Grange Resources Limited
Annual Report 2017

Plain-text annual report

ANNUAL REPORT 2017 AUSTRALIA’S MOST EXPERIENCED MAGNETITE PRODUCER For personal use onlyGrange Resources Limited » 2017 Annual Report GRANGE RESOURCES LIMITED BOARD OF DIRECTORS Michelle Li Non-executive Chairperson Yan Jia Non-executive Deputy Chairperson Daniel Tenardi Non-executive Director Liming Huang Non-executive Director – Retired 25 May 2017 Michael Dontschuk Non-executive Director – Appointed 6 June 2017 Honglin Zhao Chief Executive Officer / Managing Director COMPANY SECRETARY Piers Lewis AUDITORS PricewaterhouseCoopers Freshwater Place 2 Southbank Boulevard, SOUTHBANK, VIC 3006 STOCK EXCHANGE Grange Resources Limited is listed on the ASX Limited (ASX Code: GRR) and the ‘OTC’ Markets in Berlin, Munich, Stuttgart and Frankfurt in Germany (Code: WKN. 917447) WEBSITE www.grangeresources.com.au CONTENTS About Grange 2017 overview 2018 priorities About the Grange business Chairperson’s & chief executive officer’s review 1 2 3 4 5 6 8 17 REGISTERED OFFICE Outlook Grange Resources Limited ABN 80 009 132 405 Operating and financial review 34a Alexander Street, BURNIE, TAS 7320 Corporate governance statement Telephone: + 61 (3) 6430 0222 Facsimile: + 61 (3) 6432 3390 Email: GRR.Info@grangeresources.com.au SHARE REGISTRY Advance Share Registry Services Limited 110 Stirling Highway Nedlands, WA 6009 For personal use only2017 Annual Report » Grange Resources Limited ABOUT GRANGE OUR BUSINESS Grange Resources Limited (Grange or the Company), ASX Code: GRR, is Australia’s most experienced magnetite producer with over 50 years of mining and production from its Savage River mine and has a projected mine life beyond 2030. Grange’s operations consist principally of owning and operating the Savage River integrated iron ore mining and pellet production business located in the north-west region of Tasmania. The Savage River magnetite iron ore mine is a long life mining asset. At Port Latta, on the north-west coast of Tasmania, Grange owns a downstream pellet plant and port facility producing almost 2 million tonnes of premium quality iron ore pellets annually, with plans to increase annual production. Grange has a combination of spot and contracted sales arrangements in place to deliver its pellets to customers throughout the Asia Pacific region. In addition, Grange is a majority joint venture partner in a major magnetite development project at Southdown, near Albany in Western Australia. The Southdown magnetite project, once developed, is expected to have the capacity to supply over four times the amount of iron ore produced at Savage River, at an annual production rate of 10 million tonnes of premium magnetite concentrate. The Company is continuing its search for an equity partner for a strategic share of the Company’s interest in the project. OUR VISION We will produce high quality steel making raw materials economically and effectively. Our operations will be efficient, flexible, and stakeholder focused. OUR VALUES At Grange we ALL will... • Work safely • Lead and act with fairness, integrity, trust and respect • Be responsible and accountable for our actions • Utilise our resources efficiently and effectively • Engage with stakeholders and proactively manage our impact on their environment • Work together openly and transparently • Promote an environment in which our people can develop and prosper 1 For personal use onlyGrange Resources Limited » 2017 Annual Report 2017 OVERVIEW The first half of 2017 presented some challenges to the mine’s operation with issues from wall stability in the pit, scaling works and the tragic incident in March. The team worked diligently to deliver safe and high productivity throughout the operation for the remainder of the year, regaining access to the main ore zone in North Pit. OPERATIONAL OVERVIEW • Achieved over 280 days Lost Time Injury free at the end of 2017 following the tragic incident in March. FINANCIAL OVERVIEW • Total iron ore product sales of 1.90 million tonnes (2016: 2.75 million tonnes). • Continued cost control disciplines, although lower production rate resulted in an increase in unit C1 cash operating costs to $99.17 per tonne (2016: $79.13). • Grange’s high quality, low impurity iron ore products attracted a high premium with average product prices of $127.20 per tonne (2016: $98.06) (FOB Port Latta). • Maintained good access to high grade ore and solid • Stronger AUD:USD exchange rates have impacted AUD production results. revenues. • Shipped 1.90 million tonnes of pellets and chips. • South Deposit Tailings Storage Facility (SDTSF) largely • completed and final approval being sought. Improved production rates in the second half of 2017 and continued cost control disciplines to maintain sustainable operating costs. • Preserved balance sheet strength with disciplined operational planning and execution enabling internal funding of critical mine re-development. • Delivered profit after tax of $60.7 million (2016: profit after tax of $92.9 million), on revenues from mining operations of $247.9 million (2016: $276.3 million). • Continued focus on selling cargoes to targeted customers and balancing opportunities in the spot market. • Sustained strong cash and cash equivalents position at $168.0 million (2016: $166.0 million). 2 For personal use only2018 PRIORITIES Grange is Australia’s proven, safe, reliable, long life producer of magnetite iron ore and premium quality pellets. Grange is committed to the local community of North West Tasmania and makes a significant contribution to the state economy. 2018 PRIORITIES • Maintain cost control disciplines and increase efficiencies. • Ensure the qualities of our premium product are realised. • Deliver into committed sales contracts. • Continue investment in mine development – deliver high grade ore from the North Pit. • Undertake pre-feasibility study into the potential for underground mining below North Pit. • Undertake feasibility study for future development of Centre Pit. • Optimise the Life of Mine Plan with a view to maximise recovery of the resource. • Continue to develop and implement ‘real time’ operational scheduling and management processes to improve daily productivity. • Continue to seek equity partners for a strategic share of the Company’s interest in the Southdown project. 2017 Annual Report » Grange Resources Limited • Invest in critical infrastructure at Port Latta to ensure long term sustainability of our assets. • Pursue opportunities to add value to our product such as producing a fluxed pellet. • Continue to invest in process infrastructure through disciplined capital management programmes. • Prepare the South Deposit Tailings Storage Facility for operation. • Continue to develop Mine-to-Market quality management processes. • Continue to conserve cash and build up our reserves for future mine investment and working capital needs such as may be required for significant projects. These may include underground mining and funding of our share of Southdown project development. • Actively manage our reserve of cash to enhance returns within conservative risk parameters, whilst ensuring sufficient liquidity is available for expected drawdowns. • Support our joint venture in Grange ROC Property in seeking a balance of feasible property development projects. 3 For personal use onlyGrange Resources Limited » 2017 Annual Report ABOUT THE GRANGE BUSINESS MAGNETITE Magnetite is a naturally occurring mineral commonly refined into an iron ore concentrate and used for steel production. Iron ore makes up about five per cent of the Earth’s crust and most commonly occurs in the form of haematite or magnetite. Most of the magnetite mined now is used as an ore of iron. Iron liberated from magnetite ore is usually used to make concentrate for pellet feed or pellets which are used to make steel. The Australian iron ore industry has traditionally been based on the mining, production and export of haematite ores, also referred to as ‘Direct Shipping Ore’ (DSO). The majority of Australian iron ore production comes from DSO. While magnetite is an emerging industry in Australia, globally it accounts for approximately 50 per cent of iron ore production. Smelting magnetite to iron involves agglomeration or ‘clumping together’ of the magnetite concentrate, and thermal treatment to produce haematite iron ore pellets. The pellets can be used directly in a blast furnace or at direct reduction iron-making plants. Magnetite concentrate has internal thermal energy, meaning less energy is required as the magnetite is converted into haematite pellets. This results in lower carbon dioxide emissions. The blast furnace chemically reduces iron oxide into liquid iron called ‘hot metal’. The iron ore and reducing agents (coke, coal and limestone) are combined. Pre-heated air is blown at the bottom of the combination for up to eight hours. The final product is a liquid which is drained, and eventually refined to produce steel. Mining magnetite ore is a high volume business. It is capital intensive and requires significant downstream processing infrastructure including a beneficiation plant, a pellet plant and port facilities. Magnetite products command a value premium above haematite ore products such as fines and lump. This premium is derived on two fronts, through additional iron content, and a quality premium. As magnetite concentrate is a refined product, it usually has higher iron content and lower impurities. This can have beneficial quality and environmental outcomes for the steel maker. Until April 2010, iron ore prices were traditionally decided in closed-door negotiations between the small handful of ‘key’ miners and steel makers which dominated both spot and contract markets. Traditionally, the first agreement on price reached between these two groups set a benchmark price that was followed by the rest of the industry for a 12-month period. This