ELEMENTOS LIMITED — Interim / Quarterly Report 2016

Mar 14, 2016

ELEMENTOS LIMITED

ABN 49 138 468 756

CONSOLIDATED FINANCIAL REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2015

Contents

Cautionary Statements
Corporate Information
Directors' Report
Auditor's Independence Declaration
Consolidated Statement of Comprehensive Income for the Half-Year Ended 31 December 2015 9
Consolidated Statement of Financial Position as at 31 December 2015
Consolidated Statement of Changes in Equity for the Half-Year Ended 31 December 201511
Consolidated Statement of Cash Flows for the Half-Year Ended 31 December 2015
Notes to the Financial Statements for the Half-Year Ended 31 December 2015
Directors' Declaration
Independent Auditor's Review Report

Cautionary Statements

Forward-looking statements

This document may contain certain forward-looking statements. Such statements are only predictions, based on certain assumptions and involve known and unknown risks, uncertainties and other factors, many of which are beyond the company's control. Actual events or results may differ materially from the events or results expected or implied in any forward-looking statement.

The inclusion of such statements should not be regarded as a representation, warranty or prediction with respect to the accuracy of the underlying assumptions or that any forward-looking statements will be or are likely to be fulfilled.

Elementos undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this document (subject to securities exchange disclosure requirements).

The information in this document does not take into account the objectives, financial situation or particular needs of any person or organisation. Nothing contained in this document constitutes investment, leagl, tax or other advice

Mineral Resources and Ore Reserves

Elementos confirms that tin and copper Mineral Resource and Ore Reserve estimates used in this document were estimated, reported and reviewed in accordance with the auidelines of the Australian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code) 2012 edition.

The Tungsten Mineral Resource estimate used in this document was estimated, reported and reviewed in accordance with the guidelines of The JORC Code 2004 edition. It has not been updated since to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last reported.

Elementos confirms that it is not aware of any new information or data that materially affects the Mineral Resource or Ore Reserve information included in the "Cleveland Tailings Resource Upgrade" announced to the ASX on 17 June 2014, or the "Cleveland Open Pit - High-Grade Mineral Resource Defined" announced on 3 March 2015 and the "Cleveland Tailings Ore Reserve" released on the 3 August 2015.

The Company also confirms that all material assumptions and technical parameters underpinning the estimates in the Cleveland Mineral Resources and Reserves continue to apply and have not materially changed. Elementos also confirms the form and context in which the Competent Person's findings are presented have not been materially modified from the date of announcement.

Scoping study results and mining inventories

The scoping studies referred to in this document are based on a low-level technical and economic assessment, which is insufficient to support estimation of Ore Reserves, or to provide assurance of an economic development case at this stage, or to provide certainty that the conclusions of the scoping studies will be realised.

Elementos advises that the scoping study results are partly drawn from Inferred Resources. There is a low level of aeological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the conversion of Inferred Mineral Resources to Indicated Mineral Resources or that the production target itself will be realised.

The term "mining inventory" is used to describe Indicated and Inferred Mineral Resource within the mine design. Whereas an Ore Reserve, as defined by the JORC code (2012 Edition), must be based on a study at pre-feasibility study level or better and must not include Inferred Mineral Resources. As such, no Ore Reserve can be publicly declared on the basis of these scoping studies.

Corporate Information

Directors and Company Secretary

Mr Andy Greig (Non-executive Chairman) Mr Calvin Treacy (Non-executive Director) Mr Corey Nolan (Non-executive Director) Mr Christopher Dunks (Non-executive Director) Mr Duncan Cornish (Company Secretary)

Head Office and Registered Office

Elementos Limited Level 5, 10 Market Street Brisbane QLD 4000 Tel: +61 7 3221 7770 Fax: +61 7 3221 7773 www.elementos.com.au

Auditors

BDO Audit Pty Ltd Level 10, 12 Creek Street Brisbane QLD 4000 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au

Share Registry

Boardroom Pty Limited Level 12, 225 George Street Sydney NSW 2000 Tel: 1300 737 760 Fax: 1300 653 459 www.boardroomlimited.com.au

Stock Exchange Listing

Australian Securities Exchange Ltd ASX Code: ELT

Australian Business Number

49 138 468 756

Directors' Report

Your directors submit the financial report of the consolidated Group for the half-year ended 31 December 2015.

Directors

The following persons were Directors of the Company during or since the end of the financial period:

• Corey Nolan
• Calvin Treacy
• Richard Seville (resigned 26 October 2015)
• Richard Anthon (resigned 30 October 2015)
• Andy Greig (appointed 30 October 2015)
• Christopher Dunks (appointed 4 November 2015)

Review of Operations

The Group's operating loss for the half-year, after applicable income tax was \$865,693. Exploration and evaluation expenditure during the period totalled \$201,374.

At 31 December 2015, the Group's net assets totalled \$4,804,639, which included cash assets of \$828,135.

During the period, the Company's principal activity was progressing the Cleveland project approval process.

During the period, both Rick Anthon and Richard Seville retired from the board of Elementos, Andy Grieg and Chris Dunks, both significant shareholders, joined as Non-Executive Chairman and Non-Executive Director, respectively.

The Company received a loan from the Company's Non-Executive Chairman Andy Greig, for \$500,000 over a term of two years. Further details are included in the notes to the Interim Financial Report.

These funds combined with a Research and Development tax refund (in relation to activities completed in the 2015 financial year) of \$320,684 continues to see the Company remain on track to meet its primary objective of being the next Australian tin producer.

Review of Projects

CLEVELAND PROJECT, Tasmania, Australia

Approvals and applications

During the period, the Company's primary focus was the continuation of the Environmental permitting process. The Company believes there is strong potential to achieve its Environmental approvals given the significant government and stakeholder support to rehabilitate the historical mining legacies at the site.

The Company's Mining Lease Application (MLA) also progressed, with further discussions held with the Department of State Growth (Mineral Resources Tasmania). The department has been very supportive in working with the Company to progress its MLA, which it hopes will be awarded in 2017.

Stage 1 - Tailings Reprocessing

The Company completed a Pre-feasibility Study¹ ("PFS") for the reprocessing of the Tailings Mineral Resource and has estimated an Ore Reserve of 3.7 million tonnes (Mt) @ 0.29%² (0% cut-off grade).

^<sup>1 Announced per the JORC Code 2012 on 3 August 2015 "Cleveland Tailings PFS".

^<sup>2 Announced per the JORC Code 2012 on 3 August 2015 "Cleveland Tailings Ore Reserve".

The PFS demonstrated that the reprocessing of tailings is both technically and financially viable, generating A\$55m (pre-tax) in cash over a 7 year mine-life. At current prices, the project is profitable and cash flow positive, indicating a robust project that trades through the cycles.

Production from stage 1 can commence shortly after the award of the Mining Lease.

Stage 2 - Open Pit Mining

During the period, the Company received an Open Pit Scoping Study, independently prepared by AMC Consultants Pty Ltd (AMC). The study was based on the previously announced Mineral Resource of 0.8Mt at 0.81% Sn and 0.27% Cu³.

The AMC study identified five viable open pits, containing a mining inventory⁴ of 0.6 Mt at 0.50% Sn and 0.14% Cu. The open pit will supplement the feed from the proposed tailings reprocessing operation, providing additional high-grade feed into the upgraded process plant.

The study concluded that the open-pit project is financially robust and technically low-risk; with over 98% of the ore tonnes included in the mining inventory being in the Indicated Mineral Resource category. The projected additional cash flow from the open-pit project is A\$21 million (pre-tax); Production from the stage 2 open-pit mine is scheduled to start in 2018.

