Final Results - Twelve Months End 31 December 2017

Herencia Resources plc

("Herencia" or the "Company")

Annual Results for Twelve Months ended

31 December 2017

Chairman's Statement

2017 proved an extremely difficult year for your board of directors; however, a number of achievements are worth noting: 

- Chilean manpower and corporate manpower was reduced and now provide the basis for the organisation to better align its cost structure with that of an earlier stage exploration group;

- Re-negotiation of the Pastizal sale and purchase agreement and Picachos option agreements were realised towards the end of the year after some months of discussions; and

- Drilling commenced at the Pastizal project by the end of the year.

An overriding priority for the board of directors was to manage outstanding obligations to creditors and to this end, the Company brought to account £192,000 in creditors associated with work programmes in previous years for the first time as well as incurring new obligations for the drilling programme at the Pastizal project of £145,000. With trade creditors at £1,171,728 at the beginning of the year, the above obligations increased creditors to £1,508,728; however, by the end of the financial year, trade creditors had been reduced by £523,179 to £985,549.

Administration costs have been reduced from £1,412,838 to £620,570.

From a funding perspective, the Company raised £993,615 during the financial year in new equity and continued to receive financial support from its largest shareholders, Australian Special Opportunity Fund and Oriental Darius Co Limited, with both these entities subscribing to further issues of convertible notes, totalling £445,932.

2018 will continue the progress in reducing costs and restarting exploration activities, including the search for new copper opportunities.

JW Williams

Acting Chairman

19 July 2018

The Directors of Herencia expect to print and post the Annual Report and Accounts for the year to 31 December 2017 (the "Accounts") during the week commencing 23 July 2018 and a further announcement will be made at that time. It is anticipated that the suspension in trading in the ompany's shares will be lifted thereafter.

For further information please contact:

Jeff Williams, Herencia Resources plc +61 418 594 324

Carl Dumbrell, Herencia Resources plc +61 402 277 282

Katy Mitchell, WH Ireland Limited (NOMAD) +44 161 832 2174

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.

The Directors present their Strategic Report for the year ended 31 December 2017.

Principal Activity and Business Review

The Company is registered in England and Wales, having been incorporated on 27 January 2005 under the Companies Act with registered number 05345029 as a public limited company.

The principal activity of the Group is mineral exploration and development and it owns a portfolio of copper-silver properties in Chile, South America. The Group operates through its parent and subsidiary undertakings, details of which are set out in note 15 to these accounts.

Review of the business and prospects

Review of the business

(i) The Company has acquired a 100% interest in the Pastizal project and holds an option to acquire 100% of the currently producing Picachos copper prospect in north-central Chile.

(ii) The Company owns 100% of the Guamanga copper-gold and the La Serena copper prospects.

(iii) The Company is also active in seeking new exploration and development opportunities with a focus on Chilean projects, given its significant expertise and resources in Chile.

Picachos and Pastizal prospects

The Picachos prospect is an advanced copper prospect located 50 kilometres east of the major coastal city of La Serena and only eight kilometres west from the large Carmen de Andacollo copper mine owned by the Canadian miner, Teck Resources Inc. This region is a significant mining and resources location in Chile.

High grade copper ore grading approximately 2% copper is currently mined by private miners at Picachos on a small (artisanal) scale. During 2017, the Company did not undertake any drill programmes. In 2014, the Company completed two successful drilling campaigns targeting both the high-grade structures and mantos-style copper mineralisation that exists at Picachos. Numerous high-grade copper intercepts were reported in both drill programmes.

The Company commenced towards the end of the financial year a 2,000 metre drilling campaign at the Pastizal project.

Other prospects

The Company proposes to undertake limited work programmes at the La Guamanga and La Serena prospects during 2017 in order to develop an appropriate strategy for extracting value.

The La Guamanga Project is targeting iron oxide copper-gold style mineralisation whilst the La Serena Project is targeting porphyry copper belt.

