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2023 Report2020 ANNUAL REPORT SIGNIFICANT STAKES IN A SELECT RANGE OF KEY COMMODITY COMPANIES Zeta Resources Limited is a resource-focused investment holding company whose 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. NATURE OF THE COMPANY Zeta Resources Limited (“Zeta”, “Zeta Resources”, or the “Company”) is a closed-end investment company, whose ordinary shares are listed on the Australian Securities Exchange (“ASX”). The business of Zeta 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 contracted with an external investment manager, ICM Limited (the “Investment Manager” or “ICM”), to manage its investments and undertake the company secretarial function. WHY ZETA RESOURCES LIMITED? Zeta is a patient, long term investor, seeking and finding compelling value in the resources sector. Zeta’s investment aim is to maximise total returns for shareholders by identifying and investing in resource assets and companies in diverse commodity sectors where the underlying value is not reflected in the market price. Zeta has a select range of concentrated investments, where the Company has a meaningful influence on its investment. Rather than take a passive approach, Zeta is an active manager of its investments, working alongside investee management teams to ensure rational decision making, particularly in respect of capital allocation. In addition, Zeta often participates at a corporate governance level, and assists investee companies with its network of contacts and experience. Zeta utilises ICM as its Investment Manager. ICM has a global network of offices, including a specialist team devoted to research and analysis of resource companies. 1 Annual Report for the year to 30 June 2020 CONTENTS 2 Why Zeta Resources Limited? PERFORMANCE 3 4 5 6 7 Chairman’s Statement Group Performance Summary Current Year Performance Geographical Investment Exposure Associates of Zeta Resources INVESTMENTS 8 Investment Manager’s Report 16 Macro Trends Affecting Resources 17 Sector Summaries 21 Our Investment Approach 22 Five Largest Holdings 25 Investment Manager and Team GOVERNANCE 27 Directors 28 Report of the Directors 32 Corporate Governance Statement FINANCIAL STATEMENTS Independent Auditor’s Report 34 40 Auditor’s Independence Declaration 41 Financial Statements 45 Notes to the Financial Statements 67 SHAREHOLDER INFORMATION 69 COMPANY INFORMATION FINANCIAL CALENDAR Year End 30 June Annual General Meeting 25 November 2020 Half Year 31 December Half Year Announcement February 2020 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. 2 Zeta Resources Limited CHAIRMAN’S STATEMENT The biggest change in Zeta’s portfolio during the year was the acquisition of a majority stake in Horizon Gold Much ink has been spilled, and will be spilled, about Covid-19 and its impact. For perspective, I would start by noting that this is the eighth annual report produced by Zeta since the Company was listed on ASX. The world continues to demand commodities, and come what may, commodities by their very nature, will always be demanded. However, PETER SULLIVAN Chairman we can’t look back on the year under review without acknowledging that every commodity was, in turn, impacted by Covid-19, albeit in different ways. As a leveraged fund, Zeta felt the impact of swings in the commodity markets in a heightened way. Zeta’s loss for the year was US$22.4m, and the net asset value per share fell by 28.8%. The reason for the loss was not purely due to Covid-19, but also due to a reversal of fortune at one of Zeta’s largest investments – Panoramic Resources. During the year under review, Panoramic encountered significant difficulties in ramping up production at its Savannah nickel mine in Western Australia. When the Covid-19 crisis hit, the company decided to place Savannah back on to care and maintenance while Panoramic raised significant new equity to fund work to de-risk the mine. While the company’s outlook has stabilised, this outcome was disappointing. Following the successful sale of Zeta’s majority stake in Bligh Resources in July 2019, the biggest change in Zeta’s portfolio during the year was the increased shareholding in Horizon Gold by the acquisition from Panoramic of its holding. Like Bligh, Horizon Gold is a Western Australian gold junior, albeit Horizon Gold’s resource base and tenements are much larger, in a mining area that has produced over one million ounces historically. Zeta is pleased to have majority ownership of Horizon Gold, and since acquiring the stake has renewed management and supported the company with working capital and new equity to fund development. Horizon Gold’s share price has appreciated materially since the acquisition of the majority stake by Zeta. Beyond the above, Zeta has continued to invest modestly in the bauxite, copper and graphite sectors. The investment in bauxite has been in support of Zeta’s investment in Alliance Mining Commodities, owner of a Tier-1 bauxite asset in Guinea, West Africa. The investments in copper and graphite are in two commodities that in the long run will benefit from a shift to greater use of electric power and its storage, particularly in transportation. Looking forward, the near-term picture is uncertain as long as Covid-19 continues to constrain the movement of people, and to a lesser extent goods and services. Supply interruptions may temporarily boost certain commodity prices if mines are shut due to Covid-19, or prices may fall if demand in certain commodities is reduced by increased unemployment or economic recession. The longer-term outlook remains positive, as the world will continue to demand commodities. Finally, you will have seen that Zeta has recently launched a bonus issue of options. The bonus issue provides Zeta shareholders and the Company with added capital management flexibility and rewards shareholders’ support of Zeta. As a fellow shareholder in Zeta, I welcome this bonus issue, and add my personal thanks for your continued support of Zeta. Peter Sullivan Chairman 25 September 2020 3 Annual Report for the year to 30 June 2020 GROUP PERFORMANCE SUMMARY Total return(1) (annual) (%) Net tangible asset per ordinary share(2) (Australian cents) Ordinary share price (Australian cents) Discount (%) Loss per ordinary share(3) (US dollars) Dividends per ordinary share Equity holders' funds (US$m) Gross assets(4) (US$m) Cash (US$m) Other debt (US$m) Net debt (US$m) Net debt gearing on gross assets (%) 30 June 2020 30 June 2019 % change 2020/19 (28.8) 26.0 18.0 (30.8) (0.08) Nil 51.6 (36.5) 36.6 35.5 (3.0) (0.17) Nil 74.0 127.5 133.3 0.0 (75.9) (75.9) 59.5 0.1 (59.3) (59.2) 44.4 21.1 (28.8) (49.3) 927.0 52.94 n/a (30.3) (4.4) (100.0) 28.0 28.2 n/a (1) Total return is calculated based on NTA per share return plus dividends reinvested from the payment date. (2) The NTA is calculated based on 287,643,076 shares on issue as at 30 June 2020, and 287,763,076 shares on issue as at 30 June 2019. (3) Earnings per share is based on the weighted average number of shares in issue during the year. (4) Gross assets less liabilities excluding loans. n/a = not applicable 4 Zeta Resources Limited CURRENT YEAR PERFORMANCE NAV TOTAL RETURN PER ORDINARY SHARE SHARE PRICE RETURN PER SHARE NAV DISCOUNT AS AT 30 JUNE 2020 GEARING 28.8% 49.3% 30.8% 59.5% EARNINGS PER SHARE ORDINARY SHARES BOUGHT BACK AVERAGE PRICE OF ORDINARY SHARE BOUGHT BACK ONGOING CHARGES (US$0.08) 70,000 A$0.24 2.2% TOTAL RETURN COMPARATIVE PERFORMANCE* Since inception on 12 June 2013 to 30 June 2020 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 Zeta Share Price S&P/ASX 200 Energy S&P/ASX 300 Metals & Mining *AUD, rebased to 100 as at 12 June 2013. Zeta NTA adjusted for February 2014 entitlement issue. Source: ICM and S&P Dow Jones Indices 5 Annual Report for the year to 30 June 2020 GEOGRAPHICAL INVESTMENT EXPOSURE (% OF TOTAL INVESTMENTS) GUINEA June 2020 June 2019 43.4% 25.1% AUSTRALIA June 2020 June 2019 33.8% 53.4% CANADA June 2020 June 2019 12.5% 10.3% 4.7% 2.2% MALI June 2020 June 2019 SENEGAL June 2020 2.4% 3.4% 1.4% OTHER June 2020 June 2019 1.8% 5.6% SRI LANKA June 2020 June 2019 Source: ICM 6 Zeta Resources Limited ASSOCIATES OF ZETA RESOURCES AS AT 30 JUNE 2020 GME Resources Limited Seacrest L.P. Nickel & Gold Oil & Gas ASX-listed junior nickel and gold explorer Substantial nickel resources in Western Australia 40.2% Global exploration firm Widely diversified portfolio of exploration interests 38.7% Alliance Mining Commodities Limited Bauxite Unlisted bauxite development company World class bauxite asset in Guinea, West Africa 35.6% Margosa Graphite Limited Graphite Unlisted graphite explorer Focused on high grade vein graphite in Sri Lanka 34.3% 7 Annual Report for the year to 30 June 2020 INVESTMENT MANAGER’S REPORT For the second year in a row, most commodities Zeta is invested in either decreased in price or were up slightly, with the exception of gold, which performed particularly well. The second half of the financial year was dominated by the worldwide impact of Covid-19, but it affected different commodities in different ways. Each of those commodities will be discussed below. DUGALD MORRISON At the start of the year, Zeta’s largest commodity exposures were fairly evenly balanced, with 25% of gross assets in bauxite, 24% in nickel, and 23% in gold. By the end of the year, the split was 43% bauxite, 18% gold, 14% nickel and 14% copper with investment during the year increasing graphite to 5%. Zeta’s current portfolio is well placed to benefit from any 8 increasing demand from the use of batteries such as for electric vehicles. As a leveraged investment company with small company exposure, the overall decline in commodity prices was exacerbated in Zeta’s NAV performance. During the year under review, Zeta’s net assets per share fell from A$0.366 to A$0.26, a fall of 28.8%. For comparison, the S&P/ASX 200 Energy index fell 31.2% over the same period, and the S&P/ASX 300 Metals & Mining index which includes gold mining stocks, declined only 4.0%. Zeta’s share price fell 49.3% to A$0.18. At the start of the period the share price was at a 3.0% discount to net assets; at the end of the period the share price was at a 30.8% discount to net assets. Since year end, Zeta has added to its gold investments by participating in entitlement issues in support of exploration and development programmes. The entitlement issues have been attractively priced by the issuers. Zeta Resources Limited IN THE YEAR TO 30 JUNE 2020 GUINEA IS ZETA’S LARGEST COUNTRY EXPOSURE AT 43.4% AUSTRALIA IS ZETA’S SECOND LARGEST COUNTRY EXPOSURE AT 33.8% CANADA REMAINS ZETA’S THIRD LARGEST COUNTRY EXPOSURE AT 12.5% 18.0% 19.6% 2.2% SRI LANKA IS ZETA’S FOURTH LARGEST COUNTRY EXPOSURE AT 4.7% MALI IS ZETA’S FIFTH LARGEST COUNTRY EXPOSURE AT 2.4% SENEGAL IS ZETA’S SIXTH LARGEST COUNTRY EXPOSURE AT 1.4% 2.5% 1.0% 1.4% Note: decreases/increases refer to the movement in the portfolio percentage of the relevant country SECTOR SPLIT OF INVESTMENTS 13 AI 29 Cu Bauxite Gold Nickel 43.4% 79 Au 17.9% 28 Ni 13.9% Copper Graphite Cobalt 13.5% Oil & Gas 1.3% 6 C 4.7% 27 Co 2.4% Other Cash 2.0% 0.9% 9 Annual Report for the year to 30 June 2020 INVESTMENT MANAGER’S REPORT (continued) COMMODITY MARKETS Nickel As noted, during the year under review the price of gold increased while the prices of oil and aluminium fell, and nickel and copper both increased slightly. The US dollar gained in strength, which benefited Australian and Canadian miners. Zeta’s largest geographical exposure is to Guinea, where at year end, 43.4% of the portfolio was invested. Australia is second, with just over a third of portfolio; and Canada third, with about a seventh of the portfolio. Aluminium Aluminium prices fell for the second year in a row. At the start of the year, aluminium was US$0.80 per pound; by the end of the year it was US$0.73 per pound, a decrease of 9.6%. Aluminium prices weakened in the wake of the Covid-19 pandemic, and unlike commodities such as copper which have seen significant interruptions in supply as mines have been closed to prevent the spread of the disease, supply of aluminium has not reduced as much as demand has fallen. Demand in Japan and Korea has been significantly weaker, although since year end China has become a net exporter of aluminium for the first time in 11 years. During the year, Zeta increased its holding in unlisted bauxite developer Alliance Mining Commodities Limited (“AMC”) through support of a capital raising. AMC owns a world-class bauxite deposit in Guinea. At the start of the year under review, nickel prices performed strongly. This was due largely to low available stocks, coupled with supply disruptions in Indonesia. However, the second half of the year under review was dominated by the impact of Covid-19. Overall, for the twelve months ended June 2020, the price of nickel increased 1.0% to US$5.80 per pound. In the long term, nickel demand will be sustained in part by increasing demand for electric vehicles (“EVs”). EVs’ lithium-ion batteries, despite their name, require a much larger amount of nickel than lithium. In the near term, however, Covid-19 and its impact on global economies will have the biggest impact on nickel prices, either muting demand, or conversely being boosted by fiscal stimuli. Zeta’s chief investment in the nickel sector remains Panoramic Resources Limited (“Panoramic”), while Zeta has a smaller, but still significant investment in GME Resources Limited (“GME Resources”). Unfortunately, Panoramic encountered significant problems as it attempted to ramp up production at its Savannah mine in Western Australia. The Covid-19 pandemic was the final straw, pushing the company to place Savannah back onto care and maintenance while it raised significant new capital to be used to de-risk the mine. Zeta participated in Panoramic’s capital raising, but the significant amount of capital raised diluted Zeta’s stake in Panoramic, although as at 30 June 2020 Panoramic remained Zeta’s second largest investment. ALUMINIUM PRICE from June 2018 to June 2020 NICKEL PRICE from June 2018 to June 2020 1.40 1.20 1.00 0.80 0.60 14 12 10 8 6 4 2 Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 US$/lb A$/lb US$/lb A$/lb Source: LME Source: LME Deflation continues to be a major cause of concern for central banks. 