by the named competent persons (see the Competent Persons Statement below). MINERAL RESOURCES Talga owns 100% of multiple graphite (“Cg”) and iron (“Fe”) mineral assets in northern Sweden. An overview of each of the assets in the Company’s portfolio at 30 June 2017 is below in Table 1 and details of each project’s Mineral Resource categories are set out below in Tables 2 to 6. Table 1 – Talga 30 June 2017 Total Mineral Resources Tonnes Grade Contained Mineral Project Vittangi Graphite Jalkunen Graphite Raitajärvi Graphite Total Graphite Vittangi Iron Masugnsbyn Iron Total Iron Notes: Ore (Mt) 12.3 31.5 4.3 48.1 123.6 87.0 210.6 Cg (%) 25.3 14.9 7.1 - - Fe (%) - - - 32.6 28.3 Cg (Mt) 3.1 4.7 0.3 - - Fe (Mt) - - - 40.3 24.6 1. Detailed tables setting out each of the Indicated and Inferred Mineral Resource categories are set out on tables 2 to 6. 2. All figures are rounded to reflect appropriate levels of confidence. Apparent differences may occur due to rounding. 3. All projects are 100% Talga owned. 4. The graphite and iron resources are separate deposits but sometime occur within the same project area. 5. Mineral quantities are contained mineral. 6. Mineral Resources are inclusive of Indicated and Inferred Mineral Resource categories. VITTANGI GRAPHITE PROJECT, NORTHERN SWEDEN (Talga owns 100%) Table 2 – Nunasvaara Graphite Deposit – JORC (2012) Resource at 17% Cg cut-off Deposit Nunasvaara Nunasvaara Total JORC Resource Category Indicated Inferred Tonnes 10,700,000 1,600,000 12,300,000 Grade Cg (%) 25.7 23.9 25.5 Note: Ore tonnes rounded to nearest hundred thousand tonnes. The Vittangi project graphite mineral resource was disclosed in April 2017 in accordance with the 2012 JORC Code (ASX: TLG 27 April 2017). Page 9 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 JALKUNEN GRAPHITE PROJECT, NORTHERN SWEDEN (Talga owns 100%) Table 3 – Jalkunen Graphite Project – JORC (2012) Resource at 10% Cg cut-off Deposit Jalkunen JORC Resource Category Inferred Tonnes 31,500,000 Grade Cg (%) 14.9 Note: Ore tonnes rounded to nearest hundred thousand tonnes. The Jalkunen project graphite mineral resource was disclosed in August 2015 in accordance with the 2012 JORC Code (ASX: TLG 27 August 2015). RAITAJÄRVI GRAPHITE PROJECT, NORTHERN SWEDEN (Talga owns 100%) Table 4 – Raitajärvi Graphite Project – JORC (2004) Resource at 5% Cg cut-off Deposit Raitajärvi Raitajärvi Total JORC Resource Category Indicated Inferred Tonnes 3,400,000 900,000 4,300,000 Grade Cg (%) 7.3 6.4 7.1 Note: Ore tonnes rounded to nearest hundred thousand tonnes. The Raitajärvi project graphite mineral resource was disclosed in August 2013 in accordance with the 2004 JORC code (ASX:TLG 26 August 2013). It has not been updated since to comply with the JORC code 2012 on the basis that the information has not materially changed since it was last reported. The Company is not aware of any new information or data that materially affects the information included in the previous announcement and that all of the previous assumptions and technical parameters underpinning the estimates in the previous announcement have not materially changed. VITTANGI IRON PROJECT, NORTHERN SWEDEN (Talga owns 100%) Table 5 – Vittangi Iron Project – JORC (2004) Resource Estimate at 15% Fe cut-off Deposit Vathanvaara Kuusi Nunasvaara JORC Resource Category Inferred Inferred Mänty Vathanvaara Inferred Sorvivuoma Jänkkä Total Inferred Inferred Tonnes 51,200,000 46,100,000 16,300,000 5,500,000 4,500,000 123,600,000 Grade Fe (%) 36.0 28.7 31.0 38.3 33.0 32.6 Note: Ore tonnes rounded to nearest hundred thousand tonnes. The Vittangi iron project mineral resource was disclosed in July 2013 in accordance with the 2004 JORC Code (ASX: TLG 22 July 2013). It has not been updated since to comply with the JORC code 2012 on the basis that the information has not materially changed since it was last reported. The Company is not aware of any new information or data that materially affects the information included in the previous announcement and that all of the previous assumptions and technical parameters underpinning the estimates in the previous announcement have not materially changed. Page 10 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 MASUGNSBYN IRON PROJECT, NORTHERN SWEDEN (Talga owns 100%) Table 6 – Masugnsbyn Iron Project – JORC (2004) Resource Estimate at 20% Fe cut-off Deposit JORC Resource Category Masugnsbyn Indicated Tonnes 87,000,000 Grade Fe (%) 28.3 Note: Ore tonnes rounded to nearest hundred thousand tonnes. The Masugnsbyn iron project mineral resource was disclosed in February 2012 in accordance with the 2004 JORC Code (ASX: TLG 28 February 2012). It has not been updated since to comply with the JORC code 2012 on the basis that the information has not materially changed since it was last reported. The Company is not aware of any new information or data that materially affects the information included in the previous announcement and that all of the previous assumptions and technical parameters underpinning the estimates in the previous announcement have not materially changed. The total estimate has been reduced from 112 million tonnes @ 28.6% Fe to 87 million tonnes @ 28.3% Fe due to a portion of the exploration permit having been surrendered. COMPARISON WITH PRIOR YEAR ESTIMATES Mineral Resources During the 2017 financial year, a revised resource estimate for the Vittangi graphite project was prepared by independent geological consultants Oliver Mapeto and Albert Thamm utilising results from diamond drilling completed in 2016 and announced to ASX on 27 April, 2017. This re-estimated the former JORC (2012) total mineral resource of 9.8 million tonnes at 25.3% graphite at a cut-off grade 10% graphite (as at 30 June 2016) to JORC (2012) compliant total mineral resource of 12.3 million tonnes @ 25.5% graphite at a cut-off grade of 17% Cg (as at 30 June 2017). The Masungnsbyn iron project JORC (2004) mineral resource has been reduced from 112 million tonnes @ 28.6% Fe to 87 million tonnes @ 28.3% Fe due to a portion of the exploration permit having been surrendered. Other resource estimates across the Company's projects remain unchanged from the Company's Mineral Resource Statement as at 30 June 2016. Ore Reserves As at 30 June 2017 the Company had no reportable Ore Reserves in accordance with the 2012 JORC Code. GOVERNANCE SUMMARY The Mineral Resource estimates listed in this report are subject to Talga’s governance arrangements and internal controls. Talga Resource estimates are derived by Competent Person’s (“CP”) with the relevant experience in the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking. Geology models in all instances are generated by Talga staff and are reviewed by the CP. The CP carries out reviews of the quality and suitability of the data underlying the Mineral Resource estimate, including a site visit. Talga management conducts its own internal review of the estimate to ensure that it honours the Talga geological model and has been classified and reported in accordance with the JORC Code. COMPETENT PERSONS STATEMENT The information in this report that relates to the Vittangi Graphite Project - Nunasvaara Resource Estimation is based on information compiled by Oliver Mapeto and reviewed by Albert Thamm. Both Mr Mapeto and Mr Thamm are consultants to the Company. Mr Mapeto is a member of both the Australian Institute of Mining and Metallurgy (Membership No. 306582) and Australian Institute of Geoscientists (Membership No. 5057) and Mr Thamm (Membership No. 203217) is a fellow member of the AusIMM. Both Mr Mapeto and Mr Thamm have sufficient experience relevant to the styles of mineralisation and types of deposits which are covered in this document and to the activity which both are undertaking to qualify as a Competent Person as defined in the 2012 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (“JORC Code”). Mr Mapeto and Mr Thamm consent to the inclusion in this report of the matters based on this information in the form and context in which it appears. The information in this report that relates to Resource Estimation for the Jalkunen and Raitajärvi Graphite Page 11 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 Projects, and Masugnsbyn and Vittangi Iron Projects is based on information compiled and reviewed by Mr Simon Coxhell. Mr Coxhell is a consultant to the Company and a member of the Australian Institute of Mining and Metallurgy. Mr Coxhell has sufficient experience relevant to the styles of mineralisation and types of deposits which are covered in this document and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (“JORC Code”). Mr Coxhell consents to the inclusion in this report of the matters based on this information in the form and context in which it appears. The information in this report that relates to Exploration Targets is based on information compiled and reviewed by Mr Simon Coxhell, a consultant to the Company and a member of the Australian Institute of Mining and Metallurgy. Mr Coxhell has sufficient experience that is relevant to the activity being undertaken to qualify as a "Competent Person" as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (“JORC Code”). Mr Coxhell consents to the inclusion in the report of the matters based on this information in the form and context in which it appears. The information in this document that relates to exploration results is based on information compiled by Amanda Scott, a Competent Person who is a member of the Australian Institute of Mining and Metallurgy (Membership No. 990895). Amanda Scott is a full-time employee of Scott Geological AB. Amanda Scott has sufficient experience, which is relevant to the style of mineralisation and types of deposits under consideration and to the activity which has been undertaken to qualify as a Competent Person as defined in the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). Amanda Scott consents to the inclusion in the report of the matters based on her information in the form and context in which it appears. 8. TENEMENT INTERESTS As required by ASX listing rule 5.3.3, please refer to the Schedule of Mineral Tenements for details of Talga’s interests in mining tenements held by the Company. No joint ventures or farm-in/farm-out activity occurred during the year. 9. FINANCIAL PERFORMANCE AND FINANCIAL POSITION As a developer of graphene mineral processing and a mineral explorer, the Group currently has little revenue outside of interest on bank deposits and occasional asset sales. The financial results of the Group for the year ended 30 June 2017 are: Cash and cash equivalents ($) Net assets ($) Income ($) Net loss after tax ($) Loss per share (cents per share) Dividend ($) 10. DIVIDENDS 2017 16,340,409 18,184,197 633,574 (8,559,332) (4.7) - 2016 11,763,678 13,570,098 859,488 (6,225,324) (4.3) - No dividend has been paid during or is recommended for the financial year ended 30 June 2017 (30 June 2016: Nil). 11. RISKS There are specific risks associated with the activities of the Group and general risks that are largely beyond the control of the Company and the Directors. The most significant risks identified that may have a material impact on the future financial performance of the Company and the market price of the Shares are: Page 12 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 • Mineral and Exploration Risk The business of exploration, project development and mining contains risks by its very nature. To prosper, it depends on the successful exploration and/or acquisition of reserves, design and construction of efficient production/processing facilities, competent operation and managerial performance and proficient marketing of the product. • Operating Risks The proposed activities, costs and use of funds of the Group are based on certain assumptions with respect to the method and timing of exploration, metallurgy and other technical tests. By their nature, these estimates and assumptions are subject to significant uncertainties and, accordingly, the actual costs may materially differ from these estimates and assumptions. The proposed activities of the Company including preliminary economic studies are dependent on economic inputs from commodity prices, metallurgical tests and market tests of which there is no guarantee of positive economics. It is a risk that studies may not be completed or may be delayed indefinitely where key inputs show negative economic outcomes. • Additional Requirements for Capital Talga is now a vertically integrated technology minerals company with a strategy to produce value added products that would provide the most effective, near-term opportunities for commercialisation and potential cashflows. The Group’s cash as at 30 June 2017 is $16.34 million which is more than sufficient to cover committed expenditure beyond the next 12 months. However, without regular income outside interest proceeds or assets sales, it will rely on continuing access to capital markets (including the exercise of listed and unlisted Talga options) to fund further development in Sweden, Germany and United Kingdom. Failure to obtain sufficient financing for Talga's activities and future projects may result in delay and indefinite postponement of exploration, development or production on Talga's properties, or even loss of a property interest. • Environmental Impact Constraints The Group's exploration programs will, in general, be subject to approval by governmental authorities. Development of any of the Group's properties will be dependent on the Project meeting environmental guidelines and, where required, being approved by governmental authorities. In April 2015, the Group was issued with a trial mining permit (valid to September 2018) by the Swedish Environmental Review Commission, which covers Talga’s exploration licence at its Vittangi graphite project in Sweden. Subsequent remaining clearances were also secured (mining, environmental and stakeholder bonds, Mines Department consent, landowner and other stakeholder compensations). • Mineral Title Risks and Indigenous Owners Mining and exploration permits are subject to periodic renewal. There is no guarantee that current or future permits or future applications for production concessions will be approved. Permits are subject to numerous legislation conditions. The renewal of the term of a granted permit is also subject to the discretion of the relevant mining inspector. The imposition of new conditions or the inability to meet those conditions may adversely affect the operations, financial position and/or performance of the Group. Furthermore, the Group could lose title to, or its interest in, tenements if license conditions are not met or if insufficient funds are available to meet expenditure commitments. At the date of this report, all mining and exploration permits and licenses were in good standing. It is also possible that, in relation to tenements which the Group has an interest in or will in the future acquire such an interest, there may be areas over which legitimate common law rights of Indigenous owners exist. In this case, the ability of the Group to gain access to tenements (through obtaining consent of any relevant Indigenous owner, body, group or landowner), or to progress from the exploration phase to the development and mining phases of operations may be adversely affected. The Group's mineral titles may also be subject to access by third parties including, but not limited to, the areas' Indigenous people. This access could potentially impact the Group's activities and/or may involve payment of compensation to parties whose existing access to the land may be affected by the Company's activities. Subsequent to the issue of a trial mining permit in April 2015 by the Swedish Environmental Review Commission, which covers Talga’s exploration license at its Vittangi graphite project in Sweden, remaining mining, environmental and stakeholder bonds, Mines Department consent, landowner and other stakeholder compensations and clearances were also secured. Page 13 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 • Resource Estimates Resource estimates are expressions of judgment based on knowledge, experience and industry practice. Estimates which were valid when originally calculated may alter significantly when new information or techniques become available. In addition, by their very nature, resource estimates are imprecise and depend to some extent on interpretations, which may prove to be inaccurate. As further information becomes available through additional fieldwork and analysis, estimates are likely to change. This may result in alterations to development and mining plans which may, in turn, adversely affect the Company's operations. 