MAGONTEC LIMITED — Interim / Quarterly Report 2021

Aug 25, 2021

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Magontec Limited

ACN 010 441 666

Half Year Report 2021

Corporate Information and Glossary

1. CORPORATE INFORMATION

The consolidated financial statements of Magontec Limited and its controlled subsidiaries as listed in Note 4.1 herein (collectively, the Group) for the 6 months to 30 June 2021 were authorised for issue in accordance with a resolution of the directors on 25 August 2021. Magontec Limited is a company limited by shares incorporated in Australia. The shares are publicly traded on the Australian Securities Exchange under the code “MGL”.

2. GLOSSARY OF TERMS REFERRED TO IN THIS REPORT

Formal Name of Entity	Description of Entity		Referred to as
Head office entities Magontec Limited	The ultimate parent/holding company of the Group.		Parent Company or MGL
Advanced Magnesium Technologies Pty Limited	Administrative operating entity		AMT
Varomet Holdings Limited Operating entities Magontec GmbH	The holding company that owns the Group’s operating businesses at Bottrop (Germany), Xi’an (PRC) and Suzhou (PRC). In turn, Magontec Limited owns all of the ordinary shares issued by Varomet Holdings Limited. The wholly owned entity that owns the Group's operations in Bottrop, Germany.		VHL MAB
Magontec SRL	The wholly owned entity that owns the Group's operations in Santana, Romania.		MAR
Magontec Xi'an Co. Ltd.	The wholly owned entity that owns the Group's operations in Xi'an, PRC.		MAX
Magontec Qinghai Co. Ltd.	The wholly owned entity that owns the Group's operations in Qinghai, PRC.		MAQ
Magontec US LLC	The wholly owned entity that acts as the Group's distributor located in the United States.		MAU
Entities where operations have ceased Magontec Suzhou Co. Ltd. The wholly owned entity that owns the Group’s operations in Suzhou, PRC.			MAS
Major related shareholders and other terms
Qinghai Salt Lake Magnesium Co.	A subsidiary of Qinghai Huixin Asset Management (QHAM), a Chinese state		QSLM
Limited	owned enterprise and a shareholder in MGL to the extent of 28.72% at the
	date of this report. Previously owned by the Qinghai Salt Lake Industry Co.
	Limited (a company listed on the Shenzhen Stock Exchange).
Straits Mine Management Pty	The company from which MGL acquired the Magontec group of companies		SMM
Limited	on 4 July 2011. SMM, a subsidiary of Aeris Resources Limited is a 12.94%
	substantial shareholder of MGL at the date of this report. Mr Andre
	Labuschagne, a director of Magontec Limited is the Executive Chairman
	of Aeris Resources Limited.
KWE (HK) Investment Development	Shareholder in Magontec Limited. Mr Zhong Jun Li, a director of Magontec		KWE (HK)
Co. Ltd.	Limited is also a director and shareholder of KWE(HK) Investment
	Development Co Ltd.
People’s Republic of China			PRC

3. ROUNDING ERRORS

The tables in this report may indicate apparent errors to the extent of one unit (being $1,000) in the addition of items comprising total and sub totals and the comparative balances of items from the financial accounts. Such differences arise from the process of converting foreign currency amounts to two decimal places in AUD and subsequent rounding of the AUD amounts to one thousand dollars.

Financial Highlights

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1H21 1H20
Gross Profit $7.70m $5.92m
Gross Margin (%) 15.1% 12.9%
Reported Net Profit/(Loss) After Tax $1.13m ($0.15m)
Underlying NPAT $0.684m ($0.04m)
Underlying Operating Cashflow $2.66m $2.35m
Net Debt to Net Debt + Equity 24.8% 27.9%
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• Underlying NPAT is defined as Reported Net Profit After Tax excluding unrealised foreign exchange gains and losses ** Underlying Operating Cash Flow is defined as Cashflow From Operations excluding working capital movements, interest and tax payments

Contents

Financial Highlights 1 Reporting Highlights 2 Financial Summary 3 Summary & Outlook 5 Operations Report 7 Directors’ Report 13 Auditor’s Independence Declaration 14 Independent Auditor’s Review Report 15 Directors’ Declaration 17 Consolidated Comprehensive Income Statement 18 Consolidated Balance Sheet 19 Consolidated Statement of Changes In Equity 20 Consolidated Cash Flow Statement 21 Notes to the Condensed Financial Statements 22

1

Magontec Half Year Report 2021

Reporting Highlights

FINANCIAL

• Strong rebound from 1H 2020 COVID effect

• Cash from underlying operations up 13.0% to $2.66 million

• Reported Interim Net Profit After Tax of $684,000, excluding unrealised FX gain of $446,000

• Interim Gross Profit +30% to $7.70 million

• Interim Revenue +11% to $51 million

• Net Debt down to $10.2 million from $12.2 million in 1H 2020

CORPORATE

• Share consolidation in the ratio of 15 for 1 approved by EGM on 6 August 2021 and normal T+2 trading on the new basis commencing on Thursday 26 August 2021

MAGNESIUM ALLOYS AND SPECIALIST METALS

• Primary and recycled magnesium alloy volumes up 27% on PCP

• Qinghai Magnesium Alloy Cast House continues to operate at lower levels

• EBITDA loss at Qinghai down 58% to -$143,000 for the 6 months to 30 June 2021

• QSLM indicate that supply from Qinghai electrolytic smelter may recommence in 1Q 2022

• Specialist metals volumes slightly down on PCP

HEALTH, SAFETY & ENVIRONMENT

• There were no accidents at any Magontec factory in the 6 months to 30 June 2021

ANODES (CATHODIC CORROSION PROTECTION – CCP)

• CCP division Gross Profit +58% on previous corresponding period (PCP) driven by rising volumes in Europe and USA.

• Mg anode volumes up 13% on PCP and +76% over the 5 years since 1H17

Financial Summary

for the 6 months ended 30 June 2021

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RECONCILIATION OF SIGNIFICANT ITEMS IN EARNINGS
6 months to 6 months to
30 June 2021 30 June 2020
$’000 $’000
Net Profit Before Tax and Significant Items 2,238 (49)
Significant items Before tax
-
Less non-cash equity (expense)/writeback (150)
Less MAQ depreciation (non cash) (442) (520)
Less MAQ Primary Magnesium Alloy EBITDA losses (143) (342)
Add writeback on Romanian VAT input credits 226 -
Add COVID related government subsidies - 362
Add COVID related salary and director fee reductions (EU & HO) - 552
Net Profit Before Tax 1,730 4
Less tax expense (600) (153)
Reported Net Profit After Tax 1,130 (149)
(Less)/Add unrealised FX (gains)/losses (446) 105
Net Profit After Tax excluding unrealised FX (underlying NPAT) 684 (44)
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In the 6 months to 30 June 2021, the Group reported a Net Profit After Tax of $1.13 million (30 June 2020: loss of $149,000). After excluding unrealised FX gains of $446,000, underlying NPAT* was $684,000 - a significant improvement on the prior corresponding period (PCP).

