Zeta Resources Limited
Annual Report 2021

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2021 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. Panoramic Resources Limited 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 2021 CONTENTS 1 Why Zeta Resources Limited? PERFORMANCE 3 4 5 6 Chairman’s Statement Group Performance Summary Current Year Performance Geographical Investment Exposure INVESTMENTS 7 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 33 Corporate Governance Statement FINANCIAL STATEMENTS 35 Independent Auditor’s Report 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 November 2021 Half Year 31 December Half Year Announcement February Front cover image – Alliance Mining Commodities Limited 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 standout investment of the year under review was Copper Mountain Mining Corporation. I am very pleased to report that Zeta has enjoyed its best year ever. A combination of factors combined to produce a gratifying result, with a net profit for the year of US$114.7m. Net assets per share (after adjusting historical figures for the September 2020 bonus option issue) more than doubled. PETER SULLIVAN Chairman In short, the primary reason behind Zeta’s success this year was a strong performance by industrial commodities. While gold basically trod water, copper was up 52.8%, aluminium rose 57.1%, nickel rose 44.2%, and Brent oil was up 77.2%. By investing in mining companies rather than directly in the commodities, Zeta enjoyed the benefit of operating leverage as the share prices of its investments grew faster than the underlying commodity prices. The standout investment of the year under review was Copper Mountain Mining Corporation, whose share price rose 485.5%. During the year, Copper Mountain enjoyed the benefit of the strong rise in the price of copper, but also achieved record production as a result of earlier significant investment into improving operating capability. Copper Mountain started the year with significant debt, and as a result its improved performance was leveraged in both an operational and financial sense. Pleasingly, the company also announced a new life of mine plan for its core mine in British Columbia, and when combined with the prospect of developing its Little Eva mine in Australia, the future looks bright for the company. Zeta remains the largest shareholder in Copper Mountain. As a portfolio, our other investments also performed well, albeit not to the same level as Copper Mountain. Zeta’s investment in Alliance Mining Commodities, which owns a world-class bauxite resource in Guinea, continues to work towards developing this asset. Western Australian nickel firm Panoramic Resources enjoyed a much better year than the previous, with its share price rising 75.0% during the year as the company works towards a full restart of its Savannah nickel mine. While the price of gold is the one commodity in Zeta’s portfolio which has declined, albeit very slightly, we continue to be pleased with Zeta’s investment in Horizon Gold, which has been releasing a steady stream of positive drilling results. There has recently been much attention paid to the so called “battery metals”. Long-term shareholders in Zeta will know that the Company has for some time targeted such commodities. However, it is worth highlighting that the strong demand for electric vehicles (“EVs”) globally impacts all three of Zeta’s largest investments. The switch from internal combustion engines to electric propulsion requires a significant increase in copper usage. Nickel is the largest component by weight in the most common forms of lithium-ion batteries and nickel demand for this use is still in its early days. The focus on energy efficiency will lead to increased use of aluminium in car frames and other machinery instead of steel. Aside from EVs, the world continues to grapple with the covid-19 pandemic and its emerging variants. The combination of fiscal stimulus and supply shortages due to covid-related mine shutdowns have both contributed to the strong uplift in industrial commodity prices. Looking forward, it is unclear how long the pandemic will last, and whether the world will ever return to a pre-pandemic “normal”. For now, Zeta continues to see increasing value in its investments driven primarily by increasing demand. We continue to see our shares trading at a significant discount to the underlying net tangible asset backing. Apart from the value add we obtain for shareholders through our share buy-back programme, we are exploring other strategies that may help close this discount. Finally, I would note the pleasing uptake of the Zeta options which expired on 15 June 2021. With over 96% of the options exercised, netting A$69.7 million, this was a significant strengthening of the balance sheet and positions us well for further investment opportunities. Thank you for your ongoing support. Peter Sullivan Chairman 23 September 2021 3 Annual Report for the year to 30 June 2021 GROUP PERFORMANCE SUMMARY 30 June 2021 30 June 2020 % change 2021/20 Total return(1) (annual) (%) 102.7 (30.0) Net tangible asset per ordinary share(2) (Australian cents) Ordinary share price (Australian cents) Discount (%) Profit/(loss) per ordinary share(3) (US dollars) Dividends per ordinary share Equity holders' funds (US$m) Gross assets(4) (US$m) Cash (US$m) Other debt (US$m) Net debt (US$m) Net debt gearing on gross assets (%) 51.9 43.0 17.1 0.33 Nil 220.2 260.0 1.4 (39.8) (39.4) 15.2 25.6* 18.0 29.7 (0.07)* Nil 99.5* 175.4* 0.0 (75.9) (75.9) 43.3 442.4 102.7 138.9 (42.3) 571.4 n/a 121.3 48.2 n/a (47.6) (49.4) n/a (1) (2) Total return is calculated based on NTA per share return plus dividends reinvested from the payment date. The NTA is calculated based on 566,004,068 shares on issue as at 30 June 2021, and 287,643,076 shares on issue as at 30 June 2020. (3) Earnings per share is based on the weighted average number of shares in issue during the year adjusted for the bonus element of options exercised in 2021. (4) Gross assets less liabilities excluding loans. * Comparative information has been adjusted for the options exercised in 2021. n/a = not applicable Panoramic Resources Limited 4 Zeta Resources Limited CURRENT YEAR PERFORMANCE NAV TOTAL RETURN PER ORDINARY SHARE SHARE PRICE RETURN PER SHARE NAV DISCOUNT AS AT 30 JUNE 2021 GEARING 102.7% 138.9% 17.1% 14.8% EARNINGS PER SHARE ORDINARY SHARES BOUGHT BACK AVERAGE PRICE OF ORDINARY SHARE BOUGHT BACK ONGOING CHARGES (EXCLUDING PERFORMANCE FEE) US$0.33 1,287,056 A$0.36 1.5% TOTAL RETURN COMPARATIVE PERFORMANCE* since inception on 12 June 2013 to 30 June 2021 200.00 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 Jun 19 Jun 20 Jun 21 Zeta Share Price S&P/ASX 200 Energy S&P/ASX 300 Metals & Mining *AUD, rebased to 100 as at 12 June 2013. Zeta share price adjusted for February 2014 entitlement issue and diluted for the September 2020 bonus option issue Source: ICM and S&P Dow Jones Indices 5 Annual Report for the year to 30 June 2021 GEOGRAPHICAL INVESTMENT EXPOSURE (% OF TOTAL INVESTMENTS) CANADA June 2021 June 2020 37.2% 12.5% AUSTRALIA June 2021 June 2020 33.0% 33.8% GUINEA June 2021 June 2020 22.9% 43.4% SRI LANKA June 2021 June 2020 Source: ICM 5.3% 4.7% OTHER June 2021 June 2020 1.6% 5.6% 6 Zeta Resources Limited INVESTMENT MANAGER’S REPORT Copper Mountain Mining Corporation The year under review was a strong year for industrial commodity prices. Looking back, the uplift began during the end of the previous financial year, but quickened in pace in late 2020 with the announcement of multiple covid-19 vaccines that demonstrated good efficacy against the coronavirus. Commodity prices appear to have stabilised in the second half of the financial year, settling into trading ranges, albeit on average some 50% higher than the year before. DUGALD MORRISON Gold did not enjoy the same uplift in price experienced by industrial commodities. Gold did not rise despite a stimulatory monetary and fiscal policy in the United States, and in fact the loose monetary policy by the US Federal Reserve led to a weakening in the US dollar against most currencies that stretched from March 2020 until around May 2021. Gold prices in currencies other than US dollars were thus, in general, down for the year. Turning to Zeta’s commodity exposures, the most significant change was a strong uplift in the share price of Copper Mountain Mining (discussed below). At the start of the year, Zeta had 43.4% of gross assets in bauxite, 17.9% in gold, 13.9% in nickel and 13.5% in copper. By the end of the year, the top commodity exposures were 38.5% in copper, 22.9% bauxite, 14.4% gold, and 12.3% nickel. As a leveraged investment company with small company exposure, the increase in commodity prices was exacerbated in Zeta’s NAV performance. During the year under review, Zeta’s net assets per share doubled from A$0.26 to A$0.52. For comparison, the S&P/ASX 200 Energy index rose 6.9% over the same period, and the S&P/ASX 300 Metals & Mining index, which includes gold mining stocks, rose 29.7%. Zeta’s share price rose from A$0.18 to A$0.43. At the start of the period the share price was at a 29.7% discount to net assets; at the end of the period the share price was at a 17.1% discount to net assets. Zeta ended the financial year with a much lower level of gearing, as a result of growth in the value of its investment assets, coupled with new equity from the exercise of options. In September 2020, Zeta issued new options on a 1:1 basis. The options had an exercise price of A$0.25 and an expiry date of 15 June 2021. A total of 278,770,100 options were exercised, representing an investment of c. US$54 million in new equity. At the start of the financial year, Zeta had a net debt (total loans less cash) to equity ratio of 147%; by the end of the year the ratio was 17%. 7 Annual Report for the year to 30 June 2021 INVESTMENT MANAGER’S REPORT (continued) IN THE YEAR TO 30 JUNE 2021 CANADA IS ZETA’S LARGEST COUNTRY EXPOSURE AT 37.2% AUSTRALIA IS ZETA’S SECOND LARGEST COUNTRY EXPOSURE AT 33.0% GUINEA IS ZETA’S THIRD LARGEST COUNTRY EXPOSURE AT 22.9% 24.7% 0.8% 20.5% Note: decreases/increases refer to the movement in the portfolio percentage of the relevant country SECTOR SPLIT OF INVESTMENTS 29 Cu 28 Ni Copper Bauxite Gold 38.5% (13.5%) 13 AI 22.9% (43.4%) 79 Au 14.4% (17.9%) Nickel Graphite Cobalt 12.3% (13.9%) Oil & Gas 0.6% (1.3%) 6 C 5.3% (4.7%) 27 Co 2.0% (2.4%) Other Cash 2.9% (2.0%) 1.1% (0.9%) Figures in brackets as at 30 June 2020 8 Zeta Resources Limited COMMODITY MARKETS As noted, during the year under review the price of industrial commodities such as copper and oil increased while the price of gold fell slightly. The US dollar weakened, reducing the benefit somewhat of the strong commodity prices for Australian and Canadian miners. Zeta’s largest geographical exposure is to Canada, where at year end, 37.2% of the portfolio was invested. Australia is second, with a third of the portfolio; and Guinea third, with just less than a quarter of the portfolio. Copper The rebound in copper prices which began in March 2020 continued apace throughout most of 2021. The increase in the price of copper began as markets reacted to increasing demand, particularly from China, partly in response to government stimulus and partly as economic activity began to recover following the initial shock of the onset of the covid-19 pandemic. As multiple vaccines with clinical efficacy against the coronavirus were granted emergency use authorization by the FDA and other governmental health agencies globally, the rise in the price of copper, along with other industrial commodities, quickened. Demand for copper continues to be underpinned by increasing production of electric vehicles, which require greater use of copper wiring than traditional internal combustion engine vehicles. The additional infrastructure required to charge electric vehicles also requires the use of additional copper. Supply shortages related to mine shutdowns due to covid-19 are expected to abate, but the risk of interruptions remains. At the end of June 2021, the copper price was US$4.19 per pound, 52.8% above the price at the end of June 2020. Since year end, the copper price has stayed within a relatively tight trading range around $4.20 per pound. Zeta’s largest investment in the copper sector is Canadian copper firm Copper Mountain Mining Corporation (“Copper Mountain”), which produces copper in British Columbia and has a copper development project in Queensland, Australia. The increase in the share price of Copper Mountain was the largest contributor to the increase in the value of Zeta’s gross assets during the year, as the company achieved record production just as copper prices reached their recent peak. Copper Mountain raised new equity near the end of 2020, and Zeta supported the capital raising. COPPER PRICE from June 2019 to June 2021 7.00 6.00 5.00 4.00 3.00 2.00 1.00 Jun 19 Dec 19 Jun 20 Dec 20 Jun 21 US$/lb A$/lb Source: LME Demand for copper continues to be underpinned by increasing production of electric vehicles. 