12. SUBSEQUENT EVENTS Other than as disclosed below, there has not been any other matter or circumstance occurring subsequent to the end of the financial year that has significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. • • Mr Ola Morkved Rinnan was appointed as a non-executive director of the company on 8 August 2017. On 14 August 2017, following shareholder approval on 11 August 2017, the Company issued options to the Managing Director under the Company’s employee incentive scheme (see the terms below). Number of Options Exercise price Valuation date Expiry date Life of the options (years) Vesting conditions Incentive Options Tranche A Tranche B 650,000 nil 3/07/17 10/08/20 3 years See 1) below 650,000 nil 3/07/17 10/08/20 3 years See 2) below Performance Options Tranche C 1,500,000 $0.91 3/07/17 10/08/20 3 years nil 1) 2) The Tranche A Options will vest when the Company achieves a $200 million market capitalisation for a period of 60 consecutive days. The Tranche B Options will vest when the Company achieves a $250 million market capitalisation for a period of 60 consecutive days. In August 2017, the Company entered into an option and sale agreement with Torque Metals Pty Ltd (“Torque”) for the Company’s remaining Australian gold asset, the Bullfinch project. On execution of the agreement the Company received a non-refundable $20,000 Option Fee. The exercise of the Option is conditional on Torque maintaining the tenements in good standing and by spending $145,000 by 30 November 2017 with a further $335,000 by 31 March 2018 if the Option is exercised. Talga retains a 1% gross production Royalty for any minerals extracted. As announced on 22 September 2017, Talga sold 585,000 shares held in Novo Resources Corp on-market for approximately $2 million and still retains 180,115 Novo Resources Corp shares as at the date of this report. • • 13. DIRECTORS’ and COMMITTEE MEETING The number of meetings attended by each of the Directors of the Group during the financial year was: Directors Meetings Directors Terry Stinson Mark Thompson Grant Mooney Stephen Lowe Keith Coughlan Number Eligible to Attend Number Attended 2 7 7 7 5 2 7 7 7 4 Page 14 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 Remuneration Committee Meetings Directors Terry Stinson Grant Mooney Stephen Lowe Number Eligible to Attend Number Attended 3 3 3 3 3 3 Audit and Risk Committee Meetings The Board adopted and approved an Audit and Risk Committee in the second half of the year. No meetings have taken place as at the end of the financial year. 14. ENVIRONMENTAL REGULATIONS The Group’s operations are subject to State and Federal laws and regulations concerning the environment. Details of the Group’s performance in relation to environmental regulations are as follows: The Group’s exploration activities are subject to the Western Australian Mining Act and the Swedish Minerals Act (“Minerallagen”). The Group has a policy of complying with or exceeding its environmental performance obligations. The Board believes that the Group has adequate systems in place for the management of its environmental requirements. The Group aims to ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance with all environmental legislation. The Directors of the Group are not aware of any breach of environmental legislation for the financial year under review. The Directors of the Group have reviewed the requirements under the Australian National Greenhouse Emission Regulation (“NGER”) to report its annual greenhouse gas emissions and energy use. For the year ending 30 June 2017 the Group was below the reporting threshold and is therefore not required to register or report. The Directors will continue to monitor the Group’s registration and reporting obligations. 15. SHARE OPTIONS As at the date of this report, there were 78,359,651 ordinary shares under option: • • • • • • • • • • • • • • 44,879,397 listed options with an exercise price of 45 cents expiring on 31 December 2018; 5,900,000 unlisted options with an exercise price of 60 cents expiring on 4 October 2018; 8,880,254 unlisted options with an exercise price of 45 cents expiring on 31 December 2018; 2,000,000 unlisted options with an exercise price of 42 cents expiring on 3 May 2019; 2,500,000 unlisted options with an exercise price of 54 cents expiring on 23 June 2019; 1,500,000 unlisted options with an exercise price of 42 cents expiring on 7 July 2019; 2,500,000 unlisted options with an exercise price of 35 cents expiring on 10 August 2019; 1,400,000 unlisted options with an exercise price of 54 cents expiring on 20 August 2019; 2,000,000 unlisted options with an exercise price of 60 cents expiring on 8 February2020; 1,000,000 unlisted options with an exercise price of 54 cents expiring on 26 March 2020; 2,000,000 unlisted options with an exercise price of 100 cents expiring on 10 May 2020; 1,500,000 unlisted options with an exercise price of 102 cents expiring on 10 August 2020; 1,300,000 unlisted options with an exercise price of nil expiring on 10 August 2020; * and 1,000,000 unlisted options with an exercise price of 54 cents expiring on 17 December 2020. * Incentive Options are exercisable on Talga’s share price reaching the following targets: a. 650,000 Incentive Options vest upon the Company achieving a Market Capitalisation of $200 million for a period of 60 consecutive days, on or before the date which is three years from the date of issue (Incentive Options Tranche 1); and Page 15 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 b. 650,000 Incentive Options vest upon the Company achieving a Market Capitalisation of $250 million for a period of 60 consecutive days, on or before the date which is three years from the date of issue (Incentive Options Tranche 2). No person entitled to exercise any option referred to above has or had, by virtue of the option, a right to participate in any share issue of any other body corporate. During or since the end of the financial year; • • • • • • • 53,685 fully paid ordinary shares were issued on the exercise of options at an exercise price of $0.45; 13,859 fully paid ordinary shares were issued on the exercise of options at an exercise price of $0.45; 500,000 options with a $0.45 exercise price expired on 3 October 2016; 4,000,000 options with a $0.52 exercise price expired on 31 December 2016; 2,000,000 options with a $0.60 exercise price expired on 31 December 2016; 2,000,000 options with a $0.65 exercise price expired on 31 December 2016; and 1,000,000 options with a $0.60 exercise price with an expiry date of 4 October 2018 were cancelled. 16. REMUNERATION REPORT (Audited) This report details the type and amount of remuneration for each director and key management personnel (“KMP”) (defined as those having authority and responsibility for planning, directing and controlling the activities of the Group). Remuneration Policy The performance of the Group depends upon the quality of its directors and executives. To prosper, the Company must attract, motivate and retain highly skilled directors and executives. It is the Group’s objective to provide maximum stakeholder benefit from the retention of a high quality board and KMP by remunerating them fairly and appropriately with reference to relevant employment market conditions. To assist in achieving the objective the Board links the nature and amount of director and KMP emoluments to the Group’s financial and operational performance. The Board set up a Remuneration Committee. The responsibilities of the Remuneration committee are to: • Attract, retain and motivate high quality Directors and KMP; • Reward Directors and KMP for Company performance; • Align the interest of Directors and KMP with those of shareholders; • • Link reward with strategic goals and performance of the Company; and Ensure total remuneration is competitive with market standards. The remuneration of a Director or KMP will be decided by the Remuneration Committee. In determining competitive remuneration rates the Remuneration Committee reviews local and international trends among comparative companies and the industry generally. It also examines terms and conditions for the employee share option plan. • Non-executive director remuneration The maximum remuneration of non-executive Directors is the subject of Shareholder resolution in accordance with the Group’s Constitution, and the Corporations Act 2001 as applicable. The appointment of non-executive Director remuneration within that maximum will be made by the Remuneration Committee having regard to the inputs and value to the Group of the respective contributions by each non-executive Director. Shareholders at a general meeting approved an aggregate amount of $500,000 to be paid to non-executive Directors. The Board may allocate this pool (or part of it) at their discretion. The Remuneration Committee may recommend to award additional remuneration to non-executive Directors called upon to perform extra services or make special exertions on behalf of the Group. There is no scheme to provide retirement benefits, other than statutory superannuation, to non-executive directors. Page 16 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 • Executive remuneration Executive remuneration may consist of both fixed and variable (at risk) elements. Fixed remuneration The level of fixed remuneration is set so as to provide a base level of remuneration which is appropriate to the position and is competitive in the market and may be in variety of forms including cash and fringe benefits. The remuneration is reviewed annually by the Remuneration Committee. Variable (at risk) remuneration Variable remuneration may be delivered in the form of a short term incentive scheme, cash bonuses or long term incentive schemes including share options or rights. All equity based remuneration paid to directors and executives is valued at the cost to the Group and expensed. Options are valued using the Black-Scholes methodology. Performance Based Remuneration During the financial year there was no performance based remuneration paid to Directors or KMP under any Management Incentive Plan. For further detail regarding the Group Management Incentive Plan, refer to Note 17 - Key Management Personnel Compensation. The Group has not paid any bonuses to directors or KMP in the year ended 30 June 2017. Group Performance, Shareholder Wealth and Directors’ and Executives’ Remuneration The remuneration policy has been tailored to maximise the commonality of goals between shareholders, directors and executives. The method applied in achieving this aim to date has been the issue of options to directors and issue of shares under the Management Incentive Plan to encourage the alignment of personal and shareholder interests. Furthermore, short term incentives (STI) that reflect the Group’s development path and that can translate into long term value being created for shareholders have also been considered. The Group believes this policy will be the most effective in increasing shareholder wealth. Services Agreements of Executive Directors Mr Thompson’s employment conditions as Managing Director are defined by way of contract of employment with no fixed term. Mr Thompson’s Base Salary, excluding superannuation, is $348,000 and his STI’s have been agreed for the 17/18 financial year based on the three key performance milestones covering Commercial Agreements, Off-take Agreements and Market Capitalisation targets, up to a maximum at risk total of $200,000 (including superannuation). The Company may terminate the employment contract without cause by providing nine months written notice or making payment in lieu of notice, based on the individual’s annual salary component. Mr Thompson may terminate the employment without cause by providing six months written notice and the Company may pay Mr Thompson in lieu of notice or require him to serve out his notice. In the event of a change in control of the Company, Mr Thompson will receive a bonus payment comprising of a lump sum gross payment of 12 months' Base Salary. If within 6 months after the change in control Mr Thompson elects to terminate his employment or his employment is terminated by the Company, Mr Thompson will not be entitled to any notice of termination or payment in lieu of notice. Page 17 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 Details of Remuneration Details of the remuneration of the Directors, other key management personnel (defined as those who have the authority and responsibility for planning, directing and controlling the major activities of the Group) and specified executives of Talga are set out in the following tables. 2017 Short Term Benefits Post-Employment Director Salary Directors Fees Non Monetary Salary (i) Super- annuation Retirement Benefits $ - $ 39,763 $ - $ 3,778 $ - Share based payments Equity Options(iv) Total Value of share based payments as proportion of remuneration $ - $ $ % 286,587 330,128 87% Sub- Total $ 43,541 361,445 - 18,074 19,615 - 399,134 - - - - 43,562 43,562 30,496 - - - 4,138 4,138 2,897 Total 361,445 157,383 18,074 34,566 - - - - 399,134 0% 47,700 0% 47,700 0% 33,393 0% 286,587 858,055 33% - - - - 47,700 47,700 33,393 571,468 - - - - 2016 Short Term Benefits Post-Employment Director Salary Directors Fees Non Monetary Salary (i) Super- annuation Retirement Benefits Sub- Total Share based payments Equity Options(vii) $ - $ 50,228 $ - $ 4,772 $ - $ 55,000 $ - $ - Value of share based payments as proportion of remuneration % 0% Total $ 55,000 361,752 - 61,700 19,308 - 442,760 - 511,200 953,960 54% - - 43,562 23,596 - - 4,138 2,242 - - - 47,700 - - 47,700 0% 25,838 571,298 - - 122,000 147,838 83% 633,200 1,204,498 53% Total 361,752 117,386 61,700 30,460 Terry Stinson Chairman(ii) Mark Thompson Managing Director (v) Grant Mooney Non- Executive Director Steve Lowe Non- Executive Director Keith Coughlan Chairman (iii) Keith Coughlan Chairman Mark Thompson Managing Director (v) Grant Mooney Non- Executive Director Steve Lowe Non- Executive Director (vi) Page 18 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 Notes Directors are paid under the terms agreed by way of director’s resolution. (i) Non monetary salary includes the net movement of the balance of accrued annual and long-service leave entitlements. Part of this movement included a part payout of the annual leave entitlement. (ii) Mr Terry Stinson commenced on 8 February 2017 and was entitled to receive director’s fees of $110,000 per annum. (iii) Mr Keith Coughlan resigned as chairman on 8 February 2017. (iv) For the year ended 30 June 2017 the fair value of 2,000,000 options granted to directors totaled $286,587. Note 17(c) refers to the assumptions made in calculating the fair value of the options issued. These options were vested as at 30 June 2017. (v) Year ended 30 June 2017 - from 1 July 2016, Mr Thompson was entitled to a total annual base salary of $361,445 plus superannuation of $19,615. Year ended 30 June 2016 - from 1 July 2015, Mr Thompson was entitled to a total annual base salary of $361,752 plus superannuation of $19,308. (vi) Mr Stephen Lowe was appointed a director 17 December 2015 and was entitled to receive director’s fees of $47,700 per annum. (vii) For the year ended 30 June 2016 the fair value of 5,500,000 options granted to directors totaled $633,200. Note 17(c) refers to the assumptions made in calculating the fair value of the options issued. These options were vested as at 30 June 2016. Option and Shareholdings of directors and officers The number of options over ordinary shares in Talga held by Key Management Personnel (“KMP”) of the Group during the financial year is as follows: Key Management Personnel Options 2017 30 June 2017 Balance at Beginning of Year Granted as Remuneration during the Year Exercised during the Year Other changes during the Year Balance at End of Year Vested during the Year Vested and Exercisable Terry Stinson Mark Thompson - 2,000,000 4,500,000 - - - - 2,000,000 2,000,000 2,000,000 3,567,697 8,067,697 3,567,697 8,067,697 1,000,000 Grant Mooney Stephen Lowe Keith Coughlan (i) 1,500,000 (i) Keith Coughlan options balance is at the date of resignation being 8 February 2017. 