Vital Metals Limited
Annual Report 2017

Plain-text annual report

Vital Metals Limited ABN 32 112 032 596 2017 Annual Report Corporate Information ABN 32 112 032 596 Directors David Macoboy (Non-Executive Chairman) Mark Strizek (Managing Director) Andrew Simpson (Non-Executive Director) Peter Cordin (Non-Executive Director) Francis Harper (Non-Executive Director) Company Secretary Ian Hobson Registered Office Suite 1/91 Hay Street SUBIACO WA 6008 Telephone: +61 8 9388 7742 Facsimile: +61 8 9388 0804 Principle Place of Business Suite 1/91 Hay Street SUBIACO WA 6008 Telephone: +61 8 9388 7742 Facsimile: +61 8 9388 0804 Share Register Automic Pty Ltd Suite 1a, Level 1 7 Ventnor Avenue West Perth WA 6005 Auditors BDO Audit (W.A.) Pty Ltd 38 Station Street SUBIACO WA 6008 Bankers Commonwealth Bank 140 St Georges Terrace PERTH WA 6000 Internet Address www.vitalmetals.com.au Stock Exchange Listing Vital Metals Limited shares are listed on the Australian Securities Exchange (ASX code: VML) Company Profile Vital Metals Limited (ASX: VML) is an explorer and developer , focused on progressing three highly prospective mineral Projects: the Watershed Tungsten Project in far north Queensland, Australia, the Doulnia Gold Project in southern Burkina Faso, West Africa and the Aue Tungsten Project in Saxony, Germany. Watershed Tungsten Project – Queensland The Watershed scheelite (calcium tungstate) Project, in far north Queensland, 150 kilometres north- west of Cairns, is the Company’s flagship venture. The Watershed Tungsten Project is a development- ready project that has a completed Definitive Feasibility Study (DFS), fully permitted and has all landowner and Indigenous agreements in place. Doulnia Gold Project – Burkina Faso The Doulnia Gold Project (100% Vital) is located in southern Burkina Faso. The Project is made up of three contiguous permits; the Doulnia, Kampala and Zeko exploration permits. The Project is located in highly prospective Birimian Greenstone terrain with 400 sq. km of contiguous tenements lying on the trend of the Markoye Fault Corridor and hosting the Kollo Gold Project and Boungou South Gold Prospect. Aue Tungsten Project – Germany The Aue Tungsten Project (100% Vital) is located in the western Erzgebirge area of the German state of Saxony. The permit, comprising an area of 78 sq. km is located in the heart of one of Europe’s most famous mining regions, being surrounded by several world class mineral fields. Historical mining and intensive exploration work carried out between from the 1940’s and 1980’s showed high prospectivity of the Aue permit area for tungsten, tin, cobalt, uranium and silver mineralisation. Chairman’s Message Dear Fellow Shareholders, I am pleased to present the 2017 Annual Report for Vital Metals Limited (ASX: VML), reporting on a year that our Company has worked to uncover the potential of our gold and base metal prospects in Burkina Faso and Australia, but now looking ahead to develop the Watershed tungsten project; a project in which we had confidence has potential to deliver value for our shareholders. Vital Metals is gaining renewed interest, resulting from the uplift in tungsten prices that are integral to the development of our Watershed Project in Queensland. We have explored the project since 2005, and completed a definitive feasibility study for Watershed in 2014 and have maintained it in a ‘shovel ready’ state since then as we waited for improvement in the tungsten market. Tungsten supplies are tightening as enforcement of environmental regulations closing polluting mines in China; which produces nearly 70 per cent of the world’s tungsten supply. We are now seeing this as our opportunity to progress development of Watershed. Post year-end in September 2017, we announced results of optimisation studies which demonstrated that just small changes to our flow sheet should improve our recoveries of tungsten trioxide, and further improve the value of the project. We have also identified opportunities for savings to both the Capex and Opex estimated in the 2014 DFS, making Watershed an outstanding, development-ready opportunity demonstrating attractive financial returns at current and forecast future tungsten prices. A $2 million heavily oversubscribed share placement completed on 15 September 2017 will allow Vital to update the Watershed resource estimate to JORC 2012 compliance, complete more metallurgical test work to further optimise the processing flow sheet, update the Capex and Opex estimates and optimise the mining schedule. This work will be our focus for the remainder of 2017 along with the financing of the project. It is our aim for this to be completed in 2018. We will also continue our efforts at the Kollo Project in Burkina Faso, which neighbours discoveries including West African Resources’ Sanbrado Project (formerly the Tanlouka Project) and Cardinal Resources’ Namdini Project over the border in Ghana. Results in 2017 were strong, and we are optimistic that the potential we are seeing in the project can be tapped. Kollo is in an area known for its gold discoveries, and we want to be the company that discovers the next large deposit there. Having identified 40km of structures as potentially hosting gold mineralisation, with only 15% of these structures previously tested, we set about some widespread exploration at Kollo in 2017. This has returned exciting results to date, with high-grade gold mineralisation at Kollo South, and high-grade gold mineralisation identified at the Boungou South prospect in recent months. We are also drilling at Kollo Hill to test a 1km strike length shear zone between Kollo Central and Kollo North that has never been tested. We have continued an auger drilling campaign which has already returned some exceptional high grades from samples, validating our exploration model. This exploration is possible using the funds of the recent $2 million placement, as well $5 million placement completed in March, which was also heavily oversubscribed and importantly restructured our facility with Macquarie Bank paying down debt and extending the repayment of $1.4 million to 31 December 2018. We plan to continue drilling throughout 2018, testing prospective gold targets in Burkina Faso as well as other work, and we are confident we can make a high-grade gold discovery resulting from this. Meanwhile, we continue to explore our projects in Australia, with good results returned from Elephant Creek gold prospect and the Peninsula copper prospect in North Queensland. Our Board was bolstered in recent months with the appointment of Francis Harper is a Non-Executive Director. Francis is the founder of Blackwood Capital Limited, and has extensive experience in resource development and finance, having been the Chairman of our neighbour West African Resources for six years and leading all the company’s capital raisings during that time. We feel that Francis’ skills and experience will be helpful to the Vital Metals team. I take this opportunity to thank my fellow Directors and our management and staff for their hard work and contributions over the past year, and I also thank our Shareholders for your support, particularly in our capital raisings. I hope you will continue to believe in our ability to deliver the strategy we have devised. With the funds in place to position Watershed for a development decision as well as further our West African exploration in 2018, I look forward to bringing you the results from this and delivering the success of our hard work. David Macoboy Chairman OPERATIONS REVIEW Australia: Development Project Watershed Tungsten Project, Queensland Vital Metals’ 100%-owned Watershed Tungsten Project is 130km north of Cairns in northern Queensland. It is known to be one of the largest undeveloped tungsten deposits outside of China, and VML has been exploring the project since 2005. Having completed a positive Definitive Feasibility Study for the project in 2014, VML has been maintaining the Watershed Tungsten Project in a “shovel-ready” state, poised to deliver shareholder value as soon as the tungsten price moves to a sustainable level. During 2017, a team from the Economic Geology Research Centre (EGRU) at James Cook University conducted a mapping session with VML geologists at Watershed as part of a three-year program funded by the Geological Survey of Queensland and supported by VML. This is advancing VML’s understanding of the controls on the scheelite mineralization at Watershed. Vital hosted the Department of Environment and Heritage Protection as they conducted a compliance inspection and reported satisfied with the condition of the mining leases. At year-end, VML reported APT prices quoted for China and Europe increased by about 15% during the June quarter to end at US$230 to US$235/mtu respectively. More importantly, prices for tungsten concentrate (which is not quoted) had continued to attract a significant premium on the APT price, resulting from strong demand and a continued restriction of supply of concentrate needed for Western metal makers. However, by September 2017, tungsten had a spot price of US$310/mtu APT as demand for tungsten increasing year on year as world GDP continues to increase. Whilst on the supply side, Chinese authorities have been active in closing polluting mines and refiners following the enforcement of environmental and safety regulations. Many of these old non-compliant operations will be permanently shut due to these violations. Post year-end, VML announced results from optimisation studies for the project which demonstrating that small changes to the processing flow sheet could improve recoveries of tungsten trioxide, increasing the project’s estimated post-tax valuation to be more than A$150 million using a spot price of US$310/mtu APT and US$0.79. DMS test work performed by NAGROM in Perth on diamond core from Watershed confirmed the effectiveness of DMS on -3.35mm material to take a high-grade feed forward to flotation. Vital estimates that this will increase overall recovery from around 74% to 77% WO3. The project has granted Mining Leases and Environmental Authority for an open-pit development. Since the DFS completion in 2014, VML continued to optimise the engineering and increase recoveries, including flotation optimisation with GZRINM in China and gravity optimisation of spirals and DMS in Australia. VML has also identified significant savings opportunities in both Capex and Opex since the 2014 study including Capex savings relating to civil earthworks, reduced concrete costs, improve plant layout and direct construction costs. Potential Opex savings include fuel and energy cost reductions, salary and wages and flowsheet optimisation through ore sorting and DMS separation. VML will use proceeds from a $2 million capital raising completed in September 2017 to: • Update the resource estimate; • Continue metallurgical test work to optimise the process flow sheet; • Update the capital and operating costs used in the 2014 DFS; • Optimise the mining schedule; and • Progress Offtake and Project funding. Burkina Faso: Gold Prospects The Kollo Gold Project sits within the Markoye Structural Corridor in Burkina Faso, which is known to host several multi-million-ounce gold deposits, including two recent major gold discoveries (Cardinal Resources’ Namdini Project in Ghana and West African Resources’ Sanbrado Project). Exploration drilling during the year continued to demonstrate the high-grade nature of the gold mineralisation at Kollo and included: • KDD008: 3.0m @ 56g/t Au from 134m, including 1m @ 167g/t Au • KRC352: 17m at 6.0 g/t Au from 114m downhole including 2m at 30.5 g/t Au • KRC353: 13m at 9.0 g/t Au from 174 including 2m at 46.2 g/t Au • KRC303: 17m @ 3.34 g/t Au from 145m • KDD004: 3.5m @ 9.11 g/t Au from 88.1m • KDD005: 1.6m @ 3.03g/t Au from 68m • KDD006: 4.02m @ 1.92g/t Au from 169m • KDD006: 2.02m @ 4.02g/t Au from 183.54m • KDD010: 1.63m @ 4.05 g/t Au from 42.5m • KRC289: 3m @ 7.42g/t Au from 41m • KRC290: 2m @ 11.6g/t Au from 65m • KRC290: 8m @ 1.17g/t Au from 78m • KRC293: 2m @ 7.05 g/t Au from 48m • KRC293: 2m @ 2.73 g/t Au from 100m • KRC340: 4m @ 7.29 g/t Au from 20m • KRC340: 6m @ 2.40 g/t Au from 84m • KRC304: 4m @ 3.59 g/t Au from 14m • KRC341: 2m @ 6.16 g/t Au from 8m • KRC316: 2m @ 5.87 g/t Au from 14m High water inflows prevented a number of holes from hitting target depths with the RC rig at Kollo South and VML had to source a diamond rig to finish these holes with diamond drill tails. Results demonstrated high-grade gold mineralisation on the contact of an intensely sheared graphitic marker unit striking in an east-west orientation with gold mineralization displaying an easterly plunge. The deeper diamond drilling intersected potential ore grade zinc mineralisation with sphalerite mineralisation noted in most of the drill core recovered at Kollo South. The geometry of the gold mineralisation is complex and the interplay with zinc mineralised is not fully understood. Further drilling will be required to map out both mineralised systems Kollo Hill VML completed a first-pass drilling program over a 1km strike length on the shear zone between Kollo Central and Kollo North that has never been tested. Africa Mining Services (Ausdrill) completed this program using a track-mounted RC drill and support vehicle. The company drilled 19 holes for 1,326 metres on four drill fences at Kollo Hill using a track mounted RC rig. Gold assays of RC drill chips reported a number of anomalous gold results from highly weathered and oxidised material. Analysis of RC pulps using a semi-quantitative portable XRF unit reported zinc mineralisation present in broad anomalous zones (both depleted oxide zones as well as fresh sulphide) over a strike length of 450m. The results of this first pass program drilling program are being interpreted and will be used to determine the next steps. Boungou South Vital reported shallow intercepts of high-grade gold mineralisation at its Boungou South prospect, 6km southeast of Kollo South, including results of: • BOURC004: 8m @ 9.3 g/t Au from 56m • BOURC018: 9m @ 3.6 g/t Au from 39m • BOURC002: 20m @ 1.5 g/t Au from 16m • BOURC019: 5m @ 3.2 g/t Au from 22m These results were from a program of 22 RC holes of 1,680m to test an identified gold-in-soil anomaly. The current program confirmed and surpassed previous drill intercepts recorded in 2012. Drill fences were spaced at nominal 100m and 400m lines over a 1km strike length and further work is planned to follow up the gold mineralisation which remains open along strike and at depth. ADB Six RC holes for 451m were drilled at ADB to test a gold-in-soil anomaly with drill fences spaced at a 400m. Moderate grade intercepts were reported near the previously-reported peak auger result of 5.2g/t Au: • ADBRC006: 10m @ 0.6 g/t Au • ADBRC006: 2m @ 1.4 g/t Au Further auger results from the Kampala tenement will be compiled with the drilling data as VML determines to strategy