AVIRA RESOURCES LTD — Interim / Quarterly Report 2016

Mar 14, 2016

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MGT RESOURCES LIMITED

- HALF YEAR FINANCIAL REPORT 31 DECEMBER 2015

ACN 131 715 645

MGT R ESOURCES L IMITED – H ALF -YEAR F INANCIAL R EPORT

Table of Contents

	PAGE NO.
Directors’ Report	3-4
Auditor’s IndependenceDeclaration	5
Directors’ Declaration	6
Condensed Consolidated Statement of Profit and Loss and Other Comprehensive Income	7
Condensed Consolidated Statement of Financial Position	8
Condensed Consolidated Statement of Changes in Equity	9
Condensed Consolidated Statement of Cash Flows	10
Notes to the Half-Year Financial Statements	11-19
Independent Review Report to the Members of MGT Resources Limited	20

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Directors’ Report

Your directors submit their report for the half-year ended 31 December 2015.

Directors

The directors of MGT Resources Limited and its controlled entities (the “Group”) in office during the half year, and until the date of this Report are set out below. Directors were in office for this entire period unless otherwise stated.

Name Particulars Jonathan Paul Back Director, appointed 4 September 2008 and appointed as Chairman 1 February 2010. Gary Kuo Director, appointed 7 January 2011 Hai Jun Li Non-Executive Director, appointed 14 April 2009. Wenshan Zhang Non-Executive Director, appointed 8 April 2015 Christopher Chen Non-Executive Director, appointed 8 April 2015. Appointed Executive Director 1 February 2016.

Principal activities

The principal activities of the consolidated entity during the financial year included exploration and evaluation activities.

Operating and Financial Review

(a) Review of Operations

The consolidated net loss for the half-year after providing for income tax was $2,985,149 (2014: loss of $5,421,495).

(b) Significant Changes In State Of Affairs

On 29 September 2015, MGT Resources Limited received a signed exercise notice from Auskong International Mining Investment Co., Limited of their intention to exercise their 24,000,000 share options into 24,000,000 fully paid ordinary shares at 5 cents per share for $1,200,000.

On 26 November 2015, $1,200,000 in funding was received from Auskong International Mining Investment Co., Limited and 24,000,000 fully paid ordinary shares were issued.

(c) Exploration and Evaluation Activities

During the six months to 31 December 2015, the Pyramid drilling program completed in August 2015, led to new data which enhances the overall grade of the prospect by allowing definition of high grade zones. 3D modelling of new results extends the mineralised envelope significantly at the Gettysberg prospect and establishes continuity between high-grade zones.

Work has continued on the development of a new geological model at the Dalcouth prospect as part of a planned resource estimate update.

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Directors’ Report

Subsequent events

On 1 February 2016, Jonathan Back resigned as Managing Director of MGT Resources Limited whilst retaining his position as Executive Chairman, Gary Kuo was appointed Managing Director and Christopher Chen was appointed as Executive Director and Chief Operating Officer.

There has not been any other matter or circumstance apart from the above, occurring subsequent to the end of the financial period that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the Group in future financial years.

Auditor’s independence declaration

The auditor’s independence declaration is included on page 5 of the financial report.

This directors’ report has been made and signed in accordance with a resolution of the directors made pursuant to s.306(3) of the Corporations Act 2001.

On behalf of the Director

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Gary Kuo Director Dated: 15 March 2016

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Auditors’ Independence Declaration

In relation to our review of the financial report of MGT Resources Limited and its controlled entities for the half-year ended 31 December 2015, to the best of my knowledge and belief, there have been:

• (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and

• (ii) no contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of MGT Resources Limited and its controlled entities during the half-year ended 31 December 2015.

