Blackstone Resources AG Report 2018.pdf · Capital structure Capital As of 31 December 2018, the capital structure of Blackstone was as follows: 42,700,000 bearer shares at CHF 0.50

Blackstone Resources AG

Consolidated Financial Statements For the years ended December 31st 2018 and 2017

(expressed in Swiss Francs)

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Table of Contents

Corporate Governance Report 3

Compensation Report 2018 13

Report of the statutory auditor 14

Consolidated Financial Statements 18

Report of the statutory auditor 19

Consolidated statement of profit and loss 24

Consolidated statement of comprehensive income and loss 25

Consolidated statement of financial position 26

Consolidated statement of cash flows 27

Consolidated statement of shareholders' equity 28

Notes to the Consolidated Financial Statements 29

Financial Statements of Blackstone Resources AG 50

Statutory auditor’s report 51

Statement of profit and loss for Blackstone Resources AG 54

Balance Sheet for Blackstone Resources AG 55

Notes to the Financial Statements 56

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Corporate Governance Report

Group structure and shareholders Blackstone Resources AG (hereafter “the Company” or “Blackstone”) assures its customers, shareholders, investors and employees that it is fully committed to good corporate governance based on the articles of incorporation of the company and the organisational regulations. Moreover, Blackstone adheres to the standards of the Directive on Information relating to corporate governance, published by SIX Swiss Exchange. Group structure and shareholders Blackstone, domiciled in Baar, Switzerland, is organised as a holding company under Swiss law. The Company has a wide range of mining businesses with exploration and participations worldwide. Blackstone presently focuses on gold and battery metals such as cobalt, lithium, graphite, manganese and molybdenum. An overview of all Blackstone’s companies can be found in the financial section on page 46.

The bearer shares of Blackstone are listed on the SIX Swiss Exchange AG, Zurich. The bearer shares are listed, as per year end 2018, under the ISIN number CH0258739751 included in the SPI.

ISIN: CH0258739751 bearer shares

Reuters: BLS.S bearer shares

Telekurs: BLS bearer shares

Based on its share price of CHF 3.62 as at the end of 2018, the company’s market capitalisation stood at CHF 155 million as of 31 December 2018. The scope of consolidation consists of the unlisted companies which were fully consolidated as of 31 Dec. 2018 and is presented on page 43 of the notes in the consolidated annual financial statements. Treasury shares As of 31 December 2018, the Company held 1,230,505 of its own bearer shares that have been segregated for share-based payments. This corresponds to a shareholding of 2.9% as of 31 December 2018. Significant shareholders As of 31 December 2018, the following shareholders held more than 3% voting rights:

Percentage of shares held (according to most recent disclosure notice)

2018

Ulrich Ernst 45.71%

Adriatica Group Ltd. 19.43%

Marcor Holdings Ltd. 9.83%

Total 74.97%

Details about disclosure of shareholdings are available on the SIX Swiss Exchange website: https://www.six-exchange-regulation.com/en/home/publications/significant-shareholders.html?companyId=BLACKR As far as the Company is aware there are no shareholders’ agreements. Cross-shareholdings Blackstone has no cross-shareholdings exceeding 5% as of the 31 December 2018.

Capital structure Capital As of 31 December 2018, the capital structure of Blackstone was as follows: 42,700,000 bearer shares at CHF 0.50 par value for a total value of CHF 21,350,000.

Authorised and conditional capital in particular Authorised capital As of 31 December 2018, the Company is authorised to increase the share capital by issuing up to a maximum of 21,350,000 fully paid-in bearer shares with a par value of CHF 0.50 per share until 27 November 2019.

https://www.six-exchange-regulation.com/en/home/publications/significant-shareholders.html?companyId=BLACKR

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Conditional capital As of 31 December 2018, the Company is authorised to increase the share capital by issuing up to a maximum of 4,270,000 fully paid-in bearer shares with a par value of CHF 0.50 per share, representing a maximum amount of CHF 2,135,000 through the exercise of option rights granted to members of the Board of Directors of the Company, employees of the holding companies and related persons. Changes in capital during the last three years Over the past three years the share capital of Blackstone changed as follows:

Conditional capital has remained unchanged at CHF 2,135,000 for the last three years. Authorised capital has remained unchanged at CHF 10,675,000 for the last three years. The detailed evolution of equity, reviewed by the auditors for the consolidated financial statements for the years 2017 and 2018, is published on page 24. With regard to the previous years we refer to the annual reports 2015 and 2016. The Company’s annual reports can be downloaded from the following website: http://www.blackstoneresources.ch/investors/financial-reports/ Shares, participation certificates and dividend-rights certificates As of 31 December 2018, the share capital consisted of 42,700,000 bearer shares with a par value of CHF 0.50 each, amounting to a total of CHF 21,350,000. All bearer shares are fully paid-up. Each share entitles the holder to one vote at the General Meeting. All bearer shares are entitled to dividends. Blackstone has no participation certificates or dividend-rights certificates outstanding. Limitation on transferability and nominee registrations Transferability is not subject to any restrictions under the articles of incorporation. There are no restrictions in relation to nominee registrations. Convertible bonds Convertible Bonds Series A and Series B: On 15 January 2017, Blackstone issued a Convertible Bond Series A for the amount of CHF 500,000.00 due 31 August 2021. The term of the Convertible Bond Series A is four years and eight months from 15 January 2017 until 31 August 2021. Amounts drawn under the Convertible Bond Series A bear an annual interest of 5.2%. From the 1 January 2018, the Convertible Bond Series A can be converted into Blackstone shares at a 10% discount to the market price of Blackstone shares. On 24 September 2017, Blackstone issued a Convertible Bond Series B in the amount of CHF 10,000.00 due 1 January 2022. The term of the Convertible Bond Series B is four years and three months from 22 September 2017 until 1 January 2022. Amounts drawn under the Convertible Bond Series B bear an annual interest of 5.2 %. From the 1 January 2018, the Convertible Bond Series B can be converted into Blackstone shares at a 10 % discount to the market price of Blackstone shares with a floor set at CHF 6.00 per Blackstone share. Convertible Loan granted by Adriatica Group Ltd. On 20 August 2014, Blackstone acquired from a related party, Adriatica Group Ltd., a 20% equity interest in South American Invest Ltd. (formerly Multi Minerals Corporation) for a total consideration of CHF 26’750’000.00. Adriatica Group Ltd. has granted Blackstone a loan in the amount of the transaction value of CHF 26’750’000.000 with an interest of 1% p.a. There is also an oral agreement in place between Adriatica Group Ltd. and the Company such that in the event of impairment of the equity interest in South America Invest Ltd., Adriatica will waive the loan payable by an equal amount. The Company recognized an impairment loss of CHF 7,000,000 during 2018 and therefore the principle balance of the Adriatica note was also reduced by CHF 7,000,000. The loan expires on 31 December 2020. The loan granted by Adriatica Group Ltd. is secured through Blackstone’s 20% equity interest in South American Invest Ltd. The loan can be converted into shares of Blackstone Resources at the following conversion terms: The conversion price calculated based on the thirty (30) day volume weighted average price (VWAP) of the Blackstone shares quoted on the SIX prior to the conversion date; a minimum conversion price of CHF 12.00 per each share of Blackstone and this conversion can be executed from 1 January 2019 until 31

December 2020. Options As set out in the section on conditional capital, drawing on the conditional capital may increase the Company’s share capital by a maximum of CHF 2,135,000 through the exercise of option rights granted to members of the

Balance sheet date Bearer shares Share capital in CHF

31.12.2016 42,700,000 21,350,000

31.12.2017 42,700,000 21,350,000

31.12.2018 42,700,000 21,350,000

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Board of Directors of the Company, employees of the holding companies and related persons. On 27 April 2018, the Board of Directors agreed on an Option Plan for the Board of Directors and members of management and key employees within the group.

Board of directors

The board of directors on 31 December 2018 is composed as follows:

At the Annual General Meeting held on 29 June 2018, Mr. Ernst, and Mr. Kim Ludvigsen were re-elected individually as members of the Board of Directors and Dr Stach was elected individually as member of the Board of Directors for a one-year term of office respectively. In addition, Mr Ernst was re-elected as Chairman of the Board of Directors for a one-year term of office. Mr. Gröflin was elected to the Board of Directors on December 21, 2018 at the extraordinary shareholder meeting. Mr. Ludvigsen retired from the Board of Directors on December 21, 2018 at the extraordinary shareholder meeting.

Members of the Board Other than Mr Ernst, none of the other members of the Board of Directors hold executive positions with the company. Other than Mr Ernst, nor do any other members of the Board of Directors have any significant business relationship with the company. Other than Mr Ernst, no other members of the Board of Directors were members of Group Management or the management of a Group company during the three financial years preceding the period under review. Ulrich Ernst, Swiss citizen, born 1947 Mr Ernst has an MBA from the University of Zürich with the title lic. oec. publ. After his studies he worked as a teacher of law, microeconomics and accountancy at the Swiss Business School. Afterwards, he was assistant at Fides Treuhand AG in Zürich and a trust manager, wealth manager and a buy-side analyst at Credit Suisse. Since 1984, he has been president, CEO, CFO and a board member of various private and public companies spanning from trust, management and tax consultancy, accountancy, controlling, audit, worldwide incorporation, restructuring, merger and financing of companies. Furthermore, he has initiated IPOs for five companies on the NASDAQ, Bulletin Board, as well as on the New Market in Frankfurt. He has 40 years of experience in the mining business. Currently, he is Chairman, President and CEO of Blackstone. Mr Ernst is a member of the board of Gold Mining Projects Beteiligungs AG (Switzerland), Blackstone Resources Canada, Blackstone Resources Norway, South American Invest Ltd., Cobalt Trading, BS Management, Biological AG (Switzerland), Rewi Immobilien AG (Switzerland), Metal Minerals Ltd (British Virgin Islands) and MMM Trading Ltd (British Virgin Islands). Dr Patrick Stach, Swiss citizen, born 1960 Mr Stach studied law at the University of St. Gallen and graduated in 1987. He was admitted to the St. Gallen bar in 1989. He received his doctor’s degree (PhD) in 1991. Mr Stach is a board member of several companies and foundations. He is a member of the management committee of the Euro-American Lawyers Group as well as a member of the board of Governors of the University St. Gallen. Mr Stach is the author of publication of law-relevant topics in renowned magazines and he is author of publications of Art. 707 – Art. 715 Code of Obligations in the commentary to the Code of Obligations. He regularly holds lectures on corporate, family and inheritance law. Mr Stach is a member of the board of Stach Rechtsanwälte AG (Switzerland), De Legibus Limited (Switzerland), Kursana AG (Switzerland), Mountain Partners AG (Switzerland) and Sandpiper Digital Payments AG (Switzerland). Kim Ludvigsen, Danish citizen, born 1958 Mr Ludvigsen studied civil engineering and material science the ETH Zürich with the title dipl. Ing. ETH. He also has an MBA from Insead Business School. He has worked for Accenture, Apax Partners and Ernst & Young where he made mining audits and valuations, and also was project manager for the Swiss Post. He later co-founded several start-ups for the evaluation of projects and controlling business development. He was president of various service companies and has over 20 years of experience in the mining business. Mr Ludvigsen is specialised in financial planning, valuation methodology and business development. He works with e-commerce and technology start-ups. Mr Ludvigsen is a member of the board of Interprefy AG (Switzerland) and the owner of Ludvigsen Consulting (Switzerland). Ronald Gröflin, Swiss citizen, born 1975

Name Function Status Member since

Ulrich Ernst Chairman Executive 1995 Dr Patrick Stach Member Non-executive 2018 Ronald Gröflin Member Non-executive 2018

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Mr. Gröflin holds a Bachelor of Arts in International Business and a MBA from the Jacksonville University in Florida, US. Mr Gröflin has 17 years of experience in private banking and wealth management. He held positions as executive director, vice president and associate director with BNP Paribas, Credit Suisse, HSBC, Merrill Lynch and UBS. Mr. Gröflin is a member of the board of Smart2Move AG (Switzerland). Other activities and vested interests During the year under review, the members of the Board of Directors did not have any other management or permanent advisory functions or any mandates from major Swiss or foreign companies other than those mentioned in their CVs, nor did they exercise any important official duties or political mandates. Stipulations in the articles of incorporation on the number of permissible additional activities and interests Members of the Board of Directors are permitted to exercise a maximum of 25 additional mandates, including up to five mandates in listed companies. For the purpose of this rule, the term “mandate” means an activity in the senior management or executive bodies of legal entities which are obliged to have an entry in the commercial register or in an equivalent foreign register. Multiple mandates in legal entities of the same consolidated group are regarded as a single mandate. There are no restrictions on mandates in legal entities that are controlled by the company or that control the company, on mandates exercised on the instructions of the company or companies under its control, or on mandates in associations, non-profit foundations, family foundations or staff welfare foundations. Election and term of office In accordance with the company’s articles of incorporation, the Board of Directors consists of three to seven members. There are no age restrictions or other restrictions on members’ term of office. The members of the Board of Directors are elected individually at the General Meeting for a one-year term of office, the period between one ordinary General Meeting and the closing of the next being deemed to constitute one year. Members are eligible for re-election. Members newly elected during a term of office are elected for the remainder of the current term of office. The articles of incorporation do not contain rules that differ from the statutory provisions in relation to the appointment of the Chairman, the members of the Compensation Committee or the independent proxy. See also: http://www.blackstoneresources.ch/_resources/pdfs/ArticlesofAssoc.pdf

Internal organisation Allocation of tasks within the Board of Directors The General Meeting elects a member of the Board of Directors to serve as the Board’s Chairman. The General Meeting also elects the members of the Compensation Committee. The term of office is one year, this being defined as the time between one ordinary General Meeting and the closing of the next ordinary General Meeting. Members are eligible for re-election. If the office of Chairman is vacant, the Board of Directors will appoint a Chairman for the remaining term of office. The Board of Directors constitutes itself, except that the Chairman and members of the Remuneration Committee are elected by the General Meeting. Mr Ernst has been Chairman of the Board of Directors since 1995. The Board of Directors elects a Secretary who neither needs to be a member of the Board nor a shareholder. Both the Board of Directors and its committees (Audit Committee and Compensation Committee) meet as often as the Company’s business requires. All key decisions are taken by the Board of Directors as a whole (in particular appointments). The main criteria when selecting candidates for nomination for election to the Board of Directors are professional experience and the relevant expertise. In addition to their regular Board duties, all members of the Board of Directors also attend three to five meetings per year regarding specific issues (see also section entitled “Working methods of the Board of Directors”).

Committees of the Board of Directors In the 2018 reporting year, the Board of Directors had two permanent committees: The Audit Committee and the Compensation Committee. The duration of the committee meetings depends on the issues discussed. Audit Committee The Audit Committee is composed of all members of the Board of Directors. The Board of Directors has determined that all Committee members have proven experience and skills in the financial field to enable them to fulfil their tasks. The Audit Committee’s most important tasks are to discuss the outcome of the external audits, to verify the Group’s presentation of financial statements and financial control mechanisms, to evaluate and select the external auditors

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and to verify the scope of the external audit. The Audit Committee holds decision-making powers in relation to all audit-specific tasks, subject to approval by the Board of Directors as a whole. All other key decisions are taken by the Board of Directors as a whole (in particular appointments). Audit Committee meetings are attended by the CEO and CFO. As a rule, the Audit Committee meets a minimum of two times per year (at least once every six months). During the year under review, the Audit Committee held two meetings, two of which were attended by representatives of the statutory auditor. All meetings were attended by the CEO and the CFO. The meetings lasted one to three hours. Compensation Committee The General Meeting elects from among the members of the Board of Directors at least three members to serve on the Compensation Committee. The term of office of the members of the Compensation Committee is one year until the closing of the subsequent ordinary General Meeting. Members are eligible for re-election. In accordance with the articles of incorporation and the organisational regulations the Compensation Committee has, in particular, the following duties and responsibilities in respect of compensation matters concerning the Board of Directors and Management:

• Proposals to the Board of Directors concerning the definition of the principles of compensation applicable to Management, including the proportion to be paid in shares and the valuation of these shares;

• proposals to the Board of Directors, for submission to the General Meeting, concerning the total amounts of compensation for the Board of Directors and Management;

• proposals to the Board of Directors concerning the individual levels of compensation for the members of the Board of Directors and Management within the respective total amount approved by the General Meeting; and

• proposals to the Board of Directors, for submission to the General Meeting, concerning amendments to the articles of incorporation with regard to the compensation system in place for remunerating the Board of Directors and Management.

