European Metals Holdings Regulatory News (EMH)

16 March 2018 For immediate release

EUROPEAN METALS HOLDINGS LIMITED

Unaudited Interim Financial Report

For the six months ended 31 December 2017

The Directors of European Metals Holdings Limited ("European Metals" or "the Company") (ASX & AIM: EMH), the specialty lithium exploration and development company with assets in the Czech Republic, are pleased to release its interim unaudited financial report for the half year ended 31 December 2017.

A copy of the European Metals Half Year Report is also available on the Company's website at www.europeanmet.com.

ENQUIRIES:

The information contained within this announcement is considered to be inside information, for the purposes of Article 7 of EU Regulation 596/2014, prior to its release. The person who arranged for the release of this announcement on behalf of the Company was Keith Coughlan, Director.

DIRECTORS' REPORT

Your Directors submit the financial report of the consolidated group for the half year ended 31 December 2017.

Directors

The names of the directors who held office during or since the end of the half-year.

Results of Operations

The consolidated loss for the half year ended 31 December 2017 amounted to $1,877,730 (2016: $3,164,185 loss).

Review of Operations

During the period the Company focused on continued progress in the development of the globally significant Cinovec Lithium/Tin Project in Czech Republic ("the project" of "Cinovec").

Highlights in the period include:

Project Development

During the period the Company undertook a six core-hole infill drilling program at Cinovec.

 A total of 2,697.1m was completed on time and without loss time accidents. Infill drilling was undertaken to the southwest section of the deposit, targeting two 'gaps' in the resource model that could potentially be targeted for mining in the initial years, and upgrading part of the resource from the Inferred category to the higher confidence Indicated category. The results exceeded expectations.

This drilling campaign culminated in the Company announcing a further upgrade of its JORC Compliant Indicated Mineral Resources at Cinovec on November 28th, confirming its status as the largest lithium resource in Europe.

On December 19th, the Company announced that the Cinovec NorthWest Resource had been added to the Czech State resource register. The NorthWest Resource now joins the Cinovec South Resource that was added to the resource register in February 2017. This is the first step in the process for the granting of a mining permit

Operations

Craig Reimer was appointed to the position of DFS Manager during the quarter ending September 2017. Craig has over 25 years' experience in project management, engineering management and business development, and has delivered successful international mining projects for previous clients. Craig is a Mechanical Engineer.

The Company also appointed Grant Harman as Metallurgical Consultant to the DFS. Grant is one of the world's foremost lithium metallurgists and played a significant role in the Company's successful Pre-Feasibility Study.

Significant Change in State of Affairs

On 27 June 2017 the Company announced the engagement of 6466 Investments Pty Ltd for an interim funding facility to maintain momentum in developing the Project. Following the first funding facility drawdown on 30 June 2017, the Company issued a further 1,463,676 CDIs, over 4 drawdowns of AUD 250,000 each, raising a total of AUD 1 million.

On 29 November 2017 the Company announced a capital raising of GBP 2,281,000 (approximately AUD 4 million (before costs) via subscriptions to predominantly UK based sophisticated investors. The raising was completed on 20 December 2017 through an issue of 6,517,142 CDIs at a price of 35p or 61.5 cents.

Following the approval by shareholders at the 2017 Annual General Meeting for the European Metals Holdings Limited Employee Securities Incentive Plan ("Plan"), 1,650,000 CDIs were issued to the Directors of the Company at A$0.725 per share. The CDIs issued under the Plan are in escrow until 14 December 2018.

Tenement Schedule

Significant events after the reporting date

On 2 March 2018, the Company announced that it had received correspondence from Minister Industry and Trade of the Czech Republic, purporting to terminate the Memorandum of Understanding dated 2 October 2017 between the Company and the Ministry of Industry and Trade.

There were no other significant events after the reporting period.

Auditor's Independence Declaration

The auditor's independence declaration for the half year ended 31 December 2017 has been received and can be found on page 5 of the financial report. 

