Zeta Resources Limited
Annual Report 2016

Plain-text annual report

2016 ANNUAL REPORT CONTENTS OVERVIEW AND PERFORMANCE 4 Group Performance Summary 5 Chairman’s Statement STRATEGIC REPORT AND INVESTMENTS 6 Investment Manager's Report 14 ICM Investment Philosophy 15 Investment Manager and Team 16 Geographical and Sector Split of Investments 17 Five Largest Holdings 18 Review of the Five Largest Holdings GOVERNANCE 21 Directors 22 Report of the Directors 27 Corporate Governance Statement FINANCIAL STATEMENTS 28 Independent Auditor’s Report 30 Auditor’s Independence Declaration 31 Financial Statements 35 Notes to the Financial Statements OTHER 58 Additional ASX Information 60 Company Information Image Acknowledgement – Petroleum Geo-Services Media Gallery – image for Seacrest on page 20 2 1 Annual Report for the year to 30 June 2016Zeta Resources Limited ZETA RESOURCES LIMITED OBJECTIVE Zeta Resources Limited’s investment aim is to maximise total returns for shareholders by identifying and investing in resource assets and companies where the underlying value is not reflected in the market price. The company invests in a range of resources entities, including those focused on oil & gas, gold and base metals exploration and production. GEOGRAPHICAL INVESTMENT EXPOSURE NATURE OF THE COMPANY Zeta Resources Limited ("Zeta") is a closed-end investment company, whose ordinary shares are listed on the Australian Stock Exchange (“ASX”). The business of the company consists of investing the pooled funds of its shareholders in accordance with its investment objective and policy, with the aim of generating a return for shareholders with an acceptable level of risk. The company has borrowings (“gearing”), the proceeds from which can also be invested with the aim of enhancing returns to shareholders. This gearing increases the potential risk to shareholders should the value of the investments fall. The company has contracted with an external investment manager, ICM Limited (the “Investment Manager” or “ICM”), to manage its investments and undertake the company secretarial function. The company’s general administration is undertaken by ICM Corporate Services (Pty) Ltd. The company has a board of non-executive directors who oversee and monitor the activities of the Investment Manager and the other service providers and ensure that the investment policy is adhered to. FINANCIAL CALENDAR FINANCIAL CALENDAR Year End 30 June Annual General Meeting 29 November 2016 Half Year 31 December Half Year December 2016 Announcement February 2017 2 3 FORWARD–LOOKING STATEMENTS This annual report may contain “forward-looking statements” with respect to the financial condition, results of operations and business of the company. Such statements involve risk and uncertainty because they relate to future events and circumstances that could cause actual results to differ materially from those expressed or implied by forward-looking statements. The forward-looking statements are based on the directors’ current view and on information known to them at the date of this report. Nothing in this publication should be construed as a profit forecast. Potential investors are reminded that the value of investments and the income from them may go down as well as up and investors may not receive back the full amount invested. GROUP PERFORMANCE SUMMARY CHAIRMAN’S STATEMENT Total return(1) (annual) (%) Annual compound total return(2) (since inception) (%) Net tangible asset per ordinary share(3) (Australian cents) Ordinary share price (Australian cents) Discount (%) Loss per ordinary share(4) (US dollars) Dividends per ordinary share – Interim (Australian cents) – Final (Australian cents) Total (Australian cents) Equity holders' funds (US$m) Gross assets(5) (US$m) Cash (US$m) Other debt (US$m) Net debt (US$m) Net debt gearing on gross assets (%) Management and administration fees and other expenses (US$m) – excluding performance fee – including performance fee Ongoing charges figure(6) – excluding performance fee (%) – including performance fee (%) 30 JUNE 2016 30 JUNE 2015 CHANGE % 2016/15 (27.9) (23.2) 30.8 18.0 (41.6) (0.05) Nil Nil Nil 42.8 82.4 0.2 (39.9) (39.7) 48.2 1.0 1.0 2.1 2.1 (55.3) (20.8) 42.7 40.0 (6.3) (0.57) Nil Nil Nil 31.1 70.7 0.2 (39.8) (39.6) 56.0 1.6 1.6 1.5 1.5 (49.6) 11.3 (27.9) (55.0) 560.3 (91.2) n/a n/a n/a 37.6 16.5 0.0 0.3 0.3 (14.0) (37.5) (37.5) 40.7 40.7 (1) Total return is calculated based on NTA per share return plus dividends reinvested from the payment date. (2) Annual compound total return based on NTA per ordinary share return, plus dividends reinvested from the payment date, since NTA of A$0.688 at launch on 12 June 2013. (3) The NTA is calculated including the 86,461,440 December 2016 options as they are considered to be in-substance issued shares. (4) Earnings per share is based on the weighted average number of shares in issue during the year. An adjustment has been made for the 86,461,440 options issued during the year as they are considered to be in-substance issued shares. (5) Gross assets less liabilities excluding loans. (6) Expressed as a percentage of average net assets, ongoing charges comprise all operational, recurring costs, including directors fees, that are payable by the company, or suffered within underlying investee funds, in the absence of any purchases or sales of investments. n/a = not applicable It has been pleasing to note a turn in the resources sector in the last year. The bear market has continued for oil & gas and base metals, however, gold has seen a marked lift in price and sentiment that has driven a surge in the value of gold equities. This shift in gold is indicative of the change we also expect to see when the price of other commodities begins to move up, and it provides continued encouragement for Zeta’s investment strategy. Zeta’s results have reflected this market. On the one hand we have been disappointed at the decline in value in the oil & gas and base metals investments, but on the other hand we have been pleased by the significant appreciation of the gold investment in Resolute Mining Limited. We have continued to work hard with our investee companies in oil & gas and nickel and their positioning in the current price environment. In oil & gas, this has meant a focus on cost reductions. Our underlying commodity exposure has increased with the continued increase in reserves at New Zealand Oil & Gas Limited’s largest asset, Kupe, and a slight increase in the Pan Pacific Petroleum NL investment. In nickel, Zeta supported Panoramic Resources Limited’s decision to place its two mines, Savannah and Lanfranchi, on care and maintenance and preserve and grow its resource base rather than continue to produce nickel uneconomically. We also increased our investment in that company as an underwriter of its entitlement raising. In all these companies Zeta has board representation, and has taken an active role throughout the year in governance and strategy to ensure the best result possible for all shareholders of these companies. Zeta has continued to expand its base in out-of-favour commodities and has recently made small investments in some copper companies. The company will be actively looking to increase its investment in this sector, believing the long-term outlook to be sound for this important industrial commodity. Zeta will continue to be active in the equity marketplace, increasing its shareholdings in companies where the fundamentals are strong but the shares can be acquired at prices well below what we believe is their long term worth. The turnaround in the gold sector has shown the benefits of Zeta’s investment strategy. We are grateful for the ongoing support of our majority shareholder, UIL Limited, and the financial assistance it is providing. During the year we prudently converted a part of their debt to equity through the issue of new Zeta shares and options. We remain committed to being vigilant in pursuit of long-term value for our shareholders, being active in the governance and direction of existing investments and our search for value in new investment opportunities. Peter Sullivan Chairman 12 September 2016 Zeta has continued to expand its base in out-of-favour commodities 4 5 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources Limited INVESTMENT MANAGER'S REPORT The year under review should perhaps be looked at in two halves. In the six months to December 2015, commodity markets in general continued the decline seen in the previous year, in particular oil and nickel, while gold settled into a COMMODITY MARKETS As noted, the year under review saw more falls in the price of oil and nickel, while gold resumed its climb upwards. This relatively stable trading pattern. In the second half of the financial year, the six months to June 2016, oil staged a modest year we have added copper to Zeta’s portfolio. recovery, while nickel stabilised, and gold resumed its climb. The first half of the financial year under review was notable for continuing the decline in the price of Australian dollars against US dollars that occurred in the previous year, thus Oil & Gas boosting the profitability of Australian miners whose export prices were denominated in US dollars. In the second half of the year under review, the Australian dollar strengthened against the US dollar, thus reversing some of these earlier gains. The mixed picture for commodities has been reflected in a mixed result for Zeta. Overall, the share prices of Zeta’s listed investments have fallen during the year under review, with the notable exception of the company’s investment in gold companies. As Zeta employs debt capital, the impact of falling resources company share prices is leveraged in its impact on Zeta’s net assets. During the year under review, Zeta’s net assets per share fell from A$0.427 to A$0.308, a fall of 27.9%. For comparison, the S&P/ASX 200 Energy index fell 24.9% over the same period, and the S&P/ASX 300 Metals & Mining index, which includes gold mining stocks, fell only 9.0%. Zeta’s share price fell at a greater rate than the fall in Zeta’s net assets. The share price fell 55.0% to A$0.18. The discount to net assets thus grew from 6.3% at the end of June 2015, to 41.6% at the end of June 2016. TOTAL RETURN COMPARATIVE PERFORMANCE* since inception on 12 June 2013 to 30 June 2016 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 Jun 13 Oct 13 Feb 14 Jun 14 Oct 14 Feb 15 Jun 15 Oct 15 Feb 16 Jun 16 Zeta Share Price S&P/ASX 200 Energy S&P/ASX 300 Metals & Mining BRENT CRUDE OIL PRICE from June 2015 to July 2016 80 60 40 US$/bbl 20 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 80 60 40 20 A$/bbl US$/bbl A$/bbl Source: US Energy Information Administration At the start of the year under review, the Brent Crude Oil price was US$60/bbl, having declined significantly during the previous twelve months. The year under review saw a similar pattern to the previous year, with a sustained decline until around January, followed by a recovery until May before a resumption in the decline. The range of US$50-US$60/bbl had been seen previously as a significant milestone, as it had been used as a rule of thumb to indicate the price at which the average US oil firm needed to produce oil profitably utilising fracking to unlock *AUD, rebased to 100 as at 12 June 2013. Zeta NTA adjusted for February 2014 entitlement issue tight oil from shale. However, this year saw the price of oil fall well below that. Source: ICM and S&P Dow Jones Indices As a result, oil exploration globally has been curtailed, and the strategy among oil firms has been to gradually cut costs – more so as the price of oil had continued to fall. For those firms in the enviable position of having cash, it has become cheaper to buy existing oil production assets, rather than take an unnecessary risk on expensive drilling, particularly if the drilling is offshore exploration and especially in frontier basins. The sustained downturn in oil prices has impacted the business model of Zeta’s investment in Seacrest LP ("Seacrest"), whose business model was based on acquiring stakes in a wide range of exploration permits globally. However, in the case of Zeta’s investments in New Zealand Oil & Gas Limited ("NZOG") and Pan Pacific Petroleum NL ("PPP"), both of those companies have had existing production that has been relatively profitable throughout the year, together with cash on their balance sheets which is available for acquisitions. 