The package is highly prospective for leached cap, blanket style chalcocite copper mineralisation and/or porphyry gold.

2018 goals

- conduct a drilling campaign at the Picachos project;

- review new opportunities in Chile; and

- source additional funding for the Company.

The Company's primary business remains mineral exploration and development which is subject to risks including discovery of economic mineral resources, delays in work programme plans and schedules, changes in market conditions affecting the resources industry or commodity price levels, the outcome of commercial negotiations and technical or operating factors, political, environmental and regulatory controls and approvals, and availability and retention of suitable employees and consultants. Any one or more of these risk factors could have a material adverse impact on the value of the Company.

Due to the early stage of the development of the Company and the nature of its activities, it is not meaningful to consider a review of the key financial performance indicators in respect of the year.

Strategy

The Company's strategic plan is to advance the exploration programs at its Chilean Picachos and Pastizal prospects and continue to reduce creditors. With the strong Chilean management team, the Company will leverage off the significant operating experience in Chile.

Jeff Williams

Executive Director

19 July 2018

The directors present their Directors' Report as well as the audited financial statements for the Herencia Group (the "Group"), comprising Herencia Resources plc and its controlled entities, and the audited financial statements for Herencia Resources plc (the "Company"), for the financial year ended 31 December 2017.

Result

The Group incurred a loss of £628,535 for the financial year ended 31 December 2017 (2016: £2,943,672). The significant reduction in the loss for the financial year arose from a reduction in administration costs of £792,269 largely due to the termination of all corporate manpower costs and reduced consulting charges; no impairment to exploration and evaluation brought to account for the financial year (£875,000 was recognised in the previous financial year); and lower foreign currency losses.

The Group also de-recognised loan monies previously brought due to terms and conditions governing the repayment of these loan monies.

Dividends

The directors have not recommended any dividend for the financial-year ended 31 December 2017.

Funding

Convertible note issues

On 3 March 2017 and 16 March 2017, the Company secured US$100,000 (face value US$120,000), in total, in convertibles notes from Australian Special Opportunity Fund and Oriental Darius Co Ltd.

Under the terms and condition of the Convertible Facility, Tranche II was drawn on the same terms as Tranche I, including 0% interest per annum, a 24-month term and security against the assets of the Company.

On 22 December 2017, the Company secured US$200,000 (face value of US$240,000) from ASOF as part of a funding arrangement agreed between the Company and its two largest shareholders, ASOF and Oriental. (On 8 January 2018 the Company secured US$200,000 (face value of US$240,000) from Oriental.) Under the terms of the funding arrangement the convertible notes were issued on the same terms and conditions as those agreed on 5 April 2016.

The funding comprises:

- US$150,000 of convertible loan notes with a face value of US$180,000 convertible into fully paid ordinary shares at an exercise price of £0.0001 ("Conversion Price") from the 1 April 2016 facility; and

- US$50,000 of convertible loan notes with a face value of US$60,000 into shares at an exercise price of £0.0003 ("Conversion Price") from the 6 June 2016 facility.

Conversion of short-term loan

On 15 May 2017, Oriental converted US$50,000 short-term loan into fully paid ordinary shares which resulted in the Company issuing 388,018,004 fully paid ordinary shares.

Conversion of convertible notes

On 10 July 2017 and 3 August 2017 Oriental and ASOF converted US$240,000 in convertible notes into fully paid ordinary share of the Company which resulted in the Company issuing 943,396,226 fully paid ordinary shares being issued to Oriental and 931,178,173 fully paid ordinary shares being issued to ASOF.

Equity raising

On 5 May 2017, the Company finalised an equity raising which resulted in proceeds from the equity raising of £950,265 with 1,781,158,152 fully paid ordinary shares being issued as Tranche 1 on 8 May 2017 and 339,978,889 fully paid ordinary shares being issued as Tranche 2 on 15 May 2017.

