Castillo Coppe. Regulatory News (CCZ)

17 March 2022

CASTILLO COPPER LIMITED("Castillo", the "Company" or the "Group")

Half-year Financial Report

Castillo Copper Limited (LSE and ASX: CCZ), a base metal explorer primarily focused on copper across Australia and Zambia, is pleased to announce it has submitted the financial report of the Group for the half-year ended 31 December 2021.

In addition to this release, a PDF version of this report with supplementary information can be found on the Company's website: https://www.castillocopper.com/asx-announcements/

Review of Operations

During the financial period, the principal activity of the Group was mineral exploration and examination of new resources in eastern Australia and Zambia. Specifically, the Group has four properties comprising NWQ Copper Project in Mt Isa's copper-belt, four assets across Zambia's copper-belt, historic Cangai Copper Mine and BHA Project - a large footprint near Broken Hill's world class silver-zinc-lead deposit in NSW.

The main focus was to continue developing the core assets to ensure the strategic intent to transform Castillo Copper into a mid-tier copper group remained on track.

A more detailed summary of key events follows:

MT ISA COPPER-BELT, QUEENSLAND

Big One Deposit & Arya Prospect

On 15 July 2021, Castillo announced the intersection of significant visible copper mineralisation in drill-hole BO_318RC in two distinct zones - 11m from 89-100m and 34m from 153-187m (apparent thickness).

Reconciling these new data points with the geological modelling completed to date, clearly verified material extensions to known mineralisation and potentially a larger underlying system than initially envisaged.

A key feature behind the success of the current campaign has been the significantly improved targeting, resulting from the effective utilisation of geophysical insights to refine and reshape the drilling program to boost the collective exploration potential.

On 26 July 2021, Castillo announced up to 9% copper in Big One Deposit assays plus more visible mineralisation up to 26m thick. Initial assays for drill-holes BO_315-317RC verified up to 9.19% Cu and clearly extended known mineralisation - the best intercepts are summarised below:

· 9m @ 1.42% Cu from 88m including 4m @ 3.06% Cu from 92m & 1m @ 9.19% Cu from 92m (BO_317RC),

· 5m @ 1.06% Cu from 141m (BO_316RC) and

· 3m @ 1.22% Cu from 65m (BO_315RC).

On 10 August 2021, Castillo announced logistics were in place to test drill the 130m thick target at the Arya Prospect. All key logistics to enable work to commence at the prime Arya Prospect were finalised during the September 2021.

A re-interpretation of legacy data by Castillo's geophysicist consultant - which enabled better targeting at the Big One Deposit - provided new insights and re-emphasised the Arya Prospect's merits as a major exploration target in Mt Isa's copper-belt. Notably, re-processing data from AusAEM Survey, commissioned by Geoscience Australia, shows the EG01 anomaly - interpreted to be 130m thick, 1,500m long & 450m wide - is only around 100-200m deep.

This is a significant finding, as it highlighted EG01 is much shallower than the initial ~430m depth estimate based on analysing data from BHP, which discovered the Arya Prospect in the mid-1990s and recommended it be drill- tested.

On 5 October 2021, Castillo announced that assays for the first four drill-holes of the second drilling campaign extended known mineralisation at the Big One Deposit, as they were proximal to the dacite dyke, with the best intercepts comprising:

· 9m @ 1.42% Cu from 88m including 4m @ 3.06% Cu from 92m & 1m @ 9.19% Cu from 92m (BO_317RC)

· 5m @ 1.06% Cu from 141m (BO_316RC)

· 16m @ 0.59% Cu from 166m including 3m @ 1.76% Cu from 176m (BO_318RC)

· 3m @ 1.22% Cu from 65m (BO_315RC)

The third drilling campaign at the Big One Deposit, comprising at least 22 drill-holes, will target several prime areas including the sizeable bedrock conductor on the north side of the dacite dyke. Significantly, the geophysical characteristics of the northern bedrock conductor are identical to the known system prevalent along the line of lode.

On 30 November 2021, Castillo announced that based on fresh insights, post the chief geological consultant visiting the Big One Deposit, the Board has prioritised geologically modelling an inaugural JORC compliant resource plus a third infill drilling campaign.

