ENCOUNTER RESOURCES LIMITED — Interim / Quarterly Report 2017

Mar 2, 2017

Encounter Resources Limited ABN 47 109 815 796

Interim Consolidated Financial Report

For The Half-Year Ended 31 December 2016

Encounter Resources Limited ABN 47 109 815 796

Contents

	Page
Directors’ Report	3-4
Auditor’s Independence Declaration	5
Consolidated Statement of Profit or Loss and Other Comprehensive Income	6
Consolidated Statement of Financial Position	7
Consolidated Statement of Changes in Equity	8
Consolidated Statement of Cash Flows	9
Notes to the Interim Financial Statements	10-14
Directors’ Declaration	15
Independent Review Report	16

2

Encounter Resources Limited ABN 47 109 815 796

Directors’ Report

The Directors present their interim consolidated report of Encounter Resources Limited and its controlled entity for the half-year ended 31 December 2016.

Directors

The following persons were directors of Encounter Resources Limited during the whole of the halfyear and up to the date of this report:

Paul Chapman ( Non-Executive Chairman) Will Robinson ( Managing Director) Peter Bewick ( Exploration Director) Jonathan Hronsky (Non-Executive Director)

Company Secretary

Kevin Hart Dan Travers

Review of Operations

The consolidated net loss after income tax for the half-year was $383,137 (31 December 2015: $1,148,593).

At the end of the half-year the Group had $2,142,516 (30 June 2016: $3,684,391) in cash and at call deposits. Capitalised mineral exploration and evaluation expenditure is $17,470,874 (30 June 2016: $16,156,627).

Operations during the reporting period were primarily focused on copper zinc and gold exploration at the Group’s Yeneena and Telfer Projects in the Paterson Province of Western Australia. A total of $1,445,294 (2015: $447,082) was incurred on the Group’s projects and a further $332,203 (2015: $1,556,318) was incurred on behalf of its farm-in partners.

The Company received a total of $283,736 (2015: $2,416,897) in respect of farm-in contributions pursuant to the farm-in arrangements during the six months to 31 December 2016.

Matters Subsequent to the End of the Financial Period

There has not arisen in the interval between the end of the financial period and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company to affect substantially the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years.

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Encounter Resources Limited ABN 47 109 815 796

Directors’ Report

Auditor’s Independence Declaration

A copy of the Auditor’s Independence Declaration as required under Section 307C of the Corporations Act is set out on the following page.

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

DATED at Perth this 3[rd] day of March 2017.

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Will Robinson Managing Director

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AUDITOR’S INDEPENDENCE DECLARATION

In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the review of Encounter Resources Limited for the half-year ended 31 December 2016, I declare that, to the best of my knowledge and belief, there have been:

• (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and

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

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CROWE HORWATH PERTH

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CYRUS PATELL Partner

Signed at Perth, 3[rd] March 2017

Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees.

Encounter Resources Limited ABN 47 109 815 796

Consolidated Statement of Profit or Loss and Other Comprehensive Income For the half-year ended 31 December 2016

Note	Consolidated 31 December 2016 31 December 2015 $ $
Other income 3 Interest income Total revenue Employee expenses Employee expenses recharged to exploration Equity based remuneration expense Gain/(loss) in fair value of financial assets 10 Depreciation expense 3 Corporate expenses Administration and other expenses Exploration costs written off and expensed 3 Loss before income tax Income tax benefit/(expense) Loss for the half-year Other comprehensive Income Total comprehensive income for the period Loss per share Basic loss per share (cents) Diluted loss per share (cents)	87,299 255,330 22,774 28,396
	110,073 283,726 (700,913) (717,555) 507,990 552,920 (86,709) - 153,745 (953,216) (7,060) (2,752) (46,542) (55,651) (194,269) (200,053) (119,452) (56,012)
	(383,137) (1,148,593) - -
	(383,137) (1,148,593)
	- -
	(383,137) (1,148,593)
	(0.3) (0.8) (0.3) (0.8)