9 Annual Report for the year to 30 June 2021 INVESTMENT MANAGER’S REPORT (continued) Horizon Gold Limited Aluminium Aluminium prices had a similar trajectory to copper prices during the year, continuing a rise that started around March 2020, and for similar reasons. At the start of the year, aluminium was US$0.73 per pound; by the end of the year it was US$1.14 per pound, an increase of 57.1%. While the primary driver behind the rise in aluminium prices was a recovery in demand, aluminium has also recently benefited from increased demand in the production of electric vehicles. This is because lithium-ion batteries significantly increase the weight of vehicles, and some car manufacturers have been compensating by replacing steel with aluminium in car frames. Recently, significant problems with the global shipping industry has resulted in record premiums for aluminium in the United States and, to a lesser extent, Europe, as most of the available aluminium is in Asia. 10 Zeta increased its holding during the year in unlisted bauxite developer Alliance Mining Commodities Limited (“AMC”) through support of two capital raisings. AMC owns a world-class bauxite deposit in Guinea. The recent coup in Guinea is not expected to affect the long-term outlook for AMC. ALUMINIUM PRICE from June 2019 to June 2021 1.60 1.40 1.20 1.00 0.80 0.60 0.40 Jun 19 Dec 19 Jun 20 Dec 20 Jun 21 US$/lb A$/lb Source: LME Zeta Resources Limited Zeta’s largest investment in the gold sector is in Western Australian gold exploration company Horizon Gold Limited (“Horizon Gold”). During the year Zeta supported the company through an entitlement issue to raise capital for development and exploration. Horizon Gold continues to work through an extensive drilling campaign across multiple prospects. GOLD PRICE from June 2019 to June 2021 3,100 2,800 2,500 2,200 1,900 1,600 1,300 1,000 Jun 19 Dec 19 Jun 20 Dec 20 Jun 21 Spot Price US$ Spot Price A$ Source: Kitco - London PM Fix Gold Unlike the other commodities under review, gold was not a beneficiary of the recovery in commodity and equity markets following the initial shock of the onset of the covid-19 pandemic. Instead, gold ranged between c. US$1,650 and US$2,050 per ounce, but spent most of the year in a range between US$1,750 and US$1,950. At the end of June 2020 the price of gold was US$1,768 per ounce; at the end of June 2021 the gold price was US$1,763 per ounce, a decline of 0.3%. In Australian dollars, the decline was more pronounced, from A$2,573 per ounce to A$2,346, a fall of 8.8%. Central bank monetary policies were generally stimulatory globally in response to the covid-19 pandemic. Normally this would be expected to result in an uplift in gold prices; however, the muted response from gold prices has led market observers to conclude that part of the demand for gold by speculators has instead switched to demand for cryptocurrencies. We note the re-emergence of inflation in consumer prices after a long absence even in an environment of sustained loose monetary policy. This recent inflation has resulted for a number of reasons, including product shortages due to logistics difficulties, and resurgent consumer demand arising from near full employment and certain labour shortages resulting in wage inflation. On the one hand, inflation may lead to speculative demand for gold, but on the other hand a tightening in monetary policy to reduce inflation would likely result in falling gold prices. We note the re-emergence of inflation in consumer prices after a long absence. 11 Annual Report for the year to 30 June 2021 INVESTMENT MANAGER’S REPORT (continued) Nickel Oil & Gas As with copper and aluminium, the price of nickel enjoyed a strong start to the year as industrial demand recovered and supply shortages arose following the onset of covid-19. However, the second half of the year saw nickel settle into a trading range between US$7.20 per pound and US$8.70 per pound. Overall, for the twelve months ended June 2021, the price of nickel increased 44.2% to US$8.37 per pound. Demand for nickel continues to be sustained in part by increasing demand for electric vehicles. Lithium-ion batteries, despite their name, typically require a much larger amount of nickel than lithium. 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”). Following the significant problems encountered by Panoramic in the previous year, Panoramic has utilised new capital (supported by Zeta) to de-risk its Savannah mine in Western Australia. The company has also secured new financing facilities and an offtake agreement, and is working toward a full restart of production at Savannah. At the start of the year under review, the Brent Crude Oil price was US$42 per barrel; by the end of June 2021 the price of Brent was US$74 per barrel, an increase of 77.2%. While this increase was stronger than the other industrial commodities under review, it also followed a much stronger downturn in oil prices when the covid-19 pandemic first hit in early 2020. While global warming has led much of the world to take action to attempt to reduce the use of carbon, the reality is that demand for fossil fuels is likely to persist for some time. As the global economy recovers and international travel returns to its earlier norms, the demand for oil is likely to continue. In the short term, the increased usage of electric vehicles is likely to lead to an increase in demand for other fossil fuels such as natural gas and coal in order to meet the increasing demand for electricity globally. Zeta does not currently have any significant investments in the oil & gas sector. NICKEL PRICE from June 2019 to June 2021 BRENT CRUDE OIL PRICE from June 2019 to June 2021 120 100 80 60 40 20 0 Jun 19 Dec 19 Jun 20 Dec 20 Jun 21 US$/lb A$/lb Source: LME Jun 19 Dec 19 Jun 20 Dec 20 Jun 21 US$/bbl A$/bbl Source: US Energy Information Administration 14 12 10 8 6 4 2 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 2021, Zeta had a loan from UIL totalling US$32.6 million, drawn in Australian dollars and Canadian dollars. As at 30 June 2021, Zeta had total assets of US$268.2 million (2020: US$132.9 million). Of this figure, US$61.4 million (2020: US$57 million) was invested in the bauxite sector; US$38.7 million (2020: US$20.6 million) was invested in the gold sector; US$136.4 million (2020: US$36.2 million) was invested in the nickel and copper sectors; and US$1.62 million (2020: US$1.78 million) was invested in the oil & gas sector. NTA PER SHARE VERSUS SHARE PRICE since inception on 12 June 2013 to 30 June 2021 s r a l l o D n a i l a r t s u A 0.800 0.700 0.600 0.500 0.400 0.300 0.200 0.100 0.000 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 Jun 19 Jun 20 Jun 21 Note: Historic figures adjusted for the February 2014 entitlement issue and diluted for the September 2020 bonus option issue Source: ICM NTA Closing Share Price FINANCIAL RESULTS The net profit after tax for the year was US$114,670,080 against a loss of US$22,367,826 in the year ended June 2020. The net profit was comprised largely of unrealised gains from investments. 13 Annual Report for the year to 30 June 2021 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 2021: RESERVES Proved & Probable RESOURCES Measured & Indicated 14.24 m t 138.58 m t 0.02 m t 0.02 m t 0.35 m t 0.47 m t 0.33 m oz 1.17 m oz — 0.15 m t 0.27 m t 0.33 m t 1.81 m oz 2.46 m oz Alumina Cobalt Copper Gold Graphite Nickel Silver 13 AI 27 Co 29 Cu 79 Au 6 C 28 Ni 47 Ag 14 Zeta Resources Limited ASSOCIATES As at 30 June 2021, the following three entities were determined to be associates of Zeta: GME Resources Limited ASX-listed junior nickel and gold explorer with substantial nickel resources in Western Australia Alliance Mining Commodities Limited Unlisted bauxite development company with a world class asset in Guinea, West Africa Margosa Graphite Limited Unlisted graphite explorer focused on high-grade vein graphite in Sri Lanka % owned 43.2 36.2 33.4 SIGNIFICANT INVESTMENTS 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. GME Resources GME Resources Limited is a Western Australian exploration and development company whose principal asset is its 100%-owned NiWest nickel-cobalt project situated adjacent to Glencore’s Murrin Murrin operation. The NiWest project is regarded as one of the largest and highest quality undeveloped nickel/cobalt resources in Australia. In August 2018 the company completed a Pre- Feasibility Study into the technical and economic viability of a heap leach and direct solvent extraction operation. NiWest has an ore reserve estimate of 64.9 million tonnes at 0.91% Ni and 0.06% Co for 592,000 contained nickel and 38,000 contained cobalt. Star Royalties Star Royalties Ltd. is a Canadian company focused on investment in precious metal royalties and streaming. The company has also pioneered its first forest carbon credit royalty and is pursuing a pipeline of additional green investments. Resolute Resolute Mining Limited (“Resolute) is an Australian- headquartered gold company with two operating mines, Syama in southern Mali, and Mako in Senegal. Following significant operating difficulties the previous year, Resolute has again suffered multiple setbacks, including shutdowns related to covid-19, industrial action, political problems related to the coup in Mali, and the cancellation by the government in Ghana of the planned sale of the company’s Bibiani mine to a Chinese firm. However, Resolute has moved to replace most of its senior management team, and the company recently sold Bibiani to a new buyer, albeit at a reduced price from that agreed with the Chinese firm. Kumarina Kumarina Resources Pty Limited (“Kumarina”) is a 100%-owned subsidiary of Zeta. The company is focused on the Murrin Murrin copper-gold project in Western Australia. The Murrin Murrin project has a gold resource (JORC 2012) of 36,000 ounces and is prospective for base metals in the form VMS style copper zinc mineralisation. Ownership