6 7 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources Limited INVESTMENT MANAGER'S REPORT (continued) Nickel Gold NICKEL PRICE from June 2015 to July 2016 US$/lb 8 6 4 2 8 6 A$/lb 4 2 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 US$/lb A$/lb Source: LME GOLD PRICE from June 2015 to July 2016 US$/oz 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 A$/oz 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Spot Price US$ Spot Price A$ Source: Kitco - London PM Fix As with oil, the price of nickel continued to fall in the first half of the year under review. Some companies have elected to continue to produce nickel at unprofitable prices. For Panoramic Resources Limited ("Panoramic"), the chief nickel In marked contrast to oil and nickel, and in fact to most major commodities, the price of gold has continued to rise. company in Zeta’s portfolio, the company decided to place its two operating mines in Western Australia, Savannah Various factors have been raised to explain the persistent rise of gold, but the most common cited factor for the rise and Lanfranchi, on to care and maintenance. The company also raised funds through an entitlement issue, in order during the first of half of 2016 was the continued impact of central bank monetary policy and interventions leading to strengthen the balance sheet and ensure the company had the means to wait out a prolonged period of low nickel to negative sovereign interest rates in numerous countries, coupled with unsustainable debt levels in many countries prices. Zeta was the principal underwriter of the issue and as a result increased its stake in Panoramic. and anaemic world growth and inflation levels. The outlook for nickel is coloured by the increasing production of batteries for electric vehicles and power storage such In Australian dollar terms, Australian producers have been enjoying record high gold prices. Happily for Zeta, the as that being undertaken by Tesla in the United States. While the headline impact of lithium ion batteries has been felt company’s investment in Resolute Mining Limited ("Resolute") has had a stellar year, rising from A$0.30 per share at on lithium, in many cases the usage of lithium is only 2%, while raw materials such as nickel and graphite make up a far the end of June 2015, to A$1.275 at the end of June 2016. This rise has arisen not only due to the increase in the price greater proportion of such batteries. Nevertheless, while the scale of production of lithium ion batteries is increasing, of gold, but in addition due to continued exploration success at Resolute coupled with the announcement of feasibility it is still expected to remain small relative to the overall nickel market. plans to significantly extend the life of the company’s mine at Syama in Mali. 8 9 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedINVESTMENT MANAGER'S REPORT (continued) Copper COPPER LME PRICE from June 2015 to July 2016 US$/lb 4 3 2 1 4 3 A$/lb 2 1 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 US$/lb A$/lb Source: Kitco - LME Copper is one of the most important global industrial commodities, but the price of copper has been in a bear market for the past six years. Since the scheme of arrangement between Zeta and Kumarina Resources Limited the company has had an investment in copper exploration, but during the period under the review Zeta made small acquisitions in two small listed copper firms. As with its other investments, Zeta is of the view that in the long run there will be continued demand for copper, and thus investment in this commodity will bear fruit for the patient investor. CAPITAL STRUCTURE Zeta is a closed-end investment company, listed on the ASX, and was incorporated in Bermuda. NTA PER SHARE VERSUS SHARE PRICE since inception on 12 June 2013 to 30 June 2016 1.20 1.00 0.80 0.60 0.40 0.20 0.00 ) $ A ( e r a h s r e p A T N 1.20 1.00 0.80 0.60 0.40 0.20 0.00 ) $ A ( e c i r P e r a h S 12 Jun 13 12 Dec 13 12 Jun 14 12 Dec 14 12 Jun 15 12 Dec 15 12 Jun 16 Listed Unlisted Kumarina Closing Share Price Source: ICM FINANCIAL RESULTS The net loss after tax for the year was US$6,974,491 against a loss of US$53,242,013 in the year ended June 2015. The majority of the consolidated net loss is comprised of revaluations of listed investments (marked to market) as at 30 June 2016 to account for financial assets being recognised at fair value. SIGNIFICANT INVESTMENTS Oil & Gas New Zealand Oil & Gas During the year under review, NZOG moved to reduce costs and did not undertake any significant greenfield exploration. During the year Zeta has had working capital support from its parent company, UIL Limited (“UIL”, formerly “Utilico Instead the company focused on development of its major asset, being its 15% stake in Kupe, a gas producing field in Investments Limited”). As of 30 June 2016, Zeta had a loan from UIL totalling US$36.2 million, drawn partly in Australian offshore Taranaki, New Zealand. During the year, NZOG issued two increases in reserves for Kupe, one based on the dollars and partly in US dollars. During the year under review, Zeta converted A$8.8 million and US$12.4 million of loans from UIL into equity following the shareholder approved issue of shares and options to UIL. As at 30 June 2016, Zeta had gross assets of US$83.0 million (2015: US$71.1 million). Of this figure, $39.6 million (2015: $39.0 million) was invested in the oil & gas sector; $10.4 million (2015: $21.9 million) was invested in the nickel and copper sectors; $32.7 million (2015: $9.9 million) was invested in the gold sector; and the remaining $0.3 million (2015: $0.3 million) was invested in other commodity-based resources investments. developed reserves, and one on the undeveloped reserves. This long life asset is coupled with a long term take or pay gas supply agreement that means the majority of Kupe’s revenues are tied to PPI, and above current New Zealand spot market gas prices. Revenues from Kupe are therefore largely unaffected by recent declines in the price of oil. Pan Pacific Petroleum Having launched a successful bid to acquire 46.5% of PPP in the previous year, Zeta subsequently increased its stake to 50.4% in PPP and encouraged PPP to continue to reduce its costs. PPP’s biggest oil asset is its 15% stake in Tui, an oil producing field located in offshore Taranaki, New Zealand. Tui’s revenues have naturally been subject to the fluctuations in the price of oil, but from a volume perspective, the successful development of Pateke-4H has meant a pleasing year operationally. Looking forward, the company will at some time face the costs of closing the Tui well as it reaches the end of its producing life, but the timing of this is partially dependent on the price of oil. 10 11 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources Limited INVESTMENT MANAGER'S REPORT (continued) Seacrest Seacrest is a Bermuda-based specialist oil & gas offshore seismic exploration company. Seacrest moved quickly to Copper Kumarina amass a significant number of interests in joint venture licenses for offshore oil exploration, but has suffered a loss in Kumarina Resources Pty Limited (“Kumarina”) is a 100%-owned subsidiary of Zeta. The company is focused on two value in the wake of the significant and sustained fall in the price of oil. Nickel Panoramic prospective projects in Western Australia, being the Ilgarari copper project and the Murrin Murrin copper-gold project. The Ilgarari project contains a secondary copper oxide resource (JORC 2004) estimated to be 1,100,000 tonnes averaging 1.9% copper located around and below historical mine workings. The Murrin Murrin project is prospective for gold and base metals in the form VMS style copper zinc mineralisation. The company’s main focus at the Murrin Murrin Panoramic is a Western Australian mining company that owns two 100%-owned underground nickel sulphide mines, project has been the Malcolm Challenger gold mines which hosts an Indicated Resource ( JORC 2012) of 547,000 tonnes the Savannah Project in the East Kimberley and the Lanfranchi Project near Kambalda, Western Australia. averaging 3.12 g/t for 54,800 ounces. JDF Morrison ICM Limited Investment Manager 12 September 2016 During the year Panoramic decided to place both Savannah and Lanfranchi on care and maintenance. The company believed it was preferable to suspend operations rather than continue to produce nickel unprofitably. However, the company also raised money via an entitlement offer, supported by Zeta. The funds raised will secure Panoramic’s ability to withstand a sustained period of low nickel prices, while undertaking modest exploration drilling aimed at proving up existing resources. Gold Resolute ASX-listed Resolute is a mid-cost gold producer with two mines in production, the Syama mine in Mali, and the Ravenswood mine in northern Queensland, Australia. Production in the year to 30 June 2016 of c. 315,000/oz of gold was down on the previous year’s production of c. 329,000/oz. Gold ounces produced at Syama decreased by 6.8% to 209,617oz while the company focused on processing ore stockpiles ahead of development of underground mining, while cash costs rose by 3.8% to A$830/oz. At Ravenswood gold ounces produced rose by 1.7% to 105,552oz, largely in line with the previous year. Cash costs per ounce at Ravenswood increased by 9.9% to A$1033/oz, in part due to the processing of larger volumes of lower grade ore. At 30 June 2016 Resolute had cash and bullion on hand of A$102 million and total borrowings of A$27 million. The A$15 million convertible note offering which was completed in December 2014 was repaid during the year. Net cash inflows for the year totalled A$139 million, and the company used a significant portion of that inflow to repay debt. During the year Resolute completed a definitive feasibility study for underground mining in Syama, with work expected to commence on development in September 2016. Successful development of underground mining in Syama is expected to extend the life of the mine by at least 10 years. The company has completed a feasibility study to commence mining in Bibiani. The results were positive, and Resolute will now work to extend drilling in order to extend the study’s projected five year mine life. At Ravenswood, Resolute is drilling with the aim of pursuing underground mining at Buck Reef West. Resolute has provided guidance for gold production of 300,000oz at an All-In-Sustaining-Cost of A$1,280/oz (US$934/oz) for the year to 30 June 2017. 12 13 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedICM INVESTMENT PHILOSOPHY INVESTMENT MANAGER AND TEAM Long Term Sector Focused Deep value ICM is the Investment Manager of Zeta. ICM is a Bermuda based global fund manager focused on finding investments at valuations that do not reflect their true long term value. Our investment approach is to have a deep understanding of the business fundamentals of each investment and its environment versus its intrinsic value. We are long term investors and see markets as a place to exchange assets. ICM has some US$2.4 billion under management directly and has indirect involvement in over US$12 billion in a range of mandates. ICM has 40 staff based in offices in Bermuda, Cape Town, Dublin, Hong Kong, London, Melbourne, Singapore and Wellington. ICM staff responsible for Zeta’s investments include: Dugald Morrison, based in Wellington, New Zealand, is the General Manager for ICM NZ Limited. He has extensive investment analysis experience, having worked in stockbroking, investment banking and investment management firms in New Zealand, the United Kingdom, and the United States since 1987. Mr Morrison is a director of ASX-listed Pan Pacific Petroleum NL and a number of unlisted companies. He is a member of the New Zealand Institute of Directors. Duncan Saville, a director of ICM, is a chartered accountant with experience in corporate finance and asset management. He is currently a director of a number of listed companies including New Zealand Oil & Gas Limited and is an experienced company director. He is a Fellow of the Institute of Chartered Accountants Australia and New Zealand, Australian Institute of Directors and the Financial Service Institute of Australia and is a member of the Singapore Institute of Extensive Domain Knowledge & Expertise We seek out and make compelling investments Optionality Directors. Alasdair Younie, a director of ICM. Based in Bermuda, he is a chartered accountant with experience in corporate finance and corporate investment. Mr Younie qualified