benchmark system broke down in 2010 with pricing moving to short term index-based mechanisms. Given that most other commodities already have a mature market- based pricing system, it was natural for iron ore to follow suit. This has seen magnetite product pricing change so that it is now based on the transparent market based index prices, with premiums being paid for increased iron ore content and pellet manufacture. Grange Resources Limited (Grange Resources) owns and operates Australia’s oldest integrated iron ore mining and pellet production business located in the northwest region of Tasmania. The Savage River magnetite iron ore mine, 100km southwest of the city of Burnie, is a long life mining asset set to continue operation to beyond 2030. At Port Latta, 70kms northwest of Burnie, is Grange Resources’ wholly owned pellet plant and port facility producing more than 2 million tonnes of premium quality iron ore pellets annually with plans to increase annual production. Grange holds long term supply contracts for 1 million tonnes of its annual production and offers the balance of its production to market via a spot sales tendering and contracting process. All products are shipped to major steel producers in the Asia Pacific region. As well as this profitable magnetite operation, Grange Resources has the majority interest in Southdown near Albany in Western Australia. Grange is actively seeking an equity partner to take a strategic share of the Company’s interest in the project. The growth in Chinese demand and its understanding of the use of magnetite-based iron ore products has seen a significant change in the value accrued to both magnetite concentrate and pellets, and the methodology used for determining that value. Grange Resources is Australia’s most experienced magnetite producer. Grange is a proven and reliable commercial producer combining both mining and pellet production expertise. 1.4 Products from Tasmanian Operations r e h g H i I Y T L A U Q r e w o L Developing Fluxed Pellet Iron Ore Pellet ~65% Fe Magnetite Concentrate ~67% Fe Direct Shipping Lump ~63% Fe Lower Direct Shipping Fines ~57% - ~ 61% Fe Price Slide 1 Higher May 2016 4 For personal use onlyCHAIRPERSON’S & CHIEF EXECUTIVE OFFICER’S REVIEW Dear Shareholders, 2017 REVIEW 2017 Annual Report » Grange Resources Limited Our strong performance in 2017 was achieved thanks to the hard work and dedication of our people. Your Company has delivered strong financial results. We announced a final dividend of 1 cent per share. These results were achieved through a focused strategy of disciplined capital expenditure with improvements in operating performance and safety. These were supported by a continuous focus on productivity and cost control. Our balance sheet remains strong. We have been continuously reviewing our strategy against changes in the external environment and will continue to do so. We considered various scenarios, analysed the risks and opportunities we are facing and continue to optimise our operations. We believe that the Board’s approach to strategy and risk management positions us well to manage, respond to changes and to capture opportunities to grow shareholder value over time. We maintain a relentless focus on the health and safety of our people and the communities in which we operate. The resource and mining industry continues to see cyclical changes. Two year’s ago, the price of iron ore was at a decade low and in 2017 it rebounded higher compared with 2016 and the pellet premium climbed to a record high. This, combined with our strong cash position and productivity focus, supportive shareholder-focused culture and a very capable team, the Board is confident that your Company will continue to provide shareholder returns. China’s demand for seaborne iron ore strongly affects the commodity’s price as it consumes more than 70% of seaborne-traded iron ore. 2017 turned out to be a much better year than most anticipated at the start of the year. This is mainly because many believed China’s steel production will be lower in 2017. In fact China’s steel production in 2017 remained strong. Overall in 2017, the steel production in China was 4.4% higher than in 2016. This country was a big contributor to global growth in both steel production and consumption. This was supported by infrastructure spending designed to stimulate economic growth. Several months ago, China moved to cut production in outdated and illegal steel mills in order to protect the environment over the winter months. The result was improved steel margins and profits for the remaining mills. The shift towards larger and more efficient steel producers with an emphasis on producing higher-quality steel products meant increased demand for higher quality iron ore inputs. Furthermore, environmental controls have become a more permanent feature of the policy landscape. The rise in premiums comes as China cuts pollution and Brazil’s Samarco production remains idle. Iron ore pellet premium peaked of a record high at over $59/dmt in November 2017. South Deposit was completed in the first half of 2017. Mining operations focused on delivering high grade ore from North Pit. A tragic incident occurred in March 2017 and required a modification to the mine design that delayed access to the main ore zone. This resulted in decreased production of approximately 250K tonnes of iron ore product for the year compared to the plan. South Deposit Tailings Storage Facility (SDTSF) is largely complete and now is waiting for final approval. This is a significant project in terms of the ongoing viability of the Savage River Operation as it will provide sufficient tailings storage capacity for the remaining life of the mine. We delivered profit after tax of $60.7 million (2016: profit after tax of $92.9 million), on revenues from mining operations of $247.9 million (2016: $276.3 million), with improved iron ore price and record pellet premium with average product prices of $127.20 per tonne (2016: $98.06) (FOB Port Latta). Total iron ore product sales of 1.90 million tonnes (2016: 2.75 million tonnes). Continued cost control disciplines, although lower production rates resulted in an increase in unit C1 cash operating costs to $99.17 per tonne (2016: $79.13). Our sustained strong cash position is at $168.0 million at the end of the year (2016: $166.0 million). We continued to maintain our unrelenting and disciplined management of personal safety in operations. Our company’s operations achieved 280 days Lost Time Injury Free in 2017. We have continued to seek a strategic equity interest buyer in the Southdown joint venture project. The on-going strategy is to maintain the currency and good standing of all tenements, permits and project assets. 5 For personal use onlyGrange Resources Limited » 2017 Annual Report OUTLOOK Chinese iron ore imports have started on a positive note in 2018 following a strong performance throughout most of 2017. However, the iron ore market is expected to be volatile in 2018. There are conflicting forces influencing the iron ore price. China’s steel production is sensitive to a range of economic, monetary and environmental policies, and government policy remains the key uncertainty affecting the outlook. The iron ore price will be impacted by the Chinese government’s efforts to manage steel production and rising global mine production. US President, Donald Trump signing-off on a 25% tariff on imports of steel into the US add to the uncertainties ahead for the steel industry and iron ore market. Chinese exports account for only 2% of total US imports, suggesting that the impact on China’s steel industry will be negligible. Prices were supported by speculation that more Chinese cities may announce curbs on steel production. The Australian government forecasts a 20% fall for iron ore in 2018. China’s iron ore imports are expected to remain steady but this will not be enough to sustain the current iron ore price as export volumes from Brazil and Australia will continue to grow. UBS and Citibank predicted iron ore prices will average around $64 a tonne in 2018 as Vale is planning to lift iron ore exports 7% in 2018 to 390 million tonnes. Rio Tinto and BHP, along with Fortescue Metals Group are to add 170 million tonnes of additional capacity in the next several years. However, iron ore pellet premiums for 2018 look to continue the strong performance from 2017. China’s President Xi Jinping said in October that fighting pollution was one of the country’s key tasks in the upcoming years. Despite the uncertain conditions that we currently face, the long-term outlook for our sector remains positive. In the next 15 years, the world’s population will increase by more than one billion people, and almost half a billion people in China, India and the Association of South East Asian Nations(ASEAN) region will move from rural to urban environments. The demand for minerals and metals will continue as they are essential ingredients of modern life. While we were prepared for lower iron ore prices, the short to medium-term outlook for the resource sector remains challenging. Our strong balance sheet and high-quality products remain our strengths. We continue to implement measures to both preserve our strong balance sheet and align our capital allocation framework with the cyclical nature of the industry. The strength of our balance sheet positions us to take advantage of market conditions through the cycle. Our goal is to remain competitive in a frequently changing iron ore market, where the iron ore price continues to be volatile. The focus for the management team is to maintain a disciplined approach in managing its day to day activities while at the same time challenging itself to find better ways to do business. The company’s strategic focus is to generate shareholder value by safely producing high quality iron ore products from its Savage River and Port Latta operations in Tasmania and continuing to assess the feasibility of a major iron ore development project at Southdown, near Albany in Western Australia. 