Comments 0% Gold and Base Metals Rights 0% Gold and Base Metals Rights 100% 100% 100% 100% 100% Project area Tenement ID Eulaminna M39/0371 M39/0372 Murrin Murrin M39/0397 M39/0398 M39/0399 M39/0400 M39/1068 JDF Morrison ICM Limited Investment Manager 23 September 2021 15 Annual Report for the year to 30 June 2021 MACRO TRENDS AFFECTING RESOURCES ELECTRIC 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 commodities CLIMATE CHANGE AND DECARBONISATION • Heightened consumer pull and government push to reduce carbon emissions across every sector of the economy globally • Use of renewables, including solar, wind, and biofuels increasing quickly but still a relatively small component of total energy mix • Growing focus on ESG reporting and fulsome accounting of carbon footprint required for many businesses • Likely to be a drag on long term demand for certain commodities such as thermal coal and oil and a tailwind for several others, including nickel, copper, lithium, graphite, and potentially uranium COVID-19 DISRUPTION • Disruptions to both production and demand causing increased volatility and uncertainty for many commodities • Demand and prices for most commodities improved in recent months as vaccination programmes continue and several countries relax restrictions, but significant uncertainty remains • Increasing cases and hospitalisations in several countries fuelled by emerging variants, leading to additional shutdowns and economic uncertainty GLOBAL DEBT AND STIMULUS • 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 and restrictions • Inflation may result in increased interest rates making debt loads unsustainable • 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 16 Zeta Resources Limited SECTOR SUMMARIES AS AT 30 JUNE 2021 COPPER 29 CuCopper BAUXITE 13 AIAluminium 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 • Increasing demand for wiring for electric vehicles, but price still generally tied to the global economy and industrial demand • Dramatic price increase since April 2020, fuelled by a tight concentrate market, supply interruptions in Chile, and anticipated ramp up of electric vehicle sales over the next decade • Fluctuating demand from China and risk of supply disruptions in South America also influence prices, particularly in the short term Exposure • 18% of Copper Mountain Mining (TSX:CMMC, ASX:C6C) – producing copper in Canada, and developing a copper asset in Australia • 100% of Kumarina (unlisted) – junior copper-gold exploration firm in Western Australia 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 on upward trend since bottoming in May 2020 • Aluminium being used by some manufacturers to replace steel in car frames to compensate for the additional weight of lithium-ion batteries vs internal combustion engines Exposure • 36% of Alliance Mining Commodities (unlisted) – owner and developer of a world-class bauxite resource in Guinea 17 Annual Report for the year to 30 June 2021 SECTOR SUMMARIES AS AT 30 JUNE 2021 (continued) GOLD 79 AuGold NICKEL 28 NiNickel 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 volatile and trending down since peaking above $2,000 per oz in August 2020, but nonetheless remains near 10-year highs, as forecasts of monetary tightening compete with inflation concerns and unprecedented fiscal stimulus by the US Federal Reserve and other governments • 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 • 69% of Horizon Gold (ASX:HRN) – exploration and development in Western Australia • 100% of Kumarina (unlisted) – junior copper-gold exploration firm in Western Australia 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, Russia, New Caledonia, Australia, Canada Macro trends • Demand for nickel for lithium-ion batteries increasing quickly, but still relatively small component of global nickel demand • Nickel prices fully recovered since bottoming in March 2020, reaching a 7-year high in early 2021 amidst strong demand forecasts related to the economic recovery and electric vehicle sales • Industrial demand still heavily influenced by strength of Chinese economy Exposure • 17% of Panoramic Resources (ASX:PAN) – nickel producer in Western Australia • 43% of GME Resources (ASX:GME) – owns development project in Western Australia 18 Zeta Resources Limited GRAPHITE 6 CCarbon COBALT 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 • Prices have increased steadily since late 2017 amidst climbing demand for batteries and recent supply disruptions in China related to tighter environmental restrictions Exposure • 33% of Margosa Graphite Limited (unlisted) – Sri Lankan brownfield explorer of vein graphite, the purest naturally occurring graphite 27 CoCobalt 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 • After two years of weak pricing, cobalt prices rebounded in Q1 2021 on the back of increased demand for batteries and other industrial processes • 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 for the next 10+ years, albeit likely at lower volumes per unit Exposure • 17% of Panoramic Resources (ASX:PAN) – Australian nickel producer with cobalt reserves of 7,600 tonnes • 43% of GME Resources (ASX:GME) – Australian nickel developer with cobalt resources of 55,000 tonnes 19 Annual Report for the year to 30 June 2021 SECTOR SUMMARIES AS AT 30 JUNE 2021 (continued) 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 • Annual growth in oil demand has followed a linear trend in line with world population growth, but fell by a record 8 million barrels per day due to sudden decline in demand at the start of the covid-19 pandemic; demand is forecast to rebound to 2019 levels by 2022 • Oil prices have been volatile, but by mid-2021 had recovered to prices not seen since 2018 as the supply recovery has been relatively muted and the global market remains in deficit • Lower prices since 2014 have led to reduced global expenditures on oil & gas exploration, but technological improvements led to increased supply (prior to covid-19), especially in the US • After a 4% drop in 2020, global natural gas and LNG demand is expected to recover in 2021 and continue to climb over the next 10-15 years, at minimum Exposure • No significant investments in this sector 20 Zeta Resources Limited OUR INVESTMENT APPROACH ICM is a long-term 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 compelling investments. ICM has approximately US$2.9 billion of assets directly under management and is responsible indirectly for a further US$23.2 billion 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 the investment portfolio comprises a series of bottom-up decisions. ICM typically does not participate in either an IPO or an auction unless there is compelling value. ICM also looks for disruption and the opportunities it can unlock in both existing and new business models. 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 copper, bauxite, gold, nickel, graphite, cobalt, oil & gas and base metals exploration and production. When reviewing investment opportunities, as part of the investment process ICM will look to understand the material Environmental, Social & Governance (“ESG”) factors. ICM incorporates ESG factors in the investment process in three key ways: • Understanding: indepth analysis of key issues that face potential and current holdings, as well as a deep understanding of the industry in which they operate. • Integration: incorporate the output of the ‘Understanding’ component detailed above into the full company analysis to ensure a clear and complete picture of the investment opportunity is obtained. • Engagement: engage with investee companies on the key issues on a regular basis, both virtually and on location, where possible, to discuss and identify any gaps in their ESG policy to further develop and improve their ESG disclosure and implementation. 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 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 2021 FIVE LARGEST HOLDINGS Copper Mountain Mining Corporation THE VALUE OF THE FIVE LARGEST HOLDINGS REPRESENTS THE VALUE OF THE TEN LARGEST HOLDINGS REPRESENTS CANADA IS ZETA’S LARGEST COUNTRY EXPOSURE AT THE TOTAL NUMBER OF COMPANIES INCLUDED IN THE PORTFOLIO IS 91.8% (2020: 87.4%) OF TOTAL INVESTMENTS 98.1% (2020: 93.6%) OF TOTAL INVESTMENTS 37.2% (2020: 12.4%) OF TOTAL INVESTMENTS 30 (2020: 28) 22 Zeta Resources Limited 1 2 3 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. 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 north-west 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-compliant mineral resource in excess of 1.5 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. Countries Sector Canada and Australia Copper exploration and mining Fair Value US$000 % of total investments 112,255 41.9% % owned 18.3% Country Guinea Sector Bauxite developer Fair Value US$000 % of total investments % owned 61,403 22.9% 36.2% Country Australia Sector Nickel exploration and mining Fair Value US$000 % of total investments % owned 36,750 13.6% 16.5% 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 pandemic started. Since then, the company has raised significant new capital, completed some key capital works to de-risk the mine, and has recently secured project financing and an offtake agreement. 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. 23 Annual Report for the year to 30 June 2021 FIVE LARGEST HOLDINGS (continued) 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. Horizon Gold has been working through an extensive drilling campaign across multiple prospects. Country Australia Sector Gold Fair Value US$000 21,665 % of total investments 8.1% % owned 69.5% MARGOSA GRAPHITE LIMITED (“Margosa”) 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 the year under review Margosa completed a Feasibility Study focused on development of the Ridee Ganga Project which is located approximately 40 km south-southeast of Colombo, the capital city and main port of Sri Lanka. Country Sri Lanka Sector Graphite exploration and mining Fair Value US$000 14,161 % of total investments 5.3% % owned 33.6% 4 5 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$2.9 billion IN FUNDS DIRECTLY AND IS RESPONSIBLE INDIRECTLY FOR A FURTHER US$23.2 BILLION OF ASSETS IN SUBSIDIARY INVESTMENTS. ICM HAS OVER 70 STAFF BASED IN OFFICES IN BERMUDA, CAPE TOWN, DUBLIN, LONDON, SEOUL, SINGAPORE, SYDNEY, VANCOUVER AND WELLINGTON. DUNCAN SAVILLE Duncan Saville is a director and chairman of ICM Limited who founded the ICM Group and its predecessor companies and has been employed by the Group since 1988. Duncan 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. His Fellowships include the Institute of Chartered Accountants Australia and New Zealand, the Australian Institute of Company Directors and the Financial Services Institute of Australasia, and he is a Member of the Singapore Institute of Directors. ALASDAIR YOUNIE Alasdair Younie joined the ICM Group in 2010, is a director of ICM Limited and is based in Bermuda. Alasdair has extensive experience in financial markets and corporate finance, and he is responsible for the day-to-day running of the Somers Group. Alasdair 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 Allectus Capital Limited, Somers Limited and West Hamilton Holdings Limited. Alasdair graduated from Bristol University with a BSc in Economics and Economic History in 1998 and is a Member of the Institute of Chartered Accountants in England and Wales. 