Chalice Mining : ATO Class Ruling - Demerger of Falcon Metals

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ASX Announcement

9 February 2022

ATO Class Ruling - Demerger of Falcon Metals

Chalice Mining Limited ("Chalice" or "the Company", ASX: CHN | OTCQB: CGMLF) is pleased to advise that Class Ruling 2022/10 (Class Ruling) has been issued by the Australian Taxation Office (ATO) clarifying the Australian income tax implications of the demerger of Falcon Metals Ltd ("Falcon", ASX: FAL) for shareholders of Chalice (Shareholders).

The Class Ruling only applies to Shareholders that were registered on the Chalice share register at the record date of 13 December 2021, received Falcon shares on 15 December 2021 by way of the in-specie distribution and held their Chalice shares on capital account (but are not subject to the taxation of financial arrangements rules).

In summary, the Class Ruling confirms that for Australian tax resident Shareholders:

• the receipt of Falcon shares on 15 December 2021, through the in-specie distribution under the demerger is not an assessable dividend;
• a CGT event occurred, however, any capital gain made as a result of the in-specie distribution can be disregarded if a Shareholder, who is eligible, chooses to obtain demerger roll-over relief;
• they are required to recalculate the cost base and reduced cost base of their Chalice shares and calculate the cost base of their Falcon shares acquired in the demerger. The Commissioner accepts that a reasonable apportionment is to attribute the total of the cost bases of your Chalice shares just before the demerger on the following basis:
• • 98.56% to your Chalice shares, and
  • 1.44% to your Falcon shares.
• for the purposes of determining whether you can make a discount capital gain on the subsequent disposal of Falcon shares, your Falcon shares will be taken to have been acquired on the same date, for CGT purposes, as your original Chalice shares.

The Class Ruling is available on the ATO website at www.ato.gov.au - CR22/10. A copy is also attached to this announcement.

Shareholders should consult the Class Ruling when considering the tax implications of the Falcon demerger. This announcement is a summary only and does not constitute tax advice or take into account the individual circumstances of each Shareholder. Shareholders are encouraged to seek independent taxation advice relevant to their particular circumstances.

Registered Office

ABN 47 116 648 956

Level 3, 46 Colin Street, West Perth		[e-mail]
WA 6005, Australia	T: [phone]	@chalicemining
PO Box 428, West Perth WA 6872	F: [phone]	www.chalicemining.com	chalice-mining

For personal use only

Adjustment to the Exercise Price of Unlisted Options for In-Specie Distribution

Following the in-specie distribution of Falcon shares to Chalice shareholders, in accordance with Listing Rule 7.22.3, the exercise price of the following unlisted options has been reduced by $0.0081 per option.

ASX Security Code	No. Options	Expiry Date	Exercise Price	Exercise Price
			(Pre-Demerger)	(Post-Demerger)
CHNAC	200,000	30-Jun-2023	$2.20	$2.1919
CHNAD	150,000	19-Feb-2024	$6.72	$6.7119

This announcement has been authorised for release by the Disclosure Committee.

For further information on Chalice, please visit www.chalicemining.comor contact:

Corporate Enquiries	Media Enquiries	Follow our communications
Alex Dorsch	Nicholas Read	LinkedIn: chalice-mining
Managing Director and CEO	Principal and Managing Director	Twitter: @chalicemining
Chalice Mining Limited	Read Corporate Investor Relations
[phone]	[phone]
[e-mail]	[e-mail]

This announcement does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States or any other jurisdiction. Any securities described in this announcement have not been, and will not be, registered under the US Securities Act of 1933 and may not be offered or sold in the United States except in transactions exempt from, or not subject to, the registration of the US Securities Act and applicable US state securities laws.

ASX:CHN OTCQB:CGMLF

Chalice Mining Limited 2

For personal use only

Class Ruling

CR 2022/10

Page status: legally binding

Class Ruling

Chalice Mining Limited - demerger of Falcon Metals Ltd

Relying on this Ruling

This publication is a public ruling for the purposes of the Taxation Administration Act 1953.

If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling.

Table of Contents	Paragraph
What this Ruling is about	1
Who this Ruling applies to	4
When this Ruling applies	6
Ruling	7
Scheme	27

What this Ruling is about

1. This Ruling sets out the income tax consequences of the demerger of Falcon Metals Ltd (Falcon) by Chalice Mining Limited (Chalice), which was implemented on 15 December 2021 (the Implementation Date).
2. Full details of the demerger are set out in paragraphs 27 to 55 of this Ruling.
3. All legislative references in this Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated.