MAZARS RISK & ASSURANCE PTY LIMITED

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R. Megale Director

Dated in Sydney, this 15[th] day of March 2016

MAZARS RISK & ASSURANCE PTY LIMITED. FORMERLY DUNCAN DOVICO RISK & ASSURANCE PTY LIMITED ABN: 39 151 805 275 LEVEL 12, 90 ARTHUR STREET, NORTH SYDNEY NSW 2060 PO BOX 1994, NORTH SYDNEY NSW 2059 TEL: +61 2 9922 1166 - FAX: +61 2 9922 2044 EMAIL: M AI L @ M AZ AR S . C OM . A U

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LIABILITY LIMITED BY A SCHEME, APPROVED UNDER THE PROFESSIONAL STANDARDS LEGISLATION

MGT R ESOURCES L IMITED – H ALF -YEAR F INANCIAL R EPORT

Directors’ Declaration

The directors of MGT Resources Limited and its controlled entities declare that:

• (a) The financial statements and notes of MGT Resources Limited and its controlled entities for the half-year ended 31 December 2015 are in accordance with the Corporations Act 2001, including:

• (i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2015 and of its performance for the half-year ended on that date; and

• (ii) complying with Accounting Standards AASB 134 Interim Financial Reporting.

• (b) There are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the directors made pursuant to s.303(5) of the Corporations Act 2001 .

On behalf of the Directors

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Gary Kuo Director Sydney Dated: 15 March 2016

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Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income

For The Half-Year Ended 31 December 2015

Revenues Other Revenue Expenses Other gains and losses Employee benefits expense Depreciation and amortisation expense Interest expense Impairment loss Administration expense Other expense Loss before tax Income tax (expense) benefit Loss after tax Other comprehensive income Available-for-sale financial assets Total comprehensive income for the half-year Loss for the year is attributable to: Owners of the parent Non-controlling interest Total comprehensive income attributable to: Owners of the parent Non-controlling interest Earnings per share (cents per share) Basic EPS for the half-year Diluted EPS for the half-year	Notes		Consolidated Half-year ended 31/12/2015 31/12/2014 $ $ 6,671 17,987 20,575 8,712 (190,336) (268,344) (122,788) (206,534) (480,102) (401,858) (1,860,619) (4,021,297) (130,681) (161,040) (227,869) (389,121) (2,985,149) (5,421,495) - - (2,985,149) (5,421,495) (105) 468 (2,985,254) (5,421,027) (2,742,391) (4,914,436) (242,758) (507,059) (2,985,149) (5,421,495) (2,742,485) (4,914,017) (242,769) (507,010) (2,985,254) (5,421,027) (0.85) (1.71) (0.62) (1.23)	Consolidated Half-year ended 31/12/2015 31/12/2014 $ $ 6,671 17,987 20,575 8,712 (190,336) (268,344) (122,788) (206,534) (480,102) (401,858) (1,860,619) (4,021,297) (130,681) (161,040) (227,869) (389,121) (2,985,149) (5,421,495) - - (2,985,149) (5,421,495) (105) 468 (2,985,254) (5,421,027) (2,742,391) (4,914,436) (242,758) (507,059) (2,985,149) (5,421,495) (2,742,485) (4,914,017) (242,769) (507,010) (2,985,254) (5,421,027) (0.85) (1.71) (0.62) (1.23)
	5 10 10			17,987 8,712 (268,344) (206,534) (401,858) (4,021,297) (161,040) (389,121)
				(5,421,495) -
				(5,421,495)
				468
				(5,421,027)
				(4,914,436) (507,059)
				(5,421,495)
				(4,914,017) (507,010)
				(5,421,027)
				(1.71) (1.23)

The above condensed consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

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Condensed Consolidated Statement of Financial Position As at 31 December 2015