for exploring ADB. Auger Drilling VML’s updated and reworked regional exploration model identified significant exploration potential within the tenement package, with 40km of structures identified across the prospects as potentially hosting gold mineralization. VML auger drilled these targets to test the regional potential of its holdings in Burkina Faso and the program returned excellent results of several grams per tonne gold underlying areas of barren soil cover, supporting and enhancing the prospectivity of target areas. Auger results extended the strike length of the ADB drill target on the Kampala permit by 200m from 500m to 700m in length, with peak auger samples of 5g/t Au and 2g/t Au northeast along strike of the mail soil anomaly. Auger drilling identified a 4km long by 1.5 km wide north south trending corridor at Tangassogo with peak auger grades of up to 3.5g/t Au. This north-south trending corridor is believed to be a significant structural feature and is postulated to be one of the controlling structures responsible for the ENE trending Kollo mineralization. Our auger drilling was able to sample the saprolite confirming the anomaly is primary and requires follow up. A 4km west-northwest trending auger anomaly with peak auger grades of up to 1.1g/t Au is located to the north-east of the Boungou South gold prospect where RC drilling reported shallow gold mineralization. This prospective corridor is associated with a structural feature interpreted from aero- magnetic data and infill auger drilling is planned. Airborne geophysics program A 2,688 line km Heli-mag survey was completed on the Zeko permit to acquire magnetic and radiometric data. This data has been processed and incorporated into our structural model used to fast drill target delineation Burkina Faso: Base Metals Prospects Our drilling at Kollo has demonstrated that high grade gold mineralisation sits within a large zinc VMS mineralised trend (Loubel). This in turn is part of a large zinc VMS camp which wraps around the Tiebele dome. Historical exploration work has defined multiple Zn-Pb-Cu anomalies over 30 km of lightly explored contact. Previous drill holes only tested depleted oxide zone or shallow mineralisation and there are a number of highly prospective zinc VMS style prospects with significant potential to discover a large zinc deposit as these have either not been drill tested or where there is drilling mineralised zones are not closed off. Nabenia Zinc Prospect This is the most advanced zinc prospect with a 150 x 800 m multi-element soil geochemical anomaly. Historic RC and DD drilling includes: • 19.1m @ 2.7% Zn from 44m (inc 7.65m @ 4.9% Zn) • 10m @ 2.7% Zn from 30m • 7m @ 2.1% Zn from 59m (inc 2m @ 6.5% Zn) Three RC holes for 395 metres were completed at Nabenia and the assay results are outstanding. Loubel Zinc Prospects Located on the southern side of the Tiebele Dome and includes a large 100ppm Zn anomaly up to 7km long and 1.5km wide. Historical drilling includes: • 5m @ 3.8% Zn from 66m • 21m @ 1.7% Zn from 97m Five RC holes for 998 metres were drilled at Loubel with assay results outstanding at time of writing. VML is continuing to examine ways to advance these prospects while concentrating on the gold projects in Burkina Faso and Queensland. Australia: Gold Prospects Elephant Creek, Queensland During the year VML completed a 32 hole (1,537m) RC drilling program at Elephant Creek which achieved its objectives of intersecting shallow high grade gold mineralisation over a 1.5km strike length. The drilling targeted shallow gold mineralisation associated with the quartz vein systems at Elephant Creek. Results from the RC drilling were very encouraging demonstrated the high-grade nature of the gold mineralization including: • • • • • • • IVRC2016 001: 4m @ 26.39 g/t Au from 17m IVRC2016 006: 10m @ 3.05 g/t Au from 32m IVRC2016 004: 6m @ 4.26 g/t Au from 42m IVRC2016 002: 5m @ 2.48 g/t Au from 19m IVRC2016 018: 9m @ 1.48 g/t Au from 5m IVRC2016 019: 6m @ 1.46 g/t Au from 51m IVRC2016 028: 3m @ 2.52 g/t Au from 9m Gold mineralisation at Ivory remains open both at depth and along strike. Vital intends to continue to test gold mineralisation at Ivory through a combination of in-fill and extensional drilling along strike and at depth. Drilling and mapping at Elephant Creek suggests gold mineralisation is associated with an intensely sheared zone of deformed Hodgkinson Formation sediments. The work suggests that the gold mineralisation may also have a strong shoot control given some of the high grades seen in the drilling. Australia: Copper Exploration Peninsula Prospect, Queensland Peninsula is located 8km southeast of Elephant Creek with mineralisation hosted in Hodgkinson Formation sediments. Copper mineralisation observed so far at Peninsula is malachite and azurite within gossanous sediment measured over a strike of more than 100 metres and is located on an aeromagnetic high. VML’s maiden RC drill program completed at Peninsula intersected a zone of elevated copper oxide minerals (malachite with minor azurite) from 11m downhole which included a significant intercepts: • PE2016 001: 2m @ 0.96 % Cu from 14m • PE2016 002: 1m @ 1.08 g/t Au from 14m Rock chips from the gossanous outcrop and a quartz reef located around 500m along strike have returned significant copper and gold mineralisation including: • CU01-002: 16.7 % Cu and 0.08 g/t Au • CU01-003: 13.0 % Cu and 0.20 g/t Au • Qtz 001: 8.71 g/t Au and 0.03 % Cu Peninsula has potential as a small DSO target as copper has been produced from three copper mines in the region, the OK, Mt Molloy and Diane copper mines, all of which are now closed. The now abandoned Mt Molloy Copper mine was discovered in 1883 and operated until 1905, recorded production was 7,109 tons of ore at 15.9%Cu. It is believed that Peninsula could be similar to the historic Diane Copper mine situated near Cannibal creek, the reported tonnes of ore removed from the operation was 90,000t at greater than 25% Cu. It was reported in 1976 over 20 holes were drilled with no results and it was decided to drill 1 more hole in a different direction; this hole intersected about where the 3 level was developed and was 4m in width, assaying 68% Cu. Mining started soon after with operations ceasing in 1982. Exploration – Germany: Tungsten, Tin and Silver The Aue Exploration Permit is prospective for underground tungsten, tin, silver, cobalt and uranium mineralisation. Located in the western Erzgebirge region, which is in the heart of one of Europe’s most famous mining regions and is surrounded by several world-class mineral fields within a radius of less than 20km; the permit was chosen for the following reasons: • Reduced exploration risk - tungsten mineralisation has been sampled and mapped from underground adits and drill core; • Preliminary metallurgical testwork showed WO3 recoveries of around 85% for concentrates containing around 60% WO3; • Extensive geological data package; and • Supportive Government for strategic metals mining projects. Historical mining and intensive exploration work carried out between the 1940s and 1980s demonstrated the high prospectivity of the Aue permit area for tungsten, tin, cobalt and silver mineralisation. Tungsten was mined in Zschorlau in the western part of the permit area from quartz- wolframite veins between 1917 and 1959. The mine reportedly produced 2100t of tungsten concentrates in this time. CORPORATE Capital Raisings Vital raised $1,026,700 (before costs) in August 2016 through a heavily oversubscribed share placement to progress gold exploration activities in West Africa and Australia. The share placement, comprising 68,446,713 million shares at an issue price of 1.5c, was to sophisticated and professional investors. Proceeds from the raising were used to advance ongoing gold exploration activities in Burkina Faso, West Africa and at the Elephant Creek gold prospect in Far North Queensland. In March 2017, Vital announced a capital raising of $5 million through a heavily oversubscribed placement of 400 million shares to significantly expand gold exploration activities on its three exploration permits in Burkina Faso in West Africa. Funds from the placement enabled VML to commence an aggressive drilling program targeting 12,500 metres of predominantly RC drilling in Burkina Faso. Vital also restructured its facility with Macquarie Bank, reducing outstanding debt to $1.4 million (from $3.0 million) by way of a cash repayment of $1.0m and a debt for equity conversion of $0.6m after the EGM on 2 May. The balance is to be repaid by 31 December 2018. Board Appointment Vital Metals appointed Francis Harper as a Non-Executive Director to its Board in May 2017. Mr Harper was Chairman and a Non-Executive Director of West African Resources until June 2015. West African Resources is developing the 2.2Moz Sanbrado Gold Project in Burkina Faso, with tenements close to Vital Metals’ Kollo Project, and Mr Harper’s investment firm Blackwood Capital led all West African’s financings over a six-year period, giving him invaluable experience that will support Vital Metals during its growth. Prior to founding Blackwood Capital, Mr Harper spent 15 years with NM Rothschild in senior positions within resources corporate finance in the UK, the USA and Australia. Mark Strizek Managing Director Schedule of Interests in Mining Tenements Location Company Tenement Percentage held Burkina Faso Vital Metals Burkina (wholly owned subsidiary) Germany Vital Metals Limited Far North Queensland Watershed North Queensland Tungsten Pty Ltd (wholly owned subsidiary) Doulnia Kampala Zeko Aue EPM 25102 MDL127 EPM 18171 EPM 19809 EPM 25139 EPM 25940 ML 20535 ML 20536 ML 20537 ML 20538 ML 20566 ML 20567 ML 20576 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Mineral Resources and Ore Reserves Statement Introduction Mineral Resources can be defined as the concentration of material of economic interest in or on the earth’s crust, whereas Ore Reserves are the parts of a Mineral Resource that can at present be economically mined. Mineral Resources and Ore Reserves are reported as tonnes and grade (quality) above a minimum value (cut-off). We report estimates of our Mineral Resources and Ore Reserves on an annual basis, but new discoveries of Mineral Resources can be estimated at any time. Our estimates of Mineral Resources and Ore Reserves are undertaken by a team of highly skilled technical personnel including geologists, mining engineers and metallurgist that qualify as Competent Persons under the JORC Code. The JORC Code is a framework for classifying Mineral Resource and Ore Reserve estimates. Mineral Resources can be classified as Measured, Indicated and Inferred, according to the level of geological knowledge and confidence. Ore Reserves can be classified as Proved or Probable on the basis of the Mineral Resource classification and consideration of all JORC modifying factors. Only Measured and Indicated Mineral Resources can be converted to Ore Reserves. The figures included in our Mineral Resources and Ore Reserves statement are estimates only and not precise calculations, therefore appropriate rounding according to JORC guidelines has been applied. The Mineral Resource and Ore Reserve tables in this report provide a detailed breakdown of the estimates, which have been prepared according to the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (the JORC Code). Annual Review VML conducts an annual review of its Mineral Resources and Ore Reserves. This process is managed by the Managing Director of VML. As of 30 June 2017 it was determined that there would be no change to VML’s Mineral Resources and Ore Reserves statement which remains the same as that of 30 June 2016. There has not be been any material change or update that requires a restatement of the Mineral Resources. The governance arrangements and internal controls in place with respect to its estimates of mineral resources and ore reserves and the estimation process include oversight of the competent person by the managing director and review by the board. No mining has commenced and no additional mining studies have been completed. Minerals Resources Statement – 30 June 2017 The Company’s total Measured, Indicated and Inferred Mineral Resources as at 30 June 2017 are 49.32Mt grading 0.14% WO3 for 70,400 tonnes of contained WO3. The 2017 Mineral Resources for Watershed remain unchanged from the 2012 estimate. The estimate was previously disclosed under JORC 2004 requirements and as there are no material changes it has not been updated to JORC Code 2012. Watershed Deposit Mineral Resources WO3 % Cut off 0.05 0.1 0.15 0.2 0.3 Notes to table; Measured Mt WO3 % Mt WO3 % Mt WO3 % Mt WO3 % Combined Indicated Inferred 9.47 0.16 4.42 0.25 2.69 0.34 1.93 0.41 1.09 0.53 28.36 0.14 11.51 0.24 0.32 6.66 0.39 4.56 0.52 2.40 11.49 0.15 0.26 4.73 0.35 2.83 0.41 2.05 0.54 1.17 49.32 0.14 20.66 0.25 12.18 0.33 0.40 8.53 0.53 4.66 Contained WO3 Tonnes 70,400 50,700 40,400 34,100 24,600 Cut-off grade 0.05%WO3 • Mineral resources reported are inclusive of Ore Reserves. • • Numbers are rounded to two significant figures. Discrepancies in totals may occur due to rounding. • • Resources initially reported July 30 2012, Quarterly Activities & Cash flow Report 100% of Mineral Resources are attributable to Vital Metals Competent Person’s Statement The information in this report that relates to exploration targets, exploration drilling data, exploration results & mineralisation is based on information compiled by Mr Mark Strizek, who is a Member of The Australasian Institute of Mining and Metallurgy. Mr Strizek is a full time employee of the Company and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Mr Strizek consents to the inclusion in the announcement of the matters based on the information in the form and context in which it appears. The information in this report that relates to Mineral Resources for the Watershed Deposit is based on information evaluated by Mr Simon Tear who is a Member of The Australasian Institute of Mining and Metallurgy (MAusIMM) and who has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Mr Tear is a Director of H&S Consultants Pty Ltd and he consents to the inclusion of the estimates in the report of the Mineral Resource in the form and context in which they appear. Ore Reserves Statement – 30 June 2017 The Company’s Proved and Probable Ore Reserves are estimated to be 21.3Mt grading 0.15% WO3 for 31,400 tonnes of contained WO3. The reserves were first reported on 17 September 2014 in accordance with JORC Code 2012, the reported reserves are entirely for Watershed. There have been no changes to the Ore Reserves in the past year, no mining has commenced and no additional mining studies have been completed. The classification of the Watershed Ore Reserves has been carried out in accordance with the recommendations of the JORC Code 2012. All Proven Ore Reserves have been derived from Measured