ANNUAL REPORT CENTREX METALS 2 2013 ANNUAL REPORT CENTREX METALS Contents Chairman’s Letter to Shareholders 4 Chief Executive’s Report 6 Mining Exploration Entity Annual Reporting Requirements 16 Directors’ Report 20 Lead Auditor’s Independence Declaration 41 Consolidated Statement of Profit or Loss and Other Comprehensive Income 43 Consolidated Statement of Changes in Equity 44 Consolidated Statement of Financial Position 45 Consolidated Statement of Cash Flows 46 Notes to the Consolidated Financial Statements 48 Directors’ Declaration 73 Independent Auditor’s Report 74 ASX Additional Information 76 2014 ANNUAL REPORT - 3 CENTREX METALS Chairman’s letter to shareholders Dear Fellow Shareholders, The year started as another difficult one for the resources sector and in particular junior explorers. In the second half of the year many commentators are noting a change in sentiment within some areas and a move back into equities by investors, with early stage drilling success stories once again spiking a run for a number of juniors recently. Your Board and new CEO Ben Hammond have together implemented strategies that have positioned the Company strongly for the current The Company took a long-term position in India and changing market. Although sentiment is with the previous appointment of AK Tareen as returning to exploration in many commodities Chief Strategy Advisor for the region based in including metals, iron ore is deteriorating. This Chennai. The recent election in India of the first validates the decision we made to isolate the majority government in decades has shown an capital needs of our South Australian iron portfolio agenda of reform including a target to lift from our cash reserves through dilution in return economic growth to 7-8%. Centrex has now built for further foreign investment, and diversify into the foundations of a strong network in India with metals exploration and development. A significant key industry players’ that gives us a great head retail broker focused engagement program in the start to make the most of the coming increase in latter half of the year has provided strong positive activity and gain access to further foreign capital feedback on the business model and the for our projects. diversified focus on metals. We are now seen as a lower risk high upside junior stock. Our relationships with our partners and shareholders Wuhan Iron & Steel (Group) Co. and The Company over the past year has built up our Baotou Iron & Steel (Group) Co. remain strong metals portfolio in NSW through the exploration of with all parties working together to build value our new gold projects and our existing zinc-copper from large scale magnetite projects. We have joint venture. These projects are early stage and added further long-term value through our other next year should see drilling commence on all iron ore assets at Wilgerup and the new Kimba three hopefully leading to exploration success and Gap project through low-scale expenditure to a re-rating. We’re still on the lookout for high- move them towards the point of gaining further value acquisitions however we remain patient fully funded development deals. while vendor price expectations soften from past boom times. Cost has been a focus during the year with some hundreds of thousands in reductions of general Gaining funds from China this year has been overheads implemented, and an organisational challenging as the new leadership continues to restructure leading to a reduced operational team, implement new policies and protocols for foreign along with reductions in Directors fees. These investment that has resulted in a backlog of reductions will see overheads decrease going approvals including our own joint venture with forward. The Company utilised its remaining Shandong. We are told by our partners that franking credits in February with the payment of a processing of applications will pick up again near second fully franked dividend after careful the end of 2014 as the implementation of consideration of our ongoing operational cash Government policy changes moves towards requirements. Ten cents in dividends over the completion. past 2 years provided a welcomed reward to early shareholders who staked the company. 4 - 2014 ANNUAL REPORT CENTREX METALS The Company’s cash position remains strong with cash and equivalents and term deposits being $35.7M at period end. This balance is a defining point of differentiation with our peers and is a signal to the market that the Company has resources to follow through with its diversification strategy and does not need to raise more capital to do so. In addition to the $3.1M of exploration conducted by our joint venture partners on those projects the Company was also busy during the year. Expenditure of $2.3M was conducted on wholly owned tenements with the majority of that relating to the Kimba Gap tenement which has translated positively to a significant resource for that project. Finally it was with great sadness that we witnessed the passing of former Managing Director Jim White this year. Jim was a well respected and admired member of the industry and our thoughts are with his family. David Klingberg AO FTSE Non-Executive Chairman Dated at Adelaide this 22nd day of September 2014. 2014 ANNUAL REPORT - 5 CENTREX METALS Chief Executive’s Report My first year of tenure as CEO has seen the Company progress its new strategy of diversification from iron ore into gold and base metals whilst continuing its underlying business model of funding advanced project development through foreign investment. We have significantly ramped up our efforts this year to promote our story, new strategy and model near Whyalla, where we have taken steps to through a number of roadshows throughout the acquire the remaining rights to the iron ore deposit country specifically targeting retail investors given from Arrium Mining and completed resource the liquidity of our stock. Our story has been well drilling over the project. This asset is now placed received, partcularly that of preserving cash by to become our third major magnetite iron ore joint attracting foreign investment, and handing back venture in the region. Our partner on the surplus cash through dividends as and when we Bungalow project Baotou Iron & Steel (Group) Co. monetise part or whole assets. These efforts have already noting potential synergies between the two seen an increase in our trading volumes however proximal assets. current sentiment in the market has meant value recognition outside of proven or cash generating We reached agreement during the year with our assets has been hard won, particularly in the partners Wuhan Iron & Steel (Group) Co. to junior resources sector. provide a funding path for our Fusion magnetite project through the feasibility studies and Metals and even iron ore prices are forecast to commenced a significant drilling program at the remain at historical highs in real terms over the new deposit to increase the projects resource long-term. Good assets with reasonable costs will base. Results from the drilling demonstrated the still generate good margins and that is what we potential to greatly expand resources and reduce hope to find and develop. forecast production costs through greater mining selectivity. It is unfortunate land access issues In the past year we have commenced building our have hindered further drilling efforts, as this issue new metals portfolio in NSW with three assets now fast becomes one of the biggest impediments to well advanced in their exploration and with a joint mineral development in the country. Good venture already over the zinc project at Goulburn. progress has been made to resolve the access Since recent granting we have rapidly brought the issues at Fusion however resulting feasibility Gundaroo and Woolgarlo gold projects closer to studies will be pushed out as a result. the point of discovery drilling, defining targets through geophysical and geochemical evaluation During the year our Port Spencer development programs. We continue to seek high-value gold, became the first conditionally approved deep- copper or zinc acquisitions and have a number of water port facility in South Australia at both a State opportunities under consideration, but we will and Federal Government level. The revision of the remain paitent for the right purchase at the right port design to incorporate new transhipment price. As the sluggish market continues acquisition technolgy and significantly reducing start-up values will continue to be forced to adjust from capital costs has resulted in an asset that can previous highs. standalone with just one of our magnetite mines in operation and yet still be able to handle all bulk We have also continued the process of isolating commodities players in the area. our iron ore portfolio in South Australia from our cash reserves while adding further value to it. A It has been a year of progress under tough particular success has been the development of conditions. We have continued to build the long- the Kimba Gap iron ore deposit term value of our existing assets and generate new asset opportunities. 6 - 2014 ANNUAL REPORT CENTREX METALS · Strong international networks and OUR VISION AND STRATEGY partnerships with three existing Chinese backed joint ventures including two with major steel mills plus an on ground and very “Acquire, define and develop a portfolio of experienced presence in the growing market resource projects for developing markets of India. to provide shareholder value.” Our focus is on finding resource projects with the potential to produce in the lower end of the cost NSW METALS PORTFOLIO curve, and that have realistic end to end Centrex’s newly created NSW metals portfolio development solutions. We seek to continue to comprises three exploration projects located attract foreign investment to fund significant approximately 50-100km north of Canberra in the project development in order to appropriately cap prospective East Lachlan Fold Belt.