10 Zeta Resources Limited Gold The price of gold rose significantly during the year under review. At the end of June 2019 the price of gold was US$1,409 per ounce; at the end of June 2020 the gold price was US$1,768 per ounce, a rise of 25.5%. In Australian dollars, the rise was more pronounced, from A$2,012 per ounce to A$2,573, a rise of 27.9%. The biggest increase in gold prices came during the second half of Zeta’s financial year, as the Covid-19 crisis hit, and as central banks, particularly the US Federal Reserve, demonstrated a commitment to greatly increasing liquidity in the markets. Historically, gold has performed well in US dollar terms when the Fed has employed quantitative easing. Market commentators have observed that whereas in decades past a significant increase in the money supply would ordinarily lead to an increase in consumer prices, now we see large increases in the money supply without any apparent increase in consumer prices. In fact, deflation continues to be a major cause of concern for central banks. A reasonable conclusion would be that central banks have decided that increasing the money supply only increases asset prices. While this raises concerns over a widening of the gap between rich (those with assets) and poor (those without), central bankers have observed that increased unemployment would be most keenly felt by the relatively poorer members of society. Thus the current policy looks set to continue, which bolsters the near term outlook for gold. During the year Zeta made another significant investment in gold, by increasing its stake in Western Australia based Horizon Gold Limited (“Horizon Gold”) from Panoramic. Since acquiring a majority holding, Zeta has supported Horizon Gold through a recent entitlement issue to raise capital for development and exploration. Zeta’s other significant gold investment is in Resolute Mining Limited (“Resolute”). Resolute started the year with a share price of A$1.33, and finished the year with a share price of A$1.25, down 6.0%. Resolute ran into operational difficulties in the first half of Zeta’s financial year. However, it has worked largely to resolve these problems, and is producing well from its two operating mines in Mali and Senegal. Once its hedges – a requirement of its recently renegotiated debt facility – expire, the company should generate strong cash flows should gold prices remain at current levels or higher. GOLD PRICE from June 2018 to June 2020 2,800 2,500 2,200 1,900 1,600 1,300 1,000 Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 Spot Price US$ Spot Price A$ Source: Kitco - London PM Fix 11 Annual Report for the year to 30 June 2020 INVESTMENT MANAGER’S REPORT (continued) Copper Oil & Gas At the start of the year under review, the Brent Crude Oil price was US$65/bbl; by the end of June 2020 the price of Brent was US$42/bbl, a decline of 35.5%. Oil prices were hit hardest by the Covid-19 pandemic, as economic activity slowed, but air travel and tourism were two of the hardest hit sectors. While prices have recovered, they remain below the key level of US$50/ bbl, which is the estimated breakeven production price for US unconventional (fraccing) production. Zeta’s largest investment in this sector is in the exploration firm Seacrest L.P., which is unlisted. BRENT CRUDE OIL PRICE from June 2018 to June 2020 130 110 90 70 50 30 10 Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 US$/bbl A$/bbl Source: US Energy Information Administration For the first half of the year under review, the price of copper performed poorly, as investors were concerned with industrial demand in the wake of a slowing Chinese economy and trade wars. After a brief uptick in early January, the copper price fell sharply later in the month, followed by a more drastic decline in March amidst the Covid-19 pandemic. As fears of a deep recession have subsided and investor concerns shifted to shrinking inventory levels and increased demand from China, the copper price has rebounded sharply. At the end of June 2020, the copper price was US$2.71, identical to the price at the end of June 2019. Since year end, the copper price has continued to rise, climbing above US$3.00 per pound for the first time since June 2018. Zeta’s largest investment in the copper sector is Canadian copper firm Copper Mountain Mining Corporation (“Copper Mountain”), which produces copper in British Columbia, and has a copper development project in Queensland, Australia. During the year under review, Zeta increased its holding in Copper Mountain from 12.8% to 19.99%. COPPER PRICE from June 2018 to June 2020 5.00 4.00 3.00 2.00 Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 US$/lb A$/lb Source: LME The second half of the year under review was dominated by the impact of Covid-19. 12 Zeta Resources Limited CAPITAL STRUCTURE Zeta is a closed-end investment company, listed on the ASX, and incorporated in Bermuda. During the year Zeta has had working capital support from its parent company, UIL Limited (“UIL”). As of 30 June 2020, Zeta had a loan from UIL totalling US$68.3 million, drawn in Australian dollars and Canadian dollars. As at 30 June 2020, Zeta had total assets of US$132.9 million (2019: US$133.7 million). Of this figure, US$57 million (2019: US$32.8 million) was invested in the bauxite sector; US$20.6 million (2019: US$30.1 million) was invested in the gold sector; US$36.2 million (2019: US$57.9 million) was invested in the nickel and copper sectors; and US$1.78 million (2019: US$5.03 million) was invested in the oil & gas sector. NTA PER SHARE VERSUS SHARE PRICE Since inception on 12 June 2013 to 30 June 2020 s r a l l o D n a i l a r t s u A 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 Jun 19 Jun 20 NTA Closing Share Price Source: ICM FINANCIAL RESULTS The net loss after tax for the year was US$22,367,826 against a loss of US$48,687,361 in the year ended June 2019. The net loss was comprised largely of unrealised losses from investments, taxation provided for and interest expense. 13 Annual Report for the year to 30 June 2020 INVESTMENT MANAGER’S REPORT (continued) LOOK-THROUGH RESERVES & RESOURCES Zeta’s investment portfolio includes exposure to the following commodities, weighted by the percentage ownership of investee declared Reserves and Resources as follows as at the end of June 2020: RESERVES Proved & Probable RESOURCES Measured & Indicated 0.51 m oz 1.12 m oz 2.22 m oz 2.81 m oz 0.40 m t 0.61 m t 0.28 m t 0.35 m t 0.02 m t 0.02 m t 14.02 m t 136.44 m t Gold Silver Copper Nickel Cobalt Alumina 79 Au 47 Ag 29 Cu 28 Ni 27 Co 13 AI 14 Zeta Resources Limited SIGNIFICANT INVESTMENTS Kumarina The five largest investments held by Zeta are considered in greater detail in their own section later in this annual report. The remaining significant investments are as follows. Resolute Mining Resolute is an Australian-headquartered gold company with two operating mines, Syama in southern Mali, and Mako in Senegal. Resolute has been transitioning Syama from surface operations to a significant new underground operation, which is making use of innovative automated technology. During the first half of the year under review, Syama encountered significant operating difficulties, including a crack in the roaster, and metallurgical problems. Resolute has worked assiduously to correct these problems, and the latter half of the year has seen much improved volumes. Provided neither of its mines are shut due to Covid-19, the company should enjoy significant cash flows, particularly as old hedges at lower gold prices expire. GME Resources GME is a Perth-based nickel exploration company focused on the development of is 100%-owned NiWest Nickel-Cobalt Project, located in the Laverton district of Western Australia (adjacent to Minara Resources). GME and its subsidiary Golden Cliffs NL also own a number of prospective gold projects in the Leonora – Laverton region. Subsequent to year end, Zeta participated in an equity raising by GME to fund infill drilling programmes and exploration work at the company’s Fairfield and Homeward Bound / Federation gold prospects located in close proximity to the NiWest Nickel–Cobalt Project. Kumarina Resources Pty Limited (“Kumarina”) is a 100%-owned subsidiary of Zeta. The company is focused on two 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. Project area Tenement ID Ownership Comments Ilgarari E52/2274 100% Eulaminna M39/0371 M39/0372 Murrin Murrin M39/0397 M39/0398 M39/0399 M39/0400 M39/1068 0% Gold and Base Metals Rights 0% Gold and Base Metals Rights 100% 100% 100% 100% 100% JDF Morrison ICM Limited Investment Manager 25 September 2020 15 Annual Report for the year to 30 June 2020 MACRO TRENDS AFFECTING RESOURCES E-VEHICLES • Nearing tipping point where all factors for growth are in place • EVs use more commodities such as nickel and copper than traditional vehicles • Potential spike in demand for several metals, including lithium, cobalt, and manganese • Increased demand for flake and vein graphite • New battery technologies may limit demand for certain battery metals RENEWABLES • Consumer pull and government push for renewables • Price of solar and wind continue to reduce • Renewables increasing, but still a relatively small component of total energy mix • Low price of natural gas reducing carbon footprint and industrial demand for renewables COVID-19 DISRUPTION • Disruptions to both production and demand causing increased volatility for many commodities • Near-term oil demand drastically reduced due to sudden reduction in flights, cruise ship operations, and all forms of international travel • Several leading indicators suggested heightened risk of recession prior to pandemic; an extended recession would challenge demand for energy and industrial commodities over the medium term • US-China tensions continue to rise, in part due to Covid-19 • Significant risk to US and other countries of additional or extended shutdowns from increasing cases or a “second wave” GLOBAL DEBT • Unprecedented increase in global government debt on a relative basis, exacerbated further by the pandemic • Record government spending to counteract economic impact from extended shutdowns • Increasing demand for gold as protection from risk of fiat money inflation • Many central governments have reduced interest rates, with negative rates in some cases; low rates contributing to increasing corporate and consumer debt • Risk to global economy, and thus demand for industrial commodities CHINA URBANISATION • Central government spending on new cities helps manage GDP growth • Smooths cycles and sustains demand for industrial commodities • China is significantly now the largest consumer of several major commodities • Government committed to renewables and EVs • Pollution reduction targets reducing obsolescent refineries and reducing production of certain commodities, e.g. aluminium • Long term growth in question as Chinese population ages and effects of trade disputes impact Chinese economy 16 Zeta Resources Limited SECTOR SUMMARIES AS AT 30 JUNE 2020 BAUXITE 13 AIAluminium NICKEL 28 NiNickel Overview • Aluminium is the most widely used metal after iron; its primary usage is in alloys where its light weight is preferred • Bauxite is the primary ore from which aluminium is extracted; the ore must first be chemically processed to produce alumina (aluminium oxide); alumina is then smelted using an electrolysis process to produce pure aluminium metal • Diversified sources of production, albeit less than other commodities invested in by Zeta • Largest bauxite producer Australia, followed by China, with Guinea third • Largest bauxite reserves are in Australia and Guinea; Vietnam is a distant third Macro trends • Alumina production has been in increasing trend since early 1980s • Australia a big producer of bauxite and alumina, but relatively little smelting done there • Aluminium prices trending down since peaking in April 2018 Exposure • 36% of Alliance Mining Commodities (unlisted) – owner and developer of a world-class bauxite resource in Guinea Overview • Industrial metal used primarily in stainless steel • Other uses include electroplating, alloy steel, and in cathodes for electric batteries • Diversified sources of production • Largest producers Indonesia, Philippines, New Caledonia, Russia, Australia, Canada Macro trends • Demand for nickel for lithium-ion batteries increasing quickly, but still relatively small component of global nickel demand • Prices spiked in Q3 2019 following announcement of Indonesia’s intention to ban exports of unrefined nickel ore, followed by a precipitous decline through 1H 2020 due to slowing demand, further exacerbated by Covid-19 • Industrial demand still influenced by strength of Chinese economy Exposure • 40% of GME Resources (ASX:GME) – owns development project in Western Australia • 17% of Panoramic Resources (ASX:PAN) – nickel producer in Western Australia 17 Annual Report for the year to 30 June 2020 SECTOR SUMMARIES AS AT 30 JUNE 2020 (continued) GOLD 79 AuGold COPPER 29 CuCopper 18 Overview • Precious metal, prized for its rarity and relative lack of chemical reactivity • Gold occurs naturally in only a single isotope • Historic demand has been 50% jewellery; 40% investment; 10% industrial • Diversified sources of production • Largest producers China, Australia, Russia, United States Macro trends • Hedge to US dollar which has declined long term against gold • Price of gold has been climbing since 2H 2018, now approaching and attaining record highs amidst global economic uncertainty and unprecedented increase in government debt worldwide • Gold production has been in a long-term downtrend since record-keeping commenced • Demand for jewellery dominated by China and India; US a distant third Exposure • 100% of Kumarina (unlisted) – exploration and development in Western Australia • 69% of Horizon Gold (ASX:HRN) – exploration and development in Western Australia • 1% of Resolute Mining (ASX:RSG) – operating mines in Mali and Senegal Overview • Industrial metal used primarily in electrical wiring • Other uses are roofing and plumbing; industrial machinery; and in alloys • Occurs naturally in a form that requires relatively little refining • Diversified production, but Chile by far the largest producer with Peru and China distant second and third Macro trends • Annual production has been increasing for over fifty years, but with a sharp uptick in late 1990s • Prices relatively volatile, generally tied to world economy. Prices collapsed in March 2020 but recovered quickly on supply concerns in Chile • Increasing demand from wiring for electric vehicles, but price still dominated by industrial demand or lack thereof Exposure • 100% of Kumarina (unlisted) – junior copper-gold exploration firm in Western Australia • 20% of Copper Mountain Mining (TSX:CMMC, ASX:C6C) – producing copper in Canada, and developing a copper asset in Australia Zeta Resources Limited OIL & GAS Overview • Oil is a fossil petroleum liquid whose primary use is fuel; around 80% of oil is refined into gasoline, diesel, and jet fuel, with the remaining 20% supplying various products including lubricants, asphalt, and petrochemicals • Natural gas is a petroleum gas whose primary uses are heating, electricity generation, and feedstock for petrochemicals • Globally diverse sources of production and demand • Largest producers of oil are US, Saudi Arabia, and Russia; largest producers of gas are the US and Russia, with Iran a distant third Macro trends • “Peak oil” has been discussed for decades, but long-term trend of annual growth in production still intact • Annual growth in demand has followed a linear trend in line with world population growth, but is expected to fall by a record 8 mb/d due to drastic decline in demand amidst Covid-19 pandemic • Lower prices since 2014 have led to reduced global expenditures on oil & gas exploration, but technological improvements led to increased supply, especially in the US • Fraccing has moved the US into the number one position in both oil and gas production; fraccing has had less success outside of North America. Stockpiling of natural gas has materially slowed demand for LNG, meaning the fraccing industry has not yet recovered to the same extent as oil producers Exposure • 39% of Seacrest (unlisted) – globally diversified oil & gas exploration using seismic where advantageous 19 Annual Report for the year to 30 June 2020 SECTOR SUMMARIES AS AT 30 JUNE 2020 (continued) COBALT 27 CoCobalt GRAPHITE 6 CCarbon 20 Overview • Industrial metal used primarily in rechargeable batteries such as lithium-ion • Other uses include superalloys, integrated circuits and other industrial processes • Vast majority is produced as a by-product of copper or nickel mining • Roughly 60% of cobalt ore is produced in the Democratic Republic of the Congo, and more than 60% of smelting capacity is in China Macro trends • Cobalt demand has climbed alongside increased adoption of EVs and other electronics • Cobalt prices soared in 2017 amidst fears of a supply shortage, but crashed in 2018 and have remained low as the near-term supply-demand imbalance was resolved, and long- term demand growth is uncertain • Some manufacturers, including Tesla, have developed lithium-ion batteries that require relatively less cobalt (also developing cobalt-free batteries), but industry consensus is that the metal will continue to be required in future EV batteries, albeit likely at lower volumes per unit Exposure • 40% of GME Resources (ASX:GME) – Australian nickel developer with cobalt resources