Pastizal project

On 24 October 2017, the Company executed an agreement with Consultoria y Services Mineros SA for the acquisition of the Pastizal project.

Under the terms and conditions of the acquisition the Company agreed to pay the following consideration:

- 580,000,000 fully paid ordinary shares at 0.03 pence per fully paid ordinary share and a further 670,000,000 fully paid ordinary shares upon the Herencia share price averaging at least 0.12 pence per share for a minimum of 90 days;

- Cash consideration of US$159,784 (money-of-the-day terms) payable in 30 months from the date of execution of the acquisition agreement and a further US$213,045 (money-of-the-day terms) payable in 42 months from the date of execution;

- Debt assumption of US$1,131,172 (money-of-the-day terms) payable between 18 months and 54 months from the date of execution of the acquisition agreement; and

- Milestone payments of up to US$2,000,000 based the Mineral Resources at both Picachos and Pastizal where the Mineral Resources exceed 10 million tonnes grading an average copper grade of 1% but being less than 20 million tonnes grading an average copper grade of 1% US$1,000,000 payable in two instalments between 18 months and 36 months from date of execution of the acquisition agreement and where the Mineral Resources exceed 20 million tonnes grading an average copper grade of 1% the maximum amount of US$2,000,000.

Going concern

Note 28 details the Group's objectives, policies and processes for managing its capital financial risk, including exposures to credit and liquidity risk. The Group's capital management policy has been to raise, as far as practicable, sufficient funds through equity to fund exploration and development activities.

At 31 December 2017, the group had cash balances of £233,433 (2017: £16,918).

The Company completed an equity raising of £950,265 on 5 May 2017 as well as one convertible note issue of US$100,000 on 3 March 2017 and 16 March 2017.

Since the end of the financial year, the Company has undertaken two further convertible-note issues to ASOF and Oriental for consideration of US$700,000, in total. Excluding the monies received from ASOF on 22 December 2017, the Company has received US$500,000 from ASOF and Oriental from convertible note issues (before costs).

The board of directors believe that measures that have been put in place to refocus the exploration effort and to align the organisational structure to the exploration effort will improve the attractiveness of the Group in equity markets. Accordingly, the board of directors believe the Group will have capacity to access resources to continue its exploration effort for the foreseeable future and continue to meet, as and when they fall due, its financial obligations for at least the next twelve months from the date of approval of these financial statements. For this reason, the board of directors continue to adopt the going concern basis in the preparation of the financial statements.

There is, however, no guarantee that the required funds will be raised within the necessary timeframe and, therefore, material uncertainty exists that may cast doubt on the group's ability to continue to conduct its affairs as planned and to be able to meet its financial obligations in the normal course of business for a period not less than twelve months from the date of approval of this report.

Audit Committee

The Audit Committee meets twice each year to discuss the half-year and annual results. The Audit Committee comprises Messrs Carl Dumbrell and Jeff Williams.

For the annual results independent auditors, UHY Hacker Young, are invited to discuss the results and their assessment of internal controls.

The Company has adopted an Audit Committee Charter which sets out the composition, independence, expertise of the members, frequency of meetings, roles and responsibilities, external audit function, internal controls, financial reporting, annual and interim financial statements, release of financial information, non-audit services, delegation of authority, reporting responsibilities, resources and authority of the Committee, and compliance with laws and regulations.

Remuneration Committee

The Company does not, at this time, have a Remuneration Committee.

Communications with shareholders

The Company has its own website (www.herenciaresources.com) for the purposes of providing information to shareholders in a timely manner as well as providing information to potential investors.

Group structure and changes in share capital

A list of the entities controlled by the Company is shown in note 15 and movements in share capital during the financial year is set out in note 21 to the accounts.

Directors

The following directors held office during or since the end of the financial year and until the date of this report. Directors held office for the entire financial period unless otherwise stated.