25 Annual Report for the year to 30 June 2021 INVESTMENT MANAGER AND TEAM (continued) DUGALD MORRISON 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. Dugald is focused on the Resources sector worldwide. Dugald is a director of a number of companies, including Horizon Gold Limited (ASX:HRN). Dugald graduated from Victoria University of Wellington in 1991 with BCA (Hons) and is a Member of the New Zealand Institute of Directors. TRISTAN KINGCOTT Tristan Kingcott joined ICM in 2018 and is responsible for ICM CA Research Limited, 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 and a Member of the CFA Society in Vancouver. 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. 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 Panoramic Resources Limited (ASX:PAN) and Copper Mountain Mining Corporation (TSX:CMMC). Mr Sullivan was a director of Bligh Resources Limited (ASX:BGH) until 13 August 2019 following the sale of the company to Saracen Mineral Holdings Limited. Mr Sullivan retired as a director of Resolute Mining Limited (ASX:RSG) effective 27 May 2021 after over 20 years’ involvement with the company. 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 non-executive 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 over 25 years’ experience in the resources industry across 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). 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 2021 REPORT OF THE DIRECTORS Kumarina Resources Pty Limited Directors present their report for Zeta Resources Limited, including its subsidiaries Kumarina Resources Pty Limited, Zeta Energy Pte. Ltd, Zeta Investments Limited, Zeta Minerals Ltd and Horizon Gold Limited, for the year ended 30 June 2021. OPERATING AND FINANCIAL REVIEW Operating results The net profit attributable to the Company for the year to 30 June 2021 amounted to US$114,670,080. DIRECTORS Zeta Resources Limited has a board of four non-executive, independent 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 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$18,759,245. An increase in the fair value of the portfolio resulted in an unrealised profit recognised in profit or loss at year end of US$122,843,094. The activities of the Company’s subsidiary Kumarina related to further exploration and evaluation of the existing Australian mining tenements (the Murrin Murrin project) and a total of A$540,592 was invested during the twelve months to 30 June 2021 in further drilling and analysis work. On 28 January 2021, Kumarina entered into a sale agreement for the sale of the tenement pertaining to the Ilgarari Copper Project. 28 Zeta Resources Limited Financial position COVID-19 IMPACT At the end of the year, the Company had US$1,378,703 in cash and cash equivalents. Investments at fair value totalled US$243,477,995, loans to subsidiaries were valued at US$1,224,888 and the investment in subsidiaries was valued at US$22,114,602. The Company has a loan owing to UIL of US$32,576,107 at year end. As at the year end, the Company had a US$2.5 million loan facility with Bermuda Commercial Bank expiring on 30 September 2021. On 10 September 2020 the Company offered a bonus issue of options to its shareholders. Eligible shareholders who held shares on the record date were offered one option (bonus option) for every one share held on the record date. The bonus options had no issue price, were exercisable at A$0.25 each and expired on 15 June 2021. 287,567,921 options were issued, and 278,770,100 options were exercised, raising an amount of US$54,000,923. GOING CONCERN The financial statements have been prepared on a going concern basis. We draw attention to the fact that at 30 June 2021, the Company’s current liabilities exceed its current assets by US$12,727,647 (2020: US$6,517,913). 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. The impact of the covid-19 pandemic continued to be felt during the financial year under review. In the first half of the financial year, share prices and commodity prices – particularly industrial commodities such as copper – rose strongly following multiple announcements of vaccines with high efficacy rates against the coronavirus. Lockdowns in various countries at varying times impacted select mines, reducing the supply of commodities, which also resulted in higher commodity prices. Those mines that were able to operate at normal production levels – such as Copper Mountain – benefited from the higher commodity prices. 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 The Company performed a review of events after the reporting date and determined that there were no such events requiring recognition or disclosure in the financial statements. 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 29 Annual Report for the year to 30 June 2021 REPORT OF THE DIRECTORS (continued) Remuneration policy MEETINGS OF DIRECTORS The board of directors is responsible for remuneration policies and the packages applicable to the directors of the Company. The board 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. There were nine Board of Directors and one Audit & Risk Committee meetings held during the year ended 30 June 2021. The attendance by the directors was as follows: Board Audit & Risk Committee* Number of meetings held during the year 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. Peter Sullivan Martin Botha André Liebenberg Xi Xi 9 9 9 9 9 1 1 1 1 1 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 $200,000 to directors for the year ended 30 June 2021. The Company had no employees as at 30 June 2021. 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 Ordinary shares closing balance Net change Director Peter R Sullivan 5,770,632 5,735,632 11,506,264 Martin Botha 479,565 295,435 775,000 André Liebenberg Xi Xi – – – – – – *The Audit & Risk Committee was established on 25 November 2020 Board of Directors and Audit Risk Committee meetings require that any two directors or members be present to form a quorum. Due to the size of the board and the nature of the Company’s operations, it does not have a separate Remuneration Committee or a Nomination Committee. Matters normally considered by these committees are addressed by the full board. This includes addressing succession issues and ensuring the board has the appropriate balance of skills, experience, independence, and knowledge of the entity to enable it to discharge its duties and responsibilities effectively. LOANS TO DIRECTORS There were no loans entered into with directors during the year under review. AUDIT & RISK COMMITTEE The Audit & Risk Committee (“committee”) comprises all the independent directors of the Company and is chaired by André Liebenberg. The Company has established a separately chaired Audit & Risk Committee. Its duties include considering and recommending to the board for approval the contents of the half yearly and annual financial statements. The committee also provides an opinion as to whether the annual report and accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. 30 Zeta Resources Limited The committee also reviews the external auditors’ report on the annual financial statements and is responsible for reviewing and forming an opinion on the effectiveness of the external audit process and audit quality. Other duties include reviewing the appropriateness of the Company’s accounting policies and ensuring the adequacy of the internal control systems and standards. The committee meets at least twice a year. The planned meetings are held prior to the board meetings to approve the half yearly and annual results. Representatives of the Investment Managers attend all meetings. During the year ended 30 June 2021, the committee consisted of all the independent directors of the Company. 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 Panoramic Resources Limited 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. NON-AUDIT SERVICES No non-audit services were performed by the auditors of the Company during the year. 31 Annual Report for the year to 30 June 2021 REPORT OF THE DIRECTORS (continued) ON-MARKET BUY-BACK SCHEME AUDITOR’S INDEPENDENCE DECLARATION 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. 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 23 September 2021 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 is only implemented where the share price of the Company is 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 1,287,056 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 the calculation date, payable quarterly in arrears and pro-rated for any period less than three months. Performance fees are payable annually at year end on the difference between adjusted equity funds (adjusted for any dividends paid or accrued) on calculation date less adjusted base equity funds (high- water mark) previously used in the performance fee calculation multiplied by 15%. Zeta Resources agreed to pay a performance fee of $4,223,318 for the year ended 30 June 2021. Either party may terminate the agreement with six months’ notice. The Company paid US$5,491,044 in management fees during the reporting year. 32 Zeta Resources Limited 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 COMMITTEE MANAGEMENT OVERSIGHT NOMINATION COMMITTEE REMUNERATION COMMITTEE All independent NEDs CHAIRMAN: André Liebenberg 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. 33 Annual Report for the year to 30 June 2021 CORPORATE GOVERNANCE STATEMENT (continued) 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 fourth 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: https://www.zetaresources.limited/investor-relations/corporate-governance/ 34 Zeta Resources Limited INDEPENDENT AUDITOR’S REPORT 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 Email: cpt@mazars.co.za www.mazars.co.za Independent Auditor’s Report 30 June 2021 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 2021, 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 Zeta Resources Limited as at 30 June 2021, 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. Registered Auditor – A firm of Chartered Accountants (SA) • IRBA Registration Number 900222 Partners: MC Olckers (National Co-CEO), MV Ninan (National Co-CEO), JM Barnard, AK Batt, AS De Jager, DS Dollman, M Edelberg, Y Ferreira, T Gangen, R Groenewald, AK Hoosain, MY Ismail, N Jansen, J Marais, B Mbunge, FN Miller, G Molyneux, A Moruck, S Naidoo, MG Odendaal, W Olivier, D Resnick, BG Sacks, MA Salee, N Silbowitz, SM Solomon, HH Swanepoel, AL Swartz, 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 35 35 Annual Report for the year to 30 June 2021 INDEPENDENT AUDITOR’S REPORT (continued) 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. The key audit matters relate to the Annual Financial Statements. Matter Audit response Valuation of Unlisted investments (notes 5 and 22.4 ) The company’s accounting policy in note 3.6 of the Annual Financial Statements states that the investments are transaction cost and subsequently measured at fair value with any change in the fair value recognised in profit or loss. initially measured at 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 determining the fair value of the investments. in A relatively small percentage change in the valuations of in aggregate, could result in a significant impact to the financial statements. investments, individual Based on the above the valuation of unlisted investments has been identified as a Key audit matter. Our approach to address the valuation assertion for unlisted investment involved a substantive approach. Our key audit procedures included: • • • • • • • • to to ensure the valuation agreeing the valuation of the unlisted investments reports prepared by independent external valuers appointed by management 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 the valuations are reasonable; recalculating key valuation workings; reviewing that the valuation techniques used are appropriate for the accounting standards and industry; assessing and validating the completeness, accuracy and relevance of the information provided by management to their 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. 