as a chartered accountant with PricewaterhouseCoopers and subsequently worked for six years within the corporate finance department of Arbuthnot Securities Limited in London. Mr Younie is a director of the Ascendant Group Limited, Bermuda Commercial Bank Limited and Somers Limited and is a member of the Institute of Chartered Accountants in England and Wales. Synergies Bottom Up Approach Investee Relationships Active Investors 14 15 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedGEOGRAPHICAL & SECTOR SPLIT OF INVESTMENTS FIVE LARGEST HOLDINGS GEOGRAPHICAL SPLIT OF INVESTMENTS* 2016 2016 2015 COMPANY (Country of principal activity) Description FAIR VALUE US$000 % OF TOTAL INVESTMENTS COUNTRY 2016 2015 Gold exploration and mining % of total 1 (5) Resolute Mining Limited (Australia, Mali) 29,661 35.6% New Zealand Australia Mali Other Norway Namibia 32.3 28.1 24.5 6.3 4.6 4.2 36.9 36.0 5.9 7.7 7.0 6.5 2 (2) New Zealand Oil & Gas Limited* (New Zealand) 17,956 21.6% Oil & gas exploration and production 3 (4) Pan Pacific Petroleum NL* (New Zealand, Vietnam) 10,910 13.1% Oil & gas exploration and production 4 (1) Panoramic Resources Limited (Australia) 9,523 11.4% * Including investments held by Zeta Energy Pte. Ltd Source: ICM Nickel exploration and mining 5 (3) Seacrest LP - unlisted (Global) Oil & gas offshore seismic exploration Other investments Total Portfolio * Investment held by Zeta Energy Pte. Ltd. 9,030 10.8% 6,166 83,246 7.4% 100.0% The value of the five largest holdings represents 92.6% (2015: 92.1%) of the group’s total investments. The country shown is the location of the principal part of the company’s business. The total number of companies included in the portfolio is 18 (2015: 21). SECTOR SPLIT OF INVESTMENTS* SECTOR Oil & Gas Gold Nickel Cash Copper % of total 2016 2015 47.4 39.3 11.9 0.9 0.5 58.3 12.6 28.2 0.9 0.0 * Including investments held by Zeta Energy Pte. Ltd Source: ICM 16 17 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources Limited REVIEW OF THE FIVE LARGEST HOLDINGS RESOLUTE MINING LIMITED (AUSTRALIA, MALI) PAN PACIFIC PETROLEUM NL (NEW ZEALAND, VIETNAM) www.resolute-ltd.com.au Market Cap: US$622.6 million Resolute Mining Limited is a gold producer listed on the ASX, with a long life mine at Syama in Mali, another producing gold mine at Ravenswood in Australia, and a development project at Bibiani in Ghana. In the year to June 2016 Resolute’s various operations yielded 315,169 ounces of gold. Average cash costs of A$898 per ounce were higher than the previous year’s A$845 per ounce. During the year Resolute completed a definitive feasibility study for underground mining at Syama that is expected to extend the mine’s life beyond 2028. A feasibility study at Bibiani was positive, and the company will now conduct more drilling with the aim of extending the mine life beyond five years. www.panpacpetroleum.com.au Market Cap: US$12.6 million (Investment held by Zeta Energy Pte. Ltd) Pan Pacific Petroleum NL is an ASX-listed oil junior based in Sydney. The company has a 15% stake in the low cost Tui oil fields located in offshore Taranaki, New Zealand. PPP also has a 5% stake in the Block 07/03 development opportunity in Vietnam, which holds potential for both oil and gas. Zeta owns 50.4% of PPP. In the year ended June 2016, PPP’s share of oil production was 0.21 million barrels, down slightly from 0.22 million barrels the previous year. NEW ZEALAND OIL & GAS LIMITED (NEW ZEALAND) PANORAMIC RESOURCES LIMITED (AUSTRALIA) www.nzog.com Market Cap: US$111.3 million (Investment held by Zeta Energy Pte. Ltd) New Zealand Oil & Gas Limited is an independent New Zealand oil & gas exploration and production company, with exposure to two relatively low cost production assets in New Zealand: the Kupe gas and oil field (15% partner) and Tui area oil fields (27.5% partner). In addition, NZOG has an exploration portfolio in both New Zealand and Indonesia. NZOG is listed on the New Zealand stock exchange. NZOG’s share price declined 15.5% during the 12 months to June 2016. Full year results to 30 June 2016 showed increased revenues at NZ$119 million (previous year NZ$116 million). Cash flow from operating activities was NZ$19.2 million up from NZ$8.6 million the prior year. At year end NZOG had NZ$96.8 million (previous year NZ$83.7 million) of net cash, but it should be noted this includes cash held at NZOG’s 48%-owned subsidiary Cue Energy as well. www.panoramicresources.com Market Cap: US$39.9 million Panoramic Resources Limited is a Western Australian mining company that owns two 100%-owned underground nickel sulphide mines, the Savannah Project in the East Kimberley and the Lanfranchi Project near Kambalda, Western Australia. Panoramic’s value is leveraged to both the price of nickel, and the Australian dollar – the higher the price of nickel and the lower the Australian dollar, the higher the company’s worth. During the course of the year, Panoramic decided to place both its nickel mines into care and maintenance, given the persistently low nickel prices. The company also conducted an entitlement offer that was underwritten by Zeta. At 30 June 2016 Panoramic had A$21 million (previous year A$54 million) in net cash. Panoramic’s shares fell 73% in the year to June 2016. 18 19 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedREVIEW OF THE FIVE LARGEST HOLDINGS (continued) DIRECTORS SEACREST LP (GLOBAL) www.seacrest.com Market Cap: N/A - unlisted Seacrest LP is an unlisted Bermuda-based private seismic specialist oil explorer. The company has access to one of the world’s largest seismic databases, and a large team of petroleum geologists. The company seeks to create value by offering a better understanding of regional seismic patterns in oil & gas exploration basins globally. Seacrest’s commercial approach is to join with operating exploration firms, and acquiring interests in joint ventures through farm-ins. Seacrest has established a number of subsidiaries with regional focuses. Having established a large portfolio of interests in joint venture oil & gas exploration permits, the company is reassessing its approach to drilling in the wake of lower oil prices. Peter Ross Sullivan (Chairman)*, appointed 7 June 2013. Mr Sullivan is an engineer and has been involved in the management and strategic development of resource companies and projects for more than 20 years, including project engineering, corporate finance, investment banking, corporate and operational management and public company directorships. Mr Sullivan has considerable experience in the management and strategic development of resource companies. Mr Sullivan holds a Bachelor of Engineering and a MBA. Directorships of other listed companies in the last 3 years Mr Sullivan is currently Chairman of Pan Pacific Petroleum NL (ASX: PPP) and non-executive director of Resolute Mining Limited (ASX: RSG), GME Resources Limited (ASX: GME) and Panoramic Resources Limited (ASX: PAN). Martin Botha*, appointed 7 June 2013. Mr Botha has over 30 years’ experience in banking, with the last 26 years spent in leadership roles building Standard Bank Plc’s (part of The Standard Bank of South Africa Limited group of companies) international operations. Mr Botha’s specific primary responsibilities have included establishing and leading the development of the core global natural resources trading and financing franchises, as well as various geographic strategies. Mr Botha holds a Bachelor of Engineering degree in Survey. Directorships of other listed companies in the last 3 years Mr Botha is currently non-executive director of Resolute Mining Limited (ASX: RSG). Xi Xi*, appointed 7 June 2013. Ms Xi is a financial analyst with more than 15 years’ experience in the mining, energy and natural resource industry, ranging from managing companies focused on international exploration and development of mining projects to restructuring and overseeing a portfolio of private and public companies. Ms Xi holds dual Bachelor of Science degrees in Chemical Engineering and Economics from the Colorado School of Mines and a Master of Arts in International Relations and China Studies from Johns Hopkins School of Advanced International Studies. Directorships of other listed companies in the last 3 years None. *Non-Executive Director 20 21 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedREPORT OF THE DIRECTORS Your directors present their report for Zeta Resources Limited, including its subsidiaries, Kumarina Resources Pty Limited, Zeta Energy Pte. Ltd and Zeta Investments Limited, for the year ended 30 June 2016. DIRECTORS The names of directors in office at any time during or since the end of the year are: Peter Ross Sullivan Marthinus (Martin) Botha Xi Xi Directors have been in office since the start of the year to the date of this report. PRINCIPAL ACTIVITIES The principal activities of the company are investing in listed and unlisted resource focused investments. AFTER BALANCE DATE EVENTS The share price of Resolute Mining Limited has risen from A$1.285 as at 30 June 2016 to A$2.05 as at 12 September 2016, a 60% increase. This has increased the net assets of Zeta Resources Limited by approximately A$24 million (US$18 million). The share price of Panoramic Resources Limited has risen from A$0.135 as at 30 June 2016 to A$0.205 as at 12 September 2016, a 52% increase. This has increased the net assets of Zeta Resources Limited by approximately A$7 million (US$5 million). There have been no other facts nor circumstances of a material nature that have occurred between the reporting date and the date of this report that have a material impact on the financial position of the company at 30 June 2016. LIKELY DEVELOPMENTS The company intends to continue to seek to maximise total returns for shareholders by identifying and investing in assets and companies where the underlying value is not reflected in the market price. No significant change in the nature of these activities occurred during the year. INFORMATION ON COMPANY SECRETARY OPERATING AND FINANCIAL REVIEW Operating results The net loss attributable to the company for the year to 30 June 2016 amounted to $6,974,491. Overview of operating activity The company listed on the ASX on 12 June 2013. During the year the company has continued to build its portfolio of resource investments by investing a further $16,750,536. A decrease in the fair value of the portfolio resulted in an unrealised loss recognised in profit or loss at year end of $4,079,785. The activities of the company’s subsidiary, Kumarina, related to further exploration and evaluation of the existing Australian mining tenements (the Murrin Murrin and Ilgarari projects) and a total of A$148,746 was invested during the twelve months to 30 June 2016 in further drilling and analysis work. Financial position At the end of the year, the company had $238,893 in cash and cash equivalents. Investments at fair value totalled $49,813,042, and the investment in subsidiaries was valued at $3,086,091. The company has a loan owing to UIL of $36,165,296 at year end. Amounts outstanding to brokers (for settlement of trades) totalled $78,140 at 30 June 2016. Following shareholder approval in November 2015, 6,769,280 ordinary shares and 86,461,440 options were issued under ASX listing rule 10.11 on 7 December 2015 to UIL Limited, raising US$18,617,065 in funds. These funds were utilised to repay A$8.8 million and US$12.4 million of loans from Zeta’s parent. DIVIDENDS No dividends have been paid or declared since the start of the year. No recommendation is made as to dividends. On 28 July 2016 Chamiel McDonald was appointed Company Secretary and BCB Charter Corporate Services Limited as assistant secretary. BCB Charter Corporate Services Limited delivers corporate administration services for their clients. REMUNERATION REPORT The remuneration report is set out in the following manner: • Policies used to determine the nature and amount of remuneration • Details of remuneration • Share based compensation • Directors and executives interests REMUNERATION POLICY The board of directors is responsible for remuneration policies and the packages applicable to the directors of the company. The broad remuneration policy is to ensure that packages offered properly reflect a person’s duties and responsibilities and that remuneration is competitive and attracts, retains, and motivates people of the highest quality. The directors are remunerated for the services they render to the company and such services are carried out under normal commercial terms and conditions. Engagement and payment for such services are approved by the other directors who have no interest in the engagement of services. At the date of this report the company had not entered into any packages with directors or senior executives which include performance based components. DETAILS OF REMUNERATION FOR DIRECTORS The company paid a total of $150,000 to directors for the year ended 30 June 2016. The company had no employees as at 30 June 2016. 