2023
ABN 68 123 184 412
Contents 2 Chairman’s Review 4 Operating Review 15 Resource Statement 17 Tenement Schedule 18 Directors’ Report 21 Remuneration Report (Audited) 29 Auditor’s Independence Declaration 30 Corporate Governance Statement 34 C onsolidated Statement of Profit or Loss and Other Comprehensive Income 35 Consolidated Statement of Financial Position 36 Consolidated Statement of Changes in Equity 37 Consolidated Statement of Cash Flows 38 Notes to the Financial Statements 60 Directors’ Declaration 61 Independent Auditor’s Report 65 ASX Additional Information 67 Corporate Directory 1 Sunstone Metals Limited Annual Report 2023
Overview Chairman’s Review A year of significant growth On behalf of the Board of Directors, it is my pleasure to present the 2023 Annual Report for Sunstone Metals Limited (‘Sunstone’ or ‘Company’), and to thank all shareholders for your continued support of Sunstone. Dear Fellow Shareholders, It has been a year of significant growth for the Company highlighted by two globally significant discoveries. At Bramaderos in Southern Ecuador, Sunstone announced the initial Mineral Resource Estimate in December 2022 for Brama-Alba, along with an additional Exploration Target, with the ultimate goal of defining a 10 million ounce gold district. Subsequent to this, a near surface high grade gold silver epithermal target at Limon was discovered which highlights the potential for a significant increase in the overall size and grade of the Mineral Resource estimate at Bramaderos. At El Palmar in Northern Ecuador, where the Company currently holds a 70% interest and is acquiring a 100% interest through a staged acquisition agreement, extremely promising assay results have been received in the first hole drilled into the very large T3 target showing substantial gold and copper widths and grades in line with other prominent porphyry deposits globally. The Sunstone El Palmar targets are located in the same structural belt hosting the 2.6Bt Alpala coppergold deposit (within the Cascabel project owned by SolGold) and bear many geological similarities, including the same geological age, with the Alpala system. The Company continues to grow its footprint in Ecuador in line with its aspirations to become a safe and responsible discoverer and developer in the porphyry copper gold space. In 2022 Sunstone signed a Staged Acquisition Agreement to acquire the Verde Chico Project located to the west of El Palmar. The Company has built a team in the junior resource sector that we believe is second to none. The teams previous work in Ecuador and overseas has led to significant discoveries and shareholder value growth, and the Sunstone team will work towards repeating that success at Bramaderos and El Palmar. During the year, the company monetised the remaining balance of its investment in Swedish listed copper development company, Copperstone Resources AB (listed on Nasdaq Sweden First North) which realised cash of approximately $1.9 million through sale of shares. In addition, a successful Placement was undertaken in May 2023 to raise $12 million before fees. At the end of the financial year the Company held $10.3 million in cash, providing a healthy cash balance for the Company. 2 Sunstone Metals Limited Annual Report 2023
In 2023 we publish our first sustainability report which marks an important milestone. Sunstone has continued its efforts to provide a safe, healthy and diverse workplace, which is essential to being able to attract and retain employees of the highest calibre. Our health and safety performance, as well as the representation of women within our technical teams, are steps in the right direction within our ESG strategy. We firmly believe that responsible mining can be transformative for the development of communities in Ecuador, and we are committed to being a part of this positive change. I would like to take this opportunity to express my thanks to Sunstone’s staff, management and my fellow directors for their dedication and work during the past 12 months. We are committed to delivering strong shareholder returns and growing the Company through its activities in Ecuador. Yours sincerely Graham Ascough Chairman, Sunstone Metals Limited Company Highlights Inaugural Mineral Resource Estimate of 2.7Moz AuEq for the Brama-Alba target at the Bramaderos project in Southern Ecuador (refer to page 15); Discovery success at the high grade gold-silver Limon epithermal target within the Bramaderos project; Expanding the scale of the Company’s projects in Ecuador through signing of a Staged Acquisition Agreement to acquire the Verde Chico Project located to the west of the El Palmar; Monetising the remaining balance of shares in Copperstone Resources AB for approximately $1.9 million during the year; and Raising funds of $12 million through an oversubscribed placement bringing new institutional investors onto the share register. 3 Sunstone Metals Limited Annual Report 2023
Introduction Sunstone Metals Limited (“Sunstone” or “Company”) is an exploration and mineral development company, focussed on creating value for shareholders from gold-copper projects in Ecuador. Value for shareholders will be created by: – Exploring and drill testing the Bramaderos Gold-Copper Project and the El Palmar GoldCopper Project in Ecuador, working towards repeating the Sunstone team’s previous success of significant discoveries of porphyry coppergold systems and delivering shareholder value growth; and – Evaluating potential new opportunities to continue to grow our business in Ecuador to add to our portfolio where clear shareholder value can be demonstrated Sunstone has a strong technical and operational team, which is considered to be one of the key strengths of the company. The Company’s vision is to be a discovery business in the porphyry copper-gold space. The Bramaderos and El Palmar Gold-Copper Projects are considered to be highly prospective for the discovery of large gold-copper systems. Sunstone is in the business of maximising shareholder return through the discovery and development of safe, efficient and environmentally and socially responsible mining projects that offer a clear path to development. We aim to outperform our peers through discovery in areas with ready access to existing infrastructure, low utility costs and recognised commodity exposure. Overview Operating Review The Company’s vision is to be a discovery business in the porphyry copper-gold space. The Bramaderos and El Palmar Gold-Copper Projects are considered to be highly prospective for the discovery of large gold-copper systems. 4 Sunstone Metals Limited Annual Report 2023
