CONTENTS FINANCIAL STATEMENTS YEAR IN REVIEW DIRECTORS’ REPORT CORPORATE DIRECTORY SHAREHOLDER INFORMATION 13. Exploration and evaluation assets Exploration and evaluation assets are initially measured at cost and include acquisition of rights to explore, studies, exploratory drilling, sampling and associated activities and an allocation of depreciation and amortised of assets used in exploration and evaluation activities. General and administrative costs are only included in the measurement of exploration and evaluation costs where they are related directly to operational activities in a particular area of interest. The recoupment of costs carried forward in relation to areas of interest in the exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the respective areas. Exploration and evaluation expenditures in relation to each separate area of interest are recognised as an exploration and evaluation asset in the year in which they are incurred where the following conditions are satisfied: – the rights to tenure of the area of interest are current; and – at least one of the following conditions is also met: – the exploration and evaluation expenditures are expected to be recouped through successful development and exploitation of the area of interest, or alternatively, by its sale; or – exploration and evaluation activities in the area of interest have not at the balance date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing. Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. The recoverable amount of the exploration and evaluation asset 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. South Atlantic Project On 28 February 2023, Sheffield executed a binding investment agreement (RGM Option Agreement) with Mineração Santa Elina Indústria e Comércio S/A. and Kromos Xi Fundo De Investimento Em Participações, owners of Rio Grande Mineração S/A (RGM). Please refer to ASX announcement on 28 February 2023 for further details. Sheffield was to provide US$2.5m to fund project related activities over an 18-month period and earn an option to acquire up to 20% of RGM with the payment of a further US$12.5m (US$15.0m in total) to acquire a 20% interest. Should Sheffield elect to exercise the option, subject to various conditions being satisfied, including project financing being obtained and all funds required for project construction being secured, Sheffield may exercise a further option to increase its interest in RGM up to 80%. Prior to Sheffield electing to exercise its option to acquire shares in RGM, the amounts advanced only accrues interest if a default event occurs under the terms of the contract. The default interest rate is SOFR plus 2% per annum. The option term is the later of 6 months after the initial 18 month period or the last stage 1 activity completed or waived by Sheffield under the agreement. The Project is located within the Rio Grande do Sul Coastal Plain, a region located in the southernmost state of Brazil, Rio Grande do Sul, along the coast of the Atlantic Ocean. The tenements are held by RGM. A Pre-Feasibility Study (PFS) for the Project is also currently underway via experienced engineering and mineral sands consultancy Hatch, which will include relevant development options for the Project. It is expected that PFS activities will be completed in 2024 and aligned with Mineral Resource estimation activities. Sheffield’s first tranche contribution of US$1m to RGM was made in March 2023. During the June 2024 quarter, Sheffield contributed a further US$1.5m in favour of RGM, bringing total contributions to date totalling US$2.5m to fund exploration and development activities. During the period, Sheffield has considered that whilst the amounts advanced and the protective rights within the RGM Option Agreement meets the criteria within AASB 132 Financial Instruments: Presentation and classified and measured under AASB 9 Financial Instruments, the RGM Option Agreement may also be viewed as a customary option farm-in arrangement to be recognised under AASB 6 Exploration for and Evaluation of Mineral Resources. To that end, Sheffield has revised its disclosure in accordance with AASB 6. 63 Sheffield Resources Limited Annual Report 2024
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