22 23 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedREPORT OF THE DIRECTORS (continued) SHARE BASED COMPENSATION There is currently no provision in the policies of the company for the provision of share-based compensation to INDEMNIFYING OFFICERS OR AUDITORS The company has not, during or since the year ended, in respect of any person who is or has been an officer or the directors. The interest of directors and executives in shares and options is set out elsewhere in this report. auditor of the company or of a related body corporate indemnified or made any relative agreement for indemnifying DIRECTORS AND EXECUTIVES’ INTERESTS The relevant interests of directors and executives either directly or through entities controlled by the directors and executives in the share capital of the company and related body corporates as at the date of this report are: DIRECTOR Peter R Sullivan Martin Botha Xi Xi ORDINARY SHARES OPENING BALANCE 5,670,632 – – NET CHANGE ORDINARY SHARES CLOSING BALANCE – 279,565 – 5,670,632 279,565 – MEETINGS OF DIRECTORS The board held four meetings during the year which were attended by all directors. The meetings were held on 6 July, 3 September, 15 November 2015 and 8 February 2016. In addition, throughout the course of the year there were a number of resolutions of directors which were made by unanimous written resolution. This included the approval of the half year report and financial statements on 18 February 2016. There were no meetings of committees of directors that were required to be held during the year. LOANS TO DIRECTORS AND EXECUTIVES There were no loans entered into with directors or executives during the year under review. UNLISTED OPTIONS At the date of this report the number of unlisted options on issue was as follows: 86,461,440 Options exercisable at A$0.001 each, expiring 7 December 2019. There were no options exercised during the year, or since the end of the year, that resulted in additional shares being issued. AUDIT COMMITTEE The board reviews the performance of the external auditors on an annual basis and will meet with them during the year to review findings and assist with board recommendations. The board does not have a separate audit committee with a composition as suggested in the best practice recommendations. The full board carries out the function of an audit committee. The board believes that the company is not of a sufficient size to warrant a separate committee and that the full board is able to meet the objectives of the best practice recommendations and discharge its duties in this area. against a liability incurred as an officer or auditor, including costs and expenses in defending legal proceedings. ENVIRONMENTAL REGULATION Kumarina Resources Pty Limited’s operations are subject to the Western Australian Mining Act 1978 and the Environmental Protection Act 1986. The directors are not aware of any significant breaches and no actions were initiated for breaches under the Environmental Protection Act during the year covered by this report. NON-AUDIT SERVICES No non–audit services were performed by the auditors of the company during the year. ON-MARKET BUY BACK SCHEME The company currently has no on-market share buy-back scheme in operation. INVESTMENTS PUBLICALLY DISCLOSED BY THE COMPANY AT THE REPORTING DATE NUMBER OF SHARES % OF ISSUED SHARES HELD Listed Panoramic Resources Limited Resolute Mining Limited GME Resources Limited Unlisted Seacrest LP Kumarina Resources Pty Limited Zeta Energy Pte. Ltd Zeta Investments Limited 102,282,973 31,234,000 19,717,742 10,500,000 26,245,610 1 1,000 23.866% 4.764% 4.272% 24.450% 100% 100% 100% In addition, 100% owned subsidiary Zeta Energy Pte. Ltd holds listed investments, including 54,207,553 shares in New Zealand Oil & Gas Limited, 121,323,567 shares in Oilex Limited, and 292,948,402 shares in Pan Pacific Petroleum NL. During the year the company completed a total of 86 transactions in securities and paid a total of US$5,955 in brokerage on those transactions. 24 25 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedREPORT OF THE DIRECTORS (continued) CORPORATE GOVERNANCE STATEMENT INVESTMENT MANAGEMENT AGREEMENT The company entered into an Investment Management Agreement with ICM Limited on 10 April 2013. Management The company’s directors and management are committed to conducting the group’s business in an ethical manner and in accordance with the highest standards of corporate governance. The company has adopted and substantially fees are payable at a rate of 0.5% per annum, of funds managed on calculation date, payable quarterly in arrears and complies with the ASX Corporate Governance Principles and Recommendations (Third Edition) (Recommendations) pro-rated for any period less than three months. Performance fees, if applicable, are payable annually at year end at a rate of 15% of equity funds (adjusted for any dividends paid or accrued) on calculation date less adjusted base equity funds (high-water mark) previously used in the performance fee calculation. The adjusted base equity funds is the base equity fund used in the last performance fee calculation adjusted by the average percentage income yield on the S&P/ASX 300 Metals and Mining Index. No performance fee was payable for the year. Either party may terminate the agreement with six months’ notice. The company paid US$344,465 in management fees during the reporting year. AUDITOR'S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration is included in the Independent Auditor’s Report. This report is signed in accordance with a resolution of directors. to the extent appropriate to the size and nature of the group’s operations. The company has prepared a statement (“Corporate Governance Statement”) which sets out the corporate governance practices that were in operation throughout the financial year for the company, identifies any Recommendations that have not been followed, and provides reasons for not following such Recommendations. In accordance with ASX Listing Rules 4.10.3 and 4.7.4, the Corporate Governance Statement will be available for review on the company’s website (www.zetaresources.limited), and will be lodged together with an Appendix 4G to the ASX at the same time that the Annual Report is lodged with ASX. The Appendix 4G will particularise each Recommendation that needs to be reported against by the company and will provide shareholders with information as to where relevant governance disclosures can be found. The company’s corporate governance policies and charters are all available on its website (www.zetaresources.limited). Peter R Sullivan Chairman Perth, Western Australia 12 September 2016 26 27 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedZeta Resources Limited Annual Report for the year to 30 June 2016 INDEPENDENT AUDITOR’S REPORT 28 29 Annual Report for the year to 30 June 2016Zeta Resources LimitedAUDITOR’S INDEPENDENCE DECLARATION STATEMENT OF FINANCIAL POSITION s at 30 June 2016 e t o N 4 5 6 7 8 Non-current assets Investment in subsidiaries Investments Loans to subsidiaries Current assets Cash and cash equivalents Trade and other receivables Balance due from brokers Total assets Non-current liabilities 9 10 Loan from subsidiary Loan from parent Current liabilities 11 Trade and other payables Balance due to brokers Total liabilities NET ASSETS Equity 12 12 Share capital Share premium 12 Options Accumulated losses TOTAL EQUITY June 2016 $ June 2015 $ 3,086,091 49,813,042 29,803,322 238,893 12,109 – 3,193,721 43,686,192 23,894,270 193,267 13,171 119,912 82,953,457 71,100,533 (3,754,667) (36,165,296) (4,395,787) (35,408,212) (192,220) (78,140) (40,190,323) 42,763,134 900 66,233,041 17,265,320 (40,736,127) 42,763,134 (175,974) – (39,979,973) 31,120,560 832 64,881,364 – (33,761,636) 31,120,560 30 31 Annual Report for the year to 30 June 2016Zeta Resources LimitedAnnual Report for the year to 30 June 2016Zeta Resources LimitedSTATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME STATEMENT OF CASH FLOWS s for the year ended 30 June 2016 e t o N June 2016 $ June 2015 $ Revenue 13 Investment income 14 Other income/(losses) Expenses Directors fees Interest expense 15 Management and consulting fees 16 Operating and administration expenses (4,036,767) 1,437,732 (42,418,422) (6,090,197) (150,000) (3,371,114) (560,884) (293,458) (150,000) (3,164,318) (432,656) (986,420) Loss before income tax (6,974,491) (53,242,013) 17 Income tax Loss for the year – – (6,974,491) (53,242,013) Other comprehensive income – – TOTAL COMPREHENSIVE INCOME FOR THE YEAR (6,974,491) (53,242,013) Loss per share 18 Basic and diluted loss per share (cents per share) (0.05) (0.57) s for the year ended 30 June 2016 e t o N Cash flows from operating activities 19.1 Cash utilised by operations Interest received Interest expense Net cash flows from operating activities Cash flows from investing activities Investments purchased Investments sold Increase in loans to subsidiaries Net cash flows from investing activities Cash flows from financing activities 19.2 Proceeds from issue of shares 19.3 Proceeds from issue of options Decrease in loan from parent via issue of shares and options Increase in loan from parent from additional funding Decrease in loan from subsidiaries Net cash flows from financing activities June 2016 $ June 2015 $ (90,994) 25,262 (3,371,114) (3,436,846) (4,334,188) 760,235 (12,416,348) (15,990,301) 1,351,745 17,265,320 (18,617,065) 19,374,149 (641,120) 18,733,029 (3,748,481) 1,343 (3,164,318) (6,911,456) (22,713,820) 57,499,531 (35,321,826) (536,115) – – – 20,958,619 (7,551,796) 13,406,823 Net movement in cash and cash equivalents (694,118) 5,959,252 Cash and cash equivalents at the beginning of the year Effect of exchange rate fluctuations on cash held 7 Cash and cash equivalents at end of the year 193,267 739,744 238,893 188,012 (5,953,997) 193,267 32 33 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedSTATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2016 s e t o N Share capital $ Share premium $ Accumulated profits/ (losses) $ Options $ Total $ 1. BASIS OF PREPARATION 1.1 Corporate information Zeta Resources Limited (“the company”) is an investment company incorporated on 13 August 2012, listed on the Australian Stock Exchange and domiciled in Bermuda. The financial statements of the company as at and for the year ended 30 June 2016 Balance at 1 July 2014 832 64,881,364 Other comprehensive income for the year – – Balance at 30 June 2015 832 64,881,364 12 12 Issue of shares Issue of options Other comprehensive income for the year 68 1,351,677 – – – – – – – – 17,265,320 19,480,377 84,362,573 comprise the company only. (53,242,013) (53,242,013) 1.2 Basis of preparation The financial statements for the period ended 30 June 2016 have been prepared in accordance with International Financial Reporting Standards (IFRSs). The following accounting policies have, in all material respects, been applied consistently. (33,761,636) 31,120,560 The financial statements were authorised for issue by the board of directors on 12 September 2016. – – 1,351,745 17,265,320 1.3 Basis of measurement The financial statements provide information about the financial position, results of operations and changes in financial position of the company. They have been prepared on the historic cost basis except for financial instruments at fair value through profit – (6,974,491) (6,974,491) or loss, which are measured at fair value. Balance at 30 June 2016 900 66,233,041 17,265,320 (40,736,127) 42,763,134 1.4 Functional and presentation currency The company’s functional and presentation currency is United States Dollars. 1.5 Use of estimates and judgements The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions are recognised in the period in which the estimate is revised and in any future periods affected. Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year, as well as critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are included in note 21. 