The Group recorded a Gross Profit of $7.7 million, an increase of 30% over the PCP, which was impacted by COVID shutdowns. The CCP businesses across both Europe and China performed strongly, with ongoing production efficiency gains underpinning the result.

The table above details the significant items contained in both the current half and the prior corresponding period. The current half included ongoing losses at the Magontec Qinghai Primary Magnesium Alloy operations including $442,000 of non cash depreciation.

GROSS MARGIN (%)

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15.1
12.9 12.8
11.8
11.1 11.5
8.1
1H18 2H18 1H19 2H19 1H20 2H20 1H21
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• Underlying NPAT is defined as Net Profit After Tax excluding unrealised FX gains and losses.

3

Magontec Half Year Report 2021

Financial Summary

continued

This was offset by a $226,000 gain recognised in other income arising from the finalisation of a VAT input credit dispute with the Romanian tax office decided in the Group’s favour and previously provided for. The Group’s tax rate remains high as Australian head office expenses are not applied against taxable income generated in other jurisdictions.

CASHFLOW AND BALANCE SHEET

The half to 30 June 2021 saw underlying operating cash of $2.7 million, 13.0% above the PCP driven by the improved operating result in the half. The chart below shows the application of this amount, with $1.4 million of excess free cashflow* generated during the half (or $2.0 million excluding working capital investment of $0.6 million).

FREE CASHFLOW EXCLUDING WORKING CAPITAL MOVEMENTS (A$ MILLION)*

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2.5
2.1
2.0
2.0
1.5
1.5
1.0 1.0
1.0
0.5
0.0
-0.5
(0.7)
-1.0
(1.1)
-1.5
1H18 2H18 1H19 2H19 1H20 2H20 1H21
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0.4m
0.2m
USES OF
UNDERLYING
OPERATIONAL
1.4m
CASH - $2.7M
0.6m
Interest and tax payments
Capital expenditure
Investment in Working capital
Excess free cashflow
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NET DEBT (A$ MILLION)

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15.3
16
12.2
11.7
12
10.2
9.5
9.1
8
5.2
4
0
1H18 2H18 1H19 2H19 1H20 2H20 1H21
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Net debt fell to $10.2 million with lower inventory in the European metals business leading to reduced bank borrowings as at 30 June 2021.

BANKING FACILITIES

Subsequent to balance date, the Group’s facility in China with Zheshang Bank of RMB 20 million was renewed for a further year at an increased limit of RMB 25 million. In addition, the ING facility in Romania (RON 14 million) has been replaced by a new facility from UniCredit SA on improved terms with an increased credit limit of RON 15 million.

** Underlying Operating Cashflow is defined as Operating Cashflow excluding working capital movements, interest and income tax paid. *** Free cashflow is defined as Underlying Operating Cashflow less interest paid, income tax paid and capital expenditure.

4

Magontec Half Year Report 2021

Summary & Outlook

In the first half of 2021 Magontec’s overall business rebounded strongly from the pandemic effects of the prior corresponding period (PCP).

The financial report details the changing shape of Magontec’s underlying business with a reduced emphasis on high volume lower margin activities, lower working capital and debt requirements, and a strong rise in Net Profit After Tax (excluding unrealised foreign exchange effects), up from -$44,000 in 1H 2020 to $684,000 in the period under review. Underlying Operating Cashflow* rose to $2.7 million for the six months to 30 June 2021, up 13.0% on PCP.

In another COVID affected period costs have remained low as management continues to take a cautious approach. Global markets for Magontec’s Cathodic Corrosion Protection (CCP) products appear steady but the automotive industry, the principal customer for primary and recycled magnesium alloys, has many challenges and magnesium raw material pricing has been volatile. Logistics costs and currencies have also been difficult to predict and present challenges for a business that delivers materials from its European and Chinese factories to customers all over the world.

As has been the case for the last 2 years, Magontec’s primary magnesium alloy plant in Qinghai province PRC is operating at reduced levels of output. A detailed comment on the Qinghai project is included in this report.

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REVENUES AND GROSS PROFIT MARGIN (%)
(A$ MILLION)
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100 15%
80
65 67
10%
60
51
46
40
5%
20
0 0%
1H18 1H19 1H20 1H21
Revenues (LHS) Gross Profit Margin (%) (RHS)
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GROSS PROFIT BY DIVISION (A$ MILLION)

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CCP Metals
1H21
1H20
1H19
1H18
$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00
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• Underlying Operating Cashflow is defined as Operating Cashflow excluding working capital movements, interest and income tax paid.

5

Magontec Half Year Report 2021

Summary & Outlook

continued

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The overall Gross Profit margin, driven in large part by the CCP business, rose to 15.1% in the 6 months to 30 June 2021. Interim group revenues were also above the PCP, but below prior years reflecting lower magnesium alloy volumes.

In addition to growth in higher margin CCP products, the change in the tilt of business reflects the changing complexion of the metals business over the last 2 years as production has moved away from lower margin volume magnesium alloys and towards higher margin specialist metals products.

Our expectation is that magnesium alloy volumes will recover for both the European recycling businesses and at Magontec’s Qinghai primary magnesium alloy cast house when supply recommences from our partner company, Qinghai Salt Lake Magnesium (QSLM). Magontec

Qinghai’s primary magnesium alloy facility will offer the greenest magnesium product into a world that is grappling with rapidly escalating environmental challenges, including changing investor and consumer expectations.

The company has been building towards a greater emphasis on CCP for some years as investment in production capacity and development of new markets has made Magontec a global leader in this sector.

CCP volumes have risen 76% over the last 5 years and continued investment over the coming years is expected to lead to further growth in volume output and profitability.

In the metals business, profitability is below 2020 levels, largely due to the stasis at Qinghai. While the supply of liquid pure magnesium to Magontec’s adjacent magnesium alloy cast house is stalled, our global magnesium alloys business will continue to suffer. We remain of the view that this is a temporary circumstance and expect to rebuild our position in global magnesium markets as supply of raw material from QSLM allows.

The EBITDA cost of operating the Magontec Qinghai magnesium alloy cast house in the first six months of 2021 was down 58% to -$143,000. Depreciation costs at Qinghai in the same period were $442,000.

Over the last 12 months the Board and management at Magontec have taken a number of steps to improve the presentation of the company to the investment community. In August 2020 a small parcel shareholder buyback provided an exit for 11,330 legacy shareholders holding unmarketable parcels. In August 2021 the Company moved to consolidate the share price on the basis of 15 old shares for 1 new share. It is anticipated this will also help to reduce the volatility of the share price.

6

Magontec Half Year Report 2021

Operations Report

Cathodic Corrosion Protection (CCP – magnesium and electronic anodes)

Magontec continues to build market share and profitability in global CCP markets.

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76% GROWTH OVER LAST 5 YEARS GLOBAL Mg ANODE SALES VOLUMES (METRIC TONNES)

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First Half Second Half
2021 +13% on pcp
2020
2019
2018
2017
0 500 1,000 1,500 2,000 2,500 3,000 3,500
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Volumes of all types of CCP product manufactured in Europe and China are sold into markets across the world to hot water appliance manufacturers. This is an industry that has been exceptionally stable throughout the pandemic.