Mineral Resources and all Probable Ore Reserves have been derived from Indicated Mineral Resources. Ore Reserves within Watershed Pits Category Proven Probable Total Ore Reserve Inferred Ore Waste Excluding Inferred Total Material Strip Ratio Quantity (Mt) 6.4 15.0 21.3 1.7 66.2 89.3 3.16 WO3 Content (t) 10,000 21,000 31,000 2,400 Grade (% WO3) 0.16 0.14 0.15 0.14 Notes to table: • Ore Reserves based on an APT price of US$375 and FX0.90 • Mineral Resources are reported as inclusive of Ore Reserves • Numbers are rounded to two significant figures. Discrepancies in totals may occur due to rounding. • 100% of Reserves are attributable to Vital Metals Competent Person’s Statement This Ore Reserves statement has been compiled in accordance with the guidelines defined in the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code – 2012 Edition). The Ore Reserves have been compiled by Mr Steve Craig of Orelogy Group Pty Ltd, who is a Fellow of Australasian Institute of Mining and Metallurgy. Mr Craig has had sufficient experience in Ore Reserve estimation relevant to the style of mineralisation and type of deposit under consideration to qualify as Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting of Mineral Resources and Ore Reserves”. Mr Craig consents to the inclusion in the announcement of the matters based on his information in the form and context in which it appears. Vital Metals Limited ABN 32 112 032 596 Annual Financial Report for the year ended 30 June 2017 Vital Metals Limited Contents Directors' Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors' Declaration Independent Auditor’s Report 3 11 12 13 14 15 16 36 37 2 Directors’ Report Vital Metals Limited Your Directors submit their report on the Consolidated Entity (referred to hereafter as the Group) consisting of Vital Metals Limited and the entities it controlled at the end of, or during, the year ended 30 June 2017. DIRECTORS The names and details of the Company’s directors in office during the financial year and until the date of this report are as follows. Where applicable, all current and former directorships held in listed public companies over the last three years have been detailed below. Directors were in office for this entire period unless otherwise stated. Names, qualifications, experience and special responsibilities David Macoboy, BEcon, BComm (UWA), Non-Executive Chairman, Member of Audit Committee Mr Macoboy holds a Bachelor of Economics and a Bachelor of Commerce from the University of WA. David was a Fellow of the Australian Institute of Company Directors and a Certified Practicing Accountant. He is a former Chairman of Ammtec Limited, AVZ Minerals Limited and Territory Resources Ltd and has served on numerous other boards. He has not held any directorships of other listed companies in the past three years. The Directors and Management of the Company believe Mr Macoboy's cross-industry experience, especially in the areas of corporate strategy, finance, treasury, risk management and international fund raising, are skills needed to ensure the company's projects are appropiately funded and promoted. Mark Strizek, BSc., MAusIMM, Managing Director Mr Strizek holds a Bachelor of Science from Macquarie University and is a qualified geologist with over 16 years’ experience in the mining industry. He is a Member of the Australasian Institute of Mining and Metallurgy. He has worked in open pit operations and exploration in Western Australia and Queensland. He has also worked with Hellman & Schofield Pty Ltd as a consulting geologist, developing resource models in commodities such as gold, iron ore, nickel and manganese. Prior to joining the Group, he worked with the Mineralogy group of companies where he was involved in project development of iron ore, coal and petroleum resources in both Australia and Papua New Guinea. He has not held any directorships of other listed companies in the past three years. Andrew Simpson, Grad Dip. Bus (Curtin), MAICD, Non-Executive Director, Chairman of Audit Committee Mr Simpson holds a Graduate Diploma in Business and Administration (majoring in Marketing and Finance) from Curtin University and is currently the Managing Director and Principal of Resource and Technology Marketing Services Pty Ltd (RTM) in Perth. He formed RTM in 1999 to specialise in strategic and business planning, resource project assessment and marketing. RTM is recognised as one of Australia’s leading market research consultants to the international mining industry. Mr Simpson is non-executive Chairman of Swick Mining Services Ltd, and India Resources Ltd. He is the former non-executive Chairman of Territory Resources Ltd and Kaboko Resources Ltd, and a former non-executive director of Blackwood Corporation Ltd (formally Matilda Minerals Ltd). Mr Simpson is a Member of the Australian Institute of Company Directors. Peter Cordin, BE, MIEAust, FAusIMM (CP), Non-Executive Director, Member of Audit Committee Mr Cordin is a civil engineer with over 40 years’ experience in the evaluation and operation of resource projects within Australia and overseas. He is the former Executive Chairman of Dragon Mining Limited which operated gold mines in Sweden and Finland. He has direct experience in the management of diamond and gold operations and has been involved in the development of resource projects in Kazakhstan and New Caledonia. Mr Cordin is also a non-executive director of Coal of Africa Limited and Aurora Minerals Limited. Francis Harper LLB (Hons) B.Ec (appointed 15 May 2017) Mr Harper has extensive experience in West African mining, having served as Chairman and as a major shareholder of West African Resources Limited between 2009 and 2015 where he was integral in the highly successful 2014 acquisition of Channel Resources. He is also a founding director of Blackwood Capital, which has raised over $1 billion for smaller companies over the last 15 years, and manages the Blackwood Small Cap Companies Fund. Mr Harper has held no other ASX listed company directorships in the past 3 years. COMPANY SECRETARY Ian Hobson, Bbus, FCA, AICS, MAICD Mr Ian Hobson holds a bachelor of business degree and is a Chartered Accountant and Chartered Secretary. Mr Hobson provides company secretarial, corporate, management and accounting services to a number of listed public companies involved in the resource, services, technology and biomedical industries. 3 Directors' Report continued Vital Metals Limited Interests in the shares and options of the Company and related bodies corporate As at the date of this report, the interests of the directors in the shares and options of Vital Metals Limited were: David Macoboy Mark Strizek Andrew Simpson Peter Cordin Francis Harper Ordinary Shares 17,500,000 3,173,964 1,684,375 6,931,116 11,700,000 Options over Ordinary Shares 9,253,099 28,681,852 5,168,733 5,168,733 12,500,000 PRINCIPAL ACTIVITIES The principal activities of the Group during the year were mineral exploration in Australia and in Burkina Faso, West Africa. There was no significant change in the nature of the Group’s activities during the year. DIVIDENDS No dividends were paid or declared during the financial year. No recommendation for payment of dividends has been made. OPERATING AND FINANCIAL REVIEW The consolidated loss of the Group after providing for income tax amounted to $4,961,426 (2016: $1,156,042). The Group has continued to explore and evaluate the Doulnia Gold project in southern Burkina Faso, West Africa. Drilling was undertaken at the Kollo Gold Project in recent months. The Watershed Tungsten Project in Queensland was also continued with additional exploration and refinements to the Definitive Feasibility Study (DFS). A rehabilitation provision of $400,000 has been provided to allow for the disturbance to the environment to date. In the next year, the Group will seek to continue to progress the above projects. The Group partly repaid in cash and equity and completed the extension of the $1.4 million balance of the debt facility with Macquarie Bank Limited to 31 December 2018. A rights issue and placements were undertaken during the year to provide funding for the exploration progams and to pay principal and interest to Macquarie and for working capital. Operating Results for the Year Summarised operating results are as follows: 2017 Revenues $ Results $ Consolidated entity revenues and loss from ordinary activities before income tax expense 2,727 ($4,961,426) Shareholder Returns Basic loss per share (cents) 2017 (0.82) 2016 (0.31) Risk Management The Board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that activities are aligned with the risks and opportunities identified by the board. The Company believes that it is crucial for all board members to be a part of this process, and as such the board has not established a separate risk management committee. The Board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the Board. These include the following: • Board approval of a strategic plan, which encompasses strategy statements designed to meet stake-holders needs and manage business risk. Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets. • SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Other than as disclosed in this Annual Report no significant changes in the state of affairs of the Group occurred during the financial year. 4 Directors' Report continued Vital Metals Limited SIGNIFICANT EVENTS AFTER THE REPORTING DATE On 15 September 2017, the Group announced completion of a capital raising by way of a placement of 263,937,807 ordinary shares at $0.0075 to raise $1,979,534. Otherwise, there were no significant events after the reporting date. LIKELY DEVELOPMENTS AND EXPECTED RESULTS The Group intends to continue its exploration and development activities on its existing projects and to acquire further suitable projects for exploration as opportunities arise. ENVIRONMENTAL REGULATION AND PERFORMANCE The Group is subject to significant environmental regulation in respect to its exploration activities. 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 year under review. REMUNERATION REPORT (Audited) The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001.The directors and key management personnel for the year ended 30 June 2017 were: David Macoboy – director Mark Strizek – director Andrew Simpson – director Peter Cordin – director Francis Harper – director (appointed 15 May 2017) Ian Hobson – company secretary Principles used to determine the nature and amount of remuneration Remuneration Policy Remuneration of Directors and Executives is referred to as compensation throughout this report. Key management personnel including directors of the Company and other executives have authority and responsibility for planning, directing and controlling the activities of the Group. Compensation levels for directors and Key Management Personnel of the Group are competitively set to attract and retain appropriately qualified and experienced directors and executives. The Board is responsible for compensation policies and practices. The Board, where appropriate, seeks independent advice on remuneration policies and practices, including the compensation packages and terms of employment. No such advice was sought in the current year. The compensation structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The compensation structures take into account a number of factors, including length of service and the particular experience of the individual concerned. (i) Fixed Compensation Fixed compensation consists of base compensation (which is calculated on a total cost basis and includes any FBT charges related to employee benefits including motor vehicles), as well as employer contributions to superannuation funds. Compensation levels are reviewed annually by the Board where applicable. (ii) Share based remuneration Share options are granted to key employees as the Directors believe that this is the most appropriate method of aligning performance to the interests of shareholders. The share options are issued under the Vital Metals Ltd Share Option Plan and the Directors feel that it appropriately links the long term incentives of key employees to the interest of shareholders. The ability to exercise the options is conditional on continued service for a period as determined by the Board upon each issuance of options. The Group does not have a policy that prohibits those that are granted share-based payments as part of their remuneration from entering into other arrangements that limit their exposure to losses that would result from share price decreases. The share options issued to the Managing Director vest immediately on issue and there are no performance conditions because the Board considers the link between the exercise price and share price at time of issue to be a satisfactory driver. (iii) Service contracts/agreements Mark Strizek was appointed on 1 July 2011 as Chief Executive Officer of the Group on a service contract. This contact was for an initial term of three months as CEO after which term Mr Strizek was invited to join the Board as Managing Director (effective 7 October 2011) for an unlimited term which is capable of termination on 6 months’ notice. Upon termination Mr Strizek is entitled to payment of his notice period. By agreement, Mr Strizek’s salary was adjusted to $200,000 plus superannuation effective 1 April 2017. Ian Hobson is engaged on a hourly rate with no notice period or termination clauses. 