6 The Group’s current strategic priorities include: SAVAGE RIVER AND PORT LATTA OPERATIONS • Maintain cost control disciplines and increase efficiencies. • Ensure the qualities of our premium product are realised. • Deliver into committed sales off-take agreements. • Continue investment in mine development – continue cutbacks in North Pit and deliver high grade ore from the main pit. • Undertake pre-feasibility study into the potential for underground mining below North Pit. • Undertake feasibility study for future development of Centre Pit. • Optimise the Life of Mine plan with a view to maximise recovery of the resource. • Continue to develop and implement ‘real time’ operational scheduling and management processes to improve daily productivity. Invest in critical infrastructure at Port Latta to ensure long term sustainability of our assets. • • Pursue opportunities to add value to our product such as producing a fluxed pellet. • Continue to invest in process infrastructure through disciplined capital management programmes. • Prepare the South Deposit tailings storage facility for operation. • Continue to develop Mine-to-Market quality management processes. SOUTHDOWN PROJECT • Ensure that all tenements, permits and project assets remain in good standing. • Secure Commonwealth EPBC approval the minesite, slurry pipeline, port facilities and desalination infrastructure. for • Maintain the currency of all the elements of the definitive feasibility study. • Continue to review and identify the potential for alternative development models. • Engage PCF to continue searching for new equity partners to take a strategic share of the Company’s interest in the Project. CAPITAL ALLOCATION MANAGEMENT • Diversify risk and return to create a well-balanced portfolio that can meet our future working capital, liquidity and investment needs to sustain and expand our core operations over the long term. • Actively manage our cash reserve to enhance returns within conservative risk parameters. • Support our joint venture in Grange ROC Property in seeking a balance of feasible property development projects. For personal use only2017 Annual Report » Grange Resources Limited The Board and management team have a positive outlook for the pellet market and are proactively exploring opportunities for innovation, improvement and productivity growth. The on-going development of the iron ore market and the issues in China for increasing restrictions on environmental noncompliance provide a unique opportunity for us. We are very confident of our competitiveness to supply a sustained high quality, low impurity iron ore pellet product. We strive to deliver value to our loyal employees and shareholders. Thank you On behalf of Grange’s Board, we would like to thank all of our employees for their dedication and hard work over the past year. We are proud of our excellent culture, capability and resilience to best place us for a prosperous future. And to our shareholders, thank you for your continued support. Michelle Li Chairperson Honglin Zhao Chief Executive Officer 7 For personal use only Grange Resources Limited » 2017 Annual Report OPERATING AND FINANCIAL REVIEW KEY HIGHLIGHTS • Achieved a Lost Time Injury free of over 280 days in year of 2017. • Delivered profit after tax of $60.7 million (2016: profit after tax of $92.9 million), on revenues from mining operations of $247.9 million (2016: $276.3 million). • Grange’s high quality, low impurity iron ore products attracted a high premium with average product prices of $127.20 per tonne (2016: $98.06) (FOB Port Latta). • Total iron ore product sales of 1.90 million tonnes (2016: 2.75 million tonnes). • Stronger AUD:USD exchange rates have impacted AUD revenues. • Continued focus on selling cargoes to targeted customers and balancing opportunities in the spot market. • Mining in South Deposit completed during the year and continued mining in North Pit. • Continued cost control disciplines, although lower production rate resulted in an increase in unit C1 cash operating costs to $99.17 per tonne (2016: $79.13). • Sustained strong cash and cash equivalents position at $168.0 million (2016: $166.0 million). • South Deposit Tailings Storage Facility (SDTSF) completed and approval to operate is being sought. SAFETY PERFORMANCE Grange operations achieved over 280 days Lost Time Injury free in 2017 following the tragic incident in March. Focus on lead indicators, hazard identification and risk management helped us sustain disabling injuries to less than 4 despite some minor medical treatments required through the year. Lag Indicators 2016 Lag Indicators 2017 8 For personal use only2017 Annual Report » Grange Resources Limited FULL YEAR RESULT Grange recorded a statutory profit after tax of $60.7 million for the year ended 31 December 2017 (2016: $92.9million). Key revenue metrics for the year ended 31 December 2017 and the preceding 2016 year were as follows: Iron Ore Pellet Sales (dmt) Iron Ore Concentrate Sales (dmt) Iron Ore Chip Sales (dmt) Total Iron Ore Product Sales (dmt) Average Realised Product Price (US$/t FOB Port Latta) Average Realised Exchange Rate (AUD:USD) Average Realised Product Price (A$/t FOB Port Latta) 2017 1,804,108 134 91,841 1,896,083 97.84 0.7692 127.20 2016 2,637,607 118 112,378 2,750,103 72.94 0.7438 98.06 Total sales for the year ended 31 December 2017 was 1.90 million tonnes of high quality, low impurity iron ore products (2016: 2.75 million tonnes) and reflects sustained production from maintaining access to high grade ore. The average iron ore product price received during the year was $127.20 per tonne of product sold (FOB Port Latta) (2016: $98.06 per tonne). The upward movement was consistent with the increase in benchmark 62% Fe iron ore prices (CFR China) which was driven by stimulus policies following a slowing growth of the Chinese economy in late 2015 and structural reform in the Chinese steel industry that resulted in greater demand for higher grade iron ore. Please refer to Note 4 of the Financial Report for segment information for sales to different geographical markets. The sales from long term off take agreements with Jiangsu Shagang International Trade Co. Ltd represents 47.6% of total sales for 2017 (2016: 39.6%). Key operating metrics for the year ended 31 December 2017 and the preceding 2016 year were as follows: Total BCM Mined Total Ore BCM Concentrate Produced (t) Weight Recovery (%) Pellets Produced (t) Pellet Stockpile (t) ‘C1’ Operating Cost (A$/t Product Produced)(1) 2017 12,461,515 1,193,821 1,959,604 49.5 2016 9,514,884 1,218,363 2,397,318 41.6 1,895,180 2,378,486 262,212 $99.17 171,140 $79.13 (1) Note: ‘C1’ costs are the cash costs associated with producing iron ore products without allowance for mine development, deferred stripping and stockpile movements, and also excludes royalties, sustaining capital, depreciation and amortisation costs. Mining at South Deposit was completed in the first half of 2017 as planned and the main focus for operations was on North Pit. Some delays in access to the ore occurred due to the incident in March 2017 and as we dealt with some complex structures and faults on the east wall which required additional wall support and reinforcement. Remediation efforts continued safely, providing a good foundation for production into the coming year. Movement rates also increased in the latter part of the year as the pre-stripping on the west wall is opened up larger and productive working areas. Major annual planned maintenance was completed in the first half of 2017. The second Autogenous Mill Shell was replaced and commissioned successfully and on plan. Along with increased movement rates from the mine which provided increased ore supply, the concentrate and pellet plants ran at record run rates in the last quarter of the year, a significant achievement from the 50-year-old production plants. The South Deposit Tailings Storage Facility (SDTSF) is largely complete and final approval is being sought. This is a significant project in terms of the ongoing viability of the Savage River operations as it will provide sufficient tailings storage capacity for the remaining life of the mine. This facility will also provide the ability for treatment of the legacy environmental issues arising from previous operations at Savage River. Expenditure on exploration and evaluation activities during the year was $0.8 million (2016: $1.4 million) and has been charged to the income statement. 