In the six months to 30 June 2021 Magontec global sales volumes of magnesium (Mg) anodes rose 13% compared with PCP. In past periods Magontec’s Chinese factory has been the main driver for volume growth. In the first half of 2021 the European Mg anodes business also recorded a strong improvement in sales and profitability.

Over the last five years at both the Romanian and Xi’an Mg anode factories we have invested heavily in automation and output capacity.

7

Magontec Half Year Report 2021

Operations ReportMetals Businesses

continued

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GLOBAL CCP REVENUES AND GROSS PROFIT
(A$M)
25 7
6
20
5
15
4
3
10
2
5
1
0 0
1H18 1H19 1H20 1H21
Revenues (LHS) Gross Profit (RHS)
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This growth in Chinese CCP is driven by maintaining a highly competitive position in the Chinese domestic market as well as by entering new markets in other countries.

This has maintained and improved Magontec’s competitiveness in a sector where volume throughput is a critical metric. The cost of converting metal into saleable product continues to fall, driven by global Mg anode volumes up 76% over the last 5 years.

Magontec Xi’an is becoming a growing supplier to US hot water appliance manufacturers. It also continues to pick up new business in other regions as the world’s largest hot water manufacturers move into new markets and consolidate the global industry.

In the period under review Magontec’s consistent investment process has been particularly rewarded. Global Interim 2021 CCP revenues (including electronic anodes) were up 18% to $18.7 million while Gross Profit rose 58% to $5.7 million.

North American and European markets have also been very positive for Magontec’s proprietary electronic anodes business. Magontec is a market leader in the development and application of electronic CCP devices.

In 2021 we are continuing to invest in new production technologies at both facilities ensuring that these businesses can continue to compete in all markets. At the Xi’an factory, which sold just 1,103 tonnes in 2017, we are targeting rated output capacity in excess of 4,500 tonnes per annum by the end of 2022.

This technology is increasingly adopted in developed markets as consumers shift to more sophisticated and energy efficient heat pump devices to power hot water and home heating appliances. In many countries, particularly among developed nations, governments are introducing water heater appliance replacement incentives that subsidise the adoption of environmentally progressive technologies to help meet climate abatement targets. A large proportion of these new appliances will contain a Magontec electronic CCP device.

The second half of the year (July to December) is generally the stronger period for CCP sales volumes. As the northern hemisphere nations move into the winter months, purchases and replacement activity picks up (the replacement market for hot water appliances is about 80% of the total). While that augurs well for volume output, profitability may be impacted by raw material pricing. The principal raw material, magnesium alloy, has experienced considerable price volatility in the first half of 2021. While contract pricing is generally linked to movements in underlying raw material pricing, the effects of price changes can be delayed by one or two quarters. Broadly speaking Magontec selling prices have been the beneficiary of an improving raw material price trend in the first half of 2021.

8

Magontec Half Year Report 2021

continued

Operations ReportMetals Businesses

Metals (Primary and recycled Mg alloys and specialist metals)

Primary and recycled magnesium alloy sales volumes were 27% above the first half of 2020, principally reflecting a recovery from COVID impacts, however the Gross Profit contribution from this business has fallen 14% to $2.0m.

GLOBAL MG ALLOY AND SPECIALIST METAL SALES VOLUMES (MT)

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First Half Second Half
2021 +27% on pcp
QSLM suspends liquid
2020 pure Mg supply
2019
2018
2017
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000
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In addition to the product mix, profitability for the global metals business continues to be impacted by a number of adverse influences. These include lower overall automotive industry volumes, the loss of important contracts at Magontec’s two European recycling plants for the half under review, lower specialist metals sales and the continuing absence of supply of liquid pure magnesium to the Qinghai facility.

As we discuss below, production at Magontec’s Qinghai magnesium alloy cast house is dependent on QSLM, owner of the adjacent 100,000 metric tonne per annum magnesium electrolytic plant, resolving their internal financial and structural issues and resuming supply. It appears that they are moving slowly to this position. QSLM have indicated that supply will resume in the first quarter of 2022. In that event we would expect Magontec’s Chinese primary magnesium alloy volumes and profitability to rise sharply.

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GLOBAL METAL REVENUE AND GROSS PROFIT
($AM)
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60 4
50
3
40
30 2
20
1
10
0 0
1H18 1H19 1H20 1H21
Revenues (LHS) Gross Profit (RHS)
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9

Magontec Half Year Report 2021

Operations ReportMetals Businesses

continued

MAGNESIUM, ALUMINIUM AND FERRO SILICON BASED TO 100 ON 13 JULY 2020

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170.00
Al Ingot 99.7% Ch RMB
150.00 FeSi 75% Ch RMB/mt Base 100
Mg 99.9% Ch RMB Base 100
130.00
110.00
90.00
13-Jul-2013-Aug-2013-Sep-2013-Oct-2013-Nov-2013-Dec-2013-Jan-2113-Feb-2113-Mar-2113-Apr-2113-May-2113-Jun-2113-Jul-21
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The price of pure magnesium rose 25% in the first 6 months of 2021 with much volatility in between. Some of this exuberance can be explained by a sharp increase in the price of ferro silicon, a key cost component for Pidgeon process magnesium but also for steel production, which rose strongly across China in the first half of 2021.

We maintain a positive attitude to the Qinghai project. In March the magnesium project received attention at the National Party Conference where President Xi “encouraged Qinghai to intensify efforts to build a world-class Salt Lake industrial base and foster an economic system featuring green, low-carbon and circular development”. Evidently, the Qinghai project is a central pillar in China’s plan to reduce emissions from a heavily polluting sector in which they are the world’s dominant producer.

Other factors are also at play: Coal, which powers all Pidgeon process magnesium production, has experienced a price rise of 116% since its 2020 lows. At the same time Chinese pure magnesium producers have sought to coordinate output volumes and prices, with varying levels of success.

In Europe 1H21 sales volumes were ahead of forecasts and ahead of the PCP, however both plants continue to operate at less-than-optimal levels. More impactful on 1H21 metals profitability was the decline in specialist metals sales volumes compared with PCP. This is a new business that has gained a foothold in the US over the last 2 years and is expected to grow in the coming years into European and other markets.

In this complex environment Magontec’s European based magnesium alloy recycling businesses have fared better than forecast in the six months under review. The cancellation or delay of supply to European automotive parts manufacturers by contracted parties has diverted demand to recycling facilities able to supply at short notice. Overall Magontec has supplied nearly 50% higher volumes than anticipated from its Romanian and German recycling plants in 1H21.

Magnesium metals markets have also been impacted by price volatility in the first period of 2021. While demand for magnesium alloys, principally from the automotive industry, has been weak, supply side activity has sent confused signals.

As Europe’s largest and most efficient magnesium alloy recycler our European management have been able to process demand as it arose on a spot basis.

The outlook for the second half is a little clouded, largely because of the cascading and unpredictable effects of broader industrial issues that impact production of the key magnesium alloy customer industry, the automotive sector.

