Red5 Annual Report 2022

50 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 1. REPORTING ENTITY Red 5 Limited (“parent entity” or “the Company”) is a for profit company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The Consolidated Financial Report for the year ended 30 June 2022 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in associates and jointly controlled entities. The Group is primarily involved in the exploration and mining of gold. 2. BASIS OF PREPARATION 2.1 STATEMENT OF COMPLIANCE The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board (IASB). The consolidated financial statements were authorised for issue by the Board of Directors on 31 August 2022. 2.2 GOING CONCERN The Directors believe it is appropriate to prepare the consolidated financial report on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. The Group’s principal cash flow generating assets are the King of the Hills (KOTH) and the Darlot Gold Mines, which operate as a single cash generating unit. In July 2022, Darlot has transitioned to an underground satellite mine providing ore to KOTH, and the Darlot process plant has been placed into care and maintenance. The new KOTH process plant produced first gold on 5 June 2022, and the KOTH plant and mine is now ramping up towards its expected full production. The development of the KOTH Project was partly funded via a $175 million Project Financing Facility provided by Macquarie Bank, BNP Paribas and Hongkong Shanghai Banking Corporation. At 30 June 2022, the Group had current assets of $92.966 million, primarily consisting of cash on hand, trade receivables and inventories. At the same date, the Group had current liabilities of $111.652 million comprised of trade payables, employee benefits, loan repayments and payments due for right of use leases. A significant portion of the working capital deficit ($18.686 million) relates to the current portion of employee benefits and lease liabilities, which will be funded from KOTH operational cash flows throughout the course of the year ending 30 June 2023. Management has prepared a cash flow forecast for the next twelve months, which anticipates that the Group will be able to pay its debts as and when they fall due during that period. Key assumptions in the cashflow forecast include: \ \ A steadily increasing production profile in line with the expected ramp up of the mill and access to higher grade ore from the KOTH open pit as the lower benches are accessed, as well as higher-grade feed being delivered from the KOTH underground mine and Darlot underground mine. \ \ Gold price continuing at current market prices. \ \ Operating costs have been prepared based on contracted rates taking into account cost pressures facing the industry, including rising costs. \ \ Capital equipment sufficient to deliver the planned mine development, completion of the Tailings Storage Facility 5 and planned exploration activities, noting that not all of these items have currently been contracted and that there is scope for these to be modified if required during the course of the year. The Directors believe the Group will be able to continue as a going concern and recognise that: \ \ The ramp up of KOTH gold production will progressively generate positive cash flow for the Company. \ \ There are risks associated with the ramp up of a new gold mine and that the industry is operating in a highly volatile business environment including Covid-19, supply chain challenges, labour shortages and rising costs. \ \ Where there is a mismatch in the generation of cash flows at KOTH, the Company may formally request the lenders to vary the timing of debt repayments and scheduled hedging under the KOTH Project Financing Facility. \ \ If required, suitable funding solutions can be sourced taking into account KOTH’s 4.1Moz Mineral Resource and 2.4Moz Ore Reserves, the divestment of non-core assets and other options. 2.3 BASIS OF MEASUREMENT The consolidated financial statements have been prepared on the historical cost basis, except for derivative financial instruments and certain other financial assets and liabilities which are required to be measured at fair value. Share based payments are measured at fair value. The methods used to measure fair values of share based payments are discussed further in the Note 4.12. Rehabilitation provisions are based on net present value and are discussed in Note 4.14. 2.4 FUNCTIONAL AND PRESENTATION CURRENCY The consolidated financial report is presented in Australian dollars, which is the Group’s presentation currency. The functional currency of the Parent Company and the Australian subsidiaries in which the Group holds its Australian assets is Australian dollars, and the functional currency of the Company’s other foreign subsidiaries is Philippine pesos. The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates.

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