Carbon Minerals : 2016 Annual Report (New)

Carbon Minerals Limited

ABN 29 001 836 586

Coal Seam Gas Pioneers of the Gunnedah Basin

www.carbonminerals.com.au

Annual Financial Report for the Year ended 31 December 2016

Santos/ACM Kahlua seam gas pilot - PEL 1 Gunnedah Basin

Carbon Minerals Limited

A.B.N. 29 001 836 586

Annual financial report for the year ended 31 December 2016

Contents Corporate directory Operating and financial review Directors' report Auditor's independence declaration Corporate governance statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the financial statements Directors' declaration Independent auditor's report to the members Shareholder information

Page 1 2 4 10 11 17 18 19 20 21 41 42 47

Corporate Directory Directors

Marcus Paul Lincoln Smith B.A., BSc. (Hons.), MSc., PhD. (University of Sydney) Chairman Wayne Vincent Annis-Brown LL.B., LL.M. (University of Sydney)

Steven John Danielson F.C.A., B.B.S.

Bun Kiem Lee F.C.A., B.Com. (Alternate for S.J. Danielson)

Secretaries

Steven John Danielson F.C.A., B.B.S. Rachel Lee Thorn

Registered office

Suite 3, Level 2, 66 Clarence Street SYDNEY NSW 2000 AUSTRALIA

Telephone: [phone]

Email: [e-mail]:www.carbonminerals.com.au

Share registry

Mitchell & Partners

Suite 3, Level 2, 66 Clarence Street SYDNEY NSW 2000 AUSTRALIA

Telephone: [phone]

Email: [e-mail]

Solicitors

Lincoln Smith & Co

Suite 12, 29 Bertram Street

CHATSWOOD NSW 2067 AUSTRALIA

Auditor PricewaterhouseCoopers One International Towers

Watermans Quay, Barangaroo GPO Box 2650

SYDNEY NSW 2001 AUSTRALIA

Bankers

Australia and New Zealand Banking Group Limited 388 George Street

SYDNEY NSW 2000 AUSTRALIA

Securities Exchange listing

Carbon Minerals Limited shares are listed on the Australian Securities Exchange under the code CRM. The Company is limited by shares, incorporated and domiciled in Australia.

Operating and Financial Review Review of Operations Gunnedah Basin Coal-Seam-Gas Project Petroleum Exploration Licences 1 and 12, NSW (Gunnedah Basin)

These tenements are jointly held by wholly owned subsidiary, Australian Coalbed Methane Pty Ltd (ACM) and Santos QNT Pty Ltd (Santos). ACM holds a 35% interest in the tenements and Santos holds the remaining 65%. Exploration is carried out under a joint venture arrangement with Santos being the project Operator.

Throughout the reporting period field operations remained limited to care and maintenance of existing wellheads, site facilities and access tracks. Proactive safety work included pressure testing of the Georges Island wells and Leak Detection and Repair inspections of Georges Island and Kahlua wells in PEL1 and Longlea well in PEL12. No leaks were detected at any of the sites.

Statutory reporting to NSW Division of Resources and Energy and NSW EPA was undertaken by the Operator Santos.

Significant changes to NSW mining and petroleum legislation were passed in the last quarter of 2015 and came into effect in March 2016.1Amongst other matters the changes incorporate a range of conditions relevant to the granting or renewal of Petroleum Exploration Licences. Many conditions that were previously detailed in the specific licence documents are now covered by the legislation and common to all PELs.

As previously reported, in December 2014 an application for renewal of PEL1 was submitted to the NSW Government by the Operator and in August 2016 an application for the renewal of PEL12 was lodged.

Renewal for either licence is yet to be granted and is not expected until government administrative procedures are in place to accommodate the changes in legislation.

Operator Santos has continued with a range of activities and meetings relating to government, community, media, stakeholder and environmental matters.

Financial Performance

The consolidated loss of the consolidated entity after providing for income tax amounted to $217,677 (2015: loss $7,238,077). The 2015 loss was primarily due to an impairment charge of $7.142M after tax against the historical book value of the group's assets.

Financial Position

At 31 December 2016 cash was $4,780,157 (2015: $4,994,209) and current liabilities were $153,968 (2015: $132,581). The reduction in cash is chiefly due to the payment of exploration and evaluation expenditure creditors during the year.

The group has adequate cash reserves to fund its continued participation in the joint arrangement with Santos for the foreseeable future. Budgeted expenditure commitments for the year ending 31 December 2017 for ACM's 35% share are $327,250. Please refer to Note 23 for further information on future exploration expenditure commitments.

1 http://www.edonsw.org.au/mining_and_petroleum_legislation_amendment_package_2015