9 For personal use onlyGrange Resources Limited » 2017 Annual Report SOUTHDOWN MAGNETITE PROJECT Net cash flows from financing activities The Southdown Magnetite Project, situated 90km from the city of Albany in Western Australia, is a joint venture between Grange (70%) and SRT Australia Pty Ltd (SRTA) (30%). SRTA is jointly owned by Sojitz Corporation, a Japanese global trading company, and Kobe Steel, the third largest Japanese steel maker. This advanced project has 1.2 billion tonnes of high quality resource, which outcrops at the western end of its 12km strike length and has access to established infrastructure. During 2017, the joint venture partners continue to monitor all ongoing project requirements to ensure that the current status of the feasibility studies is such that the project can be fully recommenced as soon as an appropriate opportunity arises. The on-going strategy is to maintain the currency and good standing of all tenements, permits and project assets. Compliance with environmental and tenement conditions was maintained. In February 2018, the Company, in conjunction with its joint venture participants, has appointed PCF Capital Group to assist with seeking a strategic investors. FINANCIAL POSITION Grange’s net assets increased during the year to $387.6 million (31 December 2016: $332.6 million) principally as a result of a profit after tax of $60.7 million, offset by a final 2016 dividend payment of $5.8 million. The Group’s market capitalisation as at 5 March 2018 is $208.32 million. STATEMENT OF CASH FLOWS Net cash flows from operating activities Net cash inflows from operating activities for the year were $71.2 million (2016: inflows $121.9 million) and reflect lower iron ore product sales and an increase in unit operating costs. Net cash flows from investing activities Net cash outflows from investing activities for the period were $51.6 million (2016: outflows $43.1 million) and principally related to expenditures for mine properties and development $29.7 million and property, plant and equipment $21.7 million. Mineral Resources Net cash outflows from financing activities for the period were $10.2 million (2016 outflow: $8.9 million) and principally related to the payment of 2016 final dividend ($5.8 million) and repayment of other borrowings ($6.5 million). EXPLORATION AND EVALUATION Exploration during the last year ending 31 December 2017 focussed on the existing exploration licences. At Long Plains the work consisted of water management sampling, waste rock trials (kinetic leach columns), geotechnical and geological modelling in support of a development proposal and environmental management plan for Long Plains. The Mineral Resource stands at 374.4 @ 47.6% DTR. Design and modelling work on the deposit will continue in 2018, as we continually seek to maximise value in our Life of Mine Plan. For details on the Mineral Resource please refer to the ASX release made on 3 April 2018. MINERAL RESOURCES AND ORE RESERVES STATEMENT - SAVAGE RIVER OPERATIONS The following tables show the Mineral Resources and Ore Reserves for the Savage River operations as at 31 December 2017. The mining of ore throughout the year focussed on high grade supply from South Deposit blended with ore from North Pit. The Mineral Resource has decreased since the previous estimate dated 31 December 2016 as a result of depletion for mine production. Ore Reserves have also been depleted for mine production during the last calendar year. Mineral Resources and Ore Reserves are categorised in accordance with the Australasian Code for Exploration Results, Mineral Resources and Ore Reserves of 2012 (JORC Code, 2012). Estimated Measured and Indicated Mineral Resources those Mineral Resources modified to produce the estimated Ore Reserves. Mineral Resources which are not included in the Ore Reserves did not meet the required economic viability hurdle at the time of last review. include A summary of the total Mineral Resources for Savage River as at 31 December 2017 is as follows: Measured Indicated Inferred Total (1) Davis Tube Recovery – a measure of recoverable magnetite As at December 2017 Tonnes (Mt) Grade % DTR (1) 53.8 66.2 As at December 2016 Tonnes (Mt) Grade % DTR (1) 54.2 67.3 153.1 155.1 374.4 49.8 42.5 47.6 155.1 155.1 377.5 49.9 42.5 47.7 10 For personal use only2017 Annual Report » Grange Resources Limited Ore Reserve A summary of the ore reserve for Savage River as at 31 December 2017 is as follows: Proved Probable Total As at December 2017 Tonnes (Mt) Grade % DTR (1) 54.2 26.8 As at December 2016 Tonnes (Mt) Grade % DTR (1) 54.3 28.0 56.6 83.4 51.8 52.5 58.6 86.6 51.7 52.5 (1) Davis Tube Recovery – a measure of recoverable magnetite A detailed statement of the Mineral Resources and Ore Reserves can be found in the ASX announcement dated 3 April 2018. Grange confirms in reproducing the Mineral Resources and Ore Reserves in this subsequent report, that it is not aware of any new information or data that materially affects the information included and all the material assumptions and technical parameters underpinning the estimates in this report continue to apply and have not materially changed. HEALTH AND SAFETY Safety Performance Overview Grange believe that responsible occupational Health and Safety with sound environmental and social responsibility (HSE) practices are integral to an efficient and successful company. Grange’s OHS & ESR Management Systems have been integrated to form the ‘Safety and Environment Management System’ (SEMS) which supports OHS & ESR policies and defines the required standards to which any Grange facility must operate. SEMS is an integral part of the Grange Management System (GMS), it is well supported by a management plan for 16 of the major hazards identified in our industry. Of the 16 Major Hazard Standards, 4 are deemed to be Principal Mining Hazards as outlined in the Tasmanian Mining Legislation. The implementation and effective management of SEMS enables compliance with legislation, reduction of risk, increased efficiencies and provides the framework for continuous improvement. SEMS is aligned to ISO 14001 Environmental & OHSAS 18001 Quality Management Systems and is applicable to any existing and future national or international operation. SEMS is now integrated into our Certificate IV Leadership & Management training competency for our current and aspiring leaders. Mission Statement To drive a continuous improvement culture involving everyone at Grange Resources. We strive to eliminate injury, loss and waste, and create positive environmental outcomes adding value to the communities in which we operate. This will be achieved through effective adherence to management systems, integrated risk management practices, risk aware culture, demonstrable leadership, maintaining standards, monitoring performance and looking after our people. To achieve superior health and safety performance we believe: • All injuries and loss events are preventable. • All hazards can be identified and their risks managed. • No task is so important that it cannot be done safely. • Every person is accountable for their own and the safety of those around them. • Safety performance can always be improved. The Company is committed to providing a safe place of work and safe systems of work for all its workers at every site. We take this commitment seriously and expect those working for us to share the same level of commitment. We want our workers to return home in the same or better condition than when they came to work. The effectiveness of our systems and safety management in general is well demonstrated by the considerable measurable improvements in all safety lag indicators. Targeted improvements in our lag indicators are reinforced by a regime of measurable lead indicators to help reduce risk exposures. In addition, Grange is committed to ensuring compliance with legislative requirements for each area of its operations including meeting or exceeding requirements within: • Federal & State Work Health & Safety Legislation. • Anti-Discrimination Legislation. • Fair Work Australia Legislation. • Rehabilitation & Workers Compensation Legislation. • Environmental Legislation. • Codes of Practice nominated in all Federal and State Legislation. • Adopting accepted industry standards in areas where legislation is deficient. • Mining specific, HSE Legislation as required. • Environmental licence conditions for existing and new operations. Established systems are in place to ensure legislative requirements are tracked, monitored and corrective actions implemented for any instances of non-compliance. During 2017 we continued our focus on reducing costs without reducing support services via: for ERT • Initiatives considerable costs for external training providers. training again saved in-house • Downsizing the emergency response team while increasing our general first aid training coverage has ensured we have competent people where they are needed, as demonstrated by our win in the Tasmanian State Mines Rescue Competition for the second year in a row. • Taking up the challenges required to obtain Federal and State government training funds continues to reduce the outlay for training in leadership and continuous improvement. 11 For personal use onlyGrange Resources Limited » 2017 Annual Report • Upgrading a remote Titon Drill rig to enable ~120m deep horizontal dewatering holes has minimised exposure of personnel to the highwalls. • Participating in the AIG Insurance Underwriters safety audit has provided initiatives to help reduce insurance costs. Investing in Mental Health and Wellbeing first aid training for Management and Contact Officers has helped foster an alert and caring worker relationship. • • Focus on gender diversity has promoted the role of women in our workforce and is supporting greater diversity in our teams. Initiating training in ‘Critical Controls’ is improving our risk management focus and initiatives. • Grange recognises the importance of our contractors’ safety management systems being aligned with WorkSafe Tasmania and mine safety regulations as well as being on par with our own safety standards. To this end we have incorporated and communicated new OHS & ESR requirements for contractors into our SEMS. During 2017 further enhancing our Safety Preventative Maintenance (PM) work orders in lead indicators, dedicated Area Inspections covering all areas on site, formalising Task Observations for management and key personnel as Lead Indicator Key Performance Indicators (KPI’s). Tracking these has helped reduce risk exposures across all areas. This was particularly evident through our resulting reduction in disabling injuries from the previous year. Sharing and Learning Grange adopts a philosophy of continuous learning and sharing of safety experiences. In addition to its highly successful on-line induction programs, Grange Resources conducts an extensive range of on-site safety training activities including extensive work permit training, energy isolations, site driving and pit driving permits, simulation training for new operators, fire warden and extinguisher training as well as refreshers on occupational first aid and road accident rescue entrapment