NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020

1.       STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in preparing the financial report of Salt Lake Potash Limited (Salt Lake or Company) and its consolidated entities (Consolidated Entity or Group) for the year ended 30 June 2021 are stated to assist in a general understanding of the financial report.

Salt Lake is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange (ASX) and the AIM Market (AIM) of the London Stock Exchange.  The registered office is located at 239 Adelaide Terrace Perth WA 6000.

The financial report of the Group for the year ended 30 June 2021 was authorised for issue in accordance with a resolution of the Directors on 30 September 2021.

(a)        Basis of Preparation

The financial report is a general purpose financial report, which has been prepared in accordance with Australian Accounting Standards ("AASBs") and other authoritative pronouncements of the Australian Accounting Standards Board ("AASB") and the Corporations Act 2001. The Group is a for-profit entity for the purposes of preparing the consolidated financial statements.

The financial report has been prepared on a historical cost basis. The financial report is presented in Australian dollars.

Statement of compliance

The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

Going concern 

The consolidated financial statements have been prepared on a going concern basis which assumes the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the ordinary course of business.

For the year ended 30 June 2021, the Group incurred a net loss of $5.310m (2020: $15.681m), experienced net cash outflows from operating and investing activities of $254.062m (2020: $126.947m) and as at 30 June 2021 held cash and cash equivalents of $69.441m (2020: $7.030m).

The Group is continuing to develop the Lake Way project, having currently progressed to the commissioning phase, and has sufficient funds to meet currently committed expenditure.  However the period of commissioning of the Lake Way Project is taking longer than originally planned and this has resulted in a delay to the commencement of product sales, and hence revenue receipts, which has resulted in a funding shortfall for expenditure required in the interim period.  Product sales are now anticipated to commence in the second half of FY22.  To address the funding shortfall the Group is in the process of raising further capital via a share placement and rights issue planned to be completed in October/ November 2021. The Directors are satisfied that the Group will be successful in raising the planned additional funds and that the amount to be raised will be adequate to fund the Group during the period up to when revenue from product sales is sufficient to fund the Group's operations.

However, should the Group require additional funds the Group has demonstrated in the past that it can secure funding from multiple sources. In addition, the Directors have been involved in a number of recent successful capital raisings for the Group and for other listed resource companies and are satisfied that they will be able to raise the additional capital required to enable the Group to meet its obligations as and when they fall due.  Accordingly, the Directors consider that it is appropriate to prepare the financial statements on the going concern basis.  

In the event that the Group is unable to achieve the matters referred to above, uncertainty would exist that may cast doubt on the ability of the Group to continue as a going concern.

These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or to the amounts and classification of liabilities that might be necessary should the Group be unable to continue as a going concern.

Rounding

The financial report is presented in Australian dollars and all values are rounded to the nearest thousand ($000), except when otherwise indicated under the option available to the company under ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191. The Company is an entity to which this legislative instrument applies.

(b)        New Accounting Standards Interpretations and amendments adopted by the Group

Since 1 July 2020, the Consolidated Entity has adopted all Accounting Standards and Interpretations effective from 1 July 2020. Other than the changes described below, the accounting policies adopted are consistent with those of the previous financial year. The Consolidated Entity has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Several new and amended Accounting Standards and Interpretations applied for the first time from 1 July 2020. These did not have an impact on the consolidated financial statements of the Consolidated Entity.

AASB 3 Business Combinations

The amendment to IFRS 3 clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarified that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the consolidated financial statements of the Group but may impact future periods should the Group enter into any business combinations.

AASB 101 Presentation of Financial Statements and AASB 108 Accounting Polices, Changes in Accounting Estimate and Errors

The amendments provide a new definition of material that states "information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity."

The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact on the consolidated financial statements of, nor is there expected to be any future impact to, the Group.

Conceptual Framework for Financial Reporting

The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard. The purpose of the Conceptual Framework is to assist the IASB in developing standards, to help preparers develop consistent accounting policies where there is no applicable standard in place and to assist all parties to understand and interpret the standards.