Automotive manufacturers are already facing myriad challenges as they shift from internal combustion to electric power units. These issues are compounded by a shortage of computer chips and extraordinary rises in freight rates.

At the outset of the pandemic, chip manufacturers shifted production away from automotive to the burgeoning and higher margin consumer electronics sector. As automotive demand rebounded access to chips remained constrained as chip manufacturers continued to produce for the more rewarding electronics customers. Automotive plants in Europe are increasingly on short-time or downtime and that is likely to continue through the rest of 2021, possibly reducing recycling volumes available to Magontec.

Changes in freight rates are another extraordinary pandemic effect. Prices on the China-Europe route are up 150% in 2021 year-to-date and twice that since the pandemic began. Magontec currently ships low volumes between China and Europe, so the direct effect is small. However, our recycling factories in Europe rely on primary magnesium alloy supplies to European automotive and power tool OEMs and Tier 1 manufacturers and a prolonged reduction in material flow ex-China may reduce the volume of scrap raw material supply.

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10

Magontec Half Year Report 2021

Operations Report

continued

Magontec Qinghai

Magontec’s

magnesium alloy cast house at Golmud in Qinghai province PRC sold 3,376 metric tonnes in 1H21, up 51% on PCP, a number that reflects last year’s pandemic effects, which severely reduced volumes at the factory from March to June 2020.

Higher sales from this facility also generated a recovery in Gross Profit contribution, albeit lower than the first quarter of 2019 when Magontec last received supply of liquid pure magnesium from QSLM. Over the last 6 months, and in all likelihood for the period to 31 December 2021, the Magontec Qinghai cast house will continue to source all its raw material from distant pure magnesium plants and not from the adjacent Qinghai Magnesium Salt Lake Co Ltd (QSLM) electrolytic magnesium smelter as planned.

Under the current raw material sourcing conditions, it is not possible for the cast house to make a positive contribution to group EBITDA. For the first six months of 2021 the Magontec

Qinghai cast house generated an EBITDA loss of $143,000 and the group recorded $442,000 in depreciation against this asset.

Following the financial collapse of its previous owner, Qinghai Salt Lake Industries Co Ltd, the magnesium project at Qinghai has been idle. The new owner of QSLM, Qinghai Huixin Asset Management Co Ltd (QHAM) informed Magontec by letter on 20 July 2021 that an engineering company had been appointed to carry out remediation of the key dehydration plant. Preparatory work has commenced and QSLM currently anticipate remediation of one of six dehydration lines to be completed by 31 December 2021 and commissioned in the first quarter of 2022.

As frustrating as these delays are for Magontec shareholders, the potential of this project remains compelling. As noted above, management remain confident of the project’s ultimate delivery. However, as we are unable to visit Qinghai and QSLM management at this time, the final restart date, the future operating conditions and full realisation of the project remain unclear.

Magontec has a 20-year offtake agreement with QSLM to receive up to 56,000 metric tonnes per annum of liquid pure magnesium into its Qinghai cast house. Magontec built the cast house through 2016 and 2017 and commissioned it in 2018. The facility currently operates on external sources of raw material with output limited to

around 500-600 metric tonnes per month. On the re-commencement of 1 dehydration line, we might expect this to rise to 1,000 mt per month. At full capacity the QSLM smelter is expected to be able to supply Magontec’s magnesium alloy cast house with 4,600mt per month with a further 3,600mt per month going to QSLM’s own pure magnesium cast house.

QSLM’s Qinghai facility is the most environmentally advanced magnesium smelter in the world. Magnesium production in other Chinese provinces currently supplies 80% of the world’s pure magnesium demand. This industry is entirely based on the highly polluting Pidgeon process technology that generates, according to the DLR[1] , more than 20 tonnes of CO2 per tonne of magnesium produced. The DLR survey estimated that QSLM’s facility will emit just 7 tonnes of CO2 per tonne of magnesium production.

Magnesium produced at Qinghai will be a popular and profitable alternative to the current magnesium offerings and the returns from Magontec’s Qinghai investment, at full production, are forecast to be greater than the contributions from all the other current Magontec businesses combined.

While the Board regularly considers Magontec’s investment in the Qinghai cast house, it remains committed to the project.

• 1 2020 Life Cycle Analysis (LCA) report from the German Institute of Transport and Aerospace (DLR).

11

Magontec Half Year Report 2021

Financial Report

Contents

Directors’ Report 13 Auditor’s Independence Declaration 14 Independent Auditor’s Review Report 15 Directors’ Declaration 17 Consolidated Comprehensive Income Statement 18 Consolidated Balance Sheet 19 Consolidated Statement of Changes In Equity 20 Consolidated Cash Flow Statement 21 Notes to the Condensed Financial Statements 22

12

Magontec Half Year Report 2021

Directors’ Report

The Directors of Magontec Limited (‘the Company’ or ‘MGL’) submit herewith the financial report for the half-year ended 30 June 2021. In order to comply with the provisions of the Corporations Act 2001 , the Directors report as follows. The names of the Directors of the Company during or since the end of the half-year are:

• Mr Nicholas Andrews (Executive Chairman)

• Mr Kang Min Xie (Non-Executive Director)

• Mr Shun Li (Alternate Director to Mr Kang Min Xie)

• Mr Zhong Jun Li (Non-Executive Director)

• Mr Atul Malhotra (Independent Director)

• Mr Robert Kaye (Independent Director)

• Mr Andre Labuschagne (Non-Executive Director)

Re-appointed 25 May 2021 Appointed 25 October 2017 Re-appointed 25 May 2021 Appointed 10 May 2019 Re-appointed 29 July 2020 Re-appointed 10 May 2019

Review of Operations

For the six months ended 30 June 2021 the consolidated profit after tax from continuing operations was - $1,129,954 For the six months ended 30 June 2020 the consolidated (loss) after tax from continuing operations was - ($149,233)

Corporate

The 38th annual general meeting of the Company was held on 25 May 2021.

As at the date of this report, the composition of the committees of the Board are as follows.

Remuneration and Nominations Committee

• Chairman: Robert Kaye (Independent Director)

• Atul Malhotra (Independent Director)

• Li Zhongjun (Non-Executive Director)

Finance, Audit & Compliance Committee

• Chairman: Atul Malhotra (Independent Director)

• Xie Kangmin (Non-Executive Director)

• Andre Labuschagne (Non-Executive Director)

Business Risk Committee

• Chairman: Nicholas Andrews (Executive Director)

• Atul Malhotra (Independent Director)

• Andre Labuschagne (Non-Executive Director)

Auditor’s Independence Declaration

A copy of the Auditor’s Independence Declaration as required by S307C of the Corporations Act 2001 is set out on page 14.

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

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Nicholas Andrews Executive Chairman

25 August 2021

13

Magontec Half Year Report 2021

Auditor’s Independence Declaration

AUDITOR’S INDEPENDENCE DECLARATION

The Board of Directors Magontec Limited Suite 1.03, 46A Macleay St Potts Point NSW 2011 Dear Board Members,

In accordance with the requirements of section 307C of the Corporations Act 2001, we hereby declare, that to the best of our knowledge and belief, during the half-year ended 30 June 2021 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.

