Australian Pacific Coal Limited Level 7, 10 Felix Street Brisbane QLD 4000 Telephone: 07 3221 0679 Facsimile: 07 3229 9323 ABN 49 089 206 986 ASX Code: AQC Annual Report For the year ended 30 June 2011 Current reporting period: Financial year ended 30 June 2011 Previous corresponding period: Financial year ended 30 June 2010 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Cover TABLE OF CONTENTS Chairman’s Report Information on Australian Pacific Coal Review of Operations Directors’ Report - Remuneration Report - Auditor’s Independence Declaration - Corporate Governance Statement Financial Statements - Income Statements - Statements of Comprehensive Income - Statements of Financial Position - Statements of Changes in Equity - Statements of Cash Flow - Notes to the Financial Statements - Directors’ Declaration - Independent Audit Report ASX Additional Information Corporate Directory 2 4 6 25 32 36 37 45 46 47 48 50 51 97 98 100 102 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 1 of 102 CHAIRMAN’S REPORT The company has moved forward this year, particularly on its coal assets, against a difficult overall world economic situation. At last year's annual general meeting the company outlined its new focus on coal exploration and this has been the primary focus throughout the past year. As a result of the ongoing process of seeking expressions of interest with respect to its tenements, in August 2011, the company entered into an exploration, option and joint venture agreement with Rio Tinto Exploration Pty Ltd (RTX) on its 100% owned tenements EPCs 1824, 1645,1773 and 1867. This was announced to the market on 22 August 2011. The terms of this joint-venture generally are set out in the Review of Operations on page 20 and provide, amongst other matters, for a $2.3million up-front payment and a commitment from RTX to spend a minimum of $700,000 on a drilling program on EPC 1824 within a two year period from gaining access to tenement. RTX’s initial payment of $2.3million (plus GST) was received on fulfilment of conditions precedent within the agreement. Your board is encouraged by this joint-venture with such a substantial company. A fuller description of the tenements and the joint-venture is contained in the Review of Operations (page 20). Late in the 2010 financial year the company entered into a Joint-Venture Exploration and Development Agreement with the private company Blackwood Resources Pty Ltd on tenements EPC 1955,1957,1979 and 1987. Your company retains a 10% free carried interest up to bankable feasibility study stage on these tenements. Blackwood Resources have kept the company informed of developments on these tenements and we look forward to continuing progress on them in the coming financial year. The company holds EPC 1827 between the Curragh Mine and the Jellinbah Mine and close to the main train line serving the coal industry from Blackwater to the Port of Gladstone. Activities have been carried out on two fronts on this tenement. Firstly, the company has undertaken a four hole drilling program in the north-east area, east of the major control of the Jellinbah Fault. Three of the four holes intersected coal and sampling of all cored coal seams has been completed. Further description is included in the Review of Operations. Secondly, the company has continued the process of seeking expressions of interest in the tenements from larger coal mining groups. Given the difficult economic and market conditions around the world of late this process is ongoing and discussions are continuing. As stated in the annual report last year, MacArthur Coal Ltd agreed to pay over $334 million to acquire a 90% interest in the adjoining tenement MDL162 which lies immediately to the west of EPC 1827. Your company's technical studies have indicated that development of an underground coalmining operation on MDL162 could enhance the likelihood of mining on EPC 1827. Recently, there have been a number of corporate developments, both directly and indirectly, regarding ownership of MDL 162. Currently, the legal and commercial situation regarding this tenement is not at all clear to your company. However, in connection with its possible impact on EPC 1827, we continue to watch closely the possible development of the coal resource in that tenement. The company continues to assess its other coal tenements and our next drilling program on EPCs 1548 and 1996 is planned for October/November 2011. In addition, the Company will conduct further drilling on EPC 1827’s main JORC inferred resource target in the second and third calendar quarters of 2012. I refer you to the details in the proposed drilling program contained within the Review of Operations. The company continues to look for other mineral opportunities and has reviewed several during the past year. However, none of these other that the companies acquired projects have passed the company's strict investment criteria. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 2 of 102 Chairman’s Report CHAIRMAN’S REPORT Shareholders will be aware of the difficult times in the international marketplace. The Board appreciates your support of the company during the past 12 months and looks forward to hopefully both an improvement in the world economic situation together with success in the company's ongoing exploration program. John Bovard Chairman Brisbane Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 3 of 102 Chairman’s Report INFORMATION ON AUSTRALIAN PACIFIC COAL Australian Pacific Coal Limited (AQC) is an emerging ASX coal explorer focused on the Bowen Basin, Queensland. Through a series of acquisitions, AQC has positioned itself with both metallurgical and thermal coal projects potentially suited for underground and open cut mining. AQC has a built a portfolio of strategic holdings of coal exploration tenements located in Queensland's lucrative Bowen, Galilee, Surat and Clarence-Moreton basins. The philosophy of AQC's management has been to secure strategic tenure by identifying available tenements close to operating mines or in areas with proven or potential in-ground resources in regions suitable for short term development. The projects are located close to the existing network of rail and port infrastructure in the Bowen Basin. The current focus of the company’s operations is to value add the coal projects through evaluation of the resource potential of the projects followed up with drilling as required to prove up the resource. Early stage drilling has commenced on selected projects and will continue through the coming year. Following on from the value add process, AQC’s exploitation opportunities for individual coal projects include development of the project in its own right, farm-in, joint venture exploration, joint venture development or outright sale. AQC’s long term strategic focus is based on seeking out and identifying potentially lucrative resource investment opportunities. The success of the coal project acquisitions is a direct result of this long term strategy and the Company will continue to take advantage of low entry cost resource investment opportunities it identifies. Investing in these potentially lucrative resource plays is an important part of the Board’s strategy to protect the future growth of the Company. BOARD OF DIRECTORS Mr John Bovard FAICD, FAusIMM, BE(Civil) Non-executive Chairmain Member of the Remuneration Committee Mr Bovard joined the Company on 30 October 2009. He has more than 40 years experience in the mining industry. He has been involved in the development of several major projects and has held prominent positions with many Australian and international companies including Western Mining Inc, OK Tedi and Placer Pacific. In addition, Mr Bovard has fullfilled numerous advisory roles over many years providing consulting advice on mining, construction and infrastructure. Mr Bovard is the Non-executive Chairman of Mt Isa Metals Limited and a Non-executive Director of Australian Solomons Gold Limited. Mr Peter Ziegler BCom (Hons), LLB (Hons), MFM, FCPA, FTIA, ACA Non-executive Deputy Chairman Chairman of the Audit and Remuneration Committees Mr Ziegler is an experienced company director. He was a partner of one of the major international accounting firms, specialising in taxation and corporate structuring. Mr Ziegler is currently the principal of Ziegler Asset Partners, an asset management firm specialising in investments in listed and unlisted equities and special opportunities. He is also a solicitor of the Supreme Court of Victoria. Director since 29 November 2005. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 4 of 102 Information on Australian Pacific Coal INFORMATION ON AUSTRALIAN PACIFIC COAL Mr Paul Byrne Managing Director Mr Byrne joined the Company as Executive Director, following the acquisition of the Ipoh group of companies. Mr Byrne was a founder of the Ipoh group and has initiated environmental remediation projects in conjunction with CSIRO, University of South Australia and the Queensland Department of Primary industries. He has also been involved in the resources sector since 1985 in exploration and mining and has been a director of several Australian public listed companies. Director since 29 November 2005. Mr Paul Ingram B.AppSc.(Geology), AusIMM Non-executive Director Appointed to the Board on 17 March 2011, Mr Ingram is a geologist with over thirty five years’ experience in mineral exploration and mine development. Paul has been involved in several startup public companies, mostly focussed in the Asian region. He has extensive experience in corporate M&A, and has been focussed on coal projects in Asia and Australia for the past eight years. Paul brings to the Board of AQC an extensive network of professional contacts, which, combined with close ties to the Chinese resource industry, will be of significant benefit to AQC as an emerging coal company in Queensland. Mr Ingram is currently a director of Consolidated Global Investments Limited, A-Cap Resources Ltd and Impact Minerals Limited. KEY COMPANY DATA Listing: Australian Securities Exchange (ASX:AQC) – Listed in 1999 Shares on Issue: 533,118,926 AQC ORD (approximately 1,800 shareholders) Options: Total 30,000,000 15,000,000 exercise price 6 cents expiry 8 April 2012 15,000,000 exercise price 6 cents expiry 7 May 2012 Market Capitalisation: $21.3million as at 30 June 2011 Cash at bank: $585,454 as at 30 June 2011 ($2,292,054 as at 30 September 2011) Quarterly Share Price Activity: June 2011 March 2011 December 2010 September 2010 High $0.095 $0.081 $0.042 $0.027 Low $0.035 $0.043 $0.016 $0.015 Last $0.040 $0.057 $0.042 $0.020 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 5 of 102 Information on Australian Pacific Coal REVIEW OF OPERATIONS Coal Exploration Projects Australian Pacific Coal Limited (AQC) is an Australian public company focusing on acquiring and developing coking, PCI and thermal coal deposits in Queensland. The Company now owns interests in 32 coal tenements comprising 17 granted exploration permits (EPCs), 5 EPC applications that have proceeded to Exploration Permit Proposal Stage and are undergoing Native Title processes and 10 EPC applications (EPCAs). In addition, a mineral development application (MDL453) over EPC1827 has been submitted. Most of the tenements are in the Bowen Basin, a major source of supply of some of the world's best metallurgical, PCI and thermal coal. The Company also has coal tenements in the Surat, Galilee and Clarence- Moreton Basin. These basins contain large reserves of thermal coal and currently produce coal for export and domestic use. AQC’s coal tenements cover a combined area of over 2,200km2. Many are close to rail and road infrastructure and some are down-dip or along strike of operating coal mines or known coal resources. The tenements have been largely grouped into project areas which target similar coal seams within a close geographical proximity. AQC has an exploration priority on coking coal, and scoped underground targets with a resource potential greater than 50 million tonnes and open cut targets with a potential greater than 5 million tonnes. Short term evaluation and exploration will focus on the most prospective targets. Priority targets include: EPC 1827 ‘Cooroorah’ in the Blackwater project – an JORC inferred resource of 107Mt and potential for • shallower open cut coal in the north and additional deeper resources. EPC 1859 ‘Dingo’ in the Blackwater project – shallow coal intercepts from previous drilling. Requires • further interpretation and drilling to elevate to a resource. EPC 1548 ‘West German Creek’ in the Middlemount project – a geological target with prospectivity for • shallow German Creek formation coking coal. COMPETENT PERSON STATEMENT OF COMPLIANCE This report has been prepared in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves "The JORC Code" (2004) and reviewed by Mr S.W (Bill) Hayes of S.W Hayes and Associates who consents to the inclusion in this announcement of the matters based on his information in the form and context in which it appears. Mr Hayes, a member of the AusIMM, is a coal geologist with approximately 40 years’ experience relevant to the style of mineralisation and type of deposit under consideration and qualifies as a Competent Person as defined by the Australian Code for Reporting of Exploration Results. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 6 of 102 Review of Operations REVIEW OF OPERATIONS Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 7 of 102 Review of Operations REVIEW OF OPERATIONS Granted 100% AQC Exploration & Joint Venture Agreements EPC 1548 - West German Creek Rio Tinto Exploration Pty Ltd EPC 1798 - Bluff Creek EPC 1827 - Cooroorah EPC 1859 -Dingo EPC 1894 - Rocky Creek EPC 1895 - Dawson River • • • • EPC 1645** - Mount Hess EPC 1773 - Kemmis Creek EPC 1824 - Mount Hillalong EPC 1867* - Mount Hess West EPC 1920 - Comet River Blackwood Resources Pty Ltd EPC 1965 - Kanga Creek EPC 1995 - Carlo Creek EPC 1996 - Churchyard Creek EPC 1997 - Mt Stuart EPC 2035 - Bee Creek EPC 2036 - Ripstone Creek • • • • EPC 1955 - Bungaban Creek EPC 1957* - Laguna Creek EPC 1979 - Kingsthorpe EPC 1987* - Quondong • • • • • • • • • • • • • * Exploration Permit Proposal Stage ** Application Pending Pending Applications - 100% AQC • • • • • • EPC 1989* - Castlevale EPC 2037* - Almoola EPC 1638** - Spear Creek EPC 1896 - Bottle Tree Ck EPC 2011** - North Copperfield EPC 2012** - Clermont * Exploration Permit Proposal Stage ** Competing Application • • • • • EPC 2014** - Blair Athol EPC 2016** - Drummond EPC 1866** EPC 2157** EPC 2122** Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 8 of 102 Review of Operations REVIEW OF OPERATIONS EPC1827 Cooroorah • Blackwater project area • Granted 25 Nov 2009 • Main target area - Rangal Coal Measures south-west of Jellinbah Fault • • • • Shallow target area - Burngrove Formation north-east of fault Rangal Coal Measures - PCI and Thermal Coal 4 drill-holes completed Q2-Q3 2011 Approximately 20km from Boonal Siding on the Blackwater Rail System, then 280km to Gladstone • Mineral Development Licence Application No.453 covering the entire area of EPC 1827 has been submitted INFERRED RESOURCE ESTIMATE – MAIN TARGET AREA EPC 1827 contains 107Mt of Inferred Resources of low volatile PCI coal in the Aries, Pollux and Pisces seams of the Rangal Coal Measures at depths ranging from 225m to greater than 400m. This was announced by Australian Pacific Coal to the ASX on 29th November 2010. The full report is available from the ASX website. Q2-Q3 2011 DRILLING – SHALLOW TARGET AREA: Nine holes totalling 636.48m were drilled at four sites in the shallow target area between the 9th and 16th July 2011. This consisted of 588.67m of open-hole chip drilling and 47.81m of core drilling. The purpose of the holes was to provide core samples of the shallow seams for quality analysis, and then open-hole drill further to a maximum of 120m depth to test for suspected lower seams. DRILLING RESULTS: The targeted shallow seams were intersected in drill holes RDH01C, RDH02 and RDH03, plus multiple seams were intersected further down in each of the deep holes. Drill hole RDH04 did not intersect any coal, but it did delineate the western extent of the Jellinbah Fault. Holes were geophysically logged and all coal core was sampled for quality analysis. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 9 of 102 Review of Operations REVIEW OF OPERATIONS Downhole geophysical logs indicate that the shallow coal intersected was from two different seams. The target seam intersection at site RDH01C is a seam of approximately two meters thickness and there are good indications it covers most of the northern half of the investigation area. The target seam intersected in RDH02 and RDH03 is a shallow occurrence of a deeper seam, and is approximately 4.3 meters thick. This seam is also intersected at depth in RDH01C suggesting continuity and a seam dip to the north-west. Results disproved the initial interpretation of a single continuous flat-lying seam. The two seams intersected are interpreted to be the Leo seam and the stratigraphically lower Aquarius seam, both in the Burngrove Formation. Repeat sections of the Aquarius seam in RDH01C are thought to be the result of faulting associated with the Jellinbah Fault. Similar repeat sections may also occur in holes RDH02 and RDH03. The Leo seam intersected in RDH01C has a total thickness of 2.03 meters comprising four main coal plies with a cumulative thickness of 1.67 meters. Elsewhere, in historical holes nearby, this seam is up to 5 metres total thickness. The coal sequence within the Aquarius Seam comprises 6 to 8 coal plies punctuated by claystone partings between 0.01 to 0.53 metres thick. The total average thickness of the seam is approximately 4.3 metres. Aquarius Seam coal plies attain a maximum cumulative thickness of 3.17 metres in RDH02C. Table 1 below is a summary of target seam thicknesses. Table 1 - Target Seam Thickness Summary: Hole Seam Depth to Top Cumulative Coal Cumulative Total of seam (m) Thickness (m) Parting Thickness (m) RDH01C RDH01C RDH01C RDH02C RDH03C Leo Aquarius* Aquarius** Aquarius Aquarius 31.05 84.30 90.10 17.50 31.43 1.67 -- -- 3.17 2.57 Thickness (m) 0.36 -- -- 1.74 0.92 2.03 2.9 4.48 4.91 3.49 * & ** Seams not cored - interpreted from geophysical log only. ** Fault repeat. The limit of weathering in all coal-bearing holes is at about 19 metres. In RDH02, the top of the Aquarius Seam (17.50m) is affected by weathering. All other seam intersections are below the weathered zone. Final interpretation of modelled data is currently underway and will be reported early next quarter (Q4). COAL QUALITY RESULTS: Samples coal seam cores were dispatched to Preplab Testing Services Pty Ltd in Gladstone for analysis. A three stage testing procedure consisting of raw coal, washability and product composite analysis was undertaken on a selection of samples from RHD01C and RDH03C. RDH02C was not analysed in the initial testing phase on the basis that it is partially weathered towards the top of the seam and was not considered necessary for an initial indication of coal quality from each of the identified seams. Raw Coal Analysis Stage 1 - raw coal proximate analysis results (on air dried basis), for the sampled intervals in RDH01C (Leo Seam), are presented below in Table 2. The 2.03m thick Leo Seam is made up of 1.67m coal and 0.36m of parting material. Four samples taken from plies 1, 2, and 4 were analysed, accounting for 1.37m of the total 1.67m of cumulative coal. Results of the proximate analysis indicate high ash of up to 54.1% (average 47.3%), low volatile matter (average 10.8%) and low sulphur (average 0.37%) composition. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 10 of 102 Review of Operations REVIEW OF OPERATIONS Table 2 – RDH01C Raw Coal Data Sample No: Inherent Moisture: Ash: Volatile Matter: Fixed Carbon: Total Sulphur: Calorific Value: Relative Density: 1.4 42.6 13.8 42.2 0.21 N/R 1.78 Stage 1 - Raw Coal Proximate Analysis:- RDH01C (Leo Seam) PL01C_ 000023 - 24 PL04C_ 000037/ 38 PL01C_ 000025 2.1 PL02C_ 000031 1.1 Average 1.425 43.2 10.9 43.8 49.3 9.8 39.8 Other Analysis 0.39 0.4 N/R 1.7 N/R 1.8 1.1 54.1 8.7 36.1 0.5 N/R 1.86 Units (% ad) (% ad) (% ad) (% ad) (% ad) (MJ/kg ad) (g/cc ad) 47.3 10.8 40.475 0.375 N/R 1.785 Raw coal proximate analysis results (on air dried basis), for the sampled intervals in RDH03C (Aquarius Seam), are presented below in Table 3. The 3.49m thick Leo Seam is made up of 2.57m coal and 0.92m of parting material. Five samples taken from plies 1, 2, 4, 5 and 6 were analysed, accounting for 1.59m of the total 2.57m of cumulative coal. Comparing proximate analysis results with those of the Leo Seam, the Aquarius seam possesses higher ash values of up to 65% (average 52.6%), lower volatile matter (average 8.6%), lower inherent moisture (0.7%) and higher relative densities (average 1.85g/cc). Sulphur content is similar at 0.36% in both the Leo and Aquarius Seams. Table 3 – RDH03C Raw Coal Data Stage 1 - Raw Coal Proximate Analysis:- RDH03C (Aquarius Seam) PL01C_ 000001 PL02C_ 000008/9 PL04C_ 000013 /14 PL05C_ 000017 PL06C_ 000019 Average Units 0.7 65 6.6 27.7 0.22 N/R 2.02 0.6 56.6 9.1 33.7 0.38 N/R 1.92 0.5 57.8 7.6 34.1 Other Analysis: 0.41 N/R 1.94 0.8 45.3 9.3 44.6 0.34 N/R 1.76 1.0 38.5 10.6 49.9 0.44 N/R 1.63 0.7 (% ad) 52.6 (% ad) 8.6 (% ad) 38.0 (% ad) 0.36 (% ad) (MJ/kg ad) N/R 1.85 (g/cc ad) Sample No: Inherent Moisture: Ash: Volatile Matter: Fixed Carbon: Total Sulphur: Calorific Value: Relative Density: Full results of coal quality analysis will be available in the final report early next quarter (Q4). Washability Stage 2 - washability analysis was conducted for each of the Stage 1 samples at specific gravity (SG) 1.35, 1.40, 1.45, 1.50 and 1.55. Each float-sink fraction was then analysed for ash content. Washability results indicate that in the < 10% to <15% range of cumulative ash content, yields range from 8.3 % to 11.3% in RDH01C (Leo Seam) and 7.9% to 25.5% in RDH03C (Aquarius Seam). These low yields occur at relative densities in the CF1.50 to CF1.55 range. Ply 6 in the Aquarius Seam (RDH03C) produced the highest yielding washability results (Table 4). At SG CF1.50, the sample yielded 25.5% by mass at 11.9% cumulative ash. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 11 of 102 Review of Operations REVIEW OF OPERATIONS Table 4 – RDH03C–Ply 6 Washability Data Stage 2 – Washability Analysis:- RDH03C (Aquarius Seam) Relative Density Fractional Cumulative Sinks Floats Yield%(ad) Ash (%ad) Yield% (ad) Ash (%ad) F1.35 S1.35 F1.40 S1.40 F1.45 S1.45 F1.50 S1.50 F1.55 S1.55 Total: 11 3.9 3.4 7.2 8.9 65.6 100 3.3 10.5 17.3 23.4 28.7 50.6 38.8 11 14.9 18.3 25.5 34.4 100 3.3 5.2 7.4 11.9 16.3 38.8 In RDH01C, ply 4 at the base of the Leo Seam produced the highest yielding washability results. The sample yielded 11.3% by mass at 10.1% cumulative ash. Full results of coal quality analysis will be available in the final report early next quarter (Q4). Product Composite Stage 3 – product composite analysis was undertaken on two samples; one from each seam. While stage 1 and 2 analysis results indicate poor yields of 7.9% to 25.5% at approximately 10% ash, the product composite analysis does confirm high crucible swell numbers of 8.0 and 3.5 in the CF1.50 fraction of selected plies in RDH01C and RDH03C respectively. Fluidity and dilation analysis on these samples was not favourable. INTERPRETATION AND CONCLUSION: The low amplitude response of coal densities identified by geophysical logging across the investigation area confirms the low yield, high ash results from coal quality analysis of the Burngrove coal seams. Results indicate that there are high fine inherent ash level in the coal, probably due to fine tuffaceous and clay material that cannot be easily separated by coal beneficiation even in good laboratory conditions. High ash and generally low coal quality are a common characteristic of the Burngrove Formation/Fort Cooper Coal Measures across the Bowen Basin. While explorers such as Acquilla (Washpool project) in recent times have had success in identifying localised areas with favourable coal quality characteristics, the shallow target area in EPC1827 contains low yielding coal seams that do not possess desirable coking coal characteristics. Full results, interpretations and conclusions will be available in the final report early next quarter (Q4). FUTURE DRILLING: Future drilling, planned for Q2-Q3 2012, will focus on the main target, which is a JORC compliant Inferred Resource of 107 million tonnes of coal. Drilling will be designed to better define coal seams and quality in both the inferred resource area, and the untested potential resource area, as defined in the initial resource estimate, and to raise the JORC status across the resource. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 12 of 102 Review of Operations REVIEW OF OPERATIONS EPC1548 West German Ck • Middlemount project area • Granted 28 Mar 2010 • German Creek Formation – 5 seams • • • • 6.6m cumulative coal thickness to 150m Coking coal product 5 drill-holes planned Q3-Q4 2011 Approximately 250km from the Port of Hay Point HISTORICAL DRILLING: A selection of historical drill holes intersecting multiple coal seams to the east of the tenement were utilised to generate cross sections and project seams into the target area. No previous drilling data was identified inside the target area boundary. Within the German Creek ML, the Pleiades, Aquila, Tieri, Corvus and German Creek seams are mined, producing low to medium volatile hard coking coal from underground and open-cut mines. PROPOSED DRILLING: Five open chip holes and one cored hole are planned for drilling in Q3-Q4 2011, each to a depth of 150m (Total 900m) Drilling will provide a better understanding of geological structure and stratigraphy within the target area. Due to a lack of data, the German Creek Formation seams are predicted to occur from 22m and 147m depth from surface at the ML boundary. All holes will undergo lithological and geophysical logging. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 13 of 102 Review of Operations REVIEW OF OPERATIONS EPC1798 Bluff Creek • Blackwater project area • Granted 19 Feb 2010 • • • • • Rangal Coal Measures 3 x 2m seams (total 6m) at depths of 436m to 508m* Potential low volatile coking to PCI coal Drill hole planned post review of seismic interpretation and scoping study Approximately 10km from Boonal Siding on the Blackwater Rail System, then approximately 280km to Gladstone. *Depth of Rangal Coal Measures is determined from deep seismic HISTORICAL DRILLING: Historical tenure covering the general area contained limited drilling within the current EPC1798. Historical holes identified were drilled in the north-east corner of the EPC, east of the Jellinbah Fault, targeting shallow coal seams of the Rangal Coal Measures. No deep drilling data was identified within the main (deep) target area. In the area north of the Jellinbah Fault, ninety-seven holes were identified of which twenty-four were used to determine the extent and distribution of shallow coal bearing strata in the shallow target area. Six of the holes were drilled inside the EPC boundary. An average thickness of 4.41m was calculated within the shallow target area, based on cumulative seam thicknesses in holes within the EPC (excluding one hole due to its unusual cumulative seam thickness). Deep seismic data, traversing the EPC from south-west to north-east, was reinterpreted to determine depth to the top of the Rangal Coal Measures on the south-western side of the Jellinbah Fault. Interpretations indicate that the top of the Rangal Coal Measures are between a depth of 436m and 508m within the EPC. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 14 of 102 Review of Operations REVIEW OF OPERATIONS The nearest hole intersecting the Rangal Coal Measures (in the same fault block as EPC1798) is GSQ hole Humboldt (HU) 2331, about 5km to the west. In addition to this hole, are GSQ holes HU12 and HU130 approximately 7km to the north-west of the EPC and immediately south of EPC1827. In these holes the uppermost seam of the Rangal Coal Measures (Aries Seam) is at 279m and 396m, depth respectively. In HU2331, the Aries seam is at 288m depth. PROPOSED REASSESMENT FOR PRIORITY TO DRILL: Current mining concept studies do not preclude mining below 500 metres for metallurgical coal product. However, shallower coal targets are regarded as higher priority for follow-up drilling. Drilling priority for EPC 1798 will be reassessed pending concept scoping study of the deep target. One deep open chip hole is proposed to confirm seismic data interpretations and to determine true depth to each of the Rangal coal seams depending on the outcomes of the concept scoping assessment. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 15 of 102 Review of Operations REVIEW OF OPERATIONS EPC1996 Church-yard Ck • Blackwater project area • Granted 24 May 2010 • German Creek Formation (deep) Fair Hill Formation (shallow) • • • Coking coal - Tieri Seam (approximately 2m thick) 250m – 350m depth shallowest in shallow target area 2 drill holes planed for Q3-Q4 2011 – pending land access clearances Approximately 50km north-west of Blackwater, then 280km from Port of Hay Point HISTORICAL DRILLING: EPC1996 comprises a northern 6 sub-block area (North Area) and a southern 4 sub-block area (South Area). Within these areas are three historical drill holes in the North Area and one in the South Area. Drilling data includes lithological log descriptions and digital downhole geophysical logs for each of the holes. Geophysical logs were checked by industry experts for apparent quality deficiencies, and deemed to contain some inferiority. Seams were correlated across the North and South areas of the EPC and intersected Burngrove, Fairhill, MacMillan (Barren of Coal) and German Creek Formations. In the North Area there is a potential underground play targeting the Tieri Seams in the German Creek Formation. The thicknesses of the Tieri 1 Seam in R12836 and C12334 are 2.32m (cumulative) and 3.50m thick, respectively, and in R12333 the Tieri 2 Lower Seam is 2.10m thick. A shallow open cut play is also identified but is unlikely to be economically significant. PROPOSED DRILLING: A drilling program of two open chip holes to 350m depth is proposed in the North Area for acquisition of high quality downhole geophysical data to facilitate seam correlation and to determine continuity. The South Area has the potential for an Open Cut / Underground thin coking coal seam play. No drilling is currently proposed in the South Area of EPC1996 pending a concept scoping study. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 16 of 102 Review of Operations REVIEW OF OPERATIONS EPC1859 Dingo • Blackwater project area • Granted 31 May 2011 • Rangal Coal Measures and Burngrove Formation • Multiple seams from 16m to 150m depth* • • • • PCI coal Historical drill data modelling underway Drill program planned for Q2-Q3 2012 Approximately 235km to Gladstone *Seam continuity unknown HISTORICAL DRILLING: The Dingo Project has been explored previously by a number of companies, and was drilled extensively by New Hope Collieries during the 1990s. Public information from earlier exploration projects indicate that part of the Baralaba Coal Measures (equivalent to Rangal Coal Measures) sub-crop zone should continue through much of the project area. The area has been interpreted by others as structurally complex, with highly faulted and folded strata. PROPOSED DRILLING Drilling is tentatively planned for Q2-Q3 2012. The number and location of holes will be determined after re- modelling and interpretation of historical data currently underway. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 17 of 102 Review of Operations REVIEW OF OPERATIONS EPC1894 Rocky Creek • Blackwater project area • Granted 29 Mar 2010 • Baralaba Coal Measures • Multiple seams from 60m to 150m depth* • • • Thermal and PCI potential Historical drill data modelling underway Drill program planned for Q2-Q3 2012 *Seam continuity unknown HISTORICAL DRILLING Cockatoo Coal Limited drilled almost 170 holes to test parts of the steeply dipping sub-crop zone of the Baralaba Coal Measures in the area. Drilling approximately 6 km southeast of EPC 1894 outlined a 300 m wide sub-crop zone with an aggregate coal thickness of 12–15 m to a maximum depth of 45 m. This zone exists to the east and northeast of EPC 1894. In 1994, New Hope Corporation intersected coal at 66m, 126m and 145m depth 2km to the north of the current EPC1894 but intersected no seams to 149m depth only 1km north of the EPC. This finding appears to have been the reason for not drilling further South and East where seams are likely to be shallow. PROPOSED DRILLING Drilling is tentatively planned for Q2-Q3 2012. The number and location of holes will be determined after re- modelling and interpretation of historical data currently underway. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 18 of 102 Review of Operations REVIEW OF OPERATIONS Proposed Drilling Program 2011-2012 Note: Second round drilling may vary based on first pass drilling results EPC Assessment and Target Generation • • • • • • EPC 1895 - Dawson River EPC 1920 - Comet River EPC 1965 - Kanga Creek EPC 1995 - Carlo Creek EPC 2035 - Bee Creek EPC 2036 - Ripstone Creek The Listed EPCs are currently undergoing review and assessment to identify target potential and to make drilling recommendations. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 19 of 102 Review of Operations REVIEW OF OPERATIONS Exploration & Joint Venture Agreements Rio Tinto Exploration Pty Ltd • Mt Hillalong project area • EPC 1645** - Mount Hess • EPC 1773 - Kemmis Creek • EPC 1824 - Mount Hillalong • EPC 1867* - Mount Hess West * Exploration Permit Proposal Stage ** Application Pending On 22nd August 2011 the Company announced that its 100% owned subsidiary Area Coal Pty Ltd (Area Coal) had executed an Exploration, Option and Joint Venture Agreement (“the agreement”) with Rio Tinto Exploration Pty Ltd (RTX) covering four of its Mt Hillalong tenements. The Group has received an initial cash payment of $2,300,000 in accordance with the agreement. In addition to the cash payment, the agreement terms include that: title to EPC 1773 and EPC’s 1867 and 1645 (if granted) will be transferred to RTX; RTX will sole fund and manage an exploration program for EPC 1824 with a minimum expenditure of $700,000 within the first 24 months of gaining access to the tenement; RTX has an option to acquire a 75% interest in EPC 1824 by making a defined payment to Area Coal at any time within the first 24 months of the exploration program. In the event of RTX’s exercise of this option, the parties will form an unincorporated joint venture in which Area Coal would retain a 25% free carry interest; if RTX exercises the option to acquire an interest in EPC 1824, Area Coal would then hold a put option (exercisable on the date that is 12 months after the formation of the joint venture) enabling it to sell its 25% interest in the joint venture to RTX for an additional defined payment to Area Coal; if Area Coal does not exercise the above put option, it will have a further put option, exercisable within 180 days of the joint venture management committee commissioning a feasibility study, to sell its 25% interest in EPC1824 to RTX for consideration calculated on the basis of resource tonnage; if Area Coal does not exercise its second put option, it will become liable for 25% of all future development and operational costs of the joint venture; and should RTX not exercise its option to acquire the aforementioned 75% interest in the project, Area Coal will retain its existing 100% ownership of EPC 1824 and can reacquire the other three Mt Hillalong tenements originally transferred to RTX under the agreement. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 20 of 102 Review of Operations REVIEW OF OPERATIONS The Mount Hillalong project targets the Rangal and Fort Cooper Coal Measures in the northern Bowen Basin. The project offers prospectivity for proving underground resources of metallurgical coal in the Rangals and open cut coal in the Fort Coopers. The project has limited previous exploration. However, past work has shown isolated drill hole intercepts within the tenements and geophysical surveys that defined good drilling targets as the basis for further exploration by the company. EPC application 1824 comprises 15 sub-blocks (48 km2) centred on the Mount Hillalong homestead, 65 km North West of Nebo in central Queensland. The Burton and Hail Creek coal mines are 14 km south and 18 km south-southwest of Mt Hillalong, respectively. EPC 1824 was acquired by the Company to explore the underlying Rangal Coal Measures for near surface coal resources. Previous exploration has been superficial and of a regional nature with no drilling being undertaken within EPC 1824. A coal target in the Rangals has been defined by historical seismic survey and indicated coal at between 300 and 500m. A drilling program is planned by RTX to further evaluate this target with the aim to define a resource. The area is well served with infrastructure with major nearby coal mines located to the west, south and east. The Hail Creek railway is 18 km to the southeast and provides access to Mackay’s export coal loading terminals. EPC Name Status Area (km2) Location Target Coal Coal Type Depth Potential Mount Hess Application 70 20km SE of Glenden EPC 1645 EPC 1773 EPC 1824 EPC 1867 Kemmis Creek Mount Hillalong Granted 10 32km SE of Glenden Fort Cooper coking & thermal to 120m Granted 48 Mount Hess West Application 13 Rangal metallurgical & thermal 300 to 500m 6km E of Glenden 16km SE of Glenden test drilling required 4 holes with coal intercepts 25 to 150m depths. O/C potential 90Mt expl’n target defined by seismic and nearby drilling No work to date – project in application Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 21 of 102 Review of Operations REVIEW OF OPERATIONS Exploration & Joint Venture Agreements Blackwood Resources Pty Ltd • • • • EPC 1955 - Bungaban Creek EPC 1957* - Laguna Creek EPC 1979 – Kingsthorpe EPC 1987* - Quondong * Exploration Permit Proposal Stage AQC, through its 100% owned subsidiary Mining Investments One Pty Ltd, entered into a Joint Venture Exploration and Development agreement with Blackwood Resources Pty Ltd (Blackwood) in April 2010. Under the terms of the agreement, Blackwood acquires a 90% interest in EPCs 1979, 1955, 1987 and 1957 for a total cash consideration of $500,000 of which $125,000 is payable on grant of each EPC. Blackwood are required to expend at least the minimum exploration commitment with the aim to prove up a coal resource and complete a feasibility study for the project(s). AQC retains a 10% free carried interest up to bankable feasibility study stage. AQC will then have the option to enter into a joint venture agreement with Blackwood Resources to further explore and develop the tenements. The EPCs cover large areas over the Clarence-Moreton, Surat and Galilee Basin, prospective for shallow thermal coal. EPC Name Status Area (km2) Location Target Coal Coal Type Depth Potential EPC 1955 Bungaban Creek Granted 383 100km N of Miles Walloon coal measures thermal 15 to 70m 2 drilled intersection incl 6.2m coal to 61m EPC 1957 Laguna Creek Pending 382 150km NW Clermont Galilee Basin thermal <200m EPC 1979 Kingsthorpe Granted 155 15km W of Toowoomba Walloon coal measures thermal <200m EPC 1987 Quondong Pending 354 50km N of Miles Taroom coal measures thermal <100m drilling testing required drilling testing required drilling testing required Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 22 of 102 Review of Operations REVIEW OF OPERATIONS Industrial Minerals Projects AQC owns two substantial industrial minerals projects in central/south western Queensland. The projects form part of AQC’s former industrial minerals business and are no longer part of the company’s core business. Tenure Name Status ML 70360 Mantuan Downs Granted EPM 17644 EPM 13886 Fairview Granted Mantuan Downs Granted Area (km2) 3 75 56 Location Commodity 78km S of Alpha 78km S of Alpha 78km S of Alpha bentonite bentonite bentonite ML 50207 Grafton Range EPM 16629 EPM 19039 Mount Bassett Grafton Range Granted 1 12km N of Roma sodium bicarbonate Granted 178 Granted 315 12km N of Roma 12km N of Roma sodium bicarbonate sodium bicarbonate Mineral- isation 17Mt Inferred+ resource bentonite outcrop bentonite outcrop 2Mt in situ bicarbonate in brine >5,000ppm bicarbonate >5,000ppm bicarbonate Depth Mining & processing shallow open cut, on site screening and bagging large potential resource large potential resource solution mining, pumped thru RO plant, selective crystalisation 1-2m overburden, 0.5m weathered, 3m bentonite 1,200m MANTUAN DOWNS BENTONITE AQC’s Mantuan Downs calcium bentonite resource is located west of Springsure in Central Queensland. The Mantuan Downs deposit comprises two main bentonite horizons that are essentially flat lying. The Upper Bentonite Zone is the best developed, with an average cation exchange capacity (CEC) quality of 102 meq/100g. Near the centre of the deposit, the upper bentonite zone is 4-4.5m thick. The lower bentonite zone similarly comprises good quality bentonite with an average CEC quality of around 90 meq/100g. This zone is continuous throughout the deposit and is at least 2-4m thick. The company has developed a number of products based on bentonite for industrial, livestock, agricultural, soil improvement and composting applications. The project is currently on care and maintenance as new marketing opportunities are being evaluated. GRAFTON RANGE SODIUM BICARBONATE Sodium bicarbonate (baking soda) is used extensively in food manufacture, pharmaceuticals, mineral processing and other industries. Major derivative products such as sodium carbonate (soda ash) and caustic soda are also key inputs into a number of industries including chemicals and glass manufacture. The Grafton Range sodium bicarbonate project is located 15 km northeast of Roma in western Queensland. It covers part of the Surat Basin where elevated concentrations of sodium bicarbonate (NaHCO3) are present in the Precipice Sandstone aquifer, which in the Grafton Range area is about 1,100 m below surface. Using resource information obtained from petroleum and gas wells drilled in the area during 1969-93, independent experts engaged by the Company have prepared a preliminary commercial feasibility analysis of the project. The Company does not consider this project be a part of its core business and is seeking opportunities for divestment. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 23 of 102 Review of Operations REVIEW OF OPERATIONS Bentonite Based Technologies AQC has developed calcium bentonite based technologies for the improvement of our environment. These technologies include remediation of heavy metal contaminated soils, the removal of carcinogenic compounds from high temperature smoke, the global licence for absorption of oil spills in water, increasing agricultural productivity through bentonite blending for fertilizer, and the reduction of methane emissions in livestock. The major market being targeted is excess fertilizer run-off from farming lands along the Queensland coast. Generally positive results from field trials have enhanced the long term prospects for use of AQC’s calcium bentonite in this application. Commercial considerations for primary producers in these regions mean that changes to traditional farming practice are only likely to happen in response to Government pressure to fix this problem. Based on prior research which highlighted the benefit of bentonite in enhancing soils and composts, AQC also focused on the agriculture sector end users in broad acre, high value market gardens, and feed lots. While feedback from field trials has generally been positive, the reticence of primary producers to change long term farming practice has slowed market take up. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 24 of 102 Review of Operations DIRECTORS’ REPORT Your directors present their report, together with the financial statements of the Group, being the company and its controlled entities, for the financial year ended 30 June 2011. Principal Activities and Significant Changes in Nature of Activities The principal activities of the consolidated group during the financial year were: evaluating coal exploration tenements held in the Bowen, Galilee, Surat and Clarence-Moreton basins; identifying exploration opportunities on selected coal tenements including exploration by way of joint venture agreement; planning and initial implementation of exploration programs covering selected coal tenements; seeking opportunities for divestment or joint venture operation of industrial minerals projects; and reviewing other resource investment opportunities. The following significant changes in the nature of the principal activities occurred during the financial year: the Mantuan Downs bentonite operation was placed on a care and maintenance basis while pursuing opportunities for divestment of the operations and marketing of the bentonite product. There were no other significant changes in the nature of the consolidated group’s principal activities during the financial year. Operating Results The consolidated loss of the consolidated group amounted to $2,462,700 (2010: loss $3,968,416) after providing for income tax and eliminating minority equity interests. Included in the annual accounts is a valuation adjustment for a major asset of the Company. Following a review of the revenue that has been generated from the Mantuan Downs bentonite resource, the directors have decreased the value of the resource in the accounts to $Nil (2010: $1 million). Review of Operations A review of, and information about, the Group’s operations and exploration programs appears separately in this Annual Report under Review of Operations. Financial Position The net assets of the consolidated group at 30 June 2011 are $1,600,979 (2010: $2,082,597). This decrease arises taking account of the following factors: proceeds from share issues raising $2,047,498; increases in capitalised exploration expenditure; impairment of the Manutan Downs bentonite resourse; and operating expenditure. The Group’s working capital, being current assets less current liabilities, is $99,584 (2010: $583,890). During the past two financial years, the Group secured a number of highly prospective coal tenements in Queensland’s Bowen, Galilee, Surat and Clarence-Moreton basins. During the past year, the Group has expended funds in evaluating, planning and initial implementation of exploration opportunities for selected coal tenements held by the Group. The directors believe the Group is in a stable financial position to expand and grow its current operations. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 25 of 102 Directors’ Report DIRECTORS’ REPORT Significant Changes in State of Affairs The following significant changes in the state of affairs of the parent entity occurred during the financial year: Changes in capital structure: i. The company issued an additional 64,000,000 ordinary shares to various sophisticated and professional investors raising $1,530,000 to provide additional working capital. ii. The company issued 22,325,000 ordinary shares to qualifying persons in accordance with the Company’s Officers, Executives, Consultants and Employee Share Plan to raise $517,497.50. The terms of the plan enabled the company to fund the purchase by way of limited-recourse loans totalling $517,497.50 repayable from future dividends or out of proceeds when the allotted shares are sold. Changes in controlled entities and divisions: i. Purchase of 100% of Felix Street Pty Ltd, which holds the premises lease for the Group’s offices in Queensland, for $Nil. Dividends Paid or Recommended No dividends of the Company or any entity of the Group have been paid or declared or recommended since the end of the preceding year. The Directors do not recommend the payment of any dividend for the year ended 30th June 2011. Events after the Reporting Period On 22nd August 2011 the Company announced that its 100% owned subsidiary Area Coal Pty Ltd (Area Coal) had executed an Exploration, Option and Joint Venture Agreement (“the agreement”) with Rio Tinto Exploration Pty Ltd (RTX) covering four of its Mt Hillalong tenements. The Group has received an initial cash payment of $2,300,000 in accordance with the agreement. In addition to the cash payment the agreement terms include that: title to EPC 1773 and EPCs 1867 and 1645 (if granted) will be transferred to RTX; RTX will sole fund and manage an exploration program for EPC 1824 with a minimum expenditure of $700,000 within the first 24 months of gaining access to the tenement; RTX has an option to acquire a 75% interest in EPC 1824 by making a defined payment to Area Coal at any time within the first 24 months of the exploration program. In the event of RTX’s exercise of this option, the parties will form an unincorporated joint venture in which Area Coal would retain a 25% free carry interest; if RTX exercises the option to acquire an interest in EPC 1824, Area Coal would then hold a put option (exercisable on the date that is 12 months after the formation of the joint venture) enabling it to sell its 25% interest in the joint venture to RTX for an additional defined payment to Area Coal; if Area Coal does not exercise the above put option, it will have a further put option, exercisable within 180 days of the joint venture management committee commissioning a feasibility study, to sell its 25% interest in EPC1824 to RTX for consideration calculated on the basis of resource tonnage; if Area Coal does not exercise its second put option it will become liable for 25% of all future development and operational costs of the joint venture; and should RTX not exercise its option to acquire the 75% interest in the project, Area Coal will retain its existing 100% ownership of EPC 1824 and can reacquire the other three Mt Hillalong tenements originally transferred to RTX under the agreement. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 26 of 102 Directors’ Report DIRECTORS’ REPORT No other matters or circumstances have risen since the end of the financial year which significantly affected, or could significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. Future Developments, Prospects and Business Strategies Future developments in the operations of the Group in future years and the expected results of those operations are discussed where appropriate in the Annual Report under Review of Operations. The Group will remain focused on its current business strategies which are: evaluating and exploring its coal exploration tenements held in the Bowen, Galilee, Surat and Clarence- Moreton basins; seeking opportunities for divestment or joint venture operation of industrial minerals projects; and reviewing of other resource investment opportunities. There are no further developments of which the Directors are aware which could be expected to affect the results of the Group’s operations in subsequent financial years other than information which the Directors believe comment on, or disclosure of, would prejudice the interests of the Group. Environmental Issues The Group’s operations are subject to significant environmental regulation in respect of its Australian exploration activities. The Company is committed to undertaking all its operations in an environmentally responsible manner. The Group’s projects in Queensland operate under granted Environmental Authorities issued under the Environmental Protection Act 1994 (Qld). The Group is not aware of any non-compliance matters in relation to environmental issues up to the date of this report. Information on Directors The names and details of the directors of the Company during the year and until the date of this report are: Mr. John Bovard FAICD, FAusIMM BE (Civil) (Chairman, Non-executive Director) – Appointed 30 October 2009 Experience and expertise Mr. Bovard has more than forty years of experience in the mining industry. He has been involved in several major projects and has held prominent positions with many Australian and international companies including Western Mining Inc, OK Tedi and Placer Pacific. Mr. Bovard is Non-executive Chairman of Mt Isa Metals Limited and Non-executive Director of Australian Solomons Gold Limited Special responsibilities Chairman of the Board and member of the Remuneration Committee Interests in shares and options 2,500,000 ordinary shares in Australian Pacific Coal Limited Directorships held in other listed entities in the three years prior to the current year Mt Isa Metals Limited since 2008 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 27 of 102 Directors’ Report DIRECTORS’ REPORT Mr. Peter Ziegler B. Com (Hons), LL.B (Hons); MFM, FCPA, FTIA, ACA (Deputy Chairman, Non-executive Director) Experience and expertise Mr. Ziegler is an experienced company director. He was a partner of one of the major international accounting firms, specialising in taxation and corporate structuring. He is also a solicitor of the Supreme Court of Victoria. Mr Ziegler is currently the principal of Ziegler Asset Partners, an asset management firm specialising in investments in listed and unlisted equities and special opportunities. Director since 29 November 2005. Special responsibilities Chairman of the Audit and Remuneration Committees Interests in shares and options 10,233,333 ordinary shares in Australian Pacific Coal Limited Directorships held in other listed entities in the three years prior to the current year Nil Mr. Paul Byrne (Executive Director) Experience and expertise Mr. Byrne joined the Company as Executive Director, following the acquisition of the Ipoh group of companies. Mr. Byrne was a founder of the Ipoh group and has initiated environmental remediation projects in conjunction with CSIRO, University of South Australia and the Queensland Department of Primary industries. He has also been involved in the resources sector since 1985 in exploration and mining and has been a director of several Australian public listed companies. Director since 29 November 2005. Special responsibilities Managing Director Interests in shares and options 52,913,944 ordinary shares in Australian Pacific Coal Limited Directorships held in other listed entities in the three years prior to the current year Nil Mr. Paul Ingram B.AppSc.(Geology), AusIMM (Non-executive Director) Appointed 17 March 2011 Experience and expertise Mr Ingram is a geologist with over thirty five years of experience in mineral exploration and mine development. Mr Ingram has been involved in several start-up public companies, mostly focussed in the Asian region. He has extensive experience in corporate M&A, and has been focussed on coal projects in Asia and Australia for the past eight years. Mr Ingram brings to the Board of AQC an extensive network of professional contacts, which, combined with close ties to the Chinese resource industry, will be of significant benefit to AQC as an emerging coal company in Queensland. Special responsibilities Nil Interests in shares and options 750,000 ordinary shares in Australian Pacific Coal Limited Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 28 of 102 Directors’ Report DIRECTORS’ REPORT Directorships held in other listed entities in the three years prior to the current year Consolidated Global Investments Limited since September 2006 A-Cap Resources Limited since June 2009 Impact Minerals Limited since July 2009 Caledon Resources PLC from February 2003 to March 2008 West Australian Metals Limited from July 2009 to November 2009 Mr. John Laurie B.Ec, FCPA, FAIM – Retired 30 November 2010 Experience and expertise Mr. Laurie joined the board in January 2000. He has extensive experience in manufacturing and marketing in a wide variety of industries, both domestic and international. Mr. Laurie is currently the chairman of the Sydney based Twilight Aged Care Group, a number of private companies and was previously the chairman and/or director of several public and private companies. Special responsibilities Member of the Audit and Remuneration Committees Interests in shares and options 3,000,000 ordinary shares in Australian Pacific Coal Limited Directorships held in other listed entities in the three years prior to the current year Ask Funding Limited – Resigned 19 November 2009 Mr. Tim Prowse BE(Mining) AIMM – Appointed 30 November 2010, Resigned 29 June 2011 Experience and expertise Mr Prowse has thirty years of experience in the mining industry, with achievements in project acquisition, mine planning, project development and capital raising. He holds a degree in Mining Engineering (Hons, Sydney), a South African Mine Managers Certificate and is a member of the AusIMM. Mr Prowse is currently a director of Norton Gold Fields Ltd, one of the largest ASX listed Australian gold producers. As founding director he played an integral part in the growth of Norton from a junior explorer to a major gold producer through a number of successful acquisitions, mergers and project developments. Mr Prowse is also a director of HLM Coal Australia, a Queensland based coal explorer in the Rocklands coal project near Blackwater. Special responsibilities Nil Interests in shares and options 225,000 ordinary shares in Australian Pacific Coal Limited Directorships held in other listed entities in the three years prior to the current year Norton Gold Fields Limited All directors were in office for the entire year and up to the date of this report unless otherwise noted. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 29 of 102 Directors’ Report DIRECTORS’ REPORT Company Secretary Mr. Kevin Mischewski B Bus (Acc), CA (Company Secretary since 30 June 2008, Joint Company Secretary 29 February 2008 to 30 June 2008.) Chartered Accountant and Registered Tax Agent with extensive commercial experience in senior financial and management accounting roles. Previous positions include Chief Financial Officer, Company Secretary and Finance Director for large private manufacturing companies. Extensive experience with listed public company reporting and compliance requirements. Meetings of Directors The number of meetings of directors and meetings of committees of directors held during the year, and the number of meetings including circulating resolutions attended by each director was as follows: Directors’ Meetings Audit Committee Remuneration Committee Number attended Number eligible to attend 14 14 14 6 6 7 Mr. John Bovard Mr. Peter Ziegler Mr. Paul Byrne Mr. Paul Ingram Mr. John Laurie Mr. Tim Prowse 14 13 14 6 6 7 ** = Not a member of the relevant committee. Number eligible to attend 1 1 ** ** ** ** Number attended 1 1 ** ** ** ** Number eligible to attend 1 1 ** ** ** ** Number attended 1 1 ** ** ** ** Indemnifying Officers or Auditor During the financial year, the Company paid a premium in respect of a contract of insurance indemnifying any past, present, or future director, secretary, officer or employee of the Company against liability, which payment or agreement to pay does not contravene the Corporations Act (Cth) 2001. The contract of insurance prohibits disclosure of the terms of the policy and the amount of the premium. The Company has not otherwise, during or since the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer of the Company or any related body corporate against the liability incurred by such an officer. Options At the date of this report, there were 30,000,000 unissued ordinary shares of the Company under option as follows: Grant Date Date of Expiry Exercise Price Number under Option 8 November 2010 8 April 2012 7 December 2010 7 May 2012 $0.06 $0.06 15,000,000 15,000,000 Option holders do not have any rights to participate in any issues of shares or other interests in the Company or any other entity. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 30 of 102 Directors’ Report DIRECTORS’ REPORT There have been no unissued shares or interests under any option of any controlled entity within the Group during or since the end of the reporting period. No options were issued to directors, officers or employees during the year as part of their remuneration. No shares have been issued on the exercise of options granted during or since the end of the reporting period. No person entitled to exercise any option had or has any right by virtue of the option to participate in any share issue of any other body corporate. Proceedings on Behalf of Company No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Non-audit Services The Board of Directors, in accordance with advice from the Audit Committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: all non-audit services are reviewed and approved by the audit committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and the nature of the services provided does not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. The following fees were paid or payable to Sothertons Chartered Accountants for non-audit services provided during the year ended 30 June 2011: Taxation services $7,895 Auditor’s Independence Declaration The lead auditor’s independence declaration for the year ended 30 June 2011 has been received and can be found on page 36 of the Annual Report. ASIC Class Order 98/100 Rounding of Amounts The company is an entity to which ASIC Class Order 98/100 applies and, accordingly, amounts in the financial statements and directors’ report have been rounded to the nearest dollar. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 31 of 102 Directors’ Report DIRECTORS’ REPORT Remuneration report Remuneration Policy The remuneration policy ensures that contracts for services are reviewed on a regular basis and properly reflect the duties and responsibilities of the individuals concerned. The executive remuneration structure is based on a number of factors including length of service, relevant market conditions, knowledge and experience with the industry, organisational experience, performance of the Company and that the remuneration is competitive in retaining and attracting motivated people. There are no guaranteed pay increases included in the senior executives’ contracts. The Board’s policy for determining the nature and amount of remuneration for key management personnel of the consolidated group is as follows: • The Remuneration Committee is responsible for determining and reviewing compensation arrangements for the directors and the senior executives. The Board also reviews and ratifies the Remuneration Committee’s recommendations on the remuneration of key management and staff. • All key management personnel receive a base salary (which is based on factors such as length of service and experience), superannuation, fringe benefits, options and performance incentives. • Performance incentives are generally only paid once predetermined key performance indicators have been met. • The Remuneration Committee reviews key management personnel packages annually by reference to the consolidated group’s performance, executive performance and comparable information from industry sectors. Key management personnel receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. Individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation. Upon retirement, key management personnel are paid employee benefit entitlements accrued to the date of retirement. Key management personnel are paid the mandated statutory amount of their salary in the event of redundancy. All remuneration paid to key management personnel is valued at the cost to the company and expensed. The Board’s policy is to remunerate non-executive directors at no greater than market rates for time, commitment and responsibilities. The Remuneration Committee determines payments to the non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Performance-based Remuneration Key management personnel remuneration comprises of a total fixed remuneration and does not comprise of any short-term incentive schemes or equity based remuneration. Relationship between Remuneration Policy and Company Performance The Board do not consider that there is a direct relationship between the remuneration policy of the company and company performance. The Managing Director of the company is also a substantial shareholder and as such is sufficiently motivated to improve company performance. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 32 of 102 Directors’ Report DIRECTORS’ REPORT Employment Details of Members of Key Management Personnel and Other Executives The following table provides employment details of persons who were, during the financial year, members of key management personnel of the consolidated group, and to the extent different, among the five Group executives or company executives receiving the highest remuneration. The table also illustrates the proportion of remuneration that was performance and non-performance based. Name Position Directors Mr John Bovard Mr Peter Ziegler Mr Paul Byrne Mr Paul Ingram Mr John Laurie Mr Tim Prowse Otherexecutives Chairman, Non-executive Deputy chairman, Non-executive Executive Non-executive (Appointed22March2011) Non-executive (Retired30November2010) Executive (Appointed30Nov2010,Resigned30June2011) Mr Kevin Mischewski Company Secretary, Financial Accountant Proportions of elements of remuneration related to performance Proportions of elements of remuneration not related to performance - - - - - - - 100% 100% 100% 100% 100% 100% 100% The employment terms and conditions of key management personnel and Group executives are formalised in contracts of employment. Terms of employment require that the relevant group entity does not provide an executive contracted person with a minimum notice period prior to termination of contract. A contracted person deemed employed on a permanent basis may terminate without notice. Statutory termination provisions apply. Termination payments are not payable on resignation or under the circumstances of unsatisfactory performance. Non-executive directors are subject to similar contracts requiring no notice to be given on termination. Statutory termination provisions apply. Termination payments are at the discretion of the Remuneration Committee. Changes in Directors and Executives Subsequent to Year-end Up to the date of signing of this report there have been no changes to directors and executives subsequent to year end. Remuneration Details for the Year Ended 30 June 2011 The following table of benefits and payments details, in respect to the financial year, the components of remuneration for each member of the key management personnel of the consolidated group and, to the extent different, the five Group executives and five company executives receiving the highest remuneration: Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 33 of 102 Directors’ Report DIRECTORS’ REPORT Table of Benefits and Payments for the Year Ended 30 June 2011 Group Key Management Personnel Mr John Bovard Mr Peter Ziegler Mr Paul Byrne Mr Paul Ingram Mr Tim Prowse Mr Brian Jones Mr John Laurie Mr Christopher Dredge Mr Sirjit Singh Mr Kevin Mischewski Mr Kerrod Shannen Total Remuneration 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 Short-term benefits Base Salary & Fees $ Post-employment benefits Superannuation $ Other $ Total $ 53,333 63,048 186,000 85,833 219,000 152,000 6880 — 99,700 — — 7,339 12,500 23,333 — 99,000 — — 101,818 99,824 — 34,165 679,231 564,542 — — — ─ — ─ 619 — — — — 32,000 — 25,000 — ─ — 62,500 — — — — 619 119,500 — — — — — — — — — — — — — — — — — — — — — — — — 53,333 63,048 186,000 85,833 219,000 152,000 7,500 — 99,700 — — 39,339 12,500 48,333 — 99,000 — 62,500 101,818 99,824 — 34,165 679,851 684,042 Securities Received that are not Performance Related No members of key management personnel are entitled to receive securities which are not performance-based as part of their remuneration package. Cash Bonuses, Performance-related Bonuses and Share-based Payments No members of key management personnel are entitled to receive cash bonuses, performance-related bonuses or share based payments as part of their remuneration package. Options and Rights Granted No members of key management personnel were granted options or rights during the financial year. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 34 of 102 Directors’ Report DIRECTORS’ REPORT This Report of the Directors, incorporating the Remuneration Report, is signed in accordance with a resolution of the Board of Directors. John Graham Bovard Chairman Brisbane, 2nd October 2011 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 35 of 102 Directors’ Report PARTNERS Linda E. Timms Anthony C. Bryen Sara J. Crevillén James Theologidis Geoffrey J. Read ASSOCIATE Susan J. Mortimer Lead Auditor’s Independence Declaration To the Directors of Australian Pacific Coal Limited In accordance with Section 307C of the Corporations Act 2001 I declare that, to the best of my knowledge and belief, in relation to the audit of Australian Pacific Coal Limited for the financial year ended 30 June 2011 there have been: no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. Dated at Brisbane this second day of October 2011 Annual Financial Report Year Ending 30 June 2011 Australian Pacific Coal Limited ABN 49 089 206 986 Page 36 of 102 Directors’ Report SOTHERTONS BRISBANE PARTNERSHIP 8TH Floor, 10 Market Street, Brisbane Qld 4000 GPO Box 1568, Brisbane, Qld 4001 ABN 52 540 323 092 Liability limited by scheme approved under Professional Standards Legislation Phone: (07) 3221 1877 Fax: (07) 3221 8261 Email: sothbris@sothertons.com.au Website: www.sothertons.com.au Sothertons: An association of independent accounting firms throughout Australasia CORPORATE GOVERNANCE STATEMENT The Board of directors of Australian Pacific Coal Limited (“the Company”) is responsible for establishing the corporate governance framework of the Group having regard to the ASX Corporate Governance Council (“CGC”) Second Edition of Corporate Governance Principles and Recommendations and published guidelines relating to the eight core corporate governance principles (the Principles) and recommendations. The Board guides and monitors the business and affairs of the Company on behalf of the shareholders. The following table summarises the Company’s compliance with the CGC recommendations and states whether the Company has complied with each recommendation. Where the Company considered it was not appropriate to comply with a particular recommendation the reasons are set out in the notes relating to the relevant Principle referred to in the table. Recommendation Compliance Yes/No Refer Page No. Principle 1 – Lay solid foundations for management and oversight 1.1: Companies should establish the functions reserved to the board and those delegated to senior executives and disclose those functions. 1.3: Companies should disclose the process for evaluating the performance of senior executives. 1.4: Companies should provide the information indicated in the Guide to reporting on Principle 1. Principle 2 – Structure the board to add value 2.1: A majority of the board should be independent directors. 2.2: The chair should be an independent director. 2.3: The roles of chair and chief executive officer should not be exercised by the same individual. 2.4: The board should establish a nomination committee. 2.5: Companies should disclose the process for evaluating the performance of the board, its committees and individual directors 2.6: Companies should provide the information indicated in the Guide to reporting on Principle 2. Principle 3 – Promote ethical and responsible decision-making 3.1: Companies should establish a code of conduct and disclose the code or a summary of the code as to: • the practices necessary to maintain confidence in the company’s integrity; • the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders; and • the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes 39 39 39 40 40 40 40 40 40 41 41 41 41 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 37 of 102 Corporate Governance Statement CORPORATE GOVERNANCE STATEMENT 3.2: Companies should establish a policy concerning trading in company securities by directors, senior executives and employees, and disclose the policy or a summary of that policy. Yes 41 3.3: Companies should provide the information indicated in the Guide to reporting on Principle 3 Yes 41 Principle 4 – Safeguard integrity in financial reporting 4.1: The board should establish an audit committee. 4.2: The audit committee should be structured so that it: • consists only of non-executive directors • consists of a majority of independent directors • is chaired by an independent chair, who is not chair of the board • has at least three members. 4.3: The audit committee should have a formal charter 4.4: Companies should provide the information indicated in the Guide to reporting on Principle 4. Principle 5 – Make timely and balanced disclosure Yes Yes Yes Yes No Yes Yes 41 41 41 41 41 41 41 5.1: Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. Yes 42 5.2: Companies should provide the information indicated in the Guide to reporting on Principle 5. Yes 42 Principle 6 – Respect the rights of shareholders 6.1: Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. Yes 42 6.2: Companies should provide the information indicated in the Guide to reporting on Principle 6. Yes 42 Principle 7 – Recognise and manage risk 7.1: Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. 7.2: The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. Yes Yes 42 42 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 38 of 102 Corporate Governance Statement CORPORATE GOVERNANCE STATEMENT 7.3: The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Yes 42 7.4: Companies should provide the information indicated in the Guide to reporting on Principle 7. Yes 42 Principle 8 – Remunerate fairly and responsibly 8.1: The board should establish a remuneration committee. 