Project Overview Bramaderos Gold-Copper Porphyry Project (Sunstone 87.5%) The Bramaderos Project is ideally located immediately adjacent to the Pan American highway in Loja province, southern Ecuador, some 90km (1.5-hour drive) from the city of Loja, and within reasonable distance of available hydroelectric power, supporting the economics of potential development opportunities. The project has gentle topography with an average elevation of around 1,100m above sea level and is also supported by nearby commercial airports and significant population centres like the city of Loja. The project employs members of the local communities and has ongoing community support. Brama-Alba target During the year, an initial Mineral Resource estimate (MRE) and an initial Exploration Target were released for the Bramaderos gold-copper porphyry project in southern Ecuador. The initial MRE, from the Brama-Alba target only, reported in accordance with the JORC Code is 156Mt at 0.53g/t AuEq (0.35g/t gold and 0.11% copper), for 2.7Mozs gold-equivalent. Preliminary pit optimisation was applied to the deposit to constrain the MRE and demonstrate its potential to be mined economically by open pit methods. In addition, the initial Exploration Target, reported in accordance with the JORC Code consists of between approximately 255 and 360Mt at a grade between 0.40 and 0.74g/t AuEq (gold + copper) for contained metal of between 3.3Mozs and 8.6Mozs AuEq. The Exploration Target range is in addition to the initial MRE (see ASX release dated December 13, 2022, and Mineral Resource Estimate information on page 15). Overview Operating Review continued 5 Sunstone Metals Limited Annual Report 2023
Figure 1: Bramaderos concession. The background image is gold-in-soil and highlights the potential scale increase to be delivered with more drilling at Bramaderos across several porphyry centres. Overview Operating Review continued 6 Sunstone Metals Limited Annual Report 2023
Overview Figure 2: Limon epithermal gold-silver system in plan showing multiple mineralised structures in green. High grade domains are at intersections of NE and WNW trending structures. Several additional targets have been defined based on gold-in soil and zinc-in-soil anomalies, and structural interpretation. Limon The Limon target area is located 2.7km north-east of the Brama-Alba gold-copper deposit. Drilling at Limon during the year resulted in the discovery of high-grade gold-silver with mineralisation extending from surface to depth, and remains open. Outstanding assays received highlight the potential for a significant increase in the overall size and grade of the Mineral Resource estimate at the Bramaderos project. The Limon Epithermal Target is a high-grade system with mineralisation extending from surface to at least 250m deep and is open to the east, west, at depth and potentially to the north if the system plunges in that direction. The initial discovery hole LMDD017 intersected 176.7m at 1.1g/t AuEq from 6.8m. Hole LMDD026 eclipsed that with 185m at 2.85g/t AuEq, including 31m at 12.93g/t AuEq and demonstrates the huge potential for the Limon epithermal system (Refer to ASX Announcements dated 29 March 2023 and 3 July 2023). Operating Review continued 7 Sunstone Metals Limited Annual Report 2023
Figure 3: Limon gold in soils map showing extensive anomalous gold over an area of 1.7km x 700m. Red lines show planned followup drilling to extend the multiple high-grade zones in LMDD017 - 026. Several other areas of gold (+/- zinc) anomalism (circled in red) represent robust targets and will also be drill tested. The positive implications of the recent results from Limon are that the epithermal system has the potential to deliver high gold and silver grades across multiple zones and targets. Several areas have been defined for further drilling, which is ongoing, and the potential upside is assessed to be considerable. In addition to the Limon Epithermal Target there was a further discovery from drilling undertaken in December 2022 of a well mineralised gold-copper porphyry system at the Limon target, with 79m at 0.90g/t AuEq (0.52g/t gold, 0.19% copper, 9.4g/t silver), from 90m in LMDD010, including 34.7m at 1.26g/t AuEq (0.77g/t gold, 0.24% copper, 14.1g/t silver), from 94m (Refer to ASX Announcement dated 18 January 2023). This discovery reinforces the concept of multiple gold-copper porphyry systems and gold-silver epithermal systems within the 50km2 Bramaderos concession and highlights the potential for significant growth of mineral resources at higher grades. Overview Operating Review continued 8 Sunstone Metals Limited Annual Report 2023
Figure 4: Location of the El Palmar project (and Verde Chico property) relative to the Llurimagua and Cascabel Alpala and TandayamaAmerica deposits, and the Toachi fault system which is considered important for the localisation of porphyry copper-gold-molybdenum mineralisation in northern Ecuador. El Palmar Copper-Gold Porphyry Project – Northern Ecuador (Sunstone 70% – acquiring up to 100%) Sunstone has made a significant discovery at the highly prospective El Palmar gold-copper porphyry project, located in northern Ecuador, 60km north-west of Ecuador’s capital Quito. Travel time to site from Quito is approximately 3 hours. The property sits on the regionally significant Toachi Fault Zone, the same regional structural belt that hosts the 2.66Bt Alpala copper-gold porphyry deposit grading 0.25g/t gold and 0.37% copper, and the 0.53Bt Tandayama-America deposit grading 0.19g/t gold and 0.24% copper within the Cascabel project (see www.solgold. com.au for details), and in the vicinity of the 1Bt Llurimagua copper-molybdenum porphyry deposit grading 0.89% copper and 0.04% molybdenum (Figure 4). Sunstone is acquiring 100% of the El Palmar project and currently holds 70% under the Staged Acquisition Agreement signed on 12th August 2020. Overview Operating Review continued 9 Sunstone Metals Limited Annual Report 2023