Stage 3 - Underground Mining

AMC also completed an Underground Scoping Study, which examined the technical and economic viability of mining and processing the previously developed tin-copper deposit and a separate but large tungsten porphyry deposit. As such, the viability of the underground operation was assessed as an extension to the proposed tailings and open-pit operations with shared services, plant and infrastructure.

The study provided a high-level mine design, mining inventory, production schedule, process plant flowsheet, and cost estimate for the potential underground operation. Based on the previously announced Mineral Resource⁵, the study identified a mining inventory⁶ of 1.9Mt of tin-copper ore grading 0.61% Sn and 0.22% Cu, and 1.7Mt of tunasten ore grading 0.31% WO3.

The findings demonstrate that underground operations will extend the Cleveland mine life by eight years, doubling the life of the project, and adding a projected additional A\$90 million to the project's pre-tax cash flows.

Production from the stage 3 underground mine is scheduled to commence in FY2021.

EXPLORATION

Cleveland Project

No exploration activities were undertaken at Cleveland during the period, as all activities were related to mine development and production approvals, Exploration Licence (EL) 15/2011 was relinguished during period.

Selwyn Range Project, Queensland, Australia

During the period, the Company's Joint Venture partner, Jason Resources, completed a XRF geochemical line survey at Selwyn Range.

The survey comprised 7 lines 400m apart at Sandy Creek, 5 lines at Mt Ulo, 2 lines at Perisher, 2 lines at the A1 magnetic anomaly and 5 lines at Wallaby. 502 XRF soil and 38 XRF rock samples were assayed.

Non-prospective sub-blocks were relinquished across the tenement package as required by government regulations and the agreed schedule.

^<sup>3 Announced per the JORC Code 2012 on 3 March 2015 "Cleveland Open Pit - High-Grade Mineral Resource Defined"

⁴ A mining inventory is not an Ore Reserve. Refer to Cautionary Statements attached to this announcement.

⁵ Announced per the JORC Code 2012 on 3 March 2015 "Cleveland Open Pit - High-Grade Mineral Resource Defined"

⁶ A mining inventory is not an Ore Reserve. Refer to Cautionary Statements attached to this announcement.

Millenium Project, Queensland, Australia

There were no exploration activities at the Millenium joint venture during the period. Non-prospective sub-blocks were relinquished across the tenement package as required by government regulations and the agreed schedule.

Subsequent Events

No other material matters or circumstances have arisen since the balance date.

Auditor's Independence Declaration

The auditor's independence declaration under section 307C of the Corporations Act 2001 is included in this financial report.

Signed in accordance with a resolution of the Board of Directors.

Cayllal

Corey Nolon Director

15 March 2016 Brisbane

ELEMENTOS LTD

ABN 49 138 468 756

AUDITOR'S INDEPENDENCE DECLARATION

Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au

Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia

DECLARATION OF INDEPENDENCE BY A J WHYTE TO THE DIRECTORS OF ELEMENTOS LTD

As lead auditor for the review of Elementos Ltd for the half-year ended 31 December 2015, I declare that, to the best of my knowledge and belief, there have been:

• 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and
• 1. No contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of Elementos Ltd and the entities it controlled during the period.

A J Whyte Director

BDO Audit Pty Ltd

Brisbane, 15 March 2016

Consolidated Statement of Comprehensive Income for the Half-Year Ended 31 December 2015

	Note	31 Dec 2015 \$	31 Dec 2014 \$
Revenue	$\overline{2}$	4,129	63,996
Less expenses:
Corporate and administrative expenses	2	(620,050)	(267, 249)
Write-off of exploration and evaluation expenditure	3	(250, 450)	(1,904,242)
Loss before income tax expense		(866, 371)	(2,107,495)
Income tax expense
Loss for the period attributable to members of the parent entity		(866, 371)	(2,107,495)
Other comprehensive income Items that will be reclassified to profit or loss
Foreign currency translation gain/(loss)		1,148	(144, 116)
Income tax relating to components of other comprehensive income
Other comprehensive income for the period, net of tax		1,148	(144, 116)
Total comprehensive income attributable to members of the parent entity		(865, 223)	(2,251,611)
Basic earnings per share (cents per share)		(0.11)	(0.29)
Diluted earnings per share (cents per share)		(0.11)	(0.29)