2. ADOPTION OF NEW AND REVISED STANDARDS Future amendments not early adopted in the 2016 year ended financial statements At the date of these financial statements the following standards, amendments to standards, and interpretations, which are relevant to the company, have been issued by the International Accounting Standards Board, but have not yet been adopted by the company. IFRS 9 Financial Instruments (effective for years commencing on or after 1 January 2018) - this standard addresses the initial measurement and classification of financial assets as either measured at amortised cost or at fair value. Financial assets are measured at amortised cost when the business model is to hold assets in order to collect contractual cash flows. All other financial assets are measured at fair value with changes recognised in profit or loss. For an investment in an equity instrument that is not held for trading, an entity may on initial recognition elect to present all fair value changes from the investment in other comprehensive income. IFRS 9 retains the classification and measurement requirements in IAS 39 for financial liabilities. The standard however requires for financial liabilities designated under the fair value option (other than loan commitments and financial guarantee contracts), that the amount of change in fair value attributable to changes in the credit risk of the liability be presented in other comprehensive income (OCI). The remaining amount of the total gain or loss is included in profit or loss. However, if this requirement creates or enlarges an accounting mismatch in profit or loss, then the whole fair value change is presented in profit or loss. IFRS 9 will be adopted for the first time for the year ending 30 June 2019, subject to certain transitional provisions. The impact on the financial statements has not yet been estimated. 34 35 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources Limited NOTES TO THE FINANCIAL STATEMENTS (continued) 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies detailed below have been consistently applied by the company. 3.1 Revenue Dividends receivable are recognised as income on the ex-dividend date. Gains or losses on the sale of investments are recorded on the trade date. Investment income also comprises gains on changes in the fair value of financial assets at fair value through profit or loss. Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable. 3.2 Borrowing costs 3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.4 Foreign currency Foreign currency transactions and balances Transactions in foreign currencies are translated into the respective functional currencies of the company at exchange rates at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. The foreign currency gains or losses are recognised in profit or loss. Foreign currency differences arising on retranslation are recognised in other comprehensive income. Borrowing costs are recognised as an expense when incurred except those that relate to the acquisition, construction or production of qualifying assets where the borrowing cost is added to the cost of those assets until such time as the assets are 3.5 Earnings per share ("EPS") substantially ready for their intended use or sale. 3.3 Income tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance date. Deferred income tax is provided on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: • when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date. Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Basic EPS is calculated as net result attributable to members, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net result attributable to members, adjusted for: • • costs of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with potential dilutive ordinary shares that have been recognised as expenses; and • other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares divided by the weighted average number of ordinary shares and potential dilutive ordinary shares, adjusted for any bonus element. 3.6 Financial instruments Non-derivative financial instruments Non-derivative financial instruments comprise investments in listed and unlisted securities, trade and other receivables, cash and cash equivalents, trade and other payables and amounts due to/from brokers. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below. Recognition and derecognition of financial instruments Financial instruments are recognised when, and only when, the company becomes a party to the contractual provisions of the particular instrument. The company derecognises a financial asset when the contractual rights to the cash flows arising from the financial asset have expired or when 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. A financial liability is derecognised when the liability is extinguished, that being, when the obligation specified in the contract is discharged, cancelled or has expired. The difference between the carrying amount of a financial liability assumed (or part thereof) 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. Financial assets at fair value through profit or loss Investment purchases and sales are accounted for on the trade date, exclusive of transaction costs. Investments used for efficient portfolio management are classified as being at fair value through profit or loss. As the company’s business is investing in financial assets with a view to profiting from their total return in the form of dividends, interest or increases in fair value, its investments are designated as being at fair value through profit or loss on initial recognition. Gains and losses on investments are analysed within the statement of comprehensive income as capital return. Quoted investments are shown at fair value using market bid prices. The fair value of unquoted investments is determined by the board. In exercising its judgement over the value of these investments, the board uses valuation techniques which take into account, where appropriate, latest dealing prices, valuations from reliable sources, asset values, earnings and other relevant factors. 36 37 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedNOTES TO THE FINANCIAL STATEMENTS (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.6 Financial instruments (continued) Non-derivative financial instruments (continued) Cash and Cash Equivalents Cash and cash equivalents are measured at amortised cost at the reporting date. Cash and cash equivalents comprise operating cash balances, call deposits and short-term deposits with a maturity of three months or less. Non-derivative financial liabilities The company has the following non-derivative financial liabilities; loans and borrowings, trade and other receivables, trade and other payables and amounts due to/from brokers. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the company becomes a party to the contractual provisions of the instrument. The company derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. The difference between the carrying amount of a financial liability assumed (or part thereof), extinguished or transferred to another party and consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss. Trade and other payables Trade and other payables are initially recognised at original invoice amount and are subsequently stated at amortised cost by applying the effective interest method. Trade and other payables are not discounted where the effects of discounting is considered immaterial. Trade and other payables are settled within 30 to 90 days and are interest free. Any gains on derecognition are recognised in profit or loss. 3.7 Impairment of assets Financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying 3.8 Goodwill Goodwill is any excess of the cost of an acquisition over the company’s interest in the cost of the identifiable assets and liabilities acquired. Goodwill is carried at cost less any accumulated impairment losses. Goodwill is allocated to the cash-generating unit and is tested annually for impairment. 3.9 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity. 3.10 Provisions and accruals Provisions are recognised when the company has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will occur, and where a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. If the effect of discounting is material, provisions are discounted. The discount rate used is a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. 4. INVESTMENT IN SUBSIDIARIES At fair value June 2016 $ June 2015 $ Investment in Kumarina Resources Pty Limited ("Kumarina") 3,086,089 3,193,719 Investment in Zeta Energy Pte. Ltd. ("Zeta Energy") Investment in Zeta Investments Limited ("Zeta Investments") 1 1 1 1 3,086,091 3,193,721 amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment Investments in subsidiaries are held as part of the investment portfolio and consequently, in accordance with IFRS 10 are not loss in respect of an available-for-sale financial asset is calculated by reference to its fair value. consolidated but rather shown at fair value through profit and loss. The company had the following subsidiaries as at 30 June 2016: Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit or loss. Any 30 June 2016 cumulative loss in respect of an available for-sale financial asset recognised previously in equity is transferred to profit or loss. Non-financial assets The carrying amounts of the non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. The recoverable amount of an asset is the greater of its value in use and its fair value less cost to sell. The fair value less cost to sell is the amount obtainable from the sale of an asset in an arm's length transaction less the cost of disposal. While assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Kumarina incorporated in Australia Zeta Investments incorporated in Bermuda Zeta Energy incorporated in Singapore 30 June 2015 Kumarina incorporated in Australia Zeta Investments incorporated in Bermuda Zeta Energy incorporated in Singapore Number of ordinary shares Percentage of ordinary shares held 26,245,210 1,000 1 100% 100% 100% Number of ordinary shares Percentage of ordinary shares held 26,245,210 1,000 1 100% 100% 100% 38 39 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedNOTES TO THE FINANCIAL STATEMENTS (continued) 5. INVESTMENTS 6. LOANS TO SUBSIDIARIES Financial assets at fair value through profit or loss Equity securities at fair value Ordinary shares – listed Subscription and other rights – unlisted Equity securities at cost Ordinary shares – listed Subscription and other rights – unlisted Investments held by the company at the reporting date Listed Panoramic Resources Limited Resolute Mining Limited GME Resources Limited Other Investments Unlisted Seacrest LP Other rights Other June 2016 $ 49,813,042 40,776,406 9,036,636 49,813,042 40,650,179 11,573,120 52,223,299 June 2015 $ 43,686,192 30,261,217 13,424,975 43,686,192 37,058,471 11,573,120 48,631,591 Number of shares 102,282,973 31,234,000 19,717,742 19,461,320 10,500,000 938,331 Loan to Zeta Energy Loan to Kumarina June 2016 $ 29,672,978 130,344 29,803,322 June 2015 $ 23,863,438 30,832 23,894,270 The loan to Zeta Energy is denominated in Australian dollars to the value of A$20.427 million (2015: A$7.405 million), British pounds to the value of UK£1.0 million (2015: Nil) and New Zealand dollars to the value of NZ$43.584 million (2015: NZ$43.671 million). There are no fixed repayment terms and no interest is charged. During the period ended 30 June 2016, the loan to Zeta Energy, which was utilised for the purchase of listed investments, was impaired, through profit and loss, to the fair value of the company as determined by the directors. In determining the fair value of Zeta Energy the directors have valued the listed investments held by the company at market value of the exchange they are listed on, other than the investment in Pan Pacific Petroleum NL ("PPP") which was valued by the directors at cost. The directors deem an alternate valuation for PPP to be more appropriate due to the thinly traded nature of the shares in the market, that Zeta Energy has control of PPP by holding more than 50% of its issued share capital and that PPP’s net asset value per share supports the directors’ valuation. As at 30 June 2016 the impairment to the loan totalled US$17.935 million. The loan to Kumarina is denominated in Australian dollars and is interest free. There are no fixed repayment terms except that no repayment is due before 30 June 2017. 