8.2: Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives. 8.3: Companies should provide the information indicated in the Guide to reporting on Principle 8. Yes Yes Yes 43 43 43 Corporate Governance Documents including the Corporate Governance Statement, Board Charter, Audit Committee Charter, and Remuneration Committee Charter, Risk Management Policy, Communications Policy, Code of Conduct Policy and Ethics Policy are publicly available and can be found in the Corporate Governance section of the Company’s website at www.aqcltd.com Principle 1 – Lay solid foundations for management and oversight The Board Charter clearly defines the respective roles and responsibilities of the Board and establishes functions that are reserved to the Board and functions delegated to senior executives. The responsibilities for the operation and administration of the Company have been delegated by the Board to the executive management team. The Board has a number of responsibilities including input into the development of the Company’s corporate strategy, understanding and monitoring the budget and identifying areas of material business risk and ensuring arrangements are in place to adequately manage those risks. The Company has established functions reserved to the Board and matters delegated to senior executives which are outlined in the Board Charter and other corporate governance documents which are publicly available on the Company’s website. Even though the Board is responsible for guiding and monitoring the Group, the Audit Committee and Remuneration Committee provides focus on particular areas of responsibility and reports to the Board. Overall risk management roles and responsibilities have been identified in the Risk Management Policy which is publicly available on the Company’s website. The existing directors have been provided with a formal letter of appointment that sets out the terms and conditions of their appointment, any special duties attaching to their position, details of their duties, functions and responsibilities, company policies on dealing with conflicts of interest, trading securities, access to professional advice and relevant company records. The directors are required to adhere to the Code of Conduct Policy and Ethics Policy which has been made publicly available on the Company’s web site. All existing directors have entered into a director’s disclosure deed with the Company that requires directors to provide the Company with the information required to be disclosed in relation to the trading of securities. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 39 of 102 Corporate Governance Statement CORPORATE GOVERNANCE STATEMENT There are procedures in place for directors to seek independent professional advice at the expense of the Company. Individual directors have the right to seek independent legal and other professional advice at the Company’s expense concerning any aspect of the Company’s operations or undertakings to fulfill their duties and responsibilities as directors. The engagement of an outside adviser by individual directors is subject to the prior approval of the Board, which will not be unreasonably withheld. The directors are subject to re-election by shareholders. All directors, apart from the Managing Director, are subject to re-election by rotation within every three years. The Company’s Constitution provides that one-third of the directors retire by rotation at each Annual General Meeting (AGM). Those directors who are retiring may submit themselves for re-election by shareholders, including any director appointed to fill a casual vacancy or recruited since the date of the last AGM. The Remuneration Committee has been established to review the performance of senior management against a formalised set of qualitative performance criteria. Formal performance evaluations are completed annually after each senior manager has completed one year’s service. The Remuneration Committee reports its findings from the performance evaluation to the Board. The performance criteria for evaluating senior management are aligned with objectives of the Company. During the financial year the Remuneration Committee conducted performance evaluations of the Managing Director, Non-executive Directors, and the Company Secretary against the formalised performance criteria. Principle 2 – Structure the Board to add value The skills, expertise and experience relevant to each position of director in office at the date of the Annual Report are included in the Directors’ Report. The directors are considered to be independent when they are independent of management and free from any business or relationship that could interfere with or reasonably interfere with their independent judgement. In the context of director independence, “Materiality” is considered from both the consolidated entity and individual director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed immaterial if it is equal to or less than 5% of the appropriate base amount. It is presumed to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 5% of the appropriate base amount. Qualitative factors considered in determining “Materiality” include previous employment by the Company, shares held in the Company and any previous contractual and other relationships that the director has held with the Company. In accordance with the concept of independence outlined above, the Board has considered the independence of directors as follows: Name of Director Position Independence Date of Appointment Mr John Bovard Non-executive Chairman Considered independent 30 October 2009 Mr Peter Ziegler Non-executive Deputy Chairman Mr Paul Byrne Executive Director Considered independent 29 November 2005 29 November 2005 Not consider independent as employed in an executive capacity and a substantial shareholder of the Company Mr Paul Ingram Non-executive Director Considered independent 17 March 2011 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 40 of 102 Corporate Governance Statement CORPORATE GOVERNANCE STATEMENT The Board has adopted a number of measures to ensure that independent judgement is achieved and maintained in respect of its decision-making processes. It is an effective Board that facilitates discussion, allows debate, adds value and ensures that the directors discharge their duties required by the law. The skills, experience and expertise relevant to the position of director held by each director in office at the date of the annual report is included in the Directors’ Report. Information regarding the director’s attendance at meetings of the Remuneration Committee can also be found in the Directors’ Report. Directors having a personal material interest in relation to a particular item of business must absent themselves from the Board meeting before commencement of discussion on the topic. Due to its size and nature of business, the Company does not have a nomination committee. The Board decides the selection of members of the Board and makes recommendations to shareholders for election of Directors. In considering membership of the Board, directors take into account the appropriate skills and characteristics needed by the Board to maximise its effectiveness and the blend of skills, knowledge and experience for the present and future needs of the Company. Each Board member is responsible for assessing the necessary competencies of Board members to add value to the Company, reviewing the Board succession plans and evaluating the Board’s performance. Principle 3 – Promote ethical and responsible decision-making The Company endeavours to foster a culture requiring that the directors and officers act with the utmost integrity, objectivity and in compliance with the spirit of the law and Company policies. The Code of Conduct Policy and Ethics Policy provides practices necessary to maintain confidence in the Company’s integrity practices necessary to take into account legal obligations and reasonable expectations of stakeholders and outlines the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. The Company has established a policy concerning trading in its securities by directors, senior executives and employees. Details of the policy concerning the trading of securities, terms of code of conduct and ethics can be found in the Code of Conduct Policy and Ethics Policy which is publicly available in the Corporate Governance section of Company’s website at www.aqcltd.com. Principle 4 – Safeguard integrity in financial reporting The Company has established an Audit Committee which operates under a Charter approved by the Board. The Audit Committee comprises only two non-executive directors being Mr. Peter Ziegler (Chairman of the Audit Committee) and Mr John Bovard. Mr Ziegler and Mr Bovard are considered to be independent. Details of the qualifications of those appointed to the Audit Committee, their attendance at Audit Committee meetings and the number of meetings of the Audit Committee are contained in the Directors’ Report. Mr. John Laurie was a member of the Audit Committee until his retirement on 30 November 2010. The membership of the audit committee is a departure from Best Practice Recommendation 4.2 that requires that the Audit Committee consist of a majority of independent directors, chaired by an independent director and has at least three members. Due to the size, nature and level of complexity of the Company, the Board does not believe that it is necessary to have that the Audit Committee should consist of at least three members. The Audit Committee through its own investigations and in consultation with its external auditors ensures that the Company has met the ASX guidelines regarding the selection and appointment of the external auditor and the rotation of external audit engagement partners. Details of the procedures for the engagement of the external auditor can be found in the Code of Conduct Policy and Ethics Policy. The Audit Committee Charter is publicly available on the Company’s website at www.aqcltd.com. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 41 of 102 Corporate Governance Statement CORPORATE GOVERNANCE STATEMENT Principle 5 – Make timely and balanced disclosure The Board is committed to the promotion of investor confidence by ensuring that trading in the Company’s securities is undertaken in an efficient, competitive and informed market. There are written policies and procedures in place to ensure compliance with ASX listing rule disclosure requirements and accountability at a senior executive level for that compliance. The directors and senior management are made aware of their disclosure requirements and obligations. Details of the continuous disclosure policy can be found in the Code of Conduct Policy and Ethics Policy which is publicly available on the Company’s website at www.aqcltd.com. Principle 6 – Respect the rights of shareholders The Company has designed a Communications Policy for promoting effective communication with shareholders and encouraging shareholder participation at Annual General Meetings of members. Shareholder Communications Policy The Company believes that the promotion of effective communication with its shareholders at all times is integral to ensuring the Company respects the rights of its shareholders. Australian Pacific Coal Limited is committed to:- • • • Communicating effectively with its shareholders and ensuring that it is easy for shareholders to communicate with the Company; Complying with its continuous disclosure obligations applicable to the ASX listing rules and other regulators; Ensuring that the shareholders and other stakeholders are provided with timely and full information about the Company’s activities. To promote effective communications with shareholders and to encourage participation by shareholders the Company ensures that information is communicated to its shareholders through:- • • • • • • An email based communications system; Posting information on the Company’s web site at www.aqcltd.com The distribution of Notice of Meetings and other information directly to shareholders through letters and other forms of communications; Ensuring that auditors are invited to the Annual General Meeting to consider questions regarding the conduct of the audit and the preparation and content of the auditor report; Allowing shareholders the opportunity at meetings to discuss resolutions; and Ensuring timely release of information to the market through the ASX. The shareholder communication policy is designed to ensure equal and timely access to information for shareholders. Principle 7 – Recognise and manage risk The Company has established policies for the oversight of material business risks and believes that risk management and recognition is integral to the Company meeting its objectives. The Board is responsible for reviewing the Company’s policy on risk management and risk oversight. The Audit Committee also separately assesses management of the Company’s risks and makes recommendations to the Board. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 42 of 102 Corporate Governance Statement CORPORATE GOVERNANCE STATEMENT The Company has designed and implemented a risk management and internal control system to manage the Company’s material business risks and report to it on whether the risks are being effectively managed. The Company has reviewed its risk management procedures and considered the “Guide for small-mid market capitalised companies on Principle 7: Recognise and Manage Risk” released under the ASX Markets Supervision Education and Research Program. The Company continues to review its existing risk management procedures, the material business risks affecting the Company and where necessary delegated further responsibilities for those material business risks to senior staff members. The updated risk management system has been designed to effectively manage and report on the consolidated entity’s material business risks. The Company has developed risk management procedures including revised Risk Management Policy, Risk Register, Risk Tolerance Review and a Risk Management Framework which forms the basis of the Company’s risk management and internal control system. The Risk Register has identified risk in the broad categories of operations management, asset management, environment, compliance/financial reporting, strategic management, ethical conduct, reputation, occupational health and safety/human resources, IT/technology, finance/business continuity, tenements/resource statements and stakeholder communications. The Company’s material business risks have been identified. A copy of the Risk Management Policy is publicly available on the Company’s web site at www.aqcltd.com. The Company has a number of mechanisms in place to ensure that management regularly report on matters relating to risks. During the year, the Board has received reports from management as to the effectiveness of the company’s management of its material business risks. The reports by management to the Board have been provided under the former system of risk management and internal control. The Company has updated its risk management procedures and the Board has recently received reports from management as to the effectiveness of the company’s updated system for managing its material business risks. In accordance with section 259A of the Corporations Act 2001, the Managing Director and Chief Financial Officer have provided a declaration to the Board that: • • their view provided in the Company’s financial report is founded on a sound system of risk management and internal compliance and control which implements the financial policies adopted by the Board; and the Company’s risk management and internal compliance and control system is operating effectively in all material respects. It is noted that the assurance from the Managing Director and Chief Financial Officer can only be reasonable and not absolute due to the level of judgement required, the limitations of sampling and the difficulty in designing systems to detect all weaknesses in internal control procedures. Principle 8 – Remunerate fairly and responsibly The Company has established a Remuneration Committee. The remuneration policies are included in the Remuneration Charter which is posted on the Company’s website. The Remuneration Committee considers the procedures, policies and key performance indicators used to measure the performance of key executives and directors. Any equity based executive remuneration may be made in accordance with thresholds approved by shareholders and developed over time. The Remuneration Committee makes recommendations to the Board on performance and remuneration which is ultimately responsible for reviewing compensation agreements for the directors and the executive management. Full discussion of the Company’s remuneration philosophy and framework and remuneration received by directors and executives in the current financial year is contained in the Remuneration Report section of the Directors’ Report. There is no scheme to provide retirement benefits to non-executive directors, except for their entitlement to the nine (9) percent Superannuation Guarantee. Further details of the structure of the remuneration procedures can be found in the Remuneration Committee Charter. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 43 of 102 Corporate Governance Statement CORPORATE GOVERNANCE STATEMENT Due to size, nature and complexity of the Company the Remuneration Committee only has two members including the Chairman of the Company and is chaired by a non-executive director. The Chairman of the Board is not the chairman of the Remuneration Committee. The Company does not allow its directors or senior management to enter in transactions in associated products which limits the risk of participating in unvested entitlements under any equity based remuneration schemes. The members of the Remuneration Committee are Mr Peter Ziegler (Chairman) and Mr John Bovard. Details of the qualifications of the members of the Remuneration Committee, number of meetings held during the year and the attendees at those meetings are found in the Directors’ Report. A copy of the Remuneration Committee Charter can be found at the Company’s website at www.aqcltd.com. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 44 of 102 Corporate Governance Statement INCOME STATEMENTS For the year ending 30 June 2011 Note Consolidated Group Australian Pacific Coal Limited 2011 $ 2010 $ 2011 $ 2010 $ Revenue Changes in inventories of finished goods and work in progress 2 287,386 (5,000) 130,854 (17,707) Raw materials and consumables used (969) (27,631) - - 30,929 13,034 Loss on disposal of assets Employee benefits expense (27,508) - (19,775) (616,460) (559,705) (616,460) (559,705) - - - Depreciation and amortisation expense (113,070) (226,709) (16,959) (16,805) Exploration, evaluation and development (20,454) (13,519) - - expenses Finance costs Impairment of goodwill Impairment of Investments Impairment of loans receivable (17,395) (76,395) (2,646) (2,576) (1,999) - - - - - (69,922) (1,000,000) (1,050,010) - 158,116 (2,174,810) Impairment of exploration and evaluation (1,080,025) (2,358,107) Impairment of inventory 5,000 (50,000) - - - - Administration and consulting expenses (872,206) (658,087) (710,684) (615,264) Other expenses Profit before income tax Income tax expense (benefit) - - - (239) 3 4 (2,462,700) (3,926,928) (2,177,479) (4,406,375) - - - - Profit/(Loss) from continuing operations (2,462,700) (3,926,928) (2,177,479) (4,406,375) Profit/(Loss) from discontinued operations - (41,488) - - Profit/(Loss) for the period (2,462,700) (3,968,416) (2,177,479) (4,406,375) Profit/(Loss) attributable to: Members of the parent entity Non-controlling interest Earnings per share From continuing and discontinued operations: Basic earnings per share (cents) Diluted earnings per share (cents) From continuing operations: Basic earnings per share (cents) Diluted earnings per share (cents) 8 8 8 8 (2,462,700) (3,968,416) - - (2,462,700) (3,968,416) (0.50) (0.48) (0.50) (0.48) (0.99) (0.99) (0.98) (0.98) Theaboveincomestatementsshouldbereadinconjunctionwiththeaccompanyingnotes Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 45 of 102 Income Statements STATEMENTS OF COMPREHENSIVE INCOME For the year ending 30 June 2011 Note Consolidated Group Australian Pacific Coal Limited 2010 $ 2010 $ 2010 $ 2010 $ Profit/(Loss) for the period (2,462,700) (3,968,416) (2,177,479) (4,406,375) Other comprehensive income Net gain on revaluation of land and buildings Share of other comprehensive income of associates Income tax relating to components of other comprehensive income Other comprehensive income for the period, net of tax - - - - - - - - - - - - - - - - Total comprehensive income for the period (2,462,700) (3,968,416) (2,177,479) (4,406,375) Total comprehensive income attributable to: Members of the parent entity Non-controlling interest (2,462,700) (3,968,416) - - (2,462,700) (3,968,416) Theabovestatementsofcomprehensiveincomeshouldbereadinconjunctionwiththeaccompanyingnotes Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 46 of 102 Statements of Comprehensive Income STATEMENTS OF FINANCIAL POSITION As at 30 June 2011 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Other financial assets Other assets Total current assets Non-current assets Trade and other receivables Investments accounted for using the equity method Other financial assets Property, plant and equipment Exploration and evaluation expenditure Intangible assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Total current liabilities Non-current liabilities Borrowings Total non-current liabilities Total liabilities Net assets EQUITY Issued capital Retained earnings Parent entity interest Non-controlling interest Total equity Consolidated Group Australian Pacific Coal Limited 2011 $ 2010 $ 2011 $ 2010 $ 585,444 828,782 571,857 510,965 54,216 148,209 8,853 94,068 - - - - - - - - 17,783 20,575 17,783 20,575 657,443 997,566 598,493 625,608 582,131 110,000 - - - - 1,066,391 138,995 110,000 - - 1,000,000 420,110 541,092 41,123 59,762 389,154 1,056,603 - - - - - - 1,501,395 1,597,695 1,217,514 1,198,757 2,158,838 2,595,261 1,816,007 1,824,365 431,587 316,931 535,161 345,183 126,272 96,745 9,593 11,532 557,859 413,676 544,754 356,715 - - 98,988 98,988 - - - - 557,859 512,664 544,754 356,715 1,600,979 2,082,597 1,271,253 1,467,650 9 10 11 14 19 10 12 14 16 17 18 20 21 21 23 33,230,500 31,249,418 33,230,500 31,249,418 (31,629,521) (29,166,821) (31,959,247) (29,781,768) 1,600,979 2,082,597 1,271,253 1,467,650 - - - - 1,600,979 2,082,597 1,271,253 1,467,650 Theabovestatementsoffinancialpositionshouldbereadinconjunctionwiththeaccompanyingnotes Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 47 of 102 Statements of Financial Position STATEMENTS OF CHANGES IN EQUITY For the year ended 30 June 2011 CONSOLIDATED Issued Capital Ordinary Revaluation Surplus Non- controlling Interests Retained Earnings Note $ $ $ $ Total $ Balance at 1 July 2009 30,288,201 Profit attributable to members of the parent entity Profit attributable to non-controlling interests Total other comprehensive income for the period Share issued during the period Transaction costs on share issue Subtotal Dividends paid or provided for Balance at 30 June 2010 - - - 980,000 (18,783) 31,249,418 - 31,249,418 Balance at 1 July 2010 31,249,418 Profit attributable to members of the parent entity Profit attributable to non-controlling interests Total other comprehensive income for the period Share issued during the period Transaction costs on share issue Subtotal Dividends paid or provided for Balance at 30 June 2011 - - - 2,047,497 (66,415) 33,230,500 - 33,230,500 - - - - - - - - - - - - - - - - - - (2,914,350) (22,284,055) 5,089,796 - - - - - (3,968,416) (3,968,416) - - - - - - 980,000 (18,783) (2,914,350) (26,252,471) 2,082,597 - - - (2,914,350) (26,252,471) 2,082,597 (2,914,350) (26,252,471) 2.082,597 - - - - - (2,462,700) (2,462,700) - - - - - - 2,047,497 (66,415) (2,914,350) (28,715,171) 1,600,979 - - - (2,914,350) (28,715,171) 1,600,979 Theabovestatementsofchangesinequityshouldbereadinconjunctionwiththeaccompanyingnotes Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 48 of 102 Statements of Changes in Equity STATEMENTS OF CHANGES IN EQUITY For the year ended 30 June 2011 AUSTRALIAN PACIFIC COAL LIMITED Note Issued Capital Ordinary Revaluation Surplus Non- controlling Interests Retained Earnings Total $ $ $ $ $ Balance at 1 July 2009 30,288,201 Profit attributable to members of the parent entity Profit attributable to non- controlling interests Total other comprehensive income for the period Share issued during the period Transaction costs on share issue Subtotal Dividends paid or provided for Balance at 30 June 2010 - - - 980,000 (18,783) 31,249,418 - 31,249,418 Balance at 1 July 2010 31,249,418 Profit attributable to members of the parent entity Profit attributable to non- controlling interests Total other comprehensive income for the period Share issued during the period Transaction costs on share issue Subtotal Dividends paid or provided for Balance at 30 June 2011 - - - 2,047,497 (66,415) 33,230,500 - 33,230,500 - - - - - - - - - - - - - - - - - - - (25,375,393) 4,912,808 - - - - - (4,406,375) (4,406,375) - - - - - - 980,000 (18,783) - (29,781,768) 1,467,650 - - - - (29,781,768) 1,467,650 - (29,781,768) 1,467,650 - - - - - (2,177,479) (2,177,479) - - - - - - 2,047,497 (66,415) - (31,959,247) 1,271,253 - - - - (31,959,247) 1,271,253 Theabovestatementsofchangesinequityshouldbereadinconjunctionwiththeaccompanyingnotes Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 49 of 102 Statements of Changes in Equity STATEMENTS OF CASH FLOW For the year ended 30 June 2011 Consolidated Group Australian Pacific Coal Limited 2011 $ 2010 $ 2011 $ 2010 $ CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 277,842 64,494 - - Payments to suppliers and employees (1,904,171) (1,162,980) (1,404,417) (908,437) Interest received Finance costs Income tax paid 34,802 18,727 (17,395) (76,395) - - 30,929 (2,646) - 8,034 (2,576) - Net cash (used in)/provided by operating activities 27a (1,608,921) (1,156,154) (1,375,864) (902,979) CASH FLOWS FROM INVESTING ACTIVITIES Payments for investments Proceeds from sale of non-current assets Purchase of non-current assets Loans to subsidiaries Repayment of loans to subsidiaries Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Proceeds from borrowings Repayment of borrowings (111,999) - (110,000) (35,000) 521,451 - - (21,556) (14,493) (19,905) (14,032) - 38,600 - - (858,894) 38,600 697,057 (94,955) 506,958 (91,305) (210,869) 1,529,999 980,000 1,529,999 980,000 46,378 - 46,378 48,945 (115,839) (467,773) (48,317) (48,394) Net cash used in/(provided by) financing activities 1,460,538 512,227 1,528,060 980,551 Net increase/(decrease) in cash held (243,338) (136,969) 60,892 (133,297) Cash and cash equivalents at beginning of period 828,782 965,751 510,965 644,262 Cash and cash equivalents at end of period 9 585,444 828,782 571,857 510,965 Theabovecashflowstatementsshouldbereadinconjunctionwiththeaccompanyingnotes Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 50 of 102 Statements of Cash Flow NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2011 These consolidated financial statements and notes represent those of Australian Pacific Coal Limited and Controlled Entities (the “consolidated group” or “Group”) and Australian Pacific Coal Limited (the “Parent”) The parent entity has applied the relief available to it under ASIC Class Order 10/654 and accordingly, presents consolidated financial statements that include parent entity financial statements as part of the financial report under Chapter 2M of the Corporations Act 2001. The financial statements were authorised for issue on 2 October 2011 by the directors of the company. 