As a rule, the Compensation Committee meets two to four times per year (semi-annually to quarterly). In the year under review, the Compensation Committee held four meetings. The meetings lasted up to half a day. After every meeting, the Chairperson of the Compensation Committee reports on the committee’s activities to the Board of Directors. The committee meeting minutes are made available to the members of the Board of Directors. Decision making powers in relation to compensation are vested in the Board of Directors and in the General Meeting as far as total compensation amounts are concerned. As a rule, the CEO and the CFO participate in the meetings in an advisory capacity. However, they recuse themselves when their own compensation is being discussed and determined. Other invited members of Management are likewise not present during the part of the meeting where their own compensation is being decided. All meetings held in the 2018 reporting year were attended by the CEO and the CFO. The Compensation Committee is free to call upon external consultants to address specific compensation matters. During the reporting year, the Board of Directors received advice along with individual questions regarding long-term compensation. Working methods of the Board of Directors The Board of Directors is responsible for the strategic management of the Group and for the supervision of those entrusted with its management. To this end, the Board of Directors holds meetings at least four times per year (i.e. once a quarter). Meetings last on average half a day. In 2018, the Board of Directors held 4 meetings of which one was held as a telephone conference call. In addition to the Board of Directors and the CEO attended all meetings during the financial year; other members of the management were invited when required. The majority of members of the Board of Directors must be present to ensure a quorum. The Board of Directors adopts resolutions by a majority of votes cast. In the event of a tie, the Chairman shall have the casting vote.

Definition of areas of responsibility Unless the law or the articles of incorporation provide otherwise, the Board of Directors delegates operational management entirely to Management. The Board of Directors exercises overall leadership and supervises and oversees business operations. It issues business policy guidelines and ensures that it is kept regularly informed of business performance (see also section entitled “Working methods of the Board of Directors” and the company’s articles of incorporation (http://www.blackstoneresources.ch/resources/pdfs/ArticlesofAssoc.pdf). The Board of Directors has in particular the following non-delegable and inalienable duties:

• Overall management of the company’s business and issuing the necessary directives; hence also developing the strategic objectives, defining the means of achieving those objectives and defining business policy;

• defining the organisation;

• defining accounting, financial control and financial planning, and deciding on extraordinary individual investments;

• appointing and dismissing persons entrusted with the management of the Group;

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• ultimate supervision of the persons entrusted with the management of the company, specifically in view of their compliance with the law, the articles of incorporation, regulations and directives;

• preparing the annual report and the compensation report as well as making arrangements for the General Meeting and implementing the resolutions passed by the latter;

• notification of the court in the event of over indebtedness;

• adopting resolutions on capital increases and resulting amendments to the articles of incorporation; and

• verifying compliance with legal requirements governing the appointment, election and professional qualifications of the statutory auditor.

Management is responsible for the day-to-day operations of the company in accordance with the directives issued

by the Board of Directors and following the customary duty of due diligence and the provisions of the law. At the Board meetings and the regular division meetings, Management reports to the Board on the following matters in particular:

• Progress of business and the financial situation;

• the outlook and measures to be taken in the near future;

• development projects and the status of these;

• major investments and divestments;

• extraordinary events with a substantial bearing on business; and

• personnel policy and planning, and information on important personnel decisions.

Information and control instruments The Board of Directors is responsible for overseeing the Company’s internal control systems, which monitor the risk of inadequate business performance, but cannot rule out such a risk. These systems provide appropriate, though not absolute, security against significant inaccuracies and material losses. Management is responsible for identifying and assessing significant risks (see also section entitled “Definition of areas of responsibility”). In addition to quantitative approaches and formal guidelines, which covers only part of a comprehensive risk management approach, it is also considered important to maintain a corresponding risk management culture. In addition to a continuous process of monitoring and assessment, Management also submits detailed monthly reports to the Board of Directors (MIS). These provide a detailed account of the volume and profitability trends (orders received, order backlog, revenues, EBITDA and net income). Deviations from the budget or from the previous year are presented and commented in detail. Important balance sheet figures (cash and cash equivalents and net assets) and headcount data are prepared on a monthly basis with commentaries. Within the scope of the annual plan, a forecast is prepared at the middle of the year and in the fourth quarter. Management members are consulted on individual topics. The Audit Committee and Board of Directors identify additional topics which are taken up in the context of the internal controlling processes and subject to in-depth analysis and investigation. However, there is no institutionalised internal auditing process. The Audit Committee also focuses on defining the scope and content of the external audit. Each Board member is also sent the full minutes of all Audit Committee meetings. The CEO and the CFO attend the meetings of the Audit Committee. Risk management As part of the risk assessment process, the likelihood of occurrence of risks and the potential damage are considered. Based on the outcome of the assessment of the likelihood of occurrence and the expected damage, a risk matrix is drawn up. Further information regarding risk management can be found on pages 38 and 39 of the notes to the financial statements. Internal Control System (ICS) Blackstone has an Internal Control System (ICS). The ICS follows a risk-oriented approach, under which – on the basis of a risk assessment – key controls in significant internal business processes are systematically monitored with regard to existence, compliance and documentation. All Group companies have an ICS. The scope of the ICS depends on size and risks. ICS documentation and test programmes are in place for the following processes, which have been defined as financially relevant: purchasing, inventories, production, property, plant and equipment, payroll, finances, information technology, preparation of financial statements and consolidation. The Group Controlling department monitors the Group companies’ ICS documentation, is responsible for company-wide controls and ensures that effective controls are performed in respect of consolidated financial statements. Furthermore, the Group Controlling department also ensures on an annual basis that suggestions for improvement and measures proposed by the external auditor’s report are realised and implemented. In the course of the annual audit, the external auditors monitor the existence and the relevant documentation of an ICS and submits a report to the Audit Committee. The scope of the annual audit is discussed yearly with the Audit Committee. The Board of Directors reviews the internal information and control systems annually regarding their effectiveness to identify, assess and manage the risks associated with business operations.

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Management

Ulrich Ernst, Swiss citizen, born 1947 Mr Ernst has an MBA from the University of Zurich with the title lic. oec. publ. After his studies he worked as a teacher of law, microeconomics and accountancy at the Swiss Business School. Afterwards, he was assistant at Fides Treuhand AG in Zurich and a trust manager, wealth manager and a buy-side analyst at Credit Suisse. Since 1984, he was president, CEO, CFO and board member at various private and public companies spanning from trust, management and tax consultancy, accountancy, controlling, audit, worldwide incorporation, restructuring, merger and financing of companies. Furthermore, he has initiated IPOs for five companies on the NASDAQ, Bulletin Board, as well on the New Market in Frankfurt. He has 40 years of experience in the mining business. Currently, he is Chairman, President and CEO of Blackstone. Mr Ernst is a member of the board of Gold Mining Projects Beteiligungs-AG (Switzerland), Blackstone Resources Canada, Blackstone Resources Norway, South American Invest Ltd., Cobalt Trading, BS Management, Biological AG (Switzerland), Rewi Immobilien AG (Switzerland), Metal Minerals Ltd (British Virgin Islands) and MMM Trading Ltd (British Virgin Islands). Peter-Mark Vogel, Swiss citizen, born 1964 Mr Peter-Mark Vogel holds an Executive MBA from the University of Chicago Booth School of Business, US, and an MBA from the University of Zurich, Switzerland. He passed all levels (Level I-III) of the CFA Program. Mr Vogel has held several key positions in MNP Petroleum Corp., Switzerland (“MNP”) since 2007. Prior to joining MNP, Mr Vogel was a senior financial analyst at Bank Sal. Oppenheim, Switzerland. Prior to this, Mr Vogel began his career as a regulatory analyst for Merrill Lynch Capital Markets and was later the senior research analyst at a number of Zurich based private banks. From 2010 to 2012, Mr Vogel was a board member of Petromanas Energy Inc, a Toronto Venture Exchange listed company. He has been CFO of Blackstone until 30 April 2019. Mr Vogel is a board member in The Compound Interest Investment Management AG (CIIM) (Liechtenstein). Michael Hingst, German citizen, born 1967 Mr Hingst holds the title of an MBA from the University of Hamburg and has over 30 years of experience in mining and commercial activities. Before he joined Blackstone Resources as COO he had various management positions in companies such as Barclays Bank and Opel Bank. He did financial, administrative and marketing consultancy at ESSO AG and Airbus Industries as project manager and was team manager at AWD Holding and several other companies before he became CEO of Goldmining Projects Beteiligungs-AG in 2009 and founded German Engineering S.A.C. in Peru. Other activities and vested interests Mr Hingst is director in various small not-listed Swiss companies. Ingo Meyer, German citizen, born 1964 Mr Meyer is a metal specialist. He worked in the international gem trade before he became a specialist for financial consulting at IHK (Industrie- und Handelskammer). Mr. Meyer worked as a portfolio manager at Augsburger Aktienbank, Euquilibra and Tecis AG where he became a specialist for raw materials and gems before he became COO and CTO of Goldmining Projects Beteiligungs-AG in 2009. He is a member at VTAD (Association of Technical Analysts) in Germany. He held various management positions and has over 30 years of experience in the mining business. Other activities and vested interests Mr Meyer is director in various small not-listed Swiss companies.

Change in Management during 2018 During 2018 there was no management changes.

Other activities and vested interests During the year under review, the members of Management did not have any other management or permanent advisory functions or any mandates from major Swiss or foreign companies other than those mentioned in their CVs, nor did they exercise any important official duties or political mandates. Stipulations in the articles of incorporation on the number of permissible additional activities and interests Members of Management may exercise a maximum of ten additional mandates, including up to two mandates in listed companies. For the purposes of this rule, the term “mandate” means an activity in the senior management or executive bodies of legal entities which are obliged to have an entry in the commercial register or in an equivalent foreign register.

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Multiple mandates in legal entities of the same consolidated group are regarded as a single mandate. There are no restrictions on mandates in legal entities that are controlled by the Company or that control the Company, on mandates exercised on the instructions of the Company or companies under its control, or on mandates for associations, non-profit foundations, family foundations or staff welfare foundations. Management contracts The contracts of employment with the members of the executive Management team are entered into for an indefinite period of time and can be terminated by both parties and the notice period is pursuant to the Swiss Code of Obligations. In case of cancellation, no termination payment will be due. No entry bonus is paid by Blackstone. Compensation, shareholdings and loans Details on compensation, shareholdings and loans are set out in the separate Compensation Report on pages 16 and 17of this annual report.

Shareholders’ participation rights Restriction of voting rights and representation There are no voting-right restrictions under the articles of incorporation. In accordance with Art. 689 para. 2 of the Swiss Code of Obligations, every shareholder can represent his shares at the General Meeting in person or have them represented by a third-party of his choice. The articles of incorporation do not lay down any restrictions on the representation of voting rights. Shareholders’ participation rights are governed by the company’s articles of incorporation (http://www.blackstoneresources.ch/_resources/pdfs/ArticlesofAssoc.pdf). Independent proxy The articles of incorporation contain no provisions on the issuing of instructions to the independent proxy or on electronic participation in the General Meeting. The General Meeting elects the independent proxy for the Annual General Meeting. He or she is eligible for re-election. The Annual General Meeting held on 29 June 2018 elected Mr Andres to serve as the independent secretary during the Annual General Meeting. From the time of publication of the invitation in the Swiss Official Gazette of Commerce until approximately seven days before the General Meeting, shareholders wishing to attend or have themselves represented at the General Meeting will be able to obtain their admission ticket with voting documents directly from the Company’s registered office against deposition of their share certificates, or on presentation of a certificate of deposit, which they can request from their bank. The deposited shares will remain blocked until after the end of the General Meeting. Shareholders who do not attend the General Meeting in person may use a power of attorney to have themselves represented by a third-party or the independent proxy. For the forthcoming Annual General Meeting to be held in June 5, 2019, the Company will make it possible for shareholders to submit their voting instructions to the independent proxy in electronic form via the ShApp platform (www.shapp.ch). The relevant registration and voting procedure using this platform will be explained in the invitation to the General Meeting. Statutory quorum Under Art. 703 of the Swiss Code of Obligations, resolutions of the General Meeting must, in principle, be passed by an absolute majority of the voting rights represented. Exceptions to this rule are the eight resolutions listed in Art. 704 of the Swiss Code of Obligations, which require a minimum of two-thirds of the votes represented and an absolute majority of the nominal values of the shares represented (any amendment of the company’s objects; the introduction of shares with preferential voting rights; any restriction on the transferability of registered shares; an authorised or conditional capital increase; a capital increase funded by equity capital, against contributions in kind or to fund acquisitions in kind and the granting of special privileges; any restriction or cancellation of the subscription right; a relocation of the domicile of the company; the dissolution of the company). The articles of incorporation do not provide for any divergent arrangements. See also: http://www.blackstoneresources.ch/resources/pdfs/ArticlesofAssoc.pdf Convening of the General Meeting and inclusion of items on the agenda The General Meeting is convened by the Board of Directors, or if necessary, by the auditors. The General Meeting must be convened by the publication of a notice in the Swiss Official Gazette of Commerce at least 20 days before the date on which the meeting is due to be held. The Annual General Meeting takes place each year within six months of the end of the financial year. The right to propose items to the agenda of the General Meeting is governed by the provisions of Swiss company law. Extraordinary General Meetings should be called as frequently as is necessary, particularly in the cases provided by the law. The convening of a General Meeting may also be requested in writing by one or more shareholders

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representing at least ten percent of the share capital, specifying the agenda item and the proposals. In this case, the Board of Directors must convene the General Meeting within four weeks. Registrations in the share register As only bearer shares are issued and the shares are listed, there is no legal requirement for the Company to maintain a share register.

Change of control and defence measures

Duty to make an offer An acquirer of shares of the Company is not obliged to submit a public purchase offer pursuant to Articles 135 and 163 of the Financial Market Infrastructure Act of 19 June 2015. Clauses on changes of control No clauses on changes of control are in place for members of the Board of Directors or Management or in favour of other senior executives holding a key function within the Company.

Statutory auditor

Duration of mandate and term of office of the auditor in charge The General Meeting elects the statutory auditor, who must be independent in accordance with the provisions of Art. 728 of the Swiss Code of Obligations. The statutory auditor is elected for a one-year term of office ending on the conclusion of the General Meeting at which the statutory auditor’s report is to be submitted. The statutory auditor is eligible for re-election.

BDO AG has been Blackstone’s statutory auditor since 23 April 2018. The statutory auditor was re-elected at the Annual General Meeting held on 29 June 2018 for a one-year term of office. The auditor in charge of Blackstone, Christoph Tschumi, took office in 2018. In accordance with Art. 730a of the Swiss Code of Obligations, the auditor in charge rotates every seven years.

Auditing fee (in CHF) 2018

Auditing services1 55,000

Audit-related services for the SIX listing 57,393

Total 112,393

1 Auditing the consolidated financial statements and statutory financial statements of the Company.

Supervisory and control instruments vis-à-vis the auditor Auditing services are defined as standard tasks in an audit, to prepare reports on the statutory annual financial statements and to be able to provide an opinion on the consolidated financial statements. The Audit Committee met the auditors three times during the 2018 financial year either physically or by conference call. They are responsible for supervising and monitoring the audit and regularly report back to the Board of Directors. The auditors periodically prepare a comprehensive report on the outcome of their auditing activities. The auditors’ report is supported by an accompanying annual management letter and a comprehensive report to the Board of Directors.

The auditors may not be members of the Board of Directors or Company employees, nor may they carry out any other work for the company which would be incompatible with the audit assignment. They must be independent of the Board of Directors and of any shareholders that hold more than five percent of the voting rights. The auditors must adhere to the independence guidelines of their profession. The Audit Committee verifies the auditors’ qualifications on an annual basis as part of its supervisory and monitoring functions. Particular emphasis is placed on the following criteria: independence of the auditors and an understanding of the Company’s business activities and the specific business risks it faces.

In respect of the year under review, the Audit Committee and Board of Directors have concluded that the independence of the auditors is fully ensured.