ASSETS Current Assets Cash and cash equivalents Trade and other receivables Total Current Assets Non-current Assets Exploration and evaluation expenditure Other financial asset Plant and equipment Total Non-current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Borrowings Provisions Total Current Liabilities Non-current Liabilities Unsecured Borrowings Secured Borrowings Provisions Total Non-current Liabilities TOTAL LIABILITIES NET LIABILITIES EQUITY Issued capital Reserves Retained earnings Non-controlling interest TOTAL EQUITY	Notes		Consolidated 31/12/2015 30/6/2015 $ $ 1,263,647 1,491,062 115,628 85,232 1,379,275 1,576,294 2,175,351 3,628,820 2,937 3,042 1,641,811 1,782,702 3,820,099 5,414,564 5,199,374 6,990,858 405,997 523,605 8,872,182 1,325,883 81,825 107,913 9,360,004 1,957,401 - 7,419,778 1,500,000 1,500,000 109,962 111,395 1,609,962 9,031,173 10,969,966 10,988,574 (5,770,592) (3,997,716) 15,608,953 14,408,953 577,512 608,428 (21,429,934) (18,731,328) (527,123) (283,769) (5,770,592) (3,997,716)	Consolidated 31/12/2015 30/6/2015 $ $ 1,263,647 1,491,062 115,628 85,232 1,379,275 1,576,294 2,175,351 3,628,820 2,937 3,042 1,641,811 1,782,702 3,820,099 5,414,564 5,199,374 6,990,858 405,997 523,605 8,872,182 1,325,883 81,825 107,913 9,360,004 1,957,401 - 7,419,778 1,500,000 1,500,000 109,962 111,395 1,609,962 9,031,173 10,969,966 10,988,574 (5,770,592) (3,997,716) 15,608,953 14,408,953 577,512 608,428 (21,429,934) (18,731,328) (527,123) (283,769) (5,770,592) (3,997,716)
	8 5 12 12 13 9			1,491,062 85,232
				1,576,294
				3,628,820 3,042 1,782,702
				5,414,564
				6,990,858
				523,605 1,325,883 107,913
				1,957,401
				7,419,778 1,500,000 111,395
				9,031,173
				10,988,574
				(3,997,716)
				14,408,953 608,428 (18,731,328) (283,769)
				(3,997,716)

The above condensed consolidated statement of financial position should be read in conjunction with the accompanying notes

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Condensed Consolidated Statement of Changes in Equity For The Half-Year Ended 31 December 2015

CONSOLIDATED At 1 July 2015 (Loss) for the period Other comprehensive income Share options converted Share options vesting Transactions with Owners in their capacity as owners: Transactions with non- controlling interests At 31 December 2015 At 1 July 2014 (Loss) for the period Other comprehensive income Share options expired Share options issued to subsidiary in parent expiring Transactions with Owners in their capacity as owners: Contributions of equity, net of transaction costs At 31 December 2014	Attributable to equity holders of the parent
	Fully paid ordinary shares Retained Earnings Reserves Non- controlling interests Total equity $ $ $ $ $
	14,408,953 (18,731,328) 608,428 (283,769) (3,997,716) - (2,742,391) - (242,758) (2,985,149) - - (93) (12) (105) 1,200,000 43,200 (43,200) - 1,200,000 - - 12,377 - 12,377 - 585 (585) -
	15,608,953 (21,429,934) 577,512 (527,123) (5,770,592)
	12,917,947 (11,216,725) 850,921 424,425 2,976,568 - (4,914,436) - (507,059) (5,421,495) - - 419 49 468 - 432,659 (432,659) - - - 171 (192) 21 - (843) - - - (843)
	12,917,104 (15,698,331) 418,489 (82,564) (2,445,302)

The above condensed consolidated statement of changes in equity should be read in conjunction with the accompanying notes

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Condensed Consolidated Statement of Cash Flow

For The Half-Year Ended 31 December 2015

Cash flows from operating activities Payments to suppliers and employees Interest received Other Net cash flows from (used in) operating activities Cash flows from investing activities Proceeds from sale of property, plant & equipment Payments for exploration costs Net cash flow from (used in) investing activities Cash flows from financing activities Proceeds from issuance of shares upon exercising of options Interest paid Net cash flow from (used in) financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period		Consolidated 31/12/2015 31/12/2014 $ $ (625,143) (833,415) 8,801 18,097 - 9,348 (616,342) (805,970) 38,678 - (547,386) (576,070) (508,708) (576,070) 1,200,000 - (302,365) (360,000) 897,635 (360,000) (227,415) (1,742,040) 1,491,062 2,318,454 1,263,647 576,414	Consolidated 31/12/2015 31/12/2014 $ $ (625,143) (833,415) 8,801 18,097 - 9,348 (616,342) (805,970) 38,678 - (547,386) (576,070) (508,708) (576,070) 1,200,000 - (302,365) (360,000) 897,635 (360,000) (227,415) (1,742,040) 1,491,062 2,318,454 1,263,647 576,414
			(833,415) 18,097 9,348
			(805,970)
			- (576,070)
			(576,070)
			- (360,000)
			(360,000)
			(1,742,040) 2,318,454
			576,414

The above condensed consolidated statement of cash flow should be read in conjunction with the accompanying notes

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Notes to the Financial Statements

For The Half-Year Ended 31 December 2015

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES

(a) Basis of Preparation

This general purpose condensed financial report for the half-year ended 31 December 2015 has been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act 2001 .Compliance with AASB 134 Interim Financial Reporting ensures compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting.