release. During the year Grange continued to work closely and openly with the Office of the Chief inspector of Mines (OCIM), inviting them to participate in regular inspections including in 2017 a mine site tour by every Australian State Chief Inspector of Mines. This group included the Chief Inspectors of Mines from both New Zealand and New Guinea. These forums also have a positive impact on other Tasmanian operations including connected industries. Grange continue to represent Tasmanian Mines on a Mines Legislation Safety Steering Committee (MSSC) that is reviewing and enhancing the current Tasmanian Mining Supplementary Safety Act and Regulations. Principal Hazard Management Plans and subordinate standards and procedures were also revised and compiled to ensure full compliance with the legislative requirements. These Plans were presented to the Office of the Chief inspector of Mines (OCIM) and assessed as being the benchmark for the mining industry and are commonly referenced by the MSSC. 12 In addition to training delivered at the operational level, the company continued to reinforce many site-wide health and safety programs aimed at improving our employee’s wellbeing, including cancer awareness, heart safety awareness and mental health awareness. During 2017 the company invested in new induction videos that help deliver the safety messages important to reinforce our culture and to regularly remind our people of the need to report safety issues and deficiencies. The Company has a fully functional and qualified emergency response team (‘ERT’) providing expert first aid and first response care to our sites and others in need including road accidents in the Savage River and Port Latta areas. During the year a combined Savage River and Port Latta team competed in and won the Tasmanian Mines Emergency Rescue Committee (TMERC) Emergency Rescue Competition for 2017 in a very competitive event. Commitment to Social Responsibility Grange continued with its commitment to social responsibility engaging with our stakeholders and communities to help us understand and respond to their interests and concerns. In addition to regular dialogue with neighbours and communities close to our operations, the Company continues to host and support the education sector through tours, school curriculum information, industry links, a graduate program as well as work opportunities at its operations. Grange is actively involved in the community in which we operate and regularly support local events throughout the region with focus on local schools seeking help with student work skill development. Grange staff actively participated in the local school’s student development programs including mock interviews, conducting site visits and the ‘careers on wheels’ program. In 2017 our management and workers have again rolled up their sleeves and participated in 2017 Business Clean Up Australia Day, covering the long and winding 38 km road between Waratah and the Savage River Township, collecting roadside litter and rubbish to enhance our environment, an effort noted by our local newspaper. ENVIRONMENTAL Legislative Approval Grange obtained environmental and planning approval in 1996 and 1997 allowing it to operate under the Tasmanian Land Use Planning and Approvals Act 1993 (LUPA), the Tasmanian Environmental Management and Pollution Control Act 1994 (EMPCA), the Tasmanian Goldamere Pty Ltd (Agreement) Act 1996 (Goldamere Act) and the Tasmanian Mineral Resources Development Act 1995. This approval covers an expected mine and processing life using open-cut mining at Savage River, gangue removal and concentrating at Savage River and pelletising at Port Latta. During 2014 Grange received relevant approvals for the South Deposit Tailings Storage Facility. For personal use onlyGoldamere Act Goldamere Agreement 2017 Annual Report » Grange Resources Limited The Goldamere Act overrides all other Tasmanian legislation with respect to Grange’s operations. The Goldamere Act limits Grange’s liability for remediation of contamination, under Tasmanian law, to damage caused by Grange’s operations, and indemnifies Grange for certain environmental liabilities arising from past operations. Where pollution is caused or might be caused by previous operations and that pollution may be impacting on Grange’s operations or discharges, Grange that pollution. Grange is required to operate to Best Practice Environmental Management (BPEM). indemnified against is Planning Approvals Grange obtained planning approval subject to a series of environmental permit conditions on 29 January 1997. Planning approval was issued by the Waratah Wynyard Council for Savage River and by the Circular Head Council for Port Latta. The approvals were conditional on the provision of an Environmental Management Plan (EMP) incorporating a Rehabilitation Plan (ERP) prior to the commencement of operations. Various other studies were also required. Grange received planning approvals from the Waratah Wynyard Council for the South Deposit Tailings Storage Facility (SDTSF) during 2014, construction commenced in July 2014 and is expected to commence operation in 2018. Environmental Management Plans The EMP incorporating the ERP and study results were approved by the (then) Department of Environment Parks, Heritage and the Arts and operations commenced in October 1997. The latest revision of the approval documents occurred on 6 October 2000 when Environmental Protection Notices (EPN) 248/2 and 302/2 were issued to replace the environmental permit conditions for Savage River and Port Latta respectively. Approvals are required from the Department of Primary Industries, Parks, Water and the Environment (DPIPWE) and relevant Councils for major infrastructure developments and operational expansions and changes. These approvals are in the form of approved EPN’s and or amendments and reflect changing operational circumstances, an increasing knowledge base and include approvals designed to extend operations, amend management plans and provide for changes to waste rock dumping plans and any proposed treatment facilities. Such amendments are enacted by the issue of EPN’s or Permit Conditions Environmental (PCE)’s. An amendment to the EMP was approved for an extension of mine and pelletising operations in early 2007 to approve the Mine Life Extension Plan. EMP and ERP reviews are submitted on a 3 yearly basis. Revised EMPs reflect BPEM and current mine planning and focus on closure requirements and rehabilitation. The development of significant new projects such as a new pit will require additional planning approval and at a minimum an EMP amendment approval followed by issuance of an EPN from the EPA. The Goldamere Agreement (which forms part of the Goldamere Act) provides a framework for Grange to repay the Tasmanian Government for the purchase of the mine through remediation works. A significant variation to the Goldamere Agreement was signed on the 19 December 2014 which extends the Agreement until 24 December 2034. This variation also removed a significant number of redundant conditions. The amended Goldamere Agreement provides a framework for Grange to co-manage the Savage River Rehabilitation Project (SRRP) and carry out contracted works in lieu of paying the purchase price of the operation to the Government. The agreement also allows Grange to integrate its rehabilitation obligations with those of the State under the SRRP. Savage River Rehabilitation Project (‘SRRP’) Grange representatives meet with representatives from DPIPWE on a regular basis to develop and implement remediation works at Savage River. Grange has contracted with the SRRP for works including construction, management and development of waste rock dump covers, acid pipelines and other remediation projects. The SRRP objective is to capture and treat 65% of the site’s copper load to remove the possibility of an acutely toxic aquatic environment. The scope of works to meet this objective has been completed and costed to feasibility level. A strategic plan outlining the works required to achieve the objective and repay Grange’s purchase price debt has been approved by the Tasmanian Environmental Protection Authority and is being implemented by the SRRP Committee. This plan was updated in 2012 to reflect the long term risks and Grange’s latest mining plan. 13 For personal use onlyGrange Resources Limited » 2017 Annual Report Principal Environmental Issues Waste Rock, Tailings and Water Management – Savage River • Water, tailings and waste rock management at Savage River, including: development of waste rock dumps which exclude oxygen to minimise the formation of acid mine drainage and utilisation of these dumps to form seals on old waste rock dumps; subaqueous tailings deposition and maintenance of saturated tailings; providing a centralised water treatment system using a disused pit to eliminate turbidity from mine runoff. Appropriate management and monitoring systems are in place to ensure regulatory compliance in these areas. In 2013 Grange developed a Development and Environmental Management Plan (DPEMP) for the South Deposit Tails Storage Facility (SDTSF). Due to the size and nature of the tails storage facility, the proposal required assessment under LUPA (1993), the State EMPC Act (1994) and the Commonwealth EPBC Act (1999), as the proposal has the potential to impact on matters of national environmental significance (Tasmanian Devil and Spotted Quoll). • • The DPEMP was submitted to the Waratah-Wynyard Council in May 2013 for assessment, the DPEMP was publicly advertised through May and June with one submission received in relation to the development. A workshop in July with the Environmental Protection Authority (EPA) highlighted areas that needed further clarification. Toward the end of July the EPA formally requested a Supplementary submission, this submission provided an opportunity to address the issues raised