Consolidated Statement of Financial Position as at 31 December 2015

a turla	Note	31 Dec 2015 \$	30 June 2015 \$
CURRENT ASSETS
Cash and cash equivalents		828,135	761,828
Trade and other receivables		6,102	19,380
Other current assets			10,917
Total Current Assets		834,237	792,125
NON-CURRENT ASSETS
Exploration and evaluation assets	$\ensuremath{\mathsf{3}}$	4,489,410	4,859,170
Property, plant and equipment		3,142	4,186
Other non-current assets		13,950	13,950
Total Non-Current Assets		4,506,502	4,877,306
TOTAL ASSETS		5,340,739	5,669,431
CURRENT LIABILITIES
Trade and other payables	4	36,100	166,705
Total Current Liabilities		36,100	166,705
NON-CURRENT LIABILITIES
Loan - related party	10	500,000
Total Current Liabilities		500,000
TOTAL LIABILITIES		536,100	166,705
NET ASSETS		4,804,639	5,502,726
EQUITY
Issued capital	9	12,407,383	12,437,377
Reserves		(406, 186)	(604, 464)
Accumulated losses		(7,196,558)	(6,330,187)
TOTAL EQUITY		4,804,639	5,502,726

Consolidated Statement of Changes in Equity for the Half-Year Ended 31 December 2015

	Issued Capital	Accumulated Losses	Share- Based Payments Reserve	Foreign Currency Translation Reserve	Total
	\$	\$	$\overline{\mathsf{S}}$	$\overline{\mathsf{S}}$	\$
Balance at 1 July 2014	10,924,168	(3,637,647)	64,170	(594, 929)	6,755,762
Loss for the period		(2,107,495)			(2,107,495)
Other comprehensive income for the period				(144, 116)	(144, 116)
Total comprehensive income		(2,107,495)		(144, 116)	(2,251,611)
Shares issued during the period
- Shares issued due to capital raising	1,543,948				1,543,948
- Equity settled compensation	28,348				28,348
Total shares issued during the period	1,572,296				1,572,296
Transaction costs	(67, 760)				(67, 760)
Balance at 31 December 2014	12,428,704	(5,745,142)	64,170	(739, 045)	6,008,687
Balance at 1 July 2015	12,437,377	(6,330,187)	64,170	(668, 634)	5,502,726
Loss for the period		(866, 371)			(866, 371)
Other comprehensive income for the period				1,148	1,148
Total comprehensive income		(866, 371)		1,148	(865, 223)
Equity issued during the period
- Shares issued due to capital raising
- Options issued - equity settled compensation			197,130		197,130
Total equity issued during the period	÷,		197,130	$\ddot{\phantom{1}}$	197,130
Share issue transaction costs	(29, 994)				(29,994)
Balance at 31 December 2015	12,407,383	(7, 196, 558)	261,300	(667, 486)	4,804,639

Consolidated Statement of Cash Flows for the Half-Year Ended 31 December 2015

	31 Dec 2015	31 Dec 2014
	\$	\$
CASH FLOWS FROM OPERATING ACTIVITIES
Payments due to suppliers and employees	(501, 548)	(473,077)
Interest received	4,287	18,415
Consulting fees		45,581
Security deposit refund	9,000
Net cash used in operating activities	(488, 261)	(409,081)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for exploration and evaluation assets	(236, 122)	(637, 974)
Research and development refunds	320,684
Net cash used in investing activities	84,562	(637,974)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares		1,543,948
Costs associated with share issue	(29, 994)	(67,760)
Proceeds from loan	500,000
Net cash provided by (used in) financing activities	470,006	1,476,188
Net increase in cash held	66,307	429,133
Cash at beginning of period	761,828	682,689
Effect of exchange rates on cash holdings in foreign currencies		560
Cash at end of period	828,135	1,112,382

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

These general purpose financial statements for the interim half-year reporting period ended 31 December 2015 have been prepared in accordance with the Corporations Act 2001 and Australian Accounting Standard AASB 134 "Interim Financial Reporting". The historical cost basis has been used.

