Goldstone Resources Regulatory News (GRL)

GOLDSTONE RESOURCES LIMITED

("GoldStone" or the "Company")

Final Results for the year ended 31 December 2016

and Notice of Annual General Meeting

GoldStone (AIM: GRL), the AIM quoted company focused on gold in West and Central Africa, is pleased to announce its final results for the year ended 31 December 2016.

The statements and results below have been extracted from the Company's audited financial statements which will shortly be available to view and download in full at the Company's web site www.goldstoneresources.com. Copies of the Annual Report, together with the notice of the Company's annual general meeting, will be posted to shareholders shortly.

The Company's annual general meeting will be held at the offices of Faegre Baker Daniels LLP, 7 Pilgrim Street, London EC4V 6LB at 10:30 a.m. on 2 June 2017.

Chairman's report

I am pleased to report to shareholders following my appointment as Chairman of GoldStone Resources Limited ("GoldStone" or the "Company") in July 2016.

2016 saw a number of changes to the Company, following the £1.0 million (US$1.4 million) equity financing in July 2016, we were able to undertake further exploration activities. The results from the diamond, reverse circulation and auguring drill programmes that were carried out at the Homase-Akrokerri project in Ghana, provided encouraging results and have highlighted the areas that we need to focus on in order to firm up and add to the existing resource, in order to advance the project towards a scoping study and ultimately, to bring the project back into production.

Whilst our core focus is centred on the Homase-Akrokerri project, we continue to seek ways of realising the value of our Senegal and Gabon assets. It is too early to claim any success in this regard, nevertheless we are working on these interesting prospects.

To align our accounting policy with international peers, GoldStone has elected to capitalise its exploration costs, where previously it had been expensing them through profit or loss. This will apply only to the work undertaken on the Homase-Akrokerri project. We believe this will provide a better reflection of the results of the Company's activities as well as its financial position.

The Board continues to monitor and manage the Company's working capital position and to consider funding structure to provide the requisite funding to advance the Homase-Akrokerri project. With this in mind, post the year-end, the Company brought in a strategic partner, Paracale Gold Limited ("Paracale"), pursuant to a loan of up to £0.4 million (US$0.5 million) to provide near term working capital. Their involvement is subject to the passing of important resolutions at the forthcoming AGM, discussed further in the Chief Executive Officer's Report. Paracale has the expertise to build mines and bring brownfield projects into production. The Board sees this partnership taking the Company forward, with the ultimate aim of bringing the Homase-Akrokerri project back into production. We are confident that they will support the Company going forward and we will keep shareholders advised as to progress in this regard. With the support of Paracale, we hope to develop a wider shareholder base in the future as further funding will be required in order to, inter alia, advance the Company's projects.

In addition, in order to preserve cash, the Board also agreed, subject to approval of the requisite share authorities by shareholders at the AGM, to be issued shares in respect of salaries through to the end of September 2017.

During 2016, there were a number of changes to the Board and since the year end, Bob Foster has stepped down as Non-executive Director. His regular involvement will be missed as he had developed an excellent understanding of the complex geology of the Homase-Akrokerri project. We thank him for the continuity and valued expertise he contributed during his time with the Company. Richard Lloyd and I remain as the independent Non-executive Directors.

GoldStone is well positioned and has a core team who are committed to facilitate effective decision making, to realise the value of our assets for the benefit of all stakeholders. We thank our shareholders for supporting the Company thus far and we give you our commitment that we will work diligently to justify your trust in the Board and GoldStone's future, in building a robust mining company.

Chief Executive Officer's Report

It is my pleasure to present my first Annual Report as the Chief Executive of GoldStone Resources Limited ("GoldStone" or the "Company") having been appointed in an acting role on 18 February 2016 and then substantive on 30 June 2016, I set out below a strategy for the Company and an operational update.

The focus for the Company going forward is to unlock value through the potential development of it's Homase-Akrokerri project in Ghana. GoldStone will focus its efforts on increasing the confidence in and overall scale of the existing mineral resource and economics for the project as it progresses through to a scoping study. The ultimate aim is to bring the project back into production, and to place the Company on a sound financial footing. With this in mind, the Company, post year-end, entered into a loan agreement with Paracale Gold Ltd ("Paracale"), which will provide the Company with important working capital and will, subject to shareholder approval, convert into shares in the Company. In addition, Paracale also brings extensive experience in developing and building mines and we welcome their support to date and their continued involvement will be dependent upon positive support from shareholders at the AGM.