During the year Sunstone announced promising assay results from EPDD026 from the T3 target (see ASX announcement dated 20 June 2023) showing substantial gold and copper widths and grades in line with other prominent porphyry deposits globally. This is a very important development for the El Palmar project for several reasons: – Strong gold-copper mineralisation in the first hole drilled into the very large T3 target – Mineralisation in EPDD026 is typical of many porphyry systems comprising chalcopyrite and some bornite, within transitional potassic alteration, and copper-sulphide-bearing A vein and B vein stockworks – Multiple geophysical anomalies to test within the broader T3 target area, some of which extend closer to surface – The early T3 results, combined with drilling at T1, T2 and T5 which all intersected gold-copper mineralisation from surface, outline a 2.3km x 1km cluster of porphyry deposits. This is an extensive system of mineralised centres – The Sunstone El Palmar targets bear many geological similarities with the nearby Alpala system (within the Cascabel project owned by SolGold) and are the same geological age – This scenario of clustered deposits is very similar to the giant Cobre Panama porphyry copper system in Panama (Mineral Resources of ~4.4Bt at 0.35% copper and 0.06g/t gold at 0.15% copper COG; www.firstquantum.com) in the sense of multiple close-spaced porphyry centres (7 contributing to mineral resources). Further drilling will be aimed at testing the multiple discrete and shallower high amplitude magnetic anomalies within the T3 area, and ultimately the deeper magnetic and MT anomalies at T3 and T1. Overview Operating Review continued Figure 5: Northwest-Southeast section through the T1, T2 and T3 targets, showing the T1 system which is mineralised from surface on the left of the diagram, and the trend of EPDD026, through the T2 MT geophysical anomaly, and into the T3 magnetic anomalies. Current hole EPDD028 is shown here. EPDD027, drilled but assays not yet received, tested a shallow magnetic body off section. The yellow to pink contours show a slice through the magnetic model with pink being more magnetic. 10 Sunstone Metals Limited Annual Report 2023
Verde Chico Project (Sunstone acquiring up to 100%) Sunstone signed a Staged Acquisition Agreement on 23 September 2022 to acquire up to 100% of the Verde Chico Project, located to the west of Sunstone’s El Palmar gold-copper porphyry discovery in northern Ecuador, from the Verde Chico Group. As per the terms of the agreement in Sunstone’s ASX Announcement dated 21 June 2022, a total of US$50,000 has been paid to date, with a further US$50,000 payment expected to occur shortly on transfer of the concession being registered under Compania Minera Verde Chico MINVERDECHICO CIA LTDA (“MinVCH”). Sunstone can, at any time, decide not to proceed with the acquisition and return any shares and technical information to the Verde Chico Group. The Verde Chico project was explored by the Rio Tinto group (then called RTZ) in 1992-1995, and by Canadian junior Balaclava Mines in 1998. No exploration has been undertaken on the land since 1998. The historical exploration identified a 1.1kmlong gold-in-soil anomaly that is open to the north and south, and which includes several high-grade gold-bearing veins at surface and wide lower grade zones of gold mineralisation in some drill holes. A total of 12 trenches for 683m were opened and sampled following mineralised structures. A total of 28 drill holes for 4,436m were drilled by RTZ and Balaclava. Historical exploration comprised regional stream sediment sampling, soil sampling, limited geophysics (CSAMT), trench sampling, and diamond drilling. The soil sampling by Rio Tinto which defined the >1.1km long gold-in-soil anomaly is coincident with a CSAMT resistivity anomaly. This area was drilled at several locations and returned significant intervals of gold mineralisation including 68.5m at 1.05g/t gold from surface in hole RVC-08, including 1m at 11.3g/t gold from 40.5m. Overview Operating Review continued 11 Sunstone Metals Limited Annual Report 2023
Sustainability Activities Sunstone is committed to building its Environmental, Social, and Governance (ESG) credentials. Through our actions, we can make our operations safer, our decision-making more transparent, our communities increasingly resilient and our environmental stewardship stronger. In short, how we can improve our business. In 2023 we publish our first sustainability report which marks an important milestone in our efforts to provide greater transparency regarding our ESG performance. More significantly, it serves as a benchmark against which we can identify opportunities for improvement and measure future progress. We firmly believe that responsible mining can be transformative for the development of communities in Ecuador, and we are committed to being a part of this positive change. Our prioritisation of local employment and procurement is one motor of change which has significant indirect benefits, such as supporting the growth of the formal economic sector in rural areas, and the greater participation in the local economy, benefitting local businesses. We have also continued to invest in communities’ infrastructure, health and education, as well as business development, through joint initiatives with local organisations and authorities, to address local needs. Sunstone remains committed to respecting and protecting human rights, and to ensuring early, transparent, and inclusive consultation and engagement with landowners and communities related to our activities. This includes incorporating their views into our decision-making and developing long-term partnerships. We are conscious of our responsibility to safeguard Ecuador’s natural heritage. We are committed to maintaining high standards of environmental management, which is reflected in our consistently strong environmental compliance. We also strive to maximise our positive impact on the environment through reforestation activities and by contributing to research and data collection about local species. Sunstone has continued its efforts to provide a safe, healthy and diverse workplace, which is essential to being able to attract and retain employees of the highest calibre. Our health and safety performance, as well as the representation of women within our technical teams, are steps in the right direction within our ESG strategy. Sustainability highlights: – 99.6% Ecuadorean personnel in Ecuador – 86% Local personnel – 39% Female professional personnel – 95% Procurement spend in Ecuador – 0 Major environmental non-compliances – 0 Environmental incidents To read more about our commitment to sustainability, our ESG performance and case studies, Sunstone will be publishing its first Sustainability Report in 2023. Material Business Risks The business of the Group is exploration, with a vision to be a discovery business in the porphyry copper-gold space. Exploration activities involve various inherent risks that could have a negative impact on the potential future results of the Group. The Group undertakes regular detailed risk assessments to identify risks to the business and develop mitigation strategies. A summary of the material business risks that may affect the Group are as follows: Overview Operating Review continued 12 Sunstone Metals Limited Annual Report 2023