PD Reeve Non-executive Director (appointed a Non-executive Director on 31 March 2017 and non-executive Chairman from 20 June 2017 and resigned from the board of directors on 20 June 2018)

JW Williams Executive Director (appointed 31 March 2017)

CF Dumbrell Finance Director (appointed 30 May 2018)

JC Moore Non-executive Chairman to 20 June 2017 and Non-executive Director to 30 June 2017 (resigned as a Non-executive director of the Company on 30 June 2017)

JB Russell Non-executive director (resigned as a Non-executive Director on 3 March 2017)

GJ Sloan Managing Director (resigned as Managing Director on 31 March 2017)

Directors' interests

The beneficial and non-beneficial interests in the Company's shares of the Directors and their families are as follows:

On 23 October 2017, Messrs PD Reeve and JW Williams were awarded 850,000,000 performance rights each in ordinary shares of the Company for zero consideration in lieu of cash-based emoluments. The performance rights vest over three years and will result in the Company recording an implicit or finance charge to the statement of comprehensive income associated with the award of the performance shares based on a probability that the director will continue in office.

An amount of £29,150 was charged to the statement of comprehensive income for the financial year ended 31 December 2017 for the implicit cost of the performance shares.

Directors' service contracts

The service contracts of all existing non-executive directors are subject to a one-month termination period.

Pensions

The Group does not have any pension scheme for directors and employees.

Directors remuneration

The remuneration of directors for the financial year is as follows:

The amounts recorded as salaries and emoluments to Messrs GJ Sloan and JC Moore represent the British pound equivalent of the amount paid in Australian dollars.

Value of options exercised by Directors

Value of options over ordinary shares exercised by directors

No options over ordinary shares were exercised by the directors of the Company.

Substantial shareholders

The Company has been notified in accordance with section 792 of the Companies Act 2006 of the following interests on its ordinary shares as at 27 June 2018:

The Company agreed with the Takeover Panel that ASOF is acting in concert with Messrs John Hancock and Martin Rogers and Abundance Partners LP who were introduced by Lind Partners LLC, the Manager of ASOF. Messrs Hancock and Rogers and Abundance Partners LP hold 207,261,111 fully paid ordinary shares in the Company and accordingly, the holding of the concert parties as at 19 July 2018 is:

Subsequent events

The following subsequent events have arisen since the end of the reporting date of this report:

Convertible note issues

As stated above, on 8 January 2018, the Company secured US$200,000 (face value US$240,000) from Oriental having already received US$200,000 from ASOF on 22 December 2017.

Under the terms of the funding arrangement the convertible notes were issued on the same terms and conditions as those agreed on 5 April 2016.

The funding comprises:

- US$150,000 of convertible loan notes with a face value of US$180,000 convertible into fully paid ordinary shares at an exercise price of £0.0001 ("Conversion Price") from the 1 April 2016 facility; and

- US$50,000 of convertible loan notes with a face value of US$60,000 into shares at an exercise price of £0.0003 ("Conversion Price") from the 6 June 2016 facility.

On 3 April 2018, the Company executed new convertible note facilities with ASOF and Oriental. The convertibles note facilities were secured on the same terms and conditions as the convertible note facilities executed on 5 April 2016 with the exception of the pricing of the conversion of the convertible notes into fully paid ordinary shares. The parties agreed that the US$300,000 (face value of US$330,00), in total, received from ASOF and Oriental would be converted into fully paid ordinary shares with the conversion price to be set at the "Next Placement price".

Conversion of convertible notes

On 3 January 2018, ASOF and Oriental converted US$240,000 in convertible notes into fully paid ordinary shares of the Company at a conversion price of 0.02 pence per fully paid ordinary share and US$60,000 in convertible notes into fully paid ordinary shares of the Company at a conversion price of 0.03 pence per fully paid ordinary share. The conversion of these convertible note facilities resulted in the Company issuing 837,853,147 fully paid ordinary shares for the US$240,000 convertible note facility and 209,463,844 fully paid ordinary shares for the US$60,000 convertible note facility.