The half-year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial report.

It is recommended that the half-year financial report be read in conjunction with the annual report for the year ended 30 June 2015 and considered together with any public announcements made by MGT Resources Limited during the half-year ended 31 December 2015 in accordance with the continuous disclosure obligations of the ASX listing rules.

The same accounting policies and methods of computation have been followed in this interim financial report as were applied in the most recent annual financial statements.

(b) Changes in Accounting Policies

The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current reporting period.

There are no new and revised standards and amendments or Interpretations effective for the current reporting period that are relevant to the Group.

The Group has not elected to early adopt any of the new standards or amendments that are issued but not yet effective.

2. GOING CONCERN

The half-year financial statements are prepared on a going concern basis, which contemplates the continuation of normal business activity and the realisation of assets and liabilities in the normal course of business.

As at 31 December 2015 the consolidated entity incurred a net loss after tax of $2,985,149, cash outflows from operating and investing activities of $1,125,050 and net liabilities of $5,770,592. The ability of the Group to continue as a going concern and to pay their debts as and when they fall due is dependent on the following:

• The successful raising for further funding via a placement to Auskong International Mining Investment Co., Limited which will require shareholder approval.

• The conversion of the $1,500,000 Convertible Notes owing to Auskong International Mining Investment Co., Limited in June 2016, into equity (see Note 12). The Directors are confident that this debt will be converted into equity prior to its expiry and are in the process of finalising the timing of this.

• The successful restructuring of Convertible Notes owing to Cloud Adventurer Limited and Marvel Network Limited (see Note 12). The Directors are in the process of restructuring the existing debt. The Directors are confident that a final term sheet to restructure the debt will be signed well before the instruments are due to expire.

• The successful repayment or conversion of the $1,500,000 Convertible Note owing to Armstrong Industries HK Limited (see Note 12) in November 2016.

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Notes to the Financial Statements For The Half-Year Ended 31 December 2015

Having regard to the above, the Directors have a reasonable expectation that the entity will have adequate resources to continue operating for the foreseeable future. For this reason they continue to adopt the going concern basis in preparation of the accounts.

3. DIVIDENDS PAID OR PROPOSED

No dividends have been provided for or paid at the reporting date (30 June 2015: Nil).

4. SIGNIFICANT EVENTS AND TRANSACTIONS

During the period to 31 December 2015 the following significant events and transactions took place:

• On 26 November 2015, $1,200,000 in funding was received from Auskong International Mining Investment Co., Limited and 24,000,000 fully paid ordinary shares were issued, upon the exercise of 24,000,000 share options at 5 cents per option.

• Drilling at the Pyramid prospect during the period led to new data which enhances the overall grade of gold at the prospect by allowing definition of high grade zones. 3D modelling of new results extends the mineralised envelope significantly at the Gettysberg prospect and establishes continuity between high-grade zones.

5. EXPLORATION AND EVALUATION ASSETS

Balances at the beginning of the period Tenement impairments Reclassification of make-good assets to property, plant & equipment Release of prior period Native Title accruals Expenditure incurred during the period Balances at the end of the period	31/12/2015 $ 3,628,820 (1,860,619) - - 407,150 2,175,351	30/6/2015 $ 8,278,021 (5,121,643) (60,133) (551,898) 1,084,473
		3,628,820

Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. The ultimate recoverability of exploration and evaluation expenditure is dependent upon the successful development and exploitation of the area of interest, or alternatively, by its sale.

During October 2014 an independent valuation of the tin and gold properties were carried out by Veronica Webster Pty Ltd as a requirement of the Independent Expert Report produced by Nexia Court Financial Solutions Pty Ltd to report on the fairness and reasonableness of the Auskong International Mining Investment Co., Limited proposed investment set out in the Notice of Meeting to shareholders dated 15 January 2015.