Significant developments have occurred this last year and are highlighted below:

Homase-Akrokerri, Ghana

Since August 2016 the Company has made significant progress, bringing the project administration up-to-date and instigating work on its most advanced project, Homase-Akrokerri project in Ghana, with approximately 1,500 metres of reverse circulation drilling ("RC") and 800 metres of diamond drilling ("DD") and two auger drilling programmes for over 3,300 metres on the licences. The programme produced encouraging results by starting the process of targeting 'information gaps' within the existing resource. These results provide important insights to the controls on the mineralisation and allow us to plan further drilling with a view to adding to the existing resource, whilst at the same time improving confidence levels in the categorisation of the existing 0.62 million ounce JORC Code compliant resource. Although there is little doubt that the ore shoots continue to greater depths, our focus will be on identifying resources at depths that can be exploited in the foreseeable future. The Company will, subject to funding, also look to undertake further exploration work on additional areas of interest as it seeks to increase the total resources within the licences.

We welcome Paracale on board, subject to shareholder approval, to assist GoldStone in the development of Homase-Akrokerri and the evolution of GoldStone as a whole. We will be reviewing the Homase-Akrokerri project to advance the medium-term strategy of completing a scoping study with the ultimate aim to re-commence production. The Board believes that Paracale, given its experience in developing projects, will be able to provide support to the Company as it seeks to achieve the goal of bringing the project back into production.

Senegal and Gabon

Progress on the projects in these two jurisdictions has been inhibited with the focus on Ghana. However, we are encouraged by the recent interest of Randgold to progress their Massawa gold project and of Toro Gold's development of their Mako Project, both in Eastern Senegal. The Company has received approaches regarding possible joint ventures for each of the projects in Senegal and Gabon and these will continue to be assessed and considered. However, the projects in these jurisdictions, due to their early stage nature, are considered to have limited value at the current time and therefore costs associated with these projects will continue to be expensed through profit or loss until such time that they may be considered to be commercially viable.

Former Director Claim

As announced on 13 October 2016, there is an outstanding claim by a former director. Whilst the Board believes there is no merit in the claim, discussions are ongoing with the claimant in order to resolve the situation. As previously disclosed, the original claim exceeds the Company's current available cash and should an agreement not be reached, the claim will be in heard in the South African Labour Court. This has been disclosed as a contingent liability in note 17 to the financial statements.

Accounting Practice

Previously GoldStone had been writing off all exploration expenditure to profit or loss. The Company has now elected to capitalise such costs as assets, as GoldStone believes this will align its accounting policy with its peers and provide a better reflection of the results of its activities as well as its financial position.

This change will only affect the work at the Homase-Akrokerri project since GoldStone instigated work on the combined licences. This is detailed in the accounts at notes 3(c) and 3(i) to the financial statements. The effect of change in the accounting policy increases the total carrying value of Intangible Assets - Exploration by US$6.3 million since inception in 2010.

Working capital management and Funding

In July 2016, £1.0 million (US$1.4 million) was raised with US$0.64 million being spent in the ground at Homase-Akrokerri, including reinstating work at site, completion of two auger programmes and the RC and DD programmes, re-interpretation of the geo-physics and modelling old data.

The balance of the funds was spent on administration related costs in Ghana and the Corporate overheads in London amounting to US$0.75 million, which includes the loan to Stratex International Plc ("STX") of US$0.25 million which was capitalised as equity and the settlement payment of US$0.13 million to settle an employment related dispute.

Following the year end, the Company secured a £0.4 million convertible loan with Paracale, which was not subject to settlement on the claim by the former director. £0.2m has already been drawn down and, subject to shareholder approval at the Company's Annual General Meeting ("AGM"), the second tranche of £0.2 million will be drawn down in full within three business days of AGM and the full amount of the loan plus accrued interest will then be converted into new ordinary shares of 1 penny each in the capital of the Company ("Ordinary Shares").

This loan will be used for essential corporate purposes, including renewal of licences and a review of existing data for all the projects, with the initial focus on the Homase-Akrokerri project. Following the review, further funding will be required to advance the Company's projects. The loan, if drawn in full, together with the Company's existing cash resources, are expected to provide funds through to early 2018, prior to taking into account the claim by the former director.

The Directors continue to monitor and manage the Company's working capital position very carefully and have, in order to preserve cash and subject to the required authorities being granted by shareholders at the AGM, agreed to convert accrued and future salaries and fees through to the end of September 2017 for all Directors into new Ordinary Shares ("Fee Shares"). This is expected to save US$140,850 over a nine month period.

The Board welcomes and values the support and credentials of Paracale, who we believe will be a long-term strategic investor and stakeholder in the Company.

Risk management

The Board has identified the following as being principal strategic and operational risks (in no particular order).

Going concern

The Company's going concern status is dependent on seeking working capital in the short term and the longer term to exploit the Homase-Akrokerri project. The loan of £0.4 million (US$0.5 million) from Paracale is conditional upon shareholder approval at the AGM and, should it be drawn in full and converted, together with the Company's existing cash is expected to be sufficient to fund the Company's working capital requirements through to early 2018. However, in order to advance the projects, as set out above, the Company will need to raise additional funds.

It should be noted that with the outstanding claim by a former director, the Company incurs a contingent liability, and in the event the claim results in a court hearing and the ruling goes against GoldStone, then it could potentially result in the Company becoming insolvent. Further details are provided in note 17 to the financial statements.

The loan provided by Paracale was not subject to the claim being settled and the Board was mindful of this and also the need to minimise dilution for existing shareholder, with the conversion of the loan resulting in dilution of shareholders, and the need to raise working capital in the short-term. Accordingly, the Board took all of this into consideration at the time of entering into the loan and believe that the loan is in the best interest of the Company and shareholders as a whole.

If shareholders do not approve the conversion of the Paracale loan at the AGM, the Company will be unable to draw the second tranche of the loan of £0.2 million and the initial tranche, plus accrued interest and a default fee of 50% of the initial tranche will be repayable in full within six weeks of the AGM. If this was to occur and the Company is subsequently unable to secure the necessary funding in the short term to repay the loan and to provide general working capital, it is highly likely that the Company will not be able to meet its liabilities as the fall due and may therefore be forced into insolvency proceedings (be that administration or liquidation) and in such a case it is highly unlikely that there would be any value attributable to Shareholders.

Notwithstanding the contingent liability, and the support from Paracale, the Company will have to seek further funding to be able to advance the projects and to provide general working capital. Therefore, in order to provide maximum flexibility to the Company going forward, the Company will be seeking the necessary shareholder approvals to be able to issue new ordinary shares, in respect of the both the conversion of the loan and for future equity placings at the AGM. Accordingly, the Directors will be seeking Shareholder approval at the AGM to increase the Company's authority to issue shares without pre-emption in order to provide maximum flexibility to the Company.

A General Meeting of the Company is to be held at 10 a.m. on 2 June 2017 at the offices of Faegre Baker Daniels LLP at 7 Pilgrim Street, London EC4V 6LB.

It should be noted that the auditors have drawn attention to going concern within their audit report by way of an emphasis of matter.

Exploration

Exploration for natural resources is speculative and involves significant risk. Drilling and operating risks include geological, geotechnical, seismic factors, industrial and mechanical incident, technical failures, labour disputes and environmental hazards.

The Directors are constantly evaluating each project site by site in order to mitigate as far as possible these risks inherent in exploration. Use of modern technology and electronic tools assist in reducing risk in this area. Good employee relations is also key in reducing the exposure to labour disputes. The Company is committed to following sound environmental guidelines and practice and is keenly aware of the issues surrounding each individual project.

Country and political

The Company's projects are in Ghana, Senegal and Gabon. Emerging market economies could be subject to greater risks including legal, regulatory, economic and political risks and are potentially subject to rapid change.

The Board routinely monitors political and regulatory developments in its countries of interest. Ghana has recently gone through a successful peaceful election. In addition, the Company actively engages in dialogue with relevant Government representatives in order to keep abreast of all key legal and regulatory developments applicable to its areas of interest. The Company has a number of internal processes in place to ensure that it is wholly compliant with all relevant regulations in order to maintain its licences within each country. These country risks are further addressed in notes 2(d)(ii) and 3(j) to the financial statements.

Social, Safety and Environmental

The Company's success may depend upon its social, safety and environmental performance as failures can lead to delays or suspensions of its activities.

The Company takes its responsibilities in these areas seriously and monitors its performance across these areas on a regular basis. As we continue to build our confidence in the Homase-Akrokerri project through drilling, metallurgical and engineering studies, we will also strengthen our relationship with the communities living within the concession areas and close to the projects. Initially in Ghana, our initiative will be centred on building a co-operative with the smallholder farmers and out-grower schemes with the communities. These schemes benefit both the communities in which we will be operating and our investors into the agricultural programmes.

Well-Positioned for Growth

GoldStone is a gold explorer with assets in West Africa. The Company is focused on unlocking the value in its advanced Homase-Akrokerri project in Ghana and gaining an improved understanding of the exploration upside potential at the projects in Senegal and Gabon.

I would like to thank my fellow Board members, both past and present, and the Company's advisers for their enthusiasm, hard work and valuable guidance. 2016 was a year of considerable change for GoldStone and I look forward to updating you on our continued progress over the course of 2017. Despite the challenging market conditions, with the continued support of our shareholders and partners, we are well positioned to be able to deliver further growth for all stakeholders.

I view the future of the gold industry with optimism and, with the ability to take advantage of enabling situations, I believe GoldStone will present better growth for all shareholders and stakeholders.

Consolidated statement of comprehensive income

For the year ended 31 December 2016

Consolidated statement of financial position

As at 31 December 2016

Consolidated statement of changes in equity

For the year ended 31 December 2016

Consolidated statement of cash flows

For the year ended 31 December 2016

Notes to the consolidated financial statements

1. Basis of preparation

The financial information set out in this announcement is abridged and does not constitute the Company's statutory financial statements for the year ended 31 December 2016. The financial information has been extracted from the financial statements for the year ended 31 December 2016, which were approved by the Board on 15 May 2017 and on which the auditors have reported without qualification but does include an emphasis of matter in relation to going concern as this is dependent of the Group being able to raise funds from external sources. The 2016 Annual Report will be distributed to shareholders and made available on the Company's website at http://www.goldstoneresources.com. It will also be filed with the Companies Registered Office.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union (EU), including related interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC).

The accounting policies adopted by the Group are consistent with those of the previous financial year except in the current financial year, the Group capitalised its exploration expenses in accordance with IFRS and therefore changed its exploration accounting policy to:

Intangible assets - exploration and evaluation

The Group capitalises expenditure in relation to exploration and evaluation of mineral assets when the legal rights are obtained. Expenditure included in the initial measurement of exploration and evaluation assets and which are classified as intangible assets relate to the acquisition of rights to explore, topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling and activities to evaluate the technical feasibility and commercial viability of extracting a mineral resource.

Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount of an asset may exceed its recoverable amount. The assessment is carried out by allocating exploration and evaluation assets to cash generating units, which are based on specific projects or geographical areas. Whenever the exploration for and evaluation of mineral resources does not lead to the discovery of commercially viable quantities of mineral resources or the Group has decided to discontinue such activities of that unit, the associated expenditures are written off to profit or loss.

The effect of change in the accounting policy increases the total carrying value of Intangible Assets - Exploration by US$6,344,127. Accordingly, the corresponding amount charged to the Statement of Comprehensive Income for the year 2016 is US$637,524 and for the year 2015 is US$405,992 and the amount adjusted in the retaining earning for the period up to 2014 is US$ US$5,300,610.

The directors do not propose a dividend (2015: nil)

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's report above; in addition Note 16 to the financial statements includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to credit and liquidity risk.

The financial statements have been prepared on a going concern basis. The Group's assets are not generating revenues, an operating loss has been reported, operating cash outflows have been incurred and are expected in the 12 months subsequent to the date of these financial statements and as a result the Company will need to raise funding to provide additional working capital to finance their ongoing activities and non-discretionary expenditures.

Based on the Board's assessment that the cash flow budgets (which include the impact of managements cost cutting programme) can be achieved and that the necessary funds will be raised, the Directors have a reasonable expectation that the Group has access to adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements for the year ended 31 December 2016.

Should the Group be unable to continue trading, adjustments would have to be made to reduce the value of the assets to their recoverable amounts, to provide for further liabilities which might arise and to classify fixed assets as current.

Going concern is referred to in the auditor's report as an emphasis of matter without any modification of their opinion.

2. Operating segments

The Group has two reportable segments, exploration and corporate, which are the Group's strategic divisions. For each of the strategic divisions, the Group's CEO, deemed to be the Chief Operating Decision Maker ("CODM"), reviews internal management reports on at least a monthly basis. The Group's reportable segments are:

Exploration: the exploration operating segment is presented as an aggregation of the Homase and Akrokerri licences (Ghana), the Manso Amenfi licence (Ghana), the Sangola licence (Senegal), the Oyem licence (Gabon) and the Ngoutou licence (Gabon). Expenditure on exploration activities for each licence is used to measure agreed upon expenditure targets for each licence to ensure the licence clauses are met.

Corporate: the corporate segment includes the holding company costs in respect of managing the Group. There are varying levels of integration between the corporate segment and the combined exploration activities, which include resources spent and accounted for as corporate expenses that relate to furthering the exploration activities of individual licences.

Information about reportable segments for the year ended 31 December 2016

Information about reportable segments for the year ended 31 December 2015

Reconciliation of reportable segment revenues, profit or loss, assets and liabilities, and other material items

Reconciliation of reportable segment revenues, profit or loss, assets and liabilities, and other material items

3. Intangible assets - exploration

The Group's Intangible assets comprise wholly of Exploration assets in respect of the Homase-Akrokerri project in Ghana.

The Group has implemented a change in accounting policy in the year to adopt a full cost based accounting policy for their Homase and Akrokerri licences with retrospective effect. This has resulted in a prior year restatement per the above.

4. Taxation

(a) current tax

(b) deferred tax

The Company is subject to Jersey income tax at the rate of 0%. The Group is also registered for income tax purposes with the South African Revenue Service. Due to the loss making position of the Group in all jurisdictions there is no tax charge and no deferred tax asset has been recognised in the current or prior periods due to uncertainty of future profits. As a result no reconciliation has been prepared.

5. Capital and reserves

(a) share capital

During the year the Company issued the following ordinary 1 pence fully paid shares:

(b) ordinary shares

Each holder of ordinary shares is entitled to receive dividends as declared from time to time, and is entitled to one vote per share at meetings of the Company.

(c) deferred shares

Each holder of deferred shares shall not be entitled to receive notice of, attend or vote at any meeting of the Company (other than a meeting of the holder of the Deferred shares), shall not be entitled to any dividends or other distributions (whether on a winding up of the Company or otherwise). On a winding up of the Company, each deferred share shall confer upon its holder the right to receive an amount equal to the nominal amount paid up on such deferred share.

(d) issue and consolidation of ordinary shares

During the year, the Company issued a total of 40,000,000 (December 2015: Nil) new ordinary shares, all of which rank pari passu with the existing ordinary shares. The shares (which had a par value of 1.0p each) were issued at a placing price of 2.5p per share. The value received for the share issuance was US$1,295,764 (December 2015: US$ Nil).

The Company has not concluded any share repurchases since its incorporation.

(e) dividends

No dividends were proposed or declared during the period under review (2015: Nil).

(f) description and purpose of reserves

(i) share capital

Share capital consists of amounts subscribed for share capital at nominal value.

(ii) share premium

Share premium consists of amounts subscribed for share capital in excess of nominal value.

(iii) capital contribution reserve

Capital contribution reserve consists of deferred shares classified as equity.

(iv) share options reserve

Share options and warrants reserve consists of the fair value of options and warrants outstanding at the year end.

(v) accumulated deficit

Cumulative net gains and losses recognised in the consolidated statement of comprehensive income.

6. Earnings per share

The calculation of basic earnings per share at 31 December 2016 was based on the losses attributable to ordinary shareholders of US$834,874 (2015: US$891,931), and an average number of ordinary shares in issue of 79,832,253 (2015: 62,286,363).

No diluted earnings per share is calculated.

The Group has the following instruments which could potentially dilute basic earnings per share in the future:

7. Subsequent events

In April 2017, Bob Foster stepped down as Non-executive Director and the Group entered into a loan agreement with Paracale Gold Limited ("Paracale"), following which Paracale will provide a loan of up to £0.4 million (US$0.5 million). The nature of this transaction is a convertible loan note.

The initial drawdown on this loan was £0.2 million (US$0.3 million) with the remaining £0.2 million (US$0.3 million) to be drawn down within three business days of the Company's 2017 Annual General Meeting ("AGM"). The loan will be unsecured and attract interest at a rate of 9.375 per cent per annum, compounded daily until repaid or converted and, subject to shareholder approval at the AGM, will convert automatically into new ordinary shares in the Company at a price of 1 pence per share.

A part of this agreement, within five business days of issue of these conversion shares Paracale will also receive warrants to subscribe for such number of new ordinary shares as equals the number of conversion shares issued, which will be exercisable at a price of 2 pence per share at any time during the 2-year period following the grant date.

If shareholders do not approve the conversion at the AGM, the drawn amount of the loan, accrued interest and a default fee of 50% of the amount of the loan then outstanding will become payable in full to Paracale within six weeks of the AGM. Also, if shareholders do not approve the conversion and the loan is repaid, Paracale shall receive warrants to subscribe for 20,000,000 Ordinary Shares ("Repayment Warrants"), to be issued within five business days of the AGM. If the Company does not have sufficient authority to issue the Repayment Warrants at that time, it will be unable to issue any further Ordinary Shares until such time as the Repayment Warrants have been issued to Paracale.

As a result, if the Company is unable to secure the necessary funding in the short term to repay the loan and to provide general working capital, it is highly likely that the Company will not be able to meet its liabilities as the fall due and may therefore be forced into insolvency proceedings (be that administration or liquidation) and in such a case it is highly unlikely that there would be any value attributable to Shareholders.

The Group's financial statements were approved by the directors on 15 May 2017.

For further information, please contact:

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").