There are several reasons including:

1. Recent and historical drilling campaigns have intersected relatively shallow copper mineralisation; and

2. There is a significant bedrock conductor, north of the line of lode, which is larger and of different character than the Induced Polarisation (IP) anomaly drilled in 2020, that is yet to be drill-tested.

On 18 October 2021, Castillo advised the inaugural drilling campaign at the Arya Prospect commenced, after a massive logistical effort to prepare the drill-pads then heli-lift the rig and all supporting equipment to site. After reconciling the geochemical and geophysical data, the Board decided to orchestrate a strategic "proof of concept" campaign, comprising five initial RC drill-holes.

On 9 November 2021, in an operational update, Castillo announced that due to the diligent efforts of the team, pioneer drilling had progressed at the Arya Prospect, overcoming challenging operational conditions.

Encouragingly, it was noted that interest in the Mt Isa copper-belt continues to grow, with Rio Tinto recently acquiring contiguous ground on the eastern boundary of the NWQ Copper Project which is proximal to the Arya Prospect.

On 17 November 2021, Castillo announced that three drill-holes had been completed from two drill pads, with standout, AR_002RC, reaching a depth of 238m. Notably, around 200m of dark grey and black carbonaceous siltstone / schist was intersected, with scattered base-metal sulphides, fine-grained graphite mineralisation occurrences and remaining open at depth.

Encouragingly, visible but scattered chalcopyrite (copper sulphide mineralisation) was observed in drill-hole AR_001RC.

On 6 December 2021, Castillo announced the drilling campaign at the Arya Prospect had concluded, with five drill-holes completed and all samples having been despatched to the laboratory for analysis.

Based on indicative field observations from the team at site, the Board is optimistic that geological interpretations will affirm the exploration potential of the Arya Prospect. If this is validated, then a fuller drilling campaign will potentially be commissioned in 1H 2022.

NEW SOUTH WALES PROJECTS

BHA Project

On 5 August 2021, Castillo announced its Broken Hill assets were set to IPO, subject to achieving all regulatory requirements and shareholder approvals. Castillo's Board appointed CPS Capital Group, to restructure and then list, on a best endeavours basis, via an IPO on the ASX, its wholly owned Broken Hill Alliance (BHA) Project which comprises a large footprint proximal to Broken Hill's world class zinc-lead-silver deposit.

A new entity, Broken Hill Alliance Ltd, was formed to house the BHA Project, with Castillo to retain a significant minority interest post-IPO. Subject to final approvals to progress the IPO, Broken Hill Alliance Ltd was targeting to raise a minimum of $4.5m up to a maximum of $7.0m (including a preferential subscription allocation to Castillo shareholders) to fund a comprehensive exploration campaign to develop the BHA Project.

To recap, sophisticated work by Geological Survey of NSW (GSNSW), which generated advanced predictive geological models for major mineral systems, highlighted the BHA Project is highly prospective for Broken Hill Type (BHT - Silver-Zinc-Lead) mineralisation in the West Zone and Iron-Oxide-Copper-Gold (IOCG) mineralisation in the East Zone.

On 14 January 2022, the Board announced it would be deferring plans to spin off BHA Project for the foreseeable future and would instead focus on proving up the mineral resources of BHA Project.

Cangai Copper Mine

No material work was undertaken on Cangai Copper Mine during the review period.

ZAMBIA PROJECTS

On 1 July 2021, Castillo announced the commencement of a comprehensive geophysical campaign across its key Zambian projects. The campaign's goals are to fully analyse the results then reconcile these with known anomalous areas at surface to identify priority targets to drill.

On 31 August 2021, Castillo announced multiple targets for test-drilling had been identified at the Luanshya Project in Zambia's copper-belt, following the completion of eight IP survey lines.

On 25 October 2021, Castillo announced that up to 14 drill targets were identified at the Luanshya Project. Notably, the 14 chargeable zones were identified post an Induced Polarisation (IP) survey - within a 6km zone of copper surface anomalism.

Modelling was undertaken by Castillo's consultant geophysicist, who interpreted the IP survey results that covered the 6km long soil anomaly, which were defined after extensive soil sampling campaigns.

On 17 November 2021, in an operational update, Castillo announced the geology team is now focused on formulating an inaugural drilling campaign for the Luanshya Project.