in the public submission. Grange spent a number of months liaising with both the EPA and the Department of Environment in Canberra (DoE) addressing the Supplementary criteria. In early December, 2013 the EPA and the DoE were satisfied that all the required information had been provided which allowed the approvals process to recommence. • Grange received final council approval under LUPA (1993) on 24 March 2014 for the construction of the South Deposit Tailings Storage Facility. A Permit Conditions Environment (PCE) was issued, outlining the conditions that must be met during construction and operation of the dam. • Grange received approval from the federal Environment Minister on 24 April 2014, due to the potential loss of habitat for the Tasmanian Devil and the Spotted Quoll, Grange is required to provide an offset for unavoidable impacts. This offset is in the form of a donation to the Save the Devil Program to a value of $160,000. Grange received further conditions from the federal approval under the EPBC Act (1999). • Construction of the dam, including the downstream waste rock dump commenced in early July after a number of the approval conditions had been met. These included approvals of a Devil and Quoll Management Plan, a Waste Rock Management Plan and a Water Quality and Remediation Plan. Grange also fulfilled its requirements to establish training and induction packages for threatened species and instigated an EPBC species register for sightings and incidents involving EPBC listed species. The EPBC Register and other relevant documents are available on the Grange Resources Website. By December the waste rock dump was well established and work was commencing on the consolidated section of the dam. 14 • The SDTSF incorporates the ability to mix and co-treat legacy acid rock drainage (ARD) from the Old Tailings Dam and B-Dump using the excess alkalinity in tailings should Grange and the Crown agree to do so. The potential transfer of the ARD seeps from the Old Tailings Dam will also improve the long term integrity of the Main Creek Tails Dam (MCTD). The co-treatment of the ARD seeps within the SDTSF would improve water quality in Main Creek and the Savage River. Regardless of whether the ARD seeps are treated in the SDTSF, remediation of Main Creek will be further enhanced by the innovative design of the storage facility that will allow water to flow through alkaline rock prior to discharge downstream. The first stage involving the installation of pipework was completed in 2014, with the remaining OTD Collection Bund and associated intake and discharge works commenced in 2017. Final completion of the project is expected in Q2 2018. • Grange requested a variation to conditions 1 and 11 of the EPBC approval of the SDTSF to allow for a slightly larger pit perimeter and other minor operational changes. These variations were approved on the 28th July 2015. No further offset was required for these variations. Air Emissions Reduction Program Waste Rock, Tailings and Water Management – Port Latta Grange continued to work on quality and measurement systems to improve performance of the Port Latta operations especially with regard to air emissions. In particular, the focus is on the stable operation of furnaces. Rehabilitation Plans Grange continues to plan for closure and departure on completion of the mining plan. Principal issues in respect of closure include waste rock dump maintenance, tailings management, future use of infrastructure and a five year monitoring and maintenance plan. SOUTHDOWN MAGNETITE PROJECT The Southdown Project ultimately aims to export 10 million tonnes per year of premium magnetite concentrate to Asian steel markets. The Southdown Joint Venture (SDJV) is a joint venture between Grange Resources Limited (70%) and SRT Australia Pty Ltd (SRTA) (30%). SRTA is jointly owned by Sojitz Corporation, a Japanese global trading company, and Kobe Steel, one of Japan’s largest steel producers. 2017 Project Overview • The Project continued on reduced expenditure while Grange seeks an equity partner for a strategic share in the Project. • Existing tenure and approvals have been maintained. • Project security has been enhanced by continuing to build land tenure and access, including progressing negotiations with the State and landowners for access to key infrastructure areas. For personal use only• Progressed studies relating to project engineering and Conventional Mining 2017 Annual Report » Grange Resources Limited further environmental permitting, including: • Progression of the commonwealth environmental approval for mine, desalination and pipelines. • Groundwater modelling which confirmed deep water- bearing palaeo channels have some potential to contribute to construction water supply. • Ongoing hydrogeological baseline studies. Grange announced to the market on 29 November 2012 that it would significantly reduce expenditure on its 70% share of the Southdown Magnetite Project. Following this announcement the Project’s team size and scope of work was reduced. Challenging global economic conditions have resulted in the search for an equity partner continuing throughout the year. The reduced Project Team has continued to work toward securing environmental approvals, and to build land tenure and access through negotiations with land holders and government agencies to enhance the ability of the Project to rapidly mobilise in the future. In February 2018, the Company, in conjunction with its joint venture participants, has appointed PCF Capital Group to assist with seeking a strategic investor(s). The joint venture partners continue to monitor all ongoing project requirements to ensure that the current status of the feasibility studies is such that the project can be fully recommenced as soon as an appropriate opportunity arises. The on-going strategy is to maintain the currency and good standing of all tenements, permits and project assets. This approach will be continued into 2018, and at least until Grange is able to secure an equity partner for a strategic share of the Company’s interest in the project or until a valid alternate development model can be successfully formulated. 2018 Project Priorities • Continue to develop alternate development models which may see the Southdown Project move into construction and operation. • Continue search for new equity partner to take a strategic share of the Company’s interest in the Project. • Maintain reduced expenditure. • Maintain all tenements, permits and project assets in good order. • Progress environmental approvals and permits. • Grange has the in house skills, systems, capability and discipline to deliver Southdown’s potential when the time is right. Project Overview Geology The Southdown magnetite deposit is a long, thin, near- surface, continuous ore body. It extends over 12 kilometres, with depths varying from 50 metres in the west to 480 metres in the east. The deposit has been drilled and evaluated since its initial discovery in 1983, including an extensive program of resource drilling during 2011 for the feasibility study. Targeted concentrate production rates require a material movement in the mine of up to 132 Mt per annum by conventional drill, blast, load and haul mining methods. The final proposed pit is six kilometres long, one kilometre wide and about 370 metres deep. The mining operation will draw heavily on Grange’s existing capability as Australia’s most experienced commercial producer of magnetite concentrate, to assist with start-up and ongoing operations. Ore Crushing and Concentration The project plan envisages Southdown ore being processed to increase the iron content from around 25% to 69%. Extensive metallurgical test work including pilot plant trials have been conducted since 2004. The process includes crushing, grinding, classification and magnetic separation. The concentrate is further upgraded using hydro separation to remove fine silica, and flotation to remove sulphur impurities. Transporting the Concentrate Slurry 110 km to the Port Final magnetite concentrate will be thickened and transported through a 110 km pipeline to the Port of Albany, where it will be filtered and stored for loading onto cape size ships. A second pipeline will return the filtered water back to the mine site so it can be used again in the process. Both pipelines will be buried. Increasing Albany’s Port Capacity Subject to a decision to proceed, a concentrate export facility would be built on 7 hectares of reclaimed land at Albany Port, immediately east of the existing wood chip terminal site. The plan incorporates a filtration plant, storage shed, new berth and ship loading facility. Deepening and widening a 9.5 kilometre approach channel will enable 200,000 tonne cape size ships to use the port. Whilst minimal dust generation is expected because of the high moisture content of the concentrate, the shed will be fully enclosed, under negative pressure and fitted with dust extraction equipment. The development would more than treble Albany’s current port capacity from approximately 4 Mt per annum to 14 Mt per annum. The design has been developed in close consultation with the Southern Ports Authority, Port of Albany (formerly Albany Port Authority) and in line with the Public Environmental Review approved in November 2010. A new source of water and power supply The plan also envisages that a seawater desalination plant would be constructed 25 km from the mine to supply the plant with 11 GL per annum of water. Power for the mine site would be provided by a new 278 kilometre 330kv transmission line from Muja to Southdown, to be built by Western Power. Operations Planning The Southdown operation will be modelled on Grange’s existing Savage River operation in Tasmania operating on a 24/7 basis for 365 days per year. 15 For personal use onlyGrange Resources Limited » 2017 Annual Report Construction Planning & Schedule Subject to a