ABN: 49 089 206 986 ASX Code: AQC AnnuAl RepoRt 2013 TABLE OF CONTENTS CEO’s Report Information on Australian Pacific Coal Review of Operations Annual Financial Report - Directors’ Report - Remuneration Report - Auditor’s Independence Declaration - Income Statement - Statement of Comprehensive Income - Statement of Financial Position - Statement of Changes in Equity - Statement of Cash Flow - Notes to the Financial Statements - Directors’ Declaration - Independent Audit Report Corporate Governance Statement ASX Additional Information Corporate Directory i ii iv 1 9 13 14 15 16 17 18 19 57 58 60 68 70 Annual Report Australian Pacific Coal Limited TOC Year Ending 30 June 2013 ABN 49 089 206 986 CHIEF EXECUTIVE OFFICER’S REPORT Bowen Basin explorer focused on acquiring developing and value adding metallurgical coal prospects. The last twelve months has seen your company reach a number of significant milestones towards development of its coal resources. Adding real value to your company’s coal project holdings. Our primary exploration focus has been on the company’s Cooroorah tenement within AQC’s 100% owned Blackwater Project. The exploration drilling program undertaken has advanced the tenements resource status from inferred to indicated and led to the grant of a mineral development licence covering the tenement. MDL 453 was granted on 22 July 2013. Further progress is now being made through an early stage scoping study which will set the guidelines for development of the project and provide supporting information to potential joint venture or development partners. We are also pleased to report the two year commitment period for the Company’s Mt Hillalong exploration joint venture with Rio Tinto Exploration has commenced. Rio have now completed the first phase of their drilling program with positive results showing coal intersections at depths suitable for large scale open cut mining operations. The company’s exploration is focused on its core projects, primarily the Blackwater projects. Our success in securing strategic holdings of coal tenements close to existing infrastructure has provided opportunities for the company to realise value from its second tier projects through direct sale. During the year we were able to realise value for shareholders through the sale of two of these second tier tenements EPC 2157 and EPC 1548. Our value-add strategy is ongoing across our portfolio of coal tenements, and while at times progress may appear to be gradual, we are confident that the Company’s strategy of proving up valuable coal resources will deliver robust returns to shareholder in the long-term. The medium-to-long term outlook for both thermal and metallurgical coal remains buoyant, particularly with the expected sustained demand from Asian markets, and this bolsters our confidence in the Company’s strategy. AQC continues to seek expressions of interests in the Company’s extensive and prospective coal tenement holdings on an ongoing basis to add value for shareholders where appropriate. Our existing Joint Ventures have proven successful, providing immediate cash flow to AQC while establishing very encouraging progress to date, funded by our partners – namely Cuesta Coal Limited subsidiary Blackwood Resources Pty Ltd for the Blackwood Joint Venture and Rio Tinto Exploration Pty Ltd for the Mt Hillalong Exploration, Option and Joint Agreement (EOJV). For the remainder of 2013 AQC’s near-term exploration focus will continue to target coal resources at the Blackwater Project, as the Company strongly believes that there are realistic opportunities for the rapid commercialisation of the Blackwater asset. The forward drilling program also comprises targets across the project at Dingo and Carlo Creek prospects which is consistent with our core strength of adding value to early stage coal exploration prospects. I would like to acknowledge the dedication and efforts of the Board members and management throughout the year, and thank all our staff and contractors for their diligent efforts. Finally, I would like to thank you – our shareholders – for your ongoing support of the Company over the past 12 months. I look forward to reporting to you over the next year with drilling results and additional value-adding opportunities for your Company. Paul Byrne Chief Executive Officer Annual Report Australian Pacific Coal Limited Page i Year Ending 30 June 2013 ABN 49 089 206 986 Chief Executive Officer’s Report INFORMATION ON AUSTRALIAN PACIFIC COAL Australian Pacific Coal Limited (AQC) is an ASX listed junior coal explorer focused on the Bowen Basin, Queensland. Through a series of acquisitions, AQC has positioned itself with both metallurgical and for underground and open cut mining. thermal coal projects potentially suited 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. from Following on 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 Peter Ziegler BCom (Hons), LLB (Hons), MFM, FCPA, CTA, ACA Non-executive 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. 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. Mr Paul Byrne Managing Director, Chief Executive Officer 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. Page ii Australian Pacific Coal Limited Information on Australian Pacific Coal ABN 49 089 206 986 Annual Report Year Ending 30 June 2013 INFORMATION ON AUSTRALIAN PACIFIC COAL BOARD OF DIRECTORS - continued Mr Paul Ingram B.AppSc.(Geology), AusIMM Non-executive Director 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 the Group as an emerging coal company in Queensland. Director since 17 March 2011. Mr Ingram is currently a director of Consolidated Global Investments Limited, A-Cap Resources Ltd and Impact Minerals Limited. Mr Paul Ryan Non-executive Director Mr. Ryan is a businessman with over twenty years’ experience as owner and manager of large scale privately held companies. He has been involved in operations management at the Manimbah gold mine, contract mining, and transport and logistics operations. Mr Ryan brings to the Board of AQC an extensive network of professional contacts which, combined with relevant industry experience, are of significant benefit to the Group as an emerging coal company in Queensland. Director since 29 November 2012. KEY COMPANY DATA Listing: Australian Securities Exchange (ASX:AQC) – Listed in 1999 Shares on Issue: 662,695,879 AQC ORD as at 30 June 2013 (approximately 1,700 shareholders) Options: Nil outstanding Market Capitalisation: $6.63 million as at 30 June 2013 Cash at bank: $497,865 as at 30 June 2013 Quarterly Share Price Activity: June 2013 March 2013 December 2012 September 2012 High $0.020 $0.020 $0.027 $0.027 Low $0.010 $0.011 $0.017 $0.013 Last $0.010 $0.012 $0.020 $0.018 Annual Report Australian Pacific Coal Limited Page iii Year Ending 30 June 2013 ABN 49 089 206 986 Information on Australian Pacific Coal REVIEW OF OPERATIONS COAL EXPLORATION PROJECTS Australian Pacific Coal Limited is an Australian public company focusing on acquiring and developing coking, PCI and thermal coal deposits in Queensland. The Company now owns interests in 33 coal tenements comprising 1 granted mineral development licence, 21 granted coal exploration permits, and 10 coal exploration applications tow of which are currently proceeding to grant. The Company has joint venture agreements in place with major miner Rio Tinto and Cuesta Coal. Most of the coal 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. The Company’s coal tenements cover a combined area of more than 1,000 km2. 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 is focused on the most prospective targets. Priority targets include: EPC 1827/MDL453 ‘Cooroorah’ in the Blackwater project – an Inferred resource of 107Mt measured in accordance with the JORC Code. Potential for secondary shallower open cut coal in the north. EPC 1859 ‘Dingo’ in the Blackwater project – shallow coal intercepts from previous drilling. Requires further interpretation and drilling to elevate to a resource. EPC 1995 ‘Carlo Creek’ in the Blackwater project – a geological target with prospectivity for shallow German Creek and Fort Cooper formation seams. 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 42 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. Page iv Review of Operations Australian Pacific Coal Limited ABN 49 089 206 986 Annual Report Year Ending 30 June 2013 REVIEW OF OPERATIONS Project Areas The Company’s current exploration activities are focused on it’s 100% owned Blackwater projects. Joint venture partners Rio Tinto Exploration Pty Ltd and Cuesta Coal Limited’s 100% owned subsidiary Blackwood Resources Pty Ltd are currently carrying out exploration of the JV project areas. Annual Report Australian Pacific Coal Limited Year Ending 30 June 2013 ABN 49 089 206 986 Page v Review of Operations REVIEW OF OPERATIONS Blackwater (AQC 100%) COOROORAH (EPC 1827, MDL 453) • 107 million tonne Indicated & Inferred JORC Resource • Mineral Development Licence (MDL453) application proceeding to grant. • Targeting PCI and semi-soft coking coal • Located near rail network and developed infrastructure DINGO (EPC 1859) • 30 km east of operating Blackwater and Curragh mines, targeting Rangal Coal Measures • Infill drilling program proposed to elevate project to a JORC Resource • Located on rail network CARLO CREEK (EPC 1995) • Historical drill holes and seismic sections identified two potential coal target sequences * Statement of resource quantity is in accordance with JORC Code guidelines Page vi Review of Operations Australian Pacific Coal Limited ABN 49 089 206 986 Annual Report Year Ending 30 June 2013 REVIEW OF OPERATIONS Exploration & Joint Venture Agreements Rio Tinto Exploration Pty Ltd – EPC 1824 “Mt Hillalong” EPC1824 is located in the heart of the Bowen Basin in close proximity to Rio Tinto’s existing Hail Creek mine (see map below). The Company’s Exploration, Option and Joint Venture Agreement with Rio Tinto Exploration Pty Ltd provides the Company with a number of options in the event that Rio Tinto exercises its option to acquire a 75% interest in the tenement. Historical exploration conducted for the CRA Coal Group identified outcropping coal in the northern part of the tenement. The RTX exploration program will expand on their knowledge of the tenement and is focused on identifying a resource target in the central/southern areas of the tenement. Note. This map does not display tenements held by other explorers. RIO TINTO EXPLORATION PTY LTD - EXPLORATION OTION AND JOINT VENTURE AGREEMENT TENEMENTS EPC Name Holder EPC 1824 Mount Hillalong Area Coal Pty Ltd EPC 1645 Mount Hess Area Coal Pty Ltd (to be transferred to Rio Tinto Exploration Pty Ltd on grant) EPC 1773 Kemmis Creek Rio Tinto Exploration Pty Ltd EPC 1867 Mount Hess West Rio Tinto Exploration Pty Ltd Status Granted Application Granted Granted Area (km2) Location 48 70 10 13 6km E of Glenden 20km SE of Glenden 32km SE of Glenden 16km SE of Glenden Annual Report Australian Pacific Coal Limited Year Ending 30 June 2013 ABN 49 089 206 986 Page vii Review of Operations REVIEW OF OPERATIONS Rio Tinto Exploration (RTX) have provided the following report on the initial outcomes and progress of their exploration program for AQC and Rio Tinto Exploration’s Mt Hillalong JV project EPC1824. “Rio Tinto Exploration has completed its 2013 exploration program on the Hillalong Project (EPC1824). Two open holes and three 2D seismic lines were completed during September 2013 to assess the potential for Rangal Coal measures. Drill results: • • HILL0002 intersected 12m net coal between 320m and 460m depth from the Leichhardt, Vermont and Girrah Seams. HILL0003 intersected 11m net coal between 155m and 185m depth from the Leichhardt and Vermont Seams. Coal chip samples from the two holes have been submitted to the coal laboratories for petrography analysis and reflectance (RoMax) determination. Final processing and interpretation of the seismic data has not yet been completed, however it confirms Rangal Coal Measures are present and continuous within EPC1824. Rio Tinto Exploration is planning to return to the project next field season to follow up this work.” THE MT HILLALONG EXPLORATION, OPTION AND JOINT VENTURE AGREEMENT Australian Pacific Coal Limited through its 100% owned subsidiary Area Coal Pty Ltd (Area Coal) has an Exploration Option and Joint Venture Agreement (EOJVA) with Rio Tinto Exploration Pty Limited (RTX). This EOJVA sets out terms of an