7. CASH AND CASH EQUIVALENTS Cash balance comprises: Cash at bank June 2016 $ June 2015 $ 238,893 193,267 Cash at bank earns interest at floating rates based on daily bank deposit rates. Short term deposits are made for varying periods between three to six months depending on the immediate cash requirements of the company, and earn interest at the respective short-term deposit rates. 8. TRADE AND OTHER RECEIVABLES Other listed investments held by subsidiaries of the company include 54,207,553 shares in New Zealand Oil & Gas Limited, 121,323,567 shares in Oilex Limited, and 292,948,402 shares in Pan Pacific Petroleum NL. During the reporting period the company completed a total of 86 transactions (2015: 210 transactions) in securities and paid a total of US$5,955 (2015: US$50,701) in brokerage on those transactions. Prepayments During the reporting period the company also received loans from its subsidiary Zeta Energy. To secure the loans Zeta Resources has pledged certain quantities of its shares held in listed entities. The shares pledged include: Resolute Mining Limited (27,300,000) and Panoramic Resources Limited (6,666,666). June 2016 $ 12,109 June 2015 $ 13,171 40 41 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedNOTES TO THE FINANCIAL STATEMENTS (continued) 9. LOAN FROM SUBSIDIARY Loan from Zeta Energy June 2016 $ 3,754,667 June 2015 $ 4,395,787 The loan from Zeta Energy is denominated in Australian dollars to the value of A$3.84 million (30 June 2015: A$3.53 million) and New Zealand dollars to the value of NZ$1.26 million (30 June 2015: NZ$2.47 million) and currently attracts interest at a rate of 7.11% per annum (30 June 2015: 7.36%) on the Australian dollar loan and at 6.49% per annum (30 June 2015: 7.74%) on the New Zealand dollar loan. There are no fixed repayment terms except that no repayment is due before 30 June 2017. 10. LOAN FROM PARENT Loan from UIL Limited ('UIL') June 2016 $ 36,165,296 June 2015 $ 35,408,212 The loan is denominated in Australian dollars to the value of A$45.4 million (30 June 2015: A$11.55 million), carries interest at 10% per annum (30 June 2015: 10%) and no repayment is due before 31 December 2017. Subsequent to year end, the interest rate on the loan has been changed to 7.5%. During the year the company converted A$8.8 million and US$12.4 million of loans into equity following the shareholder approved issue of shares and options to UIL. See note 12. The company also converted US$14.27 million of loans into Australian dollars during the year. During the year the company received A$21.4 million of funding for the purchase of investments. 12. SHARE CAPITAL AND SHARE PREMIUM Authorised 5,000,000,000 ordinary shares of par value $0.00001 Issued Ordinary shares Balance as at incorporation Issued at incorporation as $1 par shares Shares split into 10,000,000 shares of $0.00001 each Issued in consideration for purchase of investments from Utilico Issued in consideration for purchase of 100% of Kumarina Resources Limited Issued under initial public offering Issued under public rights issue dated 10 February 2014 Balance as at 30 June 2015 Following shareholder approval, issued under ASX listing rule 10.11 dated 7 December 2015 Number of shares Share capital Share premium 100 9,999,900 22,835,042 17,775,514 4,000 42,616,164 93,230,720 6,769,280 – – – 228 178 – 426 832 68 – – – 32,221,936 13,406,337 3,795 19,249,296 64,881,364 1,351,677 Balance as at 30 June 2016 100,000,000 900 66,233,041 11. TRADE AND OTHER PAYABLES For further details related to the share issue transactions please see note 19.2. Accruals The accruals are for audit, management, directors and administration fees payable. June 2016 $ 192,220 June 2015 $ 175,974 Options Balance at the beginning of the year (Note (a)) Following shareholder approval, issued under ASX listing rule 10.11 dated 7 December 2015 (Note (b)) Expiry of 7 June 2016 options Balance at the end of the year Options 10,122,903 86,461,440 (10,122,903) 86,461,440 June 2016 $ June 2015 $ – 17,265,320 – 17,265,320 – – – – Note (a) – The options were exercisable at an exercise price of A$1.00 into one ordinary share until 7 June 2016. Note (b) – During the year ended 30 June 2016, following shareholder approval, the company issued 86,461,440 options at a cost of A$0.2817 per option, to UIL Limited, raising the equivalent of US$17.27 million. These options are exercisable at a price of A$0.001 into one ordinary share until 7 December 2019. 42 43 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedNOTES TO THE FINANCIAL STATEMENTS (continued) 13. INVESTMENT INCOME 17. INCOME TAX Interest income Dividend income Realised gains/(losses) Unrealised fair value losses: Financial assets at fair value through profit or loss 14. OTHER INCOME/(LOSSES) Foreign exchange gains/(losses) Other income/(losses) 15. MANAGEMENT AND CONSULTING FEES Management and consulting fees June 2016 $ 25,262 – 17,756 June 2015 $ 1,343 1,686,534 (1,357,557) (4,079,785) (4,036,767) (42,748,742) (42,418,422) June 2016 $ 739,744 697,988 1,437,732 June 2015 $ (5,953,997) (136,200) (6,090,197) June 2016 $ 560,884 June 2015 $ 432,656 The company entered into an investment management agreement with ICM Limited (Bermuda registered) on 10 April 2013. Management fees are payable at a rate of 0.5% per annum, of funds managed on calculation date, payable quarterly in arrears and pro-rated for any period less than three months. Performance fees are payable annually at year end on the difference between adjusted equity funds (adjusted for any dividends paid or accrued) on calculation date less adjusted base equity funds (high-water mark) previously used in the performance fee calculation multiplied by 15%. The adjusted base equity funds is the base equity fund used in the last performance fee calculation adjusted by the average percentage income yield on the S&P/ASX 300 Metals and Mining Index. No performance fee was payable in the current period (2015: US$ Nil). Either party may terminate the agreement with six months’ notice. 16. OPERATING AND ADMINISTRATION EXPENSES Operating and administration expenses consist of: Accounting fees Audit fees Australian Stock Exchange listing fees Insurance costs Legal fees Other expenses June 2016 $ June 2015 $ 82,833 14,463 47,694 14,042 – 134,426 293,458 103,628 13,982 49,954 – 159,608 659,248 986,420 The company is domiciled in Bermuda and has elected to be tax exempt in terms of local legislation. As such no tax is payable. 18. LOSS PER SHARE Basic and diluted loss per share June 2016 $ (0.05) June 2015 $ (0.57) Loss used in calculation of basic and diluted earnings per share (6,974,491) (53,242,013) Weighted average number of ordinary shares outstanding during the year used in calculation of basic and diluted earnings per share 145,959,570 93,230,720 The weighted average number of ordinary shares calculation is based on the year beginning 1 July 2015. For details of shares issued during the year refer to note 19.2. An adjustment has been made for the 86,461,440 options issued during the year as they are considered to be in substance issued shares. 19. NOTES TO THE CASH FLOW STATEMENT 19.1 Cash utilised by operations Loss before income tax benefit Adjustments for: Realised (gains)/losses on investments Fair value loss on revaluation of investments Foreign exchange (gains)/losses Interest income Interest expense Operating loss before working capital change Decrease/(increase) in trade and other receivables Increase/(decrease) in trade and other payables Decrease/(increase) in balance due from brokers Increase/(decrease) in balance due to brokers June 2016 $ June 2015 $ (6,974,491) (53,242,013) (17,756) 4,079,785 (739,744) (25,262) 3,371,114 (306,354) 1,062 16,246 119,912 78,140 (90,994) 1,357,557 42,748,742 5,953,997 (1,343) 3,164,318 (18,742) (13,171) (3,553,320) (119,912) (43,336) (3,748,481) 44 45 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedNOTES TO THE FINANCIAL STATEMENTS (continued) 19. NOTES TO THE CASH FLOW STATEMENT (continued) 21. FINANCIAL RISK MANAGEMENT (continued) June 2016 $ June 2015 $ The table below sets out the company classification of each class of financial assets and liabilities. All assets and liabilities approximate their fair values: 19.2 Issue of shares Shares issued for consideration During the year ended 30 June 2016, following shareholder approval, in accordance with ASX listing rule 10.11, the company issued 6,769,280 ordinary shares on 7 December 2015, at a cost of A$0.2817 per share, to UIL Limited, raising the equivalent of US$1.352 million. 19.3 Issue of options Options issued for consideration During the year ended 30 June 2016, following shareholder approval, the company issued 86,461,440 options at a cost of A$0.2817 per option, to UIL Limited, raising the equivalent of US$17.27 million. These options are exercisable at a price of A$0.001 into one ordinary share until 7 December 2019. 20. AUDITOR REMUNERATION Amounts received or due and receivable by the auditors for audit of financial statements 21. FINANCIAL RISK MANAGEMENT 1,351,745 – June 2016 $ June 2015 $ 17,265,320 – June 2016 $ June 2015 $ 14,463 13,982 The board of directors, together with the Investment Manager, is responsible for the company’s risk management. The directors’ policies and processes for managing the financial risks are set out below. These financial risks are principally related to the market (currency movements, interest rate changes and security price movements), liquidity and credit and counterparty risk. The accounting policies which govern the reported statement of financial position carrying values of the underlying financial assets and liabilities, as well as the related income and expenditure, are set out in note 3 to the financial statements. The policies are in compliance with IFRS and best practice, and include the valuation of certain financial assets and liabilities at fair value through profit and loss. Categories of financial instruments The analysis of assets into their categories as defined in IAS 39 "Financial Instruments: Recognition and Measurement" (IAS 39) is set out in the following table. For completeness, assets and liabilities of a non-financial nature, or financial assets and liabilities that are specifically excluded from the scope of IAS 39, are reflected in the non-financial assets and liabilities category. 30 June 2016 Assets Investments in subsidiaries Investments Loans to subsidiaries Cash and cash equivalents Trade and other receivables Liabilities Loans from subsidiaries Trade and other payables Loan from parent Balance due to brokers 30 June 2015 Assets Investments in subsidiaries Investments Loans to subsidiaries Cash and cash equivalents Trade and other receivables Balance due from brokers Liabilities Loans from subsidiaries Trade and other payables Loan from parent Designated at fair value through profit and loss $ Loans and receivables $ Total carrying value $ 3,086,091 49,813,042 29,803,322 – – 82,702,455 – – – – – 3,193,721 43,686,192 23,894,270 – – – 70,774,183 – – – – – – – 238,893 12,109 251,002 3,754,667 192,220 36,165,296 78,140 40,190,323 – – – 193,267 13,171 119,912 326,350 4,395,787 175,974 35,408,212 39,979,973 3,086,091 49,813,042 29,803,322 238,893 12,109 82,953,457 3,754,667 192,220 36,165,296 78,140 40,190,323 3,193,721 43,686,192 23,894,270 193,267 13,171 119,912 71,100,533 4,395,787 175,974 35,408,212 39,979,973 46 47 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedNOTES TO THE FINANCIAL STATEMENTS (continued) 21. FINANCIAL RISK MANAGEMENT (continued) 21.1 Market risks 21. FINANCIAL RISK MANAGEMENT (continued) 21.1 Market risks (continued) The fair value of equity and other financial securities held in the company’s portfolio fluctuates with changes in market prices. Prices are themselves affected by movements in currencies and interest rates and by other financial issues, including the market perception of future risks. The board sets policies for managing these risks within the company’s objective and meets regularly to review full, timely and relevant information on investment performance and financial results. The Investment Manager assesses exposure to market risks when making each investment decision and monitors on-going market risk within the portfolio. The company’s other assets and liabilities may be denominated in currencies other than United States Dollars and may also be exposed to interest rate risks. The Investment Manager and the board