The revised Conceptual Framework includes some new concepts, provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. These amendments had no impact on the consolidated financial statements of the Group.

(c)        Prior Period Adjustments

Following a review of the mandate letter with Taurus Funds Management ("Taurus") and the terms of the Bridge Facility Agreement ("Bridge Facility") and the Syndicated Facility Agreement ("SFA") relating to the interest bearing loans (see note 14), the Group has adjusted the accounting for royalty rights and options granted as consideration for services rendered by Taurus in establishing each loan facility which had been incorrectly accounted for in prior periods.

The royalty rights, representing a contractual obligation to make future cash payments, are financial liabilities which should have been recognised on the signing of each facility agreement. In this regard, the royalty rights relating to the Bridge Facility (signed on 5 August 2019) were not recognised by the Group in the prior year. The royalty rights have now been recognised and are measured at fair value on initial recognition and are subsequently carried at amortised cost ($16,719,511 at 30 June 2020). The Group has used the forecast cash flows from its latest corporate model as the basis for measuring the royalty obligation.

The options granted to Taurus under these arrangements are an equity settled, share-based payment transaction. The value of the services received should have been recognised as the services were rendered over the mandate period. In prior periods, the options were incorrectly recognised on signing the related facility agreement. The Group has now recognised and measured the services as they are received with reference to the fair value of the equity instruments granted. In this regard, the fair value of the options granted has been recalculated using a Binomial option pricing model. The recalculation resulted in a cumulative adjustment to share-based payments of $1,477,895 for the year ended 30 June 2019 and $675,850 for the year ended 30 June 2020.

In advance of the drawdowns under each facility agreement, costs recognised in relation to the associated royalty rights and options granted should have been deferred as a prepayment on the balance sheet. On drawdown of each facility, an appropriate portion of the prepaid transaction costs should have been reclassified such that the loan was recognised net of transaction costs. This has resulted in a cumulative adjustment to recognise prepayments of $1,477,895 at 30 June 2019 and $1,565,139 at 30 June 2020; and a cumulative adjustment to reduce interest bearing liabilities by $7,766,571 at 30 June 2020.

As a result of the restatement of loan balances in the prior period and the recognition of the royalty rights in respect of the Bridge Facility, the Group has retranslated the balances of these financial liabilities at each reporting date using the closing exchange rate.

Due to additional transaction costs being recognised on the drawdowns under the Bridge Facility, the effective interest rate on the loan was recalculated. Additional borrowing costs have been capitalised to mine development costs in accordance with the Group's stated accounting policy. This has resulted in a cumulative adjustment to mine properties of $7,992,413 at 30 June 2020.

The restatements noted above had no significant current income tax or net deferred tax consequences for the years ended 30 June 2019 or 30 June 2020.  

The adjustments have been made by restating prior periods. The impact of the adjustments on the financial statements is as follows:

Cumulative impact on the Statements of Financial Position

Impact on Statements of Profit or Loss and Other Comprehensive Income

Impact on basic and diluted earnings per share (cents per share)

The changes did not have any impact on the Statement of Cash Flows.

(d)        Principles of Consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30 June 2021 and the results of all subsidiaries for the year then ended.

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.

The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies.

Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date that control ceases. Intercompany transactions and balances, income and expenses and profits and losses between Group companies are eliminated.

(e)        Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

(f)         Financial Assets

Financial assets are recognised when the entity becomes a party to the contractual provisions to the instrument. Trade receivables are initially recognised at transaction price. Transaction costs that are directly attributable to the acquisition or issue of financial assets (other than financial assets at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets at fair value through profit or loss are recognised immediately in profit or loss.

Classification and subsequent measurement of financial assets

For the purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments are classified into the following categories upon initial recognition:

§   Amortised cost

§   Fair value through profit or loss (FVPL)

§   Equity instruments at fair value through other comprehensive income (FVOCI)

§   Debt instruments at fair value through other comprehensive income 

All income and expenses relating to financial assets that are recognised in profit or loss are presented within other income or expenses respectively.

Financial assets at amortised cost (debt instruments)

The Group measures financial assets at amortised cost if both of the following conditions are met:

§   The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and

§   The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

The Consolidated Entity's financial assets at amortised cost include short term deposits and other receivables.

Impairment

The Group recognises an allowance for Expected Credit Loss (ECL) for all debt instruments not held at fair value through profit or loss. ECL is based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original EIR. An ECL is recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For receivables due in less than 12 months, the Group will recognise a loss allowance based on the financial asset's lifetime ECL at each reporting date. The Group will establish a provision matrix for these receivables that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment as sales from product eventuate or significant receivables come to hand.

The Group considers a financial asset in default when contractual payments are 60 days past due. In certain cases, the Group may consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows and usually occurs when past due for more than one year and not subject to enforcement activity.

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

(g)        Inventory

Inventories are valued at the lower of cost or net realisable value. Cost is determined primarily on the basis of average costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and cost necessary to make the sale. The cost of raw materials, spare parts, freight and indirect costs allocation is the purchase price. The cost of partly processed and saleable products is generally the cost of production including:

§  Labour costs, materials and contractor expenses which are directly attributable to the extraction and processing of brine; and

§  The depreciation of mining properties and leases of property plant and equipment used in the extraction and processing of brine and production of Sulphate of Potash and production overheads.

Brine inventory quantities are assessed primarily through pumping and flow measurements together with grade from assays. If the contained Sulphate of Potash calculated in the brine will not be processed within 12 months after the balance sheet date, it is included within non-current assets.

(h)        Plant and Equipment

(i)       Recognition and measurement

All classes of plant and equipment are measured at historical cost.

Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. All other repairs and maintenance are recognised in the Statement of Profit or Loss and other Comprehensive Income as incurred.

(ii)      Depreciation and Amortisation

Depreciation is provided on a straight-line basis on all plant and equipment at rates varying from 10-50% (2020: 10-50%).

The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end.

(iii)     Derecognition

An item of plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

(i)         Exploration, Evaluation and Pre-Development Expenditure

Expenditure on exploration, evaluation and pre-development is accounted for in accordance with the 'area of interest' method.

Exploration, evaluation and pre-development expenditure encompasses expenditures incurred by the Group in connection with the exploration for and evaluation of mineral resources and early development activities before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.

For each area of interest expenditure incurred in the acquisition of rights to explore is capitalised, classified as tangible or intangible, and recognised as an exploration and evaluation asset.

Exploration, evaluation and pre-development expenditure incurred by the Group subsequent to acquisition of the rights to explore is expensed as incurred, up to and including costs associated with the preparation of a bankable feasibility study.

Impairment

Capitalised costs are reviewed each reporting date to establish whether an indication of impairment exists. If any such indication exists, the recoverable amount of the capitalised costs is estimated to determine the extent of the impairment loss (if any). Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in previous years.

Where a decision is made to proceed with development, any acquired capitalised exploration expenditure is tested for impairment and transferred to development properties and then amortised over the life of the reserves associated with the area of interest once mining operations have commenced. Recoverability of the carrying amount of the exploration and evaluation assets is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest.

(j)         Mine Development

Expenditure is distinguished between 'Exploration and evaluation assets' and 'Mine Development' once the work completed to date supports the future development of the project and such development receives appropriate approvals. Following this point, all subsequent expenditure on the construction, installation or completion of ponds and other infrastructure facilities is capitalised in 'Mine Development'.  After production starts, all assets included in 'Mine Development' are then transferred to 'Producing Mines' and amortisation commences.

Borrowing costs that are directly attributable to the acquisition, construction or production of mine development assets are also capitalised. Capitalisation of borrowing costs ceases once production starts and assets included in 'Mine Development' are transferred to 'Producing Mines' or are otherwise ready for their intended use or sale.

(k)        Payables

Liabilities are recognised for amounts to be paid in the future for goods and services received. Trade accounts payable are normally settled within 30 days. Payables are carried at amortised cost.

(l)         Royalty Liability

Royalty liabilities are recognised initially at fair value and are subsequently measured at amortised cost.

The gross carrying amount of the amortised cost of the royalty liability is recalculated at each period end as the present value of the actual and revised estimated future contractual cash flows that are discounted at the original effective interest rate used on initial recognition of the royalty liability.  The gain or loss is calculated as the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate. The adjustment is recognised in profit or loss as income or expense

(m)      Provisions

Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the balance date.  If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Rehabilitation

The Group is required to decommission and rehabilitate mines or related assets at the end of their producing lives to a condition acceptable to the relevant authorities. A rehabilitation provision is recognised when the Group has a present obligation, whether legal or constructive, as a result of a past event.

The expected cost of any approved decommissioning or rehabilitation programme, discounted to its net present value, is provided when the related environmental disturbance occurs. Costs arising from obligations for site rehabilitation incurred before a decision to mine is made are expensed and accrued at the time of incurring the obligation. Once a decision to mine is made, estimated future rehabilitation costs will be capitalised and amortised over the life of the operation.  The increase in net present value of the provision for the expected cost is included in financing expenses.  Expected decommissioning and rehabilitation costs are based on the discounted value of the estimated future cost of the detailed plans prepared. Where there is a change in the expected decommissioning and restoration costs, the value of the provision and any related asset are adjusted and the effect is recognised in the profit or loss on a prospective basis over the remaining life of the operation.

The estimated costs of the rehabilitation are reviewed annually and adjusted as appropriate for changes in legislation, technology or other circumstances. Cost estimates are not reduced by potential proceeds from the sale of assets or from plant/site clean up at closure.

The ultimate cost of rehabilitation is uncertain and costs can vary in response to many factors including changes to the relevant legal requirements, the emergence of new rehabilitation techniques or experience at other sites. The expected

timing of expenditure can also change. Changes to any of the estimates could result in significant changes to the level of provisioning required, which would in turn impact future financial results.

In recognising the amount of rehabilitation obligation at each reporting date, judgement is made on the extent of rehabilitation that the Group is responsible for at each reporting date.

(n)        Interest Income

Interest income is recognised as it accrues in the Statement of Profit or Loss, using the effective interest method. This methodology exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of the financial asset.

(o)        Income Tax

The income tax expense for the period is the tax payable on the current period's taxable income based on the national income tax rate for each jurisdiction adjusted for changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements and to unused tax losses.

Deferred tax assets and liabilities are recognised using the full liability method for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose on goodwill or in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against tax liabilities and the deferred tax liabilities relate to the same taxable entity and the same taxation authority.

Tax consolidation

Salt Lake Potash Limited and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. Each entity in the tax group recognises its own current and deferred tax liabilities, except for any deferred tax assets resulting from unused tax losses and tax credits, which are immediately assumed by the Company. The current tax liability of each tax group entity is then subsequently assumed by the Company. The tax consolidated group has entered a tax sharing agreement whereby each company in the tax group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated group.

(p)        Employee Entitlements

Provision is made for the Group's liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within 12 months have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits expected to be settled later than 12 months after the year end have been measured using the projected unit credit valuation method.

(q)        Earnings per Share

Basic earnings per share (EPS) is calculated by dividing the net profit attributable to members of the Company for the reporting period, after excluding any costs of servicing equity, by the weighted average number of Ordinary Shares of the Company, adjusted for any bonus issue.

Diluted EPS is calculated by dividing the basic EPS earnings, adjusted by the after tax effect of financing costs associated with dilutive potential Ordinary Shares and the effect on revenues and expenses of conversion to Ordinary Shares associated with dilutive potential Ordinary Shares, by the weighted average number of Ordinary Shares and dilutive Ordinary Shares adjusted for any bonus issue.

(r)        Goods and Services Tax

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

(s)        Research & Development Incentive Rebate

Any rebate received for eligible Research and Development activities are offset against the area where the costs were initially incurred. For R&D expenditure that has been capitalised, any claim received will be offset against 'Exploration and Evaluation' or 'Mine Development' in the Consolidated Statement of Financial Position. For R&D expenditure that has been expensed, any claim received will be recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income.

(t)         Acquisition of Assets

A group of assets may be acquired in a transaction which is not a business combination. In such cases the cost is allocated to the individual identifiable assets (including intangible assets that meet the definition of and recognition criteria for intangible assets in AASB 138 Intangible Assets) acquired and liabilities assumed on the basis of their relative fair values at the date of purchase.

(u)        Impairment of Non-Current Assets

The Group assesses at each reporting date whether there is an indication that a non-current asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of its fair value less costs of disposal and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount.

In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the Statement of Profit or Loss and Other Comprehensive Income. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

(v)        Issued and Unissued Capital

Ordinary Shares are classified as equity. Issued and paid up capital is recognised at the fair value of the consideration received by the Company.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Foreign Currencies

(i)   Functional and presentation currency

The functional currency of each of the Group's entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the Company's functional and presentation currency.

(ii)  Transactions and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction.

Exchange differences arising on the translation of monetary items are recognised in the Statement Profit or Loss and other Comprehensive Income, except where deferred in equity as a qualifying cash flow or net investment hedge.

Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in other Comprehensive Income.

(w)       Government Grant Income

Government grants are recognised in the profit or loss on a systematic basis over the period in which the entity recognises as expenses the related costs for which the grants are intended to compensate; i.e matching income and expenses.

If the grant relates to expenses or losses already incurred by the entity, or to provide immediate financial support to the entity with no future related costs, the income is recognised in the period in which it becomes available.

(x)        Share-Based Payments

Equity-settled share-based payments are provided to officers, employees, consultants and other advisors. These share-based payments are measured at the fair value of the equity instrument at the grant date. Fair value of options is determined using the Binomial option pricing model. Further details on how the fair value of equity-settled share-based payments has been determined can be found in Note 25.

The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Company's estimate of equity instruments that will eventually vest. At each reporting date, the Company revises its

estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss over the remaining vesting period, with a corresponding adjustment to the share-based payments reserve.

Equity-settled share-based payments may also be provided as consideration for the acquisition of assets or provision of services. Where Ordinary Shares are issued, the transaction is recorded at fair value based on the quoted price of the Ordinary Shares at the date of issue. The acquisition is then recorded as an asset or expensed in accordance with accounting standards.

(y)        Interest Bearing Loans

Non-derivative financial liabilities other than financial guarantees are initially measured at fair value net of directly attributable transaction costs. These are subsequently measured at amortised cost. Transaction costs that relate to these instruments are included in the calculation of the amortised cost using the effective interest method. Any gains or losses are recognised in profit or loss through the amortisation process and when the financial liabilities is derecognised.

(z)        Leases - Group as Lessee

The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identifiable asset for a period of time in exchange for consideration.z

Right-of-use Assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees and do not include non-lease components of a contract. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period on which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the substance of fixed lease payments or a change in the assessment to purchase the underlying asset.

Short-term leases and leases of low value assets

The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low value assets recognition exemption to leases of equipment that are considered of low value (i.e. below $5,000). Lease payments on short term leases and leases of low value assets are recognised as an expense on a straight-line basis over the lease term.

(aa)     Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

(bb)     Use and Revision of Accounting Estimates, Judgements and Assumptions

The preparation of the financial report requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.

Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in the following notes:

Judgements

(i)          Right of Use Assets and Lease Liabilities (Note 10 and Note 15)

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Group has the option, under some of its leases to lease the assets for additional terms of one to four years. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g. a change in business strategy).

(ii)         Exploration and Evaluation Expenditure (Note 11)

The future recoverability of exploration and evaluation expenditure is dependent on a number of factors, including whether the Group decides to exploit the related area of interest itself or, if not, whether it successfully recovers the related exploration and evaluation asset through sale.

To the extent that exploration and evaluation expenditure is determined not to be recoverable in the future, profits and net assets will be reduced in the period in which this determination is made.

Estimates

(iii)        Deferred Tax Assets (Note 4)

Following completion of the Bankable Feasibility Study for the Lake Way Project that demonstrated the technical feasibility and commercial viability of the Project in October 2019, the Group determined that it was appropriate for the Company to transfer the Lake Way Project 'Exploration and evaluation assets' to 'Mine Development' with effect from 1 November 2019.

Due to the Group entering the phase of Mine Development, it has been deemed probable that future profits will be able to be offset against available prior year tax losses and other deferred tax assets. The Group has recognised a deferred tax asset of $25.847m and income tax benefit for the 30 June 2021 period totalling $1.923m.  The Group considers that there is convincing evidence to support the recoverability of the tax losses recognised based on the information obtained through the completion of the Bankable Feasibility Study, including the detailed financial modelling that was prepared, and the signing of binding offtake agreements for a majority of future sales volumes.

In determining the recoverability of deferred tax assets at each balance date, management prepare and review an analysis of estimated future results which support the future realisation of deferred tax assets. The estimated future profitability results are judgmental and involve a number of key assumptions. These assumptions are also used for impairment assessments referred to in the notes below. To the extent that cash flows and taxable income differ significantly from estimates, the ability of the Group to realise recognised deferred tax assets would be impacted.

(iv)        Research and Development (Note 6)

The Group is entitled to claim R&D tax incentives in Australia. The R&D tax incentive is calculated using the estimated R&D expenditure multiplied by 43.5%. For the 2021 financial year, the Group has accounted for this incentive as other income within the Statement of Profit or Loss and Other Comprehensive Income.

(cc)     Use and Revision of Accounting Estimates, Judgements and Assumptions (Continued)

(v)         Mine Rehabilitation (Note 17)

The Group assesses its mine rehabilitation provision in accordance with the accounting policy stated in Note 1(l). In determining an appropriate level of provision, consideration is given to the expected future costs to be incurred, the timing of those future costs and the estimated level of inflation. The ultimate rehabilitation costs are uncertain, and cost estimates can vary in response to many factors, including estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases as compared to the inflation rates, and changes in discount rates. The expected timing of expenditure can also change. These uncertainties may result in future actual expenditure differing from the amounts currently provided. Therefore, significant estimates and assumptions are made in determining the provision for mine rehabilitation. As a result, there could be significant adjustments to the provisions established which would affect future financial results. The provision at reporting date represents management's best estimate of the present value of the future rehabilitation costs required.

(vi)        Impairment of Non-Financial Assets (Note 12)

The recoverability of mine development and property, plant and equipment is dependent on a number of factors, including the level of proved and probable reserves, production levels, future costs and the future technological changes which could impact the cost, future legal changes (including changes to environmental restoration obligations) and changes in commodity prices. Non-financial assets are reviewed for impairment if there is any indication that the carrying amount may not be recoverable.  Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is deemed as being the higher of the fair value less costs of disposal and value in use calculated in accord-ance with the Group's accounting policy (refer Note 1u).

In the current period fair value less costs of disposal has been used. These assumptions require the use of estimates and assumptions such as discount rates, exchange rates, commodity prices mineral resources and reserves and operating perfor-mance (including the magnitude and time of related cash flows).

(vii)       Royalty Liability (Note 16)

The Group assesses its royalty liability obligation at each reporting date. The ultimate royalty expense is based on net revenue from the Lake Way Project hence is subject the Group's future financial performance which is by its nature uncertain.  Cost and sales estimates can vary in response to many factors, including estimates of potash prices, the extent and costs of production and distribution of potash, technological changes, regulatory changes and cost increases as compared to forecast inflation rates. These uncertainties may result in future net revenue, and hence royalty expense, differing from the amounts currently provided. Therefore, significant estimates and assumptions are made in determining the royalty liability. As a result, there could be significant adjustments to the liability established which would affect future financial results. The royalty liability recognised at reporting date is based on management's best estimate of the future net revenue from the Lake Way Project.