Environment Policy Statement

The Group conducts exploration and evaluation activities for its own account and therefore, is totally responsible for environment at exploration permit areas granted. The group closely monitors activities to ensure, to the best of its knowledge, there is no potential for any breach of environmental regulations. The Group has not received any notices of breached Chilean regulations during the reporting period.

Statement of responsibility of those charged with governance

The board of directors is responsible for preparing the financial statements in accordance with applicable laws and International Financial Reporting Standards as adopted by the European Union. Company law requires the Directors to prepare financial statements for each financial year. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the Company and of the profit or loss of the Group for that period. In preparing those financial statements, the Directors are required to:

a) select suitable accounting policies and then apply them consistently;

b) make judgements and estimates that are reasonable and prudent;

c) prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business; and

d) state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements.

The Directors confirm that the financial statements comply with the above requirements.

The Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the financial position of the Group and Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. The Directors are also responsible for safeguarding the assets of the Group and hence for taking steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.

Statement of disclosure to auditors

So far as all of the Directors at the time of approval of this report are aware:

1. there is no relevant audit information of which the Company's auditors are unaware; and

2. the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

Auditors

In accordance with Section 489 of the Companies Act 2006, a resolution proposing that UHY Hacker Young be re-appointed as auditors of the Company and that the Directors be authorised to fix their remuneration will be put to the next General Meeting.

By order of the board

JW Williams

Acting Chairman

19 July 2018

Opinion

We have audited the financial statements of Herencia Resources Plc for the year ended 31 December 2017 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statement of Financial Position, the Consolidated and Parent Company Statement of Cash Flows, the Consolidated and Parent Company Statements of Changes in Equity, and the related notes, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion, the financial statements:

- give a true and fair view of the state of the Group and Parent Company's affairs as at 31 December 2017 and of the Group's loss for the year then ended;

- have been properly prepared in accordance with IFRSs as adopted by the European Union; and

- have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Use of our report

This report is made solely to the Company's members, as a body, in accordance with part 3 of Chapter 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Material uncertainty related to going concern

We have considered the adequacy of the disclosure in note 1.1 in the financial statements concerning the Group's ability to continue as a going concern. Along with similar sized exploration Groups, the Company raises finance for its exploration activities in discrete tranches. As discussed in note 1.1, the Company will require further funds in order to meet its budgeted operating costs for the coming year. These conditions, indicate that a material uncertainty exists that may cast significant doubt on the company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group and Company were unable to continue as a going concern. Our opinion is not modified in respect of this matter.

Emphasis of Matter

We draw attention to note 13 of the financial statements, which describes the valuation of the intangible exploration assets. The Directors have undertaken a review for indicators of impairment under IFRS 6 Exploration for and Evaluation of Mineral Resources and having identified such indicators have completed an impairment review in accordance with IAS 36 Impairment of Assets. Whilst there has been no impairment recognised in the current year, the valuation of exploration assets is inherently judgmental. The Group will require additional funds in the coming 12 months in order to continue exploration. These conditions indicate the existence of a material uncertainty which may cast significant doubt over the value of the intangible assets. Our opinion is not modified in this respect.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Our assessment of risks of material misstatements

We identified the following risks of material misstatement that we believe had the greatest impact on our overall audit strategy and scope, the allocation of resources in the audit and directing the efforts of the engagement team. This is not a complete list of all risks identified by our audit.

Our application of materiality

The scope and focus of our audit was influenced by our assessment and application of materiality. We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements on our audit and on the financial statements.

We define financial statement materiality as the magnitude by which misstatements, including omissions, could reasonably be expected to influence the economic decisions taken on the basis of the financial statements by reasonable users.

We also determine a level of performance materiality which we use to determine the extent of testing needed to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.

Overall materiality: We determined materiality for the financial statements as a whole to be £89,216.

How we determine it: The materiality model is based on averaging the amount considered material in respect of results before tax, net assets and gross assets.