regularly monitor these risks. The company does not normally hold significant cash balances. Borrowings are limited to amounts and currencies commensurate with the portfolio’s exposure to those currencies, thereby limiting the company’s exposure to future changes to amounts and currencies commensurate with the portfolio’s exposure to those currencies, thereby limiting the company’s exposure to future changes in exchange rates. Gearing may be short- or long-term, in United States Dollars and foreign currencies, and enables the company to take a long- term view of the countries and markets in which it is invested without having to be concerned about short-term volatility. Income earned in foreign currencies is converted to United States Dollars on receipt. The board regularly monitors the effects on net revenue of interest earned on deposits and paid on gearing. Currency exposure The principal currencies to which the company was exposed were the Australian Dollar, Sterling and New Zealand Dollar. The exchange rates applying against the United States Dollar at 30 June 2016 and the average rates for the year were as follows: AUD – Australian Dollar GBP – Sterling NZD – New Zealand Dollar June 2016 Average 0.7448 1.3271 0.7123 0.7279 1.4838 0.6681 The company’s monetary assets and liabilities at 30 June 2016 (shown at fair value), by currency based on the country of primary operations, are shown below: 30 June 2016 Cash and cash equivalents Trade and other receivables Loans to subsidiaries Loans from subsidiaries Loan from parent Trade and other payables Balance due to brokers USD 1,423 – – – – (170,258) – AUD 220,022 – 9,613,170 (2,857,128) (36,165,296) (21,962) (78,140) GBP 899 – NZD 16,549 12,109 836,352 19,353,800 – – – – (897,539) – – – Net monetary (liabilities)/assets (168,835) (29,289,334) 837,251 18,484,919 30 June 2015 Cash and cash equivalents Trade and other receivables Balance due to brokers Loans to subsidiaries Loans from subsidiaries Loan from parent Trade and other payables USD 5,516 – – – – AUD 184,734 13,171 119,912 3,890,613 (2,721,459) (25,734,714) (9,673,498) (169,003) (497) GBP 1,423 – – – – – – NZD 1,594 – – 20,003,657 (1,674,328) – (6,474) Net monetary (liabilities)/assets (25,898,201) (8,187,024) 1,423 18,324,449 Based on the financial assets and liabilities held, and exchange rates applying, at the reporting date, a weakening or strengthening of the United States Dollar against each of these currencies by 10% would have had the following approximate effect on annualised income after tax and on net asset value (NAV) per share: Strengthening of the United States Dollar Increase in total comprehensive loss for the year ended 30 June 2016 Increase in total comprehensive loss for the year ended 30 June 2015 Weakening of the United States Dollar Decrease in total comprehensive loss for the year ended 30 June 2016 Decrease in total comprehensive loss for the year ended 30 June 2015 AUD GBP NZD Total (1,970,597) (185,814) (3,017,865) (5,174,276) (2,603,181) (115,348) (2,791,518) (5,510,047) 1,970,597 185,814 3,017,865 5,174,276 2,603,181 115,348 2,791,518 5,510,047 These analyses are broadly representative of the company’s activities during the current year as a whole, although the level of the company’s exposure to currencies fluctuates in accordance with the investment and risk management processes. 48 49 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedNOTES TO THE FINANCIAL STATEMENTS (continued) 21. FINANCIAL RISK MANAGEMENT (continued) 21.1 Market risks (continued) Interest rate exposure The exposure of the financial assets and liabilities to interest rate risks at 30 June 2016 is shown below: 30 June 2016 Exposure to floating rates: Cash Exposure to fixed rates: Loan from subsidiaries Loan from parent 30 June 2015 Exposure to floating rates: Cash Exposure to fixed rates: Loan from subsidiaries Loan from parent Within one year $ Greater than one year $ Total $ 238,893 – 238,893 – – (3,754,667) (3,754,667) (36,165,296) (36,165,296) 193,267 – 193,267 – – (4,395,787) (4,395,787) (35,408,212) (35,408,212) Exposures vary throughout the year as a consequence of changes in the make-up of the net assets of the company arising out of the investment and risk management processes. The company tends to limit its cash reserves and interest earned is insignificant and therefore not sensitive to interest rate changes. Borrowings are at a fixed rate and not sensitive to interest rate risk. Other market risk exposures The portfolio of investments, valued at US$49,813,042 at 30 June 2016 (30 June 2015: US$43,686,192) is exposed to market price changes. The Investment Manager assesses these exposures at the time of making each investment decision. An analysis of the portfolio by country is set out on note 23. Price sensitivity risk analysis A 10% decline in the market price of the listed investment held by the company would result in an unrealised loss of $4,981,304. A 10% appreciation in the market price would have the opposite effect. 21. FINANCIAL RISK MANAGEMENT (continued) 21.2 Liquidity risk exposure Liquidity risk is the risk that the company will not be able to meet its financial obligations as they fall due. The company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meets its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the company’s reputation. The Investment Manager reviews liquidity at the time of making each investment decision. The contractual maturities of the financial liabilities, based on the earliest date on which payment can be required, were as follows: 30 June 2016 Loan from subsidiaries Trade and other payables Balance due to brokers Loans from parent 30 June 2015 Loan from subsidiaries Trade and other payables Loans from parent Three months or less $ More than three months but less than a year $ – 192,220 78,140 – 270,360 – 175,974 – 175,974 – – – – – – – – – More than a year $ Total $ 3,754,667 3,754,667 – – 192,220 78,140 36,165,296 36,165,296 39,919,963 40,190,323 4,395,787 4,395,787 – 175,974 35,408,212 35,408,212 39,803,999 39,979,973 21.3 Credit risk and counterparty exposure The company is exposed to potential failure by counterparties to deliver securities for which the company has paid, or to pay for securities which the company has delivered. To mitigate against credit and counterparty risk broker counterparties are selected based on a combination of criteria, including credit rating, balance sheet strength and membership of a relevant regulatory body. Cash and deposits are held with reputable banks. The company has an on-going contract with its Custodians for the provision of custody services. The contracts are reviewed regularly. Details of securities held in custody on behalf of the company are received and reconciled monthly. Maximum exposure to credit risk The company has loan assets totalling $29,803,322 (2015: $23,894,270) that is exposed to credit risk. None of the company’s financial assets are past due, but the loan asset to Zeta Energy has been impaired as per note 6. The company’s principal banker is Bermuda Commercial Bank (rated by Fitch as BBB-) and the company's principal custodian is JP Morgan Chase Bank (rated by Fitch as AA-). The subsidiary Kumarina holds a bank account with National Australia Bank (rated by Fitch as AA-). 50 51 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedNOTES TO THE FINANCIAL STATEMENTS (continued) 21. FINANCIAL RISK MANAGEMENT (continued) 21.4 Fair values of financial assets and liabilities 21. FINANCIAL RISK MANAGEMENT (continued) 21.4 Fair values of financial assets and liabilities (continued) The assets and liabilities of the company are, in the opinion of the directors, reflected in the statement of financial position at fair value. Borrowings under loan facilities do not have a value materially different from their capital repayment amount. Borrowings in foreign currencies are converted into United States Dollars at exchanges rates ruling at each valuation date. Unquoted investments are valued based on professional assumptions and advice that is not wholly supported by prices from current market transactions or by observable market data. Valuation of financial instruments The table below analyses financial assets measured at fair value at the end of the year by the level in the fair value hierarchy into which the fair value measurement is categorised: Level 1 The fair values are measured using quoted prices in active markets. Level 2 Level 3 The fair values are measured using inputs, other than quoted prices, that are included within level 1, that are observable for the asset. The fair values are measured using inputs for the asset or liability that are not based on observable market data. The directors make use of recognised valuation techniques and may take account of recent arms’ length transactions in the same or similar investments. The directors regularly review the principles applied by the Investment Manager to those valuations to ensure they comply with the company’s accounting policies and with fair value principles. Level 3 financial instruments Valuation methodology The directors have satisfied themselves as to the methodology used, the discount rates and key assumptions applied, and the valuation. The level 3 assets have each been assessed based on its industry, location and business cycle. Where sensible, the directors have taken into account observable data and events to underpin the valuations. The level 3 investments are split between (a) unlisted companies and (b) Investments and loans in subsidiaries. (a) Unlisted companies Seacrest LP (“Seacrest”) - Bermuda incorporated Valuation inputs: The unlisted investment comprises an equity interest in Seacrest. The company’s sole asset is its holding in Azimuth, a joint venture between Seacrest and PGS (the listed Norwegian seismic data service company). The valuation of Azimuth is based on fair value US GAAP accounting. Using the General Partner’s valuation of the Seacrest portfolio a discount is applied to each Azimuth subsidiary. The extent of the discount depends on whether the assets are in a mature or frontier basin. In addition, following the fall in the oil price a further discount was applied thereby calculating a fair value for Azimuth. On this basis Azimuth was valued as at 30 June 2016 at US$68.9m. Valuation methodology: Zeta has used a fair value valuation of Seacrest of US$0.86 per share based on the value of Azimuth, described above. Sensitivities: Given Azimuth is an exploration company its risks are significant in both directions. Should commercially recoverable oil not be discovered then the value will fall to nil. Should substantial commercially recoverable oil be discovered the valuation uplifts are significant. (b) Investments and loans in subsidiaries Zeta Energy - Singapore incorporated Valuation inputs: The key asset is the investment loan to Zeta Energy which was utilised for the purchase of listed investments, and which was impaired, through profit and loss, to the fair value of the company as determined by the directors based on the valuation of the investments held by Zeta Energy as at 30 June 2016. Valuation methodology: Zeta has used a fair value valuation of losses incurred by Zeta Energy on its investments by which to impair the loan value in the accounts as at 30 June 2016. Sensitivities: Given Zeta Energy’s assets comprise listed investments its risks are significant in both directions. Increases in share prices will increase the value of the loan and decreases in share prices will further decrease the value of the loan. Other investments and loans to subsidiaries Zeta has further investments and loans to subsidiaries valued at book and realisable value, with a total value of US$3.1m (2015: US$3.2m). 