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

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Encounter Resources Limited ABN 47 109 815 796

Consolidated Statement of Financial Position As At 31 December 2016

Note	Consolidated 31 December 2016 30 June 2016 $ $
Current assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets Non-current assets Other financial assets 10 Property, plant and equipment Capitalised mineral exploration and evaluation expenditure Total non-current assets Total assets Current liabilities Trade and other payables 11 Employee benefits Total current liabilities Non-current liabilities Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Accumulated losses Equity remuneration reserve Total equity	2,142,516 3,684,391 171,887 307,282 9,268 9,453
	2,323,671 4,001,126
	922,467 768,723 103,511 133,693 17,470,874 16,156,627
	18,496,852 17,059,043
	20,820,523 21,060,169
	897,011 856,018 113,795 123,688
	1,010,806 979,706
	124,245 118,063
	124,245 118,063
	1,135,051 1,097,769
	19,685,472 19,962,400
	34,421,334 34,401,834 (15,157,675) (14,963,883) 421,813 524,449
	19,685,472 19,962,400

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

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Encounter Resources Limited ABN 47 109 815 796

Consolidated Statement of Changes in Equity For the half-year ended 31 December 2016

		Consolidated
		Issued capital Accumulated losses Equity remuneration reserve Total $ $ $ $
	6 months ended 31 December 2015 Balance at the start of the financial period Comprehensive loss for the financial period Shares issued (net of costs) Transfer to accumulated losses on expiry of options Balance at the end of the financial period	31,471,913 (9,306,923) 649,533 22,814,523 - (1,148,593) - (1,148,593) 2,929,921 - - 2,929,921 - 90,555 (90,555) -
		34,401,834 (10,364,961) 558,978 24,595,851
	6 months ended 31 December 2016
	Balance at the start of the financial period Comprehensive loss for the financial period	34,401,834 (14,963,883) 524,449 19,962,400
		- (383,137) - (383,137)
	Shares issued (net of costs)	19,500 - - 19,500
	Movement in equity remuneration reserve in respect of options vested Transfer to accumulated losses on expiryof options
		- - 86,709 86,709
		- 189,345 (189,345) -
	Balance at the end of the financial period
		34,421,334 (15,157,675) 421,813 19,685,472

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

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Encounter Resources Limited ABN 47 109 815 796

Consolidated Statement of Cash Flows For the half-year ended 31 December 2016

Note	Consolidated 31 December 2016 31 December 2015 $ $
Cash flows from operating activities Interest received State Government funded drilling rebate Research and development tax refund Payments to suppliers and employees Net cash used in operating activities Cash flows from investing activities Contributions received from farm-in partners 9 Payments for exploration and evaluation Payments for plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from the issue of shares Payments for costs associated with issues of shares Net cash used in financing activities Net decrease in cash held Cash at the beginning of the period Cash at the end of the period	22,774 24,107 201,806 226,695 194,218 541,241 (438,160) (370,886)
	(19,362) 421,157
	283,736 2,416,987 (1,802,499) (2,330,376) (2,000) -
	(1,520,763) 86,611
	- 2,954,097 (1,750) (24,176)
	(1,750) 2,929,921
	(1,541,875) 3,437,689 3,684,391 1,372,033
	2,142,516 4,809,722

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

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Encounter Resources Limited ABN 47 109 815 796

Notes to the Interim Financial Statements For the half-year ended 31 December 2016

Note 1 Basis of preparation of half-year report

Statement of compliance

The half-year financial report is a general purpose financial report prepared in accordance with the Corporations Act 2001 and AASB 134 Interim Financial Reporting . Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting . The half-year report does not include notes of the type normally included in an annual financial report and shall be read in conjunction with the most recent annual financial report. The Group is a for profit entity for financial reporting purposes under Australian Accounting Standards.

Basis of preparation

The condensed consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted.

The accounting policies and methods of computation adopted in the preparation of the half-year financial report, are consistent with those adopted and disclosed in the company’s annual financial report for the year ended 30 June 2016.