This interim financial report does not include all notes of the type normally included in the Annual Financial Report, Accordinaly, this report is to be read in conjunction with the Annual Report of Elementos Limited (the "Company") as at 30 June 2015, together with public announcements made by the Company during the interim reporting period in accordance with its continuous disclosure obligations.

The accounting policies and methods of computation adopted are consistent with those of the previous financial period as disclosed in the 30 June 2015 Annual Report. There has been no new or revised Australian Accounting Standards issued by the AASB that materially affected the Company in the current period.

Going Concern

The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of business. The ability of the Group to maintain continuity of normal business activities and to pay its debts as and when they fall due is dependent on the ability of the Group to the successfully raise additional capital and/or successful exploration and subsequent exploitation of areas of interest through sale or development.

Should the Group not be able to raise capital, dispose of assets when required or manage its expenditure so as to conserve cash over the coming 12 months, there exists a material uncertainty regarding the Company's and Group's ability to continue as a going concern and realise its assets and settle its liabilities and commitments in the normal course of business and at the amounts stated in the financial statements. The financial report does not include any adjustments relating to the recoverability or classification of recorded asset amounts, or to the amounts or classification of liabilities which might be necessary should the Group not be able to continue as a going concern.

NOTE 2: RESULTS FOR THE PERIOD

	31 Dec 2015	31 Dec 2014
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The following revenue and expense items are relevant in explaining the financial performance for the interim period:
Interest received from other persons	4.129	18,415
Consulting fees - other		45,581
Depreciation and amortisation	(1.761)	(2,957)
Share based payments (see Note 11)	(197, 130)

NOTE 3: EXPLORATION AND EVALUATION ASSETS

	31 Dec 2015	30 June 2015
Exploration and evaluation expenditure carried forward in respect of the areas of interest are:
Exploration and evaluation expenditure	4,489,410	4,859,170
Movement in exploration and evaluation assets:
Opening balance - (1 July)	4,859,170	6,456,348
Capitalised exploration expenditure	201,374	1,003,138
Impairment provision
Capitalised expenditure written off	(250, 450)	(1,844,343)
Foreign currency translation movement		(73, 705)
Total exploration and evaluation expenditure - cost	4,810,094	5,541,438
Less research and development refunds received	(320,684)	(682, 268)
Carrying amount at the end of period	4,489,410	4,859,170

Recoverability of the carrying amount of exploration assets is dependent on the successful development and commercial exploitation of projects, or alternatively through the sale of the areas of interest.

NOTE 4: TRADE AND OTHER PAYABLES

	31 Dec 2015	30 June 2015
[1] 오늘 100 - 120 오늘 2013 - 2013 / \$ 140 000 en an Agent Made Brazilei
Current:
Trade payables and accrued expenses	34,330	165,404
Employee provisions	.770	1.301
Total payables (unsecured)	36,100	66,705

NOTE 5: COMMITMENTS

Exploration Commitments

The Group has certain obligations to expend minimum amounts on exploration in tenement areas. These obligations may be varied from time to time and are expected to be fulfilled in the normal course of operations of the Group.

The following commitments exist at balance date but have not been brought to account. If the relevant option to acquire a mineral tenement is relinquished the expenditure commitment also ceases. The Group has the option to negotiate new terms or relinquish the tenements and also to meet expenditure requirements by joint venture or farm-in arrangements.

	31 Dec 2015	30 June 2015
Not later than 1 year	1,380,019	1,739,675
Later than 1 year but not later than 5 years	281,271	.102.401
Total commitment	1,661,290	2,842,077

NOTE 6: CONTINGENT LIABILITIES

There were no contingent liabilities at the end of the reporting period.