5 Directors' Report continued Vital Metals Limited (iv) Non-Executive directors Total compensation for all Non-Executive Directors, last voted upon by shareholders at the 2007 AGM, is not to exceed $400,000 per annum. Effective from 1 July 2016, the Company’s Non-Executive Directors remuneration was amended, resulting in the Chairman receiving $60,000 per annum inclusive of statutory superannuation and non-executive directors receiving $40,000 per annum inclusive of statutory superannuation. The remuneration policy for non-executive directors remains unchanged. Company performance, shareholder wealth and directors’ and executives’ remuneration No relationship exists between shareholder wealth, director and executive remuneration and Company performance due to the infant stage of the Company’s operations. The table below shows the gross revenue, losses and earnings per share for the last five years for the listed entity. Net loss Dividends paid Share price at year end (cents) Loss per share (cents) 2017 $ (4,961,426) - 1.1 (0.82) 2016 $ (1,156,042) - 1.1 (0.31) 2015 $ (6,939,729) - 3.0 (2.4) 2014 $ (1,375,531) - 3.4 ( 0.6 ) 2013 $ (1,350,539) - 1.2 ( 0.6 ) Use of remuneration consultants The Group did not employ the services of any remuneration consultants during the financial year ended 30 June 2017. Details of remuneration Details of the remuneration of the directors and the key management personnel of the Group are set out in the following table. The key management personnel of the Group are the directors and company secretary. Given the size and nature of operations of the Group, there are no other employees who are required to have their remuneration disclosed in accordance with the Corporations Act 2001. Key management personnel of the Group Short-Term Post Employment Share-based Payments Share-based Payments Total Directors David Macoboy (Non-Executive) 2017 2016 Mark Strizek (Managing Director) 2017 2016 Andrew Simpson (Non-Executive) 2017 2016 Peter Cordin (Non-Executive) 2017 2016 Francis Harper (Non- Executive) (appointed 15 May 2017) 2017 2016 Other key management personnel Ian Hobson (Company Secretary) 2017 2016 Salary & Fees $ 54,800 49,600 177,500 157,570 39,999 27,214 36,529 24,800 5,000 - 63,500 50,450 Total key management personnel compensation 2017 2016 377,328 309,634 Non Monetary Superannuation $ $ Options(1) $ Shares $ 5,205 4,712 16,862 14,969 - - 3,470 2,355 - - - - 77,440 - 178,599 21,974 (1) 43,720 - 43,720 - - - - - $ 134,445 54,312 412,961 194,513 83,719 27,214 83,719 27,155 5,000 - - - 40,000(2) - - - - - - - - 3,025 63,500 53,475 25,537 22,036 340,479 21,974 40,000 3,025 783,344 356,669 - - - - - - - - - - - - - - 6 Directors' Report continued Vital Metals Limited (1) The fair value of the options is calculated at the date of grant using a Black Scholes option valuation model and allocated to each reporting period evenly over the period from the grant date to vesting date. The value disclosed is the portion of the fair value of the options recognised in this reporting period. (2) Shareholders approved the issue of 2,000,000 shares at the market price of 2 cents per share to Mr Strizek at the 2016 AGM. No proportion of remuneration for any director or executive is performance related. There were no options granted to key management personnel as compensation during the reporting period, other than those set out below. Options granted as compensation Options are issued at no cost to Directors and Executives as part of their remuneration. The options are not issued based on performance criteria, but are issued to increase goal congruence between Executives, Directors and Shareholders. The following options over ordinary shares of the Company were granted to or vesting with key management personnel during the year: Granted & Vested Number Vesting Date Expiry Date Exercise Price (cents) Fair Value per option at grant date (cents) Grant Date Exercised Number % of Remuneration Directors Mark Strizek David Macoboy Peter Cordin Andrew Simpson Mark Strizek David Macoboy Peter Cordin Andrew Simpson 25/11/2016 25/11/2016 25/11/2016 25/11/2016 6,506,198 3,253,099 2,168,733 2,168,733 25/11/2016 25/11/2016 25/11/2016 25/11/2016 25/11/2018 25/11/2018 25/11/2018 25/11/2018 02/05/2017 02/05/2017 02/05/2017 02/05/2017 15,000,000 6,000,000 3,000,000 3,000,000 02/05/2017 02/05/2017 02/05/2017 02/05/2017 30/04/2021 30/04/2021 30/04/2021 30/04/2021 2.7 2.7 2.7 2.7 2.3 2.3 2.3 2.3 0.92 0.92 0.92 0.92 0.79 0.79 0.79 0.79 N/A N/A N/A N/A N/A N/A N/A N/A 13.7% 20.4% 22.6% 22.6% 32.6% 38.7% 32.2% 32.2% Exercise of options granted as compensation During the reporting period, there were no shares issued on the exercise of options previously granted as compensation, nor were there any modifications to the terms of previously granted options. Analysis of options granted as compensation Details of vesting profiles of the options granted as remuneration to Key Management Personnel of the Group are detailed below: Options granted Number Date % vested in current year % expired in current year Financial years in which grant vest Directors Mark Strizek Mark Strizek Mark Strizek Mark Strizek David Macoboy David Macoboy Peter Cordin Peter Cordin Andrew Simpson Andrew Simpson 9,788,658 7,175,564 6,506,198 15,000,000 3,253,099 6,000,000 2,168,733 3,000,000 2,168,733 3,000,000 03/12/2014 23/11/2015 25/11/2016 02/05/2017 25/11/2016 02/05/2017 25/11/2016 02/05/2017 25/11/2016 02/05/2017 - - 100% 100% 100% 100% 100% 100% 100% 100% 100% - - - - - - - - - 30 June 2015 30 June 2016 30 June 2017 30 June 2017 30 June 2017 30 June 2017 30 June 2017 30 June 2017 30 June 2017 30 June 2017 7 Directors' Report continued Vital Metals Limited Analysis of movements in options The movement during the reporting period, by value, of options over ordinary shares in the Company held by each key management person and each of the named executives are detailed below: Directors Mark Strizek David Macoboy Andrew Simpson Peter Cordin Granted in year $(A) Value of Options Exercised in year $(B) Cancelled / Lapsed in year $(C) 178,599 77,440 43,720 43,720 - - - - 100,000 - - - (A) (B) (C) The value of options granted in the year is the fair value of the options calculated at grant date using a Black Scholes option valuation model. The total value of the options granted is included in the table above. This amount is allocated to remuneration over the vesting period. The value of options exercised in the year is calculated as the market price of shares of the Company as at close of trading on the date the options were exercised after deducting the price paid to exercise the option. The value of the options that lapsed during the year represents the fair value of the options calculated at grant date using a Black Scholes option valuation model. Additional disclosures relating to key management personnel Shareholding The numbers of shares in the Company held during the financial year by each director of Vital Metals Ltd and other key management personnel of the Group, including their personally related parties, are set out below. 2017 Directors of Vital Metals Limited Ordinary shares David Macoboy Mark Strizek Andrew Simpson Peter Cordin Francis Harper Other key management personnel of the Group Ordinary shares Ian Hobson Balance at start of the year Received during the year on the exercise of options Received as Compensation Other changes during the year Balance at end of the year 9,000,000 1,173,964 1,684,375 1,959,350 - 210,067 - - - - - - - 2,000,000 - - - 8,500,000 - 4,971,766 11,700,000 17,500,000 3,173,964 1,684,375 6,931,116 11,700,000 - - 210,067 Option holding The numbers of options over ordinary shares in the Company held during the financial year by each director of Vital Metals Ltd and other key management personnel of the Group, including their personally related parties, are set out below: 2017 Balance at start of the year Granted as compensation Exercised Other changes Balance at end of the year Vested and exercisable Unvested Directors of Vital Metals Limited David Macoboy Mark Strizek Andrew Simpson Peter Cordin Francis Harper Other key management personnel of the Group Ian Hobson - 16,964,312 - - - - 9,253,099 21,506,198 5,168,733 5,168,733 - - - - - - - - - (9,788,658) - - 9,253,099 28,681,852 5,168,733 5,168,733 12,500,000(1) 12,500,000 9,253,099 28,681,852 5,168,733 5,168,733 12,500,000 - - - - - - - - - All vested options are exercisable at the end of the year. (1) Arose from capital raising fee prior to Mr Harper’s appointment as a director. 8 Directors' Report continued Vital Metals Limited Loans to key management personnel There were no loans to key management personnel during the year (2016: nil). Other transactions with key management personnel There were no transactions with key management personnel during the year other than salaries and wages as disclosed in the remuneration report. Voting and comments made at the Company's 2016 Annual General Meeting ('AGM') At the 2016 AGM, 98% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2016. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. End of audited Remuneration Report DIRECTORS’ MEETINGS During the year the Company held 9 meetings of directors. The attendance of directors at meetings of the board were: David Macoboy Mark Strizek Andrew Simpson Peter Cordin Francis Harper (appointed May 2017) Notes A – Number of meetings attended. Directors Meetings B A 9 9 7 8 - 9 9 9 9 - Audit Committee Meetings A 1 * 1 1 - B 1 * 1 1 - B – Number of meetings held during the time the director held office during the year. * – Not a member of the relevant committee. SHARES UNDER OPTION At the date of this report there are 186,937,742 unissued ordinary shares in respect of which options are outstanding. Balance at the beginning of the year Movements of share options during the year: Issued, exercisable at 1.625 cents, on or before 31 December 2018 Issued, exercisable at 4 cents, on or before 25 November 2018 Issued, exercisable at 2 cents, on or before 30 April 2021 Issued, exercisable at 2.3 cents, on or before 30 April 2021 Expired, exercisable at 4.2 cents, on or before 26 November 2016 Expired, exercisable at 5.1 cents, on or before 30 June 2017 Number of options 91,083,640 86,153,846 14,096,763 50,000,000 27,000,000 (13,214,689) (68,181,818) Total number of options outstanding as at 30 June 2017 186,937,742 Movements of share options since 30 June 2017 Nil Total number of options outstanding as date of this report The balance is comprised of the following: Date options issued 11 Dec 2015 7 Dec 2016 12 May 2017 12 May 2017 12 May 2017 Expiry date 24 Nov 2017 25 Nov 2018 31 Dec 2018 30 Apr 2021 30 Apr 2021 Exercise price (cents) 4 2.7 1.625 2 2.3 Total number of options outstanding at the date of this report 186,937,742 Number of options 9,687,133 14,096,763 86,153,846 50,000,000 27,000,000 186,937,742 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. 9 Directors' Report continued Vital Metals Limited INSURANCE OF DIRECTORS AND OFFICERS The Company has entered into an agreement to indemnify all directors and the company secretary against any liability arising from a claim brought by a third party against the Company. The agreement provides for the Company to pay all damages and costs which may be awarded against the officer or director. During the period the Company has paid an insurance premium in respect of a Directors’ and Officers’ Liability Insurance Contract. The insurance premium relates to liabilities that may arise from an Officer’s position, with the exception of conduct involving a wilful breach of duty or improper use of information or position to gain personal advantage. The officers covered by the insurance policies are the Directors and the Company Secretary. The contract of insurance prohibits the disclosure of the nature of the liabilities and the amount of premium. LEGAL PROCEEDINGS The company was not a party to any legal proceedings during the year. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. NON-AUDIT SERVICES No non-audit services were provided by BDO, the Company’s auditor, during the financial year. The Group has not provided any indemnity to the Auditors. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 11. Signed in accordance with a resolution of the directors. David Macoboy Chairman Perth, 26 September 2017 10 Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia DECLARATION OF INDEPENDENCE BY JARRAD PRUE TO THE DIRECTORS OF VITAL METALS LIMITED As lead auditor of Vital Metals Limited for the year ended 30 June 2017, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Vital Metals Limited and the entities it controlled during the period. Jarrad Prue Director BDO Audit (WA) Pty Ltd Perth, 26 September 2017 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 11 Vital Metals Limited Consolidated Statement of Profit or Loss and Other Comprehensive Income YEAR ENDED 30 JUNE 2017 Notes Consolidated REVENUE Sundry income Profit on sale of asset Total income EXPENDITURE Exploration and evaluation expenditure Administration expenses Total expenses RESULTS FROM OPERATING ACTIVITIES Finance income Finance expense Net finance expense LOSS BEFORE INCOME TAX INCOME TAX BENEFIT / (EXPENSE) 2017 $ 2,727 - 2,727 3,622,109 1,089,499 4,711,608 2016 $ 16,722 40,000 56,722 92,211 679,998 772,209 (4,708,881) (715,487) 12,050 (264,595) (252,545) 11,211 (451,766) (440,555) (4,961,426) (1,156,042) - - 5 4 6 LOSS FOR THE YEAR ATTRIBUTABLE TO OWNERS OF VITAL METALS LTD (4,961,426) (1,156,042) OTHER COMPREHENSIVE INCOME/(LOSS) Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations Other comprehensive income/(loss) for the year, net of tax (8,925) (8,925) 4,605 4,605 TOTAL COMPREHENSIVE LOSS FOR THE YEAR ATTRIBUTABLE TO OWNERS OF VITAL METALS LTD (4,970,351) (1,151,437) Basic and diluted loss per share for loss attributable to the ordinary equity holders of the Company (cents per share) 23 (0.82) (0.31) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the Notes to the Consolidated Financial Statements. 12 Consolidated Statement of Financial Position Vital Metals Limited AT 30 JUNE 2017 Notes Consolidated CURRENT ASSETS Cash and cash equivalents Trade and other receivables TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Exploration and evaluation expenditure TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Provisions Borrowings TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Non-current Borrowings Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed Equity Reserves Accumulated losses TOTAL EQUITY 7 8 9 10 10 11 12 2017 $ 2,674,830 69,496 2,744,326 23,804 7,588,322 7,612,126 2016 $ 1,388,368 46,412 1,434,780 30,379 7,017,417 7,047,796 10,356,452 8,482,576 1,396,661 43,778 - 1,440,439 1,308,223 400,000 1,708,223 191,447 28,527 3,000,000 3,219,974 - 400,000 400,000 3,148,662 3,619,974 7,207,790 4,862,602 47,810,512 2,128,490 (42,731,212) 7,207,790 41,344,085 1,288,303 (37,769,786) 4,862,602 The above Consolidated Statement of Financial Position should be read in conjunction with the Notes to the Consolidated Financial Statements. 13 Consolidated Statement of Changes in Equity Vital Metals Limited YEAR ENDED 30 JUNE 2017 Consolidated BALANCE AT 1 JULY 2015 Loss for the year OTHER COMPREHENSIVE INCOME/(LOSS) Exchange differences on translation of foreign operations TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS Issue of Shares Share issue transaction costs Options Issued during the year Convertible Note Issued Notes Contributed Equity $ Share-Based Payment Reserve $ Convertible Note Reserve $ Foreign Currency Translation Reserve $ Accumulated Losses $ Total $ - - - - - - - - - 2,012,886 (183,602) - - - 29,664 12 12 24 24 - - - - - - - - - (1,156,042) (1,156,042) (1,156,042) (1,156,042) 4,605 - 4,605 4,605 (1,156,042) (1,151,437) - - - - - - 2,012,886 (183,602) 29,664 BALANCE AT 30 JUNE 2016 41,344,085 757,110 133,901 397,292 (37,769,786) 4,862,602 Loss for the year OTHER COMPREHENSIVE INCOME/(LOSS) Exchange differences on translation of foreign operations TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS Issue of Shares Share issue transaction costs Convertible note issued Options issued during the year - - - - - - - - - - (4,961,426) (4,961,426) (8,925) - (8,925) (8,925) (4,961,426) (4,970,351) 12 12 24 7,303,270 (836,843) - - - - - 749,571 - - 99,541 - - - - - - - 7,303,270 (836,843) 99,541 749,571 BALANCE AT 30 JUNE 2017 47,810,512 1,506,681 233,442 388,367 (42,731,212) 7,207,790 The above Consolidated Statement of Changes in Equity should be read in conjunction with the Notes to the Consolidated Financial Statements. 