Meanwhile, work on the IP survey at the Mkushi Project, which is focusing on known surface copper anomalies, is now in progress. Upon completion, a geophysical interpretation report will be published which will determine the next course of action.

Corporate events

The following corporate related events occurred during the review period:

· New Director Appointed: On 16 August 2021, Castillo announced the appointment of Mr Geoff Reed as Non-Executive Director. Mr Reed, who is an experienced geologist and has worked with MIM/Xstrata in the Mt Isa region, will provide invaluable oversight of Castillo's exploration programs in north-west Queensland and Zambia. Mr Reed's appointment will ensure that exploration work progresses at a steady pace and that every opportunity is leveraged to create shareholder value.

· New Share/Options Issued: In August 2021, the Company issued 40,300,731 new ordinary shares and 159,439,781 listed options to complete the recent capital raising on the Australian Securities Exchange and London Stock Exchange. Total proceeds raised were $1,368,966 (AUD) and £177,245 (GBP) ($1,692,631 AUD total). On 27 October 2021, the Company issued a further 4,000,000 listed options to corporate advisers relating to the above capital raising.

· Lithium Option: On 29 September 2021, the Company announced it had secured an Option Agreement for the acquisition of the Litchfield and Picasso Lithium Projects in Northern Territory and Western Australia, subject to successful due diligence.

Events subsequent to period end

The following significant events occurred after 31 December 2021:

· BHA East Zone potential: On 14 January 2022, a review on the BHA Project's East Zone discovered numerous areas anomalous for cobalt-copper and zinc mineralisation delineated from surface / down-hole assays. Notably, with assayed values ranging from >200ppm Co up to 9,500ppm Co across 108 drill-holes (proximal to the Himalaya Formation out-crop / sub-crop) work on modelling a JORC 2012 compliant mineral resource is now underway.

· In addition, the Board is highly encouraged by the NSW government's new strategy, which targets building a viable downstream industry for processing critical minerals (including cobalt-copper-REE's) and establishing a global supply hub in the state's central west region.

· As a result of the above, the Board has deferred plans to spin off BHA Project for the foreseeable future and will instead focus on proving up the mineral resources of BHA Project.

· Unwinding Option Agreement: On 14 January 2022, the Board and companies, which hold the Litchfield and Picasso Lithium Projects, mutually agreed to unwind the Option Agreement (entered into on 29 September 2021) to acquire these two properties. As part of the break agreement terms, the $50,000 deposit has been returned to Castillo.

· Management changes: On 28 January 2022, Castillo announced the following management changes:

o Mr Simon Paul, Managing Director, resigned from the Board with immediate effect and agreed to remain a consultant until mid-February 2022 to ensure a smooth handover.

o Mr Geoff Reed has been promoted to Executive Director (from Non-Executive Director) with effect from 1 February 2022.

o Dr Dennis Jensen has been promoted to group CEO with effect from 1 February 2022. Dr Jensen was previously Managing Director of 100%-owned subsidiary BHA Group.

Results

The loss after tax for the half-year ended 31 December 2021 was $781,670 (31 December 2020 loss of $1,138,450).

For further information, please contact:

About Castillo Copper 

Castillo Copper Limited is an Australian-based explorer primarily focused on copper across Australia and Zambia. The group is embarking on a strategic transformation to morph into a mid-tier copper group underpinned by its core projects: 

· A large footprint in the Mt Isa copper-belt district, north-west Queensland, which delivers significant exploration upside through having several high-grade targets and a sizeable untested anomaly within its boundaries in a copper-rich region. 

· Four high-quality prospective assets across Zambia's copper-belt which is the second largest copper producer in Africa. 

· A large tenure footprint proximal to Broken Hill's world-class deposit that is prospective for zinc-silver-lead-copper-gold. 

· Cangai Copper Mine in northern New South Wales, which is one of Australia's highest grading historic copper mines. 

The group is listed on the LSE and ASX under the ticker "CCZ." 

COMPETENT PERSON STATEMENT

The information in this report that relates to Exploration Results for the Mkushi Project is based on information compiled or reviewed by Mr Matt Bull, a consultant of Castillo Copper Limited. Mr Bull is a member of the Australian Institute of Geoscientists and has sufficient experience of relevance to the styles of mineralisation and types of deposits under consideration, and to the activities undertaken, to qualify as a Competent Person as defined in the 2012 Edition of the Joint Ore Reserves Committee (JORC) Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Bull consents to the inclusion in this report of the matters based on information in the form and context in which it appears.

The information in this report that relates to Exploration Results for the Mt Oxide pillar contained in this announcement is based on a fair and accurate representation of the publicly available information at the time of compiling the ASX Release, and is based on information and supporting documentation compiled by Nicholas Ryan, a Competent Person who is a Member of The Australasian Institute of Mining and Metallurgy. Nicholas Ryan is an employee of Xplore Resources Pty Ltd. Mr Ryan has been a Member of the Australian Institute of Mining and Metallurgy for 14 years and is a Chartered Professional (Geology). Mr Ryan is employed by Xplore Resources Pty Ltd. Mr Ryan has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves '. Mr Ryan consents to the inclusion in the report of the matters based on his information and the form and context in which it appears.

The information on the page that relates to Exploration Results of the Smelter Creek stockpiles is based on information compiled or reviewed by Mr Mark Biggs, a consultant of Castillo Copper Limited. Mr Biggs is a member of the Australian Institute of Geoscientists and has sufficient experience of relevance to the styles of mineralisation and types of deposits under consideration, and to the activities undertaken, to qualify as a Competent Person as defined in the 2012 Edition of the Joint Ore Reserves Committee (JORC) Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Biggs consents to the inclusion in this report of the matters based on information in the form and context in which it appears.

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the half-year ended 31 December 2021

The accompanying notes form part of these financial statements.

Condensed Consolidated Statement of Financial Position

as at 31 December 2021

The accompanying notes form part of these financial statements.

Condensed Consolidated Statement of Changes in Equity

for the half-year ended 31 December 2021

The accompanying notes form part of these financial statements.

Condensed Consolidated Statement of Cash Flows

for the half-year ended 31 December 2021

The accompanying notes form part of these financial statements.

Notes to the Condensed Consolidated Financial Statements

for the half-year ended 31 December 2021

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

Corporate Information

This general purpose financial report of Castillo Copper Limited and its subsidiaries (the Group) for the half-year ended 31 December 2021 was authorised for issue in accordance with a resolution of the directors on 15 March 2022.

Castillo Copper Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange and the London Stock Exchange.

The nature of the operations and principal activities of the Group are described in the Directors' Report.

Basis of Preparation

This financial report for the half-year ended 31 December 2021 has been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act 2001. The Group is a for profit entity for financial reporting purposes under Australian Accounting Standards. Compliance with AASB 134 ensures compliance with IAS 34 'Interim Financial Reporting'.

These half-year financial statements do not include all notes of the type normally included within the annual financial statements and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the Group as the full financial statements.

It is recommended that the half-year financial statements be read in conjunction with the annual financial statements for the year ended 30 June 2021 and considered together with any public announcements made by Castillo Copper Limited during the half-year ended 31 December 2021 in accordance with the continuous disclosure obligations of the ASX listing rules.

For the purpose of preparing the half-year report, the half-year has been treated as a discrete reporting period. The accounting policies and methods of computation adopted are consistent with those of the previous financial year. These accounting policies are consistent with Australian Accounting Standards and with International Financial Reporting Standards.

The consolidated financial statements have been prepared on the basis of historical cost.

Going Concern

This report has been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and settlement of liabilities in the normal course of business.

The Group incurred a net loss for the period ended 31 December 2021 of $781,670 and a net cash outflow from operating activities of $931,147. At 31 December 2021, the Group had a net asset position of $19,750,782 and working capital of $6,865,236. The cash and cash equivalents balance at 31 December 2021 was $7,484,908.

The directors have reviewed the Group's financial position and are of the opinion that the use of the going concern basis of accounting is appropriate.

New and amending Accounting Standards and Interpretations

In the half-year ended 31 December 2021, the Directors have reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to the Group's operations and effective for annual reporting periods beginning on or after 1 July 2021. As a result of this review, the Directors have determined that there is no material impact of the new and revised Standards and Interpretations on the Group and, therefore, no material change is necessary to Group accounting policies.

The Directors have also reviewed all new Standards and Interpretations that have been issued but are not yet effective for the half-year ended 31 December 2021. 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 the Group's business and, therefore, no change necessary to the Group accounting policies.

NOTE 2: SEGMENT REPORTING

Management has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions. The entity has five geographical segments being exploration in Northwest Queensland (NWQ), New South Wales (Cangai), New South Wales (Broken Hill) and Zambia. Revenue attributable to all segments is immaterial. Allocation of asset, liabilities, income and expenses to each segment is shown below:

NOTE 3: OTHER EXPENSES

Included in other expenses are the following items:

NOTE 4: DEFERRED EXPLORATION AND EVALUATION EXPENDITURE

The ultimate recoupment of costs carried forward as exploration expenditure is dependent on the successful development and commercial exploitation or sale of the respective areas of interest.

NOTE 5: ISSUED CAPITAL

Note 1 - The shares issued to advisors were valued based on the fair value of the services provided.

Note 2 - Details of the share options issued during the period, including valuation method, are included in the table below.

Share options

At 31 December 2021 there were 358,362,757 (30 June 2021: 358,362,757) unlisted options with various exercise prices and expiry dates and 224,939,782 listed options (ASX: CCZO, CCZOA & CCZOB), with various exercise prices and expiry dates.

The following share-based payment arrangements were in place during the period:

During the period no options expired and no options were exercised.

(a) Weighted average fair value

The fair value of the equity-settled options granted during the period was estimated as at the date of grant using the Black and Scholes model taking into account the terms and conditions upon which they were granted, as follows:

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value.

Performance Shares

During the 2020 financial year, 46,875,000 Class A performance shares and 46,875,000 Class B performance shares were issued to the vendors of Zed Copper Pty Ltd.

46,875,000 Class A performance shares

Conditions precedent - converting to an equal number of CCZ shares on delineation of a JORC resource of 200,000 tonnes of contained copper at a minimum grade of 0.5% within 5 years of execution of the Share Sale Agreement.

46,875,000 Class B performance shares

Conditions precedent - converting to an equal number CCZ shares on completion of a preliminary feasibility study demonstrating an internal rate of return greater than 25% within 5 years of execution of the Share Sale Agreement.

No vesting expense has yet been recorded in relation to the above performance rights based upon an assessment of the current probability of vesting.

NOTE 6: CONTINGENT LIABILITIES

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

NOTE 7: SUBSEQUENT EVENTS

The following significant events occurred after 31 December 2021:

· BHA East Zone potential: On 14 January 2022, a review on the BHA Project's East Zone discovered numerous areas anomalous for cobalt-copper and zinc mineralisation delineated from surface / down-hole assays. Notably, with assayed values ranging from >200ppm Co up to 9,500ppm Co across 108 drill-holes (proximal to the Himalaya Formation out-crop / sub-crop) work on modelling a JORC 2012 compliant mineral resource is now underway.

· In addition, the Board is highly encouraged by the NSW government's new strategy, which targets building a viable downstream industry for processing critical minerals (including cobalt-copper-REE's) and establishing a global supply hub in the state's central west region.

· As a result of the above, the Board has deferred plans to spin off BHA Project for the foreseeable future and will instead focus on proving up the mineral resources of BHA Project.

· Unwinding Option Agreement: On 14 January 2022, the Board and companies, which hold the Litchfield and Picasso Lithium Projects, mutually agreed to unwind the Option Agreement (entered into on 29 September 2021) to acquire these two properties. As part of the break agreement terms, the $50,000 deposit has been returned to CCZ.

· Management changes: On 28 January 2022, CCZ announced the following management changes:

o Mr Simon Paul, Managing Director, retired from the Board with immediate effect and agreed to remain a consultant until mid-February 2022 to ensure a smooth handover.

o Mr Geoff Reed has been promoted to Executive Director (from Non-Executive Director) with effect from 1 February 2022.

o Dr Dennis Jensen has been promoted to group CEO with effect from 1 February 2022; Dr Jensen was previously Managing Director of 100%-owned subsidiary BHA Group

NOTE 8: FINANCIAL INSTRUMENTS

The Group has a number of financial instruments which are not measured at fair value on a recurring basis. The carrying amount of these financial instruments approximates their fair values.