NOTE 7: EVENTS SUBSEQUENT TO REPORTING DATE

There were no events subsequent to reporting date that required disclosure in this financial report.

NOTE 8: SEGMENT REPORTING

Description of Segments

Operating segments have been determined on the basis of reports reviewed by the board of directors and the Chief Executive Office (chief operating decision makers) in assessing performance and determining the allocation of resources. The Group is managed primarily on a geographic basis, that is, the location of the respective areas of interest (tenements) in Australia. Operating segments are determined on the basis of financial information reported to the board of directors which is at the consolidated entity level. The Group does not have any products or services that it derives revenue from. The Group's exploration and development activities in Australia is the Group's sole focus, primarily focused around tin and copper. The Group's previous exploration activities in Argentina and Chile, have been discontinued and sold.

Accordingly, management currently identifies the Group as having only one reportable segment, being the exploration of mineral assets in Australia. There have been no changes in the operating segments during the half-year. Accordingly, all significant operating decisions are based upon analysis of the consolidated entity as one segment. The financial results from this segment are equivalent to the financial statements of the Group as a whole.

NOTE 9: ISSUED CAPITAL

	31 Dec 2015	30 June 2015
	Sandwich Street	Samuel Samuel Samuel Samuel Samuel Samuel Samuel Samuel Samuel Samuel Samuel Samuel Samuel Samuel Samuel Samuel Sa
(a) Issued and paid up capital
Ordinary shares fully paid	12,437,377	12,505,137
Share issue costs	(29,994)	(67, 760)
	12,407,383	12,437,377

Ordinary shares participate in dividends and the proceeds on winding up the Company. At shareholder meetings, each ordinary share is entitled to one vote when a poll is called. Otherwise each shareholder has one vote on show of hands.

NOTE 9: ISSUED CAPITAL (continued)

All your	31 Dec 2015			31 Dec 2014
	Number of shares		Number of shares	\$
(b) Reconciliation of issued and paid-up capital
Opening balance as at 1 July	767,479,644	12,437,377	633,310,870	10,924,168
Shares issued (1)			83,186,790	998,241
Shares issued (2)			40.315.384	483,785
Shares issued (3)			2,000,230	24,002
Shares issued (4)			1,403,366	14,174
Shares issued (5)			2,402,372	14,174
Shares issued (6)			3,160,000	37,920
Closing Balance as at 31 December	767,479,644	12,437,377	765,779,012	12,496,464

• 1. On 25 July 2014, 83,186,790 \$0.012 ordinary shares were issued by Elementos Ltd as part of a rights issue.
• 1. On 11 August 2014, 40,315,384 \$0.012 ordinary shares were issued by Elementos Ltd as part of a rights issue shortfall placement.
• 1. On 11 August 2014, 2,000,230 \$0.012 ordinary shares were issued by Elementos Ltd as part of a private placement.
• 1. On 2 October 2014, 1,403,366 \$0.0101 ordinary shares were issued by Elementos Ltd as part of a salary sacrifice program.
• 1. On 23 December 2014, 2,402,372 \$0.0059 ordinary shares were issued by Elementos Ltd as part of a salary sacrifice program.
• 1. On 23 December 2014, 3,160,000 \$0.012 ordinary shares were issued by Elementos Ltd as part of a placement approved at the AGM held on 26 November 2014.