Who this Ruling applies to

4. This Ruling applies to you if you held ordinary shares in Chalice and you:

• were registered on the Chalice share register on 13 December 2021 (the Record Date)
• did not hold your shares in Chalice as revenue assets (as defined in section 977-50) nor as trading stock (as defined in subsection 995-1(1)); that is, you held your shares on capital account
• were either
• • a resident of Australia (as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)) on the Implementation Date, or

Class Ruling CR 2022/10

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Class Ruling

CR 2022/10

Page status: legally binding

• • a non-resident of Australia (as defined in subsection 6(1) of the ITAA 1936) on the Implementation Date, whose shares in Chalice did not constitute taxable Australian property (as defined in section 855-15), and
• did not acquire your shares in Chalice under an employee share scheme.

5. This Ruling does not apply to anyone who is subject to the taxation of financial arrangements rules in Division 230 in relation to the scheme described in paragraphs 27 to 55 of this Ruling.

Note: Division 230 will not apply to individuals, unless they have made an election for it to apply.

When this Ruling applies

6. This Ruling applies from 1 July 2021 to 30 June 2022.

Ruling

Demerger happened

7. A demerger, as defined in section 125-70, happened to the Chalice demerger group (which included Chalice and Falcon) under the scheme described in paragraphs 27 to 55 of this Ruling.

CGT consequences - Australian-resident shareholders

CGT event G1

1. CGT event G1 happened when you were paid an amount by Chalice in respect of your Chalice shares by way of the transfer to you of Falcon shares on the Implementation Date (section 104-135).
2. You will make a capital gain from CGT event G1 happening if the amount of the reduction of share capital for each Chalice share (0.81 of a cent) is more than the cost base of the Chalice share. If so, the capital gain is equal to the amount of the excess. No capital loss can be made from CGT event G1 (subsection 104-135(3)).

Choosing demerger roll-over

1. You can choose to obtain demerger roll-over under subsection 125-55(1) for your Chalice shares.
2. If you choose demerger roll-over for your Chalice shares:
3. • any capital gain you made when CGT event G1 happened to your Chalice shares under the demerger is disregarded (subsection 125-80(1)), and
   • you must recalculate the first element of the cost base and reduced cost base of your Chalice shares, and calculate the first element of the cost base and reduced cost base of the corresponding Falcon shares you acquired under the demerger (subsection 125-80(2)) - see paragraphs 13 to 15 of this Ruling for more details.

Class Ruling CR 2022/10

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Class Ruling

CR 2022/10

Page status: legally binding

Not choosing demerger roll-over

12. If you do not choose demerger roll-over for your Chalice shares:

• you cannot disregard any capital gain you made when CGT event G1 happened to your Chalice shares under the demerger, and
• you must recalculate the first element of the cost base and reduced cost base of your Chalice shares, and calculate the first element of the cost base and reduced cost base of the corresponding Falcon shares you acquired under the demerger (subsections 125-85(1) and 125-85(2)) - see paragraphs 13 to 15 of this Ruling.

Cost base and reduced cost base of your Chalice Mining Limited and Falcon Metals Ltd shares

1. The first element of the cost base and reduced cost base of each Chalice share and corresponding Falcon share is worked out by:
2. • taking the total of the cost bases of your Chalice shares just before the demerger, and
   • apportioning that total between your Chalice shares and the Falcon shares you acquired under the demerger.
3. The apportionment is done on a reasonable basis having regard to the market values (just after the demerger) of the Chalice shares and Falcon shares, or an anticipated reasonable approximation of those market values (subsections 125-80(2) and 125-80(3)).
4. The Commissioner accepts that a reasonable apportionment is to attribute:
5. • 98.56% of the total of the cost bases of your Chalice shares just before the demerger to the Chalice shares, and
   • 1.44% of the total of the cost bases of your Chalice shares just before the demerger to the corresponding Falcon shares.

Acquisition date of Falcon Metals Ltd shares for discount capital gain purposes

16. For the purpose of determining whether you can make a discount capital gain from a future CGT event that happens to a Falcon share you acquired under the demerger, you will be taken to have acquired the Falcon share on the date you acquired, for CGT purposes, the corresponding Chalice share (table item 2 of subsection 115-30(1)). This will be the case whether or not you choose demerger roll-over.

CGT consequences - foreign-resident shareholders

CGT event G1

1. CGT event G1 happened when you were paid an amount by Chalice in respect of your Chalice shares by way of the transfer to you of Falcon shares on the Implementation Date (section 104-135).
2. You will make a capital gain from CGT event G1 happening if the amount of the reduction of share capital for each Chalice share (0.81 of a cent) is more than the cost base of the Chalice share. If so, the capital gain is equal to the amount of the excess. No capital loss can be made from CGT event G1 (subsection 104-135(3)).

Class Ruling CR 2022/10

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