of 55,000 tonnes • 17% of Panoramic Resources (ASX:PAN) – Australian nickel producer with cobalt reserves of 7,600 tonnes Overview • Graphite is the most stable form of carbon under standard conditions, and is a form of coal • Found in three natural forms: amorphous; flake (or crystalline); and vein (or lump) • Flake and vein graphite have application in anodes in lithium-ion batteries • Graphite can be produced synthetically, although current production methods yield a purer graphite from natural ores • With modern chemical purification processes and thermal treatment, natural graphite achieves a purity of 99.9 percent compared to 99.0 percent for the synthetic equivalent • Largest producer of graphite is China; biggest graphite reserves are in Turkey Macro trends • Main uses of graphite are brake linings, foundry operations, lubricants, refractory applications, and steelmaking • Growth of production of lithium-ion batteries is causing a rapid increase in demand for graphite • Weak prices in 2019/20 due to increased supply and slower demand growth, but long-term forecast still strong Exposure • 34% of Margosa Graphite Limited (unlisted) – Sri Lankan brownfield explorer of vein graphite, the purest naturally occurring graphite Zeta Resources Limited OUR INVESTMENT APPROACH ICM is a value investor and generally operates focused portfolios with narrow investment remits. ICM has several dedicated research teams who have deep knowledge and understanding in their specific sectors, which improves the ability to source and make solid investments. ICM has approximately US$2.2bn of assets directly under management and is responsible indirectly for a further US$19.6bn of assets in subsidiary investments. ICM looks to exploit market and pricing opportunities and concentrates on absolute performance. The investments are not market index driven and ICM is unlikely to participate in either an IPO or an auction unless there is compelling value. Zeta seeks to leverage ICM’s investment abilities in order 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 bauxite, gold, copper, nickel, graphite, oil & gas and base metals exploration and production. S T A B L E & S U P P O R T I V E F R A M E W O R K We seek out and make compelling investments SUPERIOR, CONSISTENT PERFORMANCE Long Term Deep Value Cash Generative Bottom Up Approach Active Investors Investee Relationships Detailed Company Knowledge Extensive Industry Experience Sector Focused DEEP SECTOR KNOWLEDGE I N D E P E N D E N C E & I N T E G R I T Y 21 Annual Report for the year to 30 June 2020 FIVE LARGEST HOLDINGS THE VALUE OF THE FIVE LARGEST HOLDINGS REPRESENTS THE VALUE OF THE TEN LARGEST HOLDINGS REPRESENTS GUINEA IS ZETA’S LARGEST COUNTRY EXPOSURE AT THE TOTAL NUMBER OF COMPANIES INCLUDED IN THE PORTFOLIO IS 87.4% (2019: 82.3%) OF TOTAL INVESTMENTS 93.6% (2019: 90.6%) OF TOTAL INVESTMENTS 43.4% (2019: 25.1%) OF TOTAL INVESTMENTS 28 (2019: 24) 22 Zeta Resources Limited 1 2 3 Alliance Mining Commodities Limited is an unlisted Australian company that has been granted a mining concession for the development of the Koumbia Bauxite Project in the northwest of the Republic of Guinea. The Government of Guinea holds a 10% free-carried interest in AMC’s Guinea subsidiary which holds the concession. The Koumbia Bauxite Project is a world class bauxite development, with a JORC (2012) resource in excess of 2 billion tonnes. The Koumbia ore, high in alumina and low in reactive silica and boehmite, makes it particularly attractive for use in a low temperature, low cost, refining process. Panoramic Resources Limited is a Western Australian mining company that owns 100% of the Savannah underground nickel sulphide mine, located in the East Kimberley in Western Australia. Having encountered various operational difficulties ramping up production at Savannah following a period of the mine being on care & maintenance, Panoramic elected to place Savannah back onto care & maintenance when the Covid-19 crisis hit. The company has used the time while production has ceased to raise significant new capital and work towards de-risking the mine. Going forward, Panoramic’s value will be 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. Country Guinea Sector Bauxite developer Fair Value US$000 % of total investments % owned 57,000 43.4% 35.6% Country Australia Sector Nickel exploration and mining Fair Value US$000 % of total investments % owned 19,237 14.7% 16.8% Copper Mountain Mining Corporation is a Canadian copper mining company headquartered in Vancouver, British Columbia. Its chief asset is 75% of the Copper Mountain mine located about 20 km south of Princeton, British Columbia and 300 km east of the port of Vancouver. Mitsubishi Materials Corporation owns the remaining 25%. The mine has a reserve life of over 30 years and produces 90-100 million pounds of copper equivalent per year, including significant gold and silver credits, all of which are shipped to Japan for smelting in one of Mitsubishi’s copper smelters. Copper Mountain also owns the Eva Copper Project, which is located 75 kilometres from the town of Cloncurry and 95 kilometres north-east of Mt Isa in north-west Queensland, Australia. The project comprises one of Australia’s largest undeveloped copper resources, containing 1.9 million tonnes of copper and 590,000 ounces of gold. Countries Sector Canada and Australia Copper exploration and mining Fair Value US$000 % of total investments 17,183 13.1% % owned 19.9% 23 Annual Report for the year to 30 June 2020 FIVE LARGEST HOLDINGS (continued) 4 5 Country Australia Sector Gold Fair Value US$000 15,108 % of total investments 11.5% % owned 69.0% Countries Sri Lanka Sector Graphite Fair Value US$000 6,205 % of total investments 4.7% % owned 34.3% Horizon Gold Limited is focused on exploration and development activities at its 100%-owned Gum Creek Project in Western Australia. Gum Creek covers approximately 620 square kilometres and has historically produced over one million ounces of gold. Gum Creek hosts JORC 2012 Resources of 15.9 million tonnes averaging 2.7g/t gold for 1.39 million ounces of gold. The company was spun off from nickel company Panoramic Resources in 2016 and Zeta participated in the IPO. In 2020 Zeta acquired Panoramic’s majority holding in Horizon Gold, and has subsequently supported the company through providing working capital and participating in an entitlement issue to raise new equity. Margosa Graphite Limited is an unlisted Australian company targeting development of JORC-compliant high grade crystalline vein graphite deposit in Sri Lanka. Sri Lanka has a long history of graphite production since the mid 1800s, and is home to some of the purest grade graphite in the world. Sri Lankan high quality graphite has varied applications, including in anodes for lithium-ion batteries used in electric vehicles. In May 2020, Margosa announced revised Mineral Resources totalling approximately 1,724,610 tonnes, at 76.32% total graphitic content and approximately 1,316,190 tonnes of contained graphite, including Indicated Resources of approximately 582,610 tonnes grading 75.83% TGC for 441,790 tonnes of contained graphite. 24 Zeta Resources Limited INVESTMENT MANAGER AND TEAM The directors are responsible for Zeta’s investment policy and have overall responsibility for the Company’s day-to-day activities. Zeta has, however, entered into an Investment Management Agreement with ICM Limited under which ICM provides investment management services to Zeta, including investment analysis, portfolio monitoring, research and corporate finance. ICM is an international Fund Manager and Corporate Finance Adviser headquartered in Bermuda, with 10 offices globally. ICM has expertise in listed equity, private equity, and fixed income bonds, and specialises in the following investment sectors: utility & infrastructure, financial services, mining and resources, technology, and fixed income. ICM focuses on identifying investments at valuations that do not reflect their true long-term value and then assisting management to add value where appropriate. Their investment approach is to have a deep understanding of the business fundamentals of each investment and its environment versus its intrinsic value. ICM are long term investors and see markets as a place to exchange assets. ICM MANAGES OVER US$2.2bn IN FUNDS DIRECTLY AND IS RESPONSIBLE INDIRECTLY FOR A FURTHER US$19.6BN OF ASSETS IN SUBSIDIARY INVESTMENTS. ICM HAS OVER 65 STAFF BASED IN OFFICES IN BERMUDA, CAPE TOWN, DUBLIN, LONDON, SINGAPORE, SYDNEY, VANCOUVER AND WELLINGTON. DUNCAN SAVILLE Duncan Saville, a director of ICM, is a chartered accountant with experience in corporate finance and asset management. He is an experienced non-executive director having previously been a director in multiple companies in the utility, investment, mining, and technology sectors. Duncan is currently a non-executive director of Resimac Group Limited and West Hamilton Holdings Limited. ALASDAIR YOUNIE Alasdair Younie, a director of ICM,is based in Bermuda. He has extensive experience in financial markets and corporate finance, and is responsible for the day to day running of the Somers Group. Mr Younie qualified as a chartered accountant with PricewaterhouseCoopers and subsequently worked for six years in the corporate finance division of Arbuthnot Securities Limited in London. Alasdair is a director of Ascendant Group Limited, Bermuda Commercial Bank Limited, Somers Limited, Bermuda First Investment Company Limited, One Communications Limited and West Hamilton Holdings Limited. 25 Annual Report for the year to 30 June 2020 INVESTMENT MANAGER AND TEAM (continued) Dugald Morrison has been involved with ICM and its predecessor companies since 1994 and is responsible for ICM NZ Limited, based in Wellington. He is an experienced investment analyst, 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 Horizon Gold Limited (ASX:HRN), Brightwater Group Limited and Snapper Services Limited. EDUARDO GRECA Eduardo Greca joined ICM London in 2010 as the Latam Investment Strategist before moving to Brazil in 2012 where he is now based. Mr Greca has over twelve years of investment research experience, and prior to joining ICM he worked for the commodities risk management team at Kraft Foods. He covers the Latin American equity and fixed income investments, and is responsible for the Stock Exchange sector worldwide with an emphasis on Emerging Markets. Mr Greca is a CFA Charterholder and a Member of the CFA Society in Brazil. TRISTAN KINGCOTT Tristan Kingcott joined ICM in 2018 and is responsible for the Canadian office, based in Vancouver, British Colombia. He is focused on the resources, technology, and financial services sectors, with an emphasis on North America. Mr Kingcott has over ten years’ experience in financial and commercial analysis, and prior to joining ICM, has performed various roles, including Manager of Corporate Development at Ferus Inc., an energy services company based in Western Canada. Mr Kingcott is a CFA Charterholder. 26 Zeta Resources Limited DIRECTORS PETER SULLIVAN (CHAIRMAN) Mr Sullivan is an engineer and has been involved in the management and strategic development of resource companies and projects for more than 25 years, including experience in project engineering, corporate finance, investment banking, corporate and operational management, and public company directorships. He has specialised in providing strategic corporate, financial and investment advice to companies principally in the resource sector. He has served as a director for numerous listed and unlisted companies and been closely involved with their development. Mr Sullivan holds a Bachelor of Engineering and a Master of Business Administration. Directorships of other listed companies in the last 3 years Mr Sullivan is chairman of GME Resources Limited (ASX:GME) and Horizon Gold Limited (ASX: HRN), and non-executive director of Resolute Mining Limited (ASX:RSG) and Panoramic Resources Limited (ASX:PAN). Mr Sullivan was chairman of Pan Pacific Petroleum NL (ASX:PPP) which was delisted on 13 November 2017 and Bligh Resources Limited (ASX:BGH) until 13 August 2019 following the sale of the company to Saracen Mineral Holdings Limited. MARTHINUS (MARTIN) BOTHA Mr Botha has over 30 years’ experience in banking, with the last 27 years spent in leadership roles building Standard Bank Group’s international operations. Mr Botha’s primary responsibilities at Standard Bank Plc included establishing and leading the development of the core global natural resources trading and financing franchises, as well as various geographic strategies. Mr Botha is currently non-executive chairman of Sberbank CIB (UK) Ltd, a securities broker regulated by the UK Financial Services Authority. Mr Botha holds a Bachelor of Engineering degree in Survey. Directorships of other listed companies in the last 3 years Mr Botha is chairman of Resolute Mining Limited (ASX:RSG). ANDRÉ LIEBENBERG Mr Liebenberg is an experienced mining industry professional and has extensive investor marketing, finance, business development and leadership experience. He was appointed CEO and Executive Director of Yellow Cake plc on 1 June 2018, just prior to the company’s IPO on the AIM market of the London Stock Exchange. Mr Liebenberg has spent over 25 years in private equity, investment banking, senior roles within BHP, and prior to joining Yellow Cake he was Chief Financial Officer at QKR Corporation. Mr Liebenberg holds a Bachelor of Science in Electrical Engineering from the University of Cape Town and a Master in Business Administration from the University of Cape Town. Directorships of other listed companies in the last 3 years Mr Liebenberg is an executive director of Yellow Cake plc (LSE:YCA) and was a non- executive director of Danakali Limited (ASX:DNK) until 3 August 2020 XI XI Xi is a financial analyst with more than 20 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 Ms Xi Xi is currently non-executive director of Mineral Resources Limited (ASX:MIN), and previously Galaxy Resources Limited (ASX:GXY). All Directors are Non-Executive Directors and were appointed to the board of the Company on 7 June 2013, other than Mr Liebenberg, who was appointed on 30 December 2019. 27 Annual Report for the year to 30 June 2020 REPORT OF THE DIRECTORS Your directors present their report for Zeta Resources Limited, including its subsidiaries, Kumarina Resources Pty Limited, Zeta Energy Pte. Ltd, Zeta Investments Limited and Horizon Gold Limited, for the year ended 30 June 2020. OPERATING AND FINANCIAL REVIEW Operating results The net loss attributable to the Company for the year to 30 June 2020 amounted to US$22,367,826. 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 André Liebenberg Xi Xi The directors, apart from Mr Liebenberg, have been in office since the start of the year to the date of this report. André Liebenberg was appointed to the board on 30 December 2019. PRINCIPAL ACTIVITIES The principal activities of the Company are investing in listed and unlisted resource focused investments. No significant change in the nature of these activities occurred during the year. 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 US$42,757,993. A decrease in the fair value of the portfolio resulted in an unrealised loss recognised in profit or loss at year end of US$11,216,601. 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$424,773 was invested during the twelve months to 30 June 2020 in further drilling and analysis work. Financial position At the end of the year, the Company had US$12,082 in cash and cash equivalents. Investments at fair value totalled US$114,839,211, loans to subsidiaries were valued at US$1,714,655 and the investment in subsidiaries was valued at US$16,417,335. 