ANNUAL REPORT

for year ended 31 December 2015

Hillgrove Resources Limited

CORPORATE diRECTORy

CONTENTS

Chairman's Statement

CORpORaTE aNd REgiSTEREd OffiCE

1

Managing Director's Report 3

5-7 King William Road, Unley S.A. 5061,

Australia

Key Project Overviews

6

T: +61 8 7070 1698

Directors' Report

10

Auditor's Independence Declaration 44

KaNmaNTOO COppER miNE

Financial Statements

45

Consolidated Statement of Profit or Loss and

Other Comprehensive Income 46

Eclair Mine Road Kanmantoo S.A. 5252 Australia

Tel: + 61 8 8538 6800

Fax: + 61 8 8538 5255

Consolidated Statement of Financial Position

47

Consolidated Statement of Changes in Equity

48

SHaRE REgiSTRy

Consolidated Statement of Cash Flows

49

Boardroom Pty Limited Level 7, 207 Kent Street

Notes to the Consolidated Financial Statements 50

Sydney N.S.W. 2000 Australia

Directors' Declaration

79

Tel: + 61 2 9290 9600

Independent Auditor's Report to the Members

80

Fax: + 61 2 9279 0664

Shareholder Information for Listed Public Companies

82

BaNKERS

Westpac Banking Corporation 31 Willoughby Road

Crows Nest N.S.W. 2065 Australia

Macquarie Bank Limited 50 Martin Place

Sydney N.S.W. 2000 Australia

Barclays Bank PLC 225 George Street

Sydney N.S.W. 2000 Australia

audiTORS

Deloitte Touche Tohmatsu Grosvenor Place

225 George Street

Sydney N.S.W. 2000 Australia

WEB SiTE

www.hillgroveresources.com.au

gENERal ENquiRiES

[email protected]

a significant deterioration in the copper price and underperformance of the

mining operation have resulted in Hillgrove moving to reduce operating costs further in 2016, as highlighted in the Events Subsequent to Reporting date (page 25 and Note 32 on page

74) and the going Concern Note (Note 1 (a) (i) on page 50).

During 2015 the Board has implemented the following actions:

• The previous debt was refinanced and the new debt was sculptured to reflect the revenue profile of the significant Giant pit cutback.

• The refinancing required a capital raising in which all Directors participated.

• The CEO & Managing Director was replaced on a lower salary.

• The Head Office in Sydney was closed and employees made redundant.

• The Head Office functions were relocated to Adelaide with an approximate 50% staff reduction.

• Support services were transferred to South Australia to capture the benefit of much lower service charges.

• The salary freezes in place since 2013 have continued.

• Kanmantoo costs were targeted and were substantially reduced.

• In December the CEO & Managing Director took a further 15% temporary salary reduction, placing him on a salary below what he was recruited for as General Manager. At the same time the Board took a 20% temporary fee reduction.

• The Company reach an agreement with the South Australian Government, which included financial assistance to fund a water pipeline to double the potential available water.

• The Company added to the hedge book during the year at an opportune occasion.

  
  

  annual Report 2015

  1

  
  

  The Hon. Dean Craig Brown, AO Independent Non-Executive Chairman

  
  

• The size of the Board was reduced by one person to reduce costs.

• The exploration program was suspended for the immediate term.

• The Indonesian assets were placed on care and maintenance until they are sold.

  Considerable effort has been devoted by the Board, management and employees towards ensuring the Company survives this challenging period and putting

  the foundations in place to thrive and prosper when the copper price

  2

  improves. The large number of Board meetings reflects this commitment

  Hillgrove Resources Limited

  to ensure strategic leadership and direction through this challenging period.

  Management has focussed on core operational activities and to build the unique operational capability of the Kanmantoo Team. At the heart of the operation is a fundamental commitment to engage with our surrounding communities through the hard working Kanmantoo and Callington Community Consultative Committee. This has led to many gains, including:

  • A local employment policy, which has resulted in Hillgrove being the largest employer in the Mount Barker Council district.

  • Significant progress to measure, report, enhance and mitigate offsite impacts such as blasting and dust.

  • Improving operational capability through employee-driven idea generation, which has meant lower costs and increased productivity.

  • Progressive rehabilitation using native plants all sourced locally and grown in an extremely successful seed production area on the mining lease.

  • Open and transparent communication with local communities, with a focus on striving to achieve the high standards we have set and that the communities expect from us.

Whilst the initial increase in revenue associated with accessing the heart of the Kanmantoo orebody for the third time (Main Pit in the 1970's, Kavanagh in 2013 and now Giant) will be utilised to reduce debt, there

remains significant value and potential to return value to shareholders. The Board has used consensus pricing to arrive at our $145.6M carrying value reflected in the balance sheet, and has added transparency by showing the pricing used and the sensitivity to price variation. The value is impacted by copper price with a five percent movement equivalent to approximately

$30M.

During the past year Mr Doug Snedden and Mr Greg Hall retired from the Board.

Doug was a very effective Chairman of the Audit and Risk Committee and Greg, as Managing Director, guided the Company through the ramp-up of production from the Kavanagh Pit.

I would like to thank them both for their considerable contribution.

Whilst it has not yet translated to shareholder returns, the commitment and dedication of the Hillgrove employees has been second to none throughout the year. From the Sydney head office employees who worked

to the end transitioning their roles to Adelaide in a very professional manner, the commercial team transforming

the company accounting systems, the processing team successfully introducing oxide ore treatment, the

mining team continuing to improve and develop their capacity, and the technical and administrative teams constantly optimising and enhancing value.

I thank Steve McClare for the leadership he has provided in tough times. I also acknowledge the great partnerships and support the Company has with its key contractors, who are an integral part

of the continued successful operation of the Company. I thank the whole Hillgrove team on their commitment, professional approach, and dedication.

The strategic focus of the Company is on the creation of value for shareholders via further improvements in operational performance at the Kanmantoo

Copper Mine, growing the Kanmantoo regional resource through exploration, completing the major cutback for the Giant pit, and ensuring our capital structure aligns with the life of mine plan.

The Board appreciates the ongoing support of its many shareholders and hopes you can join us at our Annual General Meeting in Adelaide in May to hear further about our drive to return value on your investment in Hillgrove Resources.