These accounting policies are consistent with Australian Accounting Standards and with International Financial Reporting Standards.

Adoption of new and revised accounting standards

In the half year ended 31 December 2016, the Group has reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for annual reporting periods beginning on or after 1 July 2016. It has been determined by the Group that, there is no impact, material or otherwise, of the new and revised standards and interpretations on its business and therefore no change is necessary to Group accounting policies.

The Group has also reviewed all new Standards and Interpretations that have been issued but are not yet effective for the half-year ended 31 December 2016. As a result of this review the Directors have determined that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change necessary to Group accounting policies

No retrospective change in accounting policy or material reclassification has occurred requiring the inclusion of a third Statement of Financial Position as at the beginning of the comparative financial period, as required under AASB 101.

The half year financial report was approved by the Board of Directors on 3[rd] March 2017.

Note 2 Segment information

The Group has identified its operating segments based on the internal reports that are reviewed and used by the board of directors in assessing performance and determining the allocation of resources. Reportable segments disclosed are based on aggregating operating segments, where the segments have similar characteristics. The Group’s sole activity is mineral exploration and resource development wholly within Australia, therefore it has aggregated all operating segments into the one reportable segment being mineral exploration.

The reportable segment is represented by the primary statements forming these financial statements.

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Encounter Resources Limited ABN 47 109 815 796

Notes to the Interim Financial Statements For the half-year ended 31 December 2016

Note 3 Loss for the period

Loss before income tax includes the following specific income/(expenses):

Loss before income tax includes the following specific income/(expenses):
	31 December 2016 31 December 2015 $ $
Depreciation Office equipment Other income Farm-in management fees Other income Exploration costs Previously capitalised exploration costs written off Depreciation of field equipment Exploration costs not capitalised Exploration expenditure written off and expensed	(7,060) (2,752)
	87,099 200 255,330 -
	87,299 255,330
	(536) (4,687) (25,122) (32,916) (93,794) (18,409)
	(119,452) (56,012)

Note 4 Dividends

No dividends were paid or proposed during the period.

The Company has no franking credits available as at 31 December 2015 or 31 December 2016.

Note 5 Contingencies

(i) Contingent liabilities

There has been no change in contingent liabilities since the last annual reporting date.

(ii) Contingent assets

There were no material contingent assets as at the reporting dates.

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Encounter Resources Limited ABN 47 109 815 796

Notes to the Interim Financial Statements For the half-year ended 31 December 2016

Note 6 Events occurring after the reporting date

There has not arisen in the interval between the end of the financial period and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company to affect substantially the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years.

Note 7 Issued capital

During the 6 month period to 31 December 2016 the Company issued 250,000 ordinary fully paid shares (Consideration Shares) in part consideration for the acquisition of the East Thomson’s Dome gold prospect in the Paterson Province of Western Australia. This has been included within the balance of capitalised exploration expenditure at the period end.

	Issue price	2016 No. 2015 No. 2016 $ 2015 $
	Share movements during the period Balance at 1 July Share placement $0.14 Share purchase plan (SPP) $0.14 Share placement $0.14 Consideration shares $0.085 Less share issue costs Balance at 31 December	155,644,044 134,543,350 34,401,834 31,471,913 - 10,882,858 - 1,523,600 - 2,617,836 - 366,497 - 7,600,000 - 1,064,000 250,000 - 21,250 - - - (1,750) (24,176) 155,894,044 155,644,044 (34,421,334) 34,401,834

Note 8 Options

During the current period the following movements in options over unissued shares occurred:

	31 December 2016 31 December 2015 No. No.
Options on issue at the start of the financial period Options issued1 Options cancelled on expiry of the exercise period Options cancelled on cessation of employment	12,286,429 7,370,000 2,775,000 5,441,429 (1,450,000) (450,000) (700,000) -
	12,911,429 12,361,429

1 Options issued during the period include the following unlisted options issued to employees:

• 2,025,000 options exercisable at 13 cents each expiring 24 November 2020; and

• 750,000 options exercisable at 17.5 cents each expiring 24 November 2021.