exploration agreement and RTX’s potential acquisition or joint venture of the Company’s Mt Hillalong project. The key terms of the EOJVA are: • An initial payment to the Company of $2.3 million was received in August 2011. • Area Coal transferred title to EPC 1773 and 1867 to RTX. EPC 1645 is to be transferred to RTX if granted to Area Coal. • RTX must sole fund and manage an exploration program with a minimum expenditure of $700,000 within the first 24 months of gaining access to explore EPC 1824. The 24 month term commenced on 23 August 2013 and expires on 23 August 2015. • 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 (option). In the event of RTX’s exercise of this option, the parties will form an unincorporated joint venture, in which Area Coal will retain a 25% free carried 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 joint venture’s formation) (the first put option) enabling it to sell its 25% interest in the JV to RTX for an additional defined payment to Area Coal. • If Area Coal does not exercise the first put option, it will have a second put option, exercisable within 180 days of the JV management committee commissioning a feasibility study, to sell its 25% interest in the joint venture to RTX for consideration calculated on the basis of EPC 1824’s resource tonnage. • If Area Coal does not exercise this second put option it will become liable for 25% of all future development and operational costs of the JV. • Should RTX not exercise its option to acquire the aforementioned 75% interest in EPC 1824, Area Coal will retain its existing 100% ownership of this tenement. In addition, it can reacquire the other Mt Hillalong tenements that were transferred to RTX as part of this transaction. Page viii Review of Operations Australian Pacific Coal Limited ABN 49 089 206 986 Annual Report Year Ending 30 June 2013 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. Historical exploration conducted for the CRA Coal Group identified outcropping coal in the northern part of the tenement. 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 being undertaken by RTX to further evaluate this target with the aim to define a resource. Initial results have been summarised in the preceding pages. 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. Annual Report Australian Pacific Coal Limited Year Ending 30 June 2013 ABN 49 089 206 986 Page ix Review of Operations REVIEW OF OPERATIONS Exploration & Joint Venture Agreements Blackwood Resources Pty Ltd (Cuesta Coal Limited) Australian Pacific Coal Limited, through its 100% owned subsidiary Mining Investments One Pty Ltd, entered into a Tenement Sale and Joint Venture Agreement with Blackwood Resources Pty Ltd (Blackwood) in April 2010. Under the terms of the agreement, Blackwood acquired a 90% interest in EPCs 1979, 1955, 1987 and 1957 for a total cash consideration of $500,000. 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 joint venture tenements cover large areas over the Clarence-Moreton, Surat and Galilee Basin, prospective for shallow thermal coal. Blackwood Resources Pty Ltd is a 100% owned subsidiary of Cuesta Coal Limited. Page x Review of Operations Australian Pacific Coal Limited ABN 49 089 206 986 Annual Report Year Ending 30 June 2013 REVIEW OF OPERATIONS BLACKWOOD RESOURCES PTY LTD - TENEMENT SALE AND JOINT VENTURE AGREEMENT TENEMENTS EPC Name Holder Cuesta Coal Project Area Status Area (km2) Location EPC 1955 Bungaban Creek Blackwood Resources Pty Ltd East Wandoan Granted 308 EPC 1957 Laguna Creek Mining Investments One Pty Ltd (Transfer to Blackwood Resources Pty Ltd in progress) Eastern Galilee Granted 382 EPC 1979 Kingsthorpe Blackwood Resources Pty Ltd East Ackland Granted 155 EPC 1987 Quondong Mining Investments One Pty Ltd (Transfer to Blackwood Resources Pty Ltd in progress) East Wandoan Granted 354 100km N of Miles 150km NW of Clermont 15km W of Toowoomba 50km N of Miles Note: Mining Investments One Pty Ltd has retained a 10% equity interest in each of the above tenements. CUESTA COAL – EAST WANDOAN PROJECT Over the period June-October 2011 Cuesta Coal carried out a 17 open hole, 3 Core hole programme in the southern corner of EPC 1955 immediately to the north of the Bottle Tree Deposit (35Mt resource, EPC 813) held by Cockatoo Coal. All holes were geophysically logged and Core samples sent away for analysis and an Inferred JORC resource of 23.9Mt was announced by the company on 6th of February 2011. In March/April 2012 Cuesta completed 39 holes for a total of 59 holes drilled in the southern section of EPC 1955. The drilling has resulted in the delineation of 44.6Mt (22.1Mt Indicated, 22.5Mt Inferred) of resource calculated in accordance with JORC guidelines, and is now referred to as the Thorn Hill Deposit. Follow-up drilling at the Thorn Hill Deposit will include step out drilling and large diameter coring to enable washability test work to be conducted to identify washability recovery and saleable product. Follow-up drilling will focus on the south-east corner and northern extensions of the deposit aimed to further increase the overall resource and understanding of the coal quality. There is potential to increase this to 60Mt with additional drilling. The Company has identified 4 other similar target areas which it will test in the next 12-18mth, priority targets will be identified through ongoing geophysical and desktop studies. - See more at: http://www.cuestacoal.com.au/projects/east- wandoan CUESTA COAL – EASTERN GALILIEE PROJECT, KARURA TARGET AREA (EPC 1957) In conjunction with the 2012 exploration activities in Yellow Jacket, a detailed desktop review of Cuesta’s 90% owned EPC 1957 has confirmed a target area of up to 50km2 is present immediately south of the Adani Carmichael Project rail corridor. Historical regional seismic lines have been investigated and they indicate syncline structures present in both Yellow Jacket and Karura that have the potential to preserve the Permian coal measures of the Betts Creek Beds east of the known sub crop. This has been proven in Yellow Jacket through the drilling activities in 2011 and 2012. The syncline structure in Yellow Jacket match the gravity survey conducted earlier this year. There are very similar geological properties in the Karura Target area as there is in the Yellow Jacket Project, which warrant further exploration to verify the presence of coal. It is anticipated that a thirteen hole scout drilling campaign can test the presence of coal measures in the Karura Project area. - See more at: http://www.cuestacoal.com.au/projects/eastern-galilee Annual Report Australian Pacific Coal Limited Year Ending 30 June 2013 ABN 49 089 206 986 Page xi Review of Operations REVIEW OF OPERATIONS Granted Tenements 100% AQC Exploration & Joint Venture Agreements • EPC 1798 - Bluff Creek Rio Tinto Exploration Pty Ltd • EPC 1827 - Cooroorah • EPC 1645* - Mount Hess • MDL 453 - Coroorah • EPC 1773 - Kemmis Creek • EPC 1859 -Dingo • EPC 1824 - Mount Hillalong • EPC 1894 - Rocky Creek • EPC 1867 - Mount Hess West • EPC 1895 - Dawson River * Application Pending • EPC 1920 - Comet River • EPC 1965 - Kanga Creek Blackwood Resources Pty Ltd • EPC 1989 - Castlevale • EPC 1955 - Bungaban Creek • EPC 1995 - Carlo Creek • EPC 1957 - Laguna Creek • EPC 1996 - Churchyard Creek • EPC 1979 – Kingsthorpe • EPC 1997 - Mt Stuart • EPC 1987 – Quondong • EPC 2035 - Bee Creek • EPC 2036 - Ripstone Creek • EPC 2037 – Almoola • EPC 2122 – Blackwater Pending Applications - 100% AQC • EPC 1566** – Bee Creek • EPC 2014** - Blair Athol • EPC 1638** - Spear Creek • EPC 2016** - Drummond • EPC 1896 - Bottle Tree Creek • EPC 2826** - Clermont • EPC 2011 - North Copperfield • EPC 2828** - Clermont • EPC 2012** - Clermont ** Competing Application Page xii Review of Operations Australian Pacific Coal Limited ABN 49 089 206 986 Annual Report Year Ending 30 June 2013 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. 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. Mineral Exploration Tenements - 100% AQC Bentonite (Mantuan Downs) Sodium Bicarbonate (Grafton Range) • ML 70360 – Mantuan Downs • ML 50207 – Grafton Range • EPM 17644 – Fairview • EPM 19039 – Grafton Range Other Mineral Exploration • EPM 19716 Application Pending Annual Report Australian Pacific Coal Limited Year Ending 30 June 2013 ABN 49 089 206 986 Page xiii 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. Page xiv Review of Operations Australian Pacific Coal Limited ABN 49 089 206 986 Annual Report Year Ending 30 June 2013 ABN: 49 089 206 986 ASX Code: AQC FinAnciAl RepoRt 2013 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 2013. 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. There were no 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 $1,876,561 (2012: profit $653,118) after providing for income tax and eliminating minority equity interests. The significant change was largely a result of increased exploration expenditure in relation to the Group’s coal projects. The 2012 result included the receipt of a payment of $2,300,000 following the execution of an Exploration, Option and Joint Venture Agreement with Rio Tinto Exploration Pty Ltd covering four of the Group’s Mt Hillalong tenements. Review of Operations Australian Pacific Coal is a coal focused exploration group with strategic tenement holdings located in Queensland’s principal coal basins close to established infrastructure. During the course of 2013 the Group further advanced its exploration program. Additional drilling was completed on its EPC1827 “Cooroorah” project area, finalising the requirements for the grant of the project’s Mining Development Licence. The Group has a number of prospective tenement areas within its holdings in the Blackwater region. The four main exploration projects identified are Dingo, Carlo Creek, Churchyard Creek and Mt Stuart. Activities being undertaken are focused on drilling these target areas and improving the resource status of tenements. Further drilling will be undertaken as funds become available. The Group has an Exploration, Option and Joint Venture Agreement with Rio Tinto Exploration Pty Ltd covering four of the Group’s Mt Hillalong tenements. Rio Tinto Exploration Pty Ltd commenced drilling of the joint venture tenement in August 2013. The agreement has the potential to provide substantial additional funding to the Group over the next two years. The Group also holds a 10% free carried interest through to feasibility stage in four tenements that it transferred to Blackwood Resources Pty Ltd. Blackwood is a subsidiary of Cuesta Coal Limited. Cuesta has secured funding to complete its exploration program and is actively drilling the joint venture exploration tenements. Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited ABN 49 089 206 986 Page 1 of 59 Directors’ Report DIRECTORS’ REPORT Financial Position The net assets of the consolidated group at 30 June 2013 are $2,386,208 (2012: $3,333,916). This decrease arises taking account of the following factors: proceeds from sale of interest in tenements $400,000 proceeds from share issues raising $1,125,250; increases in capitalised exploration expenditure; and operating expenditure. The Group’s working capital, being current assets less current liabilities, is $336,358 deficit (2012: $865,770 surplus). Current liabilities include $325,000 of convertible securities. These convertible securities are expected to be converted to ordinary shares during the course of the 2014 financial year. The Group holds 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 exploration of 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. 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 78,118,620 ordinary shares to sophisticated and professional investors, raising $950,000 before costs, to provide additional working capital. ii. The company issued convertible securities with a face value of $545,000 to raise $525,000. 