Rationale for benchmarks applied: We believe averaging to be the most appropriate benchmark due to the size and the nature of the Company and Group.

Performance materiality: On the basis of our risk assessment, together with our assessment of the Company's control environment, our judgement is that performance materiality for the financial statements should be 75% of Materiality at £66,912.

An overview of the scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account an understanding of the structure of the Company and the Group, their activities, the accounting processes and controls, and the industry in which they operate. Our planned audit testing was directed accordingly and was focused on areas where we assessed there to be the highest risk of material misstatement.

Our Group audit scope includes all of the group companies. At the parent company level, we also tested the consolidation procedures. The audit team communicated regularly throughout the audit with the financial controller in order to ensure we had a good knowledge of the business of the Group. During the audit we reassessed and re-evaluated audit risks and tailored our approach accordingly.

The audit testing included substantive testing on significant transactions, balances and disclosures, the extent of which was based on various factors such as our overall assessment of the control environment, the effectiveness of controls and the management of specific risk.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant findings, including any significant deficiencies in internal control that we identify during the audit.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditors' report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

- the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

- the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

- adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or

- the financial statements are not in agreement with the accounting records and returns; or

- certain disclosures of directors' remuneration specified by law are not made; or

- we have not received all the information and explanations we require for our audit.

Responsibilities of directors

As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at www.frc.org.uk/auditorsresposibilities.This description forms part of our auditor's report.

Subarna Banerjee (Senior Statutory Auditor)

For and on behalf of UHY Hacker Young

Chartered Accountants

Statutory Auditor

Quadrant House

4 Thomas More Square

London E1W 1YW

19 July 2018

 Statement of financial position for group and parent entity

The financial statements of Herencia Resources plc, Company Number 05345029, were approved by the Board of Directors and authorised for issue on 19 July 2018.

They were signed on its behalf by:

JW Williams

Acting Chairman

1. Accounting policies

The principal accounting policies, all of which have been applied consistently to all the periods are set out below.

1.1. Basis of preparation and going concern

The financial statements have been prepared using the historical cost convention and are presented in UK pounds sterling. In addition, the financial statements have been prepared in accordance with the International Financial Reporting Standards ("IFRS") including IFRS 6 'Exploration for and Evaluation of Mineral Resources', as adopted by the European Union ("EU") and in accordance with the provisions of the Companies Act 2006.

In accordance with the provision of Section 408 of the Companies Act 2006, the Parent Company has not presented an Income Statement. The Parent Company's loss for the year ended 31 December 2017 of £213,333 compared to a loss of £4,432,217 in the previous year.

The activities in the year and future prospects of the Group are discussed in the Strategic Report.

In addition, note 28 details the Group's objectives, policies and processes for managing its capital financial risk, including exposures to credit and liquidity risk. The Group's capital management policy has been to raise sufficient funds through equity to fund exploration activity and development activities.

At 31 December 2017, the group had cash balances of £233,433. The Group has raised US$500,000 since the end of the financial year 31 December 2017 through the issue of convertible notes to its two largest shareholders,

The board of directors believe that measures that have been put in place to refocus the exploration effort and to align the organisational structure to the exploration effort will improve the attractiveness of the Group in equity markets. Accordingly, the board of directors believe the Group will have capacity to access resources to continue its exploration effort for the foreseeable future and continue to meet, as and when they fall due, its financial obligations for at least the next twelve months from the date of approval of these financial statements. For this reason, the board of directors continue to adopt the going concern basis in the preparation of the financial statements.

There is however, no guarantee that the required funds will be raised within the necessary timeframe and therefore, material uncertainty exists that may cast doubt on the group's ability to continue to conduct its affairs as planned and to be able to meet its financial obligations in the normal course of business for a period not less than twelve months from the date of this report.