The Mount Garnet Tin project was valued by referring to a modified discounted-cash-flow-rate-of-return to obtain a net present value for the mining project. The gold resources and exploration projects were valued by ‘Expected Value’ methods and the ‘Multiples of exploration expenditure’ method. The tin and gold valuations, prepared by Veronica Webster Pty Ltd were updated in August 2015, which led to an impairment of $5,121,643 in the year to 30 June 2015.

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Notes to the Financial Statements For The Half-Year Ended 31 December 2015

During February 2016, Veronica Webster Pty Ltd updated their August 2015 independent valuation of the tin and gold properties to provide MGT Resources Limited with a valuation effective 31 December 2015. The following assumptions were used in preparing the modified discounted cash flow rate of return to obtain a net present value for the tin properties:

• Mined grade – 0.50% Sn

• Tin price – Potential project economies were examined at a range of tin prices from US$15,000 to US$25,000.

• A$/US$ exchange rate of 0.70

• Mine Life – 10 years at 250,000 tonnes per annum, assuming ongoing exploration to support future ore supply

• Pre-start capital of $7,200,000 primarily to upgrade the plant to 250,000 tonnes per annum and to construct a new tailings dam

• Exploration costs of $3,000,000 ahead of commencement of production, thereafter $1,000,000 per annum for the life of the operation

• Environmental costs to obtain requisite environmental approvals of $500,000 over 18 months

• Mining strip ratio of 6:1

• Mining costs of $26/tonne of ore mined

• Processing cost of $25/tonne milled

• Smelter return of 82% (includes charge for impurities)

• Plant recovery of 70%

• Tin concentrate grade of 55%

• Discount rate of 20%

In the opinion of Veronica Webster Pty Ltd, the current market would pay a range between nil and $1,750,000 for the tin properties on the valuation date, with a preferred value of $1,000,000. The Board determined the most appropriate fair value of the tin assets within the range, to be $1,375,000 after taking into account recent third party interest in the project. The value falls within level 3 of the fair value hierarchy due to one or more significant inputs being not based on observable market data.

In In the opinion of Veronica Webster Pty Ltd, the current market would pay a range between $350,000 and $1,350,000 for the gold properties on the valuation date, with a preferred value of $850,000. The Board determined the most appropriate fair value of the gold assets within the range, to be $785,000. The value falls within level 3 of the fair value hierarchy due to one or more significant inputs being not based on observable market data.

The review led to the recognition of an impairment loss of $1,860,619 in the statement of profit or loss in the half year to 31 December 2015.

6. SUBSEQUENT EVENTS

On 1 February 2016, Jonathan Back resigned as Managing Director of MGT Resources Limited whilst retaining his position as Executive Chairman, Gary Kuo was appointed Managing Director and Christopher Chen was appointed as Executive Director and Chief Operating Officer.

There has not been any other matter or circumstance apart from the above, occurring subsequent to the end of the financial period that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the Group in future financial years.

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Notes to the Financial Statements For The Half-Year Ended 31 December 2015

7. SEGMENT INFORMATION

MGT Resources Limited (the “Group”) operates predominantly in one business segment and one geographical segment being the mining industry in Australia. The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (the chief operating decision makers) in assessing performance and in determining the allocation of resources.

No revenue from this activity was earned in the six months to 31 December 2015 or the prior period.

8. CASH AND CASH EQUIVALENTS

For the purposes of the Condensed Cash Flow Statement, cash and cash equivalents comprise the following at 31 December 2015:

Cash and cash equivalents 9. ISSUED SHARE CAPITAL Issue of ordinary shares during the half-year Share capital as at beginning of period February 2015 issue of shares November 2015 issue of shares Share capital as at the end of period Balance as at beginning of period Share option conversion Capital raising costs Share capital as at the end of period	31/12/2015	30/6/2015
	$ 1,263,647 1,263,647 31/12/2015 No of shares 318,157,040 - 24,000,000 342,157,040 31/12/2015 $ 15,146,142 1,200,000 (737,189) 15,608,953	$ 1,491,062
		1,491,062
		30/6/2015 No of shares 288,157,040 30,000,000 -
		318,157,040
		30/6/2015 $ 15,146,142 - (737,189)
		14,408,953

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Notes to the Financial Statements