Information policy

Blackstone reports on the business at the following times:

• May 6, 2019 Annual report 2018

• June 5, 2019 General Meeting of Shareholders

• September 30, 2019 Semi-annual report 2019

This information is always published in the Swiss and international financial press. This information can also be obtained from Blackstone’s website at www.blackstoneresources.ch and in particular

http://www.blackstoneresources.ch/

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under the “Investor Relations” section. The annual report can also be viewed and downloaded using the link http://www.blackstoneresources.ch/investors/financial-reports/. In addition, Blackstone’s homepage allows for the possibility of subscribing to the push-and-pull information service in order to receive ah-hoc financial announcements. For queries there is a contact form at http://www.blackstoneresources.ch/contact/. Queries may also be sent by post (Blackstone Resources AG, Blegistrasse 5, CH-6340 Baar) or by telephone on +41 41 449 6163.

http://www.blackstoneresources.ch/investors/financial-reports/

http://www.blackstoneresources.ch/contact/

Page 13

Compensation Report 2018

BDO Ltd, a limited company under Swiss law, incorporate in Zurich, forms part of the international BDO Network of independence member firms.

Page 14

Report of the statutory auditor

To the General Meeting of

Blackstone Resources AG, Baar

We have audited the accompanying compensation report of Blackstone Resources AG (pages 16-17)

for the year ended 31 December 2018.

Responsibility of the Board of Directors

The Board of Directors is responsible for the preparation and overall fair presentation of the

compensation report in accordance with Swiss law and the Ordinance against Excessive

compensation in Stock Exchange Listed Companies (Ordinance). The Board of Directors is also

responsible for designing the compensation system and defining individual compensation packages.

Auditor's Responsibility

Our responsibility is to express an opinion on the accompanying compensation report. We conducted

our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with

ethical requirements and plan and perform the audit to obtain reasonable assurance about whether

the compensation report complies with Swiss law and articles 14 – 16 of the Ordinance.

An audit involves performing procedures to obtain audit evidence on the disclosures made in the

compensation report with regard to compensation, loans and credits in accordance with articles 14 –

16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the

assessment of the risks of material misstatements in the compensation report, whether due to fraud

or error. This audit also includes evaluating the reasonableness of the methods applied to value

components of compensation, as well as assessing the overall presentation of the compensation

report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our opinion.

Opinion

In our opinion, the compensation report of Blackstone Resources AG for the year ended

31 December 2018 complies with Swiss law and articles 14 – 16 of the Ordinance.

Page 15

The Compensation Report contains information on the compensation policy, the compensation programs and the procedure for determining the compensation of the Board of Directors and Management of Blackstone Resources AG (hereafter referred to as “Blackstone” or the “Company”). It also provides information on the compensation awarded for the financial year 2018. The Compensation Report was prepared in compliance with SIX Exchange Regulation on Corporate Governance and the provisions of the Ordinance against Excessive Remuneration in Listed Companies (Ordinance). The principles of compensation and the responsibilities of the Compensation Committee of Blackstone are regulated in the Company’s Compensation Charter (hereafter referred to as the “Charter”). Unless otherwise specified, the information is applicable as of the cut-off date of 31 December 2018. The Compensation Report will be submitted to a consultative vote at the Ordinary General Meeting on June 5, 2019. In the reporting year, the Compensation Committee held one meeting. Tasks and responsibilities include the determination of performance objectives at the beginning of the year and the evaluation of performance at year end, the determination of the compensation of the members of management, the preparation of the compensation report and of the say-on-pay votes to be held at the Ordinary General Meeting. The Compensation Committee continuously reviews and evaluates the compensation programs in order to ensure that they still fulfill their purpose in the evolving environment in which the Company operates and are aligned with the interests of our shareholders and other stakeholders.

Compensation policy and principles The objective of the Company’s compensation policy is to attract and motivate qualified executives with the required expertise and relevant experience and to develop a long-term working relationship with them using a progressive and forward-looking compensation structure. The compensation policy is aligned with the business strategy of profitable growth and promotes and supports the Company’s values. The compensation policy encompasses the following principles:

• Compensation is aligned with the business strategy;

• compensation is performance based and executives share in the Company’s success; and

• compensation is in line with market practice and is reasonable.

Governance framework General meeting and provisions of the Compensation Charter The role of shareholders in compensation matters has been strengthened in recent years. Especially, shareholders have to approve the compensation amounts for the Board of Directors and the Executive Committee by way of binding votes at the Ordinary General Meeting. In addition, the compensation principles are defined in the Charter:

• Principles governing compensation for members of the Board of Directors: The members of the Board of Directors receive fixed compensation in cash for their services to the Board of Directors and its committees, stock options as well as a potential fee for consulting services.

• Principles governing compensation for members of Management: Compensation for the members of management consists of a fixed and a performance-based component, which may amount to a maximum of 200% of the fixed component. The performance objectives to be achieved for the performance-based compensation component are set by the Board of Directors, acting on the proposal of the Compensation Committee, for each member of Management, with due consideration being given to company-wide and individual criteria. In order to encourage individual key employees to remain with the Company long term, the Board of Directors may decide that the fixed and/or performance-based compensation component can be fully or partly paid out in shares or stock options of the Company. The Board of Directors determines what proportion is to be paid in shares or stock options.

• Loans, advances and pension benefits: The Company may grant loans and credits to executive members of the Board of Directors and management team at market terms.

Committees The General Meeting elects’ members of the Board of Directors to serve on the Compensation Committee. The same members are also elected into the Audit Committee. The term of office of the members of the Compensation and Audit Committee is one year ending with the conclusion of the subsequent ordinary General Meeting. Re-election is possible. In accordance with the Charter and the organisational regulations, the Compensation Committee has, in particular, the following duties and responsibilities in respect to compensation matters concerning the Board of Directors and management:

Page 16

• Putting forward proposals to the Board of Directors concerning the definition of the principles of compensation applicable to Management, including the proportion to be paid in stock options or shares;

• putting forward proposals to the Board of Directors, for submission to the General Meeting, concerning the total compensation amounts of the Board of Directors and Management;

• putting forward proposals to the Board of Directors concerning the individual levels of compensation of the members of the Board of Directors and Management within the respective total compensation amounts approved by the General Meeting; and

• putting forward proposals to the Board of Directors, for submission to the General Meeting, concerning amendments to the Articles of Incorporation with regard to the compensation system applicable to the Board of Directors and Management.

Outline level of responsibility and approval process: Level of responsibility Recommendation Review Approval

Compensation policy and plans Compensation Committee

Board of Directors

Total compensation amount for Board of Directors and Management

Compensation Committee

Board of Directors

General Meeting

Individual directors’ compensation Compensation Committee

Board of Directors1

CEO compensation Compensation Committee

Board of Directors

Management members’ compensation

CEO Compensation Committee

Board of Directors

1In the event of conflict of interest, the member concerned abstains from voting

In the year under review, the Compensation Committee held one meeting. All members attended all meetings. The Compensation Committee is free to call upon external consultants to address specific compensation matters. The Board of Directors did not seek external advice during the year under review. Board of Directors The members of the Board of Directors each receive an annual fixed compensation for the term of office for their activities. It is paid in cash and is not linked to any performance objectives. The term of office is the period from one Ordinary General Meeting to the next. The members of the Board of Directors may be remunerated separately at market conditions for additional consultancy services provided to the Company. Furthermore, additionally to the contributions made to retirement benefits schemes (employer’s contributions to social insurance), members of the Board of Directors are granted stock options.

The following table shows the compensation paid to members of the Board of Directors for the year ended December 31, 2018.

1 Legal service rendered by Stach Rechtsanwälte AG 2 Mr. Ludvigsen retired from the board on December 21, 2018 3 Mr. Gröflin was voted onto the board during the extraordinary shareholder meeting on December 21, 2018.

During year ended December 31, 2018 CHF 281’895, including accrued interest, were granted to Mr. Roland Gröflin. The loan had a nominal value of CHF 200’000. It bears 7% interest p.a. and expired on April 30, 2019.

Management In principle, the individual compensation of members of management consists of a fixed and a performance-based compensation component, as well as pension benefits. The fixed basic compensation component is based on the function, responsibilities and scope of the role, the skills and experience of the incumbent. It is paid out in cash and shares of Blackstone; typically, monthly. Payment of the

2018 Name FunctionBase

compensation

Share

options

Share

options

Social

Security, Tax

at Source

Other

CompensationTotal

CHF number CHF CHF CHF CHF

Ulrich ErnstExecutive

chairman8’531 - - 2’133 - 10’664

Dr. Patrick Stach Member 7’500 - - 498 42,975 1) 50’973

Kim Ludvigsen 2) Member 10’000 - - 664 - 10’664

Roland Gröflin 3) Member - - - - - -

Total 26’031 - - 3’295 42’975 72’301

Page 17

performance-based compensation depends on the performance achieved. The following table shows the compensation paid to members of management for the year ended December 31, 2018.

1 Mr. Ingo Meyer and Mr. Michael Hingst are external consultants and the amount reported is considered as consultancy fee

Mr. Peter-Mark Vogel received a loan with a nominal value of CHF 70’000. It bears 3% interest p.a. and expired on April 30, 2019.

2018 Name

FunctionBase

compensationShares Shares

Share

options

Share

options

Social Security,

Tax at SourceTotal

CHF number CHF number CHF CHF CHF

Ulrich Ernst CEO - - - - - - -

Peter-Mark Vogel CFO 100’659 12’000 95’336 - - 19’341 215’336

Ingo Meyer 1)

CTO 24’000 12’000 95’336 - - - 119’336

Michael Hingst 1)

COO 24’000 12’000 95’336 - - - 119’336

Total 148’659 36’000 286’008 - - 19’341 454’008

Page 18

Consolidated Financial Statements


Page 19

Report of the statutory auditor

STATUTORY AUDITOR'S REPORT

To the General Meeting of Blackstone Resources AG, Baar

Report on the Audit of the Consolidated Financial Statements

Opinion

We have audited the consolidated financial statements of Blackstone Resources AG, Baar and its subsidiaries (the Company), which comprise the consolidated statement of financial position as at 31 December 2018 and consolidated statement of profit and loss, consolidated statement of comprehensive income and loss, consolidated statement of shareholders' equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements (pages 24 to 49) give a true and fair view of the consolidated financial position of the Company as at 31 December 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law.

Basis for Opinion

We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report.

We are independent of the Company in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession, as well as the IESBA Code of Ethics for Professional Accountants, 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.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report.


Page 20

Key Audit Matter How our audit addressed the key audit matter

Impairment of investment in associate The carrying value of the Company's investment in associate, accounted for under the equity method in accordance with IAS 28, represents one of the most significant assets on its statement of financial position totalling CHF 19.6 million as at 31 December 2018 after recognizing an impairment of CHF 7 million. The outcome of impairment assessments could vary significantly were different assumptions applied. We have identified this to be a key audit matter due to the significant estimation uncertainty and subjectivity in certain judgements and key assumptions applied by management in the impairment assessment, including the potion for management bias. Refer to "significant accounting policies and basis for presentation" in note 2, "significant accounting judgments and estimates" in note 3 and "investment in associates" in note 7.

We reviewed management's assessment of impairment risk and their assessment of objective evidence of impairment and obtained supporting documentation. Where impairment was indicated, we reviewed management's determination of the recoverable amount and challenged the significant inputs and assumptions used taking into consideration potential management bias. We further utilised internal valuation and mining specialists to assess the appropriateness of management's underlying model inputs and significant assumptions. Our procedures included comparing inputs and significant assumptions noted above to third party historical actuals and forecasts and internally developed discount rates. Operating costs and production levels were compared to management approved budgets and to similar projects operated by third parties where applicable. We challenged management's sensitivity analysis by performing independent sensitivity analyses. Specifically, we applied various scenarios to evaluate a range of potential outcomes on the probability of successful ramp-up and execution of the gold milling plant in Peru. We assessed the adequacy of impairment related disclosures in the financial statements, including key assumptions used and the sensitivity of the financial statements to these assumptions.


Page 21


Impairment of exploration and evaluation assets The Company's exploration and evaluation assets ("E&E assets") represent one of the most significant assets on its statement of financial position totalling CHF 23.1 million as at 31 December 2018. Given the significance of the E&E assets on the Company's statement of financial position and the significant judgement involved in the assessment of the carrying values of the E&E assets this was considered to be a key audit matter. Refer to "significant accounting policies and basis for presentation" in note 2, "significant accounting judgments and estimates" in note 3 and "exploration and evaluation assets" in note 6.

The procedures included, but were not limited to:

• Assessing and evaluating management's

assessment of whether any impairment

indicators in accordance with IFRS 6 have been

identified across the Company's exploration

projects, the indicators being:

o Expiring, or imminently expiring, rights to

tenure

o A lack of budgeted or planned exploration

and evaluation spend on the areas of

interest

o Discontinuation of, or a plan to

discontinue, exploration activities in the

areas of interest

o Sufficient data exists to suggest carrying

value of exploration and evaluation assets

is unlikely to be recovered in full through

successful development or sale.

• Obtaining the expenditure budget for the 2019

year and assessing that there is reasonable

forecasted expenditure to confirm continued

exploration spend into the projects indicating

that Management is committed to the

projects.

• Obtaining documentation to support that

licenses are held to support current

exploration and discussed with management

and obtained representation from

management as to the likely renewal of

licenses.

• Assessing the disclosures included in the

financial statements.


Page 22


Going Concern The Company is highly leveraged with a negative working capital balance of CHF 2,153,253 and incurred a loss for the year of CHF 22,659,037. We focused our audit on this item because of its significance to the financial statements and general operation of the Company. We refer to Note 1 to the consolidated financial statements for additional disclosure of the Company's future operations.

We critically reviewed management's plans to continue as a going concern. This includes assessment of the Company's budget and cash forecast for the twelve months period subsequent to the issuance date of this report, the Company's commitments and contingencies, the realizability of the Company's assets and investor's commitment and ability to provide sufficient funds for the Company to continue as a going concern. Our critical review included analysis of the Company's historical cash needs, assessment of future cash flows based on the budget and financing and other relevant agreements in place as of issuance date of this report as well as discussion with management.

Other Information in the Annual Report

The Board of Directors is responsible for the other information in the annual report. The other information comprises all information included in the annual report, but does not include the consolidated financial statements, the stand-alone financial statements of the Company, remuneration report and our auditor’s reports thereon.

Our opinion on the consolidated financial statements does not cover the other information in the annual report and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information in the annual report and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. 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.

Responsibility of the Board of Directors for the Consolidated Financial Statements

The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRS and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Directors is 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 Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.


Page 23

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated 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 Swiss law, ISAs and Swiss Auditing Standards 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 consolidated financial statements.

A further description of our responsibilities for the audit of the consolidated financial statements is located at the website of EXPERTsuisse: http://expertsuisse.ch/en/audit-report-for-public-companies. This description forms part of our auditor’s report.

Report on Other Legal and Regulatory Requirements

In accordance with article 728a para. 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors.

We recommend that the consolidated financial statements submitted to you be approved.