14 Consolidated Statement of Cash Flows Vital Metals Limited YEAR ENDED 30 JUNE 2017 Notes Consolidated CASH FLOWS FROM OPERATING ACTIVITIES Payments for exploration and evaluation costs Payments to suppliers and employees Interest received Other receipts NET CASH (OUTFLOW) FROM OPERATING ACTIVITIES 22 CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment Proceeds on disposal of property, plant and equipment Proceeds from earn-in partner Proceeds from R&D incentive claim Payments for exploration expenditure NET CASH INFLOW / (OUTFLOW) FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Interest paid Repayment of loan Proceeds from issue of options Proceeds from issue of shares Payment of capital raising costs NET CASH INFLOW/(OUTFLOW) FROM FINANCING ACTIVITIES NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 7 2017 $ (2,455,891) (674,708) 12,050 2,727 (3,115,822) - - - - (570,905) (570,905) (256,831) (1,000,000) 2,500 6,663,271 (435,751) 4,973,189 1,286,462 1,388,368 - 2,674,830 2016 $ (92,211) (576,023) 11,211 16,722 (640,301) - 40,000 138,966 605,908 (643,821) 141,053 (272,865) (45,000) - 1,900,109 (107,690) 1,474,554 975,306 413,062 - 1,388,368 The above Consolidated Statement of Cash Flows should be read in conjunction with the Notes to the Consolidated Financial Statements. 15 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Vital Metals Limited and its subsidiaries. The financial statements are presented in Australian dollars. Vital Metals Limited is a company limited by shares, domiciled and incorporated in Australia. The financial statements were authorised for issue by the directors on 26 September 2017. The Directors have the power to amend and reissue the financial statements. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Vital Metals Limited is a for-profit entity for the purpose of preparing the financial statements. (i) Compliance with IFRS The consolidated financial statements of the Vital Metals Limited Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (ii) New accounting standards and interpretations New, revised or amended Accounting Standards and Interpretations adopted by the Group A number of new or amended standards became applicable for the current reporting period. The adoption of these Accounting standards however, did not have any significant impact on the financial performance or position of the Group. Any new, revised and amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Standards issued but not yet effective A number of new standards, amendment of standards and interpretations have recently been issued but are not yet effective and have not been adopted by the Group as at the financial reporting date. The Group has reviewed these standards and interpretations, and with the exception of the items listed below for which the final impact is yet to be determined, none of the new or amended standards will significantly affect the Group’s accounting policies, financial position or performance. Summary Application date of standard * 1 January 2018 Application date for Group * 1 July 2018 1 January 2018 1 July 2018 Reference and title AASB 9 Financial Instruments AASB 15 Revenue from Contracts with Customers AASB 9 (December 2014) is a new Principal standard which replaces AASB 139. This new Principal version supersedes AASB 9 issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. AASB 15 provides a single, principles-based five-step model to be applied to all contracts with customers. Guidance is provided on topics such as the point at which revenue is recognised, accounting for variable consideration, costs of fulfilling and obtaining a contract and various related matters. New disclosures regarding revenue are also introduced. Based on an initial impact assessment, the new standard is 16 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1 January 2019 1 July 2019 AASB 16 Leases not expected to significantly impact revenue recognition. This Standard introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of- use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. * Designates the beginning of the applicable annual reporting period (iii) Early adoption of standards The Group has not elected to apply any pronouncements before their operative date in the annual reporting period beginning 1 July 2015. (iv) Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, which have been measured at fair value. (b) Going Concern The financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business. (c) Principles of consolidation Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Vital Metals Limited (“Company” or “parent entity”) as at 30 June 2017 and the results of all subsidiaries for the year then ended. Vital Metals Ltd and its subsidiaries together are referred to in these financial statements as the Group or the consolidated entity. Subsidiaries are all entities (including special purpose entities) over which the Group has control. The Group controls an entity when it is exposed to, or has the right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (d) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the full Board of Directors. The Group has identified two reportable segments being exploration activities undertaken in Australia and Burkina Faso. These segments include the activities associated with the determination and assessment of the existence of commercially economic reserves, from the Group’s mineral assets in these geographic locations. Segment performance is evaluated based on the operating profit or loss or cash flows and is measured in accordance with the Group’s accounting policies. (e) Foreign currency translation (i) Functional and presentation currency The consolidated financial statements are presented in Australian dollars, which is Vital Metals Limited's functional and presentation currency. 17 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities, denominated in foreign currencies, are recognised in profit or loss. (iii) Foreign operations The assets and liabilities of foreign operations are translated to the functional currency as 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 difference are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. On consolidation, exchange differences arising from the translation of any net investment in foreign entities are recognised in other comprehensive income. 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 a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented in the translation reserve in equity. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale. (f) Finance income Finance income comprises interest income earned on funds invested in bank accounts and call deposits. Interest is recognised on an accruals basis in the statement of profit or loss and other comprehensive income, using the effective interest method. (g) Income tax The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. Tax consolidation The Company and its wholly-owned Australian resident entities have formed a tax-consolidated Group with effect from 3 October 2005 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Vital Metals Limited. The controlled entities have been fully compensated for all deferred tax assets and liabilities transferred to Vital Metals Limited on the date of forming a tax consolidated group. The entities have also entered into a tax sharing and compensation agreement where the wholly owned entities reimburse Vital Metals Limited for any current income tax payable or receivable by Vital Metals Limited in respect of their activities. The group has decided to use the “separate taxpayer within group” approach in accordance with UIG 1052 to account for the current and deferred tax amounts amongst the entities within the consolidated group. (h) Leases Leases where a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases (note 20). Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. 18 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (i) Impairment of assets Assets, except for deferred tax assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. (j) Financial assets Non-derivative financial assets The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group has the following non-derivative financial assets: loans and receivables and financial assets available-for-sale. Financial assets available-for-sale Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale and that are not classified in any of the previous categories of financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein are recognised in other comprehensive income and presented within equity in the fair value reserve in equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. Available-for-sale financial assets comprise equity securities. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprise cash and cash equivalents and other receivables. Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Non-derivative financial liabilities The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group has the following non-derivative financial liabilities: trade and other payables. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest rate method. (k) Property, plant and equipment All property, plant and equipment is stated at historical cost less depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to the statement of profit or loss and other comprehensive income during the reporting period in which they are incurred. Depreciation of property, plant and equipment is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives. The rate of depreciation for buildings is 10% and for plant and equipment and office equipment the rates vary between 5% and 33.3% per annum. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(i)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement of profit or loss and other comprehensive income. 19 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (l) Exploration and evaluation expenditure The Group applies the most appropriate accounting policy for exploration and evaluation expenditure incurred for each area of interest. From 1 July 2016, the Group has changed its accounting policy for exploration and evaluation expenditure incurred on the Burkina Faso area of interest from capitalising to expensing. This change in accounting policy has been applied retrospectively from the earliest presented reporting period. The result of this retrospective application is no change to the Statement of Profit or Loss and Other Comprehensive Income and no change to the Statement of Financial Position for the comparative periods presented. This change in accounting policy for the Burkina Faso area of interest has been made as the directors believe it provides more relevant and reliable information for the users of the financial report. Exploration and evaluation expenditure for the Australian area of interest continue to be capitalised as follows: Exploration for and evaluation of mineral resources is the search for mineral resources after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial viability of extracting the mineral resource. Accordingly, exploration and evaluation expenditures are those expenditures incurred by the Company in connection with the exploration for and evaluation of minerals resources before the technical feasibility and commercial viability of extracting mineral resources are demonstrable. Accounting for exploration and evaluation expenditures is assessed separately for each ‘area of interest’. An ‘area of interest’ is an individual geological area which is considered to constitute a favourable environment for the presence of a mineral deposit or has been proved to contain such a deposit. Expenditure incurred on activities that precede exploration and evaluation of mineral resources, including all expenditure incurred prior to securing legal rights to explore an area, is expensed as incurred. For each area of interest the expenditure is recognised as an exploration and evaluation asset where the following conditions are satisfied: a) The rights to tenure of the area of interest are current; and b) At least one of the following conditions is also met: i. The expenditure is expected to be recouped through successful development and commercial exploitation of an area of interest, or alternatively by its sale; and ii. Exploration and evaluation activities in the area of interest have not, at reporting 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 in relation to, the area of interest are continuing. Economically recoverable reserves are the estimated quantity of product in an area of interest that can be expected to be profitably extracted, processed and sold under current and foreseeable conditions. Exploration and evaluation assets include: • Acquisition of rights to explore; • Topographical, geological, geochemical and geophysical studies; • Exploratory drilling, trenching, and sampling; and • Activities in relation to evaluating the technical feasibility and commercial viability of extracting the mineral resource. General and administrative costs are allocated to, and included in, the cost of exploration and evaluation assets only to the extent that those costs can be related directly to the operational activities in the area of interest to which the exploration and evaluation assets relate. In all other instances, these costs are expensed as incurred. Government grants received in relation to exploration and evaluation expenditure are recorded as a deduction in the carrying value of the asset. Exploration and evaluation expenditure is not depreciated as it is not yet ready for use. Impairment testing of exploration and evaluation expenditure Exploration and evaluation expenditure is assessed for impairment if sufficient data exists to determine technical feasibility and commercial viability or facts and circumstances suggest that the carrying amount exceeds the recoverable amount. Exploration and evaluation expenditure is tested for impairment when any of the following facts and circumstances exist: • The term of exploration licence in the specific area of interest has expired during the reporting period or will expire in the near future, and is not expected to be renewed; • Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area are not budgeted nor planned; • Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the decision was made to discontinue such activities in the specified area; or • Sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. Where a potential impairment is indicated, an assessment is performed for each cash generating unit that is no larger than the area of interest. The Group performs impairment testing in accordance with accounting policy note 1(i). 