36 36 Zeta Resources Limited 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 2021, 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 37 Annual Report for the year to 30 June 2021 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, actions taken to eliminate threats or safeguards applied. 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 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 2 years. Mazars Partner: Nico Jansen Registered Auditor 23 September 2021 Cape Town 39 39 Annual Report for the year to 30 June 2021 AUDITOR’S INDEPENDENCE DECLARATION Auditor’s Independence Declaration Mazars House, Rialto Road Grand Moorings Precinct Century City, 7441 PO Box 134, Century City 7446 Mazars House, Rialto Road Docex 9 Century City Grand Moorings Precinct Century City, 7441 Tel: +27 21 818 5000 PO Box 134, Century City 7446 Fax: +27 21 818 5001 Docex 9 Century City Email: cpt@mazars.co.za www.mazars.co.za Tel: +27 21 818 5000 Fax: +27 21 818 5001 Email: cpt@mazars.co.za www.mazars.co.za In relation to our audit of the financial statements of Zeta Resources Limited for the financial Auditor’s Independence Declaration year ended 30 June 2021, I declare to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the International Standards on In relation to our audit of the financial statements of Zeta Resources Limited for the financial Auditing or any other applicable code of professional conduct. year ended 30 June 2021, I declare 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 Mazars 23 September 2021 Partner: Nico Jansen Cape Town Registered Auditor 23 September 2021 Cape Town Registered Auditor – A firm of Chartered Accountants (SA) • IRBA Registration Number 900222 Partners: MC Olckers (National Co-CEO), MV Ninan (National Co-CEO), JM Barnard, AK Batt, AS De Jager, DS Dollman, M Edelberg, Y Ferreira, T Gangen, R Groenewald, AK Hoosain, MY Ismail, N Jansen, J Marais, B Mbunge, FN Miller, G Molyneux, A Moruck, S Naidoo, MG Odendaal, W Olivier, D Resnick, BG Sacks, MA Salee, N Silbowitz, SM Solomon, Registered Auditor – A firm of Chartered Accountants (SA) • IRBA Registration Number 900222 HH Swanepoel, AL Swartz, MJA Teuchert, N Thelander, JC Van Tubbergh, EC Van Heerden, N Volschenk, J Watkins-Baker Partners: MC Olckers (National Co-CEO), MV Ninan (National Co-CEO), JM Barnard, AK Batt, AS De Jager, DS Dollman, A full list of national partners is available on request or at www.mazars.co.za M Edelberg, Y Ferreira, T Gangen, R Groenewald, AK Hoosain, MY Ismail, N Jansen, J Marais, B Mbunge, FN Miller, G Molyneux, A Moruck, S Naidoo, MG Odendaal, W Olivier, D Resnick, BG Sacks, MA Salee, N Silbowitz, SM Solomon, HH Swanepoel, AL Swartz, 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 40 40 Zeta Resources Limited STATEMENT OF FINANCIAL POSITION Notes at 30 June 2021 Non-current assets 4 Investment in subsidiaries 5 Investments 6 Loans to subsidiaries Current assets 6 Loans to subsidiaries 7 Cash and cash equivalents Total assets Non-current liabilities 9 Loan from parent 10 Other loans Current liabilities 8 Loan from subsidiary 11 Other loans 12 Trade and other payables 18 Tax payable Total liabilities Net assets Equity 13 Share capital 13 Share premium Accumulated income/(losses) Total equity June 2021 US$ June 2020 US$ 22,114,602 243,477,995 1,224,888 16,417,335 114,839,211 1,506,499 – 1,378,703 208,156 12,082 268,196,188 132,983,283 (32,576,107) (1,332,610) (68,312,746) (6,312,255) (3,377,965) (2,500,000) (5,148,039) (3,080,346) (48,015,067) 220,181,121 5,560 176,763,050 43,412,511 220,181,121 – (1,250,000) (2,656,381) (2,831,770) (81,363,152) 51,620,131 2,777 122,874,923 (71,257,569) 51,620,131 41 Annual Report for the year to 30 June 2021 STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME Notes for the year ended 30 June 2021 Income and investment returns 14 Revenue 14 Investment gains/(losses) 6 Impairment of loan to subsidiary 15 Other (losses)/income Expenses Directors fees Interest expense 16 Management and consulting fees 17 Operating and administration expenses Profit/(loss) before tax 18 Taxation expense Profit/(loss) for the year Total comprehensive income/(loss) for the year Profit/(loss) per share 19 Basic profit/(loss) per share 19 Diluted profit/(loss) per share June 2021 US$ June 2020 US$ 53,985 136,938,205 (1,394,034) (8,271,609) (200,000) (6,393,063) (5,491,044) (572,360) 104,734 (11,208,925) (7,676) 921,852 (183,333) (4,434,509) (778,505) (540,019) 114,670,080 (16,126,381) – 114,670,080 114,670,080 (6,241,445) (22,367,826) (22,367,826) 0.33 0.33 (0.07) (0.07) 42 Zeta Resources Limited STATEMENT OF CHANGES IN EQUITY Notes for the year ended 30 June 2021 Share capital US$ Share premium US$ Treasury Shares US$ Accumulated losses US$ Total US$ Balance at 31 July 2019 2,778 122,897,203 (11,096) (48,889,743) 73,999,142 Purchase of treasury shares Cancellation of treasury shares Total comprehensive loss for the year – (1) – – (22,280) – Balance at 30 June 2020 2,777 122,874,923 (11,185) 22,281 – – – – (11,185) – (22,367,826) (22,367,826) (71,257,569) 51,620,131 Purchase of treasury shares 13 Cancellation of treasury shares – (5) – (110,013) (110,008) 110,013 13 Options exercised 2,788 53,998,135 Total comprehensive income for the year – – Balance at 30 June 2021 5,560 176,763,050 – – – – – – (110,013) – 54,000,923 114,670,080 114,670,080 43,412,511 220,181,121 43 Annual Report for the year to 30 June 2021 STATEMENT OF CASH FLOWS Notes for the year ended 30 June 2021 Cash flows from operating activities 20.1 Cash (utilised)/generated by operations 14 Interest received Interest paid 14 Dividend received 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 13 Purchase of treasury shares 13 Options exercised 20.2 Increase in loan from parent from additional funding 20.2 Decrease in loan from parent from repayments 20.2 Increase in loan from subsidiary from additional funding 20.2 Decrease in loan from subsidiary from repayments 20.2 Increase in other loans from additional funding 20.2 Decrease in other loans from repayments June 2021 US$ June 2020 US$ (3,762,954) 1,208,291 37,853 (428,466) 16,132 – (4,137,435) (18,759,245) 21,347,424 (568,843) 360,529 – – 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 2,379,865 (10,593,303) (110,013) 14,826,385 18,446,626 (34,223,214) 3,420,043 – 14,301,379 (13,461,727) (11,185) – 46,043,589 (27,794,521) 1,897,066 (2,788,630) 3,189,313 (8,196,272) Net cash flows from financing activities 3,199,479 12,339,360 Net movement in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of exchange rate fluctuations on cash held 7 Cash and cash equivalents at end of the year 1,441,909 12,082 (75,288) 1,378,703 (698,996) 104,715 606,363 12,082 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 2021 comprise the Company only. 1.2 Basis of preparation The financial statements for the year ended 30 June 2021 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 23 September 2021. 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 dollars 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 ongoing basis. Revisions are recognised in the period in which the estimate is revised and in any future periods affected. assets and liabilities within the next financial year relate to the valuation of unquoted investments, details of which are set out in note 22 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 18. The impact of the covid-19 pandemic continued to be felt during the financial year under review. In the first half of the financial year, share prices and commodity prices – particularly industrial commodities such as copper – rose strongly following multiple announcements of vaccines with high efficacy rates against the coronavirus. Lockdowns in various countries at varying times impacted select mines, reducing the supply of commodities, which also resulted in higher commodity prices. Those mines that were able to operate at normal production levels – such as Copper Mountain – benefited from the higher commodity prices. 2. ADOPTION OF NEW AND REVISED STANDARDS 2.1 Standards and interpretations adopted during the year No new or amended standards and interpretations that became effective in the current period had a significant impact on the financial statements. 2.2 New standards, amendments and interpretations effective for annual periods beginning after 1 July 2021 that have not been adopted At the date of authorisation of these financial statements, the following standards affecting the Company were in issue, but not yet effective: Presentation of liabilities (Amendments to IAS 1) – effective 1 January 2023 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. 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 No new or amended standards and interpretations that became effective after 1 July 2021 are expected to have a significant impact on the financial statements. 45 Annual Report for the year to 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS (continued) 3. SIGNIFICANT ACCOUNTING POLICIES 3.5 Earnings per share (“EPS”) 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. 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 Statement of Financial Position date. The Company invests in various jurisdictions and is subject to typical source taxation such as withholding tax on passive income (dividends, interest and royalties where applicable) and capital gains on immovable property. 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 18. The Company has elected to be tax exempt in terms of local Bermudian legislation. 3.4 Foreign currency Foreign currency transactions and balances 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. 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 aftertax effect of dividends and interest associated with potential dilutive ordinary shares that have been recognised as expenses; and • other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares divided by the weighted average number of ordinary shares and potential dilutive ordinary shares, adjusted for any bonus element. 3.6 Financial instruments 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 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. Financial assets at FVTPL All investments are mandatorily measured at FVTPL. Investments are subsequently measured at fair value. Net gains and losses include foreign exchange gains and losses. Interest or dividend income are recognised in profit or loss separately. Financial assets at amortised cost Cash and cash equivalents, loans to subsidiaries and other loans meet the criteria for measurement at amortised cost. 46 Zeta Resources Limited These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Foreign exchange gains and losses, impairments and any gains or losses on derecognition are 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. 