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Encounter Resources Limited ABN 47 109 815 796

Notes to the Interim Financial Statements For the half-year ended 31 December 2016

Note 9 Farm-in arrangements

– Millennium Zinc Project Hampton Hill NL (HHM)

Details of the Millennium Zinc Project farm-in arrangement are included in the 2016 Annual Financial Statements. As at the date of this report HHM had acquired a 10% interest in the Millennium project pursuant to the Initial Earn-in Phase, and had elected to proceed with the Second Earn-in Phase.

During the reporting period the Group received cash of $283,736 (2015: $766,359) in respect of contributions from HHM pursuant to the farm-in agreement.

During the period the Group incurred, on behalf of its farm-in partner HHM, exploration expenses of $332,203 (2015: $485,388).

- Terminated farm in arrangements

During the period the following farm-in arrangements with third parties were terminated.

Lookout Rocks Farm-in – Antofagasta Minerals Perth Pty Ltd (Antofagasta earning-in)

The farm-in and joint venture arrangement with Antofagasta Minerals Perth Pty Ltd was terminated in September 2016. Upon termination of the arrangement Encounter Operations retained a 100% unencumbered interest in the project area, comprising exploration licences E45/3768, E45/4091, E45/4230 and E45/4408.

Note 10 Other financial assets

Movement in investments designated at fair value through profit or loss

	31 December 2016 31 December 2015 $ $
Investment in Hampton Hill Mining NL: Fair value of investment at the start of the period Movement in fair value on investment Fair value of investment at the end of the period	768,723 1,568,194 153,744 (953,216)
	922,467 614,978

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Encounter Resources Limited ABN 47 109 815 796

Notes to the Interim Financial Statements For the half-year ended 31 December 2016

Note 11 Trade and other payables

Note 11 Trade and other payables
	31 December 2016 30 June 2016 $ $
Trade and other payables Unspent farm-in contributions1	897,011 751,171 - 104,847
	897,011 856,018

Included in trade and other payables as at 31 December 2016 is $Nil (30 June 2016: $104,847) in respect of unspent farm-in contributions. See Note 9 for details of the Group’s farm-in arrangements.

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Encounter Resources Limited ABN 47 109 815 796

Directors’ Declaration

The Directors of Encounter Resources Limited (“the Consolidated Entity”) declare that:

• (a) the interim financial statements and notes set out on pages 6 to 14 are in accordance with the Corporations Act 2001, including:

• (i) complying with Australian Accounting Standard AASB 134 – Interim Financial Reporting , and the Corporations Regulations 2001; and

• (ii) give a true and fair view of the financial position as at 31 December 2016 and of the performance for the half-year ended on that date of the Consolidated Entity.

• (b) there are reasonable grounds to believe that the Consolidated Entity 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 Directors.

Signed at Perth this 3[rd] day of March 2017.

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Will Robinson Managing Director

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INDEPENDENT AUDITOR’S REVIEW REPORT TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED

Report on the Half-Year Financial Report

We have reviewed the accompanying half-year financial report of Encounter Resources Ltd and its controlled entity (the consolidated entity) which comprises the consolidated statement of financial position as at 31 December 2016, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity, the consolidated statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration.

Directors’ Responsibility for the Financial Report

The directors of Encounter Resources Ltd 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 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 , 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 Encounter Resources Ltd and its controlled entity financial position as at 31 December 2016 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 Encounter Resources Ltd and its controlled entity, 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 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 .

Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees.

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 Encounter Resources Ltd and its controlled entity is not 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 2016 and of its performance for the half-year ended on that date; and

• (ii) complying with AASB 134: Interim Financial Reporting and the Corporations Regulations 2001.

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CROWE HORWATH PERTH

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CYRUS PATELL

Partner

Signed at Perth, 3[rd] March 2017

Crowe Horwath Perth is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees.