(Subject to a Deed of Company Arrangement) ACN 123 668 717 Annual Report For the year ended 30 June 2019 For personal use only CORPORATE DIRECTORY Directors Antony B Corel Roger A Jackson Ian B Mitchell Company Secretary Ian B Mitchell Registered office Ian B Mitchell and Associates Level 9 MLC Centre 19 – 29 Martin Place Sydney NSW 2000 Principal Place of Business C\- KordaMentha Level 10 40 St Georges Terrace Perth WA 6000 Share Register Next Registries PO Box H195 Australia Square NSW 1215 Auditor BDO East Coast Partnership Level 11 1 Margaret Street Sydney NSW 2000 Solicitors Ian B Mitchell and Associates Level 9 MLC Centre 19 – 29 Martin Place Sydney NSW 2000 Bankers National Australia Bank Level 15 Ernst and Young Centre 680 George Street Sydney NSW 2000 Accounting Services Professional Edge Pty Ltd Level 7 1 Margaret Street Sydney NSW 2000 Securities Exchange Listing Ark Mines Ltd (Subject to a Deed of Company Arrangement) shares are listed on the Australian Securities Exchange (ASX code: AHK) For personal use only 2 | P a g e (Subject to a Deed of Company Arrangement) ACN 123 668 717 Annual Report For the year ended 30 June 2019 Contents Page Directors’ Report 2 Auditor’s Independence Declaration 9 Statement of Profit or Loss and other Comprehensive Income 12 Statement of Financial Position 13 Statement of Changes in Equity 14 Statement of Cash Flows 15 For personal use only Notes to the Financial Statements 16 Directors’ Declaration 31 Independent Auditor’s Report 32 Schedule of Tenements 34 Additional ASX Information 35 Corporate Governance Statement 37 DIRECTORS’ REPORT For the year ended 30 June 2019 Your Directors present their report together with the financial statements of Ark Mines Ltd (Subject to a Deed of Company Arrangement) (the “Company” or “Ark”) for the financial year ended 30 June 2019. Review of Operations The Company’s prime focus during the financial year was to become a producer of gold as soon as practicable. At the commencement of the financial year, the Company was party to a letter agreement (“Letter Agreement”) with Prodigy Gold NL (“Prodigy”) to negotiate an operating agreement (“Operating Agreement”) for the exploration and mining of the Old Pirate project (“Old Pirate”) area. Repayment of the Chan Investments Ltd (“Chan”) debt facility (“Chan Facility”) was necessary to release the security over all Company assets which would then be available for new funding initiatives. The Company believed it had secured an interested investor who was expected to provide sufficient funding for the Company to commence mining at Old Pirate and repay the Chan Facility. On 23 July 2018, the Company announced that the interested investor would not proceed with the funding. On 5 October 2018, the Company entered into a Deed of Forbearance and Settlement with Chan under which Chan agreed to settle this liability for $3.75m on completion of the sale of certain of the Company’s tenements to Territory Iron Pty Ltd (“Territory Iron”). The Company then engaged in discussions with parties interested to acquire its Mt Porter and Frances Creek projects. Following this, the Company entered into a binding Term Sheet with Territory Iron (“Territory Agreement”) to sell its Mt Porter and Frances Creek Projects for $4.0m plus GST (if applicable) of which $500k was received during the financial year as a non-refundable deposit. Of this amount, $3.75m was to be used to repay the US$2.6m previously drawn down Chan Facility and agreed interest, for which sum Chan agreed to settle on completion of the sale to Territory Iron. Under the terms of the Territory Agreement the Company agreed to pay Chan the settlement amount in three tranches; 1) $250k on execution of the Territory Agreement; 2) $1.5m on or before 17 December 2018; and 3) $2.0m on or before 6 May 2019. On 9 October 2018 the Company repaid $250k of the $3.75m settlement amount from the $500k deposit received from Territory Iron. The balance of $250k was applied to the Company’s working capital. Territory Iron subsequently failed to pay the Company the amount of $1.5m due on 17 December 2018. As a consequence of the failure of Territory Iron to comply with the terms of the Territory Agreement, the Company was not able to pay the second tranche $1.5m to Chan. As a consequence of the Company being unable to fulfil its obligations to Prodigy, the Letter Agreement for Old Pirate was terminated 30 October 2018. On 5 March 2019, the Company announced that, with the agreement of Chan, it had terminated the Territory Agreement. On 11 June 2019, the Company announced that it had reached an in-principle agreement with Chan to repay the Chan Facility over an agreed period of time while it raised further capital and a debt facility to pursue mining at its Glencoe property and acquire other gold mining