28 Zeta Resources Limited The company has a loan owing to UIL of US$68,312,746 at year end. As at the year end, the Company had a US$3.75 million loan facility with Bermuda Commercial Bank with US$1,250,000 expiring on 30 September 2020. GOING CONCERN The financial statements have been prepared on a going concern basis. We draw attention to the fact that at 30 June 2020, the Company incurred a net loss of US$22,367,826 (2019: US$48,687,361) during the year and had accumulated losses of US$71,257,569 (2019: US$48,889,743) and that the company’s current liabilities exceed its current assets by US$6,517,913 (2019: US$1,110,365). The company has undrawn capacity under its debt facilities and the majority of the Company’s assets consist of equity shares in listed companies which in most circumstances are realisable within a short timescale. Based on this, the directors believe the Company will be able to cover the commitments arising in the period 12 months from the date of approval of these financial statements. The use of the going concern basis of accounting is appropriate because there are no material uncertainties related to events or conditions that may cast significant doubt about the ability of the Company to continue as a going concern. After making enquiries, the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the accounts. DIVIDENDS No dividends have been paid or declared since the start of the year. No recommendation is made as to dividends. AFTER BALANCE SHEET DATE EVENTS Zeta Resources has taken up its entitlement in the Horizon Gold Limited renounceable entitlement issue for an amount of A$1.6 million. The loan to Horizon Gold Limited will be repaid as part of the payment due. On 10 September Zeta Resources offered a bonus issue of Options to its shareholders. Eligible Shareholders who hold Shares on the Record Date are offered one (1) Option (Bonus Option) for every one (1) Share held on the Record Date. The Bonus Options have no issue price, will be exercisable at A$0.25 each and expire on 15 June 2021. 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. 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’ 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 which include performance-based components. Details of remuneration for directors The Company paid a total of $183,333 to directors for the year ended 30 June 2020. The Company had no employees as at 30 June 2020. 29 Annual Report for the year to 30 June 2020 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 directors. The interest of directors in shares and options is set out elsewhere in this report. Directors’ interests The relevant interests of directors either directly or through entities controlled by the directors in the share capital of the Company and related body corporates as at the date of this report are: Ordinary shares opening balance Net change Director Peter R Sullivan 5,770,632 Martin Botha 479,565 André Liebenberg Xi Xi – – MEETINGS OF DIRECTORS – – – – Ordinary shares closing balance 5,770,632 479,565 – – The board held seven meetings during the year which were attended by all directors. The meetings were held on the following dates: 2019: 1 July, 30 August, 24 October 2020: 6 February, 8 April, 13 May, 17 June In addition, throughout the course of the year there were a number of resolutions of directors which were made by unanimous written resolution. There were no meetings of committees of directors that were required to be held during the year. LOANS TO DIRECTORS There were no loans entered into with directors during the year under review. AUDIT COMMITTEE 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. 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 auditor of the Company or of a related body corporate indemnified or made any relative agreement for indemnifying against a liability incurred as an officer or auditor, including costs and expenses in defending legal proceedings. ENVIRONMENTAL REGULATION Both Horizon Gold Limited and 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 and the Western Australian Mining Act during the year covered by this report. 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 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. NON-AUDIT SERVICES No non-audit services were performed by the auditors of the company during the year. 30 Zeta Resources Limited ON-MARKET BUY BACK SCHEME As part of its ongoing capital management strategy, Zeta implemented an on-market buy-back programme for up to 10 million ordinary shares during the period 15 September 2018 to 14 September 2020. On 8 September 2020 the Company announced that the buy-back programme was to be extended from 15 September 2020 to 14 September 2021. The buy- back will only be effective should the share price of the company be at a discount to NTA exceeding 10%. The timing and quantity of purchases will depend on current market conditions and other future events. Pursuant to section 257B(4) of the Corporations Act 2001 (Cth), the share buy-back does not require shareholder approval as it falls under the 10/12 limit. Since the commencement of the on-market buy-back scheme on 15 September 2018, Zeta Resources has repurchased and cancelled 877,947 fully paid ordinary shares. INVESTMENT MANAGEMENT AGREEMENT The Company entered into an Investment Management Agreement with ICM Limited on 3 June 2018. 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, 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$592,691 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. Peter R Sullivan Chairman Perth, Western Australia 25 September 2020 31 Annual Report for the year to 30 June 2020 CORPORATE GOVERNANCE STATEMENT THE COMPANY‘S CORPORATE GOVERNANCE FRAMEWORK Corporate Governance is the process by which the board of directors of a company protects shareholders’ interests and by which it seeks to enhance shareholder value. Shareholders hold the directors responsible for the stewardship of a company’s affairs, delegating authority and responsibility to the directors to manage the company on their behalf and holding them accountable for its performance. Responsibility for good governance lies with the board. The board considers the practice of good governance to be an integral part of the way it manages the Company and is committed to maintaining high standards of financial reporting, transparency and business integrity. The governance framework of the Company reflects the fact that as an investment company it has no full-time employees and outsources its activities to third party service providers. THE BOARD Four non-executive directors CHAIRMAN: Peter Sullivan KEY OBJECTIVES: • to provide leadership within a framework of prudent and effective controls which enable risk to be assessed and managed; and • to constructively challenge and scrutinise performance of all outsourced activities. • to set strategy, values and standards; AUDIT & RISK MANAGEMENT OVERSIGHT NOMINATION COMMITTEE REMUNERATION COMMITTEE The board as a whole performs this function The board as a whole performs this function The board as a whole performs this function The board as a whole performs this function KEY OBJECTIVE: KEY OBJECTIVE: KEY OBJECTIVES: KEY OBJECTIVE: • to oversee the • to review the • to regularly review • to set the financial reporting and control environment. performance of the Investment Manager. the board’s structure and composition; and remuneration policy for the directors of the Company. • to consider any new appointments. 32 Zeta Resources Limited As an ASX-listed company, the board’s principal governance reporting objective is in relation to the ASX Corporate Governance Principles and Recommendations (“Recommendations”) developed by the ASX Corporate Governance Council. In accordance with ASX Listing Rules 4.10.3 and 4.7.4, the Corporate Governance Statement, and accompanying Appendix 4G, will be available for review on the Company’s website and will be lodged with ASX concurrently with the Annual Report. The Appendix 4G details 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 the Company’s website. 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 complies with the Recommendations to the extent appropriate to the size and nature of the group’s operations. The Company has prepared a Corporate Governance Statement based on the Third Edition of the Recommendations. It 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. Details about the Company’s corporate governance policies and charges are available in the corporate governance section of our website at: www.zetaresources/investor-relations/corporate-governance/ 33 Annual Report for the year to 30 June 2020 INDEPENDENT AUDITOR’S REPORT Independent Auditor’s Report To the Shareholders of Zeta Resources Limited Report on the Audit of the Annual Financial Statements Opinion We have audited the annual financial statements of Zeta Resources Limited set out on pages 41 to 66, which comprise the statement of financial position as at 30 June 2020, and the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the annual financial statements present fairly, in all material respects, the financial position of the Company as at 30 June 2020, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Independent Regulatory Board for Auditors’ Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the corresponding sections of the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the annual financial statements of the current period. These matters were addressed in the context of our audit of the annual financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. REGISTERED AUDITOR – A FIRM OF CHARTERED ACCOUNTANTS(SA) • IRBA REGISTRATION NUMBER 900222 MAZARS HOUSE RIALTO ROAD GRAND MOORINGS PRECINCT CENTURY CITY 7441 • PO BOX 134 CENTURY CITY 7446 • DOCEX 9 CENTURY CITY TEL: +27 21 818 5000 • FAX: +27 21 818 5001 • cpt@mazars.co.za • www.mazars.co.za PARTNERS: MC OLCKERS (NATIONAL CO-CEO), MV NINAN (NATIONAL CO-CEO), JM BARNARD, AK BATT, FJ CRONJE, AS DE JAGER, D DOLLMAN, M EDELBERG, Y FERREIRA, T GANGEN, R GROENEWALD, AK HOOSAIN, MY ISMAIL, N JANSEN, J MARAIS, B MBUNGE, FN MILLER, G MOLYNEUX, S NAIDOO, MG ODENDAAL, W OLIVIER, D RESNICK, BG SACKS, MA SALEE, N SILBOWITZ, SM SOLOMON, HH SWANEPOEL, MJA TEUCHERT, N THELANDER, JC VAN TUBBERGH, EC VAN HEERDEN, N VOLSCHENK, J WATKINS-BAKER A FULL LIST OF NATIONAL PARTNERS IS AVAILABLE ON REQUEST OR AT www.mazars.co.za 34 Zeta Resources Limited Matter Audit response Valuation of Unlisted investments (notes 5 and 25.4 ) Financial Statements The Company’s accounting policy in note 3.6 of the Annual that investments are the transaction cost and subsequently measured at fair value with any change in the fair value recognised in profit or loss. initially measured at states The lack of readily available objective evidence such as quoted prices, increases the degree of estimation used in determining the fair value of unlisted investments. The valuation methods are subject to a high degree of judgement and are complex, especially for investments where there are limited to no equity transactions during the year. Areas of judgement include estimating the expected future income from operations that are still in the exploration phase and other external risk factors. Various valuation methods are used in determining the fair value of the investments. A relatively small percentage change the valuations of individual investments, in aggregate, could result in a significant impact to the financial statements. in Our approach to address the valuation assertion for unlisted substantive approach. Our key audit procedures included: involved a investment • • • • • • • • agreeing the valuation of the unlisted investments to the valuation reports prepared by independent external valuers appointed by management to to determine the valuation of the unlisted investments; assessing the competence, capabilities and objectivity of the appointed experts; evaluating key assumptions used in the valuation and valuation method and inputs used to ensure the valuations are reasonable; recalculating key valuation workings; reviewing that the valuation techniques used are appropriate for the accounting standards and industry; assessing and validated the completeness, accuracy and relevance of the information provided by management to its expert; comparing the assumptions used in the Company’s valuation methods to previous periods for consistency and to consider management bias; and assessing the Company’s disclosures (including the assumptions used as inputs to the valuations) using our understanding obtained from our testing and against the requirements of the accounting standards. Having performed our audit procedures and evaluating the outcomes we concluded that our audit procedures appropriately address the key audit matter. 35 Annual Report for the year to 30 June 2020 INDEPENDENT AUDITOR’S REPORT (continued) As part of the audit work performed, we have evaluated the impact COVID-19 has had on the Company’s business operations, as well as its ability to continue as a going concern in the foreseeable future. Our audit approach included: • • • • • assessing how the financial statements and business operations of the Company might be impacted by the disruption; evaluating the directors’ going concern assessment which includes the potential impact arising from COVID19; reviewing the adequacy and appropriateness of the directors’ disclosure in respect of COVID-19 implications, in particular disclosures within principal risks & uncertainties, post balance sheet events and going concern; evaluating the key assumptions in the forecast and assessing the reasonableness given the information existing at the date of the audit procedures and against supporting documentation; and assessing the liquidity of the Company’s current assets and facilities available, to gain comfort over the Company’s ability to settle liabilities as they become due and payable. With regards to listed investments, it was noted that investments are appropriately valued at year end and no significant movements were noted subsequent to the year end. The independent external valuators report was inspected and the exploration status of the mines for unlisted investments was confirmed. We have concluded that due to the mines being in the exploration phase, is considered to be insignificant. the COVID-19 impact Based on the work performed, we are satisfied that the Directors appropriately applied the going concern assumption in the financial statements and the matter has been appropriately reflected in the financial statements. Going Concern and the implications of COVID- 19 on Zeta Resources’ Annual Financial Statements The Company's statement of profit or loss and other comprehensive income reflects an operating loss, consistent with the prior year. The financial performance has resulted in negative cash flows in the current year. The above has therefore indicated a risk over the appropriateness of the use of the going concern assumption in the preparation of the financial statements of the Company. Towards the end of the current financial year, the World Health Organisation has declared a global pandemic from the outbreak of COVID-19. Shortly after the potential impact of COVID-19 became significant and the enforced lockdown is causing widespread disruption to normal patterns of business activity across the world. the appreciation value of As the Company is an investment company which the is driven by investments held, the pandemic's negative impact could affect the fair value of the investments at year end and the performance of the Company in the current year. As listed investments are measured at fair value the COVID-19 impact is reflected in the fair value at year. Management has concluded that as unlisted investments are in the exploration phase the COIVD-19 pandemic has a minimal impact on the fair value of the investment. The directors’ consideration of the impact on the financial statements are disclosed in the Directors’ Report and going concern assessment (note 24). Whilst the situation is still evolving, based on the information currently available, the directors have assessed the impact of COVID-19 on the business and have concluded the going concern basis of preparation is appropriate and that no material uncertainty exists. that adopting 36 Zeta Resources Limited Other Matter The financial statement of the Company for the year ended 30 June 2019 were audited by another audit who expressed an unmodified opinion on those statements on the 4th of December 2019. Other Information The directors are responsible for the other information. The other information comprises the information included in the document titled Zeta Resources Limited for the year ended 30 June 2020, which includes the Directors’ Report, the Corporate Governance Statement and the Integrated Annual Report, which we obtained prior to the date of this report. The other information does not include the annual financial statements and our auditor’s reports thereon. Our opinion on the annual financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the annual financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the annual financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Annual Financial Statements The directors are responsible for the preparation and fair presentation of the annual financial statements in accordance with International Financial Reporting Standards, and for such internal control as the directors determine is necessary to enable the preparation of annual financial statements that are free from material misstatement, whether due to fraud or error. In preparing the annual financial statements, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the annual financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. 