Camphin Boston Chartered Accountants Justin Woods Lead Audit Partner Sydney

Dated this 26[th] day of August 2021

14

Magontec Half Year Report 2021

Independent Auditor’s Review Report

to the members of Magontec Limited

INDEPENDENT AUDITOR’S REVIEW REPORT TO THE MEMBERS OF MAGONTEC LIMITED

Report on the Half-Year Financial Report

Auditor’s Conclusion

We have reviewed the accompanying half-year financial report of Magontec Limited and Controlled Entities, which compromises the consolidated balance sheet as at 30 June 2021, consolidated comprehensive income statement, statement of changes in equity and cash flow statement for the half-year ended on that date, a statement of accounting policies, other selected explanatory notes and the directors’ declaration.

Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the accompanying half-year financial report of Magontec Limited and Controlled Entities has not been prepared, in all material respects, in accordance with the Corporations Act 2001 including:

• (a) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2021 and of its performance for the half-year ended on that date; and

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

Basis for Conclusion

We conducted our review in accordance with ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity . Our responsibilities are further described in the Auditor’s Responsibilities for the Review of the Financial Report section of our report.

We have complied with the independence requirements of the Corporations Act 2001 . In accordance with the Corporations Act 2001 , we have given the directors of Magontec Limited a written Auditor’s Independence Declaration. Responsibilities of the Directors for the Financial Report

The Directors of the Company are responsible for the preparation of the half-year financial report in accordance with the 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 for the Review of the Financial Report

Our responsibility is to express a conclusion on the financial report based on our review. ASRE 2410 requires us to conclude whether we have become aware of any matter that causes us to believe that the financial report has not been prepared, in all material respects, in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity’s financial position as at 30 June 2021 and its performance for the half-year ended on that date; and complying with Australian Accounting Standard AASB134 Interim Financial Reporting and the Corporations Regulations 2001 . As the auditor of Magontec Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

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Magontec Half Year Report 2021

Independent Auditor’s Review Report

continued

A review of a 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.

Justin Woods Partner

Camphin Boston Chartered Accountants Sydney NSW 2000 26 August 2021

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Magontec Half Year Report 2021

Directors’ Declaration

The Directors declare that:

• a) in the Directors’ opinion, there are reasonable grounds to believe that there is no intention or necessity to close the current operations or cease trading within twelve months from the date of this report;

• b) 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; and

• c) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001 , including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity

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

On behalf of the Directors

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Nicholas Andrews Executive Chairman Sydney

25 August 2021

17

Magontec Half Year Report 2021

Consolidated Comprehensive Income Statement

for the half-year ended 30 June 2021

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6 months to 6 months to
30 Jun 2021 30 Jun 2020
Note $’000 $’000
Sale of goods 3, 4.3 50,863 45,982
Cost of sales 3, 4.3 (43,161) (40,061)
Gross profit 7,702 5,920
Other income 10 447 738
Interest expense (250) (324)
Impairment of inventory, receivables & other financial assets – 1
Travel accommodation and meals (71) (184)
Research, development, licensing and patent costs (235) (219)
Promotional activity (9) (63)
Information technology (212) (155)
Personnel (3,684) (3,789)
Depreciation & amortisation (321) (381)
Office expenses (280) (215)
Corporate (1,499) (1,285)
Foreign exchange gain/(loss) 142 (41)
Profit/(Loss) before income tax expense/benefit from continuing operations 1,730 4
Income tax (expense)/benefit (600) (153)
Profit/(Loss) after income tax expense/benefit from continuing operations 1,130 (149)
Other Comprehensive Income
Exchange differences taken to reserves in equity – translation of overseas
entities 495 165
Movement in various actuarial assessments 375 229
Total Comprehensive Income 2,000 244
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6 months to 6 months to
Note 30 Jun 2021 30 Jun 2020
Earnings/(Loss) per share from continuing operations
Basic (cents per share) 9 0.098 cents (0.013) cents
Diluted (cents per share) 9 0.092 cents (0.012) cents
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Notes to the financial statements are included on pages 22 to 30.

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Magontec Half Year Report 2021

Consolidated Balance Sheet

as at 30 June 2021

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30 Jun 2021 31 Dec 2020
Note $’000 $’000
Current assets
Cash and cash equivalents 7 2,359 4,958
Trade & other receivables 11.1 24,550 22,369
Inventory 19,645 21,690
Other 1,394 198
Total current assets 47,948 49,215
Non-current assets
Other receivables 300 367
Property, plant & equipment 18,496 19,069
Deferred tax asset 2,684 2,933
Intangibles 3,344 3,445
Total non-current assets 24,824 25,813
TOTAL ASSETS 72,772 75,028
Current liabilities
Trade & other payables 11.2 12,392 12,539
Bank borrowings 13 9,664 10,460
Provisions 2,044 1,700
Total current liabilities 24,100 24,699
Non-current liabilities
Other payables 320 286
Bank borrowings 13 2,927 6,179
Provisions 14,382 14,970
Total non-current liabilities 17,629 21,436
TOTAL LIABILITIES 41,730 46,134
NET ASSETS 31,042 28,893
Equity attributable to members of MGL
Share capital 6 58,918 58,918
Reserves 12 3,799 2,780
Accumulated (losses)/profits (31,674) (32,804)
Total equity 31,042 28,893
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Notes to the financial statements are included on pages 22 to 30.

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Magontec Half Year Report 2021

Consolidated Statement of Changes In Equity

for the half-year ended 30 June 2021

	Share Capital Retained Earnings $’000 FCTR(1) $’000 Capital Reserve $’000 Actuarial Reserve $’000 Expired Options Reserve $’000 Share Issue Reserve $’000 Total Equity $’000 Ordinary $’000 Options Valuation $’000
Balance 1-Jan-21 Profit/(Loss) attributable to members of parent entity Comprehensive income Share issue reserve	58,918 – (32,804) 2,563 2,750 (4,306) 1,637 136 28,893
	– – 1,130 – – – – – 1,130
	– – – 495 – 375 – – 870
	– – – – – – – 150 150
Balance 30-Jun-21	58,918 – (31,674) 3,058 2,750 (3,931) 1,637 285 31,042
for the Half-Year Ended 30 June 2020 Balance 1-Jan-20 58,907 – (32,088) 3,251 2,750 (3,672) 1,637 254 31,039 Profit/(Loss) attributable to members of parent entity – – (149) – – – – – (149) Comprehensive income – – – 165 – 229 – – 393 Share issue reserve 260 – – – – – – – 260
Balance 30-Jun-20 59,167 – (32,237) 3,416 2,750 (3,444) 1,637 254 31,543

(1) FCTR = Foreign Currency Translation Reserve

Notes to the financial statements are included on pages 22 to 30.