1.2 Basis of consolidation

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Company. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. Goodwill is capitalised as an intangible asset and in accordance with IFRS3 'Business Combinations' it is not amortised but tested for impairment on an annual basis. As such, goodwill is stated at cost less any provision for impairment in value. If a subsidiary undertaking is subsequently sold, goodwill arising on acquisition is taken into account in determining the profit and loss on sale.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated.

All the companies over which the Company has control, apply, where appropriate, the same accounting policies as the Company.

1.3. Foreign currency translation

Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. The resulting exchange gain or loss is dealt with in the profit and loss account.

The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of these consolidated financial statements, the assets and liabilities of the foreign subsidiary undertakings are translated into Sterling at the rates of exchange ruling at the year end and their results are translated at the average exchange rate for the year. Exchange differences resulting from the retranslation of net investments in subsidiary undertakings are treated as movements of reserves.

1.4. Cash and cash equivalents

The Company considers all highly liquid investments, with a maturity of 90 days or less to be cash equivalents, carried at the lower of cost or market value.

1.5. Property, plant and equipment

Property, plant and equipment are carried at cost less, where applicable, any accumulated depreciation and impairment losses.

The carrying amount of property, plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets' employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

The cost of fixed assets constructed within the Group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight line basis over their useful lives to the Group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful life of the improvements.

The depreciation rates used for each class of depreciable assets are:

Leasehold improvements 50%

Computers & office equipment 33.33%

Office furniture 25%

Motor vehicles 25%

Plant & equipment 25%

Impairment

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each year end date.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Disposals

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income in the year the asset is derecognised.

1.6. Deferred taxation

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the balance sheet. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and expected to apply when the related deferred tax is realised or the deferred liability is settled. Deferred tax assets are recognised to the extent that it is probable that the future taxable profit will be available against which the temporary differences can be utilised.

1.7. Exploration and evaluation costs

All costs associated with mineral exploration and investments are capitalised on a project by project basis, pending determination of the feasibility of the project. Costs incurred include appropriate technical and administrative expenses but not general corporate overheads. If an exploration project is successful, the related expenditures will be transferred to mining assets and amortised over the estimated life of the commercial ore reserves on a unit of production basis. Where a licence is relinquished or project abandoned, the related costs are written off. Where the Group maintains an interest in a project, but the value of the project is considered to be impaired, a provision is made against the relevant capitalised costs.

The recoverability of all exploration and evaluation costs is dependent upon the discovery of economically recoverable reserves, the ability of the Group to obtain necessary financing to complete the development of the reserves and future profitable production or proceeds from the disposition thereof.

Amounts recorded for these assets represent costs and are not intended to reflect present or future values.

1.8. Impairment of exploration and evaluation costs

The carrying value of exploration and evaluation is assessed on at least an annual basis or when there has been an indication that impairment in value may have occurred. The impairment of exploration and evaluation is assessed based on the Directors' intention with regard to future exploration and development of individual significant areas and the ability to obtain funds to finance such exploration and future development.

1.9 Finance costs

Finance costs include interest expense calculated using the effective interest rate method.

1.10 Share based payments

The Company made share-based payments to certain directors and employees by way of issue of share options. The fair value of these payments is calculated by the Company using the Black Scholes option pricing model. The expense is recognised on a straight-line basis over the period from the date of award to the date of vesting, based on the Company's best estimate of shares that will eventually vest. Where equity instruments are granted to persons other than directors or employees, the consolidated statement of comprehensive income is charged with the fair value of any goods or services received.

1.11 Employee benefits

A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably.

Liabilities recognised in respect of employees benefits to be settled within twelve months are measured at their nominal values using the remuneration rates expected to apply at the time of settlement.

Liabilities recognised in respect of employee benefits which are not expected to be settled within twelve months are measured at the present value of the estimated future cash outflows to be made by the entity in respect of services provided by employees up to the reporting date.

2. Critical accounting estimates and judgements

The Directors evaluate estimates and judgements incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group.

Recoverability of intercompany balances

Determining whether intercompany balances are impaired requires an estimation of whether there are any indications that their carrying values are not recoverable.