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

Keith Coughlan

MANAGING DIRECTOR

16 March 2018

AUDITOR'S INDEPENDENCE DECLARATION

16 March 2018

Board of Directors

European Metals Holdings Limited

Suite 12, Level 1

11 Ventnor Avenue

WEST PERTH WA 6005

Dear Sirs

RE: European Metals HOLDINGS LIMITED

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of European Metals Holdings Limited.

As Audit Director for the review of the financial statements of European Metals Holdings Limited for the six months ended 31 December 2017, I declare that to the best of my knowledge and belief, there have been no contraventions of:

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the review; and

(ii) any applicable code of professional conduct in relation to the review.

Yours faithfully

STANTONS INTERNATIONAL AUDIT AND CONSULTING PTY LTD

(Trading as Stantons International)

(An Authorised Audit Company)

Samir R Tirodkar

Director

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE HALF YEAR ENDED 31 DECEMBER 2017

The above statement should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2017

The above statement should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF changes in equity

FOR THE HALF YEAR ENDED 31 DECEMBER 2017

The above statement should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE HALF YEAR ENDED 31 DECEMBER 2017

The above statement should be read in conjunction with the accompanying notes.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE HALF YEAR ENDED 31 DECEMBER 2017

NOTE 1: BASIS OF PREPARATION

Statement of compliance

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

Basis of preparation

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

The accounting policies and methods of computation adopted in the preparation of the half-year financial report are consistent with those adopted and disclosed in the Group's 2017 annual financial report for the financial year ended 30 June 2017, except for the impact of the Standards and Interpretations described below. These accounting policies are consistent with Australian Accounting Standards and with International Financial Reporting Standards.

Changes in accounting policies, accounting standards and interpretations 

The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 30 June 2017. All applicable new standards and interpretations issued since 1 July 2017 have been adopted. There was no significant impact on the Group.

Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below.

Share-based payments

The value attributed to share options, performance shares, loan CDIs and remuneration shares issued is an estimate calculated using an appropriate mathematical formula based on Black-Scholes option pricing model. The choice of models and the resultant option value require assumptions to be made in relation to the likelihood and timing of the conversion of the options to shares and the value and volatility of the price of the underlying shares. Details of share-based payments assumptions are detailed in Note 6.

New and Revised Accounting Requirements Applicable to the Current Half-Year Reporting Period

The Company has adopted all of the new and revised Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current reporting period.

The adoptions of the new and revised standards have not had a material impact on this half year financial report.

NOTE 2: OPERATING SEGMENTS

The accounting policies used by the Group in reporting segments are in accordance with the measurement principles of Australian Accounting Standards.

The Group has identified its operating segments based on the internal reports that are provided to the Board of Directors, according to AASB 8 Operating Segments.

The Group currently has one project which takes into account each of the above-mentioned aspects. The principal activities for the project are exploration of lithium, tin, tungsten and other commodities, and the development of the existing resources. The project is likely to use the same resources in future and the nature of the regulatory environment is the Czech Republic. This is expected to be the same for future projects. Accordingly, management has identified one operating segment based on the location of the projects, that being the Czech Republic.

Employee securities incentive plan

During the half year ended 31 December 2017, remuneration in the form of Employee Securities Incentive Plan were issued to the Directors to attract, motivate and retain such persons and to provide them with an incentive to deliver growth and value to shareholders.

The Loan CDIs represent an option arrangement. Loan CDIs vested immediately. The key terms of the Employee Share Plan and of each limited recourse loan provided under the Plan are as follows:

i. The total loan equal to issue price multiplied by the number of Plan CDIs applied for ("Advance"), which shall be deemed to have been draw down at Settlement upon issued of the Loan Shares.

ii. The Loan shall be interest free. However, if the advance is not repaid on or before the Repayment date, the Advance will accrue interest at the rate disclosed in the Plan from the Business Day after the Repayment Date until the date the Advance is repaid in full.

iii. All or part of the loan may be repaid prior to the Advance repayment Date.