Exploration Risk The success of the Group depends on the delineation of economically mineable reserves and resources, access to required development capital, the price of commodities, securing and maintaining title to the Group’s exploration tenements and obtaining all consents and approvals necessary for the conduct of its exploration activities. Exploration on the Group’s existing tenements may be unsuccessful, resulting in a reduction in the value of those tenements, diminishing the cash reserves of the Group and possible relinquishment of the tenements. Environmental Risk The Group’s environmental compliance is regulated by Ecuadorean legislation and our Environmental Management Plans for the Bramaderos and El Palmar projects, which are approved by the Ministry of Environment, Water and Ecological Transition. The Group remains committed to our environmental performance, which is reflected in our consistently strong environmental compliance. Failure to comply with applicable environmental laws and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory authorities causing operations to cease, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. The Group is unable to predict the effect of additional, or changes to, environmental laws and regulations which may be adopted in the future, including whether any such laws or regulations would materially increase the Group’s cost of doing business or affect its operations in any area. Future Capital Raisings The Group’s ongoing activities may require substantial further financing in the future. Any additional equity financing may be dilutive to shareholders, may be undertaken at lower prices than the current market price and debt financing, if available, may involve restrictive covenants which limit the Group’s operations and business strategy. Although the directors believe that additional capital can be obtained, no assurances can be made that appropriate capital or funding, if and when needed, will be available on terms favourable to the Group or at all. Capital management is a priority, and the Group retains the flexibility to reduce its cost base while preserving its exploration projects if required. Political and Regulatory Risks The Group’s projects are located in Ecuador, and receive strong support from the local communities, however mineral exploration and mining activities may be affected in varying degrees by political instability, economic conditions, and changes in government regulations such as foreign investment laws, tax laws, business laws, environmental laws and mining laws, affecting the Group’s business in that country. There can be no assurance that laws protecting foreign investments will not be amended or abolished or that existing laws will be enforced or interpreted to provide adequate protection against any or all of the risks described above. Safety Risk Exploration activities involves practices that have potential for risk of workplace injuries which may result in workers’ compensation claims, related common law claims and potential occupational health and safety prosecutions. The Group has, and intends to maintain, a range of workplace practices, procedures and policies which will seek to provide a safe and healthy working environment for its employees, visitors and the community. Climate Change Risk Climate change may cause certain physical and environmental risks that cannot be predicted by the Group, including events such as increased severity of weather patterns, incidence of extreme weather events and longer-term physical risks such as shifting climate patterns. All these risks associated with climate change may significantly change the industry in which the Group operates. The Group recognises the gravity of the risks posed by climate change and we are committed to integrating climate considerations into our operations. We seek to be a part of the solution to climate change by discovering the minerals necessary to facilitate the energy transition. While the Group will endeavour to manage these risks and limit any consequential impacts, there can be no guarantee that the Group will not be impacted by these occurrences. Overview Operating Review continued 13 Sunstone Metals Limited Annual Report 2023
Overview Operating Review continued 14 Sunstone Metals Limited Annual Report 2023
Bramaderos Mineral Resource The initial MRE, from the Brama-Alba target, reported in accordance with the JORC Code1 is 156Mt at 0.53g/t AuEq (0.35g/t gold and 0.11% copper), for 2.7Mozs AuEq* (see Table 1 below for more detail). Preliminary pit optimisation was applied to the deposit to constrain the MRE and demonstrate the potential to be mined economically by open pit methods. In addition, the initial Exploration Target, reported in accordance with the JORC Code consists of between approximately 255 and 360Mt at a grade between 0.40 and 0.74g/t AuEq2 (gold + copper) for contained metal of between 3.3Mozs and 8.6Mozs AuEq (see Table 2). The Exploration Target range is in addition to the initial MRE. Overview Operating Review continued Table 1 - Mineral Resource estimate at various cut-off grades Cut Off AuEq (g/t) Tonnage (Mt) AuEq (g/t) AuEq (Moz) Au (g/t) Au (Moz) Cu (%) Cu Metal (Kt) Ag (g/t) Ag Metal (Moz) 0.2 176 0.50 2.8 0.33 1.9 0.10 180 1.2 7.0 0.3 156 0.53 2.7 0.35 1.8 0.11 169 1.3 6.5 0.4 117 0.59 2.2 0.40 1.5 0.12 138 1.4 5.1 0.5 75 0.68 1.6 0.46 1.1 0.13 97 1.4 3.5 The company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement for the Mineral Resource estimate and Exploration Target referred to above and, that all material assumptions and technical parameters underpinning the estimates continue to apply and have not materially changed. The company confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified from the original market announcement. The potential quantity and grade of the Exploration Target is conceptual in nature. There has been insufficient exploration to estimate a Mineral Resource for the target area reported. It is uncertain if further exploration will result in the estimation of a Mineral Resource. 