20 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (m) Employee benefits (i) Annual leave and long service leave Liabilities for annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. (ii) Share-based payments The Group provides benefits to employees (including directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’) - refer to note 27. The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an internal valuation using an appropriate option pricing model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of options that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at reporting date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award. (n) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Site Restoration In accordance with the Group’s environmental policy and applicable legal requirements, a provision for site restoration is recognised in respect of the estimated cost of rehabilitation, decommissioning and restoration of the area disturbed during exploration activities up to reporting date, but not yet rehabilitated. Such activities include dismantling infrastructure, removal and treatment of waste material, and land rehabilitation, including re-contouring, topsoiling and revegetation of the disturbed area. The amount recognised as a liability represents the estimated future costs discounted to present value at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost in the income statement. A corresponding asset is recognised in Property, Plant and Equipment only to the extent that it is probable that future economic benefits associated with the rehabilitation, decommissioning and restoration expenditure will flow to the entity. Costs arising from unforeseen circumstances, such as contamination from discharge of a toxic material, are recognised as a provision with a corresponding expense recognised in the income statement when an obligation, which is probable and capable of reliable estimation, arises. At each reporting date the site restoration provision is re-measured to reflect any changes in discount rates and timing or amounts of the costs to be incurred. Such changes in the estimated liability are accounted for prospectively from the date of the change and are added to, or deducted from, the related asset where it is probable that future economic benefits will flow to the entity. 21 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (o) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of the loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. The fair value of the liability portion of a convertible bond is determined using a market interest rate for an equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option and recognised in shareholders’ equity, net of tax effects. Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. (p) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. (q) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders of the company by the weighted average number of ordinary shares outstanding during the financial year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (r) Goods and Services Tax (GST) and Value Added Tax (VAT) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the Statement of Financial Position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the respective taxation authorities, are presented as operating cash flows. (s) Amendments to AASBs and the new Interpretation that are mandatorily effective for the current reporting period The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current year. New and revised Standards and amendments thereof and Interpretations effective for the current year that are relevant to the Consolidated Entity do not have any material impact on the disclosures or the amounts recognised in the Company’s financial statements. (t) Critical accounting estimates and judgements The preparation of these financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are: Estimates and assumptions Exploration and evaluation assets Determining the recoverability of exploration and evaluation expenditure capitalised in accordance with the Group’s accounting policy (refer Note 1(l)), requires estimates and assumptions as to future events and circumstances, in particular, whether successful development and commercial exploitation, or alternatively sale, of the respective areas of interest will be achieved. Critical to this assessment are estimates and assumptions as to the timing of expected cash flows, exchange rates, commodity prices and future capital requirements. Changes in these estimates and assumptions as new information about the presence or recoverability of an ore reserve becomes available, may impact the assessment of the recoverable amount of exploration and evaluation assets. If, after having capitalised the expenditure under accounting policy 1(l), a judgement is made that recovery of the expenditure is unlikely, an impairment 22 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES loss is recorded in the income statement in accordance with accounting policy 1(i). The carrying amounts of exploration and evaluation assets are set out in Note 10. Site Restoration liability Determining the cost of rehabilitation, decommissioning and restoration of the area disturbed during exploration activities in accordance with the Group’s accounting policy, requires the use of significant estimates and assumptions, including: the timing of the cash flows and expected life of the relevant area of interest, the application of relevant environmental legislation, and the future expected costs of rehabilitation, decommissioning and restoration. Changes in the estimates and assumptions used to determine the cost of rehabilitation, decommissioning and restoration could have a material impact on the carrying value of the site restoration provision. The provision recognised for each site is reviewed at each reporting date and updated based on the facts and circumstances available at the time. The carrying amount of the provision for site restoration is set out in Note 14. Share-based payment transactions The fair value of employee share options is measured using a binomial option valuation model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. Compound financial instruments Compound financial instruments issued by the Group comprise convertible facility that can be converted to ordinary shares at the option of the holder, when the number of shares to be issued is fixed. The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition. Interest related to the financial liability I recognised in the statement of profit or loss and other comprehensive income. On conversion the financial liability is reclassified to equity and no gain or loss is recognised. 23 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 2. FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Risk management is carried out by the full Board of Directors as the Group believes that it is crucial for all board members to be involved in this process. The Managing Director, with the assistance of senior management as required, has responsibility for identifying, assessing, treating and monitoring risks and reporting to the board on risk management. (a) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Consolidated Entity’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The Group is exposed to fluctuations in foreign exchange rates of the CFA Franc in relation to its activities in Burkina Faso. The group maintains minimal working capital in Burkina Faso and only transfers cash funds as required, as such the Statement of Financial Position exposure at any point in time is not significant. Foreign exchange risk will also arise from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the entity’s functional currency and net investments in foreign operations. The Group is also exposed to fluctuations in interest rates in relation to its cash deposits and commodity prices in relation to the carrying value of its exploration and evaluation assets. The Group monitors all of the above-mentioned risks and takes action as required. The Group’s exposure to interest rate risk, and the effective weighted average interest rate for each class of financial asset and financial liability is set out below. Weighted Average Interest Rate % Variable Interest Rate $ Fixed Interest Rate $ Non-Interest Bearing $ Total $ 2017 Financial Assets Cash and cash equivalents Trade and other receivables Financial Liabilities Trade and other payables Borrowings Net financial liabilities 2016 Financial Assets Cash and cash equivalents Trade and other receivables Financial Liabilities Trade and other payables Borrowings 0.8 9.05 0.8 9.05 2,674,830 - 2,674,830 - 1,308,223 1,308,223 1,366,607 1,388,368 - 1,388,368 - 3,000,000 3,000,000 (1,611,632) - - - - - - - - - - - - - - - 69,495 69,495 1,396,661 - - (1,327,166) 2,674,830 69,495 2,744,325 1,396,661 1,308,223 2,704,884 39,441 - 46,412 46,412 1,388,368 46,412 1,434,780 191,447 - 191,447 (145,035) 191,447 3,000,000 3,191,447 (1,756,667) At 30 June 2017, if interest rates had changed by -/+ 25 basis points from the weighted average rate for the period with all other variables held constant, post-tax loss for the Group would have been $6,685 higher/lower (2016: -/+ 25 basis points, $4,029 higher/lower) as a result of lower/higher interest income from cash and cash equivalents. (b) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group’s exposure to credit risk is low and limited to cash and cash equivalents and other receivables. The majority of cash and cash equivalents $2,674,830 at 30 June 2017 ($1,388,368 at 30 June 2016) are held with financial institutions that have a AA- credit rating (Standard & Poor’s). The majority of the receivables relate to amounts owing by project partners. The maximum exposures to credit risk are the amounts as shown in the Statement of Financial Position. 24 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 FINANCIAL RISK MANAGEMENT (cont’d) 2. (c) Liquidity risk The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and ensuring sufficient cash and marketable securities are available to meet the current and future commitments of the Group. Due to the nature of the Group’s activities, being mineral exploration, the Group has limited access to credit facilities, with the primary source of funding being equity raisings. The Board of Directors constantly monitor the state of equity markets in conjunction with the Group’s current and future funding requirements, with a view to initiating appropriate capital raisings as required. The financial liabilities of the Group are confined to borrowings (being a convertible loan facility) and trade and other payables as disclosed in the statement of financial position. All trade and other payables are due within 12 months of the reporting date. The convertible loan facility is due for repayment on 31 December 2018. It is the Directors’ view that the terms of this convertible loan facility will likely be re-negotiated and extended. An alternative would be for the financier to exercise their 86.1 million share options at an exercise price of 1.625 cents and extinguish the debt. The following are the contractual maturities of trade and other payables: 2017 Non-derivative financial liabilities Trade and other payables Borrowings 2016 Non-derivative financial liabilities Trade and other payables Borrowings Carrying Amount $ Contractual Cash Flow $ 6 Months or Less $ 6 – 12 Months $ 1 – 2 Years $ 1,396,661 1,308,223 2,704,884 1,396,661 1,308,223 2,704,884 1,396,661 - 1,396,661 191,447 3,000,000 3,191,447 191,447 3,270,750 3,462,197 191,447 3,270,750 3,462,197 - - - - - - - 1,308,223 1,308,223 - - - (d) Accounting classification of Fair Values The carrying amounts of all financial assets and liabilities approximate their respective net fair values at reporting date. Fair value estimation Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. Trade and other receivables Fair value, which is determined for disclosure purposes, is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. Trade and other payables Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. Borrowings Fair value, which is determined for disclosure purposes, at the time of for establishing the financial liability and based on the present value of the remaining cash flows, discounted at the assessed weighted average cost of capital. 25 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 SEGMENT INFORMATION 3. The consolidated entity has two reportable segments being mineral exploration and prospecting for minerals in Australia and Burkina Faso. Further segment reporting information is provided in Note 1(d). Australia Burkina Faso 2017 $ 2016 $ 2017 $ 2016 $ Consolidated Total 2016 2017 $ $ Segment income 2,727 56,722 - - 2,727 56,722 Reconciliation of segment income to total revenue before tax: Interest revenue Total revenue Segment loss Reconciliation of segment loss to net loss before tax: Depreciation Personell expenses Finance expense Other corporate and administration Net loss before tax - - (3,675,059) (92,211) (3,675,059) (92,211) 12,040 14,767 11,211 67,933 (7,522) (676,293) (264,595) (337,958) (3,961) (136,796) (451,766) (539,241) (4,961,426) (1,156,042) Segment operating assets 7,606,733 7,070,565 43,830 22,510 7,650,563 7,093,075 Reconciliation of segment operating assets to total assets: Cash and cash equivalents (head office) Receivables (head office) Property, plant & equipment (head office) Total assets 2,640,294 60,201 5,394 1,365,858 16,500 7,143 10,356,452 8,482,576 Segment operating liabilties 463,062 474,459 1,241,175 23,357 1,704,237 497,816 Reconciliation of segment operating liabilities to total liabilities: Payables and provisions (head office) Borrowings (head office) Total liabilities 4. NET FINANCIAL INCOME Interest income Interest expense Facility & establishment fees 136,202 1,308,223 122,158 3,000,000 3,148,662 3,619,974 Consolidated 2017 $ 12,050 264,595 - 264,595 2016 $ 11,211 406,766 45,000 451,766 Net finance income/(expense) (252,545) (440,555) 26 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 Consolidated 2017 $ 2016 $ 35,038 426,185 3,035 4,846 2,173 (2,532) 7,522 362,351 30,550 - 343,478 (158,044) 578,335 - - - - (4,961,426) (1,364,392) 116,211 1,248,181 - - - 38,384 36,865 9,039 11,614 2,725 (19,417) 3,961 398,755 31,225 462 29,664 (323,310) 136,796 - - - - (1,156,042) (329,472) 9,984 319,488 - - - EXPENSES 5. The following significant expense items not separately highlighted in the Statement of Profit or Loss and Other Comprehensive Income are relevant in explaining the financial performance: Operating lease expense Share-based payments – consulting / director fees (refer also note 24) Depreciation of non-current assets in administration expenses Buildings Plant and equipment Furniture and equipment Less transfer to capitalised exploration and evaluation expenditure Total depreciation Personnel expenses Wages and salaries Contributions to defined