decision to proceed, the project will engage an experienced construction management company to coordinate a series of fixed price contracts to minimise risk and the number of interfaces. The Southdown Joint Venture continues to work alongside the community, including traditional owners of the land, to ensure a safe and environmentally responsible project. MINERAL RESOURCES AND ORE RESERVES – SOUTHDOWN PROJECT Mineral Resources The Mineral Resource estimate for the Southdown Project as at 31 December 2017 is as follows: Measured Indicated Inferred Total (1) Davis Tube Recovery – a measure of recoverable magnetite Mineral Resources are reported above a cut-off of 10% DTR Ore Reserves Tonnes (Mt) 423.0 As at December 2017 Grade %DTR (1) 37.8 86.8 747.1 1,256.9 38.7 30.9 33.7 The current Ore Reserve for the Southdown Project as at 31 December 2017 is based on the pit design and mining schedule developed during the Feasibility Study and includes modifying metallurgical factors and plant recovery. Proven Probable Total ROM (Mt) 384.6 3.1 387.7 DTR* (%) 35.6 41.7 35.6 An additional 24.4 Mt of Inferred Resources is included within the designed pit. A detailed statement of the Mineral Resources and Ore Reserves can be found in the ASX announcement dated 28 February 2014. Grange confirms in reproducing the Mineral Resources and Ore Reserves in this subsequent report, that it is not aware of any new information or data that materially affects the information included, and all the material assumptions and technical parameters underpinning the estimates in this report continue to apply and have not materially changed. Grange confirms that all environmental approvals and tenure have been maintained in compliance and terms extended as required to retain currency. 16 For personal use only2017 Annual Report » Grange Resources Limited CORPORATE GOVERNANCE STATEMENT Grange is committed to creating and building sustainable value for shareholders and protecting stakeholder interests. The Company recognises that high standards of corporate governance are essential to achieving that objective. The Board has the responsibility for ensuring Grange is properly managed so as to protect and enhance shareholders’ interests in a manner that is consistent with the Company’s responsibility to meet its obligations to all stakeholders. For this reason, the Board is committed to applying appropriate standards of corporate governance across the organisation. As part of its commitment to enhancing its corporate governance, and as a listed company, the Board has adopted relevant practices which are consistent with the Australian Securities Exchange (‘ASX’) Corporate Governance Principles. Details of the Company’s corporate governance practices are included in the Corporate Governance Statement and Appendix 4G which have been announced on the ASX and can be located on our Company’s website www.grangeresources.com. au in the Corporate Governance and Policies section in the About us area. This facilitates transparency about Grange’s corporate governance practices and assists shareholders and other stakeholders make informed judgments. Grange considers that its governance practices comply with the majority of the ASX Best Practice Recommendations. ASX BEST PRACTICE RECOMMENDATIONS The following table lists the departures from the ASX Best Practice Recommendations applicable to the Company as at the date of its financial year end, being 31 December 2017. Where the Company considers that it is divergent from these recommendations, or that it is not practical to comply, there is an explanation of the Company’s reasons set out following the table. ‘Recommendation’ Ref (‘Principle No’ Ref followed by Recommendation Ref) 7.3(b) Departure Explanation A separate internal audit function has not been formed. An Internal Audit function has not been established as per recommendation 7.3(a), The Board monitors the need for an internal audit function having regard to the size, geographic location and complexity of the Company’s operations. The Company’s Management periodically undertakes an internal review of financial systems and processes and where systems are considered to require improvement these systems are developed. The Board also considers external reviews of specific areas and monitors the implementation of system improvements. 17 For personal use onlyGrange Resources Limited » 2017 Annual Report AUSTRALIA’S MOST EXPERIENCED MAGNETITE PRODUCER FINANCIAL REPORT For the Year Ended 31 December 2017 Grange Resources Limited ABN 80 009 132 405 and Controlled Entities Contents Directors’ report Principal activities Operating and financial review Financial statements 19 21 21 34 Independent auditor’s report Tenement schedule List of significant ASX announcements ASX additional information 67 73 74 75 18 PB For personal use only2017 Annual Report « Grange Resources Limited DIRECTORS’ REPORT The Directors present their report on the consolidated entity (the ‘Group’) consisting of Grange Resources Limited (‘Grange’ or ‘the Company’) and the entities it controlled at the end of, or during, the year ended 31 December 2017. The following persons were directors of the Company during the whole year and up to the date of this report: Michelle Li, PhD, GAICD Non-executive Chairperson, Member of the Audit and Risk Committee, Member of the Remuneration and Nomination Committee Dr Li was appointed as non-executive Chairperson on 29 October 2013. Dr Li is a mineral processing engineer and metallurgist with over 20 years’ experience in the Australian mining sector. Dr Li’s experience includes senior roles at CITIC Pacific, Rio Tinto and Iluka Resources, as well as a senior project role on the Grange Resources Southdown project. Dr Li has a PhD from the University of Queensland and is currently a non-executive Director of Ardiden Limited and was previously a non-executive Director of Orion Metals Limited and Sherwin Iron Limited. Yan Jia, GAICD Non-executive Deputy Chairperson and Member of the Remuneration and Nomination Committee Ms Jia is currently the Director of the Administration Department with the Jiangsu Shagang International Trade Co Ltd, a subsidiary of Jiangsu Shagang Group, China’s largest private steel company. Ms Jia has over ten years’ experience of managerial, human resources, intellectual property and commercial experience in the steel industry and bulk raw material transaction sector. Honglin Zhao Executive Director, Chief Executive Officer Mr Zhao is a former Director of Shagang International (Australia) Pty Ltd, former Director and General Manager of Shagang (Australia) Pty Ltd, and former Director of Jiangsu Shagang Group, ultimate shareholder of Shagang International Holdings Limited and China’s largest private steel company. Mr Zhao has over 40 years’ experience in the industry and was previously the Commander of Project Development Headquarters with Shagang. Mr Zhao has extensive project management and implementation experience and expertise. Daniel Tenardi Non-executive Director and Chairperson of the Remuneration and Nomination Committee and member of Audit and Risk Committee Mr Tenardi is an experienced mining executive with over 40 years’ experience in the resources industry across a range of commodities including iron ore, gold, bauxite, and copper. He has a wealth of knowledge in managing bulk ore operations and has extensive international networks. Mr Tenardi was the former CEO of Ngarda Civil & Mining and has also held senior executive and operational roles at CITIC Pacific, Alcoa, Roche Mining and Rio Tinto. He was the Managing Director of Bauxite Resources, and is a non-executive Director of Australia Minerals & Mining Group Ltd. Liming Huang, JD, LLM, EMBA, Non-executive Director and Chairperson of the Audit and Risk Committee Mr Huang is a corporate and commercial lawyer with 12 years legal experience. He is currently special counsel with Corrs Chambers Westgarth Lawyers. Mr Huang has been extensively involved in a number of iron ore, gold and other resource corporate transactions between Australia and China and provides legal advice to local and international investors and businesses on mergers and acquisitions, joint venture, equity capital market and corporate governance. In addition, Mr Huang is an associate member of CPA Australia. Mr Huang is the Vice President of Australia China Business Council Victoria Branch. Mr Huang retired from the Board on 25 May 2017. 19 PB For personal use onlyGrange Resources Limited » 2017 Annual Report Michael Dontschuk BSc(Hons), FFTP, GAICD Non-executive Director and Chairperson of the Audit and Risk Committee Mr Dontschuk is a finance professional with over 35 years’ experience in investment, finance, treasury and financial risk management. He currently is a professional NED and sits on a number of company boards including Eticore, Public Trustee (Tasmania), Motor Accidents Insurance Board (Tasmania) and Australia Ratings. Previously Mr Dontschuk has been Group Treasurer of Grange Resources, Group Treasurer of ANZ Bank, Managing Director of Treasury Corporation Victoria, President and Director of the Finance and Treasury Association of Australia and has worked extensively in corporate financial advisory and investment banking including with Oakvale Capital and Bankers Trust. Mr Dontschuk was appointed to the Board on 6 June 2017. Company Secretary Mr Piers Lewis, BComm, CA, AGIA Mr Lewis has more than 20 years’ global corporate experience and is currently the Company Secretary and CFO for ASX listed companies Cycliq Group Limited, Ultima United Limited and is Company Secretary of iBosses Corporation Limited. Mr Lewis also serves on the board of Ardiden Limited, Cycliq Group Limited and Hawkley Oil & Gas Limited. In 2001 Mr Lewis qualified as a Chartered Accountant with Deloitte (Perth). He has extensive and diverse financial and corporate experience from previous senior management roles with Credit Suisse (London), Mizuho International and NAB Capital. Mr Lewis is also a Chartered Company Secretary. 