	31 Dec 2015 No. of Options	30 June 2015 No. of Options
(c) Options
Unlisted Share Options	43,850,000	17,850,000
Balance at the beginning of the reporting period	17,850,000	18,400,000
Options issued during the period:
Issued to staff and consultants (see Note 11)	31,000,000
Lapsed	(5,000,000)	(550,000)
Balance at the end of the reporting period	43,850,000	17,850,000

NOTE 10: BORROWINGS

1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 10 2000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 - 1000 er gereingen in den Stadt von den steht der Stadt anderen den Stadt anderen Stadt 31 Dec 2015 . Den stadt andere stadt der Stadt andere stadt andere stadt andere stadt andere stadt andere stadt andere stadt	31 Dec 2015 30 June 2015
Non-Current:
Unsecured:
Loan from related party	500,000
Total unsecured non-current	500,000

On 23 December 2015, the Company executed a loan deed with the Company's Non-Executive Chairman Mr Andy Greig, a related party, with the following key terms:

• Loan amount = $$500,000$ $\bullet$
• Loan term $= 2$ vears $\bullet$
• Interest rate = $6.0\%$ $\bullet$
• Unsecured
• No conversion rights
• No requirement to repay principal or pay interest during the loan term
• Repayable by the Company at any time (during the loan term)

NOTE 11: SHARE BASED PAYMENTS

	31 Dec 2015	30 Dec 2014
Share based payment expense recognised during the period:
Options issued to employees under employee share options plan	133,930
Options issued to consultant	63,200
	197.130

During the half-year, 31 million options were granted, 21 million to employees (includes 20 million options issued to the chief executive officer, Tim McManus, one of the Group's key management personnel) under the employee share option plan and 10million to a consultant. The options vested on grant date and expire on 31 July 2019, except for 1 million which expire 31 July 2018.

The weighted average fair value of options granted during the year was 0.64 cents. The fair values at grant date were determined by an independent valuator using a Black-Scholes option pricing model that takes into account the share price at arant date, exercise price, expected volatility, option life, expected dividends, the risk free rate, the impact of dilution, the fact that the options are not tradeable. The inputs used for the Black-Scholes option pricing model for options granted during the half-year ended 31 December 2015 were as follows:

• arant dates: 26 August 2015 (for 21 million options) and 21 December 2015 (for 10 million options)
• share price at grant date: 1.0 cent (for the 21 million options issued on 26 August 2015) and 0.9 cents (for the 10 million options issued on 21 December 2015)
• exercise prices: 1.2 cents to 1.5 cents
• expected volatility: 100%
• expected dividend yield: nil%
• risk free rates: 1.91% (for 1 million options expiring 31 July 2018) and 2.12% (for 30 million options expiring 31 July 2019)

Expected volatility was determined based on the historic volatility (based on the remaining life of the option). adjusted for any expected changes to future volatility based on publicly available information.

Directors' Declaration

The Directors of the Company declare that:

• 1. The financial statements comprising the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and notes to the financial statements, are in accordance with the Corporations Act 2001, including:
• (a) complying with Accounting Standard AASB 134: Interim Financial Reporting and the Corporations Regulations 2001; and
• (b) 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.
• 1. In the Directors' opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors.

ley flex

Corey Noran Director

15 March 2016 Brisbane

Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia

INDEPENDENT AUDITOR'S REVIEW REPORT

To the members of Elementos Ltd

Report on the Half-Year Financial Report

We have reviewed the accompanying half-year financial report of Elementos Ltd, which comprises the consolidated statement of financial position as at 31 December 2015, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the half-year ended on that date, notes comprising a statement of accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the half-year's end or from time to time during the half-year.

Directors' Responsibility for the Half-Year Financial Report

The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error.

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 half-year 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 2015 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 Elementos Ltd, 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 the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Elementos Ltd, would be in the same terms if given to the directors as at the time of this auditor's review report.

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Elementos Ltd is not in accordance with the Corporations Act 2001 including:

• (a) 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
• (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations 2001

Emphasis of matter

Without modifying our conclusion, we draw attention to Note 1 in the half-year financial report, which indicates that the ability of the consolidated entity to continue as a going concern is dependent upon the future successful raising of necessary funding through equity, successful exploration and subsequent exploitation of the consolidated entity's tenements, and/or sale of non-core assets. These conditions, along with other matters as set out in Note 1, indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity's ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business.

BDO Audit Pty Ltd

A J Whyte Director

Brisbane, 15 March 2016