Magnis Resources : 2016 ANNUAL REPORT

2016

ANNUAL REPORT

CORPORATE DIRECTORY

ABN 26 115 111 763

INTERNET ADDRESS

www.magnis.com.au

DIRECTORS

F Poullas (Chairman)

J C Jooste-Jacobs

(Non-Executive Director)

P Tsegas

(Non-Executive Director)

C Johnstone

(Non-Executive Director)

L Eldridge (Executive Director)

CHIEF EXECUTIVE OFFICER

F Houllis

COMPANY SECRETARY

D N Richardson

FINANCIAL CONTROLLER

P C Tju

REGISTERED OFFICE

Suite 4.03, 1 Alfred Street Sydney NSW 2000 Australia Tel [phone]

Fax [phone]

TANZANIA OFFICE

No 4, Zambia Rd, Oyster Bay Dar es Salaam, Tanzania

Tel [phone]

EMAIL ADDRESS

[e-mail]

SHARE REGISTER

Link Market Services Tower 4, 727 Collins Street

Docklands VIC 3008 Australia Tel [phone]

Fax [phone]

AUDITORS

BDO East Coast Partnership, Level 11, 1 Margaret Street Sydney NSW 2000 Australia Tel [phone]

BANKERS

National Australia Bank Ltd Level 3, 255 George Street Sydney NSW 2000 Australia Tel [phone]

STOCK EXCHANGE LISTING/ASX

Magnis Resources Limited shares (code MNS) are listed on the Australian Securities Exchange.

Magnis also has listed options

(code MNSO) with an exercise price of

9.533 cents expiring 31 May 2017.

THE COMPANY

MAGNIS RESOURCES LIMITED ANNUAL REPORT 2016

Contents

The Company

A Special Mining Licence and

necessary environmental permits

were issued to Magnis during the

Corporate directory 2

The company 3 Annual general meeting 3 Chairman's statement 4

Review of operations 6

Directors' report 18

Auditor's independence

declaration 30

Corporate governance

statement 31

Statement of profit or loss and

other comprehensive income 39

Statement of financial position 40 Statement of changes in equity 41 Statement of cash flows 42

Notes to the financial

statements 43 Directors' declaration 63

Independent auditor's report 64

Additional shareholder

information 68

Magnis is an Australian based

company in the business of exploring for, developing, and ultimately

mining natural flake graphite for use in various industries including in particular, batteries for storing electrical energy.

The flagship project is the Nachu Graphite Project located in south east Tanzania, circa 220km from the sea port town of Mtwara. The excellent purity levels shown at the metallurgical testing stages combined with the good proportion of super jumbo, jumbo

and large flake natural graphite make the Project very unique and demands premium prices in the market.

Extensive battery testing has occurred in the past year on the Nachu graphite and outstanding results have been achieved to date with potential

end users extremely interested in further examining the qualities and performance of the Nachu graphite to be used in the anode for

lithium-ion batteries.

A recent Bankable-Feasibility Study (BFS) conducted shows the post-tax Net Present Value of Nachu to be US$1.69B. Further details of the BFS were released to the ASX on

31 March 2016 and are mentioned in this Annual Report.

reporting period to allow the Company to focus on finalising substantial offtake agreements and to commit

to project finance and commence the construction of a processing plant and mining facilities. Infrastructure agreements for power and port access have also been reached.

The Company is well supported by an experienced board and

management team with specific skills in the project development, from the exploration phase through to mining and production.

Annual General Meeting

The 2016 Annual General Meeting of the members of Magnis Resources Limited will be held at The York Conference and Function Centre, Level 2, 99 York Street, Sydney

NSW 2000 on Friday 21 October 2016 at 10:00am. A formal notice of

meeting and proxy form will be mailed separately to all shareholders.

Light refreshments will be served at the conclusion of the meeting.

PAGE 3

CHAIRMAN'S STATEMENT

Dear Shareholders,

The progress made in the pre- development phases for the Nachu Graphite Project in Tanzania during the 2015/2016 Financial Year

has been outstanding and this is following a significant milestone year for the previous reporting period. The Company goes from strength to strength and the Board and Management have been

on a steep learning curve in the graphite space, particularly in the research and development area that graphite attributes in the lithium-ion battery industry. This is a crucial requirement where the majority of Nachu graphite feedstock will be targeted at supplying for the rapidly advancing technology world.

Looking back on some of the major achievements made in the past year, the notables were:

1. Bankable Feasibility Study was released and delivered on time. Project economics confirm Nachu as being a robust, high returning graphite project with a premium quality product.

2. Updated Mineral Resource released for Nachu containing 174Mt at

   5.4% Graphitic Carbon (Cg) at 3% Cg cut-off grade. 71% or 124 Mt classified as Measured or Indicated Resources and the Mineral Resource now contains over 9.3Mt of contained graphite, an increase of over 14%.

3. Outstanding results achieved from the Nachu Graphite when used in the performance of testing lithium- ion batteries which exceeds the performance of synthetic graphite. Purity levels are exceptionally high with the natural flake graphite

   that the Nachu deposit contains. Spherical Coated Graphite at 99.99% TGC purity was achieved without the use of environmentally unsafe chemicals and the added benefit of no chemical treatment

   is a substantial cost saving in the end product and also greater yields (i.e lower feedstock required to produce anode quality graphite).

4. Infrastructure agreements for power and ports were signed in recent months in preparation for future construction and operation of the Nachu Graphite Project.

5. The Non-Core Uranium Assets that the Company held were divested and demerged thus unlocking the value of these assets into another company. Eligible shareholders were given an in-specie distribution in the newly created company. This allows Magnis to have a clear focus on graphite and also creates more cordial opportunities to discuss business with potential end users of lithium-ion batteries that need

to be aware of environmental and social media issues and dealing with companies that are environmentally conscious.

I want to take this opportunity to thank the Board members for their continuing efforts. During December last year, Mr Stephen Hunt resigned from the Board to pursue other opportunities and I thank him for

his efforts in assisting the Company for many years. Mr Colin (Cobb) Johnstone and Mr Len Eldridge were appointed to the Board in May this year adding a wealth of skill and experience with major mining and finance companies respectively and I welcome Cobb and Len to the Board and look forward to their significant contributions to Magnis during this very exciting period. Overall, our Board remains very hands on and a testament as to why the Company is in a strong position.

Our management team both locally and overseas have done a superb job, especially with all the metallurgical testwork, permitting work and community work overseas along

with financial reporting, governance and conducting investment related presentations to financial and capital markets. An authentication of this is the recent inclusion of Magnis into the S&P/ASX 300 Index (just six months earlier we were included into the All Ordinaries Index for the first time) and this shows the Company has certainly come a long way in such a short period with the focus on our Nachu Graphite Project.