NORTH077 Annual Report 2020 V5.2 DIGITAL

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NORTHERN MINERALS _ ANNUAL REPORT 2021
NORTHERN MINERALS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
8. Financial Assets and Financial Liabilities and other receivables and liabilities (continued)
Convertible notes issued by the Group can be converted to ordinary shares at the option of the holder
on or before the expiry date. The liability component of the convertible note is recognised initially at the
fair value of a similar liability that does not have a conversion option. Subsequent to initial recognition,
the liability component of the convertible note is measured at amortised cost using the effective interest
method. Interest relating to the financial liability is recognised in the statement of profit or loss as a noncash
item. The conversion option is recognised initially as the difference between the consideration and
the value of the liability component and the conversion option is classified as equity.
The Convertible note issued to Lind Global Macro Fund, LP is not convertible at a fixed conversion price
and includes a floor price in the contract so has been accounted for as fair value through profit or loss.
Financial liabilities designated at fair value through profit or loss are measured at fair value, with any
gains or losses arising on changes in fair value recognised in profit or loss. The net gain or loss
recognised in profit or loss incorporates any interest paid on the financial liability.
The amount of change in the fair value of the financial liability that is attributable to changes in the credit
risk of that liability is recognised in other comprehensive income, unless the recognition of the effects
of changes in the liability’s credit risk in other comprehensive income would create or enlarge an
accounting mismatch in profit or loss. The remaining amount of change in the fair value of liability is
recognised in profit or loss. Changes in fair value attributable to a financial liability’s credit risk that are
recognised in other comprehensive income are not subsequently reclassified to profit or loss; instead,
they are transferred to retained earnings upon de-recognition of the financial liability.
Leases, which transfer to the Group, substantially all the risks and benefits incidental to ownership of
the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if
lower, at the present value of the minimum lease payments. Lease payments are apportioned between
the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss.
Convertible Note – JHY Investments Pty Ltd
In December 2018 a subscription agreement was entered into with JHY Investments Pty Ltd (JHY), for
the issue of 4,000,000 convertible notes over two tranches with a face value of A$1.00 each. Tranche
1 was completed in December 2018 and 3,500,000 notes were issued. Tranche 2 for a further 500,000
notes was completed in January 2019.
The maturity date for the convertible notes was 31 December 2019 at a conversion price of A$0.06 per
share. The interest rate was 16% per annum, accruing daily and payable monthly from immediately
available funds on the face value of the notes from the date the notes are issued until the earlier of the
date the note is converted into shares and the maturity date. Conversion could be at any time before
the maturity date at JHY’s election, and must have been for a minimum 300,000 notes at any one time.
10,000,000 unlisted options were issued to JHY Investments Pty Ltd on 18 December 2018 as part of
the Convertible Security Funding Agreement. These options had an exercise price of A$0.09 each and
had an expiry date of 31 December 2019.
During the 2020 financial year, the Company successfully negotiated an extension of the maturity date
of the convertible notes issued to JHY as well as a lower interest rate. The new maturity date for the
notes was 31 December 2020 and the interest rate payable was reduced to 10% per annum from 1
January 2020. This convertible note was all repaid in the 2021 financial year.
Convertible Note – Yuzhen Ma
In April 2019 a subscription agreement was entered into with Yuzhen Ma for the issue of 7,500,000
convertible notes over two tranches with a face value of A$1.00 each. Tranche 1 was completed with
A$2.5 million received in April 2019 and 2,500,000 notes were issued. Tranche 2 for a further 5,000,000
notes was completed and A$5.0 million received in June 2019.
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