For The Half-Year Ended 31 December 2015

10. EARNINGS PER SHARE

Basis earning per share Diluted earnings per share Basis earning per share The earning and weighted average number of ordinary share used in the calculation of basis earning per share are as follows: Net loss Earning used in the calculation of basic EPS from continuing operations Weighted average number of ordinary shares for the purpose of basic earnings per share Diluted earnings per share The earning and weighted average number of ordinary share used in the calculation of diluted earning per share are as follows: Net loss Interest expense for the current year relating to the liability component of the convertible bonds Earning used in the calculation of diluted EPS from continuing operations Weighted average number of ordinary shares for the purpose of diluted earnings per share	Half-year ended 31/12/2015 Cents per share (0.85) (0.62) $ (2,742,391) No. 322,722,255 $ (2,742,391) 428,987 (2,313,404) No. 372,722,255	Half-year ended 31/12/2014 Cents per share (1.71) (1.23) $ (4,914,436)
		No. 288,157,040 $ (4,914,436) 401,858
		(4,512,578) No. 367,345,349

11. RELATED PARTY TRANSACTIONS

The following table provides the total amount of transactions which have been entered into with related parties during the six month period ending 31 December 2015 and 31 December 2014 as well as balances with related parties as of 31 December 2015 and 30 June 2015:

(a) Subsidiaries

(a) Subsidiaries
		Ownership	Ownership
		interest	interest
	Country of	31/12/2015	30/6/2015
Name of subsidiary	incorporation	%	%
MGT Mining Limited	Australia	89.48%	89.48%
Garimperos Pty Limited (i)	Australia	100.00%	100.00%

i) Garimperos Pty Limited is 100% owned by MGT Mining Limited.

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Notes to the Financial Statements For The Half-Year Ended 31 December 2015

(b) Transactions with related parties

• (i) During the period to 31 December 2015, Jonathan Back, provided services to MGT Resources Limited in his capacity as Executive Chairman and Managing Director through his company, Ocean Central Limited for a total value of $72,000.

• (ii) Gary Kuo, provided employment services to MGT Resources Limited in his capacity as Executive Director and Chief Operating Officer. During the period to 31 December 2015, Gary Kuo received a salary of $52,200 and superannuation benefits of $4,560.

• (iii) Li Hai Jun, provided services to MGT Resources Limited in his capacity as Non-Executive Director through his nominated entity, Parkridge Capital Inc for a total value of $16,000 during the period to 31 December 2015.

• (iv) Christopher Chen provided service to MGT Resources Limited in his capacity as Non-Executive Director of $16,000 through his nominated company Beijing Cui Yu Tong Bao Zhu Bao Dian during the period to 31 December 2015.

• (v) Wenshan Zhang provided service to MGT Resources Limited in his capacity as Non-Executive Director of $17,500 through his nominated company Beijing Cui Yu Tong Bao Zhu Bao Dian during the period to 31 December 2015.

• (vi) MGT Resources Limited provided key management personnel services to MGT Mining Limited, the 89.48% subsidiary of MGT Resources Limited for a total value of $120,000 during the period to 31 December 2015.

• (vii) Refer to Note 12 regarding transactions during the period to 31 December 2015, with Armstrong Industries HK Limited, Cloud Adventurer Limited and Marvel Network Limited.

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Notes to the Financial Statements

For The Half-Year Ended 31 December 2015

12. UNSECURED BORROWINGS

12. UNSECURED BORROWINGS
Current Convertible note (ii) Convertible note (i) Convertible note (iii) Convertible note (iv) Non-current Convertible note (i) Convertible note (iii) Convertible note (iv)	31/12/2015 $ 1,418,745 1,488,123 2,982,657 2,982,657 8,872,182 - - - -	30/6/2015 $ 1,325,883 - - -
		1,325,883
		1,481,604 2,969,087 2,969,087
		7,419,778

• (i) The parent entity MGT Resources Limited issued convertible notes to Armstrong Industries HK Limited on 11 November 2011 with a principal sum of $1,500,000 and a term of 2 years. Interest on the convertible notes is payable at the rate of 8% per annum. The convertible note was extended on 11 November 2013 and rolled into a new convertible note for a further term of 3 years. The convertible note may be redeemed or, if the share price is 8.75 cents per share or more at maturity, must be converted into 17,142,857 ordinary shares in the parent.