1,000,000 1,000,000 1,500,000 1,000,000 - - - - - - - - - - - - 1,000,000 1,000,000 1,500,000 The number of ordinary shares in Talga held by Key Management Personnel (“KMP”) of the Group during the financial year is as follows: Key Management Personnel Shareholdings 2017 30 June 2017 Balance at Beginning of Year Granted as Remuneration during the Year Issued on Exercise of Options during the Year Other Changes During the Year Balance at End of Year - Keith Coughlan - Mark Thompson (i) 14,270,788 14,270,788 - - Grant Mooney Stephen Lowe(ii) 660,000 560,000 (i) Mr Thompson’s shareholding includes 4 million shares issued during the 2014 financial year as part of a Management Incentive Plan. This was provided via a non-recourse interest free loan amounting to $1,480,000 which is payable by 23 June 2019. (ii) Mr Lowe increased his interest by 100,000 shares through an on market trade during the year. - - - 100,000 - - - - - - - - Page 19 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 Share based payments The movement during the year, by value of remuneration options over ordinary shares in the Company in respect of each key management person is detailed below: Directors Granted in Year $ Value of options exercised in year $ Terry Stinson Mark Thompson Grant Mooney Stephen Lowe Keith Coughlan 286,587 - - - - - - - - - Additional disclosures relating to options and shares The table below discloses the number of share options at 30 June 2017 granted to key management persons as remuneration as well as the number of options that vested or lapsed during this year. Share options do not carry any voting or dividend rights and can be exercised once the vesting conditions have been met until their expiry date. Options awarded during the year (No.) Award date Fair value per options at award date Class Year Vesting date Exercise price Expiry date No. vested during this year No. lapsed during this year 2016 2017 As at 30 June 2017 Terry Stinson Mark Thompson Grant Mooney Stephen Lowe Keith Coughlan 2014 2016 2014 2,000,000 9/02/2017 $0.1430 9/2/2017 $0.60 8/2/2020 2,000,000 - - - - 1/12/15 $0.1136 1/12/15 $0.60 4/10/18 23/6/14 $0.2387 23/6/14 $0.54 23/6/19 17/12/15 $0.1220 17/12/15 $0.54 17/12/20 23/6/14 $0.2387 23/6/14 $0.54 23/6/19 - - - - - - - - - 17. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS The Group paid a premium of $18,337 (2016: $9,794) to insure Directors and Officers of the Group. The Directors and Officers have indemnities in place with the Group whereby the Company has agreed to indemnify the Directors and Officers in respect of certain liabilities incurred by the Director or Officer while acting as a director of the Group and to insure the Director or Officer against certain risks the Director or Officer is exposed to as an officer of the Group. 18. AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration for the year ended 30 June 2017 has been received and immediately follows the Directors’ Report. There were no other fees paid to Stantons International for non-audit services provided during the year ended 30 June 2017. The Directors are satisfied that the provisions of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Page 20 TALGA RESOURCES LTD FOR THE YEAR ENDED 30 June 2017 Corporations Act 2001. The Directors are satisfied that the services disclosed did not compromise the external auditor’s independence. 19. CORPORATE GOVERNANCE In recognising the need for the highest standards of corporate behavior and accountability, the Directors support and have adhered to principles of sound corporate governance. The Board recognises the recommendations of the Australian Securities Exchange Corporate Governance Council, and considers that Talga is in compliance with those guidelines which are of critical importance to the commercial operation of a junior listed resources Group. During the financial year, shareholders continued to receive the benefit of an efficient and cost-effective corporate governance policy for the Group. This report is made in accordance with a resolution of the Directors. Mark Thompson Managing Director Perth, Western Australia 29 September 2017 Page 21 PO Box 1908 West Perth WA 6872 Australia Level 2, 1 Walker Avenue West Perth WA 6005 Australia Tel: +61 8 9481 3188 Fax: +61 8 9321 1204 ABN: 84 144 581 519 www.stantons.com.au Stantons International Audit and Consulting Pty Ltd trading as Chartered Accountants and Consultants 29 September 2017 The Directors Talga Resources Limited Suite 3, First Floor 2 Richardson Street, West Perth, WA 6005 Dear Sirs RE: TALGA RESOURCES LIMITED In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Talga Resources Limited. As Audit Director for the audit of the financial statements of Talga Resources Limited for the year ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been no contraventions of: i. the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and ii. any applicable code of professional conduct in relation to the audit. Yours faithfully, STANTONS INTERNATIONAL AUDIT AND CONSULTING PTY LIMITED (Trading as Stantons International) (An Authorised Audit Company) Martin Michalik Director Liability limited by a scheme approved under Professional Standards Legislation Page 22 TALGA RESOURCES LTD For the Year Ended 30 June 2017 Consolidated Statement of Profit or Loss and Other Comprehensive Income Revenues from ordinary activities Other Income Expenses Administration expenses Compliance and regulatory expenses Depreciation expense – office equipment Employee benefits expenses and Directors Fees Note 2 2 2017 $ 1,452 2016 $ - 632,122 859,488 (744,092) (1,101,424) (434,738) (441,284) (146,846) (53,614) (1,547,187) (1,175,743) Exploration and evaluation expenditure 9 (1,339,403) (608,302) Exploitation costs Sweden Exploration acquisition costs written off Research and development Germany Operations – Test Facility & Product Dev. Operations – Trial Mining Sweden Investment revaluations FX gain / (loss) realised Share based payments (Loss) before income tax expense Income tax expense (178,443) (51,752) (44,374) (76,817) (250,000) (118,074) (2,488,343) (1,547,830) (1,393,056) (579,847) (121,000) (5,734) - (804) (672,873) (1,156,138) (8,559,332) (6,225,324) - - 6 3 Net (loss) attributable to members of the parent entity (8,559,332) (6,225,324) Other comprehensive income / (loss): Items that will not be reclassified to profit or loss Items that may be reclassified subsequently to profit or loss Exchange differences on translating foreign operations Total other comprehensive income / (loss) for the year Total comprehensive (loss) for the year - 1,087 1,087 (17,835) (17,835) (8,558,245) (6,243,159) Total comprehensive (loss) attributable to members of the parent entity (8,558,245) (6,243,159) Basic loss per share (cents per share) Diluted loss per share (cents per share) 16 16 (4.7) (4.7) (4.3) (4.3) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. Page 23 TALGA RESOURCES LTD As at 30 June 2017 Consolidated Statement of Financial Position Current Assets Cash and cash equivalents Trade and other receivables Other financial assets Assets held for sale Total Current Assets Non-Current Assets Other receivables Plant and equipment Exploration and evaluation acquisition costs Total Non-Current Assets TOTAL ASSETS Current Liabilities Trade and other payables Provisions TOTAL LIABILITIES NET ASSETS Equity Issued capital Reserves Accumulated losses TOTAL EQUITY Note 2017 $ 2016 $ 4 5 6 7 5 8 9 10 11 12 13 14 16,340,409 11,763,678 155,389 629,000 223,507 - - 750,000 17,124,798 12,737,185 130,350 1,245,756 425,232 134,039 776,748 500,654 1,801,338 1,411,441 18,926,136 14,148,626 551,508 190,431 741,939 411,823 166,705 578,528 18,184,197 13,570,098 44,562,212 32,923,846 5,951,467 4,416,402 (32,329,482) (23,770,150) 18,184,197 13,570,098 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. Page 24 TALGA RESOURCES LTD For the Year Ended 30 June 2017 Consolidated Statement of Changes in Equity Issued Capital $ Accumulated Losses $ Reserves Total $ $ At 1 July 2015 20,876,411 (17,544,826) 3,278,099 6,609,684 Comprehensive income: Loss after income tax for the year Other comprehensive loss for the year Total comprehensive loss for the year Transactions with owners in their capacity as owners: Issue of share capital Capital raising costs Share based compensation At 30 June 2016 - - - (6,225,324) (6,225,324) (17,835) (17,835) (6,225,324) (17,835) (6,243,159) 12,734,653 (687,218) - 32,923,846 - - - (23,770,150) - - 1,156,138 4,416,402 12,734,653 (687,218) 1,156,138 13,570,098 Issued Capital $ Accumulated Losses $ Reserves Total $ $ At 1 July 2016 32,923,846 (23,770,150) 4,416,402 13,570,098 Comprehensive income: Loss after income tax for the year Other comprehensive income for the year Total comprehensive loss for the year Transactions with owners in their capacity as owners: Issue of share capital Issue of listed share options Capital raising costs Share based compensation - - - (8,559,332) - (8,559,332) - 1,087 1,087 (8,559,332) 1,087 (8,558,245) 12,324,158 - (685,792) - - - - - - 12,324,158 898,412 898,412 (37,307) (723,099) 672,873 672,873 At 30 June 2017 44,562,212 (32,329,482) 5,951,467 18,184,197 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Page 25 TALGA RESOURCES LTD For the Year Ended 30 June 2017 Consolidated Statement of Cash Flows Cash Flows from Operating Activities Payments for exploration, evaluation & exploitation Payments for mining Payments to suppliers, contractors and employees German Operations & UK Operations including R&D Interest received Research and development refund Proceeds from sale of tenements / option fees Other – grants Net cash flows used in operating activities Cash Flows from Investing Activities Purchase of plant and equipment Payment other – Security Bonds payments Proceeds other – Capital Grants Net cash used in investing activities Cash Flows from Financing Activities Proceeds from issue of securities Payment for costs of issue of securities Net cash flows from financing activities Note 2017 $ 2016 $ (1,366,607) (1,403,166) (2,797,007) (2,307,911) 168,777 - 55,000 70,211 (857,812) (745,527) (2,417,558) (2,023,352) 89,741 519,747 250,000 - 15 (7,580,703) (5,184,761) 15 (607,073) - 327,136 (279,937) (785,449) (48,292) - (833,741) 13,222,570 (785,199) 12,437,371 12,734,653 (625,118) 12,109,535 Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 4,576,731 11,763,678 16,340,409 6,091,033 5,672,645 11,763,678 4 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. Page 26 TALGA RESOURCES LTD For the Year Ended 30 June 2017 Notes to the Financial Statements 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards including Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report of the Group complies with all International Financial Reporting Standards (IFRS) in their entirety. The financial report covers the parent Talga Resources Ltd and Controlled Entities (the “Group”). Talga Resources Ltd is a public Company, incorporated and domiciled in Australia. The financial report has been prepared on an accruals basis and is based on historical costs and does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. The Directors have prepared the financial statements on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and extinguishment of liabilities in the ordinary course of business. Cash as at 30 June 2017 of $16.3 million is more than sufficient to cover committed expenditure beyond the next 12 months and in the Directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The following is a summary of the material accounting policies adopted by the Group in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. Business Combinations (a) Business combinations occur where an acquirer obtains control over one or more businesses and results in the consolidation of its assets and liabilities. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The acquisition method requires that for each business combination one of the combining entities must be identified as the acquirer (i.e. parent entity). The business combination will be accounted for as at the acquisition date, which is the date that control over the acquiree is obtained by the parent entity. At this date, the parent shall recognise, in the consolidated accounts, and subject to certain limited exceptions, the fair value of the identifiable assets acquired and liabilities assumed. In addition, contingent liabilities of the acquiree will be recognised where a present obligation has been incurred and its fair value can be reliably measured. The acquisition may result in the recognition of goodwill or a gain from a bargain purchase. The method adopted for the measurement of goodwill will impact on the measurement of any non-controlling interest to be recognised in the acquiree where less than 100% ownership interest is held in the acquiree. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements. Consideration may comprise the sum of the assets transferred by the acquirer, liabilities incurred by the acquirer to the former owners of the acquiree and the equity interests issued by the acquirer. Fair value uplifts in the value of pre-existing equity holdings are taken to the statement of comprehensive income. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss. Included in the measurement of consideration transferred is any asset or liability resulting from a contingent consideration arrangement. Any obligation incurred relating to contingent consideration is classified as either a financial liability or equity instrument, depending upon the nature of the arrangement. Rights to refunds of Page 27 TALGA RESOURCES LTD For the Year Ended 30 June 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) consideration previously paid are recognised as a receivable. Subsequent to initial recognition, contingent consideration classified as equity is not re-measured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or a liability is re-measured each reporting period to fair value through the statement of comprehensive income unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the profit or loss. Exploration, Evaluation and Development Expenditure (b) Exploration and evaluation costs are written off in the year they are incurred. Costs of acquisition are capitalised to areas of interest and carried forward where right of tenure of the area of interest is current and they are expected to be recouped through sale or successful development and exploitation of the area of interest or, where exploration and evaluation activities in the area of interest have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. When an area of interest is abandoned or the directors decide that it is not commercial, any accumulated acquisition costs in respect of that area are written off in the financial period the decision is made. Each area of interest is also reviewed at the end of each accounting period and accumulated acquisition costs written off to the extent that they will not be recoverable in the future. Where projects have advanced to the stage that directors have made a decision to mine, they are classified as development properties. When further development expenditure is incurred in respect of a development property, such expenditure is carried forward as part of the cost of that development property only when substantial future economic benefits are established. Otherwise such expenditure is classified as part of the cost of production or written off where production has not commenced. Financial Instruments (c) Financial instruments 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, or available-for-sale investments, as appropriate. When financial instruments are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transactions costs. The Group determines the classification of its financial instruments after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end. All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the marketplace. Financial assets at fair value through profit or loss (i) Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit or loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in profit or loss. Held-to-maturity investments (ii) Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held- to-maturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost. Page 28 TALGA RESOURCES LTD For the Year Ended 30 June 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through the amortisation process. Loans and receivables (iii) 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 profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Available-for-sale investments (iv) Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not classified as 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 profit or loss. 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 balance sheet date. For investments with no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models. Financial Liabilities (v) Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost using the effective interest rate method. Impairment At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the income statement. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. Cash and Cash Equivalents (d) Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within financial liabilities in current liabilities on the Statement of Financial Position. Trade and Other Receivables (e) Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful debts is made when there is objective evidence that the entity will not be able to collect the debts. Bad debts are written off when identified. Page 29 TALGA RESOURCES LTD For the Year Ended 30 June 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Revenue (f) Revenue from the sale of goods is recognised upon the delivery of goods to customers. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Revenue from the rendering of a service is recognised upon the delivery of the service to the customers. All revenue is stated net of the amount of goods and services tax (GST). Impairment of Assets (g) At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from the other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. 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 for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generated unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the income statement immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash- generating unit) in prior years. A reversal of an impairment loss is recognised in the income statement immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation increase. Goods and Services Tax (GST) (h) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office (“ATO”). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the cash flow statement on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. Taxation (i) The Group adopts the liability method of tax-effect accounting whereby the income tax expense is based on the profit/loss from ordinary activities adjusted for any non-assessable or disallowed items. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Page 30 TALGA RESOURCES LTD For the Year Ended 30 June 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the Group will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Trade and Other Payables (j) 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. Share Based Payments (k) The Group operates an employee share and option plan. Share-based payments to employees are measured at the fair value of the instruments issued and amortised over the vesting period. Share-based payments to non- employees are measured at the fair value of goods or services received or the fair value of the equity instruments used, if it is determined the fair value of the goods and services cannot be reliably measured, and are recorded at the date the goods or services are received. Fair value is measured by use of a Black and Scholes option pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. For cash-settled share-based payments, a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each reporting date. The value of shares issued to employees financed by way of a non recourse loan under the employee Share Plan is recognised with a corresponding increase in equity when the company receives funds from either the employees repaying the loan or upon the loan termination. All shares issued under the plan with non recourse loans are considered, for accounting purposes, to be options. Issued Capital (l) Issued and paid up capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. Earnings Per Share (m) Basic earnings per share is calculated as net earnings attributable to members, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for a bonus element. Diluted EPS is calculated as net earnings attributable to members, adjusted for costs of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with dilutive potential ordinary shares that would have been recognised as expenses; and other non-discretionary Page 31 TALGA RESOURCES LTD For the Year Ended 30 June 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) 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. Critical Accounting Estimates and Judgments (n) The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. Key Estimates - Impairment The Group assesses impairment at the end of each reporting period by evaluating conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which incorporate various key assumptions. Key Judgement – Exploration and evaluation costs Exploration and evaluation acquisition costs are accumulated in respect of each identifiable area of interest. These costs are carried forward in respect of an area that has not at balance sheet date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or relating to, the area of interest are continuing. Key Judgment – Environmental Issues Balances disclosed in the financial statements and notes thereto are not adjusted for any pending or enacted environmental legislation, and the directors understanding thereof. At the current stage of the Group’s development and its current environmental impact the directors believe such treatment is reasonable and appropriate. Application of new and revised Accounting Standards (o) New and revised AASB’s affecting amounts reported and/or disclosures in the financial statements In the current year, the Group has considered a number of new and revised AASB’s issued by the Australian Accounting Standards Board (AASB) that are mandatorily effective from an accounting period on or after 1 January 2015 and determined that their application to the financial statements is either not relevant or not material. Standards and Interpretations issued not yet adopted At the date of authorisation of the financial statements, a number of new Standards, amendments to Standards and Interpretations were issued by the AASB but not yet mandatorily applicable. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these Standards early. AASB 9 Financial Instruments and associated Amending Standards (applicable for annual reporting period commencing 1 January 2018). The Standard will be applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments, revised recognition and de-recognition requirements for financial instruments and simplified requirements for hedge accounting. Key changes made to this standard that may affect the Group on initial application include certain simplifications to the classification of financial assets, simplifications to the accounting of embedded derivatives, and the irrevocable election to recognise gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Although the directors anticipate that the adoption of AASB 9 may have an impact on the Group’s financial instruments it is impractical at this stage to provide a reasonable estimate of such impact. Page 32 TALGA RESOURCES LTD For the Year Ended 30 June 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) § AASB 15: Revenue from Contracts with Customers (applicable to annual reporting periods commencing on or after 1 January 2018). When effective, this Standard will replace the current accounting requirements applicable to revenue with a single, comprehensive principles-based model. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non- monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following five-step process: identify the contract(s) with a customer; identify the performance obligations in the contract(s); 1. 2. 3. determine the transaction price; 4. allocate the transaction price to the performance obligations in the contract(s); and 5. recognise revenue when (or as) the performance obligations are satisfied, i.e, when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. This Standard will require retrospective restatement, as well as enhanced disclosures regarding revenue. Although the directors anticipate that the adoption of AASB 15 may have an impact on the Group's financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. § AASB 16: Leases (applicable to annual reporting periods commencing on or after 1 January 2019). AASB 16 removes the classification of leases as either operating leases or finance leases for the lessee effectively treating all leases as finance leases. Short term leases (less than 12 months) and leases of a low value are exempt from the lease accounting requirements. Lessor accounting remains similar to current practice. Although the adoption of AASB 16 will have an impact on the Group's financial statements, the directors anticipate it will not have a material effect. § Other standards not yet applicable There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. Page 33 TALGA RESOURCES LTD For the Year Ended 30 June 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Foreign Currency Functional and presentation currency (p) (i) The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. The functional currency of the Consolidated Entity’s subsidiaries, Talga Mining Pty Ltd, is the Swedish Krona and Talga Advanced Materials GmbH, is the Euro from incorporation on 5 March 2015. Foreign currency transactions (ii) Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the year. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on retranslation are generally recognised in profit or loss. However, foreign currency differences arising from the retranslation of the following items are recognised in other comprehensive income: • Available-for-sale equity investments (except on impairment in which case foreign currency differences that have been recognised in other comprehensive income are reclassified to profit or loss); • A final liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; or • Qualifying cash flow hedges to the extent the hedge is effective. Foreign operations (iii) The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the functional currency at exchange rates at the reporting date. The income and expenses of foreign operations, are translated to Australian dollars at exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve (translation reserve) in equity. However, if the foreign operation is a non-wholly owned subsidiary, then the relevant proportion of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such items are considered to form part of the net investment in the foreign operation and are recognised in other comprehensive income, and presented in the translation reserve in equity. Page 34 TALGA RESOURCES LTD For the Year Ended 30 June 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Principles of Consolidation (q) The consolidated financial statements incorporate all of the assets, liabilities and results of the parent (Talga Resources Limited) and all of the subsidiaries. Subsidiaries are entities the parent controls. The parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. A list of the subsidiaries is provided in Note 25. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between Group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group. Equity interests in a subsidiary not attributable, directly or indirectly, to the Group are presented as “non- controlling interests". The Group initially recognises non-controlling interests that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary's net assets on liquidation at either fair value or at the non-controlling interests' proportionate share of the subsidiary's net assets. Subsequent to initial recognition, non-controlling interests are attributed their share of profit or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the statement of financial position and statement of comprehensive income. Fair Value of Assets and Liabilities (r) The Group measures some of its assets and liabilities at fair value on either a recurring or non-recurring basis, depending on the requirements of the applicable Accounting Standard. Fair value is the price the Group would receive to sell an asset or would have to pay to transfer a liability in an orderly (i.e. unforced) transaction between independent, knowledgeable and willing market participants at the measurement date. As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. To the extent possible, market information is extracted from either the principal market for the asset or liability (i.e. the market with the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (i.e. the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs). For non-financial assets, the fair value measurement also takes into account a market participant's ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use. The fair value of liabilities and the entity's own equity instruments (excluding those related to share-based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instruments, by reference to observable market information where such instruments are held as assets. Where this information is not available, other valuation techniques are adopted and, where significant, are detailed in the respective note to the financial statements. Valuation techniques In the absence of an active market for an identical asset or liability, the Group selects and uses one or more valuation techniques to measure the fair value of the asset or liability. The Group selects a valuation technique Page 35 TALGA RESOURCES LTD For the Year Ended 30 June 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) that is appropriate in the circumstances and for which sufficient data is available to measure fair value. The availability of sufficient and relevant data primarily depends on the specific characteristics of the asset or liability being measured. The valuation techniques selected by the Group are consistent with one or more of the following valuation approaches: - Market approach: valuation techniques that use prices and other relevant information generated by - - market transactions for identical or similar assets or liabilities. Income approach: valuation techniques that convert estimated future cash flows or income and expenses into a single discounted present value. Cost approach: valuation techniques that reflect the current replacement cost of an asset at its current service capacity. Each valuation technique requires inputs that reflect the assumptions that buyers and sellers would use when pricing the asset or liability, including assumptions about risks. When selecting a valuation technique, the Group gives priority to those techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Inputs that are developed using market data (such as publicly available information on actual transactions) and reflect the assumptions that buyers and sellers would generally use when pricing the asset or liability are considered observable, whereas inputs for which market data is not available and therefore are developed using the best information available about such assumptions are considered unobservable. Fair value hierarchy AASB 13 requires the disclosure of fair value information by level of the fair value hierarchy, which categorises fair value measurements into one of three possible levels based on the lowest level that an input that is significant to the measurement can be categorised into as follows: Level 1 Measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 Measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly Level 3 Measurements based on unobservable inputs for the asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. If all significant inputs required to measure fair value are observable, the asset or liability is included in Level 2. If one or more significant inputs are not based on observable market data, the asset or liability is included in Level 3. The Group would change the categorisation within the fair value hierarchy only in the following circumstances: (i) if a market that was previously considered active (Level 1) became inactive (Level 2 or Level 3) or vice versa; or (ii) if significant inputs that were previously unobservable (Level 3) became observable (Level 2) or vice versa. When a change in the categorisation occurs, the Group recognises transfers between levels of the fair value hierarchy (i.e. transfers into and out of each level of the fair value hierarchy) on the date the event or change in circumstances occurred. Page 36 TALGA RESOURCES LTD For the Year Ended 30 June 2017 2. REVENUE AND OTHER INCOME Graphene Product Sales Interest revenue Research and development refund Grants Sale of Australian gold tenements 2017 $ 1,452 168,777 - 408,345 55,000 632,122 2016 $ - 89,741 519,747 - 250,000 859, 488 3. INCOME TAXES (a) Prima facie income tax benefit at 27.5% on loss from ordinary activities is reconciled to the income tax provided in the financial statements 2017 $ 2016 $ Loss before income tax (8,559,332) (6,225,324) Current Tax Expense / (Benefit) (2,353,816) (1,774,217) Tax effect of: Expenses not allowed Section 40-880 deduction Accrued expenses Income not assessable Future income tax benefit not brought to account Income tax attributable to operating losses (b) Deferred tax assets 1,690,899 (136,023) 1,788 - 797,152 - 1,143,435 (97,350) (1,425) (148,699) 878,256 - The potential deferred tax asset arising from the tax losses and temporary differences have not been recognised as an asset because recovery of tax losses is not yet probable. Australian tax losses Provisions net of prepayments Section 40-880 deduction Deferred exploration expenditures Other deferred amounts Unrecognised deferred tax assets relating to the above temporary differences 2017 $ 4,080,912 43,992 367,562 - 24,662 2016 $ 3,414,060 127,668 303,984 (213,750) 21,390 4,517,128 3,653,352 The estimated Swedish tax losses are approximately $7.6 million and the deferred tax benefit from the Swedish tax losses not recognised is approximately $1.7 million (based on a tax rate of 22%). Talga is currently in discussions with the Swedish tax authorities regarding the appropriate assessment of deductions claimed from previous exploration and development expenditure. The Company has received independent taxation advice and believes that it is not liable for penalties emanating from claims of certain expenditures and is awaiting a decision from Swedish authorities on the treatment of such claims and if any resulting penalties are due and payable. The estimated German tax losses are approximately $3.6 million and the deferred tax benefit from the German tax losses not recognised is approximately $0.5 million (based on a tax rate of 15%). Page 37 TALGA RESOURCES LTD For the Year Ended 30 June 2017 INCOME TAXES (Cont’d) 3. The estimated United Kingdom tax losses are approximately $358,000 and the deferred tax benefit from the United Kingdom tax losses not recognised is approximately $72,000 (based on a tax rate of 20%). The benefits will only be obtained if: • The Group derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deduction for the losses to be realised. • The Group continues to comply with the conditions in deductibility imposed by the Law; and • No change in tax legislation adversely affects the Group in realising the benefits from the deductions or the losses. 