Impairment of capitalised exploration and evaluation expenditure

The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether it successfully recovers the related exploration and evaluation asset through sale. Factors which could impact the future recoverability include the level of proved, probable and inferred mineral resources, future technological changes which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices.

To the extent that capitalised exploration and evaluation expenditure is determined not to be recoverable in the future, this will reduce profits and net assets in the period in which this determination is made.

In addition, exploration and evaluation expenditure is capitalised if activities in the area of interest have not yet reached a stage which permits reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that it is determined in the future that this capitalised expenditure should be written off, this will reduce profits and net assets in the period in which this determination is made.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.

3. Adoption of new and revised International Financial Reporting Standards (IFRSs)

3.1 Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)

The Company has adopted all new and revised Standards and Interpretations in the current period which has affected the amounts reported in these financial statements.

Their adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions or arrangements.

3.2 Standards and Interpretations in issue not yet adopted

New standards and interpretations currently in issue but not effective, based on EU mandatory effective dates, for accounting periods commencing on 1 January 2018 are:

(i) IFRS 9 Financial Instruments (IASB effective date 1 January 2018)1

(ii) 3 IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)1,3

(iii) IFRS 16 Leases (effective 1 January 2019)1

(iv) IFRIC 22 Foreign Currency Translations and Advance Consideration (Effective 1 January 2018)2

(v) Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions (effective 1 January 2018)2

(vi) Annual Improvements to IFRSs 2014 - 2016 Cycle (effective 1 January 2018)2

Notes

1 Endorsed by the EU

2 Not Endorsed by the EU

3 EU effective date is 1 January 2018

The Directors anticipate that the above pronouncements, where relevant, will be adopted in the Group's financial statements for the year beginning 1 January 2018 and will have little impact on the Group's accounting policies or results.

4. Loss per share

The basic loss per ordinary share of 0.009 pence (2016: 0.06 pence) for the Group has been calculated by dividing the loss for the year attributable to equity holders of £628,535 (2016: £2,959,765) by the weighted average number of ordinary shares in issue of 7,120,014,383 (2016: 4,391,416,892).

5. Segmental reporting 

For the purposes of presenting segment information, the activities of the Group are divided into operating segments in accordance with IFRS 8 'Operating Segments'. Operating segments are identified on the same basis that is used internally to manage and report on performance and takes account of the organisational structure of the Group based on the activities of the reportable segments.

The activities of the Group are broken down into the operating segments of Mineral Exploration and Central Costs.

Segment information by operating segment and by region is as follows:

At the end of the financial year, the Group had not commenced commercial production from its exploration sites and therefore had no turnover in the year.

 (b) Directors' remuneration

The amounts recorded as salaries and emoluments to Mr GJ Sloan represent the British pound equivalent of the amount paid in Australian dollars.

(c) Value of options exercised by Directors

Factors that may affect future tax charges

At the year end date, the Group has unused tax losses available for offset against suitable future profits. The group had accumulated tax losses of £10,651,461 at 31 December 2017 (2016: £9,884,067). A deferred tax asset amounting to £1,810,748 (2016: £1,680,291) has not been recognised in respect of such losses due to uncertainty of future profit streams.

In 2016, directors undertook an impairment review of the carrying value of advances made to controlled entities loans in response to the sale of Paguanta Resources (Chile) SA.

The impairment review conducted by the directors for the financial year ended 31 December 2017 concluded that the carrying value of exploration and evaluation assets was both fair and reasonable.

13. Intangible assets

Exploration and evaluation

In 24 October 2017, the Group acquired the Pastizal project and assessed the fair value of the consideration as follows:

The Company also agreed to issue 670,000,000 fully paid ordinary shares at a share price of 0.0012 pence per share if the share price of the Company averages, for a period of no less than 90 days, 0.0012 pence per share or if other mutually agreed conditions have been achieved.

Goodwill on acquisition

14. Property plant and equipment