• (ii) On 10 June 2015, the parent entity MGT Resources Limited issued unsecured convertible notes to Auskong International Mining Investment Co. Limited, with a principal sum of $1,500,000 and a nil interest rate. The Notes may, at the option of the Noteholder, be converted into 50,000,000 ordinary shares in MGT Resources Limited at any time within a 12 month period after the completion of the unsecured convertible note deed on 10 June 2015.

• (iii) The parent entity, MGT Resources Limited issued convertible notes to Cloud Adventurer Limited on 19 August 2013 with a principal sum of $3,000,000 and a term of 3 years. Interest on the convertible note is payable at the rate of 8% per annum. The convertible notes may be redeemed or, if the share price is 11 cents per share or more at maturity, must be converted into 27,272,727 ordinary shares in the parent entity.

• (iv) The parent entity, MGT Resources Limited issued convertible notes to Marvel Network Limited on 19 August 2013 with a principal sum of $3,000,000 and a term of 3 years. Interest on the convertible note is payable at the rate of 8% per annum. The convertible notes may be redeemed or, if the share price is 11 cents per share or more at maturity, must be converted into 27,272,727 ordinary shares in the parent entity.

The convertible notes have been accounted for in accordance with AASB 139: Financial Instruments: Recognition and Measurement.

The net proceeds received from the issue of the convertible notes have been split between the financial liability element and an equity component, representing the residual attributable to the option to convert the financial liability into equity of MGT Resources Limited. The following table is a summary of the information for all the convertible notes issued by MGT Resources Limited.

17

MGT R ESOURCES L IMITED – H ALF -YEAR F INANCIAL R EPORT

Notes to the Financial Statements

For The Half-Year Ended 31 December 2015

Proceeds of issue	Convertible note (i) Convertible note (ii) Convertible note (iii) Convertible note (iv) $ $ $ $ 1,500,000 1,500,000 3,000,000 3,000,000	Total $ 9,000,000
Equity component– value of conversion rights	(37,970) (184,211) (75,939) (75,939)	(374,058)
Liability component at the date of issue	1,462,030 1,315,789 2,924,061 2,924,061	8,625,942
Interest expense*	266,093 102,956 538,596 538,596	1,446,240
Interest paid Total Current liability Non-current liability	(240,000) - (480,000) (480,000)	(1,200,000)
	1,488,123 1,418,745 2,982,657 2,982,657	8,872,182
		8,872,182 -
		8,872,182

13. SECURED BORROWINGS

Non-current Secured loan	31/12/2015 $ 1,500,000 1,500,000	30/6/2015 $ 1,500,000
		1,500,000

On 6 February 2015 MGT Mining Limited signed a secured loan agreement with Taimetco International Co., Limited for $1,500,000 with a term of 2 years at an interest rate of 6.5% per annum. Interest accrues and is payable on the earlier of the day on which the principal outstanding is paid in full and the termination date.

MGT Mining Limited has granted Taimetco International Co., Limited security over all of MGT Mining Limited’s present and after-acquired tin assets, rights, interests and undertakings.

As part of the security arrangement, MGT Mining Limited has registered mortgages with the Queensland Government over the following tenements:

• ML 20547 Summer Hill

• ML 4349 Mt Veteran

• EPM 16948 Nymbool

• EPM 25433 Nanyetta

• EPM 25690 Nymbool West

• EPM 25716 Fuzzy Hill

• EPM 25347 Nymbool Extended

18

MGT R ESOURCES L IMITED – H ALF -YEAR F INANCIAL R EPORT

Notes to the Financial Statements

For The Half-Year Ended 31 December 2015

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The directors have determined the fair value of its available-for-sale equity securities held using quoted prices on an active market. The fair value of available-for-sale equity securities is therefore classified as Level 1 under the accounting standards.

The fair value of convertible notes is classified as Level 3 under the accounting standards due to there being one or more unobservable inputs. Refer to note 12 for more disclosure.

The directors consider that the carrying amounts of current trade and other receivables and payables recognised in the consolidated financial statements approximate their fair values.

