28-09-2016: Annual Report

(Formerly MRL Corporation Limited) ABN 50 007 870 760

ANNUAL REPORT

30 JUNE 2016

CORPORATE DIRECTORY DIRECTORS

Warwick Grigor (Chairman)

Craig McGuckin (Managing Director) Peter R. Youd (Executive Director) Chris Banasik (Non-Executive Director)

COMPANY SECRETARY

Peter R. Youd

PRINCIPAL REGISTERED OFFICE IN AUSTRALIA

Suite 3

9 Hampden Road

Nedlands WA 6009

Telephone: [phone]

Facsimile: [phone]

Email: [e-mail] Website: www.firstgraphite.com.au

STOCK EXCHANGE LISTING

The Company is listed on the Australian Securities Exchange Limited under the trading codes FGR, FGROA and FGROB

SHARE REGISTRY

Automic Registry Services Level 1, 7 Ventnor Avenue West Perth W.A. 6005

Telephone: [phone]

Facsimile: [phone]

AUDITOR

BDO Audit (WA) Pty Ltd 38 Station Street

Subiaco WA 6008

SOLICITORS - AUSTRALIA

Steinepreis Paganin Lawyers and Consultants Level 4,

The Read Buildings 16 Milligan Street

Perth WA 6000

SOLICITORS - SRI LANKA

Varners

Level 14, West Tower World Trade Centre Echelon Square Colombo 01

Sri Lanka

BANKERS

Westpac Banking Corporation Level 6

109 St Georges Terrace Perth WA 6000

2 First Graphite Ltd • ANNUAL REPORT 2016 TABLE OF CONTENTS

Corporate Directory 2 Table of Contents 3 Chairman's Report 4 Review of Operations 5 Overview of Operations 5 Exploration 6

Environment 6

Safety 6 Directors' Report 7 Remuneration Report (audited) 10 Auditor's Independence 16 Corporate Governance Statement 16 Auditor's Independence Declaration 17 Consolidated Statement of Profit or Loss and Other Comprehensive Income 18 Consolidated Statement of Financial Position 19 Consolidated Statement of Changes in Equity 20 Consolidated Statement of Cash Flows 21 Notes to the Consolidated Financial Statements 22

1. Basis of Preparation 22

2. Accounting policies 22

3. Financial Risk Management 30

4. Segment reporting 35

5. Operating profit and finance income and expense 36

6. Income tax 37

7. Earnings per share 37

8. Dividends paid and proposed 37

9. Cash and cash equivalents 38

10. Interests in other entities 38

11. Exploration and evaluation assets 38

12. Property, plant and equipment 39

13. Trade and other payables 40

14. Issued Capital 40

15. Share based payments 42

16. Reserves and accumulated losses 43

17. Statement of cash flow reconciliation 44

18. Commitments and contingencies 44

19. Results of the parent company 45

20. Events since the end of the financial year 46

21. Related party transactions 46

22 Auditors' remuneration 46 Directors' Report 47 Independent Auditor's Report 48 Additional Securities Exchange Information 50

ANNUAL REPORT 2016 • First Graphite Ltd 3

CHAIRMAN'S REPORT

Dear Fellow Shareholder

The 2016 financial year has been one of significant achievements and "Firsts" for your Company.

During September and October 2015 the Company completed a Shareholder Purchase Plan and private placement which raised a total of $4.5m at $0.055 per share. In May 2016 the Company was able to complete a further strongly supported raising of $2.4m at $0.09 per share. These funds have enabled the Company to continue to pursue its stated goal of becoming a producer of high quality graphene from high grade Sri Lankan graphite.

Following extensive bench scale test work undertaken by the University of Adelaide, FGR constructed its first prototype commercial scale production unit for graphene. This unit was successfully commissioned during August and confirmed the scalability of the production process which has been developed by the Company. Having established the ability to produce graphene at very low cost, First Graphite is continuing its work at the University of Adelaide to identify commercial applications of graphene, thereby opening up new markets.

The board sees the production and commercialisation of graphene as providing the most significant driver for your Company's share price appreciation in the future.

The continued exploration efforts of the Company resulted in it being granted additional licences in November 2015 which meant it became the largest holder of graphite exploration licences in Sri Lanka. Drilling at the Aluketiya project provided an intersection of 1.72m of high grade vein graphite over 2.81m. This was the most significant intercept from any FGR drilling program and it is likely the most significant reported graphite intersection in Sri Lankan modern history. Subsequent analysis yielded Length Weighted Average (LWA) 98.41% Total Graphitic Carbon (TGCLOI) with results as high as 99.51% TGCLOI. In another first the Company brought an Australian geophysics company to Sri Lanka to conduct down hole electromagnetic surveys on previously drilled holes at Aluketiya and Pandeniya. These surveys were enormously successful and the results were released to the Australian Securities Exchange on 23 September 2016.

On a mining front the Company was granted an Industrial Mining Licence - A class (IML-A) over the Pandeniya project in April 2016. This was the first new underground graphite mining licence granted in 25 years. This was a clear demonstration of the ability of the Company to take a target area from exploration through to mining.

The future for your Company looks promising with ongoing progress of its own exploration and mining areas and the exciting developments in its graphene strategy.

In closing I would like to thank our shareholders for their continued support. The board would also like to express its thanks to our Managing Director, Mr Craig McGuckin, for his tireless and considerable efforts to advance the Company's projects and his inspirational leadership in building the Sri Lankan team. This team is also to be thanked for their considerable efforts.

The board looks forward to an exciting and rewarding 2016/17 financial year.

Warwick Grigor

Non-Executive Chairman 28 September 2016

4 First Graphite Ltd • ANNUAL REPORT 2016