assets. On 30 July 2019, the Company announced that it had agreed in-principle, the terms of a joint venture (“JV”) agreement with Trendsheer Holdings Pty Ltd (“Trendsheer”) and ICA Mining Services Pty Ltd (“ICA)” to mine and produce gold dore’ from its NT tenements and gold rights, for treatment in an environmentally friendly gold processing hub to be established by the JV in the Frances Creek / Pine Creek area. Trendsheer had recently purchased various MLs and ELs and associated infrastructure in the Frances Creek area from Territory Resources Pty Ltd. ICA had secured the NT rights to the Thiosulphate gold extraction process from the CSIRO and would acquire the rights to build a plant utilising this technology on the Trendsheer tenements. ICA was well advanced in raising the necessary capital for this purpose. The in-principle terms of the JV agreement contemplated the establishment of a JV Company the NT that would have had exclusive access to explore, mine and process the ore mined, and sell the gold produced. Ark would have had Board representation on the JV Company and executive roles and would have been entitled to 30% of JV distributions. Ark would not have been required to contribute capital to the JV. Once the gold processing plant was completed, Ark expected to mine and process up to 150k tonnes of Glencoe ore in the first 12- months of operation and mine and process up to 500k tonnes of Mt Porter ore in the first 18-months of operation. Repayment of the Chan Facility was expected to be made by the JV from the proceeds of gold sales. On 25 September 2019 Richard Tucker and Craig Shepard of KordaMentha (“Administrators”) were appointed Voluntary Administrators of the Company by Chan. On appointment, the Company’s Board of Directors’ (“Board”) powers were suspended and the Administrators assumed control of the Company’s affairs and assets. OnFor personal use only 4 October 2019, the first meeting of creditors of the Company was held. This meeting provided an update on the Administration to date and allowed for creditors to vote on whether a committee of inspection be appointed and if the Administrators were to be replaced. It was determined by creditor vote that a committee of inspection would not be formed and the Administrators were not to be replaced. On 30 October 2019, the second meeting of creditors of the Company was held. The purpose of this meeting was to consider the Administrators’ report to creditors to determine the future of the Company and to approve the Administrators’ remuneration. At this meeting the Administrators considered it was in creditors’ best interests to adjourn the second meeting of creditors for up to 45 business days, to enable the Administrators to; 2 | P a g e DIRECTORS’ REPORT For the year ended 30 June 2019 Review of Operations (cont.) • have sufficient time to complete negotiations with interested parties to finalise a sale of assets and/or Deed of Company Arrangement proposal; and • report back to creditors with sufficient information to accurately determine whether entering into a Deed of Company Arrangement provided a better return to creditors compared to winding up the Company. On 6 January 2020, the reconvened second meeting of creditors was held. The purpose of this meeting was to consider the Administrators’ report to creditors to determine the future of the Company and to approve the Administrators’ remuneration. At this meeting: • The Administrators reported that they had agreed terms for an asset sale agreement (“Asset Sale Agreement”) with Ausgold Trading Pty Ltd (“Ausgold”) for the sale of the Company’s mining tenements and associated assets for $4.2 million (“Asset Sale”). Under this transaction structure, the Company’s mining tenements and associated assets would be sold first and transferred out of the Company, with net proceeds applied to the repayment of secured debt, following which the Company would then be recapitalised via a Deed of Company Arrangement, with part of the proceeds applied to the further repayment of secured debt and unsecured creditors. • The Administrators tabled the Deed of Company Arrangement proposals received and reported that they considered it in the creditors’ interests for the Company to accept the Deed of Company Arrangement (“DOCA”) proposed by the Directors of the Company (“Directors”) for total consideration of $663k, as this would result in a better return to creditors in timing, quantum, and certainty, than other DOCA proposals or if the Company was liquidated. • It was determined by creditor vote that the Company accept and execute the DOCA proposed by the Directors. Subsequent to the reconvened second meeting of creditors, the following key events have occurred: On 28 January 2020, the Administrators executed the Asset Sale Agreement with Ausgold.