Page 24

Consolidated statement of profit and loss For the years ended December 31, 2018 and 2017

in CHF Notes 2018 2017

Operating expenses

General and administrative expenses 19 1’108’503 795’169

Other expenses 118’654 194’774

Personell expenses 10 509’809 53’735

Marketing expenses 24’509 241’568

Depreciation and amortization 54’248 58’332

License fee - 92’161

Total operating expenses 1’815’723 1’435’738

Non-operating income / (expenses)

Interest income 138’250 7’666

Other financial income 89’022 441’267

Gain from business combination 17 - 5’229’639

Unrealized revaluation gain / (loss) -11’151’090 388’367

Impairment investment in associate -7’000’000 -

Net realized loss -650’518 -

Interest expense -955’225 -313’311

Loss on debt extinguishment -346’907 -

Gain on derivative liability 346’907 -

Other financial expense 20 -522’270 -405’666

Share of profit / (loss) of an associate -791’483 -72’866

Total non-operating income / (expenses) -20’843’314 5’275’096

Profit / (loss) before tax -22’659’037 3’839’358

Income tax expense - 6’595

Profit / (loss) for the year -22’659’037 3’832’762

Attributable to:

Equity holders of the parent -22’619’295 3’853’465

Non-controlling interest -39’742 -20’703

Earnings / (loss) per share attributable to the equity holders of the parent:

Basic -0.54 0.09

Diluted -0.54 0.09

Weighted average number of shares outstanding:

Basic 41’512’138 42’238’836

Diluted 41’512’138 42’238’836

Page 25

Consolidated statement of comprehensive income and loss For the years ended December 31, 2018 and 2017

in CHF 2018 2017

Net profit / (loss) for the year -22’659’037 3’832’762

Other comprehensive income:

Items not be reclassified to net income/ (loss):

Defined benefit plan actuarial gains / (losses) -114’972 -

Net items not to be reclassified to net income / (loss) -114’972 -

Items that will or maybe not be reclassified to net income/ (loss):

Foreign currency translation adjustment 139’027 -74’795

Net items that will or maybe reclassified to net income / (loss) 139’027 -74’795

Total comprehensive income / (loss) -22’634’982 3’757’967

Attributable to:

Equity holders of the parent -22’601’106 3’777’909


Page 26

Consolidated statement of financial position As of December 31, 2018 and 2017


Assets

Current assets

Cash and cash equivalents 38’870 3’720’169

Restricted cash 64’200 64’200

Trade and other receivables 5 553’587 503’610

Other financial assets 17 2’319’118 957’541

Total current assets 2’975’775 5’245’520

Non-current assets

Exploration & evaluation assets 6 23’126’209 22’860’779

Investment in associate 7 19’567’764 27’347’650

Other financial assets 17 - 12’709’710

Advances and loans 8 2’648’381 1’002’868

Total non-current assets 45’342’354 63’921’006

Total assets 48’318’129 69’166’526

Liabilities and shareholders' equity

Current liabilities

Trade and other payables 229’474 93’511

Accrued expenses 450’695 222’622

Borrowings 9 4’448’859 29’530’061

Total current liabilities 5’129’028 29’846’194

Non-current liabilities

Borrowings 9 28’326’107 3’770’383

Pension liability 119’102 -

Total non-current liabilites 28’445’209 3’770’383

Total liabilities 33’574’237 33’616’577

Shareholders' equity

Issued capital 11 21’350’000 21’350’000

Share premium 30’338’643 21’644’340

Treasury shares 11 -6’980’203 -114’825

Retained deficit -29’907’080 -7’172’813

Foreign currency translation adjustment 29’524 -103’638

Equity attributable to equity holders of the parent 14’830’884 35’603’065


Total equity 14’743’892 35’549’949

Total liabilities and shareholders' equity 48’318’129 69’166’526

Page 27

Consolidated statement of cash flows For the years ended December 31, 2018 and 2017


Operating activities

Net profit / (loss) -22’659’037 3’832’762

Non-cash adjustment to reconcile to net profit / (loss):

Depreciation and amortization 6 54’248 58’332

Impairment of E&E 6 - 71’491

Impairment investment in assciates 7 7’000’000 -

Gain from Marcor transaction 17 - -5’229’639

Unrealized revaluation gain / (loss) 11’151’090 -388’367

Amortization of debt discount shareholder note 9 506’348

Revaluation loss investm. associate 43’403 -

Realized loss on securities 650’518 -

Loss on debt estinguishment 346’907 -

Gain on derivative liability -346’907 -

Write off investment 319’191 380’619

Interest expense 448’877 313’311

Interest income -138’250 -

Income tax expense - 6’595

Share of profit/ (loss) of an associate 7 791’483 72’866

Change in pension liability 4’130 -

Share-based payment expense 316’218

Amortization of bond premium -4’888 -5’479

Foreign currency difference -47’523 46’888

Total non-cash adjustments 21’094’845 -4’673’383

Working capital adjustments:

Decrease (increase) in receivables -49’977 -3’553

Decrease (increase) in other current assets - -

Increase / (decrease) in trade and other accounts payables 105’089 -209’601

Increase / (decrease) in other current liabilities 228’073 -27’553

Total working capital adjustments 283’185 -240’707

Cash flow used in operating activities -1’281’007 -1’081’328

Investing activities

Marcor transaction 17 - 2’314’218

Investment in associate -55’000 -

Increase in E&E assets 6 -319’678 -212’858

Purchase of short-term investments -869’089 -138’730

Purchase of equity investment -319’191 -

Sale of short-term investments 415’614 -

Decrease / (increase) in restricted cash - -64’200

Decrease / (increase) in loans and advances -1’507’955 -173’253

Cash flow used in investing activities -2’655’299 1’725’177

Financing activities

Repayment of borrowings -73’751 -206’000

Proceeds from notes payable 300’933 2’635’828

Interest paid -16’963 -

Repurchase of treasury shares -674’740

Proceeds from sale of treasury shares 580’502 493’510

Cash flow from financing activities 115’981 2’923’338

Net change in cash and cash equivalents -3’820’325 3’567’187

Currency translation effect on cash and cash equivalents 139’026 -74’794

Cash and cash equivalents at the beginning of the year 3’720’169 227’776

Cash and cash equivalents at the end of the year 38’870 3’720’169

Non-Cash Disclosures:

Issued note for purchase of treasury shares 5’393’055 279’687

Foregivness of loan Adriatica 7’000’000

Treasury share consideration for business combination (non-cash) - 9’500’000

Issued note for busines combination - 1’000’000

Page 28

Consolidated statement of shareholders' equity For the years ended December 31, 2018 and 2017

in CHF, except per share amounts

Number of

shares

Issued

capital

Share

premium

Treasury

shares

Retained

deficit

Foreign

currency

translation

adjustment

Total equity

attributable to

the parent

Non-

controlling

interest Total equity

As at January 1, 2018 42’700’000 21’350’000 21’644’340 -114’825 -7’172’813 -103’638 35’603’065 -53’116 35’549’949

Profit / (loss) for the period - - - -22’619’295 - -22’619’295 -39’742 -22’659’037

Other comprehensive income /

(loss) - - - - -114’972 133’161 18’189 5’866 24’055

Total comprehensive income /

(loss) - - - - -22’734’267 133’161 -22’601’106 -33’876 -22’634’982

non-cash contribution 8’456’445 8’456’445 8’456’445

Share-based payments - - - 316’218 - - 316’218 - 316’218

Sale of treasury shares - - 237’858 342’644 - - 580’502 - 580’502

Repurchase of treasury shares - - -7’524’240 - - -7’524’240 - -7’524’240

As at December 31, 2018 42’700’000 21’350’000 30’338’644 -6’980’203 -29’907’080 29’523 14’830’884 -86’992 14’743’892

As at January 1, 2017 42’700’000 21’350’000 12’132’942 -317’250 -11’026’278 -28’082 22’111’332 -33’174 22’078’158

Profit / (loss) for the period - - - - 3’853’465 - 3’853’465 -20’703 3’832’762

Other comprehensive income /

(loss) - - - - - -75’556 -75’556 761 -74’795

Total comprehensive income /

(loss) - - - - 3’853’465 -75’556 3’777’909 -19’942 3’757’967

Treasury share consideration for

business combination - - 9’064’064 435’936 - - 9’500’000 - 9’500’000

Sale of treasury shares - - 447’334 46’176 - 493’510 - 493’510

Repurchase of treasury shares - - - -279’687 - - -279’687 - -279’687

As at December 31, 2017 42’700’000 21’350’000 21’644’340 -114’825 -7’172’813 -103’638 35’603’065 -53’116 35’549’949

Atttributable to equity holders of the parent

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Notes to the Consolidated Financial Statements 1. Nature of operations and going concern Blackstone Resources AG (hereafter “the Company” or “Blackstone”) has its registered offices at Blegistrasse 5, CH 6340 Baar, Switzerland. The Company’s purpose consists of acquiring mining rights, concessions, licenses, mining technologies, developing and operating mining facilities. It future expands its interests into battery technology, research and manufacturing. The Company will grow its already existing interest in mineral deposits through the acquisition of further licenses in lithium, graphite, copper and nickel. Going concern At 31 December 2018, the Company had a net working capital deficit of CHF 2'153'253 and had not yet achieved profitable operations. In addition, the Company had a retained deficit of CHF 29’907’080, negative cash flows from operations of CHF 1’281’007 and expects to incur further losses in the development of its business, all of which casts uncertainty about the Company's ability to continue as a going concern. Although the Company has as working capital deficit, CHF 4.4 million of current borrowings are due to U. Ernst (CEO of Blackstone) and Biological AG, an entity owned and controlled by U. Ernst. If necessary, the Company will request an extension of the maturity dates, which has been the historical practice to date. Furthermore, the Company has secured a line of credit of CHF 1.0 million with Biological AG, and other financial assets with a carrying value of CHF 2’319’118 as of the date of this report could be sold. These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the ordinary course of operations. The Company has detailed work programmes in place across all its invested interests. These are supported by technical reports that have been prepared by third parties that have independently reviewed these projects. Some of these interests are now close to generating a positive cash flow, such as Blackstone’s interest in a gold milling plant in Peru. Based on the cash flow plan, the expected cash burn rate of the Company for the next twelve months from the date of this report is CHF 917’600 and management deems the current funds available sufficient to cover the expected cash deficit. Blackstone Resources is therefore likely to remain financially stable and liquid for the foreseeable future. 2. Significant accounting policies and basis of preparation Basis of presentation and statement of compliance These annual consolidated financial statements, including comparatives, have been prepared in accordance with International Accounting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and comply with Swiss Law as well as with the listing rules of the SIX Swiss Exchange. These consolidated financial statements have been prepared on a historical cost basis, except for financial instruments, which are classified as fair value through profit or loss (“FVTPL”) and pension obligations which are measured at revalued amounts or fair values at the end of each reporting period. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information. All amounts on the consolidated financial statements are presented in Swiss francs (“CHF”).

The Company has foreign operations. Transactions in foreign currencies are initially recorded by each entity in the Company at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. On consolidation, the results of foreign operations are translated into CHF at the average rate of the period which approximate to those rates when the transactions took place. All assets and liabilities of foreign operations are translated at the spot rate at the reporting date. Exchange differences arising on translating the opening net assets and the results of foreign operations are recognized in other comprehensive income or loss. Exchange differences recognized in profit or loss in Company entities' separate financial statements on the translation of long-term monetary items forming part of the Company's net investment in foreign operation are reclassified to other comprehensive income or loss on consolidation. On disposal of a foreign operation, the cumulative exchange differences recognized in accumulated other comprehensive income or loss relating to that operation up to the date of disposal are transferred to profit or loss on disposal. Principles of consolidation These consolidated financial statements include the accounts of the Company and its controlled entities. Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

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Control is achieved when the Company has the power to govern the financial operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control is transferred to the Company until the date on which control ceases. Where the Company’s interest is less than 100%, the interest attributable to outside shareholders is reflected in non-controlling interests (NCIs). Profit or loss and each component of other comprehensive income or loss are attributed to the equity holders of the parent of the Company and to the NCIs, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Company’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Company are eliminated in full on consolidation. Investments in associates Associates in which the Company exercises significant influence are accounted for using the equity method. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control over those policies. Significant influence is presumed if the Company holds between 20% and 50% of the voting rights unless evidence exists to the contrary. Equity accounting involves the Company recording its shares of the Associates net income in equity. The Company’s interest in an Associate is initially recorded at cost and is subsequently adjusted for the Company’s share of changes in net assets of the Associate less any impairment in the value of individual investments. Where Blackstone transacts with an Associate, unrealized profits and losses are eliminated to the extent of Blackstone’s interest in that Associate. Changes in Blackstone’s interest in Associates are accounted for as a gain or loss on disposal with any difference between the amount by which the carrying value of the Associate is adjusted and the fair value of the consideration received being recognized directly in the consolidated statement of profit or loss. Business combinations and goodwill Acquisitions of subsidiaries and businesses are accounted for using the acquisition method of accounting. The cost of the acquisition is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred, liabilities incurred to the former owners of the acquiree and the equity interests issued in exchange for control of the acquiree. The identifiable assets, liabilities and contingent liabilities (“identifiable net assets”) are recognised at their fair value at the date of acquisition. Acquisition related costs are recognised in the consolidated statement of profit or loss as incurred. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If the fair value of the identifiable net assets acquired is in excess of the aggregate consideration transferred, the Company reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in the statement of profit or loss. Borrowing costs Borrowing costs are expensed as incurred except where they relate to the financing of construction or development of qualifying assets in which case they are capitalized up to the date when the qualifying asset is ready for its intended use. Retirement benefits Blackstone operates various pension schemes in accordance with local requirements and practices of the respective countries. Blackstone uses the Projected Unit Credit Actuarial method to determine the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. This method is based on the amount of working years at the date of the actuarial valuation and considers the future by including:

• A discount rate;

• the salary development and leaving probability up to the beginning of the benefit payment, and

• inflation adjustments for the years after the first payment for recurring benefits.

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The cost of providing pensions is charged to the consolidated statement of profit and loss so as to recognise current and past service costs, interest cost on defined benefit obligations, and the effect of any curtailments or settlements, net of expected returns on plan assets. Actuarial gains and losses are recognised directly in other comprehensive income and will not be reclassified to the consolidated statement of profit and loss. The retirement benefit obligation/asset recognised in the consolidated statement of financial position represents the actual deficit or surplus in Blackstone’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans Income taxes Income tax expense is comprised of current and deferred taxes. Current tax and deferred tax are recognized in profit or loss, except to the extent that they relate to items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previouss years. Current tax payable also includes any tax liability arising from the declaration of dividends.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilites

for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

• Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss

• Temporary differences related to investments in subsidiaries, associates and jointly controlled entities to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and

• Taxable temporary differences arising on the initial recognition of goodwill.

• The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

• Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

• Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilites and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

• A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Exploration & evaluation assets The acquisition costs of mineral property interests and any subsequent exploration and evaluation (E&E) costs are capitalized. Exploration and evaluation costs incurred prior to obtaining ownership, or the right to explore a property, are expensed as incurred as exploration costs. Properties that have close proximity, are considered separate cash generating units (CGU) for the purpose of determining future mineral reserves and impairments. E&E activity involves the search for mineral resources, determination of technical feasibility and the assessment of commercial viability of an identified resource. E&E activity includes:

• Researching and analysing historical exploration data

• Exploratory drilling and sampling

• Determining and examining the volume and grade of the resource

• Surveying transportation and infrastructure requirements

• Conducting market and finance studies Once the legal right to explore has been acquired E&E expenditure are capitalized. These costs include directly attributable employee remuneration, materials and fuel, surveying costs, drilling costs and payments made to contractors. Capitalized E&E expenditure is considered to be a tangible asset. License costs paid in connection with a right to explore in an existing exploration area are capitalized and amortized over the term of the permit.

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The acquisition costs include the cash consideration paid and the fair market value of any shares issued for mineral property interests being acquired or optioned pursuant to the terms of relevant agreements. Proceeds received from a partial sale or option of a mineral property interest are credited against the carrying value of the property. When the proceeds exceed the carrying costs the excess is recorded in the statement of profit or loss and comprehensive income in the period the excess is received. When all of the interest in a property is sold, subject only to any retained royalty interests which may exist, the accumulated property costs are written-off, with any gain or loss included in the statement of profit or loss and comprehensive income in the period the transaction takes place. No initial value is assigned to any retained royalty interest. The royalty interest is subsequently assessed for value by reference to developments on the underlying mineral property. Management reviews its mineral property interests at each reporting period for signs of impairment and annually if there is impairment in value taking into consideration current year exploration results and management’s assessment of the future probability of profitable operations from the property, or likely gains from the disposition or option of the property. If a property is abandoned, or considered to have no future economic potential, the acquisition and deferred exploration and evaluation costs are written-off to the consolidated statement of profit or loss. Should a project be put into production, the costs of acquisition and evaluation will be amortized over the life of the project based on estimated economic reserves. If the carrying value of a project exceeds its estimated net realizable value or value in use, an impairment provision is recorded. Environmental rehabilitation An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the exploration, development or ongoing production of a mineral property interest. The estimated costs arising from the future decommissioning of plant and other site preparation work, discounted to their net present value, are determined, and capitalized at the start of each project to the carrying amount of the asset as soon as the obligation to incur such costs arises. Discount rates, using a pre-tax rate that reflect the time value of money, are used to calculate the net present value. These costs are charged against profit or loss over the economic life of the related asset, through amortization using either the unit-of-production or the straight- line method. The related liability is adjusted at each period-end, for the unwinding of the discount rate, for changes to the current market-based discount rate and for changes to the amount or timing of the underlying cash flows needed to settle the obligation. Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided for at their net present values and charged against profits as extraction progresses. The Company has no known restoration, rehabilitation or environmental costs related to its mineral property interest. Provisions Provisions are recognised when Blackstone has a present obligation (legal or constructive), as a result of past events, and it is probable that an outflow of resources embodying economic benefits that can be reliably estimated will be required to settle the liability. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation, including interpretation of specific laws and likelihood of settlement. Cash and cash equivalents Cash and cash equivalents comprise cash held at bank and cash on hand and short-term bank deposits with an original maturity of three months or less, net of outstanding bank overdrafts. The carrying amount of these assets approximates their fair value. The Company had no short-term bank deposits at December 31, 2018 or 2017. Financial instruments Financial assets and financial liabilities are recognised in the Company’s consolidated statement of financial position when the Company becomes a party to the contractual provisions of the instrument. Financial assets are classified as either financial assets at amortised cost, at fair value through other comprehensive income (FVTOCI) or at fair value through profit or loss (FVTPL) depending upon the business model for managing the financial assets and the nature of the contractual cash flow characteristics of the financial asset. Financial assets are initially recognised at fair value on the trade date, including, in the case of instruments not recorded at fair value through profit or loss, directly attributable transaction costs. Subsequently, other investments, provisionally priced trade receivables and derivatives are carried at fair value and trade receivables that do not contain provisional price features, loans and other receivables are carried at amortised cost adjusted for any loss allowance. Financial liabilities, other than derivatives and those containing provisional price features, are initially recognised at fair value of consideration received net of transaction costs as appropriate and subsequently carried at amortised cost. Financial liabilities that contain provisional pricing features and derivatives are carried at FVTPL.