1 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. The JORC Code, 2012 Edition. Prepared by: The Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (JORC). 2 The gold equivalent calculation formula is AuEq(g/t) = (Au grade x Au price x Au recov / 31.1035) + (Ag grade x Ag price x Ag recov / 31.1035) + (Cu grade x Cu price x Cu recov / 100)) / (Au price x Au recov / 31.1035). The prices used were US$1,800/oz gold and US$9,500/t copper and US$22/oz silver. Recoveries are estimated at 89% for gold, 85% for copper, and 60% for silver based on metallurgical studies. In Sunstone’s opinion all the elements included in the metal equivalents calculation have reasonable potential to be recovered and sold. 15 Sunstone Metals Limited Annual Report 2023
Overview Operating Review continued Table 2 - Exploration Target Exploration Target Min. Tonnage (Mt) Max. Tonnage (Mt) Metal Content Min. AuEq (Mozs) Metal Content Max. AuEq (Mozs) Brama-Alba (excluding MRE areas) 70 100 0.79 2.57 Melonal 150 200 1.93 4.50 Limon 35 60 0.56 1.54 TOTAL 255 360 3.3 8.6 Exploration Target Min. Tonnage (Mt) Max. Tonnage (Mt) Min. Grade Au (g/t) Min. Grade Cu (%) Min. Grade AuEq (g/t) Brama-Alba (excluding MRE areas) 70 100 0.2 0.1 0.35 Melonal 150 200 0.25 0.1 0.4 Limon 35 60 0.33 0.1 0.5 TOTAL 255 360 0.40 Exploration Target Min. Tonnage (Mt) Max. Tonnage (Mt) Max. Grade Au (g/t) Max. Grade Cu (%) Max. Grade AuEq (g/t) Brama-Alba (excluding MRE areas) 70 100 0.6 0.12 0.8 Melonal 150 200 0.5 0.12 0.7 Limon 35 60 0.6 0.12 0.8 TOTAL 255 360 0.74 - Due to the effect of rounding, the total may not represent the sum of all components 16 Sunstone Metals Limited Annual Report 2023
Mineral Resource Estimation Governance Statement All Mineral Resource estimates reported by Sunstone Metals Limited are prepared by independent, qualified mining industry professionals and in accordance with the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (the JORC Code) 2012 Edition. Competent Persons named by the Company are Members of the Australasian Institute of Mining and Metallurgy and qualify as Competent Persons as defined in the JORC Code. The Competent Persons have reviewed Sunstone’s sampling and Quality Control and Quality Assurance (QA/QC) practices to ensure samples are representative and unbiased; and that assay results are obtained with the appropriate level of confidence. Sunstone also produces internal Mineral Resource estimates synchronously with, but independent of, the Mineral Resource estimates calculated by the qualified mining industry professionals as an audit of the external result. The tables above set out Mineral Resources for 2023, with no change to the overall tonnes and grade or Mineral Resource classification from the Initial Mineral Resource reported 13 December 2022. Competent Persons Statement The information in this report that relates to Exploration Targets and exploration results is based upon information reviewed by Dr Bruce Rohrlach who is a Member of the Australasian Institute of Mining and Metallurgy. Dr Rohrlach is a full-time employee of Sunstone Metals Ltd and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Dr Rohrlach consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. The information in this report that relates to Mineral Resources are based on the information compiled by Mr Aaron Meakin. Mr Aaron Meakin is a full-time employee of CSA Global Pty Ltd and is a Member and Chartered Professional of the Australasian Institute of Mining and Metallurgy. Mr Aaron Meakin has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). Mr Aaron Meakin consents to the disclosure of the information in this report in the form and context in which it appears. Overview Operating Review continued TENEMENT SCHEDULE Gold-Copper Tenements – Ecuador Tenement Holder Tenement Name Location Status Sunstone Ownership La Plata Minerales S.A. Bramaderos1 Loja, Ecuador Granted 87.5% La Plata Minerales S.A. Cueva de Leon1 Loja, Ecuador Granted 87.5% Golden Exploration Ecuador S.A. El Palmar2 Ibarra, Ecuador Granted 70% Minera Verde Chico S.A. Verde Chico3 Ibarra, Ecuador Granted 0% 1 Sunstone announced on 7 January 2020 that the terms of the Earn-in Joint Venture with TSX-V listed Cornerstone Capital Resources (TSXV:CGP) had been amended to provide Sunstone with an immediate 87.5% interest and Cornerstone with a loan carried 12.5% interest in La Plata Minerales S.A. (PLAMIN) the holder of the Bramaderos concession. Cueva de Leon is a small scale mining concession contiguous with Bramaderos. 2 Subject to Staged Acquisition Agreement to acquire 100%. 3 Subject to Staged Acquisition Agreement to acquire 100%. Tenement in process of being transferred to Minera Verde Chico S.A. 17 Sunstone Metals Limited Annual Report 2023
Your Directors present their report on Sunstone Metals Ltd (“Sunstone” or “Company”), and the entities it controlled (“Consolidated Entity” or “Group”) for the financial year ended 30 June 2023. Directors The following persons were Directors of Sunstone Metals Ltd at all times during the financial year and up to the date of this report: Mr Graham Ascough Non-Executive Chairman Mr Malcolm Norris CEO & Managing Director Mr Stephen Stroud Non-Executive Director Principal activities During the period the principal activities of the Group consisted of mineral exploration and evaluation. Dividends No dividends were paid or recommended to be paid to members during the financial period. Review of operations Refer to the Operating Review contained in the Annual Report for further discussion regarding the Company’s operations. A summary of consolidated other income and results is set out below: 2023 $ 2022 $ Interest and other income 238,186 100,060 Profit/(loss) before income tax (1,880,048) (2,870,279) Income tax expense – – Profit/(loss) attributable to members of Sunstone Metals Limited (1,882,932) (2,866,269) Profit/(loss) attributable to non-controlling