4. CASH AND CASH EQUIVALENTS 2017 $ 2016 $ Cash at bank 16,340,409 11,763,678 5. TRADE AND OTHER RECEIVABLES CURRENT Trade Debtors Other Debtors GST / VAT receivable Total trade and other receivables 2017 $ 17,906 - 137,483 155,389 All trade and other receivables are current and there are no overdue or impaired amounts. NON CURRENT Security Term Deposit Environmental Bond Total security deposits and bonds 2017 $ 68,756 61,594 130,350 2016 $ - 1,169 222,338 223,507 2016 $ 70,586 63,453 134,039 Security term deposit relates to a term deposit taken out as security for rent of the Perth head office and German pilot plant facility. 6. OTHER FINANCIAL ASSETS Novo Resources Corp – 765,115 shares Balance at date of acquisition (16 Sept 16) * Loss on held for sale trading investment Closing balance at 30 June 2017 (765,115 Shares @CAD 0.82) 2017 $ 750,000 (121,000) 629,000 2016 $ - - - *$750,000 represents the carrying amount of acquisition costs relating to Talga’s Australian Pilbara gold assets subject to the the sale agreement with Beatons (See Note 7). Beatons offered Talga 765,115 shares in the TSX Venture listed Canadian Parent, Novo Resources Corp, in lieu of the AUD$750,000 cash transaction payable. Talga will also be due a 1.5% net smelter royalty. The shares were revalued during the year. Page 38 TALGA RESOURCES LTD For the Year Ended 30 June 2017 7. ASSETS CLASSIFIED AS HELD FOR SALE Balance at the start of the period Movement for the period Exploration and evaluation acquisition costs 2017 $ 750,000 (750,000) - 2016 $ 1,000,000 (250,000) 750,000 As announced on 26 August and 16 September 2016, Talga completed the sale of its Pilbara gold projects to Beatons Creek Gold Pty Ltd (“Beatons”). Beatons exercised its option (the “Sale Agreement”) to purchase the Mosquito Creek, Talga Talga and Warrawoona projects located in the Pilbara region of Western Australia (see ASX:TLG 12 Aug 2015). Beatons, an Australian subsidiary of the TSX Venture-listed Novo Resources Corp. (“Novo”), previously acquired 100% ownership of 3 mining leases at Beatons Creek from Millennium Minerals Limited. These mining leases form part of Novo’s Beatons Creek gold project north of the township of Nullagine in the East Pilbara district of Western Australia. Following the $250,000 option fee already received by Talga under the Sale Agreement, Beatons offered and Talga agreed to accept 765,115 shares in lieu of cash payments for the AUD$750,000 transaction balance remaining. Talga will also be due a 1.5% net smelter royalty on any minerals produced from the projects. The amount above as at 30 June 2016 represents the carrying amount of acquisition costs relating to these gold assets. Talga’s remaining gold asset, the Bullfinch Project (see page 67 tenement listing), is also available for sale however it has no impact on the assets held for sale as they are carried at a nil value. See Note 22, Subsequent Events note, for further details. 8. PLANT AND EQUIPMENT Plant and equipment at cost Less: accumulated depreciation Total plant and equipment Balance at the beginning of the financial year Additions Disposals/write offs Depreciation expense Accumulated depreciation eliminated on write off of assets Effect of foreign currency exchange differences Balance at the end of the financial year 9. EXPLORATION AND EVALUATION EXPENDITURE Balance at the beginning of the financial year Exploration and evaluation expenditure Written off as incurred (refer note 1(b)) Foreign currency exchange movement in assets Balance at the end of the financial year 2017 $ 1,574,501 (328,745) 1,245,756 776,748 607,483 - (146,846) - 8,371 1,245,756 2017 $ 500,654 1,339,403 (1,339,403) (75,422) 425,232 2016 $ 955,247 (178,499) 776,748 52,872 795,576 (29,617) (51,752) 29,617 (19,948) 776,748 2016 $ 490,551 608,302 (608,302) 10,103 500,654 This closing balance comprises acquisition of tenement costs and the excess of the purchase price over the net book value of TCL Sweden Ltd which has been allocated to tenements. Page 39 TALGA RESOURCES LTD For the Year Ended 30 June 2017 10. TRADE AND OTHER PAYABLES CURRENT PAYABLES Trade creditors Accruals Superannuation / PAYG payable Total trade and other payables Trade liabilities are non-interest bearing and normally settled on 30-day terms. 11. PROVISIONS Provision for Annual Leave Provision for Long Service Leave Total Provisions 12. ISSUED CAPITAL (a) Issued and Fully Paid 2017 $ 392,859 114,991 43,658 551,508 2017 $ 150,065 40,366 190,431 2016 $ 205,927 174,418 31,478 411,823 2016 $ 132,832 33,873 166,705 2017 Number 2017 $ 2016 Number 2016 $ Fully Paid Ordinary Shares 202,408,760 202,408,760 44,562,212 44,562,212 181,855,075 181,855,075 32,923,846 32,923,846 (b) Movement Reconciliation ORDINARY SHARES Balance 30 June 2015 Issue of shares on exercise of unlisted options Issue of shares on exercise of listed options Issue of shares on exercise of listed options Issue of shares on exercise of listed options Issue of shares on exercise of listed options Issue of shares – Placement Less transaction costs Balance 30 June 2016 Exercise of listed options Exercise of unlisted options Exercise of listed options Issue of fully paid ordinary shares Less transactions costs Balance 30 June 2017 Date 16/07/2015 4/11/2015 16/11/2015 2/12/2015 7/12/2015 22/06/2016 - 26/04/2017 4/05/2017 4/05/2017 13/06/2017 Quantity 138,356,150 215,000 304,987 548,165 1,919,322 4,940,436 35,571,015 - 181,855,075 5,000 12,500 36,185 20,500,000 202,408,760 Issue Price $ $ 20,876,411 75,250 0.35 106,745 0.35 191,858 0.35 0.35 671,763 0.35 1,729,153 0.28 9,959,884 (687,218) 32,923,846 2,250 0.45 5,625 0.45 0.45 16,283 0.60 12,300,000 (685,792) 44,562,212 - Page 40 TALGA RESOURCES LTD For the Year Ended 30 June 2017 12 ISSUED CAPITAL (Cont’d) (c) Unlisted Share Options At 30 June 2017, the Group had 30,680,254 ordinary shares under option (unlisted). • • • • • • • • • • • 5,900,000 unlisted options have an exercise price of 60 cents and expire 4 October 2018. 8,880,254 unlisted options have an exercise price of 45 cents and expire 31 December 2018. 2,000,000 unlisted options have an exercise price of 42 cents and expire 3 May 2019. 2,500,000 unlisted options have an exercise price of 54 cents and expire 23 June 2019. 1,500,000 unlisted options have an exercise price of 42 cents and expire 7 July 2019. 2,500,000 unlisted options have an exercise price of 35 cents and expire 10 August 2019. 1,400,000 unlisted options have an exercise price of 54 cents and expire 20 August 2019. 2,000,000 unlisted options have an exercise price of 60 cents and expire 8 February 2020. 1,000,000 unlisted options have an exercise price of 54 cents and expire 26 March 2020. 2,000,000 unlisted options have an exercise price of $1.00 and expire 10 May 2020. 1,000,000 unlisted options have an exercise price of 54 cents and expire 17 December 2020. Capital Management Management controls the capital of the Group in order to ensure that the Group can fund its operations and continue as a going concern. The Group’s capital includes ordinary share capital. There are no externally imposed capital requirements. The working capital position of the Group at 30 June 2017 is as follows: Cash and cash equivalents Trade and other receivables Assets held for sale Trade and other payables Provisions – employee entitlements Working capital position 13. RESERVES UNLISTED OPTION RESERVE Balance at the start of the financial year Options issued (note 26) Balance at the end of the financial year 2017 $ 16,340,409 155,389 629,000 (551,508) (190,431) 16,382,859 2017 $ 4,648,113 672,873 5,320,986 2016 $ 11,763,678 223,507 750,000 (411,823) (166,705) 12,158,657 2016 $ 3,491,975 1,156,138 4,648,113 The unlisted option reserve records funds received for options issued and items recognised as expenses on valuation of share options issued. The option reserve is also used to recognise the fair value of Management Incentive Plan Shares issued with an attaching limited recourse employee loan which for accounting purposes are treated as options. Page 41 TALGA RESOURCES LTD For the Year Ended 30 June 2017 13. RESERVES (Cont’d) LISTED OPTION RESERVE Balance at the start of the financial year Issue of listed options Exercise of listed options Exercise of listed options Less transactions costs Balance at the end of the financial year Issue Price $ Date Quantity - 14/07/2016 44,920,582 0.02 26/04/2017 4/05/2017 (5,000) (36,185) 44,879,397 FOREIGN CURRENCY RESERVE Balance at the start of the financial year Movement during the year Balance at the end of the financial year Total Reserves 14. ACCUMULATED LOSSES 2017 $ - 898,412 (37,307) 861,105 2017 $ (231,711) 1,087 (230,624) 2016 $ - - - - 2016 $ (213,876) (17,835) (231,711) 5,951,467 4,416,402 2017 $ 2016 $ Balance at the beginning of the financial year Loss for the year (23,770,150) (17,544,826) (8,559,332) (6,225,324) Balance at the end of the financial year (32,329,482) (23,770,150) 15. CASHFLOW INFORMATION Reconciliation of cash flows from operating activities with loss after income tax Loss after income tax Non-cash flows in loss for the year: - Capital grants - Depreciation expense - office and field equipment - Write off of exploration acquisition costs - Share based payment - Investment revaluation - Foreign exchange loss / (gain) Changes in assets and liabilities - (Increase) / decrease in trade and other receivables - Increase / (decrease) in trade and other payables - Increase / (decrease) in provisions Net cash outflows from Operating Activities 2017 $ 2016 $ (8,559,332) (6,225,324) (327,136) 146,846 44,374 672,873 121,000 26,770 - 53,614 250,000 1,156,138 - (9,521) 68,118 202,058 23,726 (7,580,703) (126,485) (388,621) 105,438 (5,184,761) Cash proceeds from capital grants During the period the German subsidiary received $327,136 in grants. These are cash incentives provided by the German Federal Ministry for Economic Affairs and Energy to businesses investing in production facilities. Non-Cash Financing and Investing Activities There have been nil non-cash financing and investing activities for the financial year. Page 42 TALGA RESOURCES LTD For the Year Ended 30 June 2017 16. LOSS PER SHARE 2017 $ 2016 $ Net loss after income tax attributable to members of the Group (8,559,332) (6,225,324) Weighted average number of shares on issue during the financial year used in the calculation of basic loss per share Number Number 182,818,363 143,765,577 This calculation does not include shares under option that could potentially dilute basic earnings per share in the future as the Group has incurred a loss for the year. 17. KEY MANAGEMENT AND PERSONNEL COMPENSATION (a) Directors and Specified Executives The names and positions held by key management personnel in office at any time during the year are: Directors Keith Coughlan Terry Stinson Mark Thompson Grant Mooney Stephen Lowe Position Non-Executive Chairman Non-Executive Chairman Managing Director Non-Executive Director Non-Executive Director Duration of Appointment Appointed 27th September 2013 Resigned 8th February 2017 Appointed 8th February 2017 Appointed 21st July 2009 Appointed 20th February 2014 Appointed 17th December 2015 (b) Remuneration of Directors $858,055 (2016: $1,204,498) in remuneration was paid to Directors for the financial year comprising salary, superannuation, insurance and commercial fees. Short-term employee benefits Post-employee benefits Other long-term benefits Share-based payments Total 2017 $ 536,902 34,566 - 286,587 858,055 2016 $ 540,838 30,460 - 633,200 1,204,498 (c) Remuneration Options: Granted and Vested during the year On 9 February 2017, 2,000,000 options (exercisable at $0.60 and expiring on 8 February 2020) were granted to Non-Executive Chairman Terry Stinson for no consideration. The options hold no dividend or voting rights and are not transferrable. The options vested on grant date. During the year end 30 Jun 2017, the value of options granted to executive and non-executive directors was calculated applying the following inputs: Exercise price: Valuation date: Expiry date: Market price of shares at grant date: Expected share price volatility: Risk free interest rate: Valuation per option: Terry Stinson $0.60 9 February 2017 8 February 2020 $0.38 74% 1.86% 14.30 cents Page 43 TALGA RESOURCES LTD For the Year Ended 30 June 2017 17. KEY MANAGEMENT AND PERSONNEL COMPENSATION (Cont’d) The expense recognised for the options issued to key management personnel during the 2017 financial year was $286,587 (2016: $633,200). During the year end 30 June 2016, the value of options granted to executive and non-executive directors was calculated applying the following inputs: Exercise price: Valuation date: Expiry date: Market price of shares at grant date: Expected share price volatility: Risk free interest rate: Valuation per option: Mark Thompson $0.60 1 December 2015 4 October 2018 $0.355 70% 2.09% 11.36 cents Stephen Lowe $0.54 17 December 2015 17 December 2020 $0.275 70% 2.31% 12.20 cents The expense recognised for the options issued to key management personnel during the 2016 financial year was $633,200 (2015: nil). d) Related Party Transactions No related party transactions occurred during the current or prior financial year. 18. AUDITOR’S REMUNERATION Amounts received or due and receivable by the auditors for: Auditing and review of financial reports Other services Total 19. COMMITMENTS 2017 $ 36,500 - 36,500 2016 $ 30,038 500 30,538 Exploration commitments a) In order to maintain current rights of tenure to mining tenements, the Group has the following discretionary exploration expenditure requirements up until expiry of leases. These obligations, which are subject to renegotiation upon expiry of the leases, are not provided for in the financial statements and are payable: Not longer than one year Longer than one year, but not longer that five years Longer than five years Total 2017 $ 210,000 420,227 - 630,227 2016 $ 280,120 744,083 309,745 1,333,948 If the Group decides to relinquish certain leases and/or does not meet these obligations, assets recognised in the statement of financial position may require review to determine the appropriateness of carrying values. The sale, transfer or farm-out of exploration rights to third parties will reduce or extinguish these obligations. As advised in the assets held for sale Note 7, Talga has completed the sale of its Pilbara project tenements to Beatons Creek Gold Pty Ltd. As a result, the only exploration expenditure commitments remaining subsequent to the sale of the Pilbara project tenements relate to the Bullfinch project tenements. Page 44 TALGA RESOURCES LTD For the Year Ended 30 June 2017 19. COMMITMENTS (Cont’d) Subsequent to year end, Talga has entered into an option and sale agreement to sell the Bullfinch tenements (see subsequent events Note 22). As Talga is still responsible for 100 % of the commitments while sale remains conditional, the full amount of the commitments are shown for the next five years. These commitments are: Not longer than one year Longer than one year, but not longer that five years Longer than five years Total b) Operating lease commitments Head Office lease Not longer than one year Longer than one year, but not longer that five years Longer than five years Total 20. FINANCIAL INSTRUMENTS 2017 $ 210,000 420,227 - 630,227 2017 $ 33,240 9,927 - 43,167 2016 $ 100,342 203,803 - 304,145 2016 $ 33,277 34,410 - 67,687 Financial Risk Management Policies The Group’s financial instruments consist solely of deposits with banks. No financial