1 BASIS OF PREPARATION The financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of this financial report are presented below and have been consistently applied unless otherwise stated. The financial report has been prepared on an accruals basis and is based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. Going Concern This financial report has been prepared on a going concern basis as the Directors believe that the company and the consolidated entity will be able to realise its assets and settle its liabilities in the normal course of business and at the amounts stated in the financial report. The continuation of the company and the consolidated entity as a going concern is dependent upon their ability to achieve the following objectives: Development and exploitation of the coal tenements Realisation of surplus assets Capital raising However, should the anticipated activities and capital raisings not generate sufficient revenues and cash flows as expected, the company and consolidated entity may not be able to pay their debts as and when they become due and payable and they may be required to realise assets and extinguish liabilities other than in the ordinary course of business and at amounts different from those stated in the financial statements. This report does not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the company and the consolidated entity not continue as going concerns. . Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 51 of 102 Notes to the Financial Statements (a) Principles of Consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by Australian Pacific Coal Limited at the end of the reporting period. A controlled entity is any entity over which Australian Pacific Coal Limited has the power to govern the financial and operating policies so as to obtain benefits from the entity’s activities. Where controlled entities have entered or left the Group during the year, the financial performance of those entities are included only for the period of the year that they were controlled. A list of controlled entities is contained in Note 15 to the financial statements. In preparing the consolidated financial statements, all inter-group balances and transactions between entities in the consolidated group have been eliminated on consolidation. Non-controlling interests, being the equity in a subsidiary not attributable, directly or indirectly, to a parent, are shown separately within the Equity section of the consolidated Statement of Financial Position and Statement of Comprehensive Income. The non-controlling interests in the net assets comprise their interests at the date of the original business combination and their share of changes in equity since that date. Business Combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is obtained, whereby the fair value of the identified assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive income. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. Goodwill Goodwill is carried at cost less accumulated impairment losses. Goodwill is calculated as the excess of the sum of: (i) (ii) (iii) the consideration transferred; any non-controlling interest; and the acquisition date fair value of any previously held equity interest; over the acquisition date fair value of net identifiable assets acquired. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements. Fair value uplifts in the value of pre-existing equity holdings are taken to the statement of comprehensive income. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss. The amount of goodwill recognised on acquisition of each subsidiary in which the Group holds less than a 100% interest will depend on the method adopted in measuring the non-controlling interest. The Group can elect in most circumstances to measure the non-controlling interest in the acquiree either at fair value (full goodwill method) or at the non-controlling interest’s proportionate share of the subsidiary’s identifiable net assets (proportionate interest method). In such circumstances, the Group determines which method to adopt for each acquisition and this is stated in the respective notes to these financial statements disclosing the business combination. Under the full goodwill method, the fair value of the non-controlling interest is determined using valuation techniques which make the maximum use of market information where available. Under this method, goodwill attributable to the non-controlling interests is recognised in the consolidated financial statements. Refer to Note 15 for information on the goodwill policy adopted by the Group for acquisitions. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 52 of 102 Notes to the Financial Statements Goodwill is tested for impairment annually and is allocated to the Group’s cash-generating units or groups of cash- generating units, representing the lowest level at which goodwill is monitored not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity disposed of. Changes in the ownership interests in a subsidiary are accounted for as equity transactions and do not affect the carrying values of goodwill. (b) Income Tax The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities (assets) are measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense (income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. Tax consolidation The company and its wholly owned Australian subsidiaries have formed a tax consolidated group with effect from 30 July 2004. The head entity within the group is XYZ Limited. Current income tax expenses/income and deferred tax liabilities and assets are recognised in the separate financial statements of members of the tax consolidated group using the separate taxpayer within the group approach. This approach determines the tax obligations of entities within the tax consolidated group after accounting for any consolidation adjustments. Any current tax liabilities/(assets) and deferred tax assets arising from unused tax losses of the subsidiaries are assumed by the head entity in the tax consolidated group and are recognised as amounts payable/(receivable) to/(from) other entities in the tax consolidated group in conjunction with the tax funding arrangement referred to below. The difference between these amounts is recognised by the head entity as an equity injection or distribution. Tax funding arrangement Australian Pacific Coal Limited in conjunction with its wholly owned subsidiaries has entered into a tax funding arrangement from 30 July 2004. The tax funding arrangement requires subsidiaries within the tax consolidated group to make payments/(receipts) based on the assumption of tax obligations/(deferred tax assets) by the head entity. Contributions to fund the current tax liabilities are payable as per the terms of the tax funding arrangement and reflect the timing of the head entity's obligation to make tax payments to the relevant tax authorities. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 53 of 102 Notes to the Financial Statements (c) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of weighted average costs. The cost of mining stocks includes direct materials, direct labour, transportation costs and variable and fixed overhead costs relating to mining activities. (d) Property, Plant and Equipment Each class of property, plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses. Property Freehold land and buildings are recorded at their fair value (being the amount for which an asset could be exchanged between knowledgeable willing parties in an arm’s length transaction), based on periodic, but at least triennial, valuations by external independent valuers, less accumulated depreciation for buildings. Increases in the carrying amount arising on revaluation of land and buildings are credited to a revaluation surplus in equity. Decreases that offset previous increases of the same asset are recognised against fair value reserves directly in equity; all other decreases are recognised in profit or loss. Each year the difference between depreciation based on the revalued carrying amount of the asset charged to the statement of comprehensive income and depreciation based on the asset’s original cost is transferred from the revaluation surplus to retained earnings. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Plant and equipment Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present (refer to Note 1(h) for details of impairment). The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the consolidated group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including buildings and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over the asset’s useful life to the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Buildings Leasehold improvements Plant and equipment Leased plant and equipment Depreciation Rate 4% 20% 10–40% 12.5--20% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 54 of 102 Notes to the Financial Statements An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. When revalued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. (e) Exploration and Development Expenditure Exploration, evaluation and development expenditures incurred are capitalised in respect of each identifiable area of interest. These costs are only capitalised to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to capitalise costs in relation to that area of interest. Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with local laws and regulations and clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis. Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site. (f) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that is transferred to entities in the consolidated group, are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the lease term. (g) Financial Instruments Initial recognition and measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the company commits itself to either the purchase or sale of the asset (ie trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified ‘at fair value through profit or loss’, in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Finance instruments are subsequently measured at fair value, amortised cost using the effective interest rate method, or cost. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 55 of 102 Notes to the Financial Statements Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. The effective interest rate method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense item in profit or loss. The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments. (i) Financial assets at fair value through profit or loss Financial assets are classified at ‘fair value through profit or loss’ when they are either held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Loans and receivables are included in current assets, where they are expected to mature within 12 months after the end of the reporting period. (iii) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Group’s intention to hold these investments to maturity. They are subsequently measured at amortised cost. Held-to-maturity investments are included in current assets where they are expected to mature within 12 months after the end of the reporting period. All other investments are classified as non-current assets. (iv) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. They are subsequently measured at fair value with changes in such fair value (ie gains or losses) recognised in other comprehensive income (except for impairment losses and foreign exchange gains and losses). When the financial asset is derecognised, the cumulative gain or loss pertaining to that asset previously recognised in other comprehensive income is reclassified into profit or loss. Available-for-sale financial assets are included in current assets where they are expected to be sold within 12 months after the end of the reporting period. All other financial assets are classified as non-current assets. (v) Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Impairment At the end of each reporting period, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in profit or loss at this point. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 56 of 102 Notes to the Financial Statements Financial guarantees Where material, financial guarantees issued that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due, are recognised as a financial liability at fair value on initial recognition. The guarantee is subsequently measured at the higher of the best estimate of the obligation and the amount initially recognised less, when appropriate, cumulative amortisation in accordance with AASB 118: Revenue. Where the entity gives guarantees in exchange for a fee, revenue is recognised under AASB 118. The fair value of financial guarantee contracts has been assessed using a probability weighted discounted cash flow approach. The probability has been based on: the likelihood of the guaranteed party defaulting in a year period; the proportion of the exposure that is not expected to be recovered due to the guaranteed party defaulting; and the maximum loss exposed if the guaranteed party were to default. De-recognition Financial assets are de-recognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are de-recognised where the related obligations are either discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. (h) Impairment of Assets At each the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard (eg in accordance with the revaluation model in AASB 116). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. (i) Investments in Associates Associates are companies in which the Group has significant influence through holding, directly or indirectly, 20% or more of the voting power of the associate company. Investments in associates are accounted for in the financial statements by applying the equity method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the Group’s share of net assets of the associate company. In addition the Group’s share of the profit or loss of the associate company is included in the Group’s profit or loss. The carrying amount of the investment includes goodwill relating to the associate. Any discount on acquisition whereby the Group’s share of the net fair value of the associate exceeds the cost of investment is recognised in profit or loss in the period in which the investment is acquired. Profits and losses resulting from transactions between the Group and the associate are eliminated to the extent of the Group’s interest in the associate. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group discontinues recognising its share of further losses unless it has incurred legal or constructive obligations or made payments on behalf of the associate. When the associate subsequently makes profits, the Group will resume the recognition of its share of those profits once its share of the profits equals the share of the losses not recognised. Details of the Group’s investments in associates are provided in Note 13 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 57 of 102 Notes to the Financial Statements (j) Interests in Joint Ventures The Group’s share of the assets, liabilities, revenue and expenses of jointly controlled operations have been included in the appropriate line items of the consolidated financial statements. The Group’s interests in joint venture entities are recorded using the equity method of accounting (refer to Note 1(i) for details) in the consolidated financial statements. Where the Group contributes assets to the joint venture or if the Group purchases assets from the joint venture, only the portion of the gain or loss that is not attributable to the Group’s share of the joint venture shall be recognised. The Group recognises the full amount of any loss when the contribution results in a reduction in the net realisable value of current assets or an impairment loss. (k) Intangibles Other than Goodwill Patents and trademarks Patents and trademarks are recognised at cost of acquisition. Patents and trademarks have an indefinite life and are carried at cost less any impairment losses. Research and development Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably. Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project. (l) Foreign Currency Transactions and Balances Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the statement of comprehensive income, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the statement of comprehensive income. Group companies The financial results and position of foreign operations whose functional currency is different from the Group’s presentation currency are translated as follows: assets and liabilities are translated at year-end exchange rates prevailing at the end of the reporting period; income and expenses are translated at average exchange rates for the period; and retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations are transferred directly to the Group’s foreign currency translation reserve in the statement of financial position. These differences are recognised in the statement of comprehensive income in the period in which the operation is disposed. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 58 of 102 Notes to the Financial Statements (m) Employee Benefits Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wages increases and the probability that the employee may satisfy vesting requirements. Those cash outflows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows. (n) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. (o) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the statement of financial position. (p) Revenue and Other Income Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. Any consideration deferred is treated as the provision of finance and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue. Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of significant risks and rewards of ownership of the goods and the cessation of all involvement in those goods. Interest revenue is recognised using the effective interest rate method, which, for floating rate financial assets, is the rate inherent in the instrument. All dividends received shall be recognised as revenue when the right to receive the dividend has been established. Revenue recognition relating to the provision of services is determined with reference to the stage of completion of the transaction at the end of the reporting period and where outcome of the contract can be estimated reliably. Stage of completion is determined with reference to the services performed to date as a percentage of total anticipated services to be performed. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent that related expenditure is recoverable. All revenue is stated net of the amount of goods and services tax (GST) (q) Trade and Other Payables Trade and other payables represent the liability outstanding at the end of the reporting period for goods and services received by the Group during the reporting period which remains unpaid. The balance is recognised as a current liability with the amount being normally paid within 30 days of recognition of the liability. (r) Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in income in the period in which they are incurred. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 59 of 102 Notes to the Financial Statements (s) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (t) Government Grants Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets are credited to deferred income at fair value and are credited to income over the expected useful life of the asset on a straight-line basis. (u) Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. When the Group applies an accounting policy retrospectively, makes a retrospective restatement or reclassifies items in its financial statements, a statement of financial position as at the beginning of the earliest comparative period will be disclosed. The Group in order to assist the users of the financial report and ensure the report is more understandable, has reclassified some line items in both the Statement of Comprehensive Income and the Statement of Financial Position. Comparatives have been adjusted to bring them into line with these changes except for some security deposits which have been reclassified from a current asset in the prior year to non-current asset in this year. Further details of these changes can be seen in the tables listed below: INCOME STATEMENTS Consolidated Group Australian Pacific Coal Limited Adjusted Comparatives 2010 Accounts Adjusted Comparatives 2010 Accounts Revenue 130,854 130,854 13,034 13,034 Changes in inventories of finished goods and work in progress (17,707) (17,707) Raw materials and consumables used (27,631) (27,631) - - - - Employee benefits expense (559,705) (559,705) (559,705) (559,705) Depreciation and amortisation expense (226,709) (226,709) (16,805) (16,805) Exploration, evaluation and development expenses Finance costs Impairment of Investments Impairment of loans receivable (13,519) (2,358,107) - - (76,395) (69,922) - (76,395) (2,576) (2,576) (69,922) (1,050,010) (1,050,010) - - (2,174,810) (2,174,810) - - - - Impairment of exploration and evaluation (2,358,107) Impairment of inventory (50,000) (50,000) Administration and consulting expenses (658,087) (658,087) (615,264) (615,264) Other expenses Profit before income tax Income tax expense (benefit) - (13,519) (239) (239) (3,926,928) (3,926,928) (4,406,375) (4,406,375) - - - - Profit/(Loss) from continuing operations (3,926,928) (3,926,928) (4,406,375) (4,406,375) Profit/(Loss) from discontinued operations (41,488) (41,488) - - Profit/(Loss) for the period (3,968,416) (3,968,416) (4,406,375) (4,406,375) Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 60 of 102 Notes to the Financial Statements STATEMENTS OF FINANCIAL POSITION Consolidated Group Australian Pacific Coal Limited Adjusted Comparatives 2010 Accounts Adjusted Comparatives 2010 Accounts ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Other financial assets Other assets Total current assets Non-current assets Trade and other receivables Investments accounted for using the equity method Other financial assets 828,782 148,209 - - 20,575 997,566 - - - 828,782 62,476 - 85,733 20,575 997,566 510,965 94,068 - - 20,575 625,608 510,965 59,068 - 35,000 20,575 625,608 - - - 138,995 138,995 - - 1,000,000 1,000,000 Property, plant and equipment 541,092 541,092 59,762 59,762 Exploration and evaluation expenditure 1,056,603 1,056,603 Intangible assets - - - - - - Total non-current assets 1,597,695 1,597,695 1,198,757 1,198,757 Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Total current liabilities Non-current liabilities Borrowings Total non-current liabilities Total liabilities Net assets EQUITY Issued capital Retained earnings Parent entity interest Non-controlling interest Total equity 2,595,261 2,595,261 1,824,365 1,824,365 316,931 96,745 413,676 98,988 98,988 316,931 96,745 413,676 98,988 98,988 345,183 11,532 356,715 308,356 48,359 356,715 - - - - 512,664 512,664 356,715 356,715 2,082,597 2,082,597 1,467,650 1,467,650 31,249,418 31,249,418 31,249,418 31,249,418 (29,166,821) (29,166,821) (29,781,768) (29,781,768) 2,082,597 2,082,597 1,467,650 1,467,650 - - - - 2,082,597 2,082,597 1,467,650 1,467650 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 61 of 102 Notes to the Financial Statements TRADE AND OTHER RECEIVABLES Consolidated Group Australian Pacific Coal Limited CURRENT Trade receivables Provision for impairment Amounts receivable from related parties: — loans to director related entities Other receivables Total current trade and other receivables NON CURRENT Amounts receivable from related parties: — loans to controlled entities — provision for impairment Total non-current trade and other receivables Adjusted Comparatives 2010 Accounts Adjusted Comparatives 2010 Accounts 6,101 (6,101) 12,186 136,023 148,209 6,101 (6,101) 12,186 50,290 62,476 5,500 (5,500) 12,186 81,882 94,068 5,500 (5,500) 12,186 46,882 59,068 - - - - - - 11,271,517 11,271,517 (11,132,522) (11,132,522) 138,995 138,995 OTHER FINANCIAL ASSETS Consolidated Group Australian Pacific Coal Limited Adjusted Comparatives 2010 Accounts Adjusted Comparatives 2010 Accounts CURRENT Security deposits Total current NON CURRENT Investments in subsidiaries at cost Accumulated impairment losses Total non-current - - - - - 85,733 85,733 - - 35,000 35,000 - - - 11,042,336 1,000,000 (10,042,336) - 1,000,000 1,000,000 TRADE AND OTHER PAYABLES Consolidated Group Australian Pacific Coal Limited Adjusted Comparatives 2010 Accounts Adjusted Comparatives 2010 Accounts CURRENT Unsecured liabilities: Trade payables Amounts payable to related parties: — controlled entities — key management personnel related entities Total 261,814 261,814 253,239 253,239 - - 55,117 55,117 36,827 55,117 - 55,117 316,931 316,931 345,183 308,356 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 62 of 102 Notes to the Financial Statements BORROWINGS CURRENT Unsecured liabilities: Related party loans Secured liabilities: Lease liability Mortgage loans Total current NON CURRENT Secured liabilites Lease liability Total non-current Total borrowings Consolidated Group Australian Pacific Coal Limited Adjusted Comparatives 2010 Accounts Adjusted Comparatives 2010 Accounts - - 85,213 11,532 96,745 85,213 11,532 96,745 - - 11,532 11,532 36,827 - 11,532 48,359 98,988 98,988 98,988 98,988 - - - - 195,733 195,733 11,532 48,359 (v) Rounding of Amounts The parent entity has applied the relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the financial report and directors’ report have been rounded off to the nearest $1. (w) Critical Accounting Estimates and Judgments The directors evaluate estimates and judgments incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. Key estimates Impairment The Group assesses impairment at the end of each reporting period by evaluating conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which incorporate various key assumptions. Key judgments Exploration and Evaluation Expenditure The Group capitalises expenditure relating to exploration and evaluation where it is considered likely to be recoverable or where the activities have not reached a stage which permits a reasonable assessment of the existence of reserves. While there are certain areas of interest from which no reserves have been extracted, the directors are of the continued belief that such expenditure should not be written off since feasibility studies in such areas have not yet concluded. Such capitalised expenditure is carried at the end of the reporting period at $389,154. Intangible assets The Group capitalises expenditure relating to a class of intangible assets where it is considered likely to be recoverable. The useful lives of these intangible assets are assessed to be either finite or indefinite. Such capitalised expenditure is carried at the end of the reporting period at $Nil. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 63 of 102 Notes to the Financial Statements (x) New Accounting Standards for Application in Future Periods The AASB has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods and which the Group has decided not to early adopt. A discussion of those future requirements and their impact on the Group follows: AASB 9: Financial Instruments (December 2010) (applicable for annual reporting periods commencing on or after 1 January 2013). This standard is applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments, as well as recognition and derecognition requirements for financial instruments. The Group has not yet determined the potential impact on the financial statements. The key changes made to accounting requirements include: o o o o o o o simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value; simplifying the requirements for embedded derivatives; removing the tainting rules associated with held-to-maturity assets; removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost; allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument; requiring financial assets to be reclassified where there is a change in an entity’s business model as they are initially classified based on: (a) the objective of the entity’s business model for managing the financial assets; and (b) the characteristics of the contractual cash flows; and requiring an entity that chooses to measure a financial liability at fair value to present the portion of the change in its fair value due to changes in the entity’s own credit risk in other comprehensive income, except when that would create an accounting mismatch. If such a mismatch would be created or enlarged, the entity is required to present all changes in fair value (including the effects of changes in the credit risk of the liability) in profit or loss. AASB 124: Related Party Disclosures (applicable for annual reporting periods commencing on or after 1 January 2011). This Standard removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities and clarifies the definition of a “related party” to remove inconsistencies and simplify the structure of the Standard. No changes are expected to materially affect the Group. AASB 1053: Application of Tiers of Australian Accounting Standards and AASB 2010–2: Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements [AASB 1, 2, 3, 5, 7, 8, 101, 102, 107, 108, 110, 111, 112, 116, 117, 119, 121, 123, 124, 127, 128, 131, 133, 134, 136, 137, 138, 140, 141, 1050 & 1052 and Interpretations 2, 4, 5, 15, 17, 127, 129 & 1052] (applicable for annual reporting periods commencing on or after 1 July 2013). AASB 1053 establishes a revised differential financial reporting framework consisting of two tiers of financial reporting requirements for those entities preparing general purpose financial statements: o o Tier 1: Australian Accounting Standards; and Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements. Tier 2 of the framework comprises the recognition, measurement and presentation requirements of Tier 1, but contains significantly fewer disclosure requirements. The following entities are required to apply Tier 1 reporting requirements (ie full IFRS o o for-profit private sector entities that have public accountability; and the Australian Government and state, territory and local governments. Since the Group is a for-profit private sector entity that has public accountability, it does not qualify for the reduced disclosure requirements for Tier 2 entities. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 64 of 102 Notes to the Financial Statements AASB 2009–12: Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052] (applicable for annual reporting periods commencing on or after 1 January 2011). This Standard makes a number of editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB. The Standard also amends AASB 8 to require entities to exercise judgment in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. The amendments are not expected to impact the Group. AASB 2009–14: Amendments to Australian Interpretation – Prepayments of a Minimum Funding Requirement [AASB Interpretation 14] (applicable for annual reporting periods commencing on or after 1 January 2011). This Standard amends Interpretation 14 to address unintended consequences that can arise from the previous accounting requirements when an entity prepays future contributions into a defined benefit pension plan, This Standard is not expected to impact the Group. AASB 2010–4: Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101 & AASB 134 and Interpretation 13] (applicable for annual reporting periods commencing on or after 1 January 2011). This Standard details numerous non-urgent but necessary changes to Accounting Standards arising from the IASB’s annual improvements project. Key changes include: o o o o clarifying the application of AASB 108 prior to an entity’s first Australian-Accounting-Standards financial statements; adding an explicit statement to AASB 7 that qualitative disclosures should be made in the context of the quantitative disclosures to better enable users to evaluate an entity’s exposure to risks arising from financial instruments; amending AASB 101 to the effect that disaggregation of changes in each component of equity arising from transactions recognised in other comprehensive income is required to be presented, but is permitted to be presented in the statement of changes in equity or in the notes; adding a number of examples to the list of events or transactions that require disclosure under AASB 134; and o making sundry editorial amendments to various Standards and Interpretations. This Standard is not expected to impact the Group. AASB 2010–5: Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042] (applicable for annual reporting periods beginning on or after 1 January 2011). This Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB. However, these editorial amendments have no major impact on the requirements of the respective amended pronouncements. AASB 2010–6: Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets [AASB 1 & AASB 7] (applicable for annual reporting periods beginning on or after 1 July 2011). This Standard adds and amends disclosure requirements about transfers of financial assets, especially those in respect of the nature of the financial assets involved and the risks associated with them. Accordingly, this Standard makes amendments to AASB 1: First-time Adoption of Australian Accounting Standards, and AASB 7: Financial Instruments: Disclosures, establishing additional disclosure requirements in relation to transfers of financial assets. This Standard is not expected to impact the Group. AASB 2010–7: Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Interpretations 2, 5, 10, 12, 19 & 127] (applies to periods beginning on or after 1 January 2013). This Standard makes amendments to a range of Australian Accounting Standards and Interpretations as a consequence of the issuance of AASB 9: Financial Instruments in December 2010. Accordingly, these amendments will only apply when the entity adopts AASB 9. As noted above, the Group has not yet determined any potential impact on the financial statements from adopting AASB 9. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 65 of 102 Notes to the Financial Statements AASB 2010–8: Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets [AASB 112] (applies to periods beginning on or after 1 January 2012). This Standard makes amendments to AASB 112: Income Taxes. The amendments brought in by this Standard introduce a more practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model under AASB 140: Investment Property. Under the current AASB 112, the measurement of deferred tax liabilities and deferred tax assets depends on whether an entity expects to recover an asset by using it or by selling it. The amendments introduce a presumption that an investment property is recovered entirely through sale. This presumption is rebutted if the investment property is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. The amendments brought in by this Standard also incorporate Interpretation 121 into AASB 112. The amendments are not expected to impact the Group. AASB 2010–9: Amendments to Australian Accounting Standards – Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters [AASB 1] (applies to periods beginning on or after 1 July 2011). This Standard makes amendments to AASB 1: First-time Adoption of Australian Accounting Standards. The amendments brought in by this Standard provide relief for first-time adopters of Australian Accounting Standards from having to reconstruct transactions that occurred before their date of transition to Australian Accounting Standards. Furthermore, the amendments brought in by this Standard also provide guidance for entities emerging from severe hyperinflation either to resume presenting Australian-Accounting-Standards financial statements or to present Australian-Accounting-Standards financial statements for the first time. This Standard is not expected to impact the Group. AASB 2010–10: Further Amendments to Australian Accounting Standards – Removal of Fixed Dates for First-time Adopters [AASB 2009–11 & AASB 2010–7] (applies to periods beginning on or after 1 January 2013). This Standard makes amendments to AASB 2009–11: Amendments to Australian Accounting Standards arising from AASB 9, and AASB 2010–7: Amendments to Australian Accounting Standards arising from AASB 9 (December 2010). The amendments brought in by this Standard ultimately affect AASB 1: First-time Adoption of Australian Accounting Standards and provide relief for first-time adopters from having to reconstruct transactions that occurred before their transition date. [The amendments to AASB 2009–11 will only affect early adopters of AASB 2009–11 (and AASB 9: Financial Instruments that was issued in December 2009) as it has been superseded by AASB 2010–7.] This Standard is not expected to impact the Group. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 66 of 102 Notes to the Financial Statements NOTE 2: REVENUE AND OTHER INCOME Revenue from Continuing Operations: Sales revenue: — sale of goods Other revenue: — interest received — government subsidies received — rental revenue Total Revenue Other Income — sale of interest in tenements — gain on disposal of property, plant and equipment Total revenue and other income from continuing operations Attributable to members of the parent entity NOTE 3: PROFIT FOR THE YEAR a. Expenses Cost of sales Interest expense on financial liabilities not at fair value through profit or loss Impairment of non-current investments – Bad and doubtful debts: — trade receivables Rental expense on operating leases: — minimum lease payments — contingent rents Write-off of capitalised exploration expenditure Write-down of inventories to net realisable value b. Significant Revenue and Expenses The following significant revenue and expense items are relevant in explaining the financial performance: Impairment of capitalised exploration expenditure Note Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ 2,584 29,495 - - 34,802 18,727 30,929 8,034 - - 8,772 5,000 - - 37,386 61,994 30,929 250,000 - - 68,860 - - - 5,000 13,034 - - 287,386 130,854 30,929 13,034 287,386 130,854 30,929 13,034 Note Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ 5,969 45,338 - - (17,395) 76,395 (2,646) 2,576 - 10,101 - 5,000 125,691 63,710 115,528 63,710 3,011 20,454 13,519 - 2,529 (5,000) 50,000 (1,080,025) (2,358,107) - - - - - - - Impairment of investments in subsidiaries - (69,922) (1,000,000) (1,050,010) Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 67 of 102 Notes to the Financial Statements NOTE 4: INCOME TAX EXPENSE a. The components of tax expense comprise: Note Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ Current tax Deferred tax - - - - 21 (563,650) (491,855) (328,295) (958,560) b. The prima facie tax on profit from ordinary activities before income tax is reconciled to the income tax as follows: Prima facie tax payable on profit from ordinary activities before income tax at 30% (2009: 30%) Add: Tax effect of: (738,810) (1,178,078) (653,244) (2,125,970) — non-deductible depreciation and 16,504 54,975 - 56,038 amortisation — other non-allowable items — write-downs to recoverable amounts 12,468 324,608 33,422 707,432 8,043 23,602 347,435 1,518,935 Less: Tax effect of: — other allowable items — tax losses transferred from controlled entities Recoupment of prior year tax losses not previously brought to account (178,420) (109,626) (30,529) (431,165) - - - - - - - - Income tax attributable to entity (563,650) (491,855) (328,295) (958,560) The applicable weighted average effective tax rates are as follows: (22.89%) (12.53%) (15.08%) (13.53%) Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 68 of 102 Notes to the Financial Statements NOTE 5: INTERESTS OF KEY MANAGEMENT PERSONNEL (KMP) Refer to the Remuneration Report contained in the Directors’ Report for details of the remuneration paid or payable to each member of the Group’s key management personnel for the year ended 30 June 2011. The totals of remuneration paid to KMP of the company and the Group during the year are as follows: Short-term employee benefits Post-employment benefits 2011 $ 679,231 619 2010 $ 564,542 119,500 679,851 684,042 KMP Options and Rights Holdings No options over ordinary shares were held by any KMP of the Group during the financial year. KMP Shareholdings The number of ordinary shares in Australian Pacific Coal Limited held by each KMP of the Group during the financial year is as follows: 30 June 2011 Balance at beginning of year Granted as remuneration during the year Mr John Bovard Mr Paul Byrne Mr Tim Prowse Mr John Laurie Mr Peter Ziegler Mr Paul Ingram Mr Kevin Mischewski 30 June 2010 - 41,588,944 - 2,000,000 5,233,333 - 58,334 Balance at beginning of year Granted as remuneration during the year Mr Brian Jones Mr Paul Byrne Mr Christopher Dredge Mr John Laurie Mr Peter Ziegler Mr Sirjit Singh Mr Kevin Mischewski Other KMP Transactions 8,449,028 40,443,575 41,816,304 2,000,000 233,333 2,500,000 58,334 Other changes during the year Balance at end of year Issued on exercise of options during the year - - - - - - - 2,500,000 9,075,000 475,000 1,430,988 5,000,000 - 2,500,000 50,633,944 475,000 3,430,988 10,233,333 - 1,441,666 1,500,000 Other changes during the year Balance at end of year Issued on exercise of options during the year - - - - - - - (6,363,853) 1,145,369 (5,700,000) - 5,000,000 (2,500,000) - 2,085,175 41,588,944 36,116,304 2,000,000 5,233,333 - 58,334 - - - - - - - - - - - - - - There have been no other transactions involving equity instruments other than those described in the tables above. For details of other transactions with KMP, refer to Note 29: Related Party Transactions. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 69 of 102 Notes to the Financial Statements NOTE 6: AUDITORS’ REMUNERATION Remuneration of the auditor of the parent entity for: — auditing or reviewing the financial statements — taxation services NOTE 7: DIVIDENDS Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ 66,625 7,895 67,125 16,470 66,625 7,600 67,125 16,470 No dividends of the parent entity or any entity within the consolidated entity have been declared or recommended since the end of the preceding year. The Directors do not recommend the payment of any dividend for the year ended 30 June 2011. NOTE 8: EARNINGS PER SHARE a. Reconciliation of earnings to profit or loss Profit Profit attributable to minority equity interest Earnings used to calculate basic EPS Earnings used in the calculation of dilutive EPS b. Reconciliation of earnings to profit or loss from continuing operations Profit from continuing operations Profit attributable to minority equity interest in respect of continuing operations Earnings used to calculate basic EPS from continuing operations Earnings used in the calculation of dilutive EPS from continuing operations c. Reconciliation of earnings to profit or loss from discontinuing operations Consolidated Group 2011 $ 2010 $ (2,462,700) (3,296,928) - (2,462,700) (2,462,700) - (3,296,928) (3,296,928) (2,462,700) (3,296,928) - - (2,462,700) (2,462,700) (3,926,928) (3,926,928) Profit from discontinuing operations Profit attributable to minority equity interest - - (41,488) - Earnings used to calculate basic EPS from discontinuing operations (2,462,700) (3,968,416) d. Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS Weighted average number of dilutive options outstanding Weighted average number of dilutive converting preference shares on issue Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS Diluted earnings per share is not reflected for discontinuing operations as the result is anti-dilutive in nature Anti-dilutive options on issue not used in dilutive EPS calculation e. f. No. No. 496,068,584 402,437,026 18,041,096 - - - 514,109,680 402,437,026 - - - - Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 70 of 102 Notes to the Financial Statements NOTE 9: CASH AND CASH EQUIVALENTS Cash at bank and in hand Short-term bank deposits The effective interest rate on short-term bank deposits was 5.5% (2010: 3.4%); these deposits have an average maturity of 90 days. Reconciliation of cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows: Cash and cash equivalents Bank overdrafts Note Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ 558,576 497,215 558,107 497,215 26,868 331,567 13,750 13,750 585,444 828,782 571,857 510,965 585,444 828,782 571,857 510,965 - - - - 585,444 828,782 571,857 510,965 NOTE 10: TRADE AND OTHER RECEIVABLES Note Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ Current Trade receivables Provision for impairment 10a(i) Amounts receivable from related parties: — loans to director related entities Other receivables Total current trade and other receivables Non-current Amounts receivable from related parties: — loans to directors — loans to key management personnel — loans to controlled entities — provision for impairment Other receivables Total non-current trade and other receivables 10a(iii) 2,842 (2,842) - 54,216 54,216 420,998 28,950 - - 132,183 582,131 6,101 (6,101) 12,186 136,023 148,209 - - - 8,853 8,853 5,500 (5,500) 12,186 81,882 94,068 - - - - - - 420,998 28,950 - - 11,556,899 11,271,517 (10,969,406) (11,132,522) 28,950 - 1,066,391 138,995 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 71 of 102 Notes to the Financial Statements a. Provision For Impairment of Receivables Current trade and term receivables are non-interest bearing loans and generally on 30-day terms. Non- current trade and term receivables are assessed for recoverability based on the underlying terms of the contract. A provision for impairment is recognised when there is objective evidence that an individual trade or term receivable is impaired. These amounts have been included in the income statements. Movement in the provision for impairment of receivables is as follows: Non-current loans to controlled entities 11,132,522 (158,116) (5,000) 10,969,406 Opening Balance 1.7.2010 Charge for the Year Amounts Written Off Closing Balance 30.6.2011 $ $ $ $ 6,101 2,342 (5,601) 2,842 5,500 (500) (5,000) - Opening Balance 1.7.2009 Charge for the Year Amounts Written Off Closing Balance 30.6.2010 $ $ $ $ - - 6,101 5,500 - - 6,101 5,500 Consolidated Group (i) Current trade receivables Parent Entity Current trade receivables Consolidated Group (i) Current trade receivables Parent Entity Current trade receivables (ii) (iii) (ii) (iii) Non-current loans to controlled entities 8,952,711 2,174,810 5,000 11,132,522 b. Credit Risk — Trade and Other Receivables The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties other than those receivables specifically provided for and mentioned within Note 10. The class of assets described as “trade and other receivables” is considered to be the main source of credit risk related to the Group. The following table details the Group’s trade and other receivables exposed to credit risk (prior to collateral and other credit enhancements) with ageing analysis and impairment provided for thereon. Amounts are considered as ‘past due’ when the debt has not been settled, with the terms and conditions agreed between the Group and the customer or counterparty to the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstances indicating that the debt may not be fully repaid to the Group. The balances of receivables that remain within initial trade terms (as detailed in the table) are considered to be of high credit quality. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 72 of 102 Notes to the Financial Statements Consolidated Group Gross amount $ Past due and impaired $ Past due but not impaired (days overdue) < 30 $ 31–60 $ 61–90 $ > 90 $ 2011 Trade and term receivables 2,842 (2,842) Amounts receivable from related parties Other receivables 449,948 186,399 - - Total 2010 639,189 (2,842) Trade and term receivables 6,101 (6,101) Amounts receivable from related parties Other receivables 12,186 136,023 - - Total 154,310 (6,101) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Gross amount $ Past due and impaired $ Past due but not impaired (days overdue) < 30 $ 31–60 $ 61–90 $ > 90 $ Parent Entity 2011 Within initial trade terms $ - 449,948 186,399 636,347 - 12,186 136,023 148,209 Within initial trade terms $ Trade and term receivables - - Amounts receivable from related parties 12,006,847 (10,969,406) Other receivables 37,803 - Total 2010 12,044,650 (10,969,406) Trade and term receivables 5,500 (5,500) Amounts receivable from related parties 11,283,703 (11,132,522) Other receivables 81,882 - Total 11,371,085 11,138,022 c. Collateral Held as Security - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,037,441 37,803 1,075,244 - 151,181 81,882 233,063 Included in amounts receivable from related parties is an amount owing to the parent company of $449,948 at the end of the reporting period (2010: $Nil). Included in other receivables is an amount owing to the parent company of $28,950 at the end of the reporting period (2010: $Nil). The company has funded the purchase of shares issued in accordance with the terms of the Company’s Officers, Executives, Consultants and Employee Share Plan by way of limited-recourse loans repayable from future dividends or out of proceeds when the allotted shares are sold. Collateral is held by way of security over the shares issued. The shares are subject to a trading lock preventing disposal of the shares prior to the respective holders making suitable arrangements for repayment of any outstanding amounts payable on the associated loans. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 73 of 102 Notes to the Financial Statements NOTE 11: INVENTORIES CURRENT At cost: Raw materials and stores Finished goods Total Note Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ NOTE 12: INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD NON-CURRENT Associated companies Total non-current Note Consolidated Group 2011 $ 2010 $ 13 110,000 110,000 - - - - - - - - - - - Parent Entity 2011 $ 2010 $ 110,000 110,000 - - - - - NOTE 13: ASSOCIATED COMPANIES Interests are held in the following associated companies: Name Principal Activites Country of Incorporation Shares Ownership Interest Carrying amount of investment Spinafex Uranium Pty Ltd Mineral exploration Diamantina Uranium Pty Ltd Frontier Uranium Pty Ltd Mineral exploration Mineral exploration Australia Ord Australia Ord Australia Ord 2011 2010 2011 2010 % 20 20 20 % $ $ - - - 36,667 36,667 36,666 110,000 Note Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ Movements during the year in equity accounted investment in associated companies; Balance at beginning of the financial year New investments during the year Balance at end of the financial year - 110,000 110,000 - - - 110,000 110,000 - - - - - - On 30 June 2011 the Company acquired a 20% interest in each of Spinafex Uranium Pty Ltd, Diamantina Uranium Pty Ltd and Frontier Uranium Pty Ltd. The Company did not exercise significant influence over any of the associated companies prior to 1 July 2012. The investment in associated companies represents the Company’s proportionate (20%) share of the fair value of the tenement applications held by the associated companies. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 74 of 102 Notes to the Financial Statements NOTE 14: OTHER FINANCIAL ASSETS NON-CURRENT Investments in subsidiaries at cost Accumulated impairment losses Total non-current Note Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ - - - - 11,042,336 11,042,336 (11,042,336) (10,042,336) - 1,000,000 a. Provision For Impairment of Other Financial Assets Non-current other financial assets are assessed for recoverability based on an assessment of the fair value of the investment. A provision for impairment is recognised when there is objective evidence that an individual investment is impaired. These amounts have been included in the income statements. Movement in the provision for impairment of other financial assets are as follows: Opening Balance Charge for the Year Amounts Written Off Closing Balance 1.7.2010 $ $ $ $ 30.6.2011 Parent Entity (i) Non-current investments in subsidiaries 1,000,000 (1,000,000) - - Opening Balance Charge for the Year Amounts Written Off Closing Balance 1.7.2009 $ $ $ $ 30.6.2010 Parent Entity (i) Non-current investments in subsidiaries 2,050,010 (1,050,010) - 1,000,000 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 75 of 102 Notes to the Financial Statements NOTE 15: CONTROLLED ENTITIES a. Controlled Entities Consolidated Country of Incorporation Percentage Owned (%)* 2011 2010 Subsidiaries of Australian Pacific Coal Limited: Area Coal Pty Ltd Ipoh Pacific Resources Pty Ltd Mining Investments One Pty Ltd Mining Investments Two Pty Ltd Mining Investments Three Pty Ltd Mining Investments Four Pty Ltd Mining Investments Six Pty Ltd Kokstad Mining Pty Ltd IPR Operations Pty Ltd Ipoh Pacific Pty Ltd Inter-ironbar Pty Ltd Inter-medteq Pty Ltd Inter-whistle Pty Ltd Eyebionics Pty Ltd Home and Garden Waterwise Pty Ltd Felix Street Pty Ltd Medteq Holdings Pty Ltd Medteq Innovations Pty Ltd SportzWhistle Pty Ltd SW2 Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia * Percentage of voting power is in proportion to ownership 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 50 61.2 61.2 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 50 50 61.2 61.2 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 76 of 102 Notes to the Financial Statements b. Acquisition of Controlled Entities On 21 April 2011, the parent entity acquired a 100% interest in Felix Street Pty Ltd. Felix Street Pty Ltd holds the tenancy agreement for the office premises used by the Group. Note Acquiree’s carrying amount $ Fair value $ Purchase consideration: — Cash Less identifiable assets acquired and liabilities assumed: Cash and cash equivalents Receivables(i) Prepayments Payables Goodwill - 240 37,071 5,753 (45,063) (1,999) 1,999 240 37,071 5,753 (45,063) (1,999) (i) (ii) The directors believe the receivables are fully recoverable and no provision for impairment is required. The goodwill has been impaired to $Nil. No amount of the goodwill is deductible for taxation purposes. Revenue of Felix Street Pty Ltd included in the consolidated revenue of the Group since the acquisition date on 21 April 2011 amounted to $23,723.50. Loss of Felix Street Pty Ltd included in consolidated profit of the Group since the acquisition date amounted to $10,284. Had the results of Felix Street Pty Ltd been consolidated from 1 July 2010, revenue of the consolidated group would have been $345,469 and consolidated loss would have been $2,463,346 for the year ended 30 June 2011. Disposal of Controlled Entities None Controlled Entities with Ownership Interest of 50% or Less The parent entity holds 50% of the ordinary shares of Medteq Holdings Pty Ltd. Australian Pacific Coal Limited is required to make all the financial and operating policy decisions of Medteq Holdings Pty Ltd and to ensure that those policies are consistent with the policies of the economic entity. The parent entity holds 50% of the ordinary shares of Medteq Innovations Pty Ltd. Australian Pacific Coal Limited is required to make all the financial and operating policy decisions of Medteq Innovation Pty Ltd and to ensure that those policies are consistent with the policies of the economic entity. c. d. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 77 of 102 Notes to the Financial Statements NOTE 16: PROPERTY, PLANT AND EQUIPMENT Note Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ LAND AND BUILDINGS Buildings at cost Less accumulated depreciation Total Buildings Total Land and Buildings PLANT AND EQUIPMENT Plant and equipment: At cost Accumulated depreciation Accumulated impairment losses Leasehold improvements At cost Accumulated amortisation Leased plant and equipment Capitalised leased assets Accumulated depreciation Total Plant and Equipment Total Property, Plant and Equipment 148,924 (12,420) 136,504 136,504 148,924 (6,463) 142,461 142,461 - - - - - - - - 255,359 296,188 79,423 (120,788) (128,032) (41,282) - - - 106,831 (70,878) - 134,571 168,156 38,141 35,953 3,861 (879) 2,982 31,194 (7,385) 23,809 317,428 317,428 (171,375) (110,762) 146,053 283,606 206,666 398,631 3,861 (879) 2,982 - - - 31,194 (7,385) 23,809 - - - 41,123 59,762 420,110 541,092 41,123 59,762 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 78 of 102 Notes to the Financial Statements a. Movements in Carrying Amounts Movements in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year Consolidated Group: Balance at 1 July 2009 Additions Disposals Buildings Leasehold Improve- ments Plant and Equipment Leased Plant and Equipment Total $ $ $ $ $ 148,418 26,313 342,449 642,632 1,159,812 - - 3,484 9,452 - 12,936 - (118,543) (286,404) (404,947) Depreciation expense (5,957) (5,988) (65,202) (149,562) (226,709) Balance at 30 June 2010 142,461 23,809 168,156 206,666 541,092 Additions Disposals - - 2,230 (17,930) 17,366 (9,578) - - 19,596 (27,508) Depreciation expense (5,957) (5,127) (41,373) (60,613) (113,070) Balance at 30 June 2011 136,504 2,982 134,571 146,053 420,110 Parent Entity: Balance at 1 July 2009 Additions Disposals Depreciation expense Balance at 30 June 2010 Additions Disposals Depreciation expense Balance at 30 June 2011 Buildings Leasehold Improve- ments Plant and Equipment Leased Plant and Equipment Total $ $ $ $ $ - - - - - - - - - 26,313 3,484 37,498 9,575 (5,988) (10,817) 23,809 2,230 (17,930) 35,953 15,866 (1,846) (5,127) (11,832) 2,982 38,141 - - - - - - - 63,811 13,059 - (16,805) 59,762 18,096 (19,776) (16,959) 41,123 NOTE 17: EXPLORATION EXPENDITURE CAPITALISED Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ Exploration and evaluation phases Total 389,154 1,056,603 389,154 1,056,603 - - - - Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 79 of 102 Notes to the Financial Statements NOTE 18: INTANGIBLE ASSETS Research and Development Cost Accumulated impairment losses Net carrying value Goodwill Cost Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ - - - - - - 315,354 313,355 Accumulated impairment losses (315,354) (313,355) Net carrying value Trademarks and licences Cost - - 6,680,110 6,680,110 Accumulated impairment losses (6,680,110) (6,680,110) Net carrying value Total intangibles - - - - - - - - - - - - - - - - - - - - - - - - Consolidated Group: Balance at 1 July 2009 Additions Disposals Impairment losses Balance at 30 June 2010 Additions Disposals Impairment losses Balance at 30 June 2011 Goodwill Research and Development Trademarks and Licences $ $ $ - 116,129 (366,603) 250,474 - - - - - - - - - - 1,999 - (1,999) - - - (99,800) 99,800 - - - - - Intangible assets, other than goodwill, have finite useful lives. The current amortisation charges for intangible assets are included under depreciation and amortisation expense per the statement of comprehensive income. Goodwill has an infinite life. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 80 of 102 Notes to the Financial Statements NOTE 19: OTHER ASSETS CURRENT Prepayments Total Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ 17,783 17,783 20,575 20,575 17,783 17,783 20,575 20,575 NOTE 20: TRADE AND OTHER PAYABLES Note Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ CURRENT Unsecured liabilities: Trade payables Amounts payable to related parties: — controlled entities 351,890 261,814 294,279 253,239 - - 162,121 36,827 55,117 — key management personnel 79,697 55,117 78,761 related entities Total a. Financial liabilities at amortised cost classified as trade and other payables: Trade and other payables: - total current - total non-current 431,587 316,931 535,161 345,183 431,587 316,931 535,161 345,183 - - - - 431,587 316,931 535,161 345,183 Less annual leave entitlements (873) - (873) - Financial liabilities as trade and other payables 430,714 316.931 534,288 345,183 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 81 of 102 Notes to the Financial Statements NOTE 21: BORROWINGS CURRENT Secured liabilities: Lease liability Mortgage loans Total current borrowings NON-CURRENT Secured liabilities: Lease Liability Total non-current borrowings Total borrowings a. Total current and non-current secured liabilities: Lease Liability Mortgage loans Note Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ 21a 21a 21a 116,679 9,593 126,272 85,213 11,532 96,745 - 9,593 9,593 - 11,532 11,532 - - 98,988 98,988 - - - - 126,272 195,733 9,593 11,532 116,679 184,201 9,593 11,532 126,272 195,733 - 9,593 9,593 - 11,532 11,532 c. Collateral Provided Lease liabilities are secured by the underlying leased assets. Mortgage liabilities are secured by the underlying asset NOTE 22: TAX CURRENT Income Tax Payable NON-CURRENT Consolidated Group Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ - - - - Deferred tax assets not brought to account, the benefits of which will only be realised if the conditions for deductibility set out in Note 1 occur: — temporary differences $2,288,025 (2010: $2,157,697) — tax losses: operating losses $6,877,860 (2010: $6,314,209) — tax losses: capital losses $812,721 (2010: $812,721) Parent Entity Deferred tax assets not brought to account, the benefits of which will only be realised if the conditions for deductibility set out in Note 1 occur: — temporary differences $5,884,292 (2010: $6,663,382) — tax losses: operating losses $4,558,873 (2010: $4,230,579) — tax losses: capital losses $161,674 (2010: $161,674) Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 82 of 102 Notes to the Financial Statements NOTE 23: ISSUED CAPITAL 533,118,926 (2010: 446,793,926) 33,230,500 31,249,418 33,230,500 31,249,418 Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ fully paid ordinary shares a. Ordinary Shares Consolidated Group Parent Entity 2011 No. 2010 No. 2011 No. 2010 No. At the beginning of reporting period 446,793,926 379,964,796 446,793,926 379,964,796 Shares issued during the year — — — — — — — — — — — — 30/11/2009 11/12/2009 14/12/2009 21/12/2009 15/02/2010 15/4/2010 8/06/2010 28/9/2010 8/11/2010 2/12/2010 7/12/2010 24/12/2010 - - - - - - - 10,000,000 4,000,000 10,000,000 2,352,941 7,142,857 16,666,665 16,666,667 - - - - - - - 10,000,000 4,000,000 10,000,000 2,352,941 7,142,857 16,666,665 16,666,667 5,000,000 15,000,000 17,325,000 15,000,000 34,000,000 - - - - - 5,000,000 15,000,000 17,325,000 15,000,000 34,000,000 - - - - - At the end of the reporting period 533,118,926 446,793,926 533,118,926 446,793,926 Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At the shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 83 of 102 Notes to the Financial Statements b. Capital Management Management controls the capital of the Group in order to maintain a good debt to equity ratio, provide the shareholders with adequate returns and ensure that the Group can fund its operations and continue as a going concern. The Group’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. There are no externally imposed capital requirements. Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the Group since the prior year. The gearing ratio’s for the year ended 30 June 2011 and 30 June 2010 are as follows: Note Consolidated Group Parent Entity Total borrowings Less cash and cash equivalents 20,21 9 557,859 512,664 544,754 585,444 828,782 571,857 2011 $ 2010 $ 2011 $ 2010 $ 356,715 510,965 Net debt Total equity Total capital Gearing ratio (27,585) (316,118) (27,103) (154,250) 1,600,979 2,082,597 1,271,253 1,467,650 1,573,394 1,766,479 1,244.150 1,313,400 (2%) (18%) (2%) (12%) Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 84 of 102 Notes to the Financial Statements NOTE 24: CAPITAL AND LEASING COMMITMENTS a. Finance Lease Commitments Payable — minimum lease payments: — — — not later than 12 months between 12 months and 5 years greater than 5 years Minimum lease payments Less future finance charges Present value of minimum lease payments b. Operating Lease Commitments Non-cancellable operating leases contracted for but not capitalised in the financial statements. Payable — minimum lease payments: not later than 12 months between 12 months and 5 years greater than 5 years — — — Total Note Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ 119,018 100,327 - - 102,327 - 119,018 202,654 2,339 17,453 116,679 184,201 - - - - - - - - - - - - 121,956 20,326 - 95,284 80,932 - 121,956 20,326 - 95,284 80,932 - 142,282 176,216 142,282 176,216 The property leases are non-cancellable, with rent payable monthly in advance. Contingent rental provisions within the lease agreements require the minimum lease payments shall be increased annually by the greater of the consumer price index (CPI) or a specified percentage. The leases allow for subletting of all lease areas. Lease A: - expires on 31/08/2012 - specified percentage 4.5% Lease B: - expires on 30/08/2012 - specified percentage 5.0% c. Exploration and Evaluation Expenditure Commitments The consolidated Group has certain obligations to perform exploration work and outlay minimum amounts of money in order to maintain the current rights of tenure over its exploration tenements. These outlays are subject to renegotiation on expiry of the leases or when application for a mining lease is made and have not been provided for in the financial statements. Total expenditure commitments at balance date and not provided for in the financial statements are approximately: Payable: — not later than 12 months — between 12 months and 5 years — greater than 5 years Total Note Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ 511,462 93,483 1,711,607 771,433 281,303 - 2,504.371 864,917 - - - - - - - - Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 85 of 102 Notes to the Financial Statements NOTE 25: CONTINGENT LIABILITIES AND CONTINGENT ASSETS Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ Mantuan Downs bentonite mining operations - 1,000,000 - 1,000,000 On 29 November 2006 Australian Pacific Coal Limited acquired 100% of Ipoh Pacific Resources Pty Ltd and its associated interests in the Mantuan Downs bentonite resource. Pusuant to an alleged understanding between the Company and the vendors of Ipoh Pacific Resources Pty Ltd and subject to shareholder approval a payment of $1,000,000 was to be made to Ipoh Pacific Resources Pty Ltd vendors by way of a further issue of Australian Pacific Coal Limited shares contingent upon Australian Pacific Coal Limited receiving material revenue from its ongoing operation of the Mantuan Downs bentonite mine. The Company has obtained legal advice confirming the Company’s view that this alleged understanding is unenforceable, if not also invalid. Accordingly, no payment is required and the contingent liability is no longer recognised. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 86 of 102 Notes to the Financial Statements NOTE 26: OPERATING SEGMENTS Segment Information Identification of reportable segments The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The Group is managed primarily on the basis of resource category and technology investments. Operating segments are therefore determined on the same basis. Reportable segments disclosed are based on aggregating operating segments where the segments are considered to have similar economic characteristics. Types of products and services by segment i. Mining exploration and evaluation The mining exploration and evaluation segment seeks to identify prospective resource areas, secure tenure over the relevant tenements and manage the exploration and evaluation process. ii. Technology investments Technology investment operations are largely dormant with focus being maintained on retain the rights to secured technologies. iii. Bentonite Mining The bentonite mining segment mines for bentonite. Basis of accounting for purposes of reporting by operating segments a. Accounting policies adopted Unless stated otherwise, all amounts reported to the Board of Directors, being the chief decision maker with respect to operating segments, are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group. b. Inter-segment transactions An internally determined transfer price is set for all inter-segment sales. This price is based on what would be realised in the event the sale was made to an external party at arm’s length. All such transactions are eliminated on consolidation of the Group’s financial statements. Corporate charges are allocated to reporting segments based on the segments’ overall proportion of direct operating costs within the Group. The Board of Directors believes this is representative of likely consumption of head office expenditure that should be used in assessing segment performance and cost recoveries. Inter-segment loans payable and receivable are initially recognised at the consideration received/to be received net of transaction costs. If inter-segment loans receivable and payable are not on commercial terms, these are not adjusted to fair value based on market interest rates. This policy represents a departure from that applied to the statutory financial statements. c. Segment assets Where an asset is used across multiple segments, the asset is allocated to that segment that receives majority economic In the majority of instances, segment assets are clearly identifiable on the basis of their nature and value from that asset. physical location. d. Segment liabilities Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations of the segment. Borrowings and tax liabilities are generally considered to relate to the Group as a whole and are not allocated. Segment liabilities include trade and other payables and certain direct borrowings. e. Unallocated items The following items of revenue, expenses, assets and liabilities are not allocated to operating segments as they are not considered part of the core operations of any segment: — Net gains on disposal of available-for-sale investments — Impairment of assets and other non-recurring items of revenue or expense — Income tax expense — Deferred tax assets and liabilities — Current tax liabilities — Other financial liabilities — Intangible assets — Discontinuing operations — Retirement benefit obligations Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 87 of 102 Notes to the Financial Statements i. Segment performance 2011 Revenue External sales Interest revenue Other revenue Total segment revenue Total group revenue Segment net profit from continuing operations before tax Net profit from continuing operations before tax Amounts included in segment result and reviewed by the board: — finance charges — depreciation and amortisation — impairment of exploration and evaluation 2010 Revenue External sales Inter-segment sales Interest revenue Government subsidies received Other revenue Total segment revenue Total group revenue Exploration Bentonite Mining Technology All Other Segments Total $ $ $ $ $ - - 250,000 250,000 2,584 3,873 - 6,457 - - - - - 30,929 - 30,929 2,584 34,802 250,000 287,386 287,386 35,861 (1,148,075) (2,609) (1,347,877) (2,462,700) - - 74,672 14,749 96,111 5,353 - - - - - - 29,495 - 10,693 8,772 - 48,960 2,462,700 17,395 113,070 80,025 29,495 - 18,727 8,772 5,000 61,994 61,994 - - - - - - - - - 2,646 16,959 - - - 8,034 - 5,000 13,034 Segment net profit before tax 1,233 (100,847) (2,814) (1,167,184) (1,269,613) Reconciliation of segment result to group net profit/loss before tax i. Amounts not included in segment result but reviewed by Board — and equipment Impairment of property plant ii. Unallocated items — Finance costs — Other Net profit before tax from continuing operations (1,710,807) (2,576) (943,932) (3,926,928) Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 88 of 102 Notes to the Financial Statements ii. Segment assets 2011 Segment assets Exploration Bentonite Mining Technology All Other Segments Total $ $ $ $ $ Segment asset increases for the period — capital expenditure — acquisitions 332,551 110,000 442,551 Included in segment assets are: Capitalised exploration and evaluation 389,154 - - - - Property, plant and equipment - 377,487 Investments accounted for using the equity method Other assets Segment assets Total group assets 2010 Segment assets 110,000 211,592 710,746 - 26,464 403,951 - - - - - - 19,596 1,999 21,595 - 42,623 - 352,147 111,999 464,146 389,154 420,110 110,000 36,500 36,500 965,018 1,239,574 1,007,641 2,158,838 2,158,838 Segment asset increases for the period — capital expenditure — acquisitions 56,603 56,733 111,336 - - - Included in segment assets are: Capitalised exploration and evaluation 111,336 1,000,000 Property, plant and equipment - 481,329 - - - - - - - - - - Reconciliation of segment assets to group assets Unallocated assets: Total group assets iii. Segment liabilities 2011 Segment liabilities Reconciliation of segment liabilities to group liabilities Other financial liabilities Total group liabilities 2010 Segment liabilities Reconciliation of segment liabilities to group liabilities Other financial liabilities Total group liabilities Exploration Bentonite Mining Technology All Other Segments $ $ $ $ $ 43,650 118,412 - 195,733 - - 395,797 557,859 - 557,859 - 195,733 316,931 512,664 56,603 56,733 111,336 1,111,336 481,329 998,596 2,591,261 Total Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 89 of 102 Notes to the Financial Statements NOTE 27: CASH FLOW INFORMATION a. Reconciliation of Cash Flow from Operations with Profit after Income Tax Profit/(Loss) after income tax Non-cash flows in profit Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ (2,462,700) (3,968,416) (2,177,479) (4,406,375) Depreciation and amortisation Net loss/(gain) on disposal of property, plant and equipment 113,070 226,709 27,508 (68,860) 16,959 19,775 16,805 - Impairment loss Capital raising costs Other 1,082,024 50,000 841,884 3,224,820 (66,415) (18,783) (66,415) (18,783) 1,960 (46,087) 1,810 1,276 Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries (Increase)/decrease in trade and term receivables (9,240) 178,575 (205,167) (Increase)/decrease in other assets (Increase)/decrease in inventories (Increase)/decrease in exploration and evaluation expenditure 2,792 - 21,298 67,707 (412,576) 2,277,504 (Increase)/decrease in other financial assets - (59,999) 2,792 - - - 71,121 21,298 - - - Increase/(decrease) in trade payables and accruals 113,783 184,198 189,105 186,859 Increase/(decrease) in provisions 873 - 873 - Cash flows from operations (1,608,921) (1,156,154) (1,375,864) (902,979) b. Acquisition of Entities During the year a 100% ownership interest in Felix Street Pty Ltd was acquired. Details of this transaction are: Purchase consideration Consisting of: — Cash consideration Total consideration Assets and liabilities held at acquisition date: Cash and cash equivalents Receivables Prepayments Payables Goodwill on consolidation Information regarding the acquisitions, including the profit since acquisition, is disclosed in Note 15. - - - 240 37,071 5,753 (45,063) (1,999) 1,999 - - - - 240 37,071 5,753 (45,063) (1,999) 1,999 - Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 90 of 102 Notes to the Financial Statements b. Non-cash Financing and Investing Activites i. Share issue: 22,325,000 ordinary shares were issued for a total consideration of $517,498. The company has funded the purchase of shares issued in accordance with the terms of the Company’s Officers, Executives, Consultants and Employee Share Plan by way of limited-recourse loans repayable from future dividends or out of proceeds when the allotted shares are sold. NOTE 28: EVENTS AFTER THE REPORTING PERIOD On 22nd August 2011 the Company announced that its 100% owned subsidiary Area Coal Pty Ltd (Area Coal) had executed an Exploration, Option and Joint Venture Agreement (“the agreement”) with Rio Tinto Exploration Pty Ltd (RTX) covering four of its Mt Hillalong tenements. The Group has received an initial cash payment of $2,300,000 in accordance with the agreement. In addition to the cash payment the agreement terms include that: title to EPC 1773 and EPCs 1867 and 1645 (if granted) will be transferred to RTX; RTX will sole fund and manage an exploration program for EPC 1824 with a minimum expenditure of $700,000 within the first 24 months of gaining access to the tenement; RTX has an option to acquire a 75% interest in EPC 1824 by making a defined payment to Area Coal at any time within the first 24 months of the exploration program. In the event of RTX’s exercise of this option, the parties will form an unincorporated joint venture in which Area Coal would retain a 25% free carry interest; if RTX exercises the option to acquire an interest in EPC 1824, Area Coal would then hold a put option (exercisable on the date that is 12 months after the formation of the joint venture) enabling it to sell its 25% interest in the joint venture to RTX for an additional defined payment to Area Coal; if Area Coal does not exercise the above put option, it will have a further put option, exercisable within 180 days of the joint venture management committee commissioning a feasibility study, to sell its 25% interest in EPC1824 to RTX for consideration calculated on the basis of resource tonnage; if Area Coal does not exercise its second put option it will become liable for 25% of all future development and operational costs of the joint venture; and should RTX not exercise its option to acquire the 75% interest in the project, Area Coal will retain its existing 100% ownership of EPC 1824 and can reacquire the other three Mt Hillalong tenements originally transferred to RTX under the agreement. No other matters or circumstances have risen since the end of the financial year which significantly affected, or could significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. No matters or circumstances that have significantly affected, or may affect, the company’s operations in future financial years, or the company’s state of affairs during future financial years occurred after balance date. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 91 of 102 Notes to the Financial Statements NOTE 29: RELATED PARTY TRANSACTIONS a. The Group’s main related parties are as follows: i. ii. Entities exercising control over the group: The ultimate parent entity, which exercises control over the Group, is Australian Pacific Coal Limited. Key management personnel: Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity, are considered Key Management Personnel (KMP). iii. Entities subject to significant influence by the Group: An entity which has the power to participate in the financial and operating policy decisions of an entity, but does not have control over those policies, is an entity which holds significant influence. Significant influence may be gained by share ownership, statute or agreement. For details of interests held in associated companies, refer to Note 13: Associated Companies. iv. Other related parties: Other related parties include entities controlled by the ultimate parent entity and entities over which key management personnel exercise significant influence. b. Transactions with related parties: Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. The following transactions occurred with related parties: Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ 23,755 - 23,755 - i. Other related parties Rent paid to Felix Street Pty Ltd, a subsidiary of the parent entity. ii.Key management personnel: Rent paid to Felix Street Pty Ltd, a company that was previously owned by Mr Paul Byrne. - Rental amounts paid (prior to 22 April 2011) 107,723 9,810 107,723 9,810 c. Amounts outstanding from related parties: Trade and other receivables: Unsecured loans are made to the parent entity, subsidiaries, directors, key management personnel and other related parties. The following transactions occurred with related parties: Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 92 of 102 Notes to the Financial Statements i. Loans to parent entity: Repayment terms are not set for subsidiary loans to the parent entity. Interest is not payable. Balance at beginning of year Loans advanced Loan repayment received Balance at end of year ii.Key management personnel: The office premises occupied by Australian Pacific Coal Limited are sub-let from Felix Street Pty Ltd a company previously owned by Mr Paul Byrne. On 21 April 2011 Australian Pacific Coal Limited acquired 100% of the equity in Felix Street Pty Ltd from Paul Byrne for $Nil consideration. Prior to the acquisition Australian Pacific Coal Limited provided loan funds to enable the company to meet its short term working capital requirements. These loan funds are offset against rent amounts payable. Interest is not payable. Balance at beginning of year Loans advanced Loan repayment received Balance at end of year Interest not charged (on an arms-length basis) The company issued 20,325,000 ordinary shares to KMP in accordance with the Company’s Officers, Executives, Consultants and Employee Share Plan. The terms of the plan enabled the company to fund the purchase by way of limited-recourse loans totalling $478,898 repayable from future dividends or out of proceeds when the allotted shares are sold. Collateral is held by way of security over the shares issued. The shares are subject to a trading lock preventing disposal of the shares prior to the respective holders making suitable arrangements for repayment of any outstanding amounts payable on the associated loans. Interest is not payable. Balance at beginning of year Loans advanced Loan repayment received Balance at end of year Interest not charged (on an arms-length basis) The number of KMP who have received loans during the period The highest level of indebtedness during the reporting period for each KMP who received loans: Mr John Bovard Mr Peter Ziegler Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ 36,827 40,788 219,613 (94,319) 162,121 - (3,961) 36,827 - - - - - 12,186 12,186 56,250 22,958 (68,436) (10,772) - - - 478,898 (28,950) 449,948 20,169 5 60,750 121,500 12,186 - - - - - - - - - - - - - - 478,898 (28,950) 449,948 20,169 5 60,750 121,500 - - - - - 22,958 (10,772) 12,186 - - - - - - - - - Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 93 of 102 Notes to the Financial Statements Consolidated Group Parent Entity Mr John Laurie Mr Paul Byrne Mr Kevin Mischewski 2010 $ 2011 $ 72,900 165,848 57,900 KMP Loans exceeding $100,000: Included in the loan balances above are loans to Mr Paul Byrne (Director) and a loan to Felix Street Pty Ltd which, prior to 22 April, was a related entity associated with Mr Paul Byrne. Details of the loans are outlined below: Balance at beginning of year 12,186 2010 $ 2011 $ 72,900 165,848 57,900 12,186 - - - - - - - - Loans advanced Loan repayment received Balance at end of year 222,098 22,958 222,098 22,958 (68,436) (10,772) (68,436) (10,772) 165,848 12,186 165,848 12,186 Interest not charged (on an arms-length basis) 6,785 Included in the loan balances above is a loan to Mr Peter Ziegler (Director) which represents a loan to Wellton Holdings Pty Ltd, a related entity associated with Mr Ziegler. Details of the loan are outlined below: Balance at beginning of year Loans advanced Loan repayment received Balance at end of year Interest not charged (on an arms-length basis) - 121,500 - 121,500 4,971 - - - - - - 6,785 - 121,500 - 121,500 4,971 - - - - - - d. Amounts payable to related parties: Trade and other payables: Unsecured, at-call loans are provided by the parent entity, subsidiaries, directors, key management personnel and other related parties. Interest is not payable. Consolidated Group Parent Entity 2011 $ 2010 $ 2011 $ 2010 $ i. Loans from parent entity Balance at beginning of year 138,995 2,151,968 138,995 2,151,968 Loans advanced Loan repayment received Provision for impairment Balance at end of year ii.Loans from subsidiaries of the parent entity Balance at beginning of year Loans advanced Loan repayment received Provision for impairment Balance at end of year 681,703 858,895 681,703 858,895 (391,321) (697,058) (391,321) (697,058) 158,116 (2,174,810) 158,116 (2,174,810) 587,493 138,995 587,493 138,995 36,827 40,788 36,827 40,788 219,613 (94,319) - 219,613 (3,961) (94,319) 162,121 36,827 162,121 - (3,961) 36,827 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 94 of 102 Notes to the Financial Statements NOTE 30: FINANCIAL RISK MANAGEMENT The Group’s financial instruments consist mainly of deposits with banks, short-term investments, accounts receivable and payable, loans to and from subsidiaries and leases. Financial Risk Management Policies The Board of Directors, amongst other issues, monitor and manage financial risk exposures of the Group. The Board monitors the Group’s financial risk management policies and exposures and approves financial transactions within the scope of its authority. It also reviews the effectiveness of internal controls relating to identified areas of risk. The Board’s overall risk management strategy seeks to assist the consolidated group in meeting its financial targets, while minimising potential adverse effects on financial performance. Its functions include the review of credit risk policies and future cash flow requirements. Specific Financial Risk Exposures and Management The main risks the Group is exposed to through its financial instruments are credit risk, liquidity risk and market risk consisting of interest rate risk, and equity price risk a. Credit risk Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of contract obligations that could lead to a financial loss to the Group. Credit risk is managed through the maintenance of procedures (such procedures include the utilisation of systems for the approval, granting and renewal of credit limits, regular monitoring of exposures against such limits and monitoring of the financial stability of significant customers and counterparties), ensuring to the extent possible, that customers and counterparties to transactions are of sound credit worthiness. Such monitoring is used in assessing receivables for impairment. Depending on the division within the Group, credit terms are generally 14 to 30 days from the invoice date. Risk is also minimised through investing surplus funds in financial institutions that maintain a high credit rating, or in entities that the Board has otherwise cleared as being financially sound. Credit Risk Exposures The maximum exposure to credit risk by class of recognised financial assets at balance date, excluding the value of any collateral or other security held, is equivalent to the carrying value and classification of those financial assets (net of any provisions) as presented in the statement of financial position. Credit risk also arises through the provision of financial guarantees, as approved at Board level, given to parties securing the liabilities. The Group has no significant concentration of credit risk with any single counterparty or group of counterparties. Trade and other receivables that are neither past due or impaired are considered to be of high credit quality. Aggregates of such amounts are as detailed in Note 11.b. Credit risk related to balances with banks and other financial institutions is managed by management in accordance with approved Board policy. The counterparty to these financial assets are large financial insitutions with strong credit ratings. The credit quality of these financial assets that are neither past due nor impaired is considered strong. b. Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms: preparing forward looking cash flow analysis in relation to its operational, investing and financing activities; obtaining funding from a variety of sources; maintaining a reputable credit profile; managing credit risk related to financial assets; only investing surplus cash with major financial institutions; and comparing the maturity profile of financial liabilities with the realisation profile of financial assets. The contractual maturity of financial liabilities is set out in detail in Note 20. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 95 of 102 Notes to the Financial Statements c. Market Risk Market risk arises from the use of interest bearing financial, tradeable and foreign currency instruments. It is the risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) or other market factors (other price risk). i. Interest rate risk Exposure to interest rate risk arises on financial assets and financial liabilities recognised at the end of the reporting period whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The Group is exposed to earnings volatility on floating rate instruments and is limited to its cash and cash equivalent assets. As at 30 June 2011, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows: Post Tax Profit Consolidated Group Higher/(Lower) Parent Entity Higher/(Lower) 2011 2010 2011 2010 +1.00% (100 basis points) -1.00% (100 basis points) 8,701 (8,701) 4,682 (4,682) 7,732 (7,732) 2,009 (2009) Equity Consolidated Group Higher/(Lower) Parent Entity Higher/(Lower) 2011 2010 2011 2010 +1.00% (100 basis points) -1.00% (100 basis points) 8,701 (8,701) 4,682 (4,682) 7,732 (7,732) 2,009 (2009) d. Fair Value Estimation The fair values of financial assets and financial liabilities are determined as follows: the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis. The net fair value of financial assets and liabilities of the Group approximate their carrying amounts. The Group has no financial assets and liabilities where the carrying amount exceeds the net fair value at balance date. The aggregate net fair values and carrying amounts of financial assets and financial liabilities are disclosed in the statement of financial position and notes to the financial statements. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 96 of 102 Notes to the Financial Statements DIRECTORS’ DECLARATION The directors of the company declare that: 1. the financial statements and notes, as set out on pages 45 to 96, are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards; which, as stated in accounting policy Note 1 to the financial statements, constitutes explicit and unreserved compliance with International Financial Reporting Standards (IFRS); and b. give a true and fair view of the financial position as at 30 June 2011 and of the performance for the year ended on that date of the company and consolidated group; 2. the Chief Executive Officer and Chief Finance Officer have each declared that: a. b. the financial records of the company for the financial year have been properly maintained in accordance with s 286 of the Corporations Act 2001; the financial statements and notes for the financial year comply with the Accounting Standards; and c. the financial statements and notes for the financial year give a true and fair view; 3. in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. John Bovard Chairman Dated this 2nd day of October 2011 Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 97 of 102 Directors’ Declaration PARTNERS Linda E. Timms Anthony C. Bryen Sara J. Crevillén James Theologidis Geoffrey J. Read ASSOCIATE Susan J. Mortimer INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSTRALIAN PACIFIC COAL LIMITED ReportontheFinancialReport We have audited the accompanying financial report of Australian Pacific Coal Limited (the company) and Australian Pacific Coal Limited and Controlled Entities (the consolidated entity) which comprises the statement of financial position as at 30 June 2011, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’responsibilityfortheFinancialReport The directors of the company are responsible for the preparation and fair presentation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the CorporationsAct2001. And for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the Directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards (IFRS). Auditor’sresponsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Annual Financial Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 98 of 102 Independent Auditor’s Report to Members of Australian Pacific Coal Limited SOTHERTONS BRISBANE PARTNERSHIP 8TH Floor, 10 Market Street, Brisbane Qld 4000 GPO Box 1568, Brisbane, Qld 4001 ABN 52 540 323 092 Liability limited by scheme approved under Professional Standards Legislation Phone: (07) 3221 1877 Fax: (07) 3221 8261 Email: sothbris@sothertons.com.au Website: www.sothertons.com.au Sothertons: An association of independent accounting firms throughout Australasia Independence In conducting our audit, we have complied with the independence requirements of the CorporationsAct2001. Auditor’sOpinion In our opinion: (a) the financial report of Australian Pacific Coal Limited and Australian Pacific Coal Limited and Controlled Entities is in accordance with the CorporationsAct2001, including: (i) giving a true and fair view of the company and consolidated entity’s financial position as at 30 June 2011 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the CorporationsRegulations2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Inherent Uncertainty Without qualification to the statement above, attention is drawn to the following matters: ContinuationasagoingConcern As described in Note 1 “Going Concern” there is significant uncertainty whether the company and the consolidated entity will be able to continue as a going concern and therefore whether it will be able to pay its debts as and when they fall due and realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. The financial report of the company and the consolidated entity does not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the company and the consolidated entity not continue as a going concern. Report on the Remuneration Report We have audited the Remuneration Report included in pages 32 to 35 of the directors’ report for the year ended 30 June 2011. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with s300A of the CorporationsAct2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’sOpinion In our opinion the Remuneration Report of Australian Pacific Coal Limited for the year ended 30 June 2011, complies with s300A of the CorporationsAct2001. Dated at Brisbane this second day of October 2011 Annual Financial Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 99 of 102 Independent Auditor’s Report to Members of Australian Pacific Coal Limited ASX ADDITIONAL INFORMATION Additional information required by the Australian Stock Exchange Limited and not shown elsewhere in this report is as follows. This information is current as at 30 September 2011. 1. Shareholding a. Distribution of Shareholders Category (size of holding) 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over Total Number Number of holders of shares held 163 108 126 791 614 26,057 383,549 1,017,413 40,286,739 491,405,168 1,802 533,118,926 b. c. The number of shareholdings held in less than a marketable parcel of14,286 shares ($0.035 on 30 September 2011) is 479 and they hold 2,451,306 shares. The names of the substantial shareholders listed in the holding company’s register as at 30 September 2011 are: Shareholder Elizabeth Anne Byrne Henderson Paul James Byrne d. Voting Rights Number Shares 82,127,374 52,913,944 The voting rights attached to each class of equity security are as follows: Ordinary shares: — Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. Unlisted Options: — No unlisted option is entitled to any vote prior to its conversion to an ordinary share at which time the voting rights attached to the issued ordinary share applies. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 100 of 102 ASX Additional Information ASX ADDITIONAL INFORMATION e. 20 Largest Shareholders — Ordinary Shares Name 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Elizabeth Anne Byrne Henderson Mr John Boyd Reid Mr Christopher Paul Dredge Westpearl Pty Ltd Mr Paul Byrne Albion Ballymore Pty Ltd Moray Holdings Pty Ltd ITR Investments Pty Ltd Mr Graeme Wood Mr Peter Graham Wells Paul Byrne B J Byrne Nominees Pty Ltd Mr Harry John Petricevic & Mrs Merrilyn Dawn Petricevic Mr Heath Barry Bourke 15. Wellton Holdings Pty Ltd 16. 17. 18. B J Byrne Nominees Pty Ltd Demycoal Pty Ltd Mrs Emma Morrison 19. Wellton Holdings Pty Ltd 20. Gordon Holdings Qld Pty Ltd Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 28,506,553 21,453,591 21,343,547 20,000,000 19,835,242 15,900,057 15,608,333 13,309,618 10,000,000 8,500,000 6,825,000 6,483,333 5,554,461 5,500,000 5,233,333 5,125,000 5,000,000 5,000,000 5,000,000 4,500,000 6.08% 4.57% 4.55% 4.26% 4.23% 3.39% 3.33% 2.84% 2.13% 1.81% 1.45% 1.38% 1.18% 1.175 1.12% 1.09% 1.07% 1.07% 1.07% 0.96% 228,677,978 48.75% 2. Stock Exchange Listing Quotation has been granted for all the ordinary shares of the company on all Member Exchanges of the Australian Stock Exchange Limited. Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 101 of 102 ASX Additional Information CORPORATE DIRECTORY DIRECTORS John Graham Bovard Paul James Byrne Peter Alexander Ziegler Paul Anthony Ingram LAWYERS Hopgood Ganim Level 8, Waterfront Place 1 Eagle Street Brisbane Q 4000 COMPANY SECRETARY Kevin Mischewski AUDITORS Sothertons Chartered Accountants 10 Market Street Brisbane Q 4000 BANKERS National Australia Bank Limited 100 Creek Street Brisbane Q 4000 SHARE REGISTRY Link Market Services Limited Level 19, 324 Queen Street Brisbane Q 4000 REGISTERED OFFICE Australian Pacific Coal Limited Level 7, 10 Felix Street Brisbane Q 4000 Phone: (07) 3221 0679 Fax: (07) 3252 2111 www.aqcltd.com Annual Report Year Ending 30 June 2011 Australian Pacific Coal Limited Page 102 of 102 Corporate Directory