interests 2,884 (4,010) Earnings per share 2023 cents 2022 cents Basic earnings per share (0.1) (0.1) Financial Performance During the year ended 30 June 2023 the Group incurred a loss of $1,880,048 (2022: loss of $2,870,279). The significant reduction in the loss compared with prior year is largely due to non-cash share based payments expense for employee performance rights of $359,359 (2022: $938,806) and net fair value gain on financial assets at fair value through profit or loss of $487,967 (2022: loss of $359,378) for the equities Sunstone held in Copperstone Resources AB (“Copperstone”), United Lithium Corp and NewPeak Metals Ltd, while normal expenses are generally in line with prior year. Financial Position The Company’s non-current assets increased from $42,982,704 at 30 June 2022 to $69,375,409 at 30 June 2023, and the Company’s current assets decreased from $25,830,656 at 30 June 2022 to $10,675,454 at 30 June 2023 primarily due to expenditure incurred on the Bramaderos and El Palmar Projects in Ecuador. At the end of the financial period, the Group had cash balances of $10,306,546 (2022: $23,997,222) and net assets of $78,143,644 (2022: $66,369,314). Total liabilities amounted to $1,907,219 (2022: $2,444,046) and included trade, other payables, lease liabilities and provisions. During the year, the Company had an increase in contributed equity of $13,201,266, after fees, for the placement in May 2023 and vesting of employee performance rights. Directors’ Report continued 18 Sunstone Metals Limited Annual Report 2023
Events occurring after reporting date No matter or circumstance has occurred subsequent to year end that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group or economic entity in subsequent financial periods. Significant changes in the state of affairs Other than those matters discussed in this report, no significant changes in the state of affairs of the Group occurred during the financial period. Likely developments and expected results The Group will continue exploration and development activities. The Group assesses commercial opportunities for corporate growth, including the acquisition of interests in projects, as they arise. Due to the unpredictable nature of these opportunities, developments could occur at short notice. Environmental regulation The Group is subject to the environmental laws and regulations imposed under the Environmental Codes in the jurisdictions in which it operates. The Group is currently engaged in exploration activities which are governed by conditions or recommendations imposed through the granting of a licence or permit to explore. Compliance with these laws and regulations is regarded as a minimum standard for the Group to achieve. There were no known breaches of any environmental laws or regulations during the year. Directors The Directors of the Company at any time during or since the end of the financial year were: Current directors: Mr Graham Ascough (appointed as Non-Executive Chairman 29 November 2013) Member of the Audit and Financial Risk Committee Experience and expertise Mr Ascough (BSc, PGeo, MAusIMM) is a senior resources executive with more than 30 years of industry experience evaluating mineral projects and resources in Australia and overseas. He is also currently non-executive Chairman of ASX listed companies: PNX Metals Limited, Black Canyon Limited and Musgrave Minerals Limited. Mr Ascough, a geophysicist, has had broad industry involvement playing a leading role in setting the strategic direction for companies, completing financing and in implementing successful exploration programmes. He is a member of the Australasian Institute of Mining and Metallurgy and is a Professional Geoscientist of Ontario, Canada. Mr Ascough has served as a director of several companies listed on the Australian Securities Exchange in recent years. He was the Managing Director of Mithril Resources Ltd from October 2006 until June 2012. Prior to joining Mithril in 2006, he was the Australasian Manager of Nickel and PGM Exploration at the major Canadian resources house, Falconbridge Limited, which was acquired by Xstrata Plc in 2006. Other directorships of listed companies in the past three years PNX Metals Limited (formerly Phoenix Copper Limited) (appointed 7 December 2012) Musgrave Minerals Limited (appointed 26 May 2010) Black Canyon Limited (appointed 25 August 2013; Company listed on ASX 5 May 2021) Mr Malcolm Norris (appointed as CEO & Managing Director 1 April 2014) Member of the Audit and Financial Risk Committee Experience and expertise Mr Norris (MSc, MAppFin, FAusIMM) is a senior mining industry professional with extensive experience in business management, mineral exploration, development of new business opportunities and asset transactions. His roles have covered a wide range of commodities, geographic locations and management of global portfolios of projects in both large and small organisations. Mr Norris holds an MSc in Geology and a Masters in Applied Finance. He has more than 35 years of industry experience including 23 years with WMC Resources, followed by roles with Intrepid Mines and SolGold. Other directorships of listed companies in the past three years Magmatic Resources Limited (appointed 20 December 2016; Ceased 3 February 2020) 19 Sunstone Metals Limited Annual Report 2023
Mr Stephen Stroud (appointed as a Non-Executive Director 6 September 2017) Chairman of the Audit and Financial Risk Committee Experience and expertise Mr Stroud (BBus.Acc, GDip.AppFin, CPA) is an experienced CPA qualified corporate finance executive with over 20 years experience advising across all aspects of corporate finance. He advises boards and management teams across a broad range of transactions including public and private equity raisings, debt/ hybrid debt, Initial Public Offerings, mergers & acquisitions, sell-downs and restructures both in Australia and overseas. Mr Stroud is Co-Head, Melbourne - Corporate Advisory with Morgans Financial Limited, with a key focus on the small‑mid cap market listed space on the ASX working across a broad range of sectors including IT, retail, FMCG, healthcare, metals and mining, energy, property and general industrials. Mr Stroud possesses strong relationships across buy and sell side clients across Australia, Asia, UK and North America. Other directorships of listed companies in the past three years: Nil Company