Repayment date

iv. Notwithstanding paragraph iii. above, ("the borrower") may repay all or part of the Advance at any time before the repayment date i.e. 15 years after the date the Loan Advance; and

v. The Loan is repayable on the earlier of:

(a) The repayment date;

(b) The plan CDIs being sold;

(c) The borrower becoming insolvent;

(d) The borrower ceasing to be employed by the Company; and

(e) The plan CDIs being acquired by a third party by way of an amalgamation, arrangement or formal takeover bid for not less than all the outstanding CDIs.

Loan Forgiveness

vi. The Board may, in its sole discretion, waive the right to repayment of all or any part of the outstanding balance of an Advance where:

(i) The borrower dies or becomes permanently disabled; or

(ii) The Board otherwise determines that such waiver is appropriate

vii. Where the Board waives repayment of the Advance in accordance with clause 6(a), the Advance is deemed to have been repaid in full for the purposes of the Plan in this agreement.

Sale of loan CDIs

viii. In accordance with the terms of the Plan and the Invitation, the Loan CDIs cannot be sold, transferred, assigned, charged or otherwise encumbered with the Plan CDIs except in accordance with the Plan.

CDIs and Depositary Interests (CDIs') entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. On a show of hands every holder of a CDI and/or DI present at a meeting in person or by proxy, is entitled to one vote, and in a poll each share is entitled to one vote.

European Metals Holding is a company limited by shares incorporated in the British Virgin Islands with an authorised share capital, 200,000,000 no par value shares of a single class. Pursuant to the prospectus dated 26 April 2012, the company issued CDIs in July 2012. The holder of the CDIs has beneficial ownership in the underlying shares instead of legal title. In respect of CDIs, legal title and the underlying shares is held by Chess Depository Nominees Pty Ltd. Immediately prior to admission to AIM in December 2015, the Company created the DIs. In respect of DIs, legal title and the underlying shares is held by the UK Depositary, Computershare Investor Services PLC.

Holders of CDIs and/or DIs have the same entitlement benefits of holding the underlying shares. Each Share in the Company confers upon the Shareholder:

(a) the right to one vote at a meeting of the Shareholders of the Company or on any Resolution of Shareholders;

(b) the right to an equal share in any dividend paid by the Company; and

(c) the right to an equal share in the distribution of the surplus assets of the Company on its liquidation.

The terms of the performance shares are as follows:

The 5,000,000 B Class Performance Shares will convert in accordance with the below:

(i) 1,000,000 B Class Performance Shares will convert into Shares and an equivalent number of CDIs upon the Company's Mineral Resource at Cinovec South and Cinovec Main being entered in the State Balance. The B Class Performance Shares shall convert into the number of Shares and equivalent number of CDIs equal to 1,000,000 multiplied by 0.5 and divided by the greater of: (A) $0.50 per CDI; and (B) the volume weighted average price of CDIs (expressed as a decimal of $1.00) as calculated over the 5 ASX trading days prior to the date the Mineral Resource is entered. (Explanatory Note: Under Czech law a mineral resource must be registered and henceforth treated as a resource by the Czech Government before mining licenses can be granted. A mineral resource has to be calculated according to the Czech regulations, and defended in front of a committee of state certified experts);

(ii) 1,000,000 B Class Performance Shares will convert into Shares and an equivalent number of CDIs upon the issuance of the preliminary mining licenses relating to the Cinovec Project. The B Class Performance Shares shall convert into the number of Shares and equivalent number of CDIs equal to 1,000,000 multiplied by 0.5 and divided by the greater of: (A) $0.50 per CDI; and (B) the volume weighted average price of CDIs (expressed as a decimal of $1.00) as calculated over the 5 ASX trading days prior to the date the final preliminary mining license is issued; and