19,583,333 ordinary shares were issued on conversion of convertible securities having a face value of $220,000. The face value of outstanding convertible securities at 30 June 2013 is $325,000. The total number of ordinary shares issued during the financial year was 97,701,953. Changes in controlled entities and divisions: i. Deregistration of dormant subsidiaries: - Inter-Whistle Pty Ltd 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 2013. Events after the Reporting Period No matters or circumstances have arisen 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. Page 2 of 59 Directors’ Report Australian Pacific Coal Limited ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 DIRECTORS’ REPORT 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 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 regulations under the laws of the Commonwealth and State 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. The Group is not subject to the conditions imposed by the registration and reporting requirements of the National Greenhouse and Energy Reporting Act 2007. The Group is not subject to the conditions imposed by the registration and reporting requirements of the Energy Efficiency Opportunities Act 2006 in the current financial year as its energy consumption was below the 0.5 petajoule registration threshold. In November 2011, the Federal Parliament passed the Clean Energy Act 2011, which implements a carbon pricing mechanism from 1 July 2012. Under the mechanism, entities that produce over the threshold level of carbon emissions will be required to purchase permits to offset their carbon emissions. The Group is not directly impacted by the carbon pricing mechanism because it does not control facilities that produce emissions greater than the threshold level. However, the Group will be indirectly impacted by the mechanism through increases in the prices that it pays for energy and materials purchased from suppliers that are impacted by the introduction of the mechanism. The Group also anticipates that it will experience an increase in expenditures related to waste disposal under the carbon pricing mechanism, although any future increases in such costs are likely to be less significant than the anticipated increases in energy and material costs. Management of the Group has considered whether the introduction of the carbon pricing mechanism is an impairment indicator. It has determined that it is not expected to have a significant impact on the estimated net cash flows of the Group’s operations or the recoverability of its assets. Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited ABN 49 089 206 986 Page 3 of 59 Directors’ Report DIRECTORS’ 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) Retired 29 November 2012 Director from 30 October 2009 to 29 November 2012 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 Audit and Remuneration Committees Interests in shares and options 5,000,000 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 Mr. Peter Ziegler B. Com (Hons), LL.B (Hons); MFM, FCPA, CTA, ACA (Chairman, Non-executive Director) Appointed Chairman 29 November 2012, Director since 29 November 2005. 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. 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 Page 4 of 59 Directors’ Report Australian Pacific Coal Limited ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 DIRECTORS’ REPORT Information on Directors (continued) Mr. Paul Byrne (Executive Director) Director since 29 November 2005. 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. Special responsibilities Managing Director Interests in shares and options 72,292,061 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) Director since 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 the Group as an emerging coal company in Queensland. Special responsibilities Nil Interests in shares and options 5,750,000 ordinary shares in Australian Pacific Coal Limited 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 Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited ABN 49 089 206 986 Page 5 of 59 Directors’ Report DIRECTORS’ REPORT Information on Directors (continued) Mr. Paul Ryan (Non-executive Director) Appointed 29 November 2012 Experience and expertise Mr. Ryan is a businessman with over twenty years’ experience as owner and manager of large scale privately held companies. He has been involved in operations management at the Manimbah gold mine, contract mining, and transport and logistics operations. Mr Ryan brings to the Board of AQC an extensive network of professional contacts which, combined with relevant industry experience, are of significant benefit to the Group as an emerging coal company in Queensland. Special responsibilities Nil Interests in shares and options Nil Directorships held in other listed entities in the three years prior to the current year Nil All directors were in office for the entire year and up to the date of this report unless otherwise noted. 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 2 12 12 12 9 Mr. John Bovard Mr. Peter Ziegler Mr. Paul Byrne Mr. Paul Ingram Mr. Paul Ryan 1 12 12 8 7 ** = Not a member of the relevant committee. Number eligible to attend 1 2 ** ** ** Number attended 1 2 ** ** ** Number eligible to attend 0 0 ** ** ** Number attended 0 0 ** ** ** Page 6 of 59 Directors’ Report Australian Pacific Coal Limited ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 DIRECTORS’ REPORT 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 no unissued ordinary shares of the Company under option 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 2013: Taxation services $8,500 Auditor’s Independence Declaration The lead auditor’s independence declaration for the year ended 30 June 2013 has been received and can be found on page 11 of the Annual Financial Report. Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited ABN 49 089 206 986 Page 7 of 59 Directors’ Report DIRECTORS’ 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. Page 8 of 59 Directors’ Report Australian Pacific Coal Limited ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 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 9,25%, 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 and is currently set at $250,000 per annum. Engagement of Remuneration Consultants The company did not engage remuneration consultants to review the elements of key management personnel remuneration during the financial year. 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 Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited ABN 49 089 206 986 Page 9 of 59 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. 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 Paul Ryan Other executives Chairman, Non-executive (retired 29 November 2012) Deputy chairman/Chairman, Non-executive Managing Director, Executive Non-executive Non-executive (appointed 29 November 2012) 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% The employment terms and conditions of key management personnel and Group executives are not currently formalised in contracts of employment. Key management personnel contracts of employment are governed by applicable statutory provisions which may set out minimum notice period prior to termination of their contract. Statutory and common law termination provisions apply. Terms of employment for employees of relevant group entities do not include termination provisions and do 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 engaged in accordance with the company’s Directors Terms of Engagement 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. Page 10 of 59 Directors’ Report Australian Pacific Coal Limited ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 Remuneration Details for the Year Ended 30 June 2013 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: DIRECTORS’ REPORT Table of Benefits and Payments for the Year Ended 30 June 2013 Group Key Management Personnel Mr John Bovard Mr Peter Ziegler Mr Paul Byrne Mr Paul Ingram Mr Paul Ryan Mr Kevin Mischewski Total Remuneration 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Short-term benefits Base Remuneration $ Consulting & Contractor Fees $ Post-employment benefits Superannuation $ Other $ 25,000 60,000 50,000 36,000 36,000 36,000 37,018 33,027 20,688 — — — 168,706 165,027 — — 129,600 115,200 194,400 204,000 — — — — 179,398 167,064 503,398 486,264 — — — — — — 1,982 2,973 512 — — — 2,494 2,973 — — — — — — — — — — — — — — Total $ 25,000 60,000 179,600 151,200 230,400 240,000 39,000 36,000 21,200 — 179,398 167,064 674,598 654,264 Commencing on 1 February 2013, directors agreed that they would defer the receipt of payment of their remuneration. As at 30 June 2013 the amounts of directors’ fees and consulting fees unpaid and payable to each director were: Peter Ziegler $111,400; Paul Byrne $102,600; Paul Ingram $15,000 and Paul Ryan $15,000. These amounts are included in the above table. 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 Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited ABN 49 089 206 986 Page 11 of 59 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, pursuant to section 298(2) of the Corporations Act 2001 On behalf of the Directors Peter Ziegler Chairman Brisbane, 30th September 2013 Page 12 of 59 Directors’ Report Australian Pacific Coal Limited ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 DIRECTORS Sara J. Crevillén James P. Theologidis Murray C. McDonald AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT As lead auditor for the audit of Australian Pacific Coal Limited for the year ended 30 June 2013, I declare that, to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Australian Pacific Coal Limited and the entities it controlled during the year. M C McDonald Audit Partner Sothertons – Brisbane Partnership Brisbane 30 September 2013 Annual Financial Report Year Ended 30 June 2013 Australian Pacific Coal Limited Page 13 of 59 Directors’ Report SOTHERTONS BRISBANE PARTNERSHIP 8th Floor, 10 Market Street, Brisbane Qld 4000 GPO Box 1568, Brisbane, Qld 4001 ABN 52 540 323 092 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 INCOME STATEMENT For the year ending 30 June 2013 Revenue Exploration and evaluation costs of tenements sold Employee benefits expense Depreciation and amortisation expense Exploration, evaluation and development expenses Finance costs Impairment of loans receivable Impairment of exploration and evaluation Administration and consulting expenses Profit before income tax Income tax expense (benefit) Profit/(Loss) for the period Profit/(Loss) attributable to: Members of the parent entity Earnings per share From continuing operations: Basic earnings per share (cents) Diluted earnings per share (cents) Note Consolidated Group 2013 $ 2012 $ 3 413,389 2,488,047 (156,608) - (201,181) (523,619) (113,073) (120,778) (36,797) (20,000) (2,261) (2,615) (383,125) (214,931) (68,108) (109,890) (1,310,925) (860,835) (1,876,428) 653,118 (133) - (1,876,561) 653,118 (1,876,561) (1,876,561) 653,118 653,118 (0.31) (0.31) 0.12 0.12 4 5 8 8 The above income statement should be read in conjunction with the accompanying notes Page 14 of 59 Income Statement Australian Pacific Coal Limited ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 STATEMENT OF COMPREHENSIVE INCOME Profit/(Loss) for the period 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 Total comprehensive income attributable to: Members of the parent entity For the year ending 30 June 2013 Note Consolidated Group 2013 2012 $ $ (1,876,561) 653,118 - - - - - - - - (1,876,561) 653,118 (1,876,561) 653,118 The above statement of comprehensive income should be read in conjunction with the accompanying notes Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 15 of 59 ABN 49 089 206 986 Statement of Comprehensive Income STATEMENT OF FINANCIAL POSITION As at 30 June 2013 ASSETS Current assets Cash and cash equivalents Trade and other receivables 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 Total liabilities Net assets EQUITY Issued capital Retained earnings Total equity Consolidated Group 2013 $ 2012 $ 497,865 1,042,761 16,632 28,493 64,163 26,493 542,990 1,133,417 385,363 797,108 - 110,000 100,000 - 228,311 340,664 2,008,892 1,220,354 - - 2,722,566 2,468,126 3,265,556 3,601,543 554,348 267,627 325,000 - 879,348 267,627 879,348 267,627 2,386,208 3,333,916 9 10 18 10 11 13 15 16 17 19 20 22 35,239,172 34,310,319 (32,852,964) (30,976,403) 2,386,208 3,333,916 The above statement of financial position should be read in conjunction with the accompanying notes Page 16 of 59 Australian Pacific Coal Limited Statement of Financial Position ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2013 Note Issued Capital Ordinary Retained Earnings $ $ Total $ 33,230,500 (31,629,521) 1,600,979 CONSOLIDATED GROUP Balance at 1 July 2011 Comprehensive income Profit /(Loss) for the period Total other comprehensive income for the period Total comprehensive income for the period Transactions with