37 Annual Report for the year to 30 June 2020 INDEPENDENT AUDITOR’S REPORT (continued) As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the annual financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the annual financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the annual financial statements, including the disclosures, and whether the annual financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 38 Zeta Resources Limited Report on Other Legal and Regulatory Requirements In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that Mazars has been the auditor of Zeta Resources Limited for 1 year. Mazars Partner: Nico Jansen Registered Auditor 25 September 2020 Cape Town 39 Annual Report for the year to 30 June 2020 AUDITOR’S INDEPENDENCE DECLARATION Auditor’s Independence Declaration In relation to our audit of the financial statements of Zeta Resources Limited for the financial year ended 30 June 2020, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the International Standards on Auditing or any other applicable code of professional conduct. Mazars Partner: Nico Jansen Registered Auditor 25 September 2020 Cape Town REGISTERED AUDITOR – A FIRM OF CHARTERED ACCOUNTANTS(SA) • IRBA REGISTRATION NUMBER 900222 MAZARS HOUSE RIALTO ROAD GRAND MOORINGS PRECINCT CENTURY CITY 7441 • PO BOX 134 CENTURY CITY 7446 • DOCEX 9 CENTURY CITY TEL: +27 21 818 5000 • FAX: +27 21 818 5001 • cpt@mazars.co.za • www.mazars.co.za PARTNERS: MC OLCKERS (NATIONAL CO-CEO), MV NINAN (NATIONAL CO-CEO), JM BARNARD, AK BATT, FJ CRONJE, AS DE JAGER, D DOLLMAN, M EDELBERG, Y FERREIRA, T GANGEN, R GROENEWALD, AK HOOSAIN, MY ISMAIL, N JANSEN, J MARAIS, B MBUNGE, FN MILLER, G MOLYNEUX, S NAIDOO, MG ODENDAAL, W OLIVIER, D RESNICK, BG SACKS, MA SALEE, N SILBOWITZ, SM SOLOMON, HH SWANEPOEL, MJA TEUCHERT, N THELANDER, JC VAN TUBBERGH, EC VAN HEERDEN, N VOLSCHENK, J WATKINS-BAKER A FULL LIST OF NATIONAL PARTNERS IS AVAILABLE ON REQUEST OR AT www.mazars.co.za 40 Zeta Resources Limited STATEMENT OF FINANCIAL POSITION Notes at 30 June 2020 4 5 6 7 6 8 9 10 11 12 13 14 20 15 15 Non-current assets Investment in subsidiaries Investments Loans to subsidiaries Other loan Current assets Loans to subsidiaries Cash and cash equivalents Trade and other receivables Total assets Non-current liabilities Loan from subsidiary Loan from parent Other loans Current liabilities Other loans Trade and other payables Tax payable Total liabilities Net assets Equity Share capital Share premium Treasury shares Accumulated losses Total equity June 2020 US$ June 2019 US$ 16,417,335 114,839,211 1,506,499 – 1,000,002 129,928,110 1,571,725 625,822 208,156 12,082 – – 104,715 508,337 132,983,283 133,738,711 – (68,312,746) (6,312,255) (1,250,000) (2,656,381) (2,831,770) (81,363,152) 51,620,131 (2,508,840) (45,793,293) (9,714,019) (1,250,000) (473,417) – (59,739,569) 73,999,142 2,777 2,778 122,874,923 122,897,203 – (71,257,569) 51,620,131 (11,096) (48,889,743) 73,999,142 41 Annual Report for the year to 30 June 2020 STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME Notes at 30 June 2020 Income and investment returns 16 16 17 Revenue Investment losses Other income Expenses Directors fees Interest expense 18 Management and consulting fees 19 Operating and administration expenses June 2020 US$ June 2019 US$ 104,734 (11,216,601) 921,852 (183,333) (4,434,509) (778,505) (540,019) 271,778 (46,123,888) 1,839,929 (150,000) (3,315,144) (694,181) (515,855) Loss before tax (16,126,381) (48,687,361) 20 Taxation expense Loss for the year Total comprehensive loss for the year Loss per share 21 Basic and diluted loss per share (6,241,445) (22,367,826) (22,367,826) – (48,687,361) (48,687,361) (0.08) (0.17) 42 Zeta Resources Limited STATEMENT OF CHANGES IN EQUITY Notes for the year ended 30 June 2020 Share capital US$ Share premium US$ Treasury Shares US$ Accumulated losses US$ Total US$ Balance at 31 July 2018 2,785 123,096,492 – (202,382) 122,896,895 Purchase of treasury shares Cancellation of treasury shares Total comprehensive loss for the year – (7) – – (11,096) (199,289) – – – – – (11,096) (199,296) (48,687,361) (48,687,361) Balance at 30 June 2019 2,778 122,897,203 (11,096) (48,889,743) 73,999,142 Purchase of treasury shares 15 Cancellation of treasury shares Total comprehensive loss for the year – (1) – – – (11,185) (22,280) 22,281 – – (11,185) – Balance at 30 June 2020 2,777 122,874,923 – – (22,367,826) (22,367,826) (71,257,569) 51,620,131 43 Annual Report for the year to 30 June 2020 STATEMENT OF CASH FLOWS Notes for the year ended 30 June 2020 Cash flows from operating activities 21 Cash generated/(utilised) by operations Interest received Interest paid Dividend income Taxation paid Net cash flows from operating activities Cash flows from investing activities Investments purchased Investments sold Increase in loan to subsidiaries from additional funding Decrease in loan to subsidiaries from repayments Increase in other loans from additional funding Decrease in other loans from repayments Net cash flows from investing activities Cash flows from financing activities 15 Purchase of treasury shares June 2020 US$ June 2019 US$ 1,208,291 (2,136,731) 83,251 (348,403) 21,483 (3,409,675) (2,445,053) (42,757,993) 31,220,634 (12,580,928) 12,302,376 (4,960,000) 6,182,608 43,036 (549,726) 228,742 – (2,414,679) (24,564,630) 11,836,201 (2,222,629) 2,049,314 (624,947) – (10,593,303) (13,526,691) (11,185) (210,392) Increase in loan from parent from additional funding 46,043,589 13,845,953 Decrease in loan from parent from repayments Increase in loan from subsidiary from additional funding 13 Decrease in loan from subsidiary from repayments Increase in other loans from additional funding Decrease in other loans from repayments Net cash flows from financing activities (27,794,521) 1,897,066 (2,788,630) 3,189,313 (8,196,272) – 2,609,018 (5,402,381) 4,969,323 – 12,339,360 15,811,521 Net movement in cash and cash equivalents (698,996) (129,849) Cash and cash equivalents at the beginning of the year Effect of exchange rate fluctuations on cash held 8 Cash and cash equivalents at end of the year 104,715 606,363 12,082 287,172 (52,608) 104,715 44 Zeta Resources Limited NOTES TO THE FINANCIAL STATEMENTS 1. BASIS OF PREPARATION 1.1 Corporate information Zeta Resources Limited (“Zeta Resources” or “the Company”) is an investment company incorporated on 13 August 2012, listed on the Australian Securities Exchange and domiciled in Bermuda. The financial statements of the Company as at and for the year ended 30 June 2020 comprise the Company only. 1.2 Basis of preparation The financial statements for the year ended 30 June 2020 have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standard Board (IASB). The Company carries on the business of an investment holding company, in accordance with IFRS 10. The purpose of the Company is to earn returns through capital appreciation or investment income. The Company obtains funds from more than one investor and provides investment management services. The Company is accordingly applying the consolidation exemption for investments in subsidiaries and they will be recognised at fair value through profit and loss. The financial statements were authorised for issue by the board of directors on 25 September 2020. 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 those financial instruments at fair value through profit or loss, which are measured at fair value. The financial statements are prepared on a going concern basis. 1.4 Functional and presentation currency The Company’s functional and presentation currency is United States dollars. The board has determined by having regard to the currency of the Company’s share capital and that Zeta invests in mining entities whose resources are valued in United States Dollars, that United States Dollar is the functional and reporting currency. 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 expenses. 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. The key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year relate to the valuation of unquoted investments, details of which are set out in note 25 and the classification of the subsidiaries as investment entities. Details of the subsidiaries are set out in note 4. Subsidiaries that carry on business as investment entities are designated as being at fair value through profit and loss on initial recognition. Loans to subsidiaries are classified as financial assets carried at amortised cost. The loans are subject to impairment testing as debt instruments (refer note 3.7). The impairments on the loans are determined separately to the fair value of the investments in the subsidiaries as disclosed in note 4. The judgement over the tax treatment of profits generated from the sale of Bligh Resources is disclosed in note 20. The Covid-19 pandemic situation is uncertain and rapidly evolving, and management shall continue to monitor the anticipated impacts on the business as circumstances change. Covid-19 was treated as an adjusting event. Refer to note 24. 2. ADOPTION OF NEW AND REVISED STANDARDS 2.1 Standards and interpretations adopted during the year IFRIC 23 Uncertainty over Income Tax treatments The interpretation explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. In particular, it discusses: - - - - - how to determine the appropriate unit of account, and that each uncertain tax treatment should be considered separately or together as a group, depending on which approach better predicts the resolution of the uncertainty; that the Company should assume a tax authority will examine the uncertain tax treatments and have full knowledge of all related information, i.e. that detection risk should be ignored; that the Company should reflect the effect of the uncertainty in its income tax accounting when it is not probable that the tax authorities will accept the treatment; that the impact of the uncertainty should be measured using either the most likely amount or the expected value method, depending on which method better predicts the resolution of the uncertainty; and that the judgements and estimates made must be reassessed whenever circumstances have changed or there is new information that affects the judgements. The interpretation does not require new disclosure to be made it does clarify that information about judgements of the general requirements should be provided. 45 Annual Report for the year to 30 June 2020 NOTES TO THE FINANCIAL STATEMENTS (continued) 2. ADOPTION OF NEW AND REVISED STANDARDS (continued) 2.1 Standards and interpretations adopted during the year (continued) The Company measures uncertainty by using the most likely amount and not the expected value method. The detail of the judgements relating to the uncertain tax position is disclosed in note 19. IFRS 16 Leases IFRS 16 had no significant impact on the financial statements. The Company does not have contracts which include leases. 2.2 New standards, amendments and interpretations 3.2 Borrowing costs Borrowing costs are recognised as an expense when incurred. 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 sheet date. The Company has elected to be tax exempt in terms of local Bermudian legislation. effective for annual periods beginning after 3.4 Foreign currency 1 July 2020 that have not been adopted Foreign currency transactions and balances At the date of authorisation of these financial statements, the following standards affecting the company were in issue, but not yet effective: Amendment to the conceptual framework – effective 1 January 2020 Definition of material (Amendments to IAS 1 and IAS 8) – effective 1 January 2020 Presentation of liabilities (Amendments to IAS 1) – effective 1 January 2022 The Company has chosen not to early adopt the new and revised standards affecting presentation and disclosure which have been published and are mandatory for the Company’s accounting records beginning on the date mentioned above. Based on initial assessment, these standards are not expected to have a material impact on the Company. 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies detailed below have been consistently applied by the company. 3.1 Investment income Dividend income is recognised when the Company’s right to receive payment is established and is presented gross of withholding taxes. Gains or losses on the sale of investments are recorded on the trade date. Investment income also comprises of unrealised gains on changes in the fair value of financial assets at fair value through profit or loss. Interest income is recognised using the effective interest rate method. Transactions in foreign currencies are translated into the respective functional currency 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 translated to the functional currency at the prevalent exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and principal payments during the period, and the amortised cost in foreign currency translated at the prevalent exchange rate at the end of the period. The foreign currency gains or losses are recognised as part of other income/(losses) in the Statement of Profit and Loss and Other Comprehensive Income. Foreign currency changes are taken into account when fair valuing the equity instruments. 3.5 Earnings per share (“EPS”) Basic EPS is calculated as the net resulting earnings attributable to members, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as the net resulting earnings attributable to members, adjusted for: • • costs of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with 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. 46 Zeta Resources Limited 3.6 Financial instruments Recognition and initial measurement Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the entity becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss (“FVTPL”), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. Classification and subsequent measurement – Policy effective from 1 July 2018 Financial assets A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: • • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. All financial assets not classified as measured at amortised cost as described above are measured at FVTPL. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Financial assets at FVTPL Investment in subsidiaries and investments in listed and unlisted shares are measured at FVTPL as they do not meet the criteria of cash flows that are solely payments of principal and interest. These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. . Financial assets at amortised cost Cash and cash equivalents, loans to subsidiaries, other loans and trade and other receivables meet the criteria for measurement at amortised cost. These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. Financial assets are not reclassified subsequent to their initial recognition unless the entity changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. Financial liabilities The Company has adopted the following classifications for financial liabilities: Financial liabilities are measured at amortised cost and subsequent to initial recognition, financial liabilities are measured at amortised cost using the effective interest method. Derecognition The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when they transfer the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all the risks and rewards of ownership and does not retain control of the financial asset. The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Offsetting Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company currently has a legally enforceable right to set off the recognised amounts and it intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. 3.7 Impairment of assets The Company recognises loss allowances for Expected Credit Losses (“ECLs”) on financial assets measured at amortised cost. The Company measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs: • debt securities that are determined to have low credit risk at the reporting date; and • other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. Loss allowances for trade receivables are always measured at an amount equal to lifetime ECLs. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the company is exposed to credit risk. 47 Annual Report for the year to 30 June 2020 NOTES TO THE FINANCIAL STATEMENTS (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.7 Impairment of assets (continued) shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive). The Company considers a financial asset to be performing when there is a low risk of default and no amounts are past due. Measurement of ECLs The Company considers a financial asset to be under- performing when contractual payments are 30 days past due or there has been a significant increase in credit risk since initial recognition. A significant increase in credit risk is indicated by a significant decrease in the future prospects of the borrower’s operations, changes in the scope of business or changes in the organisational structure that result in a significant change in the borrower’s ability to meet its debt obligations. The Company considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Company may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. Presentation ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. 3.8 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. 3.9 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. 3.10 Comparatives In the current year a number of comparative amounts have been adjusted to ensure consistent disclosure with the current year presentation. These adjustments have been minor in nature and have not resulted in any adjustment to the reported profit after tax, net assets or net cashflow of the Company and are as follows: Cash flow Statement Cash flows from operating activities Cash utilised by operations Dividend income Interest expense Cash flows from investing activities Increase in loan to subsidiary Increase in other loans Cash flows from financing activities Increase in loan from parent Decrease in loan from subsidiaries Effect of exchange rate fluctuations on financing activities Effect of exchange rate fluctuations on cash held As previously stated Reclassification As adjusted (1,907,989) – (3,315,144) (150,332) (625,822) 16,322,773 (2,504,765) (982,396) 907,680 (228,742) 228,742 2,765,418 (22,983) 875 (2,476,820) (288,598) 982,396 (960,288) (2,136,731) 228,742 (549,726) (173,315) (624,947) 13,845,953 (2,793,363) – (52,608) 48 Zeta Resources Limited 4. INVESTMENT IN SUBSIDIARIES At fair value June 2020 US$ June 2019 US$ Investment in Kumarina Resources Pty Limited ("Kumarina") 1,309,352 1,000,000 Investment in Zeta Energy Pte. Ltd. ("Zeta Energy") Investment in Zeta Investments Limited (“Zeta Investments”) Investment in Horizon Gold Limited (“Horizon Gold”) 1 1 15,107,981 16,417,335 1 1 – 1,000,002 Investments in subsidiaries are held as part of the investment portfolio and consequently, in accordance with IFRS 10 are not consolidated but rather shown at fair value through profit and loss. Horizon Gold is measured using market price. Kumarina is valued using resource and area multiples to value Kumarina’s two main projects, with further consideration to the remaining assets and liabilities held by Kumarina. Kumarina is currently deemed to have a value of US$1,309,352. See note 25.4. The remaining investments in subsidiaries are fair valued by the directors at a nominal value due to the fact that they hold no significant assets, nor do they have any significant value. The Company had the following subsidiaries as at 30 June 2020: 30 June 2020 Kumarina incorporated in Australia Zeta Investments incorporated in Bermuda Zeta Energy incorporated in Singapore Horizon Gold incorporated in Australia 30 June 2019 Kumarina incorporated in Australia Zeta Investments incorporated in Bermuda Zeta Energy incorporated in Singapore 5. INVESTMENTS Financial assets at fair value through profit or loss Equity securities at fair value Listed ordinary shares Unlisted ordinary shares, subscription and other rights Equity securities at cost Listed ordinary shares Unlisted ordinary shares, subscription and other rights Number of ordinary shares 26,245,210 1,000 1 52,826,967 Number of ordinary shares 26,245,210 1,000 1 June 2020 US$ 114,839,211 50,124,116 64,715,095 114,839,211 127,666,665 47,054,148 174,720,813 Percentage of ordinary shares held 100% 100% 100% 69% Percentage of ordinary shares held 100% 100% 100% June 2019 US$ 129,928,110 89,521,947 40,406,163 129,928,110 109,256,914 44,173,811 153,430,725 During the reporting period the Company completed a total of 128 transactions (2019: 271 transactions) in securities. See note 25.4 for disclosure of fair value determination of level 3 investments. 49 Annual Report for the year to 30 June 2020 NOTES TO THE FINANCIAL STATEMENTS (continued) 6. LOANS TO SUBSIDIARIES Loan to Zeta Energy Loan to Kumarina LOAN TO SUBSIDIARIES – CURRENT Loan to Horizon Gold June 2020 US$ 728,469 778,030 1,506,499 June 2019 US$ 1,076,072 495,653 1,571,725 208,156 – The loan to Zeta Energy is denominated in Australian dollars to the value of A$2,594,249 (2019: A$2,809,348), British pounds to the value of UK£11,100 (2019: UK£11,100), New Zealand dollars to the value of NZ$6.16 million (2019: NZ$6.16 million), South African rands to the value of R4,000 (2019: R4,000), Singapore dollars to the value of SG$28,162 (2019: SG$28,162) and United States dollars to the value of US$(141,342) (2019: US$(147,581)). There are no fixed repayment terms except that no repayment is due before 30 June 2021 and no interest is charged. During the year ended 30 June 2020, the loan to Zeta Energy, which was utilised for the purchase of listed investments, was classified as under-performing due to internal indications that the Company is unlikely to receive the full contractual amounts owed. The expected credit loss for this loan has been calculated based on the lifetime Expected Credit Losses (“ECLs”). The directors calculated the ECLs by reviewing relevant forward-looking information that is most relevant to the subsidiary including review of the company’ s assets and liabilities to suggest a value for the loan, there was no change in the assessment of credit risk from the prior year. The impairment was based on the expected decrease in the value of the underlying investment for the loan. As at the 30 June 2020 the ECLs calculated amounted to US$4,923,959. The loan to Kumarina, used for working capital is denominated in Australian dollars and is interest free. There are no fixed repayment terms. The loan is still performing as no contactual breaches have occurred and the value of the assets in Kumarina is sufficient to cover all the liabilities. The impact of Covid-19 on Kumarina was not severe as the company is in the exploration phase. The loan to Horizon Gold is denominated in Australian dollars to the value of A$300,000 and interest of 7.5% per annum. There are no fixed repayment terms. During the year ended 30 June 2020 the loan was classified as performing as no contractual breaches have occurred and the value of the assets in Horizon Gold is sufficient to cover all the liabilities. A reconciliation of the impairment movement on the Zeta Energy loan can be seen below: Opening balance of impairment Additional impairments Reversal of impairments Amounts written off as bad debts Closing impairment 7. OTHER LOAN Loan to Bligh Resources Limited 8. CASH AND CASH EQUIVALENTS Cash balance comprises: Cash at bank June 2020 US$ 4,916,284 7,675 – – June 2019 US$ 3,898,147 1,018,137 – – 4,923,959 4,916,284 June 2020 US$ – June 2020 US$ June 2019 US$ 625,822 June 2019 US$ 12,082 104,715 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. 50 Zeta Resources Limited 9. TRADE AND OTHER RECEIVABLES Owing from Zeta Investments Pty Limited Other receivables June 2020 US$ – – – June 2019 US$ 476,088 32,249 508,337 The amount owing from Zeta Investments Pty Limited is denominated in Australian dollars and was a short-term balance in order to purchase shares. 10. LOAN FROM SUBSIDIARY Loan from Zeta Energy June 2020 US$ – June 2019 US$ 2,508,840 As at 30 June 2019 the loan from Zeta Energy was denominated in Australian dollars to the value of A$2.63 million and New Zealand dollars to the value of NZ$983,000 and attracted interest at rates between 4.35% and 6.85% per annum on the Australian dollar loan and at 6.00% per annum on the New Zealand dollar loan. Zeta Energy in turn borrowed these funds from Leveraged Equities on the same terms. In the current year the loan was transferred to the name of Zeta Resources Limited. See Note 12. 11. LOAN FROM PARENT Loan from UIL Limited (“UIL”) June 2020 US$ 68,312,746 June 2019 US$ 45,793,293 The loan is denominated in Australian dollars to the value of A$66.06 million (30 June 2019: A$40.103 million) and in Canadian dollars to the value of CA$31.02 million (30 June 2019: CA$23.146 million), and currently attracts interest at 7.5% per annum (30 June 2019: 7.5%) on the Australian dollar loan and 7.25% (30 June 2019: 7.25%) on the Canadian dollar loan. There are no repayment terms and no repayment is due before 30 June 2021. 12. OTHER LOANS Loan from ICM Limited Loan from PPP Loan from Leveraged Equities Loan from Bermuda Commercial Bank Limited June 2020 US$ 436,569 1,614,293 1,761,393 2,500,000 6,312,255 June 2019 US$ 3,983,509 1,980,510 – 3,750,000 9,714,019 The ICM Loan is denominated in Australian dollars to the value of A$631,100 (30 June 2019: A$5.69 million) and attracts interest at 7.5% per annum. The PPP Loan is denominated in Australian dollars to the value of A$2.34 million (30 June 2019: A$2.85 million) and is interest free. For both of the ICM Limited and PPP loans there are no fixed repayment terms except that no repayment is due before 30 June 2021. The Bermuda Commercial Bank loan is denominated in United States dollars and currently attracts interest at Bermuda Commercial Bank’s commercial base rate +1.25% per annum. Repayments of US$1.25 million are scheduled on 30 September 2020 with the remaining balance payable on 30 September 2021. The loan from Leveraged Equities is denominated in Australian dollars to the value of A$1.588 million and New Zealand dollars to the value of NZ$1.035 million and currently attracts interest at rates between 4.35% and 6.85% per annum on the Australian dollar loan and at 6.00% per annum on the New Zealand dollar loan. There are no fixed repayment terms except that no repayment is due before 30 June 2021. In order to secure these loans Zeta Resources has pledged certain of its investments. The shares pledged are Resolute Mining Limited (6,461,036 shares valued at US$5 million) and Panoramic Resources Limited (6,363,635 shares valued at US$350,814). 51 Annual Report for the year to 30 June 2020 NOTES TO THE FINANCIAL STATEMENTS (continued) 13. OTHER LOANS - CURRENT Loan from Bermuda Commercial Bank Limited June 2020 US$ 1,250,000 The above US$1,250,000 represents the short-term portion of the loan owing to Bermuda Commercial Bank. 14. TRADE AND OTHER PAYABLES Other liabilities Amount owed to brokers Accruals June 2020 US$ 26,979 2,368,352 261,050 2,656,381 June 2019 US$ 1,250,000 June 2019 US$ – 178,761 294,656 473,417 The accruals are for audit, management, directors and administration fees payable. 15. SHARE CAPITAL AND SHARE PREMIUM Authorised 5,000,000,000 ordinary shares of par value US$0.00001 Issued Ordinary shares Balance as at incorporation Issued at incorporation as $1 par shares Shares split into 10,000,000 shares of US$0.00001 each Issued in consideration for purchase of investments from UIL Limited Issued in consideration for purchase of 100% of Kumarina Resources Limited Issued under initial public offering Number of shares Share capital Share premium – 100 9,999,900 22,835,042 – – – – – – 228 32,221,936 17,775,514 178 13,406,337 4,000 – 3,795 Issued under public rights issue dated 10 February 2014 42,616,164 426 19,249,296 Following shareholder approval, issued under ASX listing rule 10.11 dated 7 December 2015 Issued under a scheme of arrangement pursuant to acquiring all the ordinary share capital of Pan Pacific Petroleum NL Issued pursuant to an exercise of options on 10 November 2017 Issued in consideration for purchase of investments from Somers Isles Private Trust Company Limited Share cancellation as a result of share buy-back 7 November 2018 Share cancellation as a result of share buy-back 5 December 2018 Share cancellation as a result of share buy-back 5 March 2019 Share cancellation as a result of share buy-back 3 April 2019 Share cancellation as a result of share buy-back 6 May 2019 Share cancellation as a result of share buy-back 6 June 2019 6,769,280 68 1,351,677 11,914,689 86,461,440 119 865 3,467,556 17,330,823 90,144,895 901 36,065,072 (322,446) (12,320) (202,202) (112,727) (58,253) (50,000) (3) – (2) (1) (1) – (93,785) (3,201) (50,817) (26,374) (13,732) (11,380) Balance as at 30 June 2019 287,763,076 2,778 122,897,203 Share cancellation as a result of share buy-back 2 July 2019 Share cancellation as a result of share buy-back 2 April 2020 (50,000) (70,000) – (1) (11,096) (11,184) Balance as at 30 June 2020 287,643,076 2,777 122,874,923 52 Zeta Resources Limited 16. INVESTMENT RETURNS Revenue Dividend income Interest income Investment loss Derived from financial instruments measured at fair value Realised gains Unrealised fair value losses on revaluation of investments Unrealised fair value gains on revaluation of investments Derived from financial instruments measured at amortised cost Impairment of loan to Zeta Energy 17. OTHER INCOME Foreign exchange gains Other income 18. MANAGEMENT AND CONSULTING FEES Management and consulting fees June 2020 US$ 21,483 83,251 104,734 20,503,342 (64,176,357) 32,464,090 (7,676) (11,216,601) (11,111,867) June 2020 US$ 903,005 18,847 921,852 June 2020 US$ 778,505 June 2019 US$ 228,742 43,036 271,778 4,885,621 (67,369,091) 17,377,719 (1,018,137) (46,123,888) (45,852,110) June 2019 US$ 907,680 932,249 1,839,929 June 2019 US$ 694,181 The Company entered into an investment management agreement with ICM Limited on 3 June 2018. Management fees are payable at a rate of 0.5% per annum, of the net tangible assets managed on calculation date (last day of quarter), payable quarterly in arrears. 