(iii) 3,000,000 B Class Performance Shares will convert into Shares and an equivalent number of CDIs upon the completing of a definitive feasibility study (DFS). For clarity, the DFS must be: (i) of a standard suitable to be submitted to a financial institution as the basis for lending of funds for the development and operation of mining activities contemplated in the study; (ii) capable of supporting a decision to mine on the Permits; and (iii) completed to an accuracy of +/- 15% with respect to operating and capital costs and display a pre-tax net present value of not less than US$250,000,000. The B Class Performance Shares shall convert into the number of Shares and equivalent number of CDIs equal to 3,000,000 multiplied by 0.5 and divided by the greater of: (A) $0.50 per CDI; and (B) the volume weighted average price of CDIs (expressed as a decimal of $1.00) as calculated over the 5 ASX trading days prior to date of receipt of the completed DFS,

(together the Milestones and each a Milestone). For the avoidance of doubt, the number of Shares and equivalent number of CDIs which will be issued on conversion of the B Class Performance Shares will not exceed a ratio of 1 for 1.

(iv) If the Milestone is not achieved or the Change of Control Event does not occur by the required date, then each B Class Performance Share held by a Holder will be automatically redeemed by the Company for the sum of $0.000001 within 10 ASX trading days of non-satisfaction of the Milestone.

$2,671,444 has been attributed to the Performance Shares and was fully expensed in prior periods.

NOTE 6: SHARE BASED PAYMENT EXPENSE

On 3 January 2017, 400,000 options with an exercise price of 58 cents and exercisable on or before the 3 January 2020 were granted to a Director of the Company. 250,000 of these options will vest at the completion of the Definitive Feasibility Study and the balance will vest 12 months thereafter. The options were valued under the Black and Scholes at $177,352. The value of the options has been pro-rated over the vesting period. Therefore, a fair value adjustment of $29,559 was recognised as a share based payment in the profit or loss.

On 14 December 2017, the Company issued 1,650,000 CDIs to the Directors under the Company's Employee Securities Incentive Plan as approved by Shareholders at the Annual General Meeting held on 30 November 2017. The subscription amounts for the new CDI's was accounted for by a limited recourse interest free loan provided by the Company to the Directors.

Fair value of Loan CDIs

The fair value of the 1,650,000 loan CDIs granted have been valued using a Black Scholes Methodology, taking into account the terms and conditions upon which the loan CDIs were granted. The exercise price of the loan CDI's is equal to the market price of the underlying shares being the VWAP of shares traded on the ASX over the 5 trading days immediately preceding the date of grant.

A summary of the inputs used in the valuation of the loan CDIs are as follows:

The following share-based payment arrangements existed as at 30 June 2017:

$2,671,444 has been attributed to the Performance Shares and was fully expensed in prior periods.

NOTE 7: RELATED PARTY TRANSACTIONS

The related party transactions of the half-year financial report are consistent with those adopted and disclosed in the Company's 2017 annual financial report for the financial year ended 30 June 2017 except the following.

On 14 December 2017, the Company issued 1,650,000 CDIs to the Directors under the Company's Employee Securities Incentive Plan as approved by Shareholders at the Annual General Meeting held on 30 November 2017, of which Mr Keith Coughlan was entitled for 850,000, Mr David Reeves was entitled for 300,000, Mr Richard Pavlik was entitled for 300,000 and Mr Kiran Morzaria was entitled for 200,000 respectively. A value of $1,149,653 has been attributed to the Loan CDIs at $0.725 per CDI, and has been fully expensed.

During the half year, Mr. David Reeves loaned $200,000 to the Company for a short term period with beared no interest. The full amount was repaid during the period.

NOTE 8: CONTINGENT LIABILITIES AND COMMITMENTS

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

NOTE 9: EVENTS SUBSEQUENT TO REPORTING DATE

On 2 March 2018, the Company received correspondence from Minister Industry and Trade of the Czech Republic, purporting to terminate the Memorandum of Understanding dated 2 October 2017 between the Company and the Ministry of Industry and Trade.

There have been no other significant events after the reporting date.

Keith Coughlan

MANAGING DIRECTOR

16th March 2018