owners, in their capacity as owners, and other transfers Share issued during the period Transaction costs on share issue Total transactions with owners and other transfers - - - 653,118 653,118 - - 653,118 653,118 1,125,250 (45,431) 1,079,819 - - - 1,125,250 (45,431) 1,079,819 Balance at 30 June 2012 34,310,319 (30,976,403) 3,333,916 Balance at 1 July 2012 Comprehensive income Profit/(Loss) for the period Total other comprehensive income for the period Total comprehensive income for the period Transactions with owners, in their capacity as owners, and other transfers Share issued during the period Transaction costs on share issue Total transactions with owners and other transfers 34,310,319 (30,976,403) 3,333,916 - - - (1,876,561) (1,876,561) - - (1,876,561) (1,876,561) 1,170,000 (241,147) 928,853 - - - 1,170,000 (241,147) 928,853 Balance at 30 June 2013 35,239,172 (32,852,964) 2,386,208 The above statement of changes in equity should be read in conjunction with the accompanying notes Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 17 of 59 ABN 49 089 206 986 Statement of Changes in Equity STATEMENT OF CASH FLOWS For the year ended 30 June 2013 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Finance costs Income tax paid Consolidated Group 2013 $ 2012 $ - 7,630 (1,150,531) (1,574,320) 13,389 - (133) 55,747 (2,615) - Net cash (used in)/provided by operating activities 25a (1,137,275) (1,513,558) CASH FLOWS FROM INVESTING ACTIVITIES Payments for exploration, evaluation and development assets Proceeds from sale of exploration, evaluation and development assets Payments for investments Proceeds from sale of investments Purchase of non-current assets Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Capital raising costs Proceeds from borrowings Repayment of borrowings Net cash used in/(provided by) financing activities Net increase/(decrease) in cash held Cash and cash equivalents at beginning of period (1,013,254) (941,090) 262,500 2,425,000 - 110,000 - - (720) (41,332) (641,474) 1,442,578 950,000 700,000 (241,147) (45,431) 525,000 - - (126,272) 1,233,853 528,297 (544,896) 457,317 1,042,761 585,444 Cash and cash equivalents at end of period 9 497,865 1,042,761 The above statement of cash flows should be read in conjunction with the accompanying notes Page 18 of 59 Statement of Cash Flows Australian Pacific Coal Limited ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2013 These consolidated financial statements and notes represent those of Australian Pacific Coal Limited and Controlled Entities (the “consolidated group” or “Group”) The separate financial statements of the parent entity, Australian Pacific Coal Limited have not been presented within this financial report as permitted by the Corporations Act 2001. The financial statements were authorised for issue on 27 September 2013 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. The Group is a for-profit entity for financial reporting purposes under the Australian Accounting Standards. 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 as issued by the International Accounting Standards Board. Material accounting policies adopted in the preparation of this financial report are presented below and have been consistently applied unless stated otherwise. The financial statements have been prepared on an accruals basis and are 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 The company has entered into a Share Purchase and Convertible Security Agreement with The Australian Special Opportunities Fund, LP. The agreement provides ongoing capital raising to the company by way of monthly tranche payments continuing through to October 2014. 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 Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 19 of 59 ABN 49 089 206 986 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 14 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 recognised as expenses in profit or loss when incurred. 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 remeasurements in any pre-existing equity holdings are recognised in profit or loss in the period in which they arise. 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. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. 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. Page 20 of 59 Australian Pacific Coal Limited Notes to the Financial Statements ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 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/(income) 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. With respect to non-depreciable items of property, plant and equipment measured at fair value and items of investment property measured at fair value, the related deferred tax liability or deferred tax asset is measured on the basis that the carrying amount of the asset will be recovered entirely through sale. 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 Australian Pacific Coal 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. (c) Inventories Annual Financial Report Year Ending 30 June 2012 Australian Pacific Coal Limited Page 21 of 59 ABN 49 089 206 986 Notes to the Financial Statements 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. 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 recognised as expenses in profit or loss 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 Depreciation Rate Buildings Leasehold improvements Plant and equipment Leased plant and equipment 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. 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. Page 22 of 59 Australian Pacific Coal Limited Notes to the Financial Statements ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 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. 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. Annual Financial Report Year Ending 30 June 2012 Australian Pacific Coal Limited Page 23 of 59 ABN 49 089 206 986 Notes to the Financial Statements Amortised cost is calculated as 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 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 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. Gains or losses are recognised in profit and loss through the amortisation process and when the financial asset is derecognised. (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. Gains or losses are recognised in profit and loss through the amortisation process and when the financial asset is derecognised. (iv) Available-for-sale investments Available-for-sale investments are non-derivative financial assets that are either not capable of being 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 any remeasurements other than impairment losses and foreign exchange gains and losses recognised in other comprehensive income. 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 classified as non-current assets when they are expected to be sold after 12 months from then end of the reporting period. All other financial assets are classified as current assets. (v) Financial liabilities Non-derivative financial liabilities other than financial guarantees are subsequently measured at amortised cost. Gains or losses are recognised in profit and loss through the amortisation process and when the financial asset is derecognised. Impairment At the end of each reporting period, the Group assesses whether there is objective evidence that a financial asset has been impaired. A financial asset or a group of financial assets is determined to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events (a loss event) having occurred, which has an impact on the estimated future cash flows of the financial asset(s). In the case of available-for-sale financial assets, a significant or prolonged decline in the market value of the instrument is considered to constitute a loss event. Impairment losses are recognised in profit or loss immediately. Also any cumulative decline in fair value previously recognised in other comprehensive income is reclassified to profit or loss at this point. Page 24 of 59 Australian Pacific Coal Limited Notes to the Financial Statements ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 In the case of financial assets carried at amortised cost, Loss events may include: indications that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments; indications that they will enter bankruptcy or other financial reorganisation; and changes in arrears or economic conditions that correlate with defaults. For financial assets carried at amortised cost (including loans and receivables), a separate allowance account is used to reduce the carrying amount of financial assets impaired by credit losses. After having taken all possible measures of recovery, if management establishes that the carrying amount cannot be recovered by any means, at that point the written-off amounts are charged to the allowance account or the carrying amount of impaired financial assets is reduced directly if no impairment amount was previously recognised in the allowance account. When the terms of financial assets that would otherwise have been past due or impaired have been recognised, the Group recognises the impairment for such financial assets by taking into account the original terms as if the terms have not been renegotiated so that the loss events that have occurred are duly considered. 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 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 the next reporting 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. Financial guarantees are subsequently measured at the higher of the best estimate of the obligation in accordance with AASB 137: Provisions, Contingent Liabilities and Contingent Assets 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. De-recognition Financial assets are derecognised when 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 derecognised when the related obligations are discharged, cancelled or have expired. The difference between the carrying amount 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: Property, Plant and Equipment). 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 and intangible assets not yet available for use. Annual Financial Report Year Ending 30 June 2012 Australian Pacific Coal Limited Page 25 of 59 ABN 49 089 206 986 Notes to the Financial Statements (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 12 (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. Capitalised development costs have a finite useful life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project. (l) 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. Page 26 of 59 Australian Pacific Coal Limited Notes to the Financial Statements ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 (m) 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. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. (n) 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. (o) 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. When the inflow of consideration is deferred, it is treated as the provision of financing 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. Dividend revenue is recognised when the right to receive a dividend has been established. Dividends received from associates and joint venture entities are accounted for in accordance with the equity method of accounting. 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, 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. (p) 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. (q) 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. (r) 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. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the ATO are presented as operating cash flows included in receipts from customers or payments to suppliers. Annual Financial Report Year Ending 30 June 2012 Australian Pacific Coal Limited Page 27 of 59 ABN 49 089 206 986 Notes to the Financial Statements (s) 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. (t) Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Where the Group has retrospectively applied an accounting policy, made a retrospective restatement of items in the financial statements or reclassified items in its financial statements, an additional statement of financial position as at the beginning of the earliest comparative period will be disclosed. (u) 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. (v) 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 - general 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. Impairment – carbon price In November 2011, the Federal Parliament passed the Clean Energy Act 2011, which implements a carbon pricing mechanism from 1 July 2012. Under the mechanism, entities that produce over the threshold level of carbon emissions will be required to purchase permits to offset their carbon emissions. The Group is not directly impacted by the carbon pricing mechanism because it does not control facilities that produce emissions greater than the threshold level. However, the Group will be indirectly impacted by the mechanism through increases in the prices it pays for energy and materials purchased from suppliers that are impacted by the introduction of the mechanism. The Group also anticipates that it will experience an increase in expenditures related to waste disposal under the carbon pricing mechanism, although any future increases in such costs are likely to be less significant than the anticipated increases in energy and material costs. Management of the Group has considered whether the introduction of the carbon pricing mechanism is an impairment indicator and has determined that it is not expected to have a significant impact on the estimated net cash flows of the Group’s operations or the recoverability of its assets. Key judgments Provision for impairment of receivables Included in trade and other receivables at the end of the reporting period are other amounts receivable amounting to $904,148 (2102: $904,148). 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. Impairment adjustments amounting to $600,898 (2012: $217,773) have been recorded where the market value of the shares held at 30 June 2013 was less than the gross amount of the associated limited-recourse loan. Page 28 of 59 Australian Pacific Coal Limited Notes to the Financial Statements ABN 49 089 206 986 Annual Financial Report Year Ending 30 June 2013 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 $2,008,892 ($2012: $1,220,354). 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. (w) New Accounting Standards for Application in Future Periods The Australian Accounting Standards Board has issued a number of new and amended Accounting Standards and Interpretations that have mandatory application dates for future reporting periods, some of which are relevant to the Group. The Group has decided not to early adopt any of the new and amended pronouncements. The Group’s assessment is that these new and amended pronouncements will have no material impact on the Group’s financial statements. Annual Financial Report Year Ending 30 June 2012 Australian Pacific Coal Limited Page 29 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 2: PARENT INFORMATION The following information has been extracted from the books and records of the parent and has been prepared in accordance with Australian Accounting Standards. STATEMENT OF FINANCIAL POSITION Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Issued capital Retained earnings Total equity STATEMENT OF COMPREHENSIVE INCOME Total profit Total comprehensive income Guarantees 2013 $ 2012 $ 464,555 1,116,362 614,476 1,123,961 1,079,031 2,240,323 1,552,676 1,636,089 - - 1,552,676 1,636,089 35,239,172 34,310,319 (35,712,817) (33,706,085) (473,645) 604,234 (2,006,732) (1,746,838) (2,006,732) (1,746,838) Australian Pacific Coal Limited has not entered into any guarantees, in the current or previous financial year, in relation to the debts of its subsidiaries. Contingent liabilities Australian Pacific Coal Limited has no known contingent liabilities. Contractual commitments At 30 June 2013, Australian Pacific Coal Limited had not entered into any contractual commitments for the acquisition of property, plant and equipment (2012: Nil). Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 30 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 3: REVENUE AND OTHER INCOME Revenue from Continuing Operations: Other revenue: — — — interest received government subsidies received rental revenue Total Revenue Other Income — sale of interest in tenements Total revenue and other income from continuing operations Attributable to members of the parent entity NOTE 4: PROFIT FOR THE YEAR a. Expenses Interest expense on financial liabilities not at fair value through profit or loss Rental expense on operating leases: — minimum lease payments b. Significant Revenue and Expenses The following significant revenue and expense items are relevant in explaining the financial performance: Sale of interest in tenements Exploration and evaluation costs of tenements sold Impairment of loans receivable Impairment of capitalised exploration expenditure Note Consolidated Group 2013 $ 2012 $ 13,389 55,747 - - 4,000 3,300 13,389 63,047 400,000 2,425,000 413,389 2,488.047 413,389 2,488,047 Note Consolidated Group 2013 2012 $ $ (20,000) (2,615) 120,868 119,684 400,000 2,425,000 (156,608) - (383,125) (214,931) (68,108) (109,890) Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 31 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 5: INCOME TAX EXPENSE a. The components of tax expense comprise: Current tax Deferred tax 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% (2012: 30%) Add: Tax effect of: — non-deductible depreciation and amortisation — other non-allowable items — write-downs to recoverable amounts Less: Tax effect of: — other allowable items — tax losses transferred from controlled entities Tax losses and temporary differences not brought to account Income tax attributable to entity Note Consolidated Group 2013 $ 2012 $ 21 133 - 133 - - - (562,928) 195,935 33,922 2,286 182,352 36,233 3,605 32,967 (400,685) (390,633) - - (745,053) (121,893) 744,920 121,893 133 - Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 32 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 6: 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 2013. The totals of remuneration paid or payable to KMP of the company and the Group during the year are as follows: Short-term employee benefits Post-employment benefits 2013 $ 2012 $ 672,104 651,291 2,494 2,973 674,598 654,264 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 2013 Balance at beginning of year Granted as remuneration during the year Other changes during the year Balance at end of year Issued on exercise of options during the year Mr John Bovard Mr Paul Byrne Mr Peter Ziegler Mr Paul Ingram Mr Kevin Mischewski 30 June 2012 5,000,000 61,148,548 10,233,333 5,750,000 1,500,000 - - - - - - - - - - - 11,143,513 - - - 5,000,000 72,292,061 10,233,333 5,750,000 1,500,000 Balance at beginning of year Granted as remuneration during the year Issued on exercise of options during the year Other changes during the year Balance at end of year Mr John Bovard Mr Paul Byrne Mr Peter Ziegler Mr Paul Ingram Mr Kevin Mischewski 2,500,000 50,633,944 10,233,333 750,000 1,500,000 Other KMP Transactions - - - - - - - - - - 2,500,000 10,514,604 - 5,000,000 - 5,000,000 61,148,548 10,233,333 5,750,000 1,500,000 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 30: Related Party Transactions. Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 33 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 7: AUDITORS’ REMUNERATION Remuneration of the auditor of the parent entity for: — auditing or reviewing the financial statements — taxation services NOTE 8: EARNINGS PER SHARE Consolidated Group 2013 $ 2012 $ 60,050 8,500 58,050 10,145 Consolidated Group 2013 No. 2012 No. a. Weighted average number of ordinary shares outstanding during the 602,956,109 538,364,828 year used in calculating basic EPS Weighted average number of dilutive options outstanding Weighted average number of dilutive convertible notes on issue - - - - Weighted average number of ordinary shares outstanding during the 602,956,109 538,364,828 year used in calculating dilutive EPS b. Convertible notes are considered anti-dilutive as the consolidated group is loss making. Convertible notes potentially dilute earnings per share in the future. 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 4.0% (2012: 5.5%); these deposits have an average maturity of 180 days. Note Consolidated Group 2013 $ 2011 $ 447,865 1,028,886 50,000 13,875 497,865 1,042,761 Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 34 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 10: TRADE AND OTHER RECEIVABLES Current Trade receivables Other receivables Total current trade and other receivables Non-current Amounts receivable from related parties: — loans to directors Note Consolidated Group 2013 $ 2012 $ - 16,632 16,632 1,980 62,183 64,163 551,848 712,598 — loans to directors - provision for impairment 10a.(i) (383,598) (210,623) — loans to key management personnel 28,950 28,950 — loans to key management personnel - provision for impairment 10a.(ii) (13,950) - Other receivables 405,463 273,333 Other receivables - provision for impairment 10a.(iii) (203,350) (7,150) Total non-current trade and other receivables 385,363 797,108 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: Opening Balance 1.7.2012 Charge for the Year Amounts recovered Closing Balance 30.6.2013 $ $ $ $ Consolidated Group (i) (ii) Non-current related parties - directors 210,623 172,975 Non-current related parties – key management personnel - 13,950 (iii) Non-current other receivables 7,150 196,200 - - - 383,598 13,950 203,350 Consolidated Group (i) (ii) Current trade receivables Non-current related parties (iv) Non-current other receivables Opening Balance Charge for the Year Amounts Written Off Closing Balance 1.7.2011 30.6.2012 $ $ $ $ 2,842 - (2,842) - - - 210,623 7,150 - - 210,623 7,150 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 Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 35 of 59 ABN 49 089 206 986 Notes to the Financial Statements 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. Consolidated Group Gross amount $ Past due and impaired $ Past due but not impaired (days overdue) < 30 $ 31–60 $ 61–90 $ > 90 $ Within initial trade terms $ Within initial trade terms and impaired $ 2013 Amounts receivable from related parties Other receivables Total 2012 Trade and term receivables Amounts receivable from related parties Other receivables Total 580,798 422,095 1,002,893 1,980 741,548 335,516 1,079,044 c. Collateral Held as Security - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 397,548 183,250 203,350 218,745 600,898 401,995 - 1,980 210,623 530,925 7,150 328,366 217,773 861,271 Included in amounts receivable from related parties is an amount owing to the parent company of $580,798 at the end of the reporting period (2012: $741,548). Included in other receivables is an amount owing to the parent company of $323,350 at the end of the reporting period (2012: $162,600). 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. Impairment adjustments have been recorded where the market value of the shares held at 30 June 2013 was less than the gross amount of the associated limited-recourse loan. 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. d. Financial Assets Classified as Loans and Receivables Trade and other receivables: - - total current total non-current Financial assets Consolidated Group 2013 $ 2012 $ 16,632 64,163 385,363 797,108 401,995 861,271 Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 36 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 11: INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD NON-CURRENT Associated companies Total non-current Note Consolidated Group 2013 $ 2012 $ 12 - - 110,000 110,000 NOTE 12: ASSOCIATED COMPANIES Interests are held in the following associated companies: Name Principal Activites Country of Incorporation Shares Ownership Interest Carrying amount of investment 2013 2012 2013 2012 % % $ $ Unlisted: Spinafex Uranium Pty Ltd Mineral exploration Australia Ord Diamantina Uranium Pty Ltd Mineral Australia Ord Frontier Uranium Pty Ltd exploration Mineral exploration Australia Ord - - - 20 20 20 - - - - 36,667 36,667 36,666 110,000 Movements during the year in equity accounted investment in associated companies; Balance at beginning of the financial year Disposals during the year Balance at end of the financial year Note Consolidated Group 2013 $ 2012 $ 110,000 110,000 (110,000) - - 110,000 On 30 June 2013 the Company disposed of its 20% interest in each of Spinafex Uranium Pty Ltd, Diamantina Uranium Pty Ltd and Frontier Uranium Pty Ltd. Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 37 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 13: OTHER FINANCIAL ASSETS NON-CURRENT Available-for-sale financial assets Total non-current a. Available-for-sale financial assets Unlisted investments, at cost: — Shares in other corporations Total available-for-sale financial assets b. Shares in other corporations Unlisted investments: Note Consolidated Group 2013 $ 2012 $ 100,000 100,000 13b 100,000 100,000 - - - - Shares in other corporations include a shareholding of 1,000,000 ordinary shares in Scott Creek Coal Limited Australian Pacific Coal Limited does not have the power to participate in the financial or operating decisions of the entity and therefore does not exercise significant influence over Scott Creek Coal Limited. Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 38 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 14: CONTROLLED ENTITIES a. Controlled Entities Consolidated Subsidiaries of Australian Pacific Coal Limited: Country of Incorporation Percentage Owned (%)* 2013 2012 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-Medteq Pty Ltd Inter-Whistle Pty Ltd Felix Street Pty Ltd Medteq Holdings Pty Ltd Medteq Innovations Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 100 100 100 100 100 100 100 - 100 50 50 100 100 100 100 100 100 100 100 100 100 100 100 100 50 50 * Percentage of voting power is in proportion to ownership b. Acquisition of Controlled Entities None c. Disposal of Controlled Entities The following dormant subsidiary company was de-registered during the financial year: - Inter-Whistle Pty Ltd d. 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. Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 39 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 15: PROPERTY, PLANT AND EQUIPMENT Note Consolidated Group 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 Leasehold improvements At cost Accumulated amortisation Total Plant and Equipment Total Property, Plant and Equipment 2013 $ 2012 $ 148,924 (24,334) 124,590 124,590 148,924 (18,377) 130,547 130,547 604,297 603,577 (502,014) (397,284) 102,283 206,293 14,403 14,403 (12,965) (10,579) 1,438 103,721 228,311 3,824 210,117 340,664 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 30 June 2011 Additions Disposals Depreciation expense Balance at 30 June 2012 Additions Disposals Depreciation expense Balance at 30 June 2013 Buildings Leasehold Improve- ments Plant and Equipment Leased Plant and Equipment Total $ $ $ $ $ 136,504 2,982 134,571 146,053 420,110 - - 10,542 176,843 - 187,385 - - (146,053) (146,053) (5,957) (9,700) (105,121) 130,547 3,824 206,293 - - - - 720 - (5,957) (2,386) (104,730) 124,590 1,438 102,283 - - - - - - (120,778) 340,664 720 - (113,073) 228,311 Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 40 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 16: EXPLORATION EXPENDITURE CAPITALISED NON-CURRENT Exploration and evaluation phases Total Consolidated Group 2013 $ 2012 $ 2,008,892 1,220,354 2,008,892 1,220,354 Recoverability of the carrying amount of exploration assets is dependent on successful exploration and sale of coal. Capitalised exploration and evaluation costs amounting to $1,013,254 (2012: 941,090) have been included in cash flows from investing activities in the statements of cash flow. NOTE 17: INTANGIBLE ASSETS Goodwill Cost Accumulated impairment losses Net carrying value Trademarks and licences Cost Accumulated impairment losses Net carrying value Total intangibles Consolidated Group 2013 $ 2012 $ 315,354 315,354 (315,354) (315,354) - - 6,680,110 6,680,110 (6,680,110) (6,680,110) - - - - There have been no additions or disposals of intangible assets during the current or previous financial years. NOTE 18: OTHER ASSETS CURRENT Prepayments Total Consolidated Group 2013 $ 2012 $ 28,493 28,493 26,493 26,493 Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 41 of 59 ABN 49 089 206 986 Notes to the Financial Statements Note Consolidated Group 2013 $ 2012 $ 288,784 232,418 265,564 35,209 554,348 267,627 554,348 267,627 - - 554,348 267,627 Note Consolidated Group 2013 $ 2012 $ 20a.b 325,000 325,000 325,000 20b.c 325,000 325,000 - - - - - NOTE 19: TRADE AND OTHER PAYABLES CURRENT Unsecured liabilities: Trade payables Amounts payable to related parties: — key management personnel related entities Total a. Financial liabilities at amortised cost classified as trade and other payables: Trade and other payables: - total current - total non-current NOTE 20: BORROWINGS CURRENT Secured liabilities: Convertible security Total current borrowings Total borrowings a. Total current and non-current secured liabilities: Convertible security b. Convertible security The parent entity issued convertible securities with a face value of $545,000 to raise $525,000. The securities are convertible into ordinary shares of the parent entity in accordance with the terms of the parent entity’s Share Purchase and Convertible Security Agreement with The Australian Special Opportunities Fund, LP. 19,583,333 ordinary shares have been issued on conversion of convertible securities having a face value of $220,000. The face value of outstanding convertible securities at 30 June 2013 is $325,000. c. Collateral Provided Convertible security is secured by ordinary shares held as security in accordance with the parent entity’s Share Purchase and Convertible Security Agreement with The Australian Special Opportunities Fund, LP. Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 42 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 21: TAX CURRENT Income Tax Payable NON-CURRENT Consolidated Group Consolidated Group 2013 $ 2012 $ - - 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 $933,462 (2012: $1,266,462) — tax losses: operating losses $7,642,398 (2012: $6,710,937) — tax losses: capital losses $1,173,396 (2012: $1,170,147) NOTE 22: ISSUED CAPITAL 662,695,879 (2012: 594,993,926) fully paid ordinary shares a. Ordinary Shares At the beginning of reporting period Shares issued during the year — 27/4/2012 — — — — — — — — — — — 21/5/2012 2/10/2012 31/10/2012 29/11/2012 31/12/2012 31/1/2013 1/3/2013 3/4/2013 26/4/2013 3/5/2013 4/6/2013 Consolidated Group 2013 $ 2012 $ 35,239,172 34,310,319 Consolidated Group 2013 No. 2012 No. 564,993,926 533,118,926 26,875,000 5,000,000 17,569,378 4,687,500 10,937,500 5,000,000 6,250,000 9,090,909 10,000,000 13,333,333 12,500,000 8,333,333 At the end of the reporting period 662,695,879 564,993,926 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 Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 43 of 59 ABN 49 089 206 986 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 2013 and 30 June 2012 are as follows: Total borrowings Less cash and cash equivalents Net debt Total equity Total capital Gearing ratio Note Consolidated Group 2012 $ 2012 $ 19,20 879,348 267,627 9 497,865 1,042,761 381,483 (775,134) 2,386,208 3,333,916 2,767,691 2,558,782 14% (30%) Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 44 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 23: CAPITAL AND LEASING COMMITMENTS a. 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 2013 $ 2012 $ 127,514 20,236 109,933 - - - 237,447 20,236 The property lease is non-cancellable lease with a three year term, 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 4% per annum. An option exists to renew the lease at the end of the three year term for an additional term of three years. The leases allow for subletting of all lease areas. b. 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 2013 $ 2012 $ 715,015 944,023 2,237,230 2,011,383 - 260,197 2,952,245 3,215,604 Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 45 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 24: 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. 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 dormant and are no longer included separately within segment analysis as the segment assets have been impaired to $Nil. Bentonite Mining iii. 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 value from that asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and 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 Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 46 of 59 ABN 49 089 206 986 Notes to the Financial Statements i. Segment performance 2013 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 Exploration Bentonite Unallocated Total $ Mining $ $ $ - 400,000 400,000 - - - - 13,389 - 13,389 - 13,389 400,000 413,389 413,389 159,176 (143,282) (1,892,455) (1,876,561) (1,876,561) - - 53.887 - 89,712 14,221 20,000 23,362 - 20,000 113,074 68,108 — impairment of loans receivable - - 383,125 383,125 2012 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 - 160 2,425,000 2,425,160 - - - - 3,300 55,587 3,300 55,747 - 2,425,000 62,887 2,488,047 2,488,047 2,314,556 (121,300) (1,540,138) 653,118 653,118 102 - 2,339 93,130 6,928 174 27,648 - 2615 120,778 109,890 —impairment evaluation of exploration and 102,962 — impairment of loans receivable - - 214,931 214,931 Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 47 of 59 ABN 49 089 206 986 Notes to the Financial Statements Exploration Bentonite Mining Unallocated Total $ $ $ $ 1,013,254 - 1,013,254 - - - - 720 1,013,974 - - 720 1,013,974 - 2,008,892 33,667 100,000 829,638 228,311 100,000 928,353 - - 194,644 - 73,660 25,055 2,182,553 219,699 863,304 3,265,556 3,265,556 Included in segment assets are: Capitalised exploration and evaluation 2,008,892 2013 Segment assets Segment asset increases for the period — capital expenditure — acquisitions Property, plant and equipment Other financial assets Other assets Segment assets Total group assets 2012 Segment assets Segment asset increases for the period — capital expenditure — acquisitions Included in segment assets are: Capitalised exploration and evaluation 1,220,354 831,200 - 831,200 - - - - 41,332 872,532 - - 41,332 872,532 - 1,220,354 Property, plant and equipment - 284,356 56,308 Investments accounted for using the equity method 110,000 - - 340,664 110,000 Other assets Segment assets Total group assets iii. Segment liabilities 2013 Segment liabilities Reconciliation of segment liabilities to group liabilities Other financial liabilities Total group liabilities 2012 Segment liabilities Reconciliation of segment liabilities to group liabilities Other financial liabilities Total group liabilities 91,104 23,233 1,816,189 1,930,526 1,311,457 307,589 1,982,496 3,601,543 3,601,543 Exploration Bentonite Mining Unallocated Total $ $ $ $ 69,528 472 809,347 44,766 2,706 220,255 879,347 879,347 267,727 267,727 Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 48 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 25: CASH FLOW INFORMATION a. Reconciliation of Cash Flow from Operations with Profit after Income Tax Profit/(Loss) after income tax Sale of interests in tenements Exploration and evaluation costs of tenements sold Depreciation and amortisation Impairment loss Finance costs Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries (Increase)/decrease in trade and term receivables (Increase)/decrease in other assets Increase/(decrease) in trade payables and accruals Cash flows from operations Consolidated Group 2013 $ 2012 $ (1,876,561) 653,118 (400,000) (2,425,000) 156,608 - 113,073 120,778 451,233 324,821 20,000 - 76,151 (14,605) (2,000) (8,710) 324,221 (163,960) (1,137,275) (1,513,558) b. Non-cash Financing and Investing Activities i. Share issue: 19,583,333 ordinary shares were issued for a total consideration of $220,000. The company issued the shares on conversion of convertible securities issued to the Australian Special Opportunity Fund, LLC. c. Reclassification of Cash Flows within the Statements of Cash Flow A review of classifications adopted in the Statements of Cash Flow has been conducted and errors in the classifications of some items have been identified. The errors have been corrected by restating each of the affected Statement of Cash Flow line items for the prior year as follows: Statement of Cash Flows (Extract) Receipts from customers 2012 Increase/ 2012 Original (Decrease) Restated $ $ $ 2,675,130 (2,667,500) 7,630 Payments to suppliers and employees (2,799,208) 1,224,888 (1,574,320) Interest received Finance costs 55,747 (2,615) - - 55,747 (2,615) Net cash used in operating activities (70,946) (1,442,612) (1,513,558) Payments for exploration, evaluation and development assets Proceeds development assets from sale of exploration, evaluation and - - (941,090) (941,090) 2,425,000 2,425,000 Payments for property, plant and equipment (45,465) 4,133 (41,332) Net cash provided by investing activities (45,465) 1,488,043 1,442,578 Proceeds from the issue of shares Capital raising costs Repayment of borrowings Net cash provided by financing activities Net increase/(decrease) in cash held 700,000 - - (45,431) 700,000 (45,431) (126,272) 573,728 457,317 - (126,272) (45,431) - 528,297 457,317 Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 49 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 26: CONTINGENT LIABILITIES AND CONTINGENT ASSETS Rio Tinto Exploration Pty Ltd – Exploration, Option and Joint Venture Agreement 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 the 2012 financial year 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 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. RTX secured all approvals, thereby gaining access to EPC 1824 on 23 August 2013 triggering the start of the RTX 75% option period. The expiry date of the option is 23 August 2015. NOTE 27: EVENTS AFTER THE REPORTING PERIOD Other than the following the directors are not aware of any significant events since the end of the reporting period. On 22 July 2013 the parent entity issued 57,525,000 fully paid ordinary shares under its share purchase plan announced to the ASX on 27 June 2013. The share purchase plan raised $575,250. No other matters or circumstances have arisen 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. Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 50 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 28: 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 14: 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. Other than key management personnel compensation disclosed in the Remuneration Report, there have been no transactions between the consolidated group and related parties. 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: i. Key management personnel: The company issued Nil (2012: 10,000,000) 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 $Nil (2012: $425,250) 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 No longer included as related party loan Loans advanced Loan repayment received Balance at end of year Consolidated Group 2013 $ 2012 $ 741,548 449,948 (160,750) (72,900) - - 364,500 - 580,798 741,548 Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 51 of 59 ABN 49 089 206 986 Notes to the Financial Statements Provision for impairment Interest not charged (on an arms-length basis) The number of KMP who have received loans during the period (397,548) (210,623) 46,304 32,416 0 3 The highest level of indebtedness during the reporting period for each KMP who received loans: Mr John Bovard Mr Peter Ziegler Mr Paul Byrne Mr Paul Ingram Mr Kevin Mischewski KMP Loans exceeding $100,000: Included in the loan balances above are loans to Mr Paul Byrne (Director) Details of the loans 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) Included in the loan balances above is a loan to Mr John Bovard (Director – retired 29 November 2012) which represents a loan to John Bovard personally and SMG Nominees Pty Ltd, a related entity associated with Mr Bovard. Details of the loan are outlined below: Balance at beginning of year No longer included as a related party loan Loans advanced Loan repayment received Balance at end of year Interest not charged (on an arms-length basis) 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) Included in the loan balances above is a loan to Mr Paul Ingram (Director). 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) Consolidated Group 2013 $ 2012 $ 160,750 160,750 121,500 121,500 165,848 165,848 264,500 264,500 28.950 28.950 165,848 165,848 - - - - 165,848 165,848 11,817 12,737 160,750 (160,750) ~ - - - - 100,000 - 160,750 4,921 5,951 121,500 121,500 - - - - 121,500 121,500 8,657 9,331 264,500 - - - 264,500 - 264,500 264,500 18,846 2,145 Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 52 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 29: 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 convertible securities. The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies to these financial statements, are as follows: Financial assets Cash and cash equivalents Loans and receivables Available-for-sale financial assets: — unlisted investments at cost Total financial assets Financial Liabilities Financial liabilities at amortised cost: — trade and other payables — borrowings Total financial liabilities Financial Risk Management Policies Note Consolidated Group 2013 $ 2012 $ 9 10 13 19 20 497,865 1,042,761 401,995 861,271 100,000 - 999,860 1,904,032 554,348 267,627 325,000 - 879,348 267,627 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. The Group has no significant concentration of credit risk with any single counterparty or group of counterparties. Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 53 of 59 ABN 49 089 206 986 Notes to the Financial Statements 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 12.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 institutions 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. (i) Financing arrangements The company has entered into a funding agreement with The Australian Special Opportunity Fund, LP. The agreement commenced in October 2012 and expires in October 2014. The company may terminate the agreement at its discretion prior to October 2014. Under the agreement the company may receive tranche prepayments of between $75,000 and $225,000, as monthly share subscriptions. The undrawn minimum balance of the facility as at 30 June 2013 is $1,125,000. (ii) Maturities of financial liabilities The following table sets out the contractual maturities of financial liabilities. Cash flows realised from financial assets reflect management’s expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect management’s expectations that banking facilities will be rolled forward. 30 June 2013 Trade and other payables Borrowings 30 June 2012 Trade and other payables Carrying Less than 1-6 More than amount 1 month months 6 months 554,348 325,000 879,348 267,627 267,627 - - - - 554,348 325,000 879,348 267,627 267,627 - - - - - 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 2013, 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: Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 54 of 59 ABN 49 089 206 986 Notes to the Financial Statements Post Tax Profit Consolidated Group Higher/(Lower) 2013 2012 +1.00% (100 basis points) -1.00% (100 basis points) 2,976 (2,976) 13,936 (13,936) Equity Consolidated Group Higher/(Lower) 2013 2012 +1.00% (100 basis points) -1.00% (100 basis points) 2,976 (2,976) 13,936 (13,936) d. Fair Value Estimation Fair value is the amount at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Fair values may be based on information that is estimated or subject to judgment, where changes in assumptions may have a material impact on the amounts estimated. Areas of judgment and the assumptions have been detailed below. Where possible, valuation information used to calculate fair value is extracted from the market, with more reliable information available from markets that are actively traded. In this regard, fair values for listed securities are obtained from quoted market bid prices. Where securities are unlisted and no market quotes are available, fair value is obtained using discounted cash flow analysis and other valuation techniques commonly used by market participants. Differences between fair values and carrying amounts of financial instruments with fixed interest rates are due to the change in discount rates being applied by the market since their initial recognition by the Group. Most of these instruments, which are carried at amortised cost (ie term receivables, held-to-maturity assets and loan liabilities), are to be held until maturity and therefore the fair value figures calculated bear little relevance to the Group. The fair values of the consolidated entities have been determined based on the following methodologies: (i) Cash and cash equivalents, trade and other receivables, and trade and other payables are short-term instruments in nature whose carrying amount is equivalent to fair value. Trade and other payables exclude amounts provided for annual leave, which is outside the scope of AASB 139. (ii) Term receivables generally reprice to a market interest rate every six months, and fair value therefore approximates carrying amount. (iii) In determining the fair values of the unlisted available-for-sale financial assets, the directors use inputs that are observable either directly (as prices) or indirectly (derived from prices). The directors have determined that the fair values of the existing available-for-sale financial assets carried at cost and at recoverable amount cannot be reliably measured. The directors have not made any estimate of the fair value at the end of the reporting period. There is no active market for these investments, and there is no present intention to dispose of these investments. These available-for-sale financial assets are represented by the company’s holding of 1,000,000 ordinary shares in Scott Creek Coal Limited. The shares were acquired on as part settlement for the sale of tenement EPC1548 on 2 April 2013 at an acquisition cost of $100,000. Financial Instruments Measured at Fair Value Financial instruments recognised at fair value in the statement of financial position are analysed and classified using a fair value hierarchy reflecting the significance of the inputs used in making the measurements. The fair value hierarchy consists of the following levels: - - - quoted prices in active markets for identical assets or liabilities (Level 1); inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). Within the hierarchy, the consolidated entity’s investment in Scott Creek Coal Limited is classified at level 3. Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 55 of 59 ABN 49 089 206 986 Notes to the Financial Statements NOTE 30: SHARE-BASED PAYMENTS On 2 October 2012 9,569,378 fully paid ordinary shares were issued to The Australian Special Opportunity Fund, LP. (“the Fund”) as full payment of the $200,000 commencement fee payable under the Share Purchase and Convertible Security Agreement (“the Agreement”) commencing on that day. The commencement fee payable measures directly the fair value of services provided under the agreement and represents the market price for the services provided. The $200,000 commencement fee is included in the Statement of Changes in Equity at Transaction costs on share issue and has no effect on the company’s profit or loss for the financial year. NOTE 31: REGISTERED OFFICE AND PRINCIPAL OFFICE The registered and principal office of the Australian Pacific Coal Limited (ABN 49 089 206 986) and its controlled entities is; Level 7, 10 Felix Street, Brisbane Qld 4000 Annual Financial Report Year Ending 30 June 2013 Australian Pacific Coal Limited Page 56 of 59 ABN 49 089 206 986 Notes to the Financial Statements DIRECTORS’ DECLARATION In the opinion of the directors of Australian Pacific Coal Limited: 1. the financial statements and notes, as set out on pages 14 to 56, are in accordance with the Corporations Act 2001 including: a. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory reporting requirements; and b. give a true and fair view of the consolidated group’s financial position as at 30 June 2013 and of its performance for the year ended on that date; and 2. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. Note 1 confirms that the financial statements also comply with the International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the chief executive officer and the chief financial officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Board of Directors. Peter Ziegler Chairman Dated this 30th day of September 2013 Annual Financial Report Year Ending 30 June 2012 Australian Pacific Coal Limited ABN 49 089 206 986 Page 57 of 59 Directors’ Declaration DIRECTORS Sara J. Crevillén James P. Theologidis Murray C. McDonald INDEPENDENT AUDITOR’S REPORT To the Members of Australian Pacific Coal Limited Report on the Financial Report We have audited the accompanying financial report of Australian Pacific Coal Limited (the company), which comprises the statement of financial position as at 30 June 2013 and the income statement, 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 for the Australian Pacific Coal Limited group (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and 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. Auditor’s Responsibility 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. These Auditing 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 on 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. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Annual Financial Report Year Ended 30 June 2013 Australian Pacific Coal Limited Page 58 of 59 Independent Auditor’s Report SOTHERTONS BRISBANE PARTNERSHIP 8th Floor, 10 Market Street, Brisbane Qld 4000 GPO Box 1568, Brisbane, Qld 4001 ABN 52 540 323 092 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 Opinion In our opinion, (a) the financial report of Australian Pacific Coal Limited is in accordance with the Corporations Act 2001, including (i) (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Emphasis of Matter Without modifying our opinion, we draw attention to Note 1 in the financial report, which indicates that the company incurred a net loss of $1,876,561 during the year ended 30 June 2013 and, as of that date, the company’s current liabilities exceeded its total assets by $336,358. These conditions, along with other matters as set forth in Note 1, indicate the existence of a material uncertainty that may cast doubt about the company’s ability to continue as a going concern and therefore, the company may be unable to realise its assets and discharge its liabilities in the normal course of business. Report on the Remuneration Report We have audited the remuneration report included in pages 9 to 11 of the directors’ report for the year ended 30 June 2013. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the remuneration report of Australian Pacific Coal Limited for the year ended 30 June 2013, complies with section 300A of the Corporations Act 2001. Sothertons - Brisbane Partnership M C McDonald Partner Brisbane 30 September 2013 Annual Financial Report Year Ended 30 June 2013 Australian Pacific Coal Limited Page 59 of 59 Independent Auditor’s Report CORPORATE GOVERNANCE STATEMENT The Board of Directors of Australian Pacific Coal Limited (“the Company”) is responsible for the corporate governance of the Group. The Board guides and monitors the business and affairs of the Company on behalf of the shareholders. (ASX) Corporate Governance Council’s The Company’s Corporate Governance Statement is structured with reference to the Australian Securities Exchange (CGC) Corporate Governance Principles and Recommendations, 2nd Edition. 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. 1.2: Companies should disclose the process for evaluating the performance of senior executives. 1.3: 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 64 65 65 65 65 65 66 66 66 66 66 66 Page 60 Australian Pacific Coal Limited Corporate Governance Statement ABN 49 089 206 986 Annual Report Year Ending 30 June 2013 CORPORATE GOVERNANCE STATEMENT 3.2: Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measureable objectives for achieving gender diversity and for the board to asses annually both the objectives and progress in achieving them. 3.3: Companies should disclose in each annual report the measureable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them. 3.4 Companies should disclose in each annual report the proportion of women employees in the whole organization, women in senior executive positions and women on the board. No 67 No 67 Yes 67 3.5 Companies should provide the information indicated in the Guide to reporting on Principle 3. Yes 67 Principle 4 – Safeguard integrity in financial reporting 4.1: The board should establish an audit committee. Yes 67 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 No No No Yes 67 67 67 67 67 67 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 67 5.2: Companies should provide the information indicated in the Guide to reporting on Principle 5. Yes 67 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 68 6.2: Companies should provide the information indicated in the Guide to reporting on Principle 6. Yes 68 Annual Report Australian Pacific Coal Limited Page 61 Year Ending 30 June 2013 ABN 49 089 206 986 Corporate Governance Statement CORPORATE GOVERNANCE STATEMENT 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. 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 Yes 68 68 Yes 69 7.4: Companies should provide the information indicated in the Guide to reporting on Principle 7. Yes 69 Principle 8 – Remunerate fairly and responsibly 8.1: The board should establish a remuneration committee. Yes 69 8.2: The Remuneration committee should be structured so that it: consists of a majority of independent directors is chaired by an independent chair, and has at least three members 8.3: Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives. 8.4: Companies should provide the information indicated in the Guide to reporting on Principle 8. Yes Yes No Yes Yes 69 69 69 69 69 This Corporate Governance Statement and other corporate governance documents 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. Page 62 Australian Pacific Coal Limited Corporate Governance Statement ABN 49 089 206 986 Annual Report Year Ending 30 June 2013 CORPORATE GOVERNANCE STATEMENT 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. 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. 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 Peter Ziegler Non-executive Chairman Considered independent 29 November 2005 Annual Report Australian Pacific Coal Limited Page 63 Year Ending 30 June 2013 ABN 49 089 206 986 Corporate Governance Statement CORPORATE GOVERNANCE STATEMENT Mr Paul Byrne Executive Director 29 November 2005 Not considered 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 Mr Paul Ryan Non-executive Director Considered independent 29 November 2013 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 Code of Conduct and Ethics Policy also outlines the policy concerning trading in its securities by directors, senior executives and other employees. The Company has taken reasonable steps to ensure compliance with the share trading policy. Directors, officers, senior executives and certain employees are required to advise the Chairman of their intentions prior to undertaking any transaction in the Company’s securities. If a Director, officer, senior executive and employee is considered to hold material non-public information, they will be precluded from making a security transaction until that information has become publicly available. The trading policy also precludes Directors and Senior Management from trading in the Company’s securities during the period from when the books are closed until the next day after the release of the financial results. The Company has not adopted a formal Diversity Policy as it has a small number of employees and has limited opportunity to adopt formalised policy guidelines. The Board is committed to developing diversity in its workplace to assist the Company to meet its goals and objectivities by providing an environment whereby appointments, advancement and opportunities are considered on a fair and equitable basis. The Company is committed to promoting a corporate culture which embraces diversity when determining the composition of the Board, senior management and employees and considered during its recruitment and selection process. Page 64 Australian Pacific Coal Limited Corporate Governance Statement ABN 49 089 206 986 Annual Report Year Ending 30 June 2013 CORPORATE GOVERNANCE STATEMENT The Company will ensure that recruitment and selection decisions are based on the principle of merit, skills and qualifications and regardless of age, gender, nationality, cultural background or any other factor not relevant to the position. Past skills and experience in the mining and exploration industries will be a key determinant in the selection process. The percentage of woman in the whole organisation as a whole organisation, senior management, and the Board are as follows:- Whole organisation 20% Senior Management Nil Board Nil 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 two non-executive directors being Mr. Peter Ziegler (Chairman of the Audit Committee) and Mr Paul Ryan. Mr Ziegler and Mr Ryan 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. 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. 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 prior to their engagement and regularly at Board and Management meetings. Annual Report Australian Pacific Coal Limited Page 65 Year Ending 30 June 2013 ABN 49 089 206 986 Corporate Governance Statement CORPORATE GOVERNANCE STATEMENT Principle 6 – Respect the rights of shareholders The Company promotes effective communication with shareholders and encourages 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. 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. Page 66 Australian Pacific Coal Limited Corporate Governance Statement ABN 49 089 206 986 Annual Report Year Ending 30 June 2013 CORPORATE GOVERNANCE STATEMENT 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. 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. 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 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 Paul Ryan. 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. Annual Report Australian Pacific Coal Limited Page 67 Year Ending 30 June 2013 ABN 49 089 206 986 Corporate Governance Statement 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 2013. 1. Shareholding a. Distribution of Shareholders – Ordinary Securities Number Number Category (size of holding) of holders of shares held 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over Total 171 110 111 682 647 25,136 386,061 891,538 35,139,017 746,485,476 1,721 782,927,228 b. c. The number of shareholdings held in less than a marketable parcel of 33,333 shares ($0.015 on 30 September 2013) is 643 and they hold 6,335,424 shares. The names of the substantial shareholders listed in the holding company’s register as at 30 September 2013 are: Shareholder Dr Elizabeth Anne Byrne Henderson Mr Paul James Byrne Number of shares held 34,289,886 73,292,061 d. Voting Rights 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. Page 68 Australian Pacific Coal Limited ASX Additional Information ABN 49 089 206 986 Annual Report Year Ending 30 June 2013 e. 20 Largest Shareholders — Ordinary Shares Name 1. 2. 3. 4. 5. 6. 7. 8. 9. vs Mr Paul Byrne HSBC Custody Nominees (Australia) Limited Dr Elizabeth Anne Byrne Henderson Mr Peter Graham Wells Mr Boutros Saad & Mrs Mariam Saad Gordon Holdings (Qld) Pty Ltd Moray Holdings Pty Ltd Shemariah Pty Ltd ITR Investments Pty Ltd 10. Wellton Holdings Pty Ltd 11. Westpearl Pty Ltd 12. Mr A R Martin, Mr A R Martin & Mrs M A Martin 13. ABN Amro Clearing Sydney Nominees Pty Ltd 14. Mr Paul Gerard Hislop & Mrs Linda Jane Hislop 15. 16. 17. Shemariah Pty Ltd atf Kirkwood Family Super A/c Penfold Projects Pty Ltd PG Binet Pty Ltd 18. Mr Heath Barry Bourke 19. Mr Antonio Valentini 20. Polylux Pty Ltd ASX ADDITIONAL INFORMATION Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 57,433,728 40,755,858 29,306,553 27,233,536 25,005,047 16,481,616 15,858,333 13,514,742 13,002,700 11,733,333 11,126,227 10,000,000 7,991,949 7,985,000 7,975,000 7,060,000 6,062,500 6,000,000 5,069,533 5,000,000 7.34 5.21 3.74 3.48 3.19 2.11 2.03 1.73 1.66 1.50 1.42 1.28 1.02 1.02 1.02 0.90 0.77 0.77 0.65 0.64 324,595,655 41.46 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 Australian Pacific Coal Limited Page 69 Year Ending 30 June 2013 ABN 49 089 206 986 ASX Additional Information CORPORATE DIRECTORY DIRECTORS Peter Alexander Ziegler Paul James Byrne Paul Anthony Ingram Paul Bradley Ryan COMPANY SECRETARY Kevin Mischewski LAWYERS HopgoodGanim Lawyers Level 8, Waterfront Place 1 Eagle Street Brisbane QLD 4000 AUDITORS Sothertons Chartered Accountants 10 Market Street Brisbane QLD 4000 BANKERS National Australia Bank Limited 100 Creek Street Brisbane QLD 4000 SHARE REGISTRY Link Market Services Limited Level 15, 324 Queen Street Brisbane QLD 4000 Phone: 1300 554 474 or +61 2 8280 7111 www.linkmarketservices.com.au REGISTERED OFFICE Australian Pacific Coal Limited Level 7, 10 Felix Street Brisbane QLD 4000 Phone: +61 7 3221 0679 Fax: +61 7 3229 9323 www.aqcltd.com Page 70 Corporate Directory Australian Pacific Coal Limited ABN 49 089 206 986 Annual Report Year Ending 30 June 2013