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Magontec Half Year Report 2021

Consolidated Cash Flow Statement

for the year ended 30 June 2021

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6 months to 6 months to
30 Jun 21 30 Jun 20
$’000 $’000
Cash flows from operating activities
Profit before taxation 1,730 4
Adjustments for:
- Non-cash equity expense 150 –
- Depreciation & amortisation 1,400 1,585
- Foreign currency effects (446) 105
- Other non-cash items (179) 656
Cash generated from/(utilised in) underlying operating activities 2,655 2,350
Movement in working capital balance sheet accounts
- Trade and Other Receivables (3,007) 10,304
- Inventory 2,282 (2,553)
- Trade and Other Payables 116 (5,742)
- Other – (3)
Cash generated from/(utilised in) working capital accounts (609) 2,006
Cash generated from/(utilised in) underlying operational cash flow
and net working capital assets 2,046 4,356
– Net Interest paid (176) (278)
– Income tax paid (212) (222)
Cash generated from/(utilised in) other operating activities 1,657 3,856
Cash flows from investing activities
Net cash out on purchase/disposal of property, plant & equipment (225) (389)
Group Information Technology software (9) (3)
Security Deposit 41 (47)
Other 65 49
Net cash provided by / (used in) investing activities (128) (391)
Cash flows from financing activities
Proceeds from borrowings 2,318 4,276
Repayment of borrowings (6,396) (9,918)
Net capital raised from issue of securities – 260
Cash outflow from leasing activities (170) (189)
Net cash provided by financing activities (4,248) (5,570)
Net increase / (decrease) in cash and cash equivalents (2,718) (2,105)
Foreign exchange effects on total cash flow movement 119 142
Cash and cash equivalents at the beginning of the reporting period 4,958 4,303
Cash and cash equivalents at the end of the reporting period 2,359 2,340
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* For the 6 months to 30 June 2020, the amount of $0.18m was reclassed into "Cashflow from Leasing Activities". Previously this was presented in "Other" cashflows from investing activities. Total increase/decrease in cash and cash equivalents remains unchanged for the period. Notes to the financial statements are included on pages 22 to 30.

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Magontec Half Year Report 2021

Notes to the Condensed Financial Statements

for the half-year ended 30 June 2021

1. SUMMARY OF ACCOUNTING POLICIES

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 financial report does not include notes of the type normally included in an annual financial report and should be read in conjunction with the annual report for the year ended 31 December 2020.

Basis of preparation

This report has been prepared on the basis of historical cost and, except where stated, does not take into account changing money values or current valuations of non-current assets. Costs are based on the fair values of 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 30 June 2021 half-year financial report are consistent with those adopted and disclosed in the Company’s annual report for the financial year ended 31 December 2020.

2. SIGNIFICANT TRANSACTIONS AND MATERIAL ITEMS

Aside from those referred to in the commentary of this report and the relevant comparative period reports, there were no material factors affecting the financial statements of the economic entity for the current and comparative period.

2.1 Call Options for the Issue of the Company’s Shares

There are no options on issue as at the reporting date.

2.2 Income Tax Expense/Benefit

Tax losses previously disclosed in the 31 December 2020 Annual Report encompass Magontec Limited and its Australian controlled entities. The tax benefit corresponding to these losses is not recognised as an asset in the accounts. Income taxes incurred in foreign jurisdictions are not sheltered by these Australian tax losses and are governed by relevant tax legislation in the various foreign jurisdictions in which the Group operates.

2.3. Dividends

No dividend was declared or recommended during the 6 months ended 30 June 2021 (6 months ended 30 June 2020: no dividend declared or recommended). The balance of the franking account at 30 June 2021 was $nil (30 June 2020: $nil).

3. RESULTS FROM OPERATIONS

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6 months to 6 months to
30 Jun 21 30 Jun 20
$’000 $’000
Metal 32,175 30,187
Anodes - Cathodic Corrosion Protection 18,688 15,795
Sales revenue 50,863 45,982
Metal (30,206) (27,893)
Anodes - Cathodic Corrosion Protection 12,955 (12,168)
Cost of sales (43,161) (40,061)
Metal 1,969 2,294
Anodes - Cathodic Corrosion Protection 5,733 3,626
Gross Profit 7,702 5,920
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Magontec Half Year Report 2021

Notes to the Condensed Financial Statements

continued

4. SEGMENT REPORTING

4.1 Corporate Structure as at 30 June 2021

Magontec Limited Corporate Structure

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Parent Magontec Limited
Entity (Australia)
100% 100%
Administration Advanced Magnesium
Entities Varomet Holdings Limited Technologies Pty Limited
(Cyprus)
(Australia)
100% 100%
Magontec US LLC Magontec Qinghai Co Ltd
(United States) (China)
100% 100% 100%
Operating
Entities
Magontec Suzhou Co Ltd Magontec Xi’an Co Ltd Magontec GmbH
(China) (China) (Germany)
100%
Magontec SRL
(Romania)
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4.2 Identification of Reportable Segments

The consolidated entity comprises the entities as described in Note 4.1.

In respect of the period to 30 June 2021, segment information is presented in respect of the three main departments within the company as described in the chart at Note 4.1 above.

• ‘Admin Units’ = Magontec administrative entities performing a Head Office function comprising -

• Magontec Limited (Australia);

• Advanced Magnesium Technologies Pty Limited (Australia); and

• Varomet Holdings Limited (Cyprus).

• ‘EUR’ = Magontec operating entities in Europe and North America comprising - Magontec GmbH (Germany);

• Magontec SRL (Romania); and

• Magontec LLC (United States).

• ‘PRC’ = Magontec operating entities in People’s Republic of China comprising -

• Magontec Xi’an Co. Ltd. (China);

• Magontec Qinghai Co. Ltd. (China); and

• Magontec Suzhou Co. Ltd. (China) - non operational

Closure procedures with respect to Magontec Suzhou Co. Ltd. (China) are yet to be finalised as at 30 June 2021.

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Magontec Half Year Report 2021

Notes to the Condensed Financial Statements

continued

4. SEGMENT REPORTING (continued)

4.3 Segment Information – Comprehensive Income

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6 months to 30 June 2021 6 months to 30 June 2020
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Admin EUR PRC Total Admin EUR PRC Total
– –
Sale of goods 33,227 17,711 50,938 31,225 15,140 46,365
Less Inter-company sales (75) (383)
Net Sales – 33,227 17,711 50,863 – 31,225 15,140 45,982
Cost of sales – (27,018) (16,219) (43,236) – (25,998) (14,447) (40,444)
Less Inter-company sales 75 383
Net Cost of Sales – (27,018) (16,219) (43,161) – (25,998) (14,447) (40,061)
Gross Profit – 6,209 1,493 7,702 – 5,227 693 5,920
Other income – 329 118 447 38 127 574 738
–
Interest expense (1) (175) (75) (250) (195) (128) (324)
Impairment of inventory,
receivables & other financial assets – – – – 1 – – 1
Travel accommodation and meals – (35) (36) (71) (10) (82) (91) (184)
Research, development, licensing
and patent costs (9) (59) (167) (235) (5) (107) (107) (219)
– – – –
Promotional activity (9) (9) (63) (63)
Information technology (14) (158) (40) (212) (5) (128) (22) (155)
Personnel (638) (2,366) (681) (3,684) (437) (2,467) (885) (3,789)
Depreciation & amortisation (12) (265) (44) (321) (21) (292) (68) (381)
Office expenses (32) (138) (109) (280) (35) (146) (33) (215)
Corporate (266) (875) (358) (1,499) (204) (748) (333) (1,285)
Foreign exchange gain/(loss) 140 175 (173) 142 138 (103) (77) (41)
Profit/(Loss) before income tax
expense (832) 2,633 (71) 1,730 (541) 1,023 (478) 4
Income tax expense – (502) (98) (600) – (291) 138 (153)
Profit/(Loss) after income tax
expense/benefit including
discontinued operations (832) 2,131 (169) 1,130 (541) 732 (340) (149)
Other Comprehensive Income
Movement in various actuarial
assessments – 375 – 375 – 229 – 229
Exchange differences taken to
reserves in equity – translation of
overseas entities (47) (88) 630 495 73 (34) 126 165
Total Comprehensive Income (879) 2,418 461 2,000 (468) 927 (214) 244
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Magontec Half Year Report 2021