Secretary Mr Gavin Leicht (appointed 28 April 2015) Mr Leicht (B.Com, FGIA) has over 25 years experience in various financial roles, including 20 years in senior financial positions in the resources sector in Australia and overseas with Rio Tinto Limited and PanAust Limited. Mr Leicht holds a Bachelor of Commerce degree from the University of Newcastle. He is a Fellow of the Governance Institute of Australia and has also been a Member of the Australian Society of Certified Practising Accountants, and the Finance & Treasury Association. Meetings of Directors There were 8 meetings of the Company’s board of Directors held during the year ended 30 June 2023. The number of meetings attended by each Director were: Meeting of Directors Audit and Financial Risk Committee Eligible to attend Attended Eligible to attend Attended Mr Graham Ascough 8 8 2 2 Mr Malcolm Norris 8 8 2 2 Mr Stephen Stroud 8 8 2 2 Further details of the operation of all Committees are contained in the Corporate Governance Statement. Directors’ Report continued 20 Sunstone Metals Limited Annual Report 2023
Remuneration Report (Audited) Key management personnel The remuneration report outlines the Director and executive remuneration arrangements of the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Company. For the purposes of this report, the term “executive” encompasses the Chief Executive Officer, General Managers and the Chief Financial Officer & Company Secretary of the Group. Key management personnel during the year and at the date of this report (unless otherwise stated) are: Directors of the Company Chairman Mr Graham Ascough Non-Executive Chairman (appointed 29 November 2013) CEO & Managing Director Mr Malcolm Norris CEO & Managing Director (appointed 1 April 2014) Non-Executive Directors Mr Stephen Stroud Non-Executive Director (appointed 6 September 2017) Other key management personnel Mr Ray Robinson General Manager Studies & Technical Services (appointed 12 January 2015) Dr Bruce Rohrlach General Manager Geology (appointed 7 April 2015) Mr Gavin Leicht Chief Financial Officer & Company Secretary (appointed 20 April 2015) The remuneration report is set out under the following main headings: A Principles used to determine the nature and amount of remuneration B Details of remuneration C Executive contractual arrangements D Share-based compensation A Principles used to determine the nature and amount of remuneration The Group’s executive reward framework is designed to reward performance for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and seeks to conform to market best practice for delivery of rewards. The Board considers the following key criteria for good reward governance practices in determining executive rewards: – competitiveness and reasonableness – acceptability to shareholders – performance linkage/alignment of executive compensation – transparency – capital management. The Group has structured an executive remuneration framework that aims to be market competitive and complimentary to the reward strategy of the organisation. Alignment to shareholders’ interests: – focuses on exploration success and project development as the creation of shareholder value and returns – attracts and retains high calibre executives. Alignment to program participants’ interests: – rewards capability and experience – reflects competitive reward for contribution to growth in shareholder wealth – provides a clear structure for earning rewards – provides recognition for contribution. 21 Sunstone Metals Limited Annual Report 2023
Remuneration Report (Audited) (continued) The overall level of executive reward takes into account the performance of the Group. The Group is involved in mineral exploration and does not generate any revenue from product sales and therefore growth in earnings is not considered relevant. Shareholder wealth is dependent upon exploration success and has fluctuated accordingly. 2023 2022 2021 2020 2019 2018 Impact on shareholder wealth Gain/(Loss) per share (cents) (0.1) (0.1) 0.1 0.3 (1.9) (0.2) Share price (cents) 2.6 4.5 1.5 0.7 4.1 3.8 The Company’s performance rights plan links employees’ remuneration to the share price of the Company as the performance conditions include ASX trading price hurdles. Executive pay The executive pay and reward framework has two components: – Fixed remuneration (base salary, superannuation & other non-monetary benefits) – Variable remuneration (long-term incentives through participation in the performance rights plan and shortterm incentives through cash bonuses) The combination of these components comprises the executive’s total remuneration. Fixed Remuneration – Base salary Base salary is structured as a total employment cost package which may be delivered as a combination of cash and prescribed non-financial benefits. Executives are offered a competitive base pay that comprises the fixed component of pay and rewards. Base pay for senior executives is reviewed annually to assess if the executive’s pay is competitive with the market. There are no guaranteed base pay increases included in any senior executives’ contracts. – Non-monetary benefits Executives may receive benefits including car allowances, car parking and reasonable entertainment expenses. – Post-employment benefits Executives are permitted to nominate a superannuation fund of their choice to receive contributions. – Long-term benefits Long-term benefits include long service leave entitlements. Variable Remuneration – Long Term Incentive (Employee Performance Rights Plan) At the discretion of the Board, employees can be invited to participate in the Company’s Employee Performance Rights Plan. The issue of performance rights is designed to reward key employees for performance and align their performance with the Company growth and strategic objectives. Any options and performance rights issued to Directors are subject to shareholder approval. The Board feels that the expiry date, exercise price and, where applicable, vesting performance conditions of options and performance rights issued to executives is appropriate to align the goals of the executives with those of the shareholders to maximise shareholder wealth. – Short Term Incentive (Cash bonuses) The Board reviews the Company’s Short Term Incentive (STI) program annually and sets the Key Performance Indicators (KPIs) required to be achieved to receive any STI payment. The total potential STI available to individual executives is set at a level so as to provide sufficient incentive to executives to achieve their targets while ensuring that the cost to the Company is reasonable in the circumstances. The STI for the 2022/23 year includes four KPIs, each one equating to a cash bonus of 25% of base salary if achieved. At the Board’s discretion a payment under the STI may be increased to a maximum of double in recognition of exceptional performance, therefore the maximum potential STI payment is 200% of base salary. The measures were chosen as they represent the key drivers for the short-term success of the business and provide a framework for delivering long-term value. Directors’ Report continued 22 Sunstone Metals Limited Annual Report 2023