contribution superannuation funds Other associated personnel expenses Equity settled share based payment transactions Less transfer to capitalised exploration and evaluation expenditure Total personnel expenses 6. INCOME TAX (a) The major components of income tax are: Statement of Profit or Loss and Other Comprehensive Income Current income tax Current income tax benefit Deferred income tax Relating to origination and reversal of temporary differences Unused tax losses not recognised as deferred tax asset Income tax benefit reported in the Statement of Profit or Loss and Other Comprehensive Income The aggregate amount of income tax attributable to the financial period differs from the amount calculated on the operating loss. The differences are: Accounting loss Prima facie tax benefit at the Australian tax rate of 28.5% (2016: 28.5%) Add tax effect of: Non-deductible items Tax losses not brought to account R&D expenditure used for tax offset Less tax effect of: R&D tax offset Income tax benefit (b) Deferred income tax Statement of Financial Position Deferred income tax at 30 June relates to the following: Deferred tax liabilities Property, plant and equipment – depreciation Exploration expenses Set-off against tax assets 6,303 1,237,961 (1,244,264) - 3,299 1,120,331 (1,123,630) - 27 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 6. INCOME TAX (cont’d) Deferred tax assets Tax value of losses carried forward Set-off of deferred tax liability Accrued expenses Provisions Other prepayments/capital expenditure Non-recognition of deferred tax assets Consolidated 2017 $ 2016 $ 9,385,527 (1,244,265) 12,907 122,039 131,879 (8,408,087) - 9,280,662 (1,123,630) 8,978 122,130 91,123 (8,379,263) - (c) Tax losses At 30 June 2017, the Consolidated Entity has $34,129,189 (2016: $32,563,727) of taxable losses that are available for offset against future taxable profits of the consolidated entity, subject to the loss recoupment requirements in the Income Tax Assessment Act 1997. No deferred tax asset has been recognised in the Statement of Financial Position in respect of the amount of these losses, as it is not presently probable that future taxable profits will be available against which the company can utilise the benefit. Unrecognised deferred tax assets Tax losses – revenue (at 28.5% for 2017 30% for 2016) 9,385,527 9,280,662 (d) Tax consolidation legislation Vital Metals Ltd and its controlled entities implemented the tax consolidations legislation as of 4 October 2005. The Australian Tax Office was notified of this decision on lodgement of the 2006 income tax return. 7. CURRENT ASSETS - CASH AND CASH EQUIVALENTS Cash at bank and on hand Short-term deposits Cash and cash equivalents as shown in the statement of financial position and the statement of cash flows Refer to note 2 for the Group’s exposure to interest rate risk and credit risk. 8. NON-CURRENT ASSETS – EXPLORATION & EVALUATION EXPENDITURE Exploration and evaluation expenditure Costs carried forward in respect of areas of interest in the exploration and evaluation phases: Opening net book amount Exploration expenditure Exploration expenditure – expensed Partner contributions R&D tax incentive claim Closing net book amount The closing balances relate to the following areas of interest: Watershed Tungsten Project, Queensland Doulnia Gold Project, Burkina Faso 28 2,656,080 18,750 1,369,618 18,750 2,674,830 1,388,368 Consolidated 2017 $ 2016 $ 7,017,417 4,297,556 (3,622,109) - (104,542) 7,588,322 7,093,240 761,262 (92,211) (138,966) (605,908) 7,017,417 7,588,322 - 7,588,322 7,017,417 - 7,017,417 6,294,658 2,279,716 8,574,374 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 8. NON-CURRENT ASSETS – EXPLORATION & EVALUATION EXPENDITURE (cont’d) The recoverability of the carrying amounts of exploration and evaluation assets is dependent on the successful development and commercial exploitation or sale of the respective area of interest. The Group undertakes at least on an annual basis a comprehensive review for indicators of impairment of these assets. There is significant estimation in determining the inputs and assumptions used in determining the recoverable amounts. The key areas requiring estimation and assumptions may include: recent drill results and reserves and resource estimates; fundamentals and economic factors such as commodity prices; exchange rates and current and anticipated operating costs in the industry; and the Group's market capitalisation compared to its net assets and independent valuations that may be available. Watershed Tungsten Project The Group holds 100% of the Watershed Project. At this stage of the project’s development a rehabilitation provision of $400,000 has been provided to allow for the disturbance to the environment to date. Doulnia Gold Project The Doulnia Gold Project Group is located in southern Burkina Faso, West Africa. On 18 July 2013 the Group entered into an agreement to acquire the 30% minority interest in two permits included in the Doulnia Gold Project from its joint venture partner, Ampella Mining, in exchange for a royalty. The Group owns 100% of all permits that comprise the Doulnia Gold Project. The exploration and evaluation expenditure is expensed as incurred. 9. CURRENT LIABILITIES - TRADE AND OTHER PAYABLES Trade creditors and accruals Carrying value is considered to approximate fair value. Refer to note 2 for the Group’s interest rate and liquidity risk. 10. NON-CURRENT LIABILITIES – BORROWINGS Bank facility at amortised cost Consolidated 2017 $ 2016 $ 1,396,661 191,447 1,308,223 3,000,000 The Group renewed the $3 million debt facility on 4 July 2016 to 30 June 2017. In accordance with the terms of the amended facility, Macquarie was previously issued with 68,181,818 options with an exercise price of 4.4 cents which expired on 30 June 2017, which if exercised would have extinguished the debt. Macquarie had the option to exercise all or part of the options during the term of the facility. On 31st May 2017, the Group partly repaid the $3 million debt facility with Macquarie Bank Limited by $1 million cash and 48,000,000 shares in the Company to the value of $600,000 leaving a balance of $1.4 million. In accordance with the terms of the amended facility Macquarie was issued with 86,153,846 options with an exercise price of 1.625 cents and expiring on 31 December 2018, which if exercised will extinguish the debt. Macquarie has the option to exercise all or part of the options during the term of the facility. The loan facility is repayable by 31 December 2018 with an interest rate of 7% over the bank bill swap rate. As a result of the amendment, an equity element was recognised during the year for the revised conversion option of the loan. The debt component was fair valued first using the market interest rate and the residual is recognised as equity (being the conversion option). The facility is secured by a general security over all of the assets of Vital Metals Limited and its subsidiary, North Queensland Tungsten Pty Ltd. Total assets pledged as security as at 30 June 2017: $10,353,702. A gross revenue royalty of 1.5% on production from the Watershed Tungsten Project is payable to Macquarie Bank Limited. Accounting standards require the separate recognition of the debt and equity components of the Convertible Loan Facility. At the date of recognition of the new convertible note, the debt and equity components of the facility were separated according to their fair values. The liability component is subsequently recorded at amortised cost. The liability for the 1.5% royalty has been assessed as being valued at nil at both 4 July and balance date due to the early stage of the project and there is no present obligation to pay the royalty at balance date. 11. NON-CURRENT LIABILITIES – PROVISIONS Site Restoration Provision Opening balance Additional provision charged to profit or loss Closing balance 400,000 - 400,000 400,000 - 400,000 29 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 12. CONTRIBUTED EQUITY (a) Share capital 2017 2016 Notes Number of shares $ Number of shares $ Ordinary shares fully paid 12(b), 12(d) 1,055,751,226 48,211,606 481,070,861 41,344,085 Total contributed equity 1,055,751,226 48,211,606 481,070,861 41,344,085 (b) Movements in ordinary share capital Beginning of the financial year Issued during the year: - - - - - - - - - - - - - - - - - Less: transaction costs Rights issue 6 Oct 2015 Rights issue shortfall 15 Oct 2015 Rights issue shortfall 5 Nov 2015 Placement 5 Nov 2015 (share based payment) Placement 5 Nov 2015 (share based payment) Placement 8 Feb 2016 (share based payment) Placement 29 March 2016 (share based payment) Placement 12 May 2016 Rights issue Rights issue shortfall 7 July 2016 Placement 26 July 2016 Placement 17 August 2016 Placement 30 November 2016 Placement 27 March 2017 Placement 9 May 2017 Placement 12 May 2017 Placement 12 May 2017 (debt settlement) 481,070,861 41,344,085 316,239,457 39,514,801 21,821,604 1,075,000 500,000 168,055 1,993,193 4,039,267 782,750 72,718,064 61,733,471 392,789 19,350 9,000 3,025 25,912 75,232 8,610 799,899 679,068 - (183,602) 43,100,877 1,132,821 68,446,667 2,000,000 140,000,000 260,000,000 12,000,000 48,000,000 - 474,109 12,461 1,026,700 40,000 1,750,000 3,250,000 150,000 600,000 (836,843) End of the financial year 1,055,751,226 47,810,512 481,070,861 41,344,085 (c) Movements in options on issue Beginning of the financial year Issued during the year:  Exercisable at 4.2 cents on or before 26 Nov 2016  Exercisable at 4 cents on or before 24 Nov 2017  Exercisable at 5.1 cents on or before 30 Jun 2017  Exercisable at 2.7 cents on or before 25 Nov 2018  Exercisable at 1.625 cents on or before 31 Dec 2018  Exercisable at 2 cents on or before 30 April 2021  Exercisable at 2.3 cents on or before 30 April 2021 Expired/cancelled during the year:  Exercisable at 5.1 cents on or before 30 Jun 2016  Exercisable at 5.9 cents on or before 25 Nov 2015  Exercisable at 5.3 cents on or before 31 March 2016  Exercisable at 5.1 cents on or before 30 June 2017 End of the financial year Number of options 2016 2017 91,083,640 79,710,114 (13,214,689) - - 14,096,763 86,153,846 50,000,000 27,000,000 - 9,687,133 68,181,818 - - - - - - - (68,181,818) 186,937,742 (58,823,529) (7,087,104) (584,792) - 91,083,640 (d) Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number 30 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. (e) Capital risk management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future developments of the business. The Board’s focus has been to raise sufficient funds through equity (via rights issues and placements) to fund exploration and evaluation activities. There were no changes in the Group’s approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. Management also monitor capital through the gearing ratio (net debt/total capital). Current gearing ratios are considered acceptable. The gearing ratio at 30 June 2017 is shown below: Total borrowings Less: cash and cash equivalents (Note 7) Net debt Total equity Total capital Gearing ratio 13. RESERVES Consolidated 2017 $ 1,308,223 (2,674,830) (1,366,607) 7,207,790 5,841,183 2016 $ 3,000,000 (1,388,368) 1,611,632 4,862,602 6,474,234 (23.4)% 24.9% 6,294,658 (i) Share based payment reserve The share-based payments reserve is used to recognise the fair value of options issued. Refer to note 24 for details. (ii) Convertible note reserve The convertible note reserve is used to recognise the fair value of the equity component of the convertible loan facility as described in Note 10. (ii) Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entities are taken to the foreign currency translation reserve, as described in note 1(e). The reserve is recognised in profit or loss when the net investment is disposed of. 14. DIVIDENDS No dividends were paid during the financial year. No recommendation for payment of dividends has been made. 15. KEY MANAGEMENT PERSONNEL DISCLOSURES Consolidated Key management personnel compensation Short-term benefits Post employment benefits Share-based payments 2017 $ 377,328 25,537 380,479 783,444 2016 $ 309,634 22,036 24,999 356,669 Other disclosures regarding key management personnel are made in the remuneration report on pages 5 to 9. 16. REMUNERATION OF AUDITORS Remuneration of the auditor of the parent entity for: Audit and review of financial reports 31 Consolidated 2017 $ 2016 $ 37,795 30,520 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 No non-audit services were performed during 2017 or 2016. 17. COMMITMENTS (a) Exploration commitments The Group has certain minimum obligations in pursuance of the terms and conditions of tenement licences in the forthcoming year. Whilst these obligations are capable of being varied from time to time, in order to maintain current rights of tenure to mining tenements, the Group will be required to outlay amounts of approximately $678,972 (2016: $458,945). These obligations are expected to be fulfilled in the normal course of operations. Consolidated 2017 $ 2016 $ 22,786 - 22,786 22,786 - 22,786 (b) Lease commitments: Group as lessee Operating leases (non-cancellable): Minimum lease payments within one year later than one year but not later than five years Aggregate lease expenditure contracted for at reporting date but not recognised as liabilities 18. RELATED PARTY TRANSACTIONS (a) Parent entity The ultimate parent entity within the Group is Vital Metals Limited. (b) Subsidiaries Interests in subsidiaries are set out in note 19. (c) Key management personnel Disclosures relating to key management personnel are set out in note 15. (d) Loans to related parties Vital Metals Ltd has provided unsecured, interest free loans to each of its wholly owned subsidiaries totalling $27,627,926 at 30 June 2017 (2016: $24,560,832). An impairment assessment is undertaken each financial year by examining the financial position of the subsidiary and the market in which the subsidiary operates to determine whether there is objective evidence that the subsidiary is impaired. When such objective evidence exists, the Company recognises an allowance for the impairment loss. The Company has recognised cumulative impairment losses of $23,769,304 at 30 June 2017 (2016: $21,260,619). 19. SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(c): Name Country of Incorporation Equity Holding(1) Class of Shares Ordinary North Queensland Tungsten Pty Ltd Vital Metals Burkina Sarl Ordinary (1) The proportion of ownership interest is equal to the proportion of voting power held. Australia Burkina Faso 2017 % 100 100 2016 % 100 100 20. CONTINGENCIES Performance bonds totalling $24,500 (2016: $24,500) have been granted in favour of the Department of Natural Resources and Mines. There were no other contingencies. 