Notes to the Condensed Financial Statements

continued

4. SEGMENT REPORTING (continued)

4.4 Segment Information – Balance Sheet

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30 Jun 21 30 Jun 21 30 Jun 21 30 Jun 21 31 Dec 20 31 Dec 20 31 Dec 20 31 Dec 20
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Admin EUR PRC Total Admin EUR PRC Total
Segment Assets
Gross Segment assets 50,612 41,674 36,322 128,608 49,884 43,014 36,356 129,254
Adjustments
Eliminations
- Inter-Coy Loans (35,357) (5,599) (2,438) (43,394) (34,945) (4,507) (2,387) (41,839)
- Investment in subsidiaries (7,078) – – (7,078) (7,078) – – (7,078)
- Other (4,939) 317 (742) (5,364) (4,634) (52) (623) (5,309)
As per Consolidated Balance
Sheet 3,238 36,392 33,142 72,772 3,227 38,456 33,345 75,028
Segment Liabilities
Gross Segment liabilities 31,162 33,244 19,778 84,185 30,042 36,767 20,419 87,228
Eliminations
- Inter-Coy Loans (30,950) (2,255) (10,045) (43,250) (29,810) (2,217) (9,718) (41,746)
- Other 377 260 158 795 392 130 130 653
As per Consolidated Balance
Sheet 589 31,250 9,891 41,730 624 34,679 10,831 46,134
Net assets 2,649 5,142 23,251 31,042 2,603 3,777 22,514 28,893
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5. CONTINGENT ASSETS & LIABILITIES

With respect to contingent assets and liabilities, these are unchanged compared with those disclosed in the Annual Report at 31 December 2020 as at the date of this report except as stated below.

Contingent asset - Magontec Romania VAT issue

Having obtained a preliminary judgement in the Group’s favour, the appeal of the Romanian tax office was dismissed during the half to June 2021. This means Magontec SRL (Romania) is entitled to a receivable of RON 853,000 (A$281,000) with respect to VAT input credits claimed by Magontec GmbH (Germany) for expenses incurred on behalf of Magontec SRL (Romania). As at 31 December 2020, the Company had recorded a provision of A$226,000 against this amount due to the long standing nature of the dispute. This provision of $226,000 was written back through other income in the profit and loss statement for the half to 30 June 2021.

Additionally, the Company notes a contingent asset with respect to RON 357,000 (A$115,000) of penalties and interest that were paid in relation to this matter. The company will seek to reclaim this amount from the Romanian tax office.

Contingent liability - Magontec Romania transfer pricing audit

Magontec SRL (Romania) is currently undergoing its 2016-2020 taxation audit. During the course of this work, the Romanian tax office has communicated a proposed income adjustment on the basis of its assessment of transfer pricing comparable companies. The Group was assisted by KPMG Romania in preparing the comparable companies analysis.

The Group does not accept the position of the Romanian tax office, and will contest the matter to the full extent possible with the assistance of its advisers.

25

Magontec Half Year Report 2021

Notes to the Condensed Financial Statements

continued

6. SHARE CAPITAL

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6 months to 12 months to
30 Jun 21 31 Dec 2020
$’000 $’000
Opening balance of share capital attributable to members of MGL 58,918 58,907
Private Placement – 300
Small parcel share buyback – (183)
Various costs associated with issue of shares – (106)
Total share capital on issued ordinary shares 1,150,924,806 (2020: 1,150,924,806) 58,918 58,918
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During the year to 31 December 2020, the company undertook private placement of $300,000 in order to fund the small parcel share buyback as well as various associated costs as indicated in the table above.

7. RECONCILIATION OF CASH

Reconciliation of cash at the end of the period (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows:

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6 months to 6 months to
30 Jun 21 30 June 20
$’000 $’000
Cash and cash equivalents at the beginning of the reporting period 4,958 4,303
Net cash (used)/generated in operating activities 1,657 3,856
Net cash provided by / (used in) investing activities (128) (391)
Net cash provided by / (used in) financing activities (4,248) (5,570)
Foreign exchange effects on total cash flow movement 119 142
Cash and cash equivalents at the end of the reporting period 2,359 2,340
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* For the 6 months to 30 June 2020, the amount of $0.18m was reclassed into “Cashflow from Leasing Activities” in cash used in financing activities. Previously this was presented in “Other” cashflows from investing activities. Total increase/decrease in cash and cash equivalents remains unchanged for the period.

8. EVENTS SUBSEQUENT TO BALANCE DATE

Except the events outlined elsewhere in this report (including the 2016-2020 taxation audit at our Romanian facility as detailed in Note 5), there are no matters subsequent to the end of the financial half year that have, or may, significantly affect the Group’s operations, the results of those operations, or the state of the Group’s affairs.

9. CALCULATION OF EARNINGS/(LOSS) PER SHARE

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6 months to 6 months to
30 Jun 21 30 Jun 20
$’000 $’000
Earning/(Loss) per share:
Profit/(Loss) attributable to members of the parent entity 1 $1,129,954 ($149,233)
Average shares on issue for the period 2 1,150,924,806 1,141,721,834
Average performance rights on issue 3 75,358,574 53,961,013
Basic Earnings/(Loss) per share (cents per share) 1 ÷ 2 × 100 0.098 (0.013)
Diluted Earnings/(Loss) per share (cents per share) 1 ÷ (2 +3) × 100 0.092 (0.012)
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26

Magontec Half Year Report 2021

Notes to the Condensed Financial Statements

continued

10. OTHER INCOME IN COMPREHENSIVE INCOME STATEMENT

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6 months to 6 months to
30 Jun 21 30 Jun 20
$’000 $’000
Interest revenue 12 34
Government grants 92 338
Government grants COVID related – 362
Writeback on provision for MAR VAT input issue 226 –
Write back of provisions and other adjustments 66 2
Other 50 3
447 738
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11. TRADE RECEIVABLES AND PAYABLES