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 paid in the current period (2019: US$ Nil). Either party may terminate the agreement with six months’ notice. 53 Annual Report for the year to 30 June 2020 NOTES TO THE FINANCIAL STATEMENTS (continued) 19. OPERATING AND ADMINISTRATION EXPENSES Operating and administration expenses consist of: Accounting fees Audit fees Australian Securities Exchange listing fees and regulatory costs Insurance costs Brokerage Other expenses 20. INCOME TAX Taxation regarding the sale of Bligh Resources Limited June 2020 US$ June 2019 US$ 144,227 38,729 59,352 40,819 146,570 110,322 540,019 June 2020 US$ 6,241,445 162,940 21,829 118,601 13,781 56,830 141,874 515,855 June 2019 US$ – Australian taxation has been accrued in full with regards to the sale of the investment in Bligh Resources Limited. At 30 June 2020 there is uncertainty over the tax treatment of gains arising from the sale of the investment by the Australian tax authority on whether the transaction is taxable Australian property (“TAP”) or non-TAP. Although management has argued that the sale pertains to non-TAP, and alternatively not Australian source income (and therefore not taxable either) and external taxation advice confirms both these viewpoints, the Australian tax authority has not progressed far enough with their investigation for management to take a different view to the mid-year position taken. Of this taxation amount accrued, US$3,358,213 has already been paid as a withholding tax. The Company has not raised deferred tax assets of US$15 million on potential unrealised Australian capital losses (at year-end amounting to US$50 million) where there are insufficient capital gains of the same nature against which to utilise those losses. The Company is domiciled in Bermuda and has elected to be tax exempt in terms of local legislation. As such no tax is payable. 21. EARNINGS PER SHARE Basic and diluted loss per share June 2020 US$ (0.08) June 2019 US$ (0.17) Loss used in calculation of basic and diluted earnings per share (22,367,826) (48,687,361) Weighted average number of ordinary shares outstanding during the year used in calculation of basic and diluted earnings per share 287,696,473 288,202,064 54 Zeta Resources Limited 22. NOTES TO THE CASH FLOW STATEMENT 22.1 Cash generated/(utilised) by operations Loss for the year Adjustments for: Realised gains on investments Fair value loss on revaluation of investments Impairment of loan to Zeta Energy Foreign exchange gains Taxation expense Dividend income Interest income Interest expense Operating loss before working capital changes Decrease/(increase) in trade and other receivables Increase/(decrease) in trade and other payables 22.2 Liabilities from financing activities Balance as at 30 June 2018 Cash flows - Repayment of loans - Advances of loans received Exchange rate fluctuations Interest capitalised Loan reallocation Loan from parent 30,151,190 – 13,845,953 (680,670) 2,476,820 – Loan from subsidiary 5,235,527 (5,402,381) 2,609,018 (221,922) 288,598 – Balance as at 30 June 2019 45,793,293 2,508,840 Cash flows - Repayment of loans - Advances of loans received Exchange rate fluctuations Interest capitalised Loan transfer (27,794,521) 46,043,589 336,032 3,934,353 (2,788,630) 1,897,066 (133,287) 140,356 – (1,624,345) Balance as at 30 June 2020 68,312,746 – 23. AUDITOR REMUNERATION Amounts received or due and receivable by the auditors for audit of financial statements June 2020 US$ June 2019 US$ (22,367,826) (48,687,361) (20,503,342) 31,712,267 7,676 (903,005) 6,241,445 (21,483) (83,251) 4,434,509 (1,483,010) 508,337 2,182,964 1,208,291 (4,885,621) 49,991,372 1,018,137 (907,680) – (228,742) (43,036) 3,315,144 (427,787) (508,337) (1,200,607) (2,136,731) Other loan Total 4,000,000 39,386,717 – 4,969,323 (79,804) – 2,074,500 10,964,019 (8,196,272) 3,189,313 (30,547) 11,397 1,624,345 7,562,255 (5,402,381) 21,424,294 (982,396) 2,765,418 2,074,500 59,266,152 (38,779,423) 51,129,968 172,198 4,086,106 – 75,875,001 June 2020 US$ June 2019 US$ 38,729 21,829 55 Annual Report for the year to 30 June 2020 NOTES TO THE FINANCIAL STATEMENTS (continued) 24. GOING CONCERN The financial statements have been prepared on a going concern basis. We draw attention to the fact that at 30 June 2020, the Company incurred a net loss of $22,367,826 (2019: $48,687,361) during the year and had accumulated losses of $71,257,569 (2019: $48,889,743) and that the Company’s current liabilities exceed its current assets by $6,517,913 (2019: $1,110,365). The Company has undrawn capacity under its debt facilities and majority of the Company’s assets consist of equity shares in listed companies which in most circumstances are realisable within a short timescale. Based on this, the directors believe the Company will be able to cover the commitments arising in the period 12 months from the date of approval of these financial statements. The use of the going concern basis of accounting is appropriate because there are no material uncertainties related to events or conditions that may cast significant doubt about the ability of the Company to continue as a going concern. After making enquiries, the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the accounts. On 11 March 2020 the World Health Organisation declared Covid-19 as a pandemic with many countries implementing lock down procedures. The impact of Covid-19 was adjusted for in the 2020 figures. Covid-19 is a risk to producing mines, as the governments of some countries may choose to close mines temporarily to reduce transmission risk. On the other hand, closure of some mines reduced the global supply of the affected commodities, increasing prices for those mines able to stay in production. Also, quantitative easing operations by central banks in response to Covid-19’s impact on economies has increased demand for gold. Overall, Zeta Resources’ performance has not been affected to a large extent, but the directors acknowledge the uncertainty over the 12 months ahead. The value of investments have remained fairly constant after year end. The value of the investments is sufficient to cover the liabilities which allows Zeta Resources to continue as a going concern. Refer to note 28 for detail of the changes in investment value after year end. . 25. FINANCIAL RISK MANAGEMENT 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 IFRS 9 contains three principal classification and measurement categories for financial assets: at amortised cost, fair value through other comprehensive income, and fair value through profit and loss. The analysis of assets into their categories as defined in IFRS 9 is set out in the following table. The table below sets out the Company classification of each class of financial assets and liabilities. All assets and liabilities approximate their fair values: Financial assets mandatorily measured at fair value through profit or loss US$ Financial assets/liabilities measured at amortised cost US$ 16,417,335 114,839,211 – – – 131,256,546 – – – – – – – 1,506,499 208,156 12,082 1,726,737 2,656,381 68,312,746 7,562,255 2,831,770 81,363,152 Total carrying value US$ 16,417,335 114,839,211 1,506,499 208,156 12,082 132,983,283 2,656,381 68,312,746 7,562,255 2,831,770 81,363,152 30 June 2020 Assets Investments in subsidiaries Investments Loans to subsidiaries Other loan Cash and cash equivalents Liabilities Trade and other payables Loan from parent Other loans Tax payable 56 Zeta Resources Limited Financial assets mandatorily measured at fair value through profit or loss US$ Financial assets/liabilities measured at amortised cost US$ 1,000,002 129,928,110 – – – – – – 1,571,725 625,822 508,337 104,715 Total carrying value US$ 1,000,002 129,928,110 1,571,725 625,822 508,337 104,715 130,928,112 2,810,599 133,738,711 – – – – – 2,508,840 473,417 45,793,293 10,964,019 59,739,569 2,508,840 473,417 45,793,293 10,964,019 59,739,569 30 June 2019 Assets Investments in subsidiaries Investments Loans to subsidiaries Other loan Trade and other receivables Cash and cash equivalents Liabilities Loans from subsidiary Trade and other payables Loan from parent Other loans 25.1 Market risks The fair value of equity and other financial securities held in the Company’s portfolio fluctuate with changes in market prices. Prices are themselves affected by movements in currencies, interest rates and by other financial issues, including the market perception of future risks. The board of directors 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 of directors 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 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 of directors 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, Canadian Dollar and New Zealand dollar. The exchange rates applying against the United States dollar at 30 June 2020 and the average rates for the year were as follows: AUD – Australian dollar CAD – Canadian dollar NZD – New Zealand dollar June 2020 Average June 2019 Average 0.6891 0.7345 0.6444 0.6951 0.7491 0.6577 0.7011 0.7637 0.6709 0.7153 0.7554 0.6707 57 Annual Report for the year to 30 June 2020 NOTES TO THE FINANCIAL STATEMENTS (continued) 25. FINANCIAL RISK MANAGEMENT (continued) 25.1 Market risks (continued) The Company’s monetary assets and liabilities at 30 June 2020 (shown at fair value), by currency based on the country of primary operations, are shown below: Net monetary (liabilities)/assets (4,110,734) (71,246,271) (31,021,016) 5,128,380 30 June 2020 Cash and cash equivalents Loans to subsidiaries Loan from parent Other loan Other loans Trade and other payables 30 June 2019 Cash and cash equivalents Loans to subsidiaries Loan from subsidiary Loan from parent Other loan Other loans Trade and other payables Trade and other receivables USD 8,079 AUD 5,763 (141,342) 2,594,249 CAD – – NZD 49 6,163,507 (66,063,323) (31,021,016) – – 300,000 (3,750,000) (4,563,969) (227,471) (3,518,991) – – (1,035,176) – CAD – – – NZD 64 6,163,507 (982,928) USD 5,334 AUD 141,692 (147,581) 3,516,348 – – – (2,637,946) 892,673 (40,103,855) (23,146,409) (5,000,000) (8,494,432) (242,528) (56,158) (234,060) – 725,092 – – – – – – – – – – – Net monetary (liabilities)/assets (5,384,775) (46,016,586) (23,380,469) 5,180,643 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 income after tax and on net asset value (NAV): Strengthening of the United States dollar (Decrease)/increase in total comprehensive income for the year ended 30 June 2020 (Decrease)/increase in total comprehensive income for the year ended 30 June 2019 Weakening of the United States dollar Increase/(decrease) in total comprehensive income for the year ended 30 June 2020 Increase/(decrease) in total comprehensive income for the year ended 30 June 2019 AUD CAD NZD Total (4,995,076) (2,369,075) 344,063 (7,020,088) (4,362,044) 428,160 (349,609) (4,283,493) 4,995,076 2,369,075 (344,063) 7,020,088 4,362,044 (428,160) 349,609 4,283,493 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. 58 Zeta Resources Limited Interest rate exposure The exposure of the financial assets and liabilities to interest rate risks at 30 June 2020 and at 30 June 2019 is shown below: 30 June 2020 Exposure to floating rates: Cash Other loans Loan from subsidiary Exposure to fixed rates: Loan from parent Other loan liabilities Loans to subsidiaries 30 June 2019 Exposure to floating rates: Cash Other loans Loan from subsidiary Exposure to fixed rates: Loan from parent Other loans Other loan Within one year US$ Greater than one year US$ 12,082 (1,250,000) – – (2,500,000) – Total US$ 12,082 (3,750,000) – (1,237,918) (2,500,000) (3,737,918) – – – – Within one year US$ 104,715 (1,250,000) – (1,145,285) – – – – (68,312,746) (2,197,962) 208,156 (68,312,746) (2,197,962) 208,156 (70,302,552) (70,302,552) Greater than one year US$ – (3,750,000) (2,508,840) (6,258,840) (45,793,293) (3,983,509) 625,822 Total US$ 104,715 (5,000,000) (2,508,840) (7,404,125) (45,793,293) (3,983,509) 625,822 (49,150,980) (49,150,980) 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. The majority of borrowings are at a fixed rate and not sensitive to interest rate risk. Other market risk exposures The portfolio of listed investments valued at US$65,232,097 at 30 June 2020 (30 June 2019: US$89,521,947) 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 27. 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 US$6,523,210. A 10% appreciation in the market price would have the opposite effect. See note 25.4 for unlisted investment sensitivity analyses. 59 Annual Report for the year to 30 June 2020 NOTES TO THE FINANCIAL STATEMENTS (continued) 25. FINANCIAL RISK MANAGEMENT (continued) 25.2 Liquidity risk exposure The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Investment Manager reviews liquidity at the time of making each investment decision. The risk of the Company having insufficient liquidity is not considered by the board to be significant, given the amount of quoted investments held in the Company’s portfolio and the existence of an on-going loan facility agreement. The contractual maturities of the financial liabilities, based on the earliest date on which payment can be required, were as follows: 30 June 2020 Trade and other payables Loans from parent Other loans Tax payable 30 June 2019 Loan from subsidiary Trade and other payables Loans from parent Other loans Three months or less US$ 2,656,381 – 1,331,250 2,831,770 6,819,401 Three months to one year US$ More than one year US$ Total US$ – – – 2,656,381 73,378,972 73,378,972 3,943,875 2,662,500 – – 7,937,625 2,831,770 3,943,875 76,041,472 86,804,748 Three months or less US$ Three months to one year US$ – 2,652,780 473,417 – 1,331,250 1,804,667 – – 6,244,100 8,896,881 More than one year US$ – – 49,183,630 3,993,750 53,177,380 Total US$ 2,652,780 473,417 49,183,630 11,569,100 63,878,928 25.3 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 US$1,714,655 (2019: US$2,197,547) and bank balances totalling US$12,082 (2019: US$104,715) that are 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-). 60 Zeta Resources Limited 25.4 Fair values of financial assets and liabilities 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 board of directors have satisfied themselves as to the methodology used, the discount rates and key assumptions applied in the valuation of level 3 assets. 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 in subsidiaries. (a) Unlisted companies Seacrest L.P. (“Seacrest”) Bermuda incorporated Seacrest is a private equity fund that invests in the global offshore oil and gas industry. Seacrest’s sole asset is its investment in the Azimuth Group (“Azimuth”), which in turn owns a number of operating subsidiaries in different regions across the world. Seacrest produces quarterly reports in accordance with IFRS 9. The valuation is based on the latest management report available at 30 June 2020 (quarter end 31 March 2020). Where required, the last quarter’s results are adjusted for drawdowns, distributions, and significant events impacting the portfolio companies since the quarter end. Valuation methodology: The Seacrest valuation is prepared by the General Partner and is audited annually at 31 December. General Partner makes use of the market approach which includes resource multpiles or comparable arm’s length transactions. The internal valuation is tested against external valuations by Stockdale and available market data. If the internal valuation falls within the lower half of the independent valuation range, then it is accepted as fair market value, otherwise it is reviewed for calibration. At year end the fair value of the investment was US$1,166,810. Sensitivities: The valuation performed by General Partner is sensitive to the resources multiples used and the defined resource in each asset. Possible changes to these inputs are deemed to be insignificant to the fair value of Seacrest. Margosa Graphite Limited (“Margosa”) – Australia incorporated The unlisted investment comprises an equity interest in Margosa, a mineral exploration and development company focused on high grade vein graphite opportunities in Sri Lanka with granted licenses to a package of highly prospective tenements. The most advanced project area is the Pathakada Graphite Project (“Pathakada Project”) for which Margosa completed a JORC-2012 resource estimate in April 2020 of 1.72 Mt at a grade of 76.32%, implying a total graphitic content of 1.32 Mt. Valuation methodology: The market approach has been used for the valuation of Margosa in the form of precedent transactions involving Margosa shares at a price of A$0.35 per share and supported by resource and area multiples from comparable transactions. Six comparable transactions were used in the resource multiple analysis and four in the area multiple analysis. At year end the fair value of the investment was US$6.2 million. Sensitivities: The fair value of Margosa is considered to be less sensitive to changes in inputs and assumptions. 