21. EVENTS OCCURRING AFTER THE REPORTING DATE On 15 September 2017, the Group announced completion of a capital raising by way of a placement of 263,937,807 ordinary shares at $0.0075 to raise $1,979,534. Otherwise, there were no significant events after the reporting date. 32 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 22. STATEMENT OF CASH FLOWS Reconciliation of net loss after income tax to net cash outflow from operating activities Net loss for the year Non-Cash Items Depreciation of non-current assets Non-cash finance expense on loan facility Share based payments Shares issued in lieu of Director Fees Foreign exchange differences Other Adjustments Borrowing costs included as a cash flow from financing activities Interest paid included as a cash flow from financing activities Loss/(Profit) on sale of non-current assets Change in operating assets and liabilities, net of effects from purchase of controlled entities Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables (Decrease)/increase in provisions Net cash outflow from operating activities Consolidated 2017 $ 2016 $ (4,961,426) (1,156,042) 7,522 7,764 343,477 40,000 (8,925) - 256,831 - (23,084) 1,206,768 15,251 (3,115,822) 23,377 133,901 41,299 - 4,605 45,000 272,865 (40,000) 5,929 44,970 (16,205) (640,301) There were no non cash investing during the year (2016: Nil). Non cash financing activities of $600,000 (refer note 10) occurred during the year (2016: $75,912). 23. LOSS PER SHARE (a) Reconciliation of earnings used in calculating loss per share Loss attributable to the owners of the Company used in calculating basic and diluted loss per share (b) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic and diluted loss per share. (4,961,426) (1,156,042) Number of shares Number of shares 606,394,094 371,421,124 (c) Information on the classification of options As the Group has made a loss for the year ended 30 June 2017, all options on issue are considered antidilutive and have not been included in the calculation of diluted earnings per share. These options could potentially dilute basic earnings per share in the future. 24. SHARE-BASED PAYMENTS (a) Broker options 50 million options were issued to brokers as part of capital raising. The terms and conditions relating to the grants of the broker options are as follows, with all options to be settled by physical delivery of shares: Grant Date 12 May 2017 Expiry Date 30 April 2021 Exercise Price $0.02 33 Number Outstanding at Year End 2017 50,000,000 50,000,000 2016 - - Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 The weighted average fair value of options granted during 2017 was 0.8 cents (2016: Nil). The value of the options has been recognised as a capital raising expense. The price was calculated by using a Black Scholes model applying the following inputs. 2017 2016 Weighted average exercise price (cents) Weighted average life of the option (years) Weighted average underlying share price (cents) Expected share price volatility Weighted average risk free interest rate Historical volatility has been used as the basis for determining expected share price volatility as it assumed that this is indicative of future trends, which may not eventuate. The fair value and grant date of the options is based on historical exercise patterns, which may not eventuate in the future. 2.0 4 1.3 100% 1.95% - - - - - (b) Employee Share Option Plan The Vital Metals Limited Share Option Plan was approved in April 2005. The issue to each individual Employee, Key Employee or Director is controlled by virtue of the provisions of both the Share Plan and the Australian Stock Exchange Limited Listing Rules. Under the Share Scheme the number of shares an eligible person will be entitled to receive each year will be determined by the Board of Directors in their sole discretion. Employees, key employees and Directors are entitled to take up ordinary shares at a cost determined by the Board with regard to the market value of the shares when the Board resolves to offer the Option. The terms and conditions relating to the grants of the share option plan are as follows, with all options to be settled by physical delivery of shares: Grant Date 3 December 2014 11 December 2015 25 November 2016 23 March 2017 Expiry Date 26 November 2016 24 November 2017 25 November 2018 30 April 2021 Exercise Price $0.042 $0.040 $0.27 $0.23 Number Outstanding at Year End 2017 - 9,687,133 14,096,763 27,000,000 50,783,896 2016 13,214,689 9,687,133 - - 22,901,822 Set out below are summaries of the options granted: Outstanding at the beginning of the year Granted Forfeited/cancelled Exercised Expired Outstanding at year-end Exercisable at year-end Consolidated 2017 2016 Weighted average exercise price cents 4.12 2.44 - - 4.2 2.74 2.74 Weighted average exercise price cents 4.78 4.0 - - 5.85 4.12 4.12 Number of options 20,886,585 9,687,133 - - (7,671,896) 22,901,822 22,901,822 Number of options 22,901,822 41,096,763 - - (13,214,689) 50,783,896 50,783,896 The weighted average remaining contractual life of share options outstanding at the end of the financial year was 2.51 years (2016: 0.83 years), and the exercise price ranges from 2.3 to 4.2 cents. There were no share options exercised in 2017 or 2016. The weighted average fair value of options granted during 2017 was 0.9 cents (2016: 0.34 cents). 34 Notes to the Consolidated Financial Statements continued Vital Metals Limited 30 JUNE 2017 The price was calculated by using a Black Scholes model applying the following inputs. 2017 2016 Weighted average exercise price (cents) Weighted average life of the option (years) Weighted average underlying share price (cents) Expected share price volatility Weighted average risk free interest rate Historical volatility has been used as the basis for determining expected share price volatility as it assumed that this is indicative of future trends, which may not eventuate. The fair value and grant date of the options is based on historical exercise patterns, which may not eventuate in the future. 2.43 2.5 2 100% 1.95% 4.0 2 1.2 100% 2.66% (b) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period were as follows: Consolidated Options issued to employees/directors Options issued to Macquarie Bank in lieu of facility fee Shares issued for consulting services (valued based on services provided) Shares issued for capital raising (value based on options value) Shares issued for capital raising costs (valued based on services provided) Shares issued for capitalised exploration (valued based on services provided) 2017 $ 343,478 - - 343,478 401,093 - - 2016 $ 29,664 - 11,635 41,299 - 75,912 25,230 25. PARENT ENTITY INFORMATION The following information relates to the parent entity, Vital Metals Limited, at 30 June 2017. The information presented here has been prepared using accounting policies consistent with those presented in Note 1. Current assets Non-current assets Total assets Current liabilities Non-Current liabilities Total liabilities Contributed equity Reserves Accumulated losses Total equity Loss for the year 2017 $ 2,671,562 5,522,286 8,193,848 136,202 1,308,223 1,444,425 2016 $ 1,381,641 4,948,176 6,329,817 3,122,158 - 3,122,158 47,810,512 1,740,123 (42,801,212) 6,749,423 41,344,084 891,011 (39,027,436) 3,207,659 (1,283,040) (2,785,218) Total comprehensive loss for the year (1,283,040) (2,785,218) The parent entity did not have any guarantees, contingent liabilities, or any contractual commitments for the acquisition of property, plant and equipment, as at 30 June 2017 or 30 June 2016. 35 Directors' Declaration Vital Metals Limited In the directors’ opinion: (a) the consolidated financial statements comprising the statement of profit or loss and other comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows and accompanying notes set out on pages 16 to 35 are in accordance with the Corporations Act 2001, including: (i) complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date; (ii) (b) (c) (d) 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 remuneration disclosures included in the Directors’ Report (as part of the audited Remuneration Report), for the year ended 30 June 2017, comply with Section 300A of the Corporations Act 2001; and a statement that the attached financial statements are in compliance with International Financial Reporting Standards has been included in note 1(a) to the financial statements. The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. David Macoboy Chairman Perth, 26 September 2017 36 Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR'S REPORT To the members of Vital Metals Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Vital Metals 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 report, 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 ended on that date; 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 Group in accordance with 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 confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 37 Accounting for Exploration and Evaluation Assets Key audit matter How the matter was addressed in our audit At 30 June 2017, the carrying value of Exploration and Our procedures included, but were not limited to: Evaluation Assets was $7,558,322 (30 June 2016: $7,017,417) as disclosed in Note 8.  (cid:65535) (cid:65535) (cid:65535) (cid:65535) (cid:65535) Obtaining a schedule of the areas of interest held by the Group and assessing whether the As the carrying value of the Exploration and Evaluation rights to tenure of those areas of interest Asset represents a significant asset of the Group, we remained current at balance date; considered it necessary to assess whether any facts or circumstances exist to suggest that the carrying amount of this asset may exceed its recoverable amount.  (cid:65535) (cid:65535) (cid:65535) (cid:65535) (cid:65535) Considering the status of the ongoing exploration programmes in the respective areas of interest by holding discussions with management, and reviewing the Group’s(cid:65535) Judgement is applied in determining the treatment of exploration budgets, ASX announcements and exploration expenditure in accordance with Australian director’s minutes; Accounting Standard AASB 6 Exploration for and Evaluation of Mineral Resources. In particular:  (cid:65535) (cid:65535) (cid:65535) (cid:65535) (cid:65535) Considering whether any such areas of interest had reached a stage where a  Whether the conditions for capitalisation are reasonable assessment of economically satisfied; recoverable reserves existed;  Which elements of exploration and evaluation  (cid:65535) (cid:65535) (cid:65535) (cid:65535) (cid:65535) Verifying, on a sample basis, exploration and expenditures qualify for recognition; and evaluation expenditure capitalised during the  Whether facts and circumstances indicate that the exploration and expenditure assets should year for compliance with the recognition and measurement criteria of AASB 6; be tested for impairment.  (cid:65535) (cid:65535) (cid:65535) (cid:65535) (cid:65535) Considering whether any facts or circumstances existed to suggest impairment testing was required; and  (cid:65535) (cid:65535) (cid:65535) (cid:65535) (cid:65535) Assessing the adequacy of the related disclosures in Note 1(l) and 8 to the financial report. Other information The directors are responsible for the other information. The other information comprises the information contained in Directors’ Report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon, which we obtained prior to the date of this auditor’s report, and the Annual Report, which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above 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. 38 If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, 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. When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and will request that it is corrected. If it is not corrected, we will seek to have the matter appropriately brought to the attention of users for whom our report is prepared. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or 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. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 5 to 9 of the directors’ report for the year ended 30 June 2017. In our opinion, the Remuneration Report of Vital Metals Limited, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. 39 Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit (WA) Pty Ltd Jarrad Prue Director Perth, 26 September 2017 40 ASX Additional Information Additional information required by Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 4 October 2017 (a) Distribution of quoted equity securities Analysis of numbers of quoted equity security holders by size of holding: 1 1,001 5,001 10,001 100,001 - - - - 1,000 5,000 10,000 100,000 and over The number of shareholders holding less than a marketable parcel of shares are: (b) Twenty largest shareholders The names of the twenty largest holders of quoted ordinary shares are: Ordinary shares Number of holders Number of shares 99 202 163 1,352 1,210 3,026 1,529 37,483 597,024 1,354,548 73,123,686 1,244,576,292 1,319,689,033 47,011,596 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 AUSDRILL INTERNATIONAL PTY LTD MACQUARIE BANK LIMITED HAYES PASTORAL CORPORATION PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED JSR NOMINEES PTY LTD NEREENA PTY LTD SOUTHERN CROSS CAPITAL PTY LTD MR SEAGER REX HARBOUR JEUMONT PTY LTD CITICORP NOMINEES PTY LIMITED MR CAIGEN WANG ESSELMONT PTY LIMITED MR FRANCIS ROBERT HARPER LEXTON HOLDINGS PTY LTD MR BRUCE FOYE & MRS JAN FOYE CHIFLEY PORTFOLIOS PTY LTD NOVASC PTY LTD MR RUSSELL GREGORY GARROD BB CAPITAL PTY LTD ALESTE INVESTMENTS PTY LTD Listed ordinary shares Number of shares Percentage of ordinary shares 68,000,000 48,000,000 20,869,130 20,523,291 19,992,372 18,922,473 18,566,667 17,500,000 17,500,000 16,640,265 14,185,940 13,333,334 11,700,000 10,666,667 10,066,667 10,000,000 9,704,712 9,543,043 9,000,000 8,800,000 373,514,561 5.15% 3.64% 1.58% 1.56% 1.51% 1.43% 1.41% 1.33% 1.33% 1.26% 1.07% 1.01% 0.89% 0.81% 0.76% 0.76% 0.74% 0.72% 0.68% 0.67% 28.30% (c) Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: Ausdrill International Limited Number of Shares 68,000,000 (d) Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. (e) Unquoted equity securities The unquoted options outstanding are as follows: Number Number of Holders 9,687,133 14,096,763 86,153,846 50,000,000 27,000,000 1 4 1 3 3 +Class 4 cent options expiring 24 November 2017 Holders with more than 20% Mark Strizek (7,175,654) Unlisted options exercisable at 2.7 cents expiring 25 November 2018 Mark Strizek (6,506,198) David Macoboy (3,253,099) Unlisted options exercisable at 1.625 cents expiring 31 December 2018 Macquarie Bank Ltd (86,153,846) Unlisted options exercisable at 2 cents expiring 30 April 2021 Argonaut Investments Pty Ltd (25,000,000) JSR Nominees Pty Ltd (12,500,000) Francis Harper (12,500,000) Unlisted options exercisable at 2.3 cents expiring 30 April 2021 Mark Strizek (15,000,000) David Macoboy (6,000,000) 

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