11.1 Current Trade and Other Receivables

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30 Jun 2021 31 Dec 2020
$’000 $’000
Trade receivables [(1)] 15,784 15,126
Allowance for doubtful debts (312) (313)
15,472 14,813
Net GST/VAT recoverable 1,094 1,432
Security deposits 94 131
Derivatives fair value adjustment 41 –
Notes and other receivables due to operating entities 7,849 5,992
9,078 7,555
Total receivables 24,550 22,369
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(1) Trade receivables represent 56.2 days sales at 30 Jun 21 (53.5 days sales at 30 Jun 20)

11.2 Current Trade and Other Payables

Trade creditors(1)	30 Jun 2021 $’000 9,639	31 Dec 2020 $’000 10,187
Other creditors and accruals	2,753	2,352
	12,392	12,539

(1) Trade creditors represent 40.4 days cost of goods sold at 30 Jun 21 (45.9 days cost of goods sold at 30 Jun 20)

11.3 Related Party Disclosures

During the 6 months ended 30 June 2021, the Group made no payments for purchases of raw material from its substantial shareholder Qinghai Salt Lake Magnesium Co Limited (30 June 2020: $40,000). There are no balances outstanding as at 30 June 2021.

Outstanding balances are on an interest free basis, unsecured and settlement will occur in cash. No guarantees have been provided or received with respect to related party balances.

27

Magontec Half Year Report 2021

Notes to the Condensed Financial Statements

continued

11. TRADE RECEIVABLES AND PAYABLES (continued)

11.4 Leases

Pursuant to AASB 116 Leases, the Group recognises a right of use lease asset at inception in the Property, Plant & Equipment caption on the balance sheet, which includes equipment and vehicles as well as a corresponding lease liability in the Current and Non Current Provisions provisions on the balance sheet. This is calculated as being the future value of lease payments discounted at the relevant incremental borrowing rate.

The right of use asset is depreciated on a straight-line basis over the term of the lease. The lease liability is unwound over the term of the lease, with interest expense recorded in the income statement.

a Right of use assets

The movement in the right of use assets balance is presented below.

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6 months to 6 months to
30 Jun 2021 30 Jun 2020
RIGHT OF USE ASSETS SUMMARY $’000 $’000
Opening balance 518 695
Add new leased assets 270 44
Depreciation charge (164) (183)
FX movements (2) 14
Closing balance 622 570
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b Lease liabilities

The movement in total lease liabilities is presented below.

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6 months to 6 months to
30 Jun 2021 30 Jun 2020
LEASE LIABILITY SUMMARY $’000 $’000
Opening balance 522 699
Add new lease liabilities 270 44
Less unwind of lease liabilities (168) (181)
FX movements (2) 14
Closing balance 623 577
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30 Jun 2021 31 Dec 2020
LEASE LIABILITY SPLIT – CURRENT AND NON CURRENT $’000 $’000
Lease liabilities recognised in the balance sheet
Current 302 236
Non Current 320 286
Total lease liabilities recognised in the balance sheet 623 522
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28

Magontec Half Year Report 2021

Notes to the Condensed Financial Statements

continued

12. RESERVES

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30 Jun 2021 31 Dec 2020
$’000 $’000
Capital reserve
Balance at beginning of financial year 2,750 2,750
Balance at end of financial year 2,750 2,750
Foreign currency translation reserve
Balance at beginning of financial year 2,563 3,251
Movement in VHL Consolidated accounts 495 (688)
Balance at end of financial year 3,058 2,563
Actuarial Reserves
Balance at beginning of financial year (4,306) (3,673)
Deferred tax assets (185) 312
Employee pensions 560 (946)
Balance at end of financial year (3,931) (4,306)
Expired Options Reserve
Balance at beginning of financial year 1,637 1,637
Balance at end of financial year 1,637 1,637
Share Issue Reserve
Balance at beginning of financial year 136 254
– –
Issue of ordinary shares on conversion of rights
Fair value of performance rights issued for future periods 150 (118)
Balance at end of financial year 285 136
Total reserves 3,799 2,780
Other Comprehensive Income - that may later emerge in the Profit and Loss Statement
Exchange differences taken to reserves in equity – translation of overseas entities 495 (688)
Movement in various actuarial assessments 375 (634)
Total Other Comprehensive Income 870 (1,322)
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Notes

The capital reserve is a historical reserve from 2002 that arose after calculation of the outside equity interest in the (as it then was) Australian Magnesium Investments Pty Ltd consolidated entity.

The foreign currency translation reserve is a result of translating overseas subsidiaries from their functional currency to the presentation currency of Australian dollars.

The expired options reserve captures the balance of unexercised options on their expiry date from the appropriate share capital account.

The actuarial reserve represents the cumulative amount of actuarial gains / (losses) on the Group’s unfunded defined benefit pension obligation as well as movements in deferred tax assets and financial instruments that need to be recognised in “Other comprehensive income” (OCI).

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Magontec Half Year Report 2021

Notes to the Condensed Financial Statements

continued

13. BORROWINGS

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30 Jun 2021 30 Jun 2021 30 Jun 2021 31 Dec 2020 31 Dec 2020 31 Dec 2020
Maturity Interest Maturity Interest
$’000 Date pa [(1)] $’000 Date pa [(1)]
Bank & Institutional Borrowings
Magontec GmbH (Bank Loan) [(2)] 1,346 30-Nov-23 1.55% 4,593 30-Nov-23 1.55%
Magontec GmbH (Bank Loan) [(2)] 1,186 31-Dec-21 2.55% 2,380 31-Dec-21 2.55%
Magontec GmbH (Bank Loan) [(2)] 1,581 31-Dec-25 1.85% 1,586 31-Dec-25 1.85%
Magontec GmbH (Factoring Facility) [(4)] 2,221 31-Dec-21 0.95% 1,287 31-Dec-21 0.95%
Magontec SRL (Working Capital Facility) [(3)] 4,346 Open 3.45% 4,106 Open 4.01%
Magontec Xi’an Limited (Bank Loan) [(5)] 4,132 9-Jul-21 3.80% 3,974 9-Jul-21 3.80%
Total Bank Borrowings 14,812 17,926
Bank Borrowings Maturity Profile
Current 9,664 10,460
Non Current 2,927 6,179
Total Borrowings on Balance Sheet 12,591 16,639
Factoring facility (offset against trade
receivables) 2,221 1,287
Total Borrowings 14,812 17,926
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(1) Interest rate is the rate that applied at the end of the relevant reporting period and is expressed as compounding annually in arrears.

(2) These borrowings are secured by a charge over MAB’s trade debtors to the extent of €777,000 ($1,228,000) and inventory of €3,257,000 ($5,150,000), and the MAB factory facility.

(3) These borrowings are secured by a charge over MAR’s trade debtors and inventory to the extent of RON 10,073,000 ($3,232,000) and the MAR factory facility.

(4) This facility is set off against trade debtors, and thus is not shown in ‘Borrowings’ on the balance sheet.

(5) These borrowings are secured against the MAX factory building

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Magontec Half Year Report 2021

Suite 1.03 | 46A Macleay Street | Potts Point | 2011 NSW Australia T. +61 2 8084 7813 | www.magontec.com