derivatives are held. Financial Risk Exposures and Management. The main risk the Group is exposed to through its financial instruments is interest rate risk. Interest rate risk Interest rate risk is managed by obtaining the best commercial deposit interest rates available in the market by the major Australian Financial Institutions. Credit risk exposures Credit risk represents the loss that would be recognised if the counterparties default on their contractual obligations resulting in financial loss to the Group. The Group has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group measures credit risk on a fair value basis. The Group does not have any significant credit risk to any single counterparty or any group of counterparties having similar characteristics. The credit risk on financial assets of the Group, which have been recognised in the Statement of Financial Position, is the carrying amount, net of any provision for doubtful debts. Page 45 TALGA RESOURCES LTD For the Year Ended 30 June 2017 20. FINANCIAL INSTRUMENTS (Cont’d) The credit quality of financial assets that are neither past, due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates: Trade and other current receivables Group 1 Group 2 Group 3 Total trade and other current receivables Cash at bank and short-term deposits Total 2017 $ - 155,389 - 155,389 2016 $ - 223,507 - 223,507 16,340,409 16,340,409 11,763,678 11,763,678 Group 1 – new customers (less than 6 months). Group 2 – existing customers (more than 6 months) with no defaults in the past. Group 3 – existing customers (more than 6 months) with some defaults in the past. All defaults were fully recovered. Cash at bank and short term deposits are held in financial institutions which must have a minimum AA2 rating. i. Price Risk Price risk is the risk that the value of the Group’s investment in listed equities fluctuating due to market share price movements and the effect of a 10% increase/decrease in share prices will result in approximately a $6,000 positive/negative impact on the Group’s loss and equity. ii. Liquidity Risk Liquidity risk is the risk that the Group might be unable to meet its financial liability obligations. The Group manages liquidity risk by monitoring forecast cash flows. The Group does not have any significant liquidity risk as the Group does not have any collateral debts. iii. Net Fair Values The net fair values of: - Other financial assets and other financial liabilities approximate their carrying value. iv. Interest Rate Risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group has performed sensitivity analysis relating to its exposure to interest rate risk at balance date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks. Interest Rate Sensitivity Analysis At 30 June 2017, the effect on loss as a result of changes in the interest rate, with all other variables remaining constant would be as follows: Change in loss - Increase in interest rate by 100 basis points - Decrease in interest rate by 100 basis points Change in equity - Increase in interest rate by 100 basis points - Decrease in interest rate by 100 basis points 2017 $ 163,404 (163,404) 163,404 (163,404) 2016 $ 117,637 (117,637) 117,637 (117,637) Page 46 TALGA RESOURCES LTD For the Year Ended 30 June 2017 20. FINANCIAL INSTRUMENTS (Cont’d) Floating Interest Rate $ Fixed Interest Rate $ Non interest bearing $ Total $ Weighted average interest rate % 2017 Financial Assets Cash and cash equivalents Trade and other receivables Other financial assets 13,427,448 2,487,915 61,594 - - - 425,046 16,340,409 285,739 224,145 629,000 629,000 Total financial assets 13,427,448 2,549,509 1,278,191 17,255,148 Financial liabilities Trade and other payables Total financial liabilities 2016 Financial Assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Trade and other payables Total financial liabilities - - - - 511,508 511,508 511,508 511,508 10,430,000 - 10,430,000 - 20,900 20,900 1,333,678 11,763,678 357,546 1,670,324 12,121,224 336,646 - - - - 411,823 411,823 411,823 411,823 1.7 - - - 2.3 - - - - v. Foreign currency risk Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the entity’s functional currency. The Group conducts exploration and mining development activities in Sweden (transaction currency is SEK), product development in the United Kingdom (transaction currency is GBP) as well as Germany where the Company is developing a graphite/graphene pilot plant facility (transaction currency is EUR). The Group is subject to foreign currency value fluctuations in the course of its operations. To mitigate the Group’s exposure currency rates are monitored regularly and funds are transferred to the foreign operations when rates are more favourable and also plans to curtail this impact by paying foreign currency invoices in a timely fashion. The parent has a loan receivable from Talga Mining Pty Ltd of SEK55,956,635 ($8,615,441), a loan receivable from Talga Technologies Limited of GBP301,791 ($510,624) and a loan receivable from Talga Advanced Materials GmbH of EUR3,332,975 ($4,953,997). A 5% movement in foreign exchange rates would increase or decrease loss before tax by approximately $223,415. 21. SEGMENT NOTE Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. The term ‘chief operating decision maker’ identifies a function, not necessarily a manager with a specific title. That function is to allocate resources to and assess the performance of the operating segments of an entity. The Company’s Board is the chief operating decision maker as it relates to segment reporting. The Group operates in four operating and geographical segments, being graphite exploration and development in Sweden, gold exploration and evaluation in Australia and graphite/graphene research and development in Germany and the United Kingdom. This is the basis on which internal reports are provided to the Directors for assessing performance and determining the allocation of resources within the Group. Page 47 TALGA RESOURCES LTD For the Year Ended 30 June 2017 21. SEGMENT NOTE (Cont’d) 2017 Sweden Germany SEGMENT PERFORMANCE Revenues from ordinary activities Other Income Total segment revenue $ - - - $ - United Kingdom $ Australia Total $ $ - 1,452 364,812 364,812 21,533 21,533 245,777 247,229 1,452 632,122 633,574 Segment expense (inc write offs) (2,815,094) (2,316,447) (380,050) (3,681,315) (9,192,906) Reconciliation of segment result to net loss before tax Segment Result Unallocated items: Net loss before tax from continuing operations SEGMENT ASSETS As at 30 June 2017 Segment assets as at 1 July 2016 Segment asset increases/(decreases) for the year: - Cash and cash equivalents (8,559,332) - (8,559,332) 633,410 1,010,475 - 12,504,741 14,148,626 2,545 157,520 182,192 4,234,474 4,576,731 - Assets held for sale - - - (121,000) (121,000) - Plant and equipment - Exploration and evaluation expenditure - Other (793) 456,525 19,111 (5,835) 469,008 (75,422) - - - (75,422) (8,619) (110,696) 22,269 25,239 (71,807) 551,121 1,513,824 223,572 16,637,619 18,926,136 Reconciliation of segment assets to total assets Other assets Total assets from continuing operations SEGMENT LIABILITIES As at 30 June 2017 Reconciliation of segment liabilities to total liabilities Unallocated items: - other liabilities Total liabilities from continuing operations - 18,926,136 Sweden $ Germany $ 130,310 138,663 United Kingdom $ 71,273 Australia $ Total $ 401,693 741,939 - 741,939 Page 48 TALGA RESOURCES LTD For the Year Ended 30 June 2017 21. SEGMENT NOTE (Cont’d) 2016 SEGMENT PERFORMANCE Revenues from ordinary activities Other income Total segment revenue Segment expense (including write offs) Reconciliation of segment result to net loss before tax Segment Result Unallocated items: - Administration expenses - Compliance and regulatory expenses - Depreciation expense - Director fees and employee benefits expenses - Share based payments - Foreign exchange gain / (loss) Net loss before tax from continuing operations SEGMENT ASSETS As at 30 June 2016 Segment assets as at 1 July 2015 Segment asset increases/(decreases) for the year: - Cash and cash equivalents - Assets held for sale Sweden Germany Australia Total $ - - - $ - - - $ $ 89,741 89,741 769,747 769,747 859,488 859,488 (1,331,894) (1,693,166) (353,127) (3,378,187) (2,518,699) (1,022,541) (326,042) (25,357) (1,175,743) (1,156,138) (804) (6,225,324) Sweden $ Germany $ Australia $ Total $ 744,271 36,235 6,616,326 7,396,832 (90,863) 12,129 6,169,767 6,091,033 - - (250,000) (250,000) - Plant and equipment 1,512 735,230 (12,866) 723,876 - Exploration and evaluation expenditure - Other Reconciliation of segment assets to total assets Other assets Total assets from continuing operations 10,107 - - 10,107 (31,617) 226,881 (18,486) 176,778 633,410 1,010,475 12,504,741 14,148,626 - 14,148,626 Page 49 TALGA RESOURCES LTD For the Year Ended 30 June 2017 21. SEGMENT NOTE (Cont’d) SEGMENT LIABILITIES As at 30 June 2016 Reconciliation of segment liabilities to total liabilities Unallocated items: - Provision Total liabilities from continuing operations Sweden $ 120,452 Germany $ 50,301 Australia $ 241,070 Total $ 411,823 166,705 578,528 22. SUBSEQUENT EVENTS Other than as disclosed below, there has not been any other matter or circumstance occurring subsequent to the end of the financial year that has significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. • On 14 August 2017 the Company issued to the Managing Director options under the Company’s employee incentive scheme as approved at a meeting of shareholders on 11 August 2017. The terms of the issue are Number of Options Exercise price Valuation date Expiry date Life of the options (years) Vesting conditions Incentive Options Tranche A Tranche B 650,000 nil 3/07/17 10/08/20 3 years See 1) below 650,000 nil 3/07/17 10/08/20 3 years See 2) below Performance Options Tranche C 1,500,000 $0.91 3/07/17 10/08/20 3 years nil 3) 4) The Tranche A Options will vest when the Company achieves a $200 million market capitalisation for a period of 60 consecutive days. The Tranche B Options will vest when the Company achieves a $250 million market capitalisation for a period of 60 consecutive days. Mr Ola Morkved Rinnan was appointed as a non-executive director of the company on 8 August 2017. In August 2017, the Company entered into an option and sale agreement with Torque Metals Pty Ltd (“Torque”) for the Company’s remaining Australian gold asset, the Bullfinch project. On execution of the agreement the Company received a non-refundable $20,000 Option Fee. The exercise of the Option is conditional on Torque maintaining the tenements in good standing and by spending $145,000 by 30 November 2017 with a further $335,000 by 31 March 2018 if the Option is exercised. Talga retains a 1% gross production Royalty for any minerals extracted. As announced on 22 September 2017, Talga sold 585,000 shares held in Novo Resources Corp on-market for approximately $2 million and still retains 180,115 Novo Resources Corp shares as at the date of this report. • • • 23. RELATED PARTIES Related party transactions with management personnel are disclosed in Note 17. Page 50 TALGA RESOURCES LTD For the Year Ended 30 June 2017 24. PARENT INFORMATION The following information has been extracted from the books and records of the parent and has been prepared in accordance with Australian Accounting Standards. STATEMENT OF FINANCIAL POSITION ASSETS Current assets Non-Current assets TOTAL ASSETS LIABILITIES Current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Accumulated losses Option reserve TOTAL EQUITY 2017 $ 2016 $ 16,584,610 11,695,896 2,561,170 9,421,178 19,145,780 21,117,074 401,694 401,694 388,746 388,746 18,744,086 20,728,328 45,423,317 32,923,846 (32,000,218) (16,843,632) 5,320,986 4,648,114 18,744,085 20,728,328 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 2017 $ 2016 $ Net loss for the year Total comprehensive loss for the year (15,156,586) (3,471,705) (15,156,586) (3,471,705) Talga Resources Ltd has not entered into cross guarantees in relation to the debts of its wholly owned subsidiaries. 25. CONTROLLED ENTITITES Talga Resources Ltd owns the following subsidiaries: Name of Entity Talga Mining Pty Ltd Talga Advanced Materials GmbH Country of Incorporation Australia Germany Talga Technologies Limited United Kingdom * Percentage of voting power is in proportion to ownership. Percentage Owned (%) * 30 June 2017 30 June 2016 100% 100% 100% 100% 100% - Page 51 TALGA RESOURCES LTD For the Year Ended 30 June 2017 26. SHARE BASED PAYMENTS The following share based payments were made during the year: • • • Series 1 – 2,500,000 options granted 9/8/16 Series 2 – 2,000,000 options granted 9/2/17 Series 3 – 2,000,000 options granted 11/5/17 Grant date share price Exercise price Expected share price volatility Option life Risk free interest rate Valuation per option Series 1 $0.28 $0.35 75% 3 years 1.43% $0.118 Series 2 $0.38 $0.60 74% 3 years 1.86% $0.143 Series 3 $0.77 $1.00 78% 3 years 1.84% $0.347 The expense recognised for the options granted during the financial year was $672,873. Series 1 and Series 3 options were granted during the financial year; however they have vesting conditions based on future events and therefore not exercisable at year end. After year end two series of options were granted in July 2017. They are referred to in the subsequent event Note 22. The following reconciles the outstanding share based payment options granted at the beginning and end of the financial year: Balance at beginning of financial year Granted during the financial year Expired during the financial year Exercised during the financial year Balance at end of the financial year Exercisable at end of the financial year 2017 2016 Number of options 23,300,000 8,000,000 (9,500,000) - 21,800,000 17,800,000 Weighted average exercise price $ 0.55 0.59 0.57 - 0.56 0.54 Number of options 11,900,000 11,900,000 (285,000) (215,000) 23,300,000 23,300,000 Weighted average exercise price $ 0.55 0.55 0.35 0.35 0.55 0.55 The share based payment options outstanding at the end of the financial year had a weighted average exercise price of $0.54 (2016: $0.55) and a weighted average remaining contractual life of 2.19 years (2016: 2.25 years). 27. CONTINGENT LIABILITIES There were no contingent liabilities as at 30 June 2017. For 30 June 2016, the only contingent liability was a claim from a former employee of the Company for certain costs pertaining to his termination of employment. The claim was settled in May 2017. Page 52 TALGA RESOURCES LTD For the Year Ended 30 June 2017 Directors’ Declaration The directors of the Group declare that: 1. the financial statements and notes, as set out on pages 23 to 52, are in accordance with the Corporations Act 2001: (a) (b) (c) comply with Accounting Standards; are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board, as stated in note 1 to the financial statements; and give a true and fair view of the financial position as at 30 June 2017 and of the performance for the year ended on that date of the Group. 2. the Chief Executive Officer and Chief Financial Officer have each declared that: (a) (b) the financial records of the Group for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; the financial statements and notes for the financial year comply with the Accounting Standards; and (c) the financial statements and notes for the financial year give a true and fair view. 3. in the directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. Mark Thompson Managing Director Perth, Western Australia 29 September 2017 Page 53 Stantons International Audit and Consulting Pty Ltd trading as Chartered Accountants and Consultants PO Box 1908 West Perth WA 6872 Australia Level 2, 1 Walker Avenue West Perth WA 6005 Australia Tel: +61 8 9481 3188 Fax: +61 8 9321 1204 ABN: 84 144 581 519 www.stantons.com.au INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TALGA RESOURCES LIMITED Report on the Audit of the Financial Report Opinion We have audited the financial report of Talga Resources Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's financial position as at 30 June 2017 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110: Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters We have defined the matters described below to be key audit matter to be communicated in our report. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters was addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Liability limited by a scheme approved under Professional Standards Legislation Page 54 Key Audit Matters How the matter was addressed in the audit Carrying Value of Exploration and Evaluation Assets As at 30 June 2017, the carrying value of the Group’s acquisition costs for exploration related assets was $425,232 as disclosed in Note 9. The carrying value of Capitalised Exploration and Evaluation expenditure is a key audit matter due to: • • The necessity to assess management’s application of the requirements of the for and accounting standard Exploration Evaluation of Mineral Resources (“AASB 6”), in light of any indicators of impairment that may be present; and The assessment of significant judgements made by management the Capitalised Exploration and Evaluation Expenditure. in relation to Our audit procedures included, amongst others, the following: i. Assessing the Group’s right to tenure over the exploration assets by corroborating ownership of the relevant licences for mineral resources to government registries and relevant third party documentation; ii. Reviewing the directors’ assessment of the carrying value of the exploration and evaluation expenditure, ensuring the veracity of the data presented has considered the effect of potential impairment indicators, commodity prices and the stage of the Group’s projects against AASB 6; that management and the intentions iii. Evaluation of Group documents for consistency the continuing of for with exploration and evaluation activities in certain interest, and corroborated with areas of enquiries of management. the documents we evaluated included: Inter alia, ▪ Minutes of meetings of the board and management; ▪ Announcements made by the Group to the Australian Securities Exchange; and ▪ Cash flow forecasts; and iv. Consideration of of the accounting standard AASB 6. We assessed the financial statements in relation to AASB 6 to ensure appropriate disclosures are made. requirements Valuation of Share Options The company issued a number of share options to directors and management of the company. Inter alia, our audit procedures following: included the The company prepared a valuation of the options in accordance to its accounting policy and accounting standard Share-based Payment AASB 2 (“AASB 2”). The valuation of the options is a key audit matter as it involved judgement in assessing the fair value of the options. i. We reviewed the inputs used in the models; the underlying assumptions used and discussed with management the justification for inputs; ii. We assessed the accounting treatment and its application in accordance with AASB 2; and iii. We assessed whether the Group’s disclosures met the requirements of various accounting standards. Page 55 Other Information The directors are responsible for the other information. The other information comprises the information included in the Company’s annual report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance opinion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Company to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Page 56 We evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial report. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in Internal control that we identify during our audit. The Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report We have audited the Remuneration Report included in pages 16 to 20 of the directors’ report for the year ended 30 June 2017. The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards Opinion on the Remuneration Report In our opinion, the Remuneration Report of Talga Resources Limited for the year ended 30 June 2017 complies with section 300A of the Corporations Act 2001. STANTONS INTERNATIONAL AUDIT AND CONSULTING PTY LTD (Trading as Stantons International) (An Authorised Audit Company) Martin Michalik Director West Perth, Western Australia 29 September 2017 Page 57 TALGA RESOURCES LTD For the Year Ended 30 June 2017 Additional Shareholder Information The following additional information is required by the Australian Securities Exchange Limited Listing Rules. Information was to 13 September 2017. information processed prepared registry based share the on up Statement of Quoted Securities Listed on the Australian Securities Exchange are 202,408,760 fully paid ordinary shares and 44,879,397 Listed Options exercisable at $0.45 expiring 31 December 2018. Distribution of Shareholding The distribution of members and their holdings of equity securities in the Group as at 13 September 2017 were as follows: Spread of Holdings 1-1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over TOTALS Fully Paid Ordinary Shares 59,994 1,861,034 3,663,962 33,958,630 162,865,140 202,408,760 Total Shareholders 149 641 438 980 204 Listed Options 46,692 564,713 632,867 6,055,446 37,579,679 2,412 44,879,397 Total Option Holders 82 195 83 188 36 584 Unmarketable Parcels The number of holders of less than a marketable parcel of ordinary shares is 104. Substantial Shareholders Shareholders who hold 5% or more of the issued capital in Talga Resources Ltd are set out below: Shareholder SMEDVIG G P LTD LATERAL MINERALS PL Restricted Securities Ordinary Shares Shareholder Lateral Minerals Pty Ltd (A Company associated with Mr Mark Thompson) Number Held % Held 25,511,221 14,270,788 12.60 7.05 Number Held Restriction Date * 4,000,000 23 June 2019 * As approved at a shareholders meeting on 23 June 2015, the shares are secured by a loan which is repayable by 23 June 2019. Voting Rights In accordance with the Group's Constitution, on a show of hands every member present in person or by proxy or attorney or duly authorised representative has one vote. On a poll each ordinary share is entitled to one vote. There are no voting rights attached to any class of options. Page 58 TALGA RESOURCES LTD For the Year Ended 30 June 2017 Twenty Largest Shareholders and Option Holders The names of the twenty largest ordinary fully paid shareholders as at the 13 September 2017 are as follows: Ordinary Shares 1 2 SMEDVIG G P LTD LATERAL MINERALS PTY LTD 3 HSBC CUSTODY NOMINEES (AUST) LIMITED 4 5 6 7 8 9 PELMER SECURITIES S A CITICORP NOMINEES PTY LTD JP MORGAN NOMINEES (AUST) LIMITED KAMBERG INVESTMENTS PTY LTD YANDAL INVESTMENTS PTY LTD TWO TOPS PTY LTD 10 UBS NOMINEES PTY LTD 11 NATIONAL NOMINEES LTD 12 WONG KIN CHUN 13 LIDDELL KEITH S + S J 14 DANKS KEVIN GRAHAM 15 BNP PARIBAS NOMINEES PTY LTD 16 ABBOTT FINANCE CORPORATION 17 AUSTRALIAN EXECUTOR TRUSTEES LTD 18 ALL STATES FINANCE PTY LTD 19 MERRIWEE PTY LTD 20 GEROVICH STEVEN R + E L Number Held % Held 25,511,221 12.60 14,270,788 8,221,214 7,619,698 7,292,303 6,727,914 6,678,675 6,024,000 3,000,000 2,423,359 2,376,644 2,233,246 2,167,749 1,825,000 1,688,828 1,607,143 1,603,533 1,600,000 1,500,000 1,425,000 7.05 4.06 3.76 3.60 3.32 3.30 2.98 1.48 1.20 1.17 1.10 1.07 0.90 0.83 0.79 0.79 0.79 0.74 0.70 Top 20 holders of ordinary shares 105,796,315 52.23 Page 59 TALGA RESOURCES LTD For the Year Ended 30 June 2017 The names of the twenty largest listed option holders as at the 13 September 2017 are as follows: Listed Options 1 2 3 4 5 SMEDVIG G P LTD LIDDELL KEITH S + S J KAMBERG INVESTMENTS PTY LTD LATERAL MINERALS PTY LTD PELMER SECURITIES S A 6 HSBC CUSTODY NOMINEES (AUST) LIMITED 7 WONG KIN CHUN 8 ARNOLD GREGORY NEVILLE 9 GEROVICH STEVEN R + E L 10 ALL STATES FINANCE PL 11 ABBOTT FINANCE CORPORATION 12 UNITED OVERSEAS SVC MGNT 13 ONE MANAGED INVESTMENT FUNDS LTD 14 STEPHENS ANDREAS W + S 15 AUSTRALIAN EXECUTOR TRUSTEES LTD 16 ROBERTS BLOODSTOCK PTY LTD 17 CITICORP NOMINEES PTY LTD 18 DE CUYPER ALEXANDER 19 MORTON GRAHAM JOHN 20 JP MORGAN NOMINEES (AUST) LIMITED Number Held 13,402,126 5,763,562 4,699,298 3,567,697 1,135,693 697,625 558,311 443,000 435,000 425,000 401,785 389,763 373,457 300,000 293,750 286,665 280,429 280,000 250,162 236,032 % Held 29.86 12.84 10.47 7.95 2.53 1.55 1.24 0.99 0.97 0.95 0.90 0.87 0.83 0.67 0.65 0.64 0.62 0.62 0.56 0.53 Top 20 holders of listed options 34,219,355 76.24 Page 60 TALGA RESOURCES LTD For the Year Ended 30 June 2017 Unquoted Equity Securities As at 13 September 2017, the following unquoted securities were on issue: Unlisted Options with the following terms: Expiry Date Exercise Price Number on Issue Number of Holders 4-Oct-18 4-Oct-18 31-Dec-18 3-May-19 23-Jun-19 7-Jul-19 10-Aug-19 20-Aug-19 8-Feb-20 26-Mar-20 10-May-20 10-Aug-20 10-Aug-20 17-Dec-20 $0.60 $0.60 $0.45 $0.42 $0.54 $0.42 $0.35 $0.54 $0.60 $0.54 $1.00 $1.02 $0.00 $0.54 1,400,000 4,500,000 8,880,254 2,000,000 2,500,000 1,500,000 2,500,000 1,400,000 2,000,000 1,000,000 2,000,000 1,500,000 1,300,000 1,000,000 4 1 11 1 2 1 2 3 1 1 1 1 1 1 Total on issue 33,480,254 There was no individual option holder that held greater than 20% of the Unlisted Options on issue. Page 61 TALGA RESOURCES LTD For the Year Ended 30 June 2017 Corporate Governance Statement The overall goals of the corporate governance process are to: • drive shareholders value; • assure a prudential and ethical base to the Company’s conduct and activities; and • ensure compliance with the Company’s legal and regulatory obligations. The Board of Talga is committed to implementing the highest standards of corporate governance in conducting its business. The Board has established a corporate governance framework including corporate governance policies, procedures and charters with reference to the third edition of the ASX Corporate Governance Council’s Principles and Recommendations (“ASX Principles”). Further information on Talga’s corporate governance policies, procedures and charters are available on Talga’s website, www.taglaresources.com. under the section ‘About Us’. Talga has followed the ASX Principles where the Board has considered the recommendation to be an appropriate benchmark for its corporate governance practices. In compliance with the “if not, why not” reporting regime, where, after due consideration, Talga’s corporate governance practices do not follow an ASX Principles recommendation, the Company has explained its reasons for not following the recommendation and disclosed what, if any, alternative practices Talga has adopted. This corporate governance statement sets out the Company's corporate governance policies and practices and is current as at 29 September 2017 as approved by the Talga Board. The eight ASX Principles and Talga’s position in respect of each of them, are set out below. Principle 1: Lay Solid Foundations for Management and Oversight Roles and Responsibilities The Board has adopted a Board Charter (disclosed on the Company’s website) that sets out the roles and responsibilities of the Board and those functions delegated to senior executives. The Board is collectively responsible for promoting the success of the Company through its key functions of setting strategic direction, overseeing management of the Company, providing overall corporate governance, monitoring financial performance, engaging appropriate management and Directors commensurate with the desired structure and objectives of the Company, and reviewing, ratifying and monitoring systems of risk management and internal control, codes of conduct, policy and legal compliance. The Managing Director, supported by other members of the senior management team, is responsible for managing the day to day activities of the Company and advancing the strategic direction of the Company as set by the Board. Appointment, Induction and Training When a vacancy exists on the Board, for whatever reason, or where it is considered that the Board would benefit from the services of a new Director, the Board will determine the selection criteria for the position based on factors deemed necessary for the Board to best carry out its responsibilities. Nomination factors include, but are not limited to, competencies and qualifications, independence, other directorships, time availability, contribution to the overall balance of the composition of the Board and depth of understanding of the role and legal obligations of a Director. The Company has made two new appointments to the Board since the last Annual Report. Should the Company appoint a new Director in the future, appropriate checks including criminal record and bankruptcy history, will be undertaken prior to the appointment. Information about a candidate standing for election or re-election as a Director is provided to shareholders via the Notice of Meeting and the information contained in the Annual Report. Upon appointment, each Director, receives a written agreement which sets out the terms of their appointment, along with a deed of indemnity, insurance and access and also an induction pack containing Page 62 TALGA RESOURCES LTD For the Year Ended 30 June 2017 information on the Company’s vision, values, strategy, governance and risk management frameworks. The Company has a written agreement in place with each Director and senior executive. Directors are provided with the opportunity to participate in professional development to develop and maintain the skills and knowledge needed to perform their role as Directors effectively. For further information on the above, please see Talga’s “Procedures for Selection and Appointment of Directors” policy which can be viewed on the Company’s website. Company Secretary The Company Secretary plays an important role in supporting the effectiveness of the Board. The Company Secretary is accountable to the Board through the Chairman on all matters regarding the proper function of the Board. This includes assisting the Board on governance matters, monitoring compliance with policies and procedures, co-ordinating board meetings and acting as the interface between the Board and senior executives. Details regarding the Company Secretary, including their experience and qualifications are set out in the Directors’ Report section of the 2017 Annual Report. Performance Evaluation Practices The Company has a Performance Evaluation Practices Policy (as disclosed on the Company’s website) with processes established to review the Boards performance and the performance of individual directors (including the Managing Director) and senior executives. The method and scope of the performance evaluation is set by the Board and may include a Board self-assessment checklist/questionnaire to be completed by each director as well as the use of external specialist consultants. The Chairman is responsible for conducting the performance appraisals of the non-executive directors in conjunction with each non-executive director. The Board will review the performance of the Managing Director. A review of the performance of the Managing Director was conducted during the period. The Chairman and the Board regularly discussed the performance and composition of the Board during the 2016-17 period, considering issues or concerns as they arose. This ongoing process has remained in-house and informal throughout the year, relying on regular discussion. The Managing Director is responsible for evaluating the performance of the Company’s senior executives. This is performed annually, meeting formally with each senior executive and ongoing informal monitoring throughout each financial year. During the reporting period the Managing Director conducted formal evaluation appraisals of senior executives. Diversity Policy The Company has adopted a Diversity Policy (as disclosed on the Company website) embracing a corporate culture supporting equal opportunity free from discrimination related to gender, ethnicity, cultural background, age, or other personal factors and includes requirements for the Board to develop measurable objectives for achieving diversity and annually assess both the objectives and the progress in achieving those objectives as positions become available. The Company is committed to diversity and recognises the benefits arising from a diverse mix of skills and talent amongst its directors, officers and employees to enhance Company performance and achieve the Company’s goals. The Company does not comply with ASX recommendation 1.5 (c) to establish measurable targets for achieving gender diversity across the group. The Company is currently not of a size that justifies the establishment of measurable diversity objectives. The Board will seek to develop a reporting framework in the future as the Company grows to report the Company’s progress against the objectives and strategies for achieving a diverse workplace which can be used as a guide by the Company to identify new directors, senior executives and employees. The respective proportion of male and female employees across the whole organisation is 78% (18) and 22% (5). Currently the Board comprises five members, all of whom are male. One senior executive position is Page 63 TALGA RESOURCES LTD For the Year Ended 30 June 2017 female. A senior executive office holding below the Board level, includes the Company Secretary, Commercial Manager, Chief Operating Officer and Technical Director – Product Development. The Company is not a “relevant employer” under the Workplace Gender Equality Act. Principle 2: Structure the Board to Add Value Nomination Committee The Company does not comply with ASX recommendation 2.1 to establish a Nomination Committee. The Board considers that at this stage there would be no efficiencies or other benefits gained by establishing a separate Nomination Committee. Accordingly, the full Board has