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(i) Impairment of financial assets A loss allowance for expected credit losses is determined for all financial assets, other than those at FVTPL, at the end of each reporting period. The expected credit loss recognised represents a probability-weighted estimate of credit losses over the expected life of the financial instrument. The Company applies the simplified approach to measure the loss allowance for trade receivables classified at amortised cost, using the lifetime expected loss provision. The expected credit losses on these financial assets is estimated using a provision matrix by reference to past default experience and an equivalent credit rating, adjusted as appropriate for current observable data and forward-looking information. For all other financial assets at amortised cost, the Group recognises lifetime expected credit losses when there has been a significant increase in credit risk since initial recognition, which is determined by:

• A review of overdue amounts, • Comparing the risk of default at the reporting date and at the date of initial recognition, and • An assessment of relevant historical and forward-looking quantitative and qualitative information. For those balances that are beyond 30 days overdue it is presumed to be an indicator of a significant increase in credit risk. If the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-months expected credit loss, which comprises the expected lifetime loss from the instrument were a default to occur within 12 months of the reporting date. The Group considers an event of default has materialised and the financial asset is credit impaired when information developed internally or obtained from external sources indicates that the debtor is unlikely to pay the Group without taking into account any collateral held by the Group or if the financial asset is more than 90 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. The Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. (ii) Derecognition of financial assets and financial liabilities The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. The Company derecognises financial liabilities when the Group’s obligations are discharged, cancelled or have expired. On derecognition of a financial asset/financial liability in its entirety, the difference between the carrying amount of the financial asset/financial liability and the sum of the consideration received and receivable/paid and payable is recognised in profit and loss. On derecognition of equity investments designated and measured at FVTOCI, the cumulative gain or loss recognised in other comprehensive income is reclassified directly to retained earnings. Earnings per share The Company presents basic and diluted net income or loss per share (E/LPS) data for its common shares. Basic E/LPS is calculated by dividing the gain/loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period, adjusted for treasury shares held. Diluted E/LPS is determined by adjusting the loss attributable to common shareholders and the weighted average number of common shares outstanding, adjusted for treasury shares held and for the effects of all dilutive potential common shares related to outstanding stock options, hybrid instruments and warrants issued by the Company. Treasury shares The cost of purchases of own shares is deducted from equity. Where they are purchased, issued to employees or sold, no gain or loss is recognised in the consolidated statement of income. Such gain and losses are recognised directly in equity. Any proceeds received on disposal of shares or transfers to employees are recognised in equity. Share-based payments Equity-settled share-based payments are measured at the fair value of the awards based on the market value of the shares at the grant date. Fair value excludes the effect of non-market-based vesting conditions. The fair value is charged to the consolidated statement of profit and loss and credited to retained earnings on a straight-line basis over the period the estimated awards are expected to vest. At each balance sheet date, the Company revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates,

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if any, is recognised in the consolidated statement of profit and loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to retained earnings. Related party transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties may be individuals or corporate entities and include key management of the Company and its parent. A transaction is considered to be a related party transaction when there is a transfer of resources, services or obligations between related parties. 3. Significant accounting judgments and estimates The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of income and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes may differ significantly from these estimates. The areas involving significant estimates or judgments are as follows:

• Exploration and Evaluation (E&E) assets The net carrying value of each mineral property is reviewed regularly for conditions that suggest potential indications of impairment. This review requires significant judgment. Factors considered in the assessment of asset impairment include, but are not limited to, whether there has been a significant adverse change in the legal, regulatory, accessibility, title, environmental or political factors that could affect the property’s value; whether there has been an accumulation of costs significantly in excess of the amounts originally expected for the property’s acquisition, development or cost of holding; and whether exploration activities produced results that are not promising such that no more work is being planned in the foreseeable future.

• Impairment of investment in associates Investments in associates are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. If the recoverable amount is less than the carrying amount, an impairment loss is recognised in the consolidated statement of profit and loss. For those investments in associates which were impaired in prior periods, if their recoverable amount exceeds their carrying amount, an impairment reversal is recorded in the consolidated statement of profit and loss. The impairment review requires significant judgment. Factors considered in the assessment of asset impairment include, but are not limited to, whether there has been a significant adverse change in the legal, regulatory, accessibility, title, environmental or political factors that could affect the property’s value; whether there has been an accumulation of costs significantly in excess of the amounts originally expected for the property’s acquisition, development or cost of holding; and whether exploration activities produced results that are not promising such that no more work is being planned in the foreseeable future. Future cash flow estimates which are used to calculate the asset’s fair value are discounted using asset specific discount rates and are based on expectations about future operations, primarily comprising estimates about production and sales volumes, commodity prices (considering current and future prices, price trends and related factors), reserves and resources, operating costs and capital expenditures. Estimates are reviewed regularly by management. Changes in such estimates and in particular, deterioration in the commodity pricing outlook, could impact the recoverable values of these assets, whereby some or all of the carrying amount may be impaired or the impairment charge reversed (if pricing outlook improves significantly) with the impact recorded in the statement of profit and loss.

• Going concern The assessment of the Company’s ability to continue as a going concern involves critical judgements and estimates based on historical experience and expectations of the Company’s ability to produce successful results from its mineral property exploration activities and its ability to attain profitable operations and generate funds from and/or raise equity capital or borrowings sufficient to meet current and future obligations.

• Income taxes Deferred tax assets and liabilities are determined based on differences between the financial statement carrying values of assets and liabilities and their respective income tax bases (“temporary differences”), and losses carried forward. The determination of the ability of the Company to utilize tax loss carry-forwards to offset deferred tax liabilities requires management to exercise judgement and make certain assumptions about the future performance of the Company. Management is required to assess whether it is probable that the Company will benefit from these prior losses and other deferred tax assets. Change in economic conditions, metal prices and other factors could result in revision to the estimates of the benefits to be realized or the timing of utilizing the losses.

• Acquisition accounting

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In prior year the Company has accounted for the acquisition of Marcor Ltd.as a business combination. Significant judgment was required to determine that the application of this accounting treatment was appropriate for the transaction. In addition, the basis for the calculation of the fair value of the assets acquired and liabilities assumed included significant estimates as well as for the fair value of the consideration transferred.

• Fair value measurements A number of assets and liabilities included in the Company’s consolidated financial statements require measurement at, and/or disclosure of, fair value. The fair value measurement of the Company’s financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the ‘fair value hierarchy’):

- Level 1: Quoted prices in active markets for identical items (unadjusted) - Level 2: Observable direct or indirect inputs other than Level 1 inputs - Level 3: Unobservable inputs (i.e. not derived from market data).

The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur The Company measures the following items at fair value.

- Other financial assets (note 17) - Derivative liability (note 9)

For more detailed information in relation to the fair value measurement of the items above, please refer to the applicable notes. 4. Recently adopted accounting standards and accounting standards issued but not yet effective New standards or interpretations effective for the first time for periods beginning on or after January 1, 2018 that had no significant effect on the Company's financial statements are as follows: IFRS 9 - Financial Instruments IFRS 9 Financial Instruments which replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. Changes in accounting policies resulting from IFRS 9 have been applied as at January 1, 2018, with no impact on the Company’s financial statement nor any restatement of comparative information for prior year. IFRS 2 - Share-based Payment On June 30, 2016, the IASB issued amendments to IFRS 2 Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share- based payments, share-based payment transactions with a net settlement feature for withholding tax obligations, and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. The amendments apply for annual periods beginning on or after January 1, 2018. Other than the listed above, the following new standards or interpretations effective for the first time for periods beginning on or after January 1, 2018 that had no significant effect on the Company's financial statements.

• IFRS 15 Revenue from Contracts with Customers

• IFRS 4 Insurance Contracts

• IAS 40 Investment Property

• IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration The Company has reviewed amendments to accounting pronouncements that have been issued but are not yet effective and determined that the following may have an impact on the Company. IFRS 16 - Leases This new standard was issued with the objective to recognize all leases on the balance sheet. IFRS 16 requires lessees to recognize a “right of use” asset and a lease liability calculated using a prescribed methodology. The mandatory effective date of IFRS 16 is for annual periods beginning on or after January 1, 2019. Early adoption is permitted provided that IFRS 15, Revenue from Contracts with Customers, is also adopted. IFRIC 23 - Uncertainty over Income Tax Positions IFRIC 23 clarifies how to recognise and measure current and deferred income tax assets and liabilities when there is uncertainty over income tax treatments.

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The Company is currently assessing the impact these standards and amendments may have on its financial statements. 5. Trade and other receivables The summarised financial information in respect of Blackstone’s trade and other receivables is set out below.

in CHF 2018 2017

Trade receivables 53'587 3'610

Related party receivable 1500'000 500'000

Total 553'587 503'610

1 Pursuant to a Share Purchase Agreement dated May 8, 2017 between Marcor Ltd. and Biological AG, whereby Marcor sold to Biological 500,000 shares of South America Invest Ltd. (formerly Multi Minerals Corp.) at a share price of CHF 3.0 per Multi Minerals Corp. share. Mr. Ernst is the sole owner of Biological AG.

6. Exploration and evaluation assets

The summarised financial information in respect of Blackstone’s E&E assets is set out below.

The balance of E&E assets primarily consists of CHF 22.5M in mineral property rights acquired in 2013 through the acquisition of Troi Gobi LLC. 7. Investment in associate Associates and joint ventures (together “Associates”) in which the Company exercises significant influence or joint control are accounted for using the equity method. Significant influence is the power to participate in the financial

in CHF 2018 2017

Mongolia:

Investment in Troi Gobi: 22’453’792 22’453’792

Exploration costs: 215’927 104’487

Additions 204’128 113’455

Foreign exchange difference -14’655 -2’014

Net exploration costs 405’400 215’927

License costs: 106’727 27’114

Additions 30’103 78’880

Foreign exchange difference -8’727 733

Total license fees 128’103 106’727

Amortization of license fees: 66’747 7’649

Additions 54’248 58’332

Foreign exchange difference -9’097 766

Total amortization costs 111’898 66’747

Net book value of license costs 16’205 39’980

Total Mongolia 22’875’397 22’709’699

Norway:

Investment in BS Norway: 200’000 200’000

Impairment -71’491 -71’491

Exploration costs: 22’570 -

Additions 108’009 22’570

Foreign exchange difference -8’277 -

Net exploration costs 122’302 22’570

Total Norway 250’812 151’080

Total exploration & evaluation assets 23’126’209 22’860’779

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and operating policy decisions of the investee but is not control or joint control over those policies. Significant influence is presumed if the Company holds between 20% and 50% of the voting rights, unless evidence exists to the contrary. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control over an arrangement, which exists only when decisions about relevant strategic and/or key operating decisions require unanimous consent of the parties sharing control. Equity accounting involves the Company recording its share of the Associate’s net income and equity. The Company’s interest in an Associate is initially recorded at cost and is subsequently adjusted for the Company’s share of changes in net assets of the Associate, less any impairment in the value of individual investments. Where the Company transacts with an Associate, unrealised profits and losses are eliminated to the extent of the Company’s interest in that Associate. Changes in the Company’s interests in Associates are accounted for as a gain or loss on disposal with any difference between the amount by which the carrying value of the Associate is adjusted and the fair value of the consideration received being recognised directly in the consolidated statement of income. The summarised financial information in respect of Blackstone’s associate is set out below.

Pursuant to the shareholder agreements dated August 20, 2014 between Blackstone and Adriatica, Blackstone acquired from Adriatica a 20% equity interest in South America Invest Ltd. ("SAI", formerly Multi Minerals Corp.) (total issued and outstanding shares 53,040,000 shares), a public limited company (PLC) registered under the laws of Jersey later transferred into a BVI registered company. According to the agreement between Blackstone and Adriatica, Blackstone purchased a 20% equity interest from Adriatica by way of cash transaction for a total consideration of CHF 26.75 million. Adriatica granted Blackstone a loan in the amount of the transaction value of CHF 26.75 million. Refer to note 9 for details of the loan to Adriatica. Option SAI: Pursuant to the option agreement dated May 22, 2015, Adriatica granted Blackstone an option to purchase up to an additional 39,800,000 ordinary shares representing a 75% interest in SAI. The strike price of the option is CHF 1.50 per SAI share representing a total consideration of CHF 59.7 million. The option expired on December 31, 2018. The Company’s interest in SAI is accounted for in accordance with IAS 28 Investments in Associates using the equity method of accounting whereby the initial investment is recognized at cost and the carrying amount is increased or decreased to recognize the Company’s share of profit or loss and distributions received by SAI. The equity method was used because the majority shareholder Adriatica has control and therefore can influence the outcome of the general meetings and distribution of the variable returns. The increase in investment in SAI during 2017 is subject to the acquisition of Marcor Ltd., reference note 16. During 2018 the Company purchased additional shares from a third party. SAI is in the process of bringing a gold milling plant online in Peru, which is currently in the pilot test phase of production. Management of the Company are also directors of SAI. The activities of SAI are strategically aligned with the Company's and we intend to use the future cash flows from our interest in SAI to support operations, as discussed in note 1. The Company has provided financial support to SAI in the form of a loan receivable (refer to note 8, loan to GESAC, a 100% owned subsidiary of SAI). Pursuant to a loan agreement with GESAC, the Company is committed to provide further financing to support the completion of the gold milling plant, the amount to be based on mutual agreement. During the year ended 31 December 2018, the Company recorded an impairment loss of CHF 7,000,000 on the investment in associate. The impairment loss was triggered as a result of financial difficulties at SAI, which resulted in significant debt restructuring. The recoverable amount was measured based on fair value less costs of disposal, determined by discounted cash flow techniques based on a five year business plan. The determination of fair value less cost of disposal uses level 3 valuation techniques. The key assumptions and inputs used in the valuation are as follows:

in CHF 2018 2017

South America Invest (formerly Multi Minerals Corp):

January 1 27’347’650 26’588’405

Additions 55’000 832’110

Impairment -7’000’000 -

Revaluation loss -43’403 -

Share of income / (loss) from associate -791’483 -72’865

December 31 19’567’764 27’347’650

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• Discount rate of 15% based on a weighted average cost of capital (WACC). The Company utilized a third party consultant to help determine the appropriate discount rate considering market, country and industry risk factors. An increase or decrease in the discount rate of 3% would increase the impairment by CHF 4.8 Mio. or decrease the impairment by CHF 7.6 Mio., respectively.

• Gold ore processing levels are expected to increase from 4 tons per day (TPD) starting in the second quarter of 2019 to 350 TPD by the first quarter of 2022 with the mill operating on average 27 days per month. The gold mill is currently permitted to process 50 TPD but can apply to increase production up to a maximum level of 350 TPD. The planned volume increase is sensitive to SAI's ability to source a sufficient volume of ore and to keep the facility in consistent operation. If the mill is only able to achieve a production capacity of 200 TPD or 300 TPD this would increase the impairment by CHF 9.5 Mio. and CHF 3.2 Mio., respectively.