30 June 2016 Financial assets Investments Investment in subsidiaries Loan to subsidiary Level 1 $ Level 2 $ Level 3 $ 40,776,406 – – – – – 9,036,636 3,086,091 29,803,322 There have been no movements between the level 1 and level 3 categories. The following table shows a reconciliation from opening balances to closing balances for fair value measurements in level 3 investments of the fair value hierarchy: Balance at 1 July 2015 Acquisitions at cost Disposals during the year Total gains or losses recognised in: Fair value through profit or loss Balance at 30 June 2016 30 June 2015 Financial assets Investments Investment in subsidiaries Loan to subsidiary Balance at 1 July 2014 Acquisitions at cost Disposals during the year Total gains or losses recognised in: Fair value through profit or loss Balance at 30 June 2015 Level 3 investments $ Level 3 investments in subsidiary $ Level 3 loan to subsidiary $ 13,424,975 3,193,721 23,894,270 – – – – 12,416,347 – (4,388,339) 9,036,636 (107,630) (6,507,295) 3,086,091 29,803,322 Level 1 $ Level 2 $ Level 3 $ 88,101,079 – – – – – Level 3 investments $ Level 3 investments in subsidiary $ 15,968,054 10,275,234 29,803,322 Level 3 loan to subsidiary $ 15,968,054 10,275,234 – 1,000,000 1 35,321,826 – (5,293,501) – (3,543,079) (1,788,013) (11,427,556) 13,424,975 3,193,721 23,894,270 52 53 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources Limited NOTES TO THE FINANCIAL STATEMENTS (continued) 21. FINANCIAL RISK MANAGEMENT (continued) 21.5 Capital risk management The objective of the company is stated as being to maximise shareholder returns by identifying and investing in investments where the underlying value is not reflected in the market price. In pursuing this long term objective, the board has a responsibility for ensuring the company’s ability to continue as a going concern. It must therefore maintain an optimal capital structure through varying market conditions. This involves the ability to issue and buy back share capital within limits set by the shareholders in general meeting; borrow monies in the short and long term; and pay dividends to shareholders out of current year earnings as well as out of brought forward reserves. 22. RELATED PARTIES 22.1 Material related parties Holding company The company’s holding company is UIL which held 85.49% of the company’s issued share capital on 30 June 2016. UIL is in turn held 61.78% by General Provincial Life Pension Fund (L) Limited. Subsidiary companies The company’s subsidiaries are Kumarina, Zeta Energy and Zeta Investments, all 100% held subsidiaries. Key management personnel Key management personnel and their close family members and entities which they control, jointly or over which they exercise significant influence are considered related parties of the company. The company’s directors, as listed in the Director's report are considered to be key management personnel of the company. Investment Manager ICM Limited is the Investment Manager of both the company, its subsidiaries and UIL. 22.2 Material related party transactions Nature of transactions Investments in related parties: Kumarina Zeta Investments Zeta Energy Loans to related parties: Kumarina Zeta Energy Loans from related parties: Utilico Zeta Energy Interest charged by the subsidiaries Interest charged by the parent company Interest charged by the Investment Manager Fees paid to the Investment Manager Fees paid to the directors June 2016 $ June 2015 $ 3,086,089 1 1 3,193,719 1 1 130,344 29,672,978 30,832 23,863,438 36,165,296 3,754,667 35,408,212 4,395,787 318,776 3,051,091 1,225 344,464 150,000 552,203 2,412,137 109,120 559,409 150,000 During the year ended 30 June 2016 the company held a loan from its subsidiary Zeta Energy. To secure the loan Zeta Resources has pledged certain quantities of its shares held in listed entities. The shares pledged include: Resolute Mining Limited (27,300,000) and Panoramic Resources Limited (6,666,666). 23. SEGMENTAL REPORTING The company has four reportable segments, as described below, which are considered to be the company’s strategic investment areas. For each investment area, the company’s chief operating decision maker (“CODM”) (ICM Limited – investment manager) reviews internal management reports on at least a monthly basis. The following summary describes each of the company’s reportable segments: Gold: investments in companies which mine gold Oil & Gas: investments in companies which extract or prospect for oil or gas Mineral Exploration: investments in companies which explore or mine for nickel, copper and other minerals Other segments: activities which do not fit into one of the above segments Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before tax, as included in the internal management reports that are reviewed by the company’s CODM. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the performance of certain segments relative to other entities that operate within these industries. Information about reportable segments 30 June 2016 External revenues Gold $ Oil & gas $ Mineral exploration $ Other segments $ Total $ 22,471,287 (11,016,091) (15,375,751) (116,212) (4,036,767) Reportable segment revenue 22,471,287 (11,016,091) (15,375,751) (116,212) (4,036,767) Interest revenue Interest expense Reportable segment income/(loss) before tax – – – – – – 25,262 25,262 (3,371,114) (3,371,114) 22,471,287 (10,543,292) (15,150,562) (3,751,924) (6,974,491) Reportable segment assets 32,747,455 39,573,255 10,375,105 257,642 82,953,457 Reportable segment liabilities – – (78,140) (40,112,183) (40,190,323) 30 June 2015 External revenues Gold $ Oil & gas $ Mineral exploration $ Other segments $ Total $ (9,186,191) (14,599,002) (18,499,858) (269,571) (42,554,622) Reportable segment revenue (9,186,191) (14,599,002) (18,499,858) (269,571) (42,554,622) Interest revenue Interest expense Reportable segment loss before tax – – – – – – 1,343 1,343 (3,164,168) (3,164,168) (9,186,191) (14,599,002) (18,499,858) (10,956,962) (53,242,013) Reportable segment assets 9,861,293 38,971,352 21,936,822 331,066 71,100,533 Reportable segment liabilities – – – (39,979,973) (39,979,973) During the year there were no transactions between segments which resulted in income or expenditure. 54 55 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedNOTES TO THE FINANCIAL STATEMENTS (continued) 23. SEGMENTAL REPORTING (continued) 23. SEGMENTAL REPORTING (continued) Reconciliations of reportable segment revenues, profit or loss, assets and liabilities, and other material items Revenues Total revenue for reportable segments Revenue for other segments Revenue Profit or loss Total loss for reportable segments Loss for other segments Loss before tax Assets Total assets for reportable segments Assets for other segments Total assets Liabilities Total liabilities for reportable segments Liabilities for other segments Total liabilities June 2016 $ (3,920,555) (116,212) (4,036,767) (3,222,567) (3,751,924) (6,974,491) 82,695,815 257,642 82,953,457 (78,140) (40,112,183) (40,190,323) June 2015 $ (42,156,336) (262,086) (42,418,422) (42,285,051) (10,956,962) (53,242,013) 70,769,467 331,066 71,100,533 – (39,979,973) (39,979,973) Geographic information In presenting information on the basis of geography, segment revenue and segment assets are based on the geographical location of the operating assets of the investment held by the company. Revenue Australia Singapore Mali Namibia New Zealand Norway United Kingdom Other Countries Revenue June 2016 $ (8,497,796) (6,507,295) 15,579,453 (1,664,577) (1,665) (1,801,948) (595,749) (430,978) (3,920,555) June 2015 $ (22,361,895) (11,427,556) (5,104,743) (1,278,383) (94,932) (1,390,572) (455,871) (42,384) (42,156,336) Assets Australia Singapore Mali Namibia New Zealand Norway United Kingdom Other Countries Assets June 2016 $ 22,755,967 29,803,322 20,424,525 3,520,472 – 3,835,958 1,257,543 1,098,028 82,695,815 June 2015 $ 27,556,243 23,894,270 4,582,564 5,176,237 7,800 5,639,348 1,848,749 2,064,256 70,769,467 24. EVENTS AFTER THE REPORTING DATE The share price of Resolute Mining Limited has risen from A$1.285 as at 30 June 2016 to A$2.05 as at 12 September 2016, a 60% increase. This has increased the net assets of Zeta Resources Limited by approximately A$24 million (US$18 million). The share price of Panoramic Resources Limited has risen from A$0.135 as at 30 June 2016 to A$0.205 as at 12 September 2016, a 52% increase. This has increased the net assets of Zeta Resources Limited by approximately A$7 million (US$5 million). There have been no other facts nor circumstances of a material nature that have occurred between the reporting date and the date of this report that have a material impact on the financial position of the company at 30 June 2016 other than those listed in the notes above. 56 57 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources Limited ADDITIONAL ASX INFORMATION 1. SUBSTANTIAL SHAREHOLDERS As at 14 September 2016, the company had received notification of the following substantial shareholdings: UIL Limited Peter Ross Sullivan 86,388,449 (86.39%) 5,670,632 (5.67%) 4. VOTING RIGHTS All ordinary shares carry one vote per share without restriction. 2. DISTRIBUTION SCHEDULE OF ORDINARY SHARES HELD AT 14 SEPTEMBER 2016: 5. USE OF CAPITAL HOLDING RANGES 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over Total NO. OF SHARES 3,465 452,196 230,077 1,098,386 98,215,876 100,000,000 NO. OF ORDINARY SHAREHOLDERS % OF ISSUED CAPITAL Pursuant to the requirements of ASX listing rule 4.10.19 the company has used all cash and assets in a form readily convertible to cash, that it held at the time of admission, in a way consistent with its business objectives. 14 143 26 30 16 229 0.00 0.45 0.23 1.10 98.22 100.00 6. APPLICATION OF CHAPTERS 6, 6A, 6B AND 6C OF THE CORPORATIONS ACT 2001 The company is not subject to Chapters 6, 6A, 6B and 6C of the Corporations Act dealing with the acquisition of its shares. In addition, neither the Bermuda Companies Act nor the company’s Bye Laws prescribe a regime for the conduct of takeovers or contain a general prohibition on acquisitions of interests in Bermuda companies beyond a certain threshold in the same way as the Australian Corporations Act 2001. The number of shareholders holding less than a marketable parcel of ordinary shares at 14 September 2016 is 20 and they hold 10,896 securities. 7. KUMARINA TENEMENT SCHEDULE 3. TOP 20 HOLDINGS OF FULLY PAID ORDINARY SHARES AS AT 14 SEPTEMBER 2016 PROJECT AREA TENEMENT ID OWNERSHIP COMMENTS NAME J P Morgan Nominees Australia Limited HSBC Custody Nominees Australia Limited James Noel Sullivan Hardrock Capital Pty Limited Calimo Pty Limited Cherryburn Pty Limited Gillian Clare Sellers Custodial Services Limited National Nominees Limited John Gillis Broinowski Uuro Pty Limited AO Peter Irving Burrows Australian Executor Trustees Limited ACS (NSW) Pty Limited Pendan Pty Limited Minturn Pty Limited T J + K M Russell Stephanie Saville Bouchi Pty Limited John Dugald F Morrison Total for top 20 SHARES 85,489,612 7,652,619 1,308,595 600,000 576,510 350,000 350,000 281,300 279,565 260,000 250,000 200,000 200,000 170,000 127,675 120,000 100,000 70,110 64,000 60,000 % OF ISSUED CAPITAL 85.49 7.65 1.31 0.60 0.58 0.35 0.35 0.28 0.28 0.26 0.25 0.20 0.20 0.17 0.13 0.12 0.10 0.07 0.06 0.06 98,509,986 98.51 Gold and Base Metals Rights Gold and Base Metals Rights Ilgarari Eulaminna Murrin Murrin E52/2274 M39/0371 M39/0372 M39/0397 M39/0398 M39/0399 M39/0400 M39/1068 P39/5230 P39/5231 P39/5232 P39/5233 P39/5234 P39/5235 P39/5236 P39/5237 P39/5238 100% 0% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 58 59 Annual Report for the year to 30 June 2016Annual Report for the year to 30 June 2016Zeta Resources LimitedZeta Resources LimitedCOMPANY INFORMATION Zeta Resources Limited Company ARBN: 162 902 481 www.zetaresources.limited DIRECTORS (NON-EXECUTIVE) Peter Sullivan (Chairman) Marthinus (Martin) Botha Xi Xi REGISTERED OFFICE 34 Bermudiana Road Hamilton HM 11 Bermuda Company Registration Number: 46795 AUSTRALIAN REGISTERED OFFICE Level 9 45 Clarence Street Sydney NSW 2000 Australia Telephone: +61 2 9248 0304 INVESTMENT MANAGER ICM Limited 34 Bermudiana Road Hamilton HM 11 Bermuda Telephone: +1 441 299 2894 Email: contact@icmnz.co.nz SECRETARY Chamiel McDonald 34 Bermudiana Road Hamilton HM 11 Bermuda ASSISTANT SECRETARY BCB Charter Corporate Services Limited 34 Bermudiana Road Hamilton HM 11 Bermuda 60 GENERAL ADMINISTRATION ICM Corporate Services (Pty) Ltd 1 Knutsford Road Wynberg 7800 Cape Town South Africa AUDITOR KPMG Inc MSC House 1 Mediterranean Street, Foreshore 8001, Cape Town South Africa DEPOSITORY JP Morgan Chase Bank NA London Branch 25 Bank Street Canary Wharf London E14 5JP United Kingdom REGISTRAR Security Transfer Australia Pty Ltd 770 Canning Highway Applecross WA 6153 Australia Telephone: +61 8 9315 2333 STOCK EXCHANGE LISTING The company’s shares are quoted on the Official List of the Australian Securities Exchange, Ticker code: ZER Annual Report for the year to 30 June 2016Zeta Resources LimitedContact PO Box 25437 Featherston Street Wellington 6146 Telephone: +64 4 901 7600 www.zetaresources.limited 6 1 - N N A / A T E Z 

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