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. The Company considers a financial asset to be performing when there is a low risk of default and no amounts are past due. The Company considers a financial asset to be underperforming 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. The Company derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. Presentation 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. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash 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). Measurement of ECLs 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. 47 Annual Report for the year to 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS (continued) 4. INVESTMENT IN SUBSIDIARIES At fair value June 2021 US$ June 2020 US$ Investment in Kumarina Resources Pty Limited ("Kumarina") 449,775 1,309,352 Investment in Zeta Energy Pte. Ltd. ("Zeta Energy") Investment in Zeta Investments Limited ("Zeta Investments") Investment in Zeta Minerals Ltd ("Zeta Minerals") Investment in Horizon Gold Limited ("Horizon Gold") 1 1 1 1 1 – 21,664,824 22,114,602 15,107,981 16,417,335 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. The Company participated in the two rights issues offered by Horizon Gold in the year. Kumarina is valued using a resource multiple to value Kumarina’s main project, with further consideration to the remaining assets and liabilities held by Kumarina. Kumarina is currently deemed to have a value of US$449,775. See note 22.4. The remaining investments in subsidiaries are fair valued by the directors at a nominal value due to the fact that they hold no significant assets, nor do they have any significant value. Zeta Minerals is an entity incorporated for the purpose of holding investments and is currently still dormant. The Company had the following subsidiaries as at 30 June 2021: 30 June 2021 Kumarina incorporated in Australia Zeta Investments incorporated in Bermuda Zeta Energy incorporated in Singapore Zeta Minerals incorporated in United Kingdom Horizon Gold incorporated in Australia 30 June 2020 Kumarina incorporated in Australia Zeta Investments incorporated in Bermuda Zeta Energy incorporated in Singapore Horizon Gold incorporated in Australia The Company had the following Indirect subsidiary as at 30 June 2021: 30 June 2021 Pan Pacific Petroleum Pty Limited incorporated in Australia 30 June 2020 Pan Pacific Petroleum Pty Limited incorporated in Australia Number of ordinary shares 26,245,210 1,000 1 100 74,104,807 Number of ordinary shares 26,245,210 1,000 1 52,826,967 Percentage of ordinary shares held 100% 100% 100% 100% 69% Percentage of ordinary shares held 100% 100% 100% 69% Number of ordinary shares 581,942,846 Percentage of ordinary shares held 100% Number of ordinary shares 581,942,846 Percentage of ordinary shares held 100% Pan Pacific Petroleum Pty Limited is an Australian oil and gas exploration and production company. 48 Zeta Resources Limited 5. INVESTMENTS Financial assets at fair value through profit or loss Equity securities at fair value Listed ordinary shares, subscription and other rights Unlisted ordinary shares, subscription and other rights Cost of equity securities at fair value Listed ordinary shares, subscription and other rights Unlisted ordinary shares, subscription and other rights June 2021 US$ 243,477,995 166,678,842 76,799,153 243,477,995 131,669,242 52,359,524 184,028,766 Investments held by the Company at the reporting date Listed Copper Mountain Mining Corporation Panoramic Resources Limited GME Resources Limited Star Royalties Limited Other investments* *Other investments comprise of less than 5% of the Company’s gross assets Unlisted Other investments Other rights June 2020 US$ 114,839,211 50,124,116 64,715,095 114,839,211 127,666,665 47,054,148 174,720,813 Number of shares 38,449,647 338,397,362 240,563,538 8,447,800 148,127,558 74,570,764 28,520,525 During the reporting period the Company completed a total of 94 transactions (2020: 128 transactions) in securities. See note 22.4 for disclosure of fair value determination of level 3 investments. The investment return is recognised primarily due to the increase in value of the Company’s investment in Copper Mountain Mining Corporation. 6. LOANS TO SUBSIDIARIES Loan to Zeta Energy Loan to Kumarina LOAN TO SUBSIDIARIES – CURRENT Loan to Horizon Gold June 2021 US$ – 1,224,888 1,224,888 June 2020 US$ 728,469 778,030 1,506,499 – 208,156 The loan to Zeta Energy is denominated in Australian dollars to the value of A$2,594,249 (2020: A$2,594,249) and United States dollars to the value of US$4,373,278 (2020: US$4,342,910), with the total loan being US$6,317,993 (2020: US$5,652,428). During the year ended 30 June 2021, the loan to Zeta Energy, which was utilised for the purchase of listed investments, was classified as credit impaired 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. The loan was moved from underperforming in the prior year to credit impaired in the current period. The impairment was based on the expected decrease in the value of the underlying investment for the loan. As at the 30 June 2021 the ECLs calculated amounted to US$6,317,993. 49 Annual Report for the year to 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS (continued) 6. LOANS TO SUBSIDIARIES (continued) The loan to Kumarina, used for working capital is denominated in Australian dollars and is interest free. There are no fixed repayment terms. The loan is still performing as no contactual breaches have occurred and the value of the assets in Kumarina is sufficient to cover all the liabilities. The impact of covid-19 on Kumarina was not severe as the company is in the exploration phase. A reconciliation of the impairment movement on the Zeta Energy loan can be seen below: Underperforming loan impairment Opening balance of impairment Impairment Transfer to credit impaired Closing impairment Credit impaired loan impairment Opening balance of impairment Transfer from underperforming Impairment Closing impairment 7. CASH AND CASH EQUIVALENTS Cash balance comprises: Cash at bank June 2021 US$ 4,923,959 – (4,923,959) – June 2021 US$ – 4,923,959 1,394,034 6,317,993 June 2020 US$ 4,916,283 7,676 – 4,923,959 June 2020 US$ – – – – June 2021 US$ June 2020 US$ 1,378,703 12,082 Cash at bank earns interest at floating rates based on daily bank deposit rates. Short term deposits are made for varying periods up three months. 8. LOAN FROM SUBSIDIARY Loan from Horizon Gold June 2021 US$ 3,377,965 June 2020 US$ – The Horizon Gold loan is denominated in Australian dollars to the value of A$4,500,000, attracts interest at 5% per annum and is repayable before 30 June 2022. 9. LOAN FROM PARENT Loan from UIL Limited (“UIL”) June 2021 US$ 32,576,107 June 2020 US$ 68,312,746 The loan is denominated in Australian dollars to the value of A$23.47 million (30 June 2020: A$66.06 million) and in Canadian dollars to the value of CA$18.59 million (30 June 2020: CA$31.02 million), and currently attracts interest at 7.5% per annum (30 June 2020: 7.5%) on the Australian dollar loan and 7.25% (30 June 2020: 7.25%) on the Canadian dollar loan. The loan is repayable on not less than 12 months’ notice and no repayment is due before 30 June 2022. 50 Zeta Resources Limited 10. OTHER LOANS Loan from ICM Limited Loan from Pan Pacific Petroleum Pty Ltd (“PPP”) Loan from Leveraged Equities Loan from Bermuda Commercial Bank Limited June 2021 US$ – 237,758 1,094,852 – 1,332,610 June 2020 US$ 436,569 1,614,293 1,761,393 2,500,000 6,312,255 The PPP loan is denominated in Australian dollars to the value of A$317,169 (30 June 2020: A$2.34 million) and is interest free. There are no fixed repayment terms except that no repayment is due before 30 June 2022. The loan from Leveraged Equities is denominated in Australian dollars to the value of A$451,288 (30 June 2020: A$1.6 million) and New Zealand dollars to the value of NZ$1.1 million (30 June 2020: NZ$1 million) and currently attracts interest at rates between 4.35% and 6.85% (30 June 2020: between 4.35% and 6.85%) per annum on the Australian dollar loan and at 6.00% (30 June 2020: 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 2022. 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$2.4 million) and Panoramic Resources Limited (6,363,635 shares valued at US$667,825). 11. OTHER LOANS – CURRENT Loan from Bermuda Commercial Bank Limited June 2021 US$ 2,500,000 June 2020 US$ 1,250,000 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 (30 June 2020: Bermuda Commercial Bank’s commercial base rate +1.25%). The remaining balance is payable on 30 September 2021. 12. TRADE AND OTHER PAYABLES Other liabilities Amount owed to brokers Accruals June 2021 US$ 28,111 570,047 4,549,881 5,148,039 June 2020 US$ 26,979 2,368,352 261,050 2,656,381 The accruals are for audit, management, directors and administration fees payable, as well as a performance fee payable to ICM Limited. See note 16. 51 Annual Report for the year to 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS (continued) 13. SHARE CAPITAL AND SHARE PREMIUM Authorised 5,000,000,000 ordinary shares of par value US$0.00001 Issued Ordinary shares Balance as at 30 June 2019 Share cancellation as a result of share buy-back 2 July 2019 Share cancellation as a result of share buy-back 2 April 2020 Number of shares – Share capital US$ – Share premium US$ – 287,763,076 2,778 122,897,203 (50,000) (70,000) – (1) (11,096) (11,184) Balance as at 30 June 2020 287,643,076 2,777 122,874,923 Share cancellation as a result of share buy-back 25 May 2021 Share cancellation as a result of share buy-back 26 May 2021 Share cancellation as a result of share buy-back 10 June 2021 Share cancellation as a result of share buy-back 17 June 2021 Share cancellation as a result of share buy-back 18 June 2021 Share cancellation as a result of share buy-back 25 June 2021 Share cancellation as a result of share buy-back 28 June 2021 Issued in consideration of exercise of options over the period 10 September 2020 to 15 June 2021 Balance as at 30 June 2021 Options (12,000) (62,666) (184,130) (53,826) (47,586) (10,900) (38,000) – (1) (2) (1) (1) – – (3,062) (17,204) (49,619) (14,121) (12,549) (2,887) (10,566) 278,770,100 566,004,068 2788 53,998,135 5,560 176,763,050 On 10 September 2020 the Company offered a bonus issue of options to its shareholders. Eligible shareholders who held shares on the record date were offered one option (bonus option) for every one share held on the record date. The bonus options had no issue price, were exercisable at A$0.25 each and expired on 15 June 2021. Balance as at 30 June 2020 Options issued on 29 September 2020 Options exercised Options expired on 15 June 2021 Balance as at 30 June 2021 14. INVESTMENT RETURNS Revenue Dividend income Interest income Investment gains/(loss) Derived from financial instruments measured at fair value Realised gains Unrealised fair value losses on revaluation of investments Unrealised fair value gains on revaluation of investments 52 – 287,567,921 (278,770,100) (8,797,821) – June 2020 US$ 21,483 83,251 104,734 20,503,342 (64,176,357) 32,464,090 (11,208,925) (11,104,191) June 2021 US$ 16,132 37,853 53,985 14,095,111 (5,082,392) 127,925,486 136,938,205 136,992,190 Zeta Resources Limited 15. OTHER INCOME Foreign exchange (losses)/gains Other income 16. MANAGEMENT AND CONSULTING FEES Management and consulting fees June 2021 US$ (8,280,401) 8,792 (8,271,609) June 2021 US$ 5,491,044 June 2020 US$ 903,005 18,847 921,852 June 2020 US$ 778,505 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 (used in the performance fee calculation when it was last payable) multiplied by 15%. Performance fee for the year ended 30 June 2021 was $4,223,318 (2020: $nil). Either party may terminate the agreement with six months’ notice. 