61 Annual Report for the year to 30 June 2020 NOTES TO THE FINANCIAL STATEMENTS (continued) 25. FINANCIAL RISK MANAGEMENT (continued) 25.4 Fair values of financial assets and liabilities (continued) Alliance Mining Commodities Limited (“AMC”) – Australia incorporated The unlisted investment comprises an equity interest in a privately-owned company that has been granted a mining concession for the development of the Koumbia Bauxite Project in the Republic of Guinea. AMC aims to develop the Koumbia Project into an operation with steady-state production of approximately 11 million wet tonnes per annum from surface mining operations. Valuation methodology: As a result of the nature of AMC’s assets, the nature of financial information available and the relevant market participants, a comparable market valuation based on resources multiples from four broadly comparable bauxite projects was used and supported by a discounted cash flow analysis. At year end the fair value of the investment was US$57 million. Sensitivities: The fair value of Zeta’s equity interest in AMC is sensitive to the available resource multiples for comparable bauxite transactions observed in the market. An increase in the multiple used could significantly increase the fair value determined. A possible alternative mutiple represents an increase of 0.1 A$/t to the multiple which can cause an increase of US$28.5 million Zeta Resources’ equity interest in AMC. (b) Investments in subsidiaries Kumarina Resources Pty Limited (“Kumarina”) - Australia incorporated Kumarina is a mineral exploration company with two prospective copper and gold projects located in Western Australia, the Ilgarari Copper Project and the Murrin Murrin Gold Project. Kumarina’s primary focus has been the exploration and development of the Murrin Murrin Gold Project, which is located 50 km east of Leonora in the north-eastern Goldfields. Valuation methodology: The market approach for the valuation of Kumarina has been used in the forms of resources multiples from comparable transactions and area multiples from comparable transactions. The most recent mineral resource estimate for the Murrin Murrin Gold project and the tenement area of the Illgari Copper Project were used. Eighteen copper and thirty gold comparable transactions were used in the analysis. The area of Ilgarari Copper project is 457km² and a value of A$3,000 per km² was used. The Murrin Murrin project has a resource estimate of 52,100 oz and a value of A$30 per oz was used. At year end the fair value of the investment was US$1.3 million. Sensitivities: The methodology used is sensitive to the chosen resource multiples for comparable gold transactions and area multiples for comparable copper transactions observed on the market. The magnitude of these multiples are primarily driven by commodity prices and market conditions. The fair value of Zeta Resources’ equity interest in Kumarina is also sensitive to the level of JORC Code 2012 gold resource for the Murrin Murrin Gold Project. An increase in the resource and area multiples will result in an increase in the value of the investment. Possible alternative mutiples represent an increase in the tenemant size multiple of 3,000 A$/km² and an increase in the resources multiple of 10 A$/oz which can cause increase of US$1.3 million Zeta Resources’ equity interest in Kumarina. Other investments Zeta Resources has further investments at fair value totalling US$343,698 (2019: US$178,000). 30 June 2020 Financial assets Investments Investment in subsidiaries Level 1 US$ Level 2 US$ Level 3 US$ 50,124,116 15,107,981 – – 64,715,095 1,309,354 There have been no movements between the level 1 and level 3 categories. 62 Zeta Resources Limited 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 2019 Acquisitions at cost Disposals during the year Reclassification to amortised cost Total gains recognised in fair value through profit or loss Balance at 30 June 2020 Level 3 investments US$ 40,406,163 3,213,491 – – Level 3 investments in subsidiaries US$ 1,000,002 – – – 21,095,441 64,715,095 309,352 1,309,354 30 June 2019 Financial assets Investments Investment in subsidiaries Level 1 US$ Level 2 US$ Level 3 US$ 68,378,923 21,143,024 – – 40,406,163 1,000,002 There have been no movements between the level 1 and level 3 categories. Investment in Bligh Resources Limited was transferred from level 1 to level 2 as a result of the fair value being based on the takeover offer by Saracens. 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 2018 Acquisitions at cost Disposals during the year Reclassification to amortised cost Total gains/(losses) recognised in fair value through profit or loss Level 3 investments US$ 25,711,750 10,343,504 – – Level 3 investments in subsidiaries US$ 2,103,504 – (4) – 4,350,909 (1,103,499) Balance at 30 June 2019 40,406,163 1,000,002 Level 3 loans to subsidiaries US$ 379,690 – – (379,690) – – 25.5 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 of directors 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. 63 Annual Report for the year to 30 June 2020 NOTES TO THE FINANCIAL STATEMENTS (continued) 26. RELATED PARTIES 26.1 Material related parties Holding company The Company’s holding company is UIL which held 59.9% of the Company’s issued share capital on 30 June 2019. UIL is 62.4% owned by General Provincial Life Pension Fund Limited. Subsidiary companies Wholly owned subsidiaries include Kumarina, Zeta Energy and Zeta Investments. Zeta Resources holds 69% of Horizon Gold’s issued share capital. PPP is a subsidiary of Zeta Energy. 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 an Investment Manager of the Company and of UIL. 26.2 Material related parties transactions Nature of transactions Investments in related parties: Kumarina Zeta Investments Zeta Energy Horizon Gold Loans to related parties: Kumarina Zeta Energy Zeta Investments Proprietary Limited Horizon Gold Bligh Resources Limited Loans from related parties: UIL Limited Zeta Energy PPP ICM Limited Trade and other payables: ICM Limited Directors Impairment of loan to subsidiary Interest relates to loans measured at amortised cost Interest charged by the subsidiaries Interest charged by the parent company Interest charged by ICM Interest charged to investee entity Fees paid to the Investment Manager Fees paid to the directors M Botha P Sullivan X Xi A Liebenberg 64 June 2020 US$ June 2019 US$ 1,309,352 1,000,000 1 1 1 1 15,107,981 1,566,125 778,030 728,469 – 208,156 – 68,312,746 – 1,614,293 436,569 139,708 50,000 7,676 135,680 3,934,353 76,656 65,926 592,691 50,000 50,000 50,000 33,333 495,653 1,076,072 476,088 – 625,822 45,793,293 2,508,840 1,980,510 3,983,509 162,949 37,500 1,018,137 288,598 2,476,820 241,948 30,187 677,467 50,000 50,000 50,000 – Zeta Resources Limited 27. 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 explore or mine for gold Nickel: investments in companies which explore or mine for nickel Mineral exploration: investments in companies which explore or mine for copper and other minerals Administration: activities relating to financing received which does not specifically relate to any one segment as well as administrative activities 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. In the current year an additional segment has been included, the comparative amounts have been updated accordingly. The administration segment has been added due to the high value of the funding received for reinvestment. Information about reportable segments 30 June 2020 Gold US$ Nickel US$ Mineral exploration US$ Admin US$ Total US$ External investment returns 10,192,858 (37,701,884) 16,321,583 75,576 (11,111,867) Reportable segment investment returns Interest revenue Interest expense Reportable segment profit/(loss) before tax 10,192,858 (37,701,884) 16,321,583 75,576 (11,111,867) – – – – – – 83,251 83,251 (4,434,509) (4,434,509) 3,840,668 (37,078,372) 16,275,288 (5,405,410) (22,367,826) Reportable segment assets 20,644,737 24,285,439 87,104,399 948,708 132,983,283 Reportable segment liabilities (2,368,352) – – (78,994,800) (81,363,152) 30 June 2019 Gold US$ Nickel US$ Mineral exploration US$ Admin US$ Total US$ External investment returns 10,955,989 (52,573,430) (4,282,821) 48,152 (45,852,110) Reportable segment investment returns Interest revenue Interest expense Reportable segment profit/(loss) before tax 10,955,989 (52,573,430) (4,282,821) 48,152 (45,852,110) – – – – – – 43,036 43,036 (3,315,144) (3,315,144) 10,936,763 (52,541,181) (3,355,218) (3,727,725) (48,687,361) Reportable segment assets 30,072,681 42,539,536 59,391,966 1,734,528 133,738,711 Reportable segment liabilities – – – (59,739,569) (59,739,569) During the year there were no transactions between segments which resulted in income or expenditure. 65 Annual Report for the year to 30 June 2020 NOTES TO THE FINANCIAL STATEMENTS (continued) 27. SEGMENTAL REPORTING (continued) Geographic information In presenting information on the basis of geography, segment investment returns and segment assets are based on the geographical location of the operating assets of the investment held by the Company. Investment returns Australia Canada Guinea Mali Namibia Singapore Sri Lanka Other Countries Investment returns Assets Australia Canada Guinea Mali Namibia Singapore Sri Lanka Other Countries Assets June 2020 US$ (23,284,932) (4,053,511) 22,372,102 (1,211,389) (919,101) (7,676) 2,027,710 (6,035,070) June 2019 US$ (40,981,429) (6,163,243) 5,569,813 (614,658) (754,640) (1,018,136) (130,813) (1,759,004) (11,111,867) (45,852,110) June 2020 US$ 44,652,648 16,527,961 57,000,000 3,184,602 792,626 728,469 6,196,163 3,900,813 June 2019 US$ 74,027,756 13,408,527 32,784,651 4,385,458 2,733,873 1,076,072 2,804,262 2,518,112 132,983,283 133,738,711 28. EVENTS AFTER REPORTING DATE 28.1 Horizon Gold Limited Zeta Resources has taken up its entitlement in the Horizon Gold renounceable entitlement issue for an amount of A$1.6 million and the loan to Horizon Gold was repaid as part of the payment due. Zeta Resources now holds 69.35% of the issued share capital. 28.2 Bonus Option issue On 10 September Zeta Resources offered a bonus issue of Options to its shareholders. Eligible Shareholders who hold Shares on the Record Date are offered one (1) Option (“Bonus Option”) for every one (1) Share held on the Record Date. The Bonus Options have no issue price, will be exercisable at A$0.25 each and expire on 15 June 2021. 28.3 Covid-19 It is uncertain what the long term impact of Covid-19 will be and as stated in note 24 the impact of lock-down procedures would not necessarily result in a downward adjustment of investments held by Zeta Resources. The value of the investments have recovered since 30 June 2020. The value of level 1 investments disclosed in note 25.4, on 31 August was $82 million and the value of level 3 investments at 31 August 2020 was $66 million. No additional impairment for the loan to subsidiary was identified up to 31 August 2020 as the value of the underlying assets in the subsidiaries have not decreased any further since year-end. 66 Zeta Resources Limited SHAREHOLDER INFORMATION SUBSTANTIAL SHAREHOLDERS As at 7 September 2020, the Company had received notification of the following substantial shareholdings: NAME UIL Limited General Provincial Life Pension Fund Limited UIL Limited (and associates) SHARES % OF ISSUED CAPITAL 172,354,809 90,144,895 262,499,704 59.92 31.34 91.26 TOP 20 HOLDINGS OF FULLY PAID ORDINARY SHARES AS AT 7 SEPTEMBER 2020 NAME SHARES % OF ISSUED CAPITAL J P MORGAN NOMINEES AUSTRALIA PTY LIMITED GENERAL PROVINCIAL LIFE PENSION FUND LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MR JAMES NOEL SULLIVAN HARDROCK CAPITAL PTY LTD – CGLW NO 2 SUPER FUND A/C HARDROCK CAPITAL PTY LTD MR SEAN DENNEHY BURNAL PTY LTD CHERRYBURN PTY LTD – BURROWS SUPER FUND A/C CALIMO PTY LTD CITICORP NOMINEES PTY LIMITED BLESSED INVESTMENTS PTY LIMITED – GREEN FAMILY S/F A/C ACS (NSW) PTY LIMITED – ACS FAMILY SUPER FUND A/C UURO PTY LTD MISS ALEXANDRA MAREE SAVILLE MR BRIAN GREEN MR JAMES NOEL SULLIVAN & MRS GAIL SULLIVAN – SULLIVANS GARAGE S/F A/C SUPER SECRET PTY LIMITED – KOCZ SF A/C NALMOR PTY LTD JOHN CHAPPELL SUPER FUND A/C ROYAL SUNSET PTY LTD ANNE CONEY Total for top 20 172,354,809 90,144,895 9,410,830 1,308,595 600,000 600,000 498,566 450,000 376,160 356,017 341,145 335,000 295,000 250,000 241,778 215,000 200,000 162,855 162,000 145,000 130,000 59.92 31.34 3.27 0.45 0.21 0.21 0.17 0.16 0.13 0.12 0.12 0.12 0.10 0.09 0.08 0.07 0.07 0.06 0.06 0.05 0.05 278,577,650 96.85 67 Annual Report for the year to 30 June 2020 SHAREHOLDER INFORMATION (continued) DISTRIBUTION SCHEDULE OF ORDINARY SHARES HELD AT 7 SEPTEMBER 2020 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 7,951 2,641,734 1,184,811 4,763,052 279,045,528 287,643,076 NO. OF ORDINARY SHAREHOLDERS % OF ISSUED CAPITAL 28 983 155 181 25 1,372 0.00 0.92 0.41 1.66 97.01 100.00 The number of shareholders holding less than a marketable parcel of ordinary shares at 7 September 2020 is 541 and they hold 953,983 securities. VOTING RIGHTS All ordinary shares carry one vote per share without restriction. 68 Zeta Resources Limited COMPANY INFORMATION Zeta Resources Limited Company ARBN: 162 902 481 www.zetaresources.limited DIRECTORS (NON-EXECUTIVE) Peter Sullivan (Chairman) Marthinus (Martin) Botha André Liebenberg Xi Xi REGISTERED OFFICE 34 Bermudiana Road Hamilton HM 11 Bermuda Company Registration Number: 46795 AUSTRALIAN REGISTERED OFFICE Level 11, 1 York Street Sydney NSW 2000 Australia Telephone: + 61 414 224 494 CANADIAN OFFICE ICM CA Research Limited 1800-510 West Georgia Street Vancouver BC V6B 0M3 Canada Telephone: +1 778 222 7378 Email: contactca@icm.limited NEW ZEALAND OFFICE ICM NZ Limited PO Box 25437 Wellington 6140 New Zealand Telephone: +64 4 901 7600 Email: contact@icmnz.co.nz INVESTMENT MANAGER ICM Limited 34 Bermudiana Road Hamilton HM 11 Bermuda Telephone: +1 441 299 2897 Email: contact@icm.limited SECRETARY ICM Limited 34 Bermudiana Road PO Box HM 1748 Hamilton HM GX Bermuda GENERAL ADMINISTRATION ICM Corporate Services (Pty) Ltd 1 Knutsford Road Wynberg 7800 Cape Town South Africa AUDITOR Mazars Mazars House Grand Moorings Precinct Century City 7441 Cape Town South Africa DEPOSITORY JP Morgan Chase Bank NA London Branch 25 Bank Street Canary Wharf London E14 5JP United Kingdom REGISTRAR Automic Pty Ltd GPO Box 5193 Sydney NSW 2001 Australia Telephone: +61 2 9698 5414 STOCK EXCHANGE LISTING The company’s shares are quoted on the Official List of the Australian Securities Exchange. Ticker code: ZER 69 HEADINGAnnual Report for the year to 30 June 2020 SIGNIFICANT STAKES IN A SELECT RANGE OF KEY COMMODITY COMPANIES BERMUDA OFFICE 34 Bermudiana Road Hamilton HM 11 Bermuda Telephone: +1 441 299 2897 www.zetaresources.limited
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