• Gold output is estimated at 21 grams of gold per ton of ore processed. The estimate was determined based on lab analyses of ore samples purchased from artisanal miners in the area. A decrease or increase in the gold output of 5 grams, i.e. 16 instead of 21 per ton would increase the impairment by CHF 7.6 Mio. respectively decrease it by the same amount if applying 26 grams gold output per ton of ore processed.

• Gold price of USD 1,290 per ounce based on the market price of gold at period end. It is an exogenous factor and thus the only assumption which is not directly controlled by the management. Reducing or increasing the gold price by 5% would have an impact of approx. CHF 1.6 Mio. on the valuation.

• Stabilized operating profit of 17% expected to be achieved by the end of year 5. A decrease or increase of 2%pt to 15% or 19% respectively would have an impact of CHF 2.4 Mio. on the valuation.

The total assets and liabilities of SAI for the periods ended December 31, 2018 and 2017 as well as the profit and loss statement are set out below:

8. Advances and loans The summarised financial information in respect of Blackstone’s advances and loans is set out below.

1 Loan bears no interest and is amortized over a 10 months period commencing on October 30, 2018.

in CHF 2018 2017

Total current assets 681’593 242’872


Total assets 2’189’832 1’611’542

Total current liabilities 101’036 107’925

Total non-current liabilities 4’175’205 3’457’439

Total liabilities 4’276’241 3’565’364

in CHF 2018 2017

Revenues 40’960 0

Cost of goods sold -35’476 0

Gross profit 5’484 0

General and admin. expenses 598’741 364’615

Total Expenses 598’741 364’615

Earnings before interest and tax -593’258 -364’615

Financial result -3’364’158 286

Earnings before tax -3’957’416 -364’329

Tax 0 0

Earnings after tax -3’957’416 -364’329

in CHF 2018 2017

Loan to employee 110’000 -

GESAC 22’356’486 932’617

Loan to executive management 372’358 70’251

Loan to Board of Director 4209’537 -

Total advances and loans 2’648’381 1’002’868

Page 39

2 German Engineering & CIE S.A.C (GESAC), a 100% owned subsidiary of SAI, a related party; loan bears interest of 3% p.a. and matures on December 31, 2017. Pursuant to the loan umbrella loan agreement dated May 8, 2017 the loan was rolled forward into the new agreement and bears interest of 8% p.a. and expires on July 31, 2020. 3 Loan bears interest of 3% p.a. and expires on April 30, 2019 4 Loan bears interest of 7% p.a. and is secured by various assets and expires on April 30, 2019

9. Borrowings The summarised financial information in respect of Blackstone’s borrowings is set out below. Third party borrowings: All third party borrowings are classified as non-current borrowings.

1 The convertible bond Series A bears interest of 5.2% p.a. and matures on August 31, 2021. Blackstone has the option to repurchase the convertible bond Series A from September 1, 2018 at the nominal value. 2 The convertible bond Series B bears interest of 5.2% p.a. and matures on January 1, 2022. Blackstone has the option to repurchase the convertible bond Series B from January 1, 2019 at the nominal value. The convertible notes have been classified as a convertible note with embedded derivative liability since there is an obligation to issue a variable number of shares and not fixed number of shares. For convertible bonds with embedded derivative liabilities, the embedded derivative value is determined first, and the residual value is assigned to the debt host liability. Since the embedded value is immaterial, the total value was assigned to the debt host liability.

Related party borrowings:

1Current account loan bearing interest of 1.5% p.a. with a 12-month termination notice at the end of each calendar year up to a maximum of CHF 650,000. Share purchase agreement dated June 21, 2107 whereby Marcor Ltd, a 100% subsidiary of Blackstone, agreed to purchase from U. Ernst 450,000 shares of Blackstone at share price of CAD 2.00. The consideration of CAD 900,000 towards U. Ernst has been structured through a loan agreement bearing interest of 1% p.a. and expires on December 31, 2019. Pursuant to the share purchase agreement dated April 19, 2017 Blackstone acquired from U. Ernst a 100% equity interest in Marcor Ltd., a registered company under Gibraltar law. Pursuant to the share purchase agreement the consideration of CHF 1,500,000 is payable in cash and shares of Blackstone. For the cash portion of CHF 1,000,000 U. Ernst has granted Blackstone a loan bearing interest of 1.5% and matures on December 31, 2019. Pursuant to the share purchase agreement dated May 8, 2017 Marcor Ltd, a 100% subsidiary of Blackstone, purchased 1,000,000 shares of Multi Minerals Corp. from U. Ernst. Pursuant to the share purchase agreement the consideration of CHF 1,500,000 is payable in cash and shares of Blackstone for a total consideration of CHF 1,500,000. U. Ernst has granted Marcor a loan bearing an interest of 1% p.a. and maturing on December 31, 2020. Pursuant to the share purchase agreement dated February 15, 2018 Blackstone purchased from U. Ernst 721,000 shares of Blackstone Resources AG at a share price of CHF 9.50 per share for a total consideration of CHF 6,849,500. U. Ernst has granted Blackstone a loan bearing an interest of 1.5% p.a. and maturing on December 31, 2020. The loan was recorded initially at a fair value of CHF 5,393,055 using an estimated market interest rate of 10%. Subsequently, the loan is carried at amortised cost using the effective interest rate method. Since the loan is with a shareholder, the difference between the face value and fair value at inception was recorded as a contribution.

2 Pursuant to the share purchase agreement dated August 24, 2017 Blackstone Resources AG acquired from Biological AG a company registered under Swiss law, a 100% equity interest in Blackstone Resource Management AG, a registered company under Swiss law. Pursuant to the share purchase agreement the consideration of CHF 100,000 towards Biological has been structured through a loan agreement bearing an interest of 1% p.a. and expires on December 31, 2019. Mr. Ernst is the sole owner of Biological AG. Pursuant to the share purchase agreement dated January 5, 2017 Blackstone Resources AG acquired from Biological AG a company registered under Swiss law, a 100% equity interest in Blackstone Norway, formerly Xundaze Associates Ltd. (BVI registered company). Pursuant to the share purchase agreement the consideration of CHF 10,000 towards Biological has been structured through a loan agreement bearing an interest of 1% p.a. and expires on December 31, 2019. Pursuant to the purchase agreement dated January 5, 2017 Blackstone Resources AG acquired from Biological AG a company registered under Swiss law, 45 exploration permits in Norway. Pursuant to the purchase agreement the consideration of CHF 120,000 towards Biological has been structured through a loan agreement bearing an interest of 1% p.a. and expires on December 31, 2019.

in CHF 2018 2017

Convertible bond Series A 1513’926 518’814

Convertible bond Series B 210’000 10’000

Other 51’556 44’623

Total third party borrowings 575’482 573’437

in CHF 2018 2017

Current:

U. Ernst 1 1’898’692 206’265

Biological 2 2’550’167 2’332’525

Adriatica 3 - 26’991’270

Total current 4’448’859 29’530’060

Non-current:

U. Ernst 1 7’489’442 3’196’947

Adriatica 3 20’261’183 -

Total non-current 27’750’625 3’196’947

Total related party borrowings 32’199’484 32’727’007

Page 40

Pursuant to a loan agreement dated August 30, 2017 Biological AG has granted Blackstone Resources AG a loan in the amount of CHF 100,000. The loan bears interest of 1% p.a. and expires on December 31, 2019, Pursuant to a loan agreement dated December 20, 2017 Biological AG has granted Blackstone Resources AG a loan in the amount of CHF 2,000,000. The loan bears interest of 1% p.a. and expires on December 31, 2019 Pursuant to loan agreements dated October 3, 2018, November 27, 2018 and December 20, 2018, Biological AG has granted Blackstone Resources AG loans in the amounts of CHF 100,000, CHF 70,000 and CHF 24,000, respectively. The loans bear interest of 1% p.a. and expire on December 31, 2019. 3 Pursuant to the shareholders agreement dated August 20, 2014 Blackstone acquired from Adriatica Group Ltd., a BVI registered entity, a 20% equity interest in South America Invest Ltd. (formerly Multi Mineral Corp. PLC), a BVI registered company, with investments in Latin America. Pursuant to the shareholder agreement the consideration of CHF 26,750,000. towards Adritica was structured as a loan agreement bearing interest of 1% p.a. with an original maturity date of December 31, 2016. The loan is secured through Blackstone's interest in SAI. The loan will be paid back at the maturity date or the shares in SAI will be returned to Adriatica. There is also an oral agreement in place between Adriatica Group Ltd. and the Company such that in the event of impairment of the equity interest in South America Invest Ltd., Adriatica will waive the loan payable by an equal amount. Per note 7. the Company recognized an impairment loss of CHF 7,000,000 during 2018 and therefore the principle balance of the Adriatica note was also reduced by CHF 7,000,000. The loan waiver was recorded as a capital contribution. On December 15, 2016 both parties agreed to extend the maturity date of the loan until December 31, 2018. Pursuant to a share purchase agreement dated December 23, 2016, Adriatica purchased 70,000 shares of Blackstone at a share price of CHF 9.50 per share by conversion of CHF 665,000 of the outstanding Adriatica loan. On May 7, 2018, pursuant to Amendment No. 1 to the Shareholders Agreement dated December 15, 2016 Blackstone and Adriatica Group Ltd. have extended the maturity date of the loan agreement until December 31, 2020. Additionally, both parties have agreed to the following conversion terms:

• The conversion price calculated based on the thirty (30) day volume weighted average price (VWAP) of the Blackstone shares quoted on the SIX Swiss Exchange prior to the conversion date;

• A minimum conversion price of CHF 12.00 per share; and

• This conversion can be done from January 1, 2019 until December 31, 2020. The addition of the conversion feature was accounted for as an extinguishment of the original financial liability and recognition of a new hybrid financial liability consisting of a debt host liability and an embedded derivative liability (conversion option). The fair value of the embedded derivative was determined first using a Black-Scholes option pricing model. The debt host liability was recorded using the residual method. At the date of the amendment, the Company recorded a derivative liability and a loss on debt extinguishment of CHF 346,907. At 31 December 2018, the fair value of the derivative liability was determined to be zero using a Black-Scholes option pricing model. As such, the Company recorded a gain on derivative liability of CHF 346,907.

10. Personnel costs and employee benefits Total personnel costs, which include salaries, wages, social security, and other personnel costs incurred for the years ended 31 December 2018 and 2017, were CHF 509,809 and CHF 53,735, respectively. Defined benefit plans The company operates defined benefit plan in Switzerland and a defined contribution plan in Mongolia. The benefit payments are from trustee-administered funds. Plan assets held in trusts are governed by local regulations and practices in each country. The movement in the defined benefit pension plan for the year ended December 31, 2018 is as follows. In 2017 no pension asset/liability was recorded due to the fact that only 1.5 months of employment was recorded.

in CHF 2018

Movement in the defined benefit obligation

Benefit obligation at beginning of year 0

Remeasurement: accrual of liability at beginning of

year

6’389

Current service cost 10’892

Interest expense 1’420

Contributions by plan participants 6’778

Actuarial (gains) and losses arising from changes in

demographic assumptions

0


financial assumptions

0

Experience (gains)/losses 103’653

Exchange rate changes 0

Benefits paid 296’045

Past service cost 0

Business combinations 0

Plan curtailments 0

Plan settlements 0

Benefit obligation at end of year 425’177

Page 41

The assumptions used were as follows:

11. Share capital

in CHF 2018

Change in plan assets

Fair value of plan assets at beginning of year 0

Remeasuremnt: accrual of asset at beginning of year 1’148

Interest income 1’404

Return on plan assets, excluding amount in interest

income

(6’078)

Exchange rate changes 0

Contributions by the employer 6’778

Contributions by plan participants 6’778

Benefits paid 296’045

Business combinations 0

Plan settlements 0

Fair value of plan assets at end of year 306’075

in CHF 2018

Amounts recognized in the balance sheet

Present value of funded obligations 425’177

Fair value of plan assets 306’075

Deficit (surplus) for funded plans 119’102

Present value of unfunded obligations 0

Fair value of reimbursement rights recognised 0

Other amounts recognised in the balance sheet 0

Net liability (asset) 119’102

in CHF 2018

Expense recognised in profit or loss

Current service cost 10’892

Net interest on the net defined benefit liability 16

Past service cost 0

Other 0

Total pension cost recognized in the P&L account 10’908

Amounts recognized in other comprehensive income

(OCI)


financial assumptions

0

Actuarial (gains) and losses not yet recognized 5’240

Experience (gains)/losses 103’653

Return on plan assets, excluding amount in interest income 6’078

Effect of limiting defined benefit asset (asset ceiling) 0

Amount recognised in OCI 114’972

Principal actuarial assumptions used 2018

Discount rate 0.90%

Expected rate of salary increases 1.00%

Expected rate of future benefit increases 0.00%

Turnover rate BVG 2015

Technical Bases BVG 2015

Employer's best estimate of contributions expected

during next annual period (in CHF) 22’000

Page 42

(a) Authorized share capital The Company is authorized to issue up to 68,320,000 bearer shares with a par value of CHF 0.50 until November 30, 2019. (b) Issued share capital At December 31, 2018 and 2017, the Company had 42’700’000 bearer shares issued and outstanding. (c) Treasury shares At December 31, 2018 and 2017, the Company held 1,237,945 and 554,111 treasury shares, respectively.

12. Earnings/loss per share The basic earnings/loss per share (EPS) is computed by dividing the net profit/loss by the weighted average number of shares outstanding during the year. The diluted earnings/loss per share reflects the potential dilution of weighted average number share equivalents, such as outstanding stock options, and share purchase warrants, in the weighted average number of shares outstanding during the year, if dilutive. The following table sets forth the computation of basic and diluted earnings/loss per share for the years ended December 31, 2018 and 2017 respectively:

The dilutive effect of the convertible note Series A and Series B is immaterial in 2017 and would have an antidilutive effect in 2018. The Adriatica convertible had no effect in 2017 and in 2018 would have had an antidilutive effect. 13. Share-based payments During the year ended 31 December 2018, the Company granted shares to employees and consultants as compensation for services rendered. The shares granted vested immediately. The fair value of the shares granted prior to Blackstone's listing on the SIX Swiss Exchange was based on the share price used in equity transactions between the Company and third parties. The fair value of the shares granted subsequent to Blackstone's listing on the SIX Swiss Exchange was based on the market value of Blackstone's shares on the grant date. During the year ended 31 December 2018, the Company granted 40,900 shares with a weighted-average fair value of CHF 7.73. Total expense of CHF 316,218 was recognized in the statement of profit and loss. 14. Financial instruments Fair value The following tables present the carrying values and fair values of Blackstone’s financial instruments. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (most advantageous) market at the measurement date under current market conditions. Where available, market values have been used to determine fair values. When market values are not available, fair values have been calculated by discounting expected cash flows at prevailing market interest and exchange rates. The estimated fair values have been determined using market information and appropriate valuation methodologies but are not necessarily indicative of the amounts that Blackstone could realise in the normal course of business. The financial assets and liabilities are presented by class in the tables below at their carrying values, which generally approximate the fair values with the exception of CHF 8,439,541 in non-current borrowings from related parties, the fair value of which at 31 December 2018 was CHF 6,974,827. The fair values of these non-current borrowings are based on

in CHF 2018 2017

Earnings / (loss) attributable to the equity

holders of the parent: -22’619’295 3’853’465

Weighted average number of shares outstanding:

Basic 41’512’138 42’238’836

Diluted 41’512’138 42’238’836

Earnings / (loss) per share attributable to the

equity holders of the parent:

Basic -0.54 0.09

Diluted -0.54 0.09

Page 43

discounted cash flows using a current borrowing rate. They are classified as level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk.

1Carrying value comprises investments, loans, accounts receivable, accounts payable and other liabilities measured at amortized cost.

2FVtPL – Fair value through profit and loss. 3Classified as Level 1, measured using quoted exchange rates and/or market prices. 4 Classified as Level 2, The Company elected FVTPL to reduce any measurement inconsistency.

Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is on its cash, short-term and long-term investments which are being held in bank accounts. The cash, short-term and long-term investments are deposited in bank accounts held with two banks in Switzerland and Gibraltar so there is a concentration of credit risk. This risk is managed by using a Cantonal bank and Swiss private bank. The Swiss cantonal bank is guaranteed through the municipal state. Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the Corporation’s functional currency. Since the majority of the assets and liabilities are denominated in Swiss francs the currency risk is minimal. Some investments are held in CAD$. The exchange rate has historically been very stable. Interest rate risk Interest rate risk is the risk that the fair value of future cash flow of a financial instrument will fluctuate because of changes in market interest rate. The Company’s exposure to interest rate risk relates to its ability to earn interest income on cash at variable rates. The Company doesn’t face any other interest rate risk since all borrowings are at fixed rates. Liquidity risk

2018 / in CHF Amortized cost 1 FVTPL 2 Total

Assets

Cash and cash equivalents 3 - 38’870 38’870

Restricted cash - 64’200 64’200

Trade and other receivables 553’587 - 553’587

Other financial assets (current) 3 - 1’473’712 1’473’712

Other financial assets (restricted) 4 - 845’406 845’406

Advances and loans 2’648’381 - 2’648’381

Total financial assets 3’201’968 2’422’188 5’624’156

Liabilities

Trade and other payables 229’474 - 229’474

Borrowings 32’774’966 - 32’774’966

Total financial liabilities 33’004’440 - 33’004’440

2017 / in CHF Amortized cost 1 FVTPL 2 Total

Assets

Cash and cash equivalents 3 - 3’720’169 3’720’169

Restricted cash - 64’200 64’200

Trade and other receivables 503’610 - 503’610

Other financial assets (current) 3 - 957’541 957’541

Other financial assets (non-current) 4 - 12’709’710 12’709’710

Advances and loans 1’002’868 - 1’002’868

Total financial assets 1’506’478 17’451’620 18’958’098

Liabilities

Trade and other payables 93’511 - 93’511

Borrowings 33’300’444 - 33’300’444

Total financial liabilities 33’393’955 - 33’393’955

Page 44

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company attempts to ensure there is sufficient access to funds to meet on-going business requirements, taking into account its current cash position and potential funding sources. The current assets are sufficient to confirm the going concern. The monthly cash burn rate for 2019 is estimated at approx. CHF 80’000. The following tables set out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities:

15. Changes in liabilities arising from financing activities

1The Other column includes the effect of reclassification on non-current portion of interest-bearing borrowings to current due to the passage of time, the effect of accrued but not yet paid interest on interest-bearing borrowings, write-offs of loans, reclassification from current to non-current for maturity dates extended, and various other adjustments.

16. Management of capital The Company manages its capital structure, consisting of share capital, and will make adjustments to it depending on the funds available to the Company for its future acquisition, exploration and development of exploration and evaluation assets. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business. The Company is dependent on external financing to fund its activities. In order to carry out its planned exploration and pay for future general and administrative expenses, the Company expects to issue new shares, issue debt, acquire or dispose of assets or adjust the amount of cash. The Company will continue to assess new exploration and evaluation assets and seeks to acquire additional interests if sufficient geologic or economic potential is established and adequate financial resources are available. Management reviews its capital management approach on an on-going basis and believes that this approach, given the size of the Company, is reasonable. The Company is not subject to externally imposed capital requirements.

in CHF Up to 1 year

Between 1 and 2

years

Between 2

and 5 years Total

At December 31 2018

Trade and other payables 229’474 - - 229’474

Borrowings 4’448’859 27’750’625 575’482 32’774’966

Total 4’678’333 27’750’625 575’482 33’004’440

in CHF Up to 1 year

Between 1 and 2

years

Between 2

and 5 years Total

At December 31 2017

Trade and other payables 93’511 - - 93’511

Borrowings 29’530’060 3’241’570 528’814 33’300’444

Total 29’623’572 3’241’570 528’814 33’393’956

in CHF

January 1,

2018 Cash flows

Business

combination Other 1

December

31, 2018

Current borrowings 29’530’058 227’182 - -25’308’381 4’448’859

Non-current borrowings 3’770’385 24’555’722 28’326’107

Total liabilities from financing

activities 33’300’444 227’182 - -752’659 32’774’966

in CHF

January 1,

2017 Cash flows

Business

combination Other 1

December

31, 2017

Current borrowings 198’324 2’419’828 - 26’911’906 29’530’058

Non-current borrowings 27’292’181 10’000 3’398’470 -26’930’266 3’770’385

Total liabilities from financing

activities 27’490’506 2’429’828 3’398’470 -18’360 33’300’444

Page 45

There were no changes in the Company’s approach to capital management during the year ended December 31, 2018. 17. Business combinations during the period Pursuant to the shareholder purchase agreement (SPA) dated April 19, 2017 between Blackstone and U. Ernst, Blackstone acquired from U. Ernst a 100% equity interest in Marcor Ltd. (total issued and outstanding shares 2,000 shares at GBP 1.00 nominal per share), a Ltd. company registered under the laws of Gibraltar. The objective of the acquisition was to participate in the battery metal market through the interest of Marcor in First Cobalt Corp. According to the agreement between Blackstone and U. Ernst, Blackstone purchased a 100% equity interest in Marcor by way of cash and equity transaction (1 million Blackstone treasury shares) for a total consideration of CHF 10.5 million. The consideration was measured at fair value. U. Ernst has granted Blackstone a loan in the amount of CHF 1 million and the loan expires on December 31, 2019. The loan bears interest of 1.5% p.a. and is payable annually. The loan is secured through Blackstone’s interest in Marcor. The transaction was treated as a business combination under common control and accounted for using the acquisition method pursuant to IFRS 3, whereby the bargain gain of CHF 5.2 million was recorded in the consolidated statement of profit or loss. The bargain gain resulted due to a timing difference between signing of the agreement and closing of the transaction. Marcor Ltd. transaction Fair value of Marcor’s assets and liabilities per closing November 30, 2017:

in CHF 30.11.2017

Assets:

Cash & cash equivalents 2'314'218

Advances and loans 1'843'617

Other financial assets (current) 1'562'376

Other financial assets (non-current) 12'407'898

Total assets 18'128'108

Liabilities

Borrowings 2'398'470

Total liabilities 2'398'470

Net assets 15'729'639

Blackstone payment consideration:

Share consideration 9'500'000

Cash consideration 1'000'000

Total purchase price 10'500'000

Residual bargain price 5'229'639 Acquisition costs of CHF 208,876 arose as a result of the transaction. These have been recognized as part of general and administrative expenses in the consolidated statement of profit or loss during financial year 2017. From November 30, 2017 to December 31, 2017, Marcor contributed CHF 154,030 to Blackstone’s net profit. 18. Other financial assets The summarised financial information in respect of Blackstone’s other financial assets is set out below.

Page 46

1 The shares are categorized as trading shares. Fair value is determined using quoted bid prices from the market. 2 50% of the First Cobalt Corp. shares are restricted untill June 30, 2019. Since it is within a within a 12-month period the shares are reported under current assets. The fair value of the restricted shares was determined using the quoted bid price in an active market discounted using a discount rate of 10% during the restriction period.

The value of the Company’s investment in First Cobalt Corp. has decreased considerably. The share price dropped during the financial year 2018 from CAD 1.24 per share to CAD 0.18 per share at year-end. The development in the share price was correlated to the decrease of the actual price for cobalt material which dropped from USD$ 95’000 to USD$ 30’000 throughout the fiscal year. 19. General and administrative expenses The summarised financial information in respect of Blackstone’s general and administrative expenses is set out below.

20. Related party transactions The Company’s related parties include key management personnel and companies related by way of directors or shareholders in common. During the years ended December 31, 2018 and 2017 respectively, the Company paid and/or accrued the following fees to management personnel and directors:

1 Reference to note 9, related party borrowings. 2 Ingo Meyer and Michael Hingst are external consultants and the amount reported is not base compensation but a consultancy fee.

in CHF 2018 2017

Current:1

Inca One Gold Corp 586’383 277’848

First Cobalt Corp. (C$) - 456’574

First Cobalt Chess Dep. (A$) - 223’119

First Cobalt Corp. (C$) 21’732’735 12’709’710

Total other financial assets 2’319’118 13’667’251

in CHF 2018 2017

Rental expense 191’944 105’652

Accounting 289’753 198’249

Tax & legal 151’833 166’828

D&O Insurance 21’363 -

Consulting expenses 251’036 48’714

Listing expenses 64’559 -

Other administrative expenses 138’015 66’850

Acquisition costs - 208’876

Total general and administrative costs 1’108’503 795’169

in CHF Salary/Fee Shares Loan Total Salary Shares Loan Total

Directors:

U. Ernst 1 10’664 - - 10’664 5’000 - - -

K. Ludvigsen 10’664 - - 10’664 5’000 - - -

Dr. Stach 7’998 - - 7’998 - - - -

R. Gröflin - - 209’537 209’537 - - - -

Management:

P-M. Vogel 100’659 95’336 72’358 268’353 15’565 750 70’000 86’315

Ingo Meyer 2 24’000 95’336 - 119’336 - - - -

Michael Hingst 2 24’000 95’336 - 119’336 - - - -

Total compensation 177’985 286’008 281’895 745’888 25’565 750 70’000 86’315

2018 2017

Page 47

21. Other financial expenses The summarised financial information in respect of Blackstone’s other financial expenses is set out below.

22. Tax Income tax expense:

No income tax was charged or credited to equity and other comprehensive income during 2018 and 2017.

Reconciliation of the effective tax rate: The tax on the Company’s profit/(loss) before tax differs from the theoretical amount that would arise using the Company’s domestic tax rate applicable to profits/(loss) of the consolidated entities as follows:

Deferred income tax assets and liabilities: Deferred tax assets have not been recognised due to the uncertainty of future income and profit situation in the Compny and the relevant entities. The temporary differences have not resulted in any deferred tax liabilities.

in CHF Assets Liabilities Assets Liabilities

Current assets - - - -

Non-current assets - - - -

Current liabilities - - - -

Non-current liabilities - - - -

Capitalized tax losses - - - -

Total - - - -

Offsetting of balances within

the same tax jurisdiction - - - -

Deferred income tax assets - -

Deferred income tax liabilities - -

2018 2017

in CHF 2018 2017

Foreign currency differences -169’327 -11’373

Writte off investment/loan -319’191 -393’725

Interest expenses -35’770 -2’586

Total other financial expenses -522’270 -405’666

in CHF 2018 2017

Current tax expense - 6’595

Deferred tax expense / benefit - -

Total tax expense - 6’595

in CHF 2018 2017

Profit / (loss) before tax from continuing operations -22’659’037 3’839’358

Company's domestic tax rate 15% 15%

Expected tax expense/(benefit) using the Company's domestic tax

rate -3’398’856 575’904

Tax exempt income 1’846’038 -794’634

Permanent differences relating to loan waivers and treasury shares 1’136’538

Current year losses for which no deferred tax asset recognised 458’738 125’047

Losses without tax effect 19’871 89’620

Prio year true-ups -20’649

Other effects -41’680 10’659

Tax expense recorded in the consolidated financial statements - 6’595

Page 48

Unrecognised deferred tax assets: In 2018 the income tax effect of the not recognised deferred tax assets was CHF 576,114 and CHF 549,138 for unrecognised tax losses respectively. In 2017 the income tax effect of the not recognised deferred tax assets was CHF 138,025 and CHF 125,047 for unrecognised tax losses respectively.

Aging of not recognised tax losses:

23. Segment information The Company currently does not generate any revenues and profits from its E&E assets. Blackstone’s segments are currently split into two segments.

• Exploration & evaluation assets (E&E)

• Other – various investments The E&E segment is managed by local management with a reporting line to the Company’s executive management, who is the chief operating decision maker. The segment Other comprises of a 20% investment in Peru as well as equity interests in battery metal investments and a gold venture in Peru. The 20% investment in Peru is managed by local staff with a reporting line to the Company’s chief operating decision maker. The total profit or loss of the company by its two segments generated in the periods ended December 31, 2018 and 2017 respectively was as follows:

The CHF 5,229,639 gain in 2017 relates to the business combination outlined in note 16. The segment breakdown of the Company’s non-current assets for period ended December 31, 2018 and 2017 respectively were as follows:

in CHF 2018 2017

Deductible temporary differences 179’834 86’516

Tax losses 3’660’923 833’647

Total 3’840’757 920’163

in CHF 2018 2017

Expire in 2024 695’988 -

Expire in 2025 2’964’934 -

Total 3’660’922 -

in CHF 2018 2017

E&E: -156’698 -153’623

- NCI Mongolia -39’742 -20’703

Total E&E -116’956 -132’920

Total other -22’502’339 3’986’385

- of which gain from business

combination - 5’229’639

Total net profit /(loss) -22’659’037 3’832’762

Page 49

1 Other financial asset relates to the Marcor transaction, reference note 17. 24. Principal operating subsidiaries and investments

25. Subsequent Events

• These financial statements were approved by the Board of Directors for issue on May 3, 2019.

• The treasury shares who have been sold by U. Ernst to Blackstone by February 15, 2018 for a total consideration of CHF 6,849,500, as per note 8, have been repurchased by U. Ernst effective May 2, 2019 at the same price.

in CHF 2018 2017

E&E:

E&E assets 23’126’209 22’860’779

Total E&E 23’126’209 22’860’779

Other:

Investment in associate 19’567’764 27’347’650

Other financial asset (non-current)1- 12’709’710

Advances and loans 2’648’381 1’002’868

Total other 22’216’144 41’060’228


Country of

incorporation

% of interest

2018

% of interest

2017 Main activity

Principal subsidiary:

Troi Gobi Mongolia 70 70 Exploration copper, rare earth

Marcor Ltd. Gibraltar 100 100

Investment vehicle ,

investments in battery metals

Blackstone

Resources Canada Switzerland 100 100 Investment vehicle

Cobalt Trading Hong Kong 100 100 Trading vehicle

Blackstone

Resources

Management AG Switzerland 100 100 Management services

Blackstone

Resources Chile SpA Chile 100 - Investment vehicle

Blackstone

Resources Norway

British Virgin

Islands 100 100

Exploration in Norway, gold,

rare earth

Principal associate:

South American

Investment

British Virgin

Islands 20 20

Investment vehicle with 100%

equity interest in a gold milling

plant in Peru and a 80%

manganese exploration project

in Colombia

Page 50

Financial Statements of Blackstone Resources AG


Page 51

Statutory auditor’s report

To the General Meeting of Blackstone Resources AG, Baar

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Blackstone Resources AG, Baar which comprise the balance sheet as at 31 December 2018 and the statement of profit and loss and notes for the year then ended, including a summary of significant accounting policies.

In our opinion the accompanying financial statements as at 31 December 2018 (pages 54 to 60) comply with Swiss law and the company’s articles of incorporation.

Basis for Opinion

We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and 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 entity in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession 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.

Report on Key Audit Matters based on the circular 1/2015 of the Federal Audit Oversight Authority

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. 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.


Page 52


Valuation of Investments in subsidiaries

The Company carries investments in

subsidiaries in the amount of CHF 43,598,738

on its balance sheet. Those investments are

valued individually at acquisition costs less

impairment. The valuation of investments

involves judgment in the projections and

assumptions used, which are sensitive to the

expected future market developments that

could affect the profitability of these entities.

We focused on this area due to the degree of

management's judgment involved, its significant

impact on the financial statements and the

impact it has on presentation and disclosures.

We assessed the Company's impairment

considerations and valuation for all significant

investments for reasonableness.

Regarding the investment in South America

Invest, we obtained the production license

arrangements in place and verified validity with

the help of an internal expert. We challenged

management’s analysis around the key drivers of

cash flow projections. We assessed key

assumptions used, e.g. WACC and considered

sensitivity of key assumptions. With the support

of our internal valuation specialist, we tested the

accuracy and appropriateness of the model used.

Regarding the investment in Troi Gobi LLC, we

assessed whether there are indicators that

impairment exists. In particular we verified that

the license to explore have not expired and are

in good standing and that the Company is willing

and able to continue with the exploration or

evaluation. We inquired with management about

whether data exists to indicate that the book

value will not be fully recovered from future

development and production.

Going Concern

The Company is highly leveraged with a negative working capital balance of CHF 720,698 and incurred a loss for the year of CHF 2,969,763. We focused our audit on this item because of its significance to the financial statements and general operation of the Company. We refer to Note 1 to the financial statements for additional disclosure of the Company's future operations.