17. OPERATING AND ADMINISTRATION EXPENSES Operating and administration expenses consist of: Accounting fees Audit fees Australian Securities Exchange listing fees and regulatory costs Insurance costs Brokerage Other expenses 18. INCOME TAX Taxation regarding the sale of Bligh Resources Limited June 2021 US$ June 2020 US$ 265,293 19,293 116,679 – 95,651 75,444 572,360 144,227 38,729 59,352 40,819 146,570 110,322 540,019 June 2021 US$ – June 2020 US$ 6,241,445 Australian taxation has been accrued in full with regards to the sale of the investment in Bligh Resources Limited in July 2019. At 30 June 2021 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. 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. 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$11 million on potential unrealised Australian capital losses (at year-end amounting to US$38 million) where there are insufficient capital gains of the same nature against which to utilise those losses. There is no expiration date on losses. The Company is domiciled in Bermuda and has elected to be tax exempt in terms of local legislation. As such no tax is payable. 53 Annual Report for the year to 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS (continued) 19. EARNINGS PER SHARE Basic profit/(loss) per share Diluted profit/(loss) per share June 2021 US$ 0.33 0.33 June 2020 US$ (0.07) (0.07) Profit/(loss) used in calculation of basic and diluted earnings per share 114,670,080 (22,367,826) Weighted average number of ordinary shares outstanding during the year used in calculation of basic earnings per share Adjustment for unexercised options during the period 348,193,810 334,742,573 149,080 – Weighted average number of ordinary shares outstanding during the year used in calculation of diluted earnings per share 348,342,890 334,742,573 The weighted average number of ordinary shares outstanding during the year has been adjusted for the for the bonus element of options exercised in 2021. This adjustment is made retrospectively to comparative information. 20. NOTES TO THE CASH FLOW STATEMENT 20.1 Cash (utilised)/generated by operations Profit/(loss) for the year Adjustments for: Realised gains on investments Fair value (gain)/loss on revaluation of investments Impairment of loan to Zeta Energy Foreign exchange losses/(gains) Taxation expense Dividend income Interest income Interest expense Operating loss before working capital changes Decrease in trade and other receivables Increase in trade and other payables June 2021 US$ June 2020 US$ 114,670,080 (22,367,826) (14,095,111) (122,843,094) 1,394,034 8,280,401 – (16,132) (37,853) 6,393,063 (6,254,612) – 2,491,658 (3,762,954) (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 54 Zeta Resources Limited 20.2 Liabilities from financing activities Balance as at 30 June 2019 Cash flows - Repayment of loans - Advances of loans received Exchange rate fluctuations Interest capitalised Loan transfer Loan from parent US$ 45,793,293 (27,794,521) 46,043,589 336,032 3,934,353 Loan from subsidiary US$ 2,508,840 (2,788,630) 1,897,066 (133,287) 140,356 – (1,624,345) Balance as at 30 June 2020 68,312,746 Cash flows - Repayment of loans - Advances of loans received Options exercised Exchange rate fluctuations Interest capitalised (34,223,214) 18,446,626 (33,410,740) 7,765,976 5,684,713 Other loan US$ 10,964,019 (8,196,272) 3,189,313 (30,547) 11,397 1,624,345 7,562,255 Total US$ 59,266,152 (38,779,423) 51,129,968 172,198 4,086,106 – 75,875,001 (13,461,727) (47,684,941) – – 3,420,043 14,301,379 36,168,048 – (5,763,798) (39,174,538) (46,730) 4,652 919,269 275,232 8,638,515 5,964,597 Balance as at 30 June 2021 32,576,107 3,377,965 3,832,610 39,786,682 21. GOING CONCERN The financial statements have been prepared on a going concern basis. We draw attention to the fact that at 30 June 2021, the Company’s current liabilities exceed its current assets by US$12,727,647 (2020: US$6,517,913). 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. 55 Annual Report for the year to 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS (continued) 22. 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: 30 June 2021 Assets Investments in subsidiaries Investments Loans to subsidiaries Cash and cash equivalents Liabilities Loans from subsidiary Trade and other payables Loan from parent Other loans 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 Financial assets mandatorily measured at fair value through profit or loss US$ Financial assets/liabilities measured at amortised cost US$ 22,114,602 243,477,995 – – 265,592,597 – – – – – Financial assets mandatorily measured at fair value through profit or loss US$ 16,417,335 114,839,211 – – – 131,256,546 – – – – – – 1,224,888 1,378,703 2,603,591 3,377,965 598,158 32,576,107 3,832,610 40,384,840 Financial assets/liabilities measured at amortised cost US$ – – 1,506,499 208,156 12,082 1,726,737 2,656,381 68,312,746 7,562,255 78,531,382 Tax payable was removed from comparative information as it is not a financial instrument. 56 Total carrying value US$ 22,114,602 243,477,995 1,224,888 1,378,703 268,196,188 3,377,965 598,158 32,576,107 3,832,610 40,384,840 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 78,531,382 Zeta Resources Limited 22.1 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 ongoing 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 2021 and the average rates for the year were as follows: AUD – Australian dollar CAD – Canadian dollar NZD – New Zealand dollar June 2021 Average 2021 June 2020 Average 2020 0.7496 0.8059 0.6981 0.7474 0.7807 0.6956 0.6891 0.7345 0.6444 0.6951 0.7491 0.6577 The Company’s monetary assets and liabilities at 30 June 2021, by currency based on the currency of denomination for loans and cash and cash equivalents, and on the currency of the primary trading market for equities, are shown below: 30 June 2021 Investments in subsidiaries Investments Cash and cash equivalents Loans to subsidiaries Loan from parent Other loans Net monetary liabilities 30 June 2020 Investments in subsidiaries Investments Cash and cash equivalents Loans to subsidiaries Loan from parent Other loan Other loans AUD 29,500,875 97,944,214 1,812,002 4,228,249 CAD – 134,005,760 – – (23,472,807) (18,587,776) (5,274,662) – 104,737,871 115,417,984 AUD 23,823,191 55,051,131 5,763 2,594,249 CAD – 24,707,446 – – (66,063,323) (31,021,016) 300,000 (4,563,969) – – Net monetary (liabilities)/assets 11,147,042 (6,313,570) NZD – – 49 – – (1,083,811) (1,083,762) NZD – – 49 6,163,507 – – (1,035,176) 5,128,380 57 Annual Report for the year to 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS (continued) 22. FINANCIAL RISK MANAGEMENT (continued) 22.1 Market risks (continued) 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): AUD CAD NZD Total Strengthening of the United States dollar Increase/(decrease) in total comprehensive income for the year ended 30 June 2021 Increase/(decrease) in total comprehensive income for the year ended 30 June 2020 Weakening of the United States dollar (Decrease)/increase in total comprehensive income for the year ended 30 June 2021 (Decrease)/increase in total comprehensive income for the year ended 30 June 2020 7,851,151 9,301,535 (75,657) 17,077,029 768,143 (463,732) 330,473 634,884 (7,851,151) (9,301,535) 75,657 (17,077,029) (768,143) 463,732 (330,473) (634,884) 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. Interest rate exposure The exposure of the financial assets and liabilities to interest rate risks at 30 June 2021 and at 30 June 2020 is shown below: 30 June 2021 Exposure to floating rates: Cash Other loans Exposure to fixed rates: Loan from parent Loan from subsidiary Other loan liabilities 30 June 2020 Exposure to floating rates: Cash Other loans Exposure to fixed rates: Loan from parent Other loan liabilities Loans to subsidiaries 58 Within one year US$ Greater than one year US$ 1,378,703 (2,500,000) (1,121,297) – – – Total US$ 1,378,703 (2,500,000) (1,121,297) – (32,576,107) (32,576,107) (3,377,965) – (3,377,965) Within one year US$ 12,082 (1,250,000) (1,237,918) – – – – – (1,094,852) (33,670,959) Greater than one year US$ – (2,500,000) (2,500,000) (68,312,746) (2,197,962) 208,156 (3,377,965) (1,094,852) (37,048,924) Total US$ 12,082 (3,750,000) (3,737,918) (68,312,746) (2,197,962) 208,156 (70,302,552) (70,302,552) Zeta Resources Limited 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$188,343,666 at 30 June 2021 (30 June 2020: US$65,232,097) 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 24. Price sensitivity risk analysis A 10% decline in the market price of the listed investments held by the Company would result in an unrealised loss of US$18,834,366. A 10% appreciation in the market price would have the opposite effect. See note 22.4 for unlisted investment sensitivity analyses. 22.2 Liquidity risk exposure The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Investment Manager reviews liquidity at the time of making each investment decision. The risk of the Company having insufficient liquidity is not considered by the board to be significant, given the amount of quoted investments held in the Company’s portfolio and the existence of an ongoing loan facility agreement. The contractual maturities of the financial liabilities, based on the earliest date on which payment can be required, were as follows: 30 June 2021 Trade and other payables Loans from parent Loan from subsidiary Other loans 30 June 2020 Trade and other payables Loans from parent Other loans Three months or less US$ 598,158 – – 2,540,625 3,138,783 Three months or less US$ 2,656,381 – 1,331,250 3,987,631 Three months to one year US$ More than one year US$ Total US$ – – 3,533,013 1,386,189 4,919,202 Three months to one year US$ – – 3,943,875 3,943,875 – 598,158 34,779,063 34,779,063 – – 3,533,013 3,926,814 34,779,063 42,837,047 More than one year US$ Total US$ – 2,656,381 73,378,972 73,378,972 2,662,500 7,937,625 76,041,472 81,316,597 22.3 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 ongoing 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$1,224,888 (2020: US$1,714,655) and bank balances totalling US$1,378,703 (2020: US$12,082) 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-). 59 Annual Report for the year to 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS (continued) 22. FINANCIAL RISK MANAGEMENT (continued) 22.4 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 The fair values are measured using inputs, other than quoted prices, that are included within level 1, that are observable for the asset. Level 3 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, (b) investments in subsidiaries and (c) investments in other rights. (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 2021 (quarter end 31 March 2021). 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. The General Partner makes use of the market approach which includes resource multiples 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$0 due to the decline in Seacrest’s net asset position. 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 million tonnes (“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$0.5 per share. At year end the fair value of the investment was US$14.2 million. Sensitivities: The fair value of Margosa is considered sensitive to price of precedent transactions. If the price of the precedent transactions changed by 30% it can cause a change of US$3 million Zeta Resources’ equity interest in Margosa. 