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Independent Auditor’s Review Report to the members of MGT Resources Limited

Report on the Condensed Half-year Financial Report

We have reviewed the accompanying half-year financial report of MGT Resources Limited ("the group") and its controlled entities, which comprises the statement of financial position as at 31 December 2015 and statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, other selected explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the half-year end or from time to time during the half-year ended 31 December 2015.

Directors’ responsibility for the half-year financial report

The directors of the group are responsible for the preparation and fair presentation of the half-year financial report in accordance with Australian Accounting Standards and the Corporations Act 2001 . This responsibility includes: establishing and maintaining internal controls relevant to the preparation and fair presentation of the half-year financial report that it is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity , in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity’s financial position as at 31 December 2014 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 . As the auditor of MGT Resources Limited and its controlled entities during the half-year ended 31 December 2015, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with independence requirements of the Corporations Act 2001 .

MAZARS RISK & ASSURANCE PTY LIMITED. FORMERLY DUNCAN DOVICO RISK & ASSURANCE PTY LIMITED ABN: 39 151 805 275 LEVEL 12, 90 ARTHUR STREET, NORTH SYDNEY NSW 2060 PO BOX 1994, NORTH SYDNEY NSW 2059 TEL: +61 2 9922 1166 - FAX: +61 2 9922 2044 EMAIL: M AI L @ M AZ AR S . C OM . A U

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LIABILITY LIMITED BY A SCHEME, APPROVED UNDER THE PROFESSIONAL STANDARDS LEGISLATION

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Basis for Disclaimer of Opinion

The group has convertible notes with faces values of $1,500,000 maturing in June 2016, $6,000,000 maturing in August 2016, and $1,500,000 maturing in November 2016. In addition a secured loan to Taimetco International Co Limited (“Taimetco”) is due in February 2017 of $1,500,000. The Directors have continued a process of debt restructuring and as at the date of signing of the financial report have been provided with various undertakings from the noteholders. Should these undertakings be executed, subject to shareholder and regulatory approval, they will effect settlement of $7,500,000 of the outstanding convertible notes buy way of conversion to ordinary shares ($1,500,000) and preference shares with attached options ($6,000,000). The remaining $1,500,000 of convertible note matures in November 2016.

There is significant uncertainty in relation to capacity to repay the Taimetco secured loan due in February 2017 as are currently no proposals in relation to repayment or renegotiation of the loan. In addition to repaying the remaining convertible notes when they fall due, there is significant uncertainty that without further injection of new equity or debt financing the group will be unable to fulfil proposed drilling programs and meet tenement expenditure commitments.

The group had a net current liability of $7,980,729 (June 2015: $381,107) as at 31 December 2015 and incurred a net loss of $2,985,254 (December 2014: $5,421,027) for the financial half year then ended. Notwithstanding its restructure of debt instruments, the group has been unable to obtain further injections of debt or equity to support its going concern basis for preparation of the financial report for the half year ended 31 December 2015. We have been unable to obtain alternative evidence which would provide sufficient appropriate audit evidence as to whether the group may be able to obtain such financing, and hence remove significant doubt of its ability to continue as a going concern within 12 months of the date of this report.

The Directors have set out their reasons for believing the group is a going concern in Note 2 to the financial report. We have been unable to obtain sufficient appropriate audit evidence as to whether the group may be able to obtain financing to meet remaining convertible note repayments, Taimetco secured loan and drilling and exploration expenditure obligations, and hence remove significant doubt of its ability to continue as a going concern within 12 months of the date of this auditor’s report.

Disclaimer of Opinion

Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial report.

MAZARS RISK & ASSURANCE PTY LIMITED

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R. Megale Director Dated in Sydney, this 15[th] day of March 2016

LEVEL 12, 90 ARTHUR STREET, NORTH SYDNEY NSW 2060 PO BOX 1994, NORTH SYDNEY NSW 2059 TEL: +61 2 9922 1166 - FAX: +61 2 9922 2044 EMAIL: M AI L @ M AZ AR S . C OM . A U

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MAZARS RISK & ASSURANCE PTY LIMITED. FORMERLY DUNCAN DOVICO RISK & ASSURANCE PTY LIMITED ABN: 39 151 805 275

LIABILITY LIMITED BY A SCHEME, APPROVED UNDER THE PROFESSIONAL STANDARDS LEGISLATION