We critically reviewed management's plans to continue as a going concern. This includes assessment of the Company's budget and cash forecast for the 12 months period subsequent to the issuance date of this report, the Company's commitments and contingencies, the realizability of the Company's assets and investor's commitment and ability to provide sufficient funds for the Company to continue as a going concern.

Our critical review included analysis of the Company's historical cash needs, assessment of future cash flows based on the budget and financing and other relevant agreements in place as of issuance date of this report as well as discussion with management.


Page 53

Other matter

The financial statements of Blackstone Resources AG for the year ended 31 December 2017 were

audited in accordance with the Swiss Standard on the Limited Statutory Examination by us. We

expressed an unmodified opinion on those statements on 11 June 2018.

Responsibility of the Board of Directors for the Financial Statements

The Board of Directors is responsible for the preparation of the financial statements in accordance with the provisions of Swiss law and the company’s articles of incorporation, and for such internal control as the Board of Directors determines 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 Board of Directors is responsible for assessing the entity’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 Board of Directors either intends to liquidate the entity or to cease operations, or has 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 Swiss law and Swiss Auditing Standards 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 at the website of EXPERTsuisse: http://expertsuisse.ch/en/audit-report-for-public-companies. This description forms part of our auditor’s report.

Report on Other Legal and Regulatory Requirements

In accordance with article 728a para. 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.

We recommend that the financial statements submitted to you be approved.

We draw attention to the acquisition of own shares, which in the absence of unrestricted reserves constitute a repayment of capital of the form, which is prohibited by article 680 para. 2 CO.

http://expertsuisse.ch/en/audit-report-for-public-companies

Page 54

Statement of profit and loss for Blackstone Resources AG For the years ended December 31, 2018 and 2017


Revenues

Management services - 212’415

Other revenues 3 887’430 537’866

Total revenues 887’430 750’281

Operating expenses

General and administrative expenses 1’153’624 402’863

Personell expenses 414’361 52’409

Marketing expenses 24’509 241’568

Other expenses 137’221 105’191

Total operating expenses 1’729’715 802’031

Non-operating income / (expenses)

Interest income 5 20’050 4’808

Impairment investment in associates -8’175’943 -

Financial expenses 4 -971’585 -683’247

Total non-operating income / (expenses) -9’127’478 -678’439

Non-operating (extraodinary) income 10 7’000’000 34’200

Loss before taxes -2’969’763 -695’989

Income tax expense - -

Loss for the year -2’969’763 -695’989

Page 55

Balance Sheet for Blackstone Resources AG As of December 31, 2018 and 2017


Assets

Current assets

Cash and cash equivalents 66’300 2’515’923

Trade and other receivables 50’831 1’557

Total current assets 117’131 2’517’480

Non-current assets

Investments in subsidiaries and accociates 6 43’598’738 51’582’769

Financial assets 7 1’222’457 472’965


Total assets 44’938’326 54’573’213

Liabilities and shareholders' equity

Current liabilities

Trade and other payables 612’904 72’140

Accrued expenses 224’925 118’545

Total current liabilities 837’829 190’685

Non-current liabilities

Borrowings 8 25’432’469 32’242’547

Total non-current liabilities 25’432’469 32’242’547

Schareholders' equity

Issued capital 9 21’350’000 21’350’000

Statutory captial reserves 2’852’626 2’852’626

Treasury shares 9 -617’016 -114’825

Retained deficit -4’917’582 -1’947’819

Total equity 18’668’028 22’139’982

Total liabilities and shareholders' equity 44’938’326 54’573’213

Page 56

Notes to the Financial Statements 1. General The financial statements of Blackstone Resources AG (hereafter “the Company” or “Blackstone”) with its registered offices at Blegistrasse 5, CH 6340 Baar, Switzerland comply with requirements of the Swiss Code of Obligation (OR). Going Concern The Company attempts to ensure there is sufficient access to funds to meet on-going business requirements, taking into account its current cash position and potential funding sources. At 31 December 2018, the Company had a net working capital deficit of CHF 720'698 and had not yet achieved profitable operations. In addition, the Company had a retained deficit of CHF 4'917'582 and expects to incur further losses in the development of its business, all of which casts uncertainty about the Company's ability to continue as a going concern. The Company has secured a line of credit of CHF 1.0 million with Biological AG. These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the ordinary course of operations. The Company has detailed work programmes in place across all its invested interests. These are supported by technical reports that have been prepared by third parties that have independently reviewed these projects. Some of these interests are now close to generating a positive cash flow, such as Blackstone’s interest in a gold milling plant in Peru. Based on the cash flow plan, the expected cash burn rate of the Company for the next twelve months from the date of this report is CHF 760,000 and management deems the current funds available sufficient to cover the expected cash deficit. Blackstone Resources is therefore likely to remain financially stable and liquid for the foreseeable future. 2. Valuation principles Assets Assets are valued at acquisition cost less impairment. Non-current assets with an observable market price are valued at the stock price or market value on the balance sheet date. All changes in value are recognised the statement of profit and loss. Liabilities Liabilities are valued at nominal value. Treasury shares The cost of purchases of own shares is deducted from equity. Where they are purchased, issued to employees or sold, no gain or loss is recognised in the consolidated statement of income. Such gain and losses are recognised directly in equity. Any proceeds received on disposal of shares or transfers to employees are recognised in equity. Foreign currency translation All assets and liabilities of foreign operations are translated at the spot rate at the reporting date. Results of foreign operations are translated at the average rate of the period which approximate to those rates when the transactions took place. Resulting foreign exchange differences are recognized in the statement of profit and loss except for unrecognized foreign exchange differences on non-current assets and liabilities. Details to specific items 3. Other revenues

4. Financial expenses

in CHF 2018 2017

Gain/(loss) on sale of treasury shares 825’726 517’065

Various income 61’704 55’001

Total other revenues 887’430 572’066

in CHF 2018 2017

Interest expense 372’192 299’516

Write off investment 319’191 -

Write off receivable - 380’619

Other financial expenses 280’202 3’112

Total financial expenses 971’585 683’247

Page 57

5. Financial income

6. Investments in subsidiaries and associates The list of legal entities held directly and indirectly by Blackstone Resources AG is as follows:

7. Financial assets

8. Borrowings

Related Party

1 Current account loan bearing interest of 1.5% p.a. with a 12-month termination notice at the end of each calendar year.

in CHF 2018 2017

Interest income 20’050 4’808

Total financial income 20’050 4’808

Share of Capital

in CHF Share of Votes 2018 2017

Blackstone Resources Management AG 100% 100’000 100’000

Steinhaldenring 8b, CH-8954 Geroldswil

Blackstone Resources Canada AG 100% 100’000 100’000

Chamerstrasse 172, CH-6300 Zug

Marcor Ltd 100% 1’500’000 1’500’000

Capilano House, 6/2 Victualling Office Lane, Gibraltar

Cobalt Trading International 100% 10’000 10’000

Room 202, 20/F Hing Yip Comm. Centre

272-284 Des Voeux Road Central, Hong Kong

Blackstone Norway 100% 10’000 10’000

Trident Chambers, P.O. Box 146, Road Town, Tortola, BVI

Troi Gobi LLC 70% 23’075’718 22’939’549

Grand Office Centre, N° 32 Khooro, S. Jamyangun's street

Ulaanbaatar, Mongolia

South America Invest 20% 18’802’277 26’923’220

Trident Chambers, P.O. Box 146, Road Town, Tortola, BVI

Blackstone Resources Chile SpA 100% 743 -

Cerro el Plomo 5855, 406 las Condes, Santiago, Chile

Total 43’598’738 51’582’769

in CHF 2018 2017

Loans to directors and management 291’895 70’251

Loans to subsidiaries and associates 742’667 402’714

Marketable securities 187’895 -

Total financial assets 1’222’457 472’965

in CHF 2018 2017

Loan from U. Ernst 1 1’771’319 1’203’730

Loan from Adriatica 2 20’261’183 26’991’270

Loan from Biological AG 3 2’550’167 2’332’525

Loan from Marcor 1&2 4 662’651 801’529

Loan from Marcor 3 4 51’818 250’233

Loan from Blackstone Canada 5 135’331 134’223

Total related borrowings 25’432’469 31’713’510

Page 58

Pursuant to the share purchase agreement dated April 19, 2017 Blackstone acquired from U. Ernst a 100% equity interest in Marcor Ltd., a registered company under Gibraltar law. Pursuant to the share purchase agreement the consideration of CHF 1,500,000 is payable in cash and shares of Blackstone. For the cash portion of CHF 1,000,000 U. Ernst has granted Blackstone a loan bearing interest of 1.5% and matures on December 31, 2019. 2 Pursuant to the shareholders agreement dated August 20, 2014 Blackstone acquired from Adriatic Group Ltd., a BVI registered entity, a 20% equity interest in Multi Mineral Corp. PLC, a BVI registered company, with investments in Latin America. Pursuant to the shareholder agreement the consideration of CHF 26,750,000. towards Adritica has been structured through a loan agreement bearing an interest of 1% p.a. and expires on December 31, 2016. On December 15, 2016 both parties agreed to extend the term of the loan until December 31, 2018. Pursuant to the shareholder agreements dated December 14, 2018 between Blackstone and Adriatica, a third party, the loan principle amount was reduced from previously CHF 26’750’000 to CHF 19’750’000. Pursuant to a share purchase agreement dated December 23, 2016, Adriatica purchased 70,000 shares of Blackstone at a share price of CHF 9.50 per share by conversion of CHF 665,000 of the outstanding Adriatica loan. Om May 7, 2018, pursuant to Amendment No. 1 to the Shareholders Agreement dated December 15, 2016 Blackstone and Adriatica Group Ltd. have extended the loan agreement in until December 31, 2020. Additionally, both parties have agreed to the following conversion terms:

• The conversion price calculated based on the thirty (30) day volume weighted average price (VWAP) of the Blackstone shares quoted on the SIX Swiss Exchange prior to the conversion date;

• a minimum conversion price of CHF 12.00 per share; and

• This conversion can be done from January 1, 2019 until December 31, 2020. 3 Pursuant to the share purchase agreement dated August 24, 2017 Blackstone Resources AG acquired from Biological AG a company registered under Swiss law, a 100% equity interest in Blackstone Resource Management AG, a registered company under Swiss law. Pursuant to the share purchase agreement the consideration of CHF 100,000 towards Biological has been structured through a loan agreement bearing an interest of 1% p.a. and expires on December 31, 2019. Mr. Ernst is the sole owner of Biological AG. Pursuant to the share purchase agreement dated January 5, 2017 Blackstone Resources AG acquired from Biological AG a company registered under Swiss law, a 100% equity interest in Blackstone Norway, formerly Xundaze Associates Ltd. (BVI registered company). Pursuant to the share purchase agreement the consideration of CHF 10,000 towards Biological has been structured through a loan agreement bearing an interest of 1% p.a. and expires on December 31, 2019. Pursuant to the purchase agreement dated January 5, 2017 Blackstone Resources AG acquired from Biological AG a company registered under Swiss law, 45 exploration permits in Norway. Pursuant to the purchase agreement the consideration of CHF 120,000 towards Biological has been structured through a loan agreement bearing an interest of 1% p.a. and expires on December 31, 2019. Pursuant to a loan agreement dated August 30, 2017 Biological AG has granted Blackstone Resources AG a loan in the amount of CHF 100,000. The loan bears interest of 1% p.a. and expires on December 31, 2019, Pursuant to a loan agreement dated December 20, 2017 Biological AG has granted Blackstone Resources AG a loan in the amount of CHF 2,000,000. The loan bears interest of 1% p.a. and expires on December 31, 2019 Pursuant to loan agreements dated October 3, 2018, November 27, 2018 and December 20, 2018, Biological AG has granted Blackstone Resources AG loans in the amounts of CHF 100,000, CHF 70,000 and CHF 24,000, respectively. The loans bear interest of 1% p.a. and expire on December 31, 2019. 4 Loan from Marcor 1& 2 bear interest of 1.5% p.a. and expire on December 31, 2019. Loan from Marcor 3 bears interest of 1% p.a. and expires on December 31, 2019.

5 Current account loan and bears interest of 1% p.a.

Third party borrowings

1 The convertible bond Series A bears interest of 5.2% p.a. and matures on August 31, 2021. The convertible bond Series A can be converted into Blackstone shares at a 10% discount to the Blackstone quoted market price from January 1, 2018. Blackstone has the option to repurchase the convertible bond Series A from September 1, 2018 at the nominal value. 2 The convertible bond Series B bears interest of 5.2% p.a. and matures on January 1, 2022. The convertible bond Series B can be converted into Blackstone shares at a 10% discount to the Blackstone quoted market price from January 1, 2018 with floor set at CHF 6.00. Blackstone has the option to repurchase the convertible bond Series B from January 1, 2019 at the nominal value.

9. Equity Share capital At December 31, 2018 and 2017 respectively, the share capital consisted of 42,700,000 bearer shares with a nominal value of CHF 0.50.

Treasury shares The number of treasury shares held by Blackstone Resources AG changed as follows:

in CHF 2018 2017

Convertible Series A 1 513’926 519’037

Convertible Series B 2 10’000 10’000


Blance sheet

date Bearer shares

Nominal

value in CHF

Share capital

in CHF

31.12.18 42’700’000 0.50 21’350’000

31.12.17 42’700’000 0.50 21’350’000

Page 59

1

Of which 15,300 shares were sold in 2018 to employees at an average share price of CHF 7.51 as part of the employment contracts and in 2017 1,500 shares at an

average share price of CHF 0.50, respectively.

10. Extraordinary income Extraordinary income of CHF 34,200 in 2017 is pursuant to a change in the retained deficit related to financial statements 2016 which was not carried forward correctly. Extraordinary income of CHF 7,000,000 in 2018 is due to the decrease in the loan from Adriatica, which was partially forgiven by Adriatica, a shareholder of the Company. 11. Other disclosures

Number of full-time equivalents In 2018 the number of full-time equivalents was below 10 and in 2017 as well. Liabilities to pension plan The liabilities to the pension plan in 2018 and 2017 were as follows:

Assets pledged The following assets were pledged against various loans in 2018 and 2017:

1 Pledged against Bilological AG loan 2 Pledged against U. Ernst loan relating to Marcor transaction 3 Pledged against Adriatica loan.

Shares and options held by Board of Directors and Management The shares and options held by the Board of Directors and Management in 2018 and 2017 were as follows:

Quantity

Average price

in CHF Quantity

Average price

in CHF

Balance at January 554’111 0.9 351’889 0.4

Acquisitions 75’512 9.1 1’256’074 1.0

Disposals 1 -120’118 7.6 -1’053’852 9.4

Balance at December 31 509’505 5.6 554’111 0.9

2018 2017

in CHF 2018 2017

Social secuurity pilar 2 (BVG) 22’190 2’363


in CHF 2018 2017

Investment in Troi Gobi 1 23’075’718 22’939’549

Investment in Marcor 2 1’500’000 1’500’000

Investment in South America Invest 3 18’802’277 26’923’220

Total pledged investments 43’377’995 51’362’769

in CHF number value number value number value number value

Directors:

Ulrich Ernst 19’484’004 9’742’002 - - 19’422’344 9’711’172 - -

K. Ludvigsen - - - - - - - -

Dr. P. Stach - - - - - - - -

R. Gröflin - - - - - - - -

Management:

P.-M. Vogel 12’000 95’336 - - 1’500 750 - -

I. Meyer 12’000 95’336 - - - - - -

M. Hingst 12’000 95’336 - - - - - -

Total 19’520’004 10’028’010 - - 19’423’844 9’711’922 - -

Shares Options Shares Options

2018 2017

Page 60

Significant shareholders As of 31 December 2018, the following shareholders held more than 3% voting rights:

Percentage of shares held (according to most recent disclosure notice)

2018

Ulrich Ernst 45.71%

Adriatica Group Ltd. 19.43%

Marcor Holdings Ltd. 9.83%

Total 74.97%

Subsequent events

The financial statements were approved by the Board of Directors on May 3, 2019 and will be submitted to the Annual General Meeting of Shareholders for approval on June 5, 2019.

Documents

Blackstone Resources AG Report 2018.pdf · Capital structure Capital As of 31 December 2018, the capital structure of Blackstone was as follows: 42,700,000 bearer shares at CHF 0.50