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 of aluminium per annum from surface mining operations. 60 Zeta Resources Limited 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 resource multiples from five broadly comparable bauxite projects was used. The resource of available aluminium of 711 Mt was used at a value of A$0.35 per tonne. The methodology is supported by a discounted cash flow analysis. At year end the fair value of the investment was US$61.4 million. Sensitivities: The fair value of Zeta’s equity interest in AMC is sensitive to the available resource multiples for comparable bauxite transactions observed in the market. An increase in the multiple used could significantly increase the fair value determined. A possible alternative mutiple represents an increase of 0.05 A$/t to the multiple which can cause an increase of US$8.7 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 a highly prospective gold project located at Murrin Murrin in Western Australia. 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. On 28 January 2021, Kumarina entered into a sale agreement for the sale of the tenement pertaining to the Ilgarari Copper Project. Valuation methodology: The market approach for the valuation of Kumarina has been used in the form of resource multiples from comparable transactions. The most recent mineral resource estimate for the Murrin Murrin Gold project and nineteen comparable transactions were used in the analysis. The Murrin Murrin project has a resource estimate of 52,100 oz and a value of A$43 per oz was used. At year end the fair value of the investment was US$449,775. Sensitivities: The methodology used is sensitive to the chosen resource multiples for comparable gold transactions observed on the market. The magnitude of these multiples are primarily driven by commodity prices and market conditions. The fair value of Zeta Resources’ equity interest in Kumarina is also sensitive to the level of JORC Code 2012 gold resource for the Murrin Murrin Gold Project. An increase in the resource multiples will result in an increase in the value of the investment. Possible alternative mutiples represent an increase in the resources multiple of 5 A$/oz which can cause an increase of US$195,323 Zeta Resources’ equity interest in Kumarina. (c) Investments in other rights Panoramic Resources Limited Options Zeta Resources hold 28,520,525 options with an exercise price of A$0.16. The options expire on 30 June 2023. There are no vesting conditions linked to these options. Valuation methodology: The Black-Scholes option pricing model was used to value the options. The share price of Panoramic Resources Limited at 30 June 2021 was A$0.15. An estimated volatility level of 75% for Panoramic Resources Limited and a risk-free rate over the life of the options of 0.06% was used. At year end the fair value of the investment was US$1.2 million. Sensitivities: The fair value of the options is sensitive to the volatility level, a change in the volatility used of 15% could cause a change of US$415,747 in the total value held by Zeta Resources. 30 June 2021 Financial assets Investments Investment in subsidiaries Level 1 US$ Level 2 US$ Level 3 US$ 166,678,842 21,664,824 – – 76,799,153 449,778 There have been no movements between the level 1 and level 3 categories. 61 Annual Report for the year to 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS (continued) 22. FINANCIAL RISK MANAGEMENT (continued) 22.4 Fair values of financial assets and liabilities (continued) 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 2020 Acquisitions at cost Total gains/(losses) recognised in fair value through profit or loss Balance at 30 June 2021 30 June 2020 Financial assets Investments Investment in subsidiaries Level 1 US$ 50,124,116 15,107,981 Level 3 investments US$ 64,715,095 2,182,428 9,901,630 76,799,153 Level 2 US$ – – Level 3 investments in subsidiaries US$ 1,309,354 – (859,576) 449,778 Level 3 US$ 64,715,095 1,309,354 There have been no movements between the level 1 and level 3 categories. The following table shows a reconciliation from opening balances to closing balances for fair value measurements in level 3 investments of the fair value hierarchy: Balance at 1 July 2019 Acquisitions at cost Total gains recognised in fair value through profit or loss Balance at 30 June 2020 22.5 Capital risk management Level 3 investments US$ 40,406,163 3,213,491 21,095,441 64,715,095 Level 3 investments in subsidiaries US$ 1,000,002 – 309,352 1,309,354 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- or long-term; and pay dividends to shareholders out of current year earnings as well as out of brought forward reserves. 62 Zeta Resources Limited 23. RELATED PARTIES 23.1 Material related parties Holding company The Company’s holding company is UIL which held 60.88% of the Company’s issued share capital on 30 June 2021. UIL is 65.2% owned by General Provincial Life Pension Fund Limited. Somers Isles Private Trust Company Limited holds 100% of General Provincial Life Pension Fund Limited. Entities controlled by these entities are considered related parties of the Company. Permanent Investments Limited and ICM Limited are controlled by Somers Isles Private Trust Company 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. 23.2 Material related parties transactions Nature of balances Investments in related parties: Kumarina Zeta Investments Zeta Energy Horizon Gold Loans to related parties: Kumarina Zeta Energy - Loan outstanding - Impairment Horizon Gold Loans from related parties: UIL Limited Horizon Gold PPP ICM Limited Trade and other payables: ICM Limited Directors June 2021 US$ June 2020 US$ 449,775 1,309,352 1 1 1 1 21,664,824 15,107,981 1,224,888 – 6,317,993 (6,317,993) – 32,576,107 3,377,965 237,758 – 778,030 728,469 5,652,428 (4,923,959) 208,156 68,312,746 – 1,614,293 436,569 3,276,643 50,000 139,708 50,000 63 Annual Report for the year to 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS (continued) 23. RELATED PARTIES (continued) 23.1 Material related parties (continued) Nature of transactions 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 Limited Interest charged by Permanent Investment Limited Interest charged to investee entity Management fees paid to ICM Limited Performance fee accrued to ICM Limited Fees paid to the directors Xi Xi M Botha P Sullivan A Liebenberg June 2021 US$ 1,394,034 4,652 5,684,713 54,435 109,233 3,803 1,103,229 4,223,318 50,000 50,000 50,000 50,000 June 2020 US$ 7,676 135,680 3,934,353 76,656 – 65,926 592,691 – 50,000 50,000 50,000 33,333 All fees paid to directors are deemed short term remuneration payments. 24. 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. Information about reportable segments 30 June 2021 Gold US$ Nickel US$ Mineral exploration US$ Admin US$ Total US$ External investment returns (3,912,718) 20,236,987 119,247,328 26,559 135,598,156 Reportable segment investment returns (3,912,718) 20,236,987 119,247,328 26,559 135,598,156 Interest revenue Interest expense Reportable segment profit/(loss) before tax – – – – – – 37,853 37,853 (6,393,063) (6,393,063) (3,914,036) 20,232,953 119,825,637 (21,474,474) 114,670,080 Reportable segment assets 39,887,307 33,110,117 193,820,061 1,378,703 268,196,188 Reportable segment liabilities – – (570,047) (47,445,020) (48,015,067) Management fee expenses and foreign exchange losses arising from loans are attributed to the admin segment. 64 Zeta Resources Limited 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 10,192,858 (37,701,884) 16,321,583 75,576 (11,111,867) Interest revenue Interest expense Reportable segment profit/(loss) before tax – – – – – – 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) During the year there were no transactions between segments which resulted in income or expenditure. 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 June 2021 US$ 19,254,259 106,026,848 5,406,128 (1,930,230) 3,542,107 (1,394,034) 4,417,763 275,315 135,598,156 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) (11,111,867) The investment return recognised in the Canadian segment is due primarily to the increase in value of the Company’s investment in Copper Mountain Mining Corporation. Assets Australia Canada Guinea Mali Namibia Singapore Sri Lanka Other countries Assets June 2021 US$ 88,420,285 99,769,569 61,402,739 1,870,911 16,478 – 14,160,667 2,555,540 June 2020 US$ 44,652,648 16,527,961 57,000,000 3,184,602 792,626 728,469 6,196,163 3,900,813 268,196,188 132,983,283 65 Annual Report for the year to 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS (continued) 25. EVENTS AFTER REPORTING DATE The Company performed a review of events after the reporting date. A military coup d’état occurred in Guinea on 5 September 2021. The long-term impact on the valuation of the Company’s investment in AMC is currently unknown, but the situation is being closely monitored. The Company has determined that there are no other events requiring recognition or disclosure in the financial statements. 66 Zeta Resources Limited SHAREHOLDER INFORMATION SUBSTANTIAL SHAREHOLDERS As at 7 September 2021, 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 344,573,832 187,572,396 532,146,228 60.88 33.14 94.02 TOP 20 HOLDINGS OF FULLY PAID ORDINARY SHARES AS AT 7 SEPTEMBER 2021 NAME SHARES % OF ISSUED CAPITAL J P Morgan Nominees Australia Pty Limited General Provincial Life Pension Fund Limited HSBC Custody Nominees (Australia) Limited Mr Peter Ross Sullivan Mr James Noel Sullivan Hardrock Capital Pty Ltd – CGLW No 2 Super Fund A/C Hardrock Capital Pty Ltd VCM Investments Pty Ltd Cherryburn Pty Ltd – Burrows Super Fund A/C Ingot Capital Investments Pty Ltd ACS (NSW) Pty Limited – ACS Family Super Fund A/C Citicorp Nominees Pty Limited M & S Bowden Superannuation Pty Ltd – M & S Bowden Super Fund A/C Mrs Alexandra Maree Giles Burnal Pty Ltd Mr Sean Dennehy Abbawood Nominees Pty Ltd – Abbott Family S/F No 1 A/C Mr James Noel Sullivan & Mrs Gail Sullivan – Sullivans Garage S/F A/C Blessed Investments Pty Limited – Green Family S/F A/C Nalmor Pty Ltd John Chappell Super Fund A/C Calimo Pty Ltd Rossdale Superannuation Pty Ltd – Rossdale SF A/C 344,591,332 180,289,790 14,071,209 4,528,132 1,765,959 1,200,000 1,200,000 783,000 752,320 681,780 590,000 535,040 500,000 483,556 450,000 410,000 400,000 400,000 335,000 324,000 256,017 225,406 60.89 31.86 2.49 0.80 0.31 0.21 0.21 0.14 0.13 0.12 0.10 0.09 0.09 0.09 0.08 0.07 0.07 0.07 0.06 0.06 0.05 0.04 Total for top 20 554,772,541 98.02 67 Annual Report for the year to 30 June 2021 SHAREHOLDER INFORMATION DISTRIBUTION SCHEDULE OF ORDINARY SHARES HELD AT 7 SEPTEMBER 2021 HOLDING RANGES Above 0 up to and including 1,000 Above 1,000 up to and including 5,000 Above 5,000 up to and including 10,000 Above 10,000 up to and including 100,000 Above 100,000 Total NO. OF SHARES 10,236 2,485,333 1,302,004 5,393,038 556,768,457 565,959,068 NO. OF ORDINARY SHAREHOLDERS % OF ISSUED CAPITAL 38 921 173 187 36 1,355 0.00 0.44 0.23 0.95 98.38 100.00 The number of shareholders holding less than a marketable parcel of ordinary shares at 7 September 2021 is 39 and they hold 11,389 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 (Chairman of the Audit & Risk Committee) 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 2021 SIGNIFICANT STAKES IN A SELECT RANGE OF KEY COMMODITY COMPANIES www.zetaresources.limited

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