Remuneration Report (Audited) (continued) A cash bonus of 60% of base salary was paid to the Managing Director and the three other Key Management Personnel during the financial year ended 30 June 2023, relating to the achievement of two KPIs connected to the 12 month VWAP for Sunstone shares increasing from $0.0143 to $0.0577, a 300% increase; as well as securing El Palmar as a major new resource project for the Company, which saw the share price increase considerably upon release of first drilling results in October 2021. The additional ‘discovery’ at Alba on the Bramaderos project also had a considerable impact on the share price, with the Board utilising their discretion to increase the STI by 10% to reflect this. No other cash bonuses have been paid during the year ended 30 June 2023 (2022: 20%). As part of the terms and conditions of employment, the Company prohibits executives from entering into arrangements to protect the value of unvested long term incentive awards. This includes entering into contracts to hedge their exposure to options or shares granted as part of their remuneration package. Non-executive Directors Fees and payments to non-executive Directors are structured to reflect the demands which are made on, and the responsibilities of, the Directors. Non-executive Directors’ fees and payments are reviewed annually by the Board. The Chairman’s fees are determined independently to the fees of non-executive Directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to the determination of his own remuneration. Directors’ fees The base remuneration was reviewed and increased by the Board from 1 July 2022. Fees for the Chairman are $95,000 p.a. and fees for other Non-executive Directors $60,000 p.a. (as at 30 June 2022 $90,000 and $55,000 respectively). Directors’ remuneration is inclusive of committee fees. Non-executive Directors’ fees are determined within an aggregate Directors’ fee pool limit, which is periodically recommended for approval by shareholders. The total maximum currently stands at $300,000. Retirement allowances for Directors Directors are permitted to nominate a superannuation fund of their choice to receive superannuation contributions. B Details of remuneration Details of the remuneration of the Directors and the key management personnel of Sunstone Metals Ltd are set out in the following tables. 2023 Short-term benefits Post- employment benefits Long-term benefits Share- based payments Name Cash salary and fees $ Cash bonus $ Super- annuation $ Annual/Long service leave $ Options and Rights $ Total $ Performance related % Directors of Sunstone Metals Ltd: Mr G Ascough 95,000 – – – 62,000 157,000 39.5% Mr M Norris 331,800 189,600 34,839 (7,144) 126,795 675,890 46.8% Mr S Stroud 60,000 – – – 62,000 122,000 50.8% Other key management personnel: Mr R Robinson 279,000 159,600 29,295 8,412 108,564 584,871 45.9% Mr G Leicht 269,000 153,720 28,245 10,054 108,564 569,583 46.0% Dr B Rohrlach 269,000 153,720 28,245 10,140 108,564 569,669 46.0% Total 1,303,800 656,640 120,624 21,462 576,487 2,679,013 Performance Rights issued are dependent on the satisfaction of performance conditions, and the amounts included in the above table represent the accounting expense recognised during the financial year. 23 Sunstone Metals Limited Annual Report 2023
Remuneration Report (Audited) (continued) 2022 Short-term benefits Post- employment benefits Long-term benefits Share- based payments Name Cash salary and fees $ Cash bonus $ Super- annuation $ Annual/Long service leave $ Options and Rights $ Total $ Performance related % Directors of Sunstone Metals Ltd: Mr G Ascough 90,000 – – – 124,000 214,000 57.9% Mr M Norris 316,000 60,200 31,600 34,084 372,566 814,450 55.5% Mr S Stroud 55,000 – – 124,000 179,000 69.3% Other key management personnel: Mr R Robinson 266,000 50,700 26,600 15,334 318,240 676,874 55.8% Mr G Leicht 256,200 48,800 25,620 10,634 318,240 659,494 56.6% Dr B Rohrlach 256,200 48,800 25,620 14,684 318,240 663,544 56.6% Total 1,239,400 208,500 109,440 74,736 1,575,286 3,207,362 Loans to key management personnel There were no loans or other transactions with Directors or other key management personnel and their related parties. C Executive Contractual Arrangements Remuneration for the CEO & Managing Director and Key Management Personnel are formalised in service agreements. Mr Malcolm Norris, CEO & Managing Director Base salary, exclusive of superannuation and other benefits, is $331,800, reviewed annually on 1 July of each year and was last increased on 1 July 2022. Four weeks annual leave and statutory long service leave is provided. The Executive Services Agreement stipulates Mr Norris or the Company may provide six (6) months written notice of termination. The agreement includes a provision for a termination payment equal to the maximum amount calculated in accordance with section 200F of the Corporations Act 2001 (Cth), subject to any restrictions or approvals under the Listing Rules and the Corporations Act. Other Key Management Contracts for other Key Management Personnel have no fixed duration and can be terminated by the employee by providing three (3) months written notice. The Company may terminate employment by providing three (3) months written notice or by payment of six (6) months salary in lieu of notice. Base salary for other Key Management Personnel are reviewed annually on 1 July of each year, with an increase last occurring on 1 July 2022. Four weeks annual leave and statutory long service leave is provided. Directors’ Report continued 24 Sunstone Metals Limited Annual Report 2023
RkJQdWJsaXNoZXIy MjE2NDg3