assumed those responsibilities that are ordinarily assigned to a Nomination Committee and has addressed the skill-set of current Board members and the future need to expand that skill-set by way of appointment of new directors. The Board has adopted a Nomination Committee Charter (as disclosed on the Company website) which describes the role, functions, responsibilities and processes of the full Board in its capacity as the Nomination Committee. Items that are usually required to be discussed by a Nomination Committee are marked as separate agenda items at Board meetings when required. Board Skills and Experience The Company’s objective is to have a Board with the appropriate mix of skills, expertise and experience to effectively discharge the duties of the Board. The Board collectively has a combination of skills and experience as set out in the table below. A profile of each Director setting out their skills, experience, expertise, is set out in the Directors’ Report section of the 2017 Annual Report. Expertise Industry Qualifications • Mineral Exploration • Commercial & Legal • Finance/Accounting • Governance & Compliance • • • Mergers and Acquisitions • Project Development Strategy & Risk Management Capital Markets • Mineral Resources • Capital Markets • Banking • Renewable Energy • Materials • Automotive • Aerospace • Maritime • Defence • Business & Accounting • Taxation • Geology • Construction & Materials Technology The Board reviews its composition on a regular basis to consider where it’s appropriate and relevant to further strengthen the Board through its development strategy. Board Independence The Board considers the independence of Directors having regard to the relationships listed in Box 2.3 of the ASX Corporate Governance Principles and Recommendations and the Company’s materiality thresholds, namely whether a Director: • • • • • • is, or has been, employed in an executive capacity by the Company or any of its subsidiaries and there has not been a period of at least three years between ceasing such employment and serving on the Board; is, or has within the last three years been, a partner, director or senior employee of a provider of material professional services to the Company or any of its subsidiaries; is, or has been within the last three years, in a material business relationship (eg as a supplier or customer) with the Company or any of its subsidiaries, or an officer of, or otherwise associated with, someone with such a relationship; is a substantial security holder of the Company or an officer of, or otherwise associated with, a substantial holder of the Company; has a material contractual relationship with the Company or its subsidiaries other than as a director; has close family ties with any person who falls within any of the categories described above; or Page 64 TALGA RESOURCES LTD For the Year Ended 30 June 2017 • has been a Director of the Company for such a period that his or her independence may have been compromised. The assessment of whether a Board member is independent is a matter of judgement for the Board as a whole and includes concepts of materiality. In the context of independence, materiality is considered from both a quantitative and qualitative perspective. An item is presumed to be quantitatively immaterial if it is equal to or less than 5% of an appropriate base amount. Qualitative factors considered include the nature of the relationship or contractual arrangement and factors that could materially interfere with the independent exercise of the director’s judgement. In accordance with the definition of independence above and the materiality thresholds, the independent Directors of the Company are Keith Coughlan (Chairman since 27 Sept 2013, resigned 8 Feb 2017), Terry Stinson (Chair appointed 8 Feb 2017) Grant Mooney (Non-Executive Director since 20 Feb 2014), Stephen Lowe (Non-Executive Director since 17 December 2015). The Board recognises the ASX recommendations that the majority of the Board should be comprised of independent directors and the Chair of the Board should be an independent director. The Company complies with this recommendation. Principle 3: Act Ethically and Responsibly Code of Conduct The Company has adopted a Code of Conduct Policy (as disclosed on the Company website) as to the practices necessary to maintain confidence in the Company’s integrity and objectivity, striving at all times to enhance the reputation and performance of the Company. The Code provides a framework covering the Board, officers and all employees including the responsibility and accountability of individuals for reporting reports of unethical behaviour and conflicts of interest. Conflict of Interest Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Where the Board believes that a significant conflict exists for a Director on a Board matter, the Director concerned does not receive the relevant Board papers and is not present at the meeting whilst the item is considered. In addition, where relevant, the Board has adopted a Board protocol for dealing with confidential information. Details of Director related transactions with the Company are set out in Note 17 of the 2017 Annual Report. Principle 4: Safeguard Integrity of Corporate Reporting Audit and Risk Committee The Board has established a separate Audit Committee and has an Audit Committee Charter (as disclosed on the Company website) which describes the role and responsibilities of the Audit Committee. The Committee comprises three Non-Executive Directors, Stephen Lowe, Terry Stinson and Grant Mooney and their qualifications and experience together with meetings attended during the year are contained in the Directors’ Report section of the 2017 Annual Report. The Company’s Audit Committee Charter includes the process for (re)appointing, removal and rotation of an external auditor. The Board was responsible for the initial appointment of the external auditor and the Audit Committee for any subsequent appointment of a new external auditor when any vacancy arises. An external auditor must be able to demonstrate complete independence from the Company and an ability to maintain independence throughout the engagement period. Furthermore, the auditor must have arrangements in place for the rotation of the audit engagement partner in accordance with professional standards as current from time to time, including part 2M.4 Division 5 of the Corporations Act 2001 (Cth). The Company’s external auditor is invited to and attends the Annual General Meeting (“AGM”) to answer questions from shareholders relevant to the audit. Page 65 TALGA RESOURCES LTD For the Year Ended 30 June 2017 CEO and CFO Declaration The Managing Director and Financial Controller have provided a declaration to the Board in accordance with section 295A of the Corporations Act 2001 (Cth) that, in their opinion, the financial records have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the Company for the reporting period and that their opinion is formed on the basis of a sound system of risk management and internal control which is operating effectively. Principle 5: Make Timely and Balanced Disclosure The Company has adopted a Continuous Disclosure Policy (as disclosed on the Company website). The policy; • • • raises awareness of the Company’s obligations under the continuous disclosure regime; establishes a process to ensure that information about the Company which may be market sensitive and which may require disclosure is brought to the attention of the person primarily responsible for ensuring that the Company complies with its continuous disclosure obligations in a timely manner and is kept confidential; and sets out the obligations of directors, officers, employees and contractors of the Company to ensure that the Company complies with its continuous disclosure obligations. Principle 6: Respect the Rights of Security Holders The Company recognises the value of providing current and relevant information to its shareholders and the Board is committed to open and effective communication, ensuring all shareholders are informed of all significant developments concerning the Company. The Company has in place an effective Shareholder Communications and Investor Relations Policy (as disclosed on the Company website). The Company’s Shareholder Communications and Investor Relations program includes: • • • actively engaging shareholders at the AGM, promoting two-way interaction, by encouraging shareholder interaction during the AGM, including encouraging questions; issuing regular Company updates; sending and receiving shareholder communications electronically both from the Company and via the Company’s share registry; • maintaining the Company’s website, including posting all announcements, reports, notice of meetings and governance information; engaging in scheduled interactions with institutional investors and analysts; • • meeting with shareholders upon request; • • responding to direct queries from time to time; and ensuring continuous disclosure obligations are understood across the Company. In addition, shareholders are encouraged to follow the Company by following our twitter account @Talga_Ltd and by signing up to our email subscriber list. Principle 7: Recognise and Manage Risk While the Board’s Charter clearly establishes that the Board is responsible for ensuring there is a good sound system for overseeing and managing risk, the Board has established a separate Audit and Risk Committee. The Company has adopted a Risk Management Policy (as disclosed on the Company website) which describes the role and responsibilities of the Risk Committee. The Committee assumes the responsibilities of ensuring that risks and opportunities are identified on a timely basis and the Company’s objectives and activities are aligned with those risks and opportunities. The Committee and Board’s collective experience enables accurate identification of the principal risks which may affect the Company’s business. Management of these risks will be discussed by the Committee and the Board at periodic (at least annually) strategic planning meetings. In addition, key operational risks and their management, are recurring items for deliberation at Board meetings. Page 66 TALGA RESOURCES LTD For the Year Ended 30 June 2017 The Committee comprises three Non-Executive Directors, Stephen Lowe, Terry Stinson and Grant Mooney and their qualifications and experience together with meetings attended during the year are contained in the Directors’ Report section of the 2017 Annual Report. The Company has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the Committee. These are discussed further under the internal audit section below. The Board has received assurance from the Financial Controller and Managing Director that the declarations made in accordance with section 295A of the Corporation Act 2001 are: 1. founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board; and the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects. 2. Internal Audit The Company does not have an internal audit function and as such does not comply with ASX recommendation 7.3 (a). The Board has determined that given the size of the Company, an internal audit function is not practical. The Board has adopted a Risk Management Policy and processes appropriate to the size of the Company to manage the Company’s material business risks through the Audit and Risk Committee and senior management to ensure regular reporting to the Board on whether those risks are being managed effectively in accordance with the controls in place such as: • monthly reporting to the Board in respect of operations and the financial position of the Company; • monthly rolling cashflow forecasts budgets accompanied by variance analysis; • circulating minutes of and relevant Committees to the Board and the Chairman of each respective committee and provide a report to the Board on an annual basis; employing appropriately qualified employees; SWOT analysis; developing commercial partnerships and relationships with end users; aligning Company activities with world class an innovative industry bodies and service providers; appropriate health, safety and environment practices; and a corporate governance manual which contains other policies to assist the Company to establish and maintain its governance practices. • • • • • • Economic, Environmental and Social Risks The Company’s economic, environmental and social sustainability risks are discussed in the Directors’ Report section of the 2017 Annual Report. Principle 8: Remunerate Fairly and Responsibly It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board by remunerating Directors and employees fairly and appropriately. Remuneration Committee During the year, the Board established a separate Remuneration Committee in compliance with ASX Recommendation 8.1. The Remuneration Committee is focused on pr oviding independent reviews and recommendations to the main Board on remuneration packages and policies applicable to senior executives and directors themselves. The Remuneration Committee charter is disclosed on the Company website. Members and meetings of the Remuneration Committee are set out in the Directors’ Report section of the 2017 Annual Report. The remuneration details of Non-Executive Directors and Executive Directors are also set out in the Remuneration Report that forms part of the Directors’ Report section of the 2017 Annual Report. Page 67 TALGA RESOURCES LTD For the Year Ended 30 June 2017 Remuneration Policy As disclosed in the Remuneration Charter, non-executive directors are remunerated at market rates for time, commitment and responsibilities. Remuneration for non-executive directors is not linked to individual performance. There are no termination or retirement benefits for non-executive directors. Pay and rewards for executive directors and senior executives consists of base pay and benefits (such as superannuation) as well as short-term and long-term incentives. Executives are offered a competitive level of base pay at market rates and are reviewed annually to ensure market competitiveness. Details of director and senior executive remuneration, including the Company’s policy on remuneration, are contained in the Remuneration Report which forms a part of the Directors’ Report section of the 2017 Annual Report. Securities Trading Policy The Company recognises that Directors, officers and employees may hold securities in the Company and that most investors are encouraged by these holdings. The Company’s Securities Trading Policy (as disclosed on the Company website) explains and reinforces the Corporations Act 2001 requirements relating to insider trading. The policy applies to all directors, employees of the Company and their associates and closely related parties (collectively “Restricted Persons”). The policy is compliant with the ASX Listing Rules and expressly prohibits Restricted Persons buying or selling TLG securities where the Restricted Person is in possession of price sensitive or ‘inside’ information and in any event without the prior written approval of a clearance officer. Under the policy, Restricted Persons are also prohibited from entering into transactions or arrangements which limit the economic risk of participating in unvested entitlements under any equity based remuneration scheme. Page 68 TALGA RESOURCES LTD For the Year Ended 30 June 2017 Schedule of Mineral Tenements Tenement Project Interest Held by Talga Tenement Project Interest Held by Talga E77/2139 E77/2221 E77/2222 E77/2251 E77/2350 P77/4106 Bullfinch (i) Bullfinch (i) Bullfinch (i) Bullfinch (i) Bullfinch (i) Bullfinch (i) 100% 100% 100% 100% 100% 100% Ahmavuoma nr 3 Ahmavuoma nr 4 Ahmavuoma nr 5 Jalkunen nr 1 Jalkunen nr 2 Jalkunen nr 3 Kursuvaara Nybrännan nr 1 Nybrännan nr 2 Tiankijoki nr 1 Kiskama nr 1 Lautakoski nr 1 Lautakoski nr 2 Lautakoski nr 3 Suinavaara nr 1 Suinavaara nr 2 Masugnsbyn nr 1 Jukkasvaara nr 2 Lautakoski nr 4 Lehtosölkä nr 3 Liviövaara nr 2 Piipiönjoki nr 1 Suinavaara nr 3 Suinavaara nr 4 Gråliden nr 2 Önusträsket nr 2 Raitajärvi nr 5 Maltosrova nr 2 Maltosrova nr 3 Mörttjärn nr 1 Nunasvaara nr 2 Vathanvaara nr 1 Vittangi nr 2 Vittangi nr 3 Vittangi nr 4 Ahmavuoma Ahmavuoma Ahmavuoma Jalkunen Jalkunen Jalkunen Jalkunen Jalkunen Jalkunen Jalkunen Kiskama Lautakoski Lautakoski Lautakoski Lautakoski Lautakoski Masugnsbyn Pajala Pajala Pajala Pajala Pajala Pajala Pajala Piteå Piteå Raitajärvi Vittangi Vittangi Vittangi Vittangi Vittangi Vittangi Vittangi Vittangi 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% P Prospecting Licence E Exploration Licence M Mining Licence (i) As disclosed at note 19 and 22 to the financial statements, the Bullfinch tenements are subject to an option and sale agreement. (ii) As disclosed on 29 August 2017 (See ASX:TLG), Talga has applied for three new exploration permits within the East Aitik Project. Page 69