20 PB For personal use only2017 Annual Report « Grange Resources Limited PRINCIPAL ACTIVITIES During the period, the principal continuing activities of the Group consisted of: • • the mining, processing and sale of iron ore; and the ongoing exploration, evaluation and development of mineral resources particularly, the Southdown Magnetite and associated Pellet Plant Projects. Dividends Dividends paid to members during the financial year were as follows: Fully franked final dividend for the year ended 31 December 2016 - 0.5 cent per share Fully franked interim dividend for half year ended 30 June 2016 - 0.5 cents per share Total dividends provided for or paid 2017 $’000 5,787 - 5,787 2016 $’000 - 5,787 5,787 Since the end of the financial year the directors have recommended the payment of a final dividend of $11.6 million. This represents 1 cent per share fully franked dividend for the year-end 31 December 2017. The final dividend was declared NIL conduit foreign income and will be paid on 28 March 2018. OPERATING AND FINANCIAL REVIEW SAFETY PERFORMANCE Grange operations achieved 280 days Lost Time Injury Free in 2017. Key Highlights • As communicated to the market on 5 June 2017, a serious incident that occurred in March 2017 required a modified mining design that delayed access to the main ore zone and resulted in actual decreased production of approximately 250K tonnes of iron ore product for the year compared to plan. • Delivered profit after tax of $60.7 million (2016: profit after tax of $92.9 million), on revenues from mining operations of $247.9 million (2016: $276.3 million). • Grange’s high quality, low impurity iron ore products attracted a high premium with average product prices of $127.20 per tonne (2016: $98.06) (FOB Port Latta) • Total iron ore product sales of 1.90 million tonnes (2016: 2.75 million tonnes) • Stronger AUD:USD exchange rates have impacted AUD revenues • Continued focus on selling cargoes to targeted customers and balancing opportunities in the spot market • Mining in South Deposit completed during the year and continued mining in North Pit • Continued cost control disciplines, although lower production rate resulted in an increase in unit C1 cash operating costs to $99.17 per tonne (2016: $79.13). • Sustained strong cash and cash equivalents position at $168.0 million (2016: $166.0 million). • South Deposit Tailings Storage Facility (SDTSF) largely completed and final approval being sought. 21 PB For personal use onlyGrange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited Key revenue metrics for the year ended 31 December 2017 and the preceding 2016 year Iron Ore Pellet Sales (dmt) Iron Ore Concentrate Sales (dmt) Iron Ore Chip Sales (dmt) Total Iron Ore Product Sales (dmt) Average Realised Product Price (US$/t FOB Port Latta) Average Realised Exchange Rate (AUD:USD) Average Realised Product Price (A$/t FOB Port Latta) 2017 1,804,108 134 91,841 1,896,083 97.84 0.7692 127.20 2016 2,637,607 118 112,378 2,750,103 72.94 0.7438 98.06 Total sales for the year ended 31 December 2017 was 1.90 million tonnes of high quality, low impurity iron ore products (2016: 2.75 million tonnes) and reflects sustained production from maintaining access to high grade ore. The average iron ore product price received during the year was $127.20 per tonne of product sold (FOB Port Latta) (2016: $98.06 per tonne). The upward movement was consistent with the increase in benchmark 62% Fe iron ore prices (CFR China) which was driven by stimulus policies following a slowing growth of the Chinese economy in late 2015 and structural reform in the Chinese steel industry that resulted in greater demand for higher grade iron ore. Please refer to Note 4 of the Financial Report for segment information for sales to different geographical markets. The sales from long term off take agreements with Jiangsu Shagang International Trade Co. Ltd represents 47.6% of total sales for 2017 (2016: 39.6%). Key operating metrics for the year ended 31 December 2017 and the preceding 2016 year Total BCM Mined Total Ore BCM Concentrate Produced (t) Weight Recovery (%) Pellets Produced (t) Pellet Stockpile (t) ‘C1’ Operating Cost (A$/t Product Produced)(1) 2017 12,461,515 1,193,821 1,959,604 49.5 2016 9,514,884 1,218,363 2,397,318 41.6 1,895,180 2,378,486 262,212 $99.17 171,140 $79.13 (1) Note: ‘C1’ costs are the cash costs associated with producing iron ore products without allowance for mine development, deferred stripping and stockpile movements, and also excludes royalties, sustaining capital, depreciation and amortisation costs. As mining at South Deposit was completed in the first half of 2017 as planned, the focus had been on North Pit. Due to the incident in March 2017, some delays in access to the ore occurred as we dealt with some complex structures and faults on the east wall which required additional wall support and reinforcements. Remediation efforts continued safely, providing a good foundation for production into the coming year. Movement rates have also increased in the latter part of the year as the pre-stripping on the west wall is opening up larger and productive working areas. Annual planned maintenance was completed in the first half of 2017. The second Autogenous Mill Shell was replaced and commissioned successfully and on plan. Along with increased movement rates from the mine which provided increased ore supply, the concentrate and pellet plants ran at record run rates in the last quarter of the year, a significant achievement from the 50-year-old production plants. The South Deposit Tailings Storage Facility (SDTSF) is largely completed and final approval being sought. This is a significant project in terms of the ongoing viability of the Savage River operations as it will provide sufficient tailings storage capacity for the remaining life of the mine. This facility will also provide the ability for treatment of the legacy environmental issues arising from previous operations at Savage River. Southdown Magnetite Project Likely Developments and Expected Results of Operations The Southdown Magnetite Project, situated 90km from the city of Albany in Western Australia, is a joint venture between Grange (70%) and SRT Australia Pty Ltd (SRTA) (30%). SRTA is jointly owned by Sojitz Corporation, a Japanese global trading company, and Kobe Steel, the fourth largest Japanese steel maker. This advanced project has 1.2 billion tonnes of high quality resource, which outcrops at the western end of its 12km strike length and has access to established infrastructure. During 2017, the joint venture partners continue to monitor all ongoing project requirements to ensure that the current status of the feasibility studies is such that the project can be fully recommenced as soon as an appropriate opportunity arises. The on-going strategy is to maintain the currency and good standing of all tenements, permits and project assets. Compliance with environmental and tenement conditions was maintained. This approach will continue into 2018, as we formulate a valid alternate development model and seek to secure equity partners for a strategic share of the Company’s interest in the project. Financial Position Grange’s strategic focus is to generate shareholder value by safely producing high quality iron ore products from its Savage River and Port Latta operations in Tasmania and continuing to assess the feasibility of a major iron ore development project at Southdown, near Albany in Western Australia. The Group’s current strategic priorities include: Savage River and Port Latta Operations • Securing majority of sales through off take agreements • Broadening our customer base for the longer term to take advantage of market opportunities and to diversify geographic customer risk • Maintaining access to high grade ore by continuing to invest in mine development • Continuing to invest in process infrastructure • Optimising the Life of Mine Plan together with cost reduction strategies • Ongoing development of the Fluxed pellet project and continued communication with interested customers • Continuing focus on improving productivity and implementing cost control projects Grange’s net assets increased during the year to $387.6 million (31 December 2016: $332.6 million) principally as a Southdown Project result of the following: • Ensuring that all tenements, permits and project assets • A profit after tax of $60.7 million; and offset by remain in good standing • A final 2016 dividend payment of $5.8 million • Secure Commonwealth EPBC approval for the minesite, Statement of Cash Flows Net cash flows from operating activities Net cash inflows from operating activities for the year were $71.2 million (2016: inflows $121.9 million) and reflect lower iron ore product sales and an increase in unit operating costs. Net cash flows from investing activities Net cash outflows from investing activities for the period were $51.6 million (2016: outflows $43.1 million) and principally related to expenditures for mine properties and development $29.7 million and property, plant and equipment $21.7 million. Net cash flows from financing activities Net cash outflows from financing activities for the period were $10.2 million (2016 outflow: $8.9 million) and principally related to the payment of 2016 final dividend ($5.8 million) and repayment of other borrowings ($6.5 million). Significant Changes in State of Affairs slurry pipeline, port facilities and desalination infrastructure • Maintaining the currency of all the elements of the Definitive Feasibility Study • Continuing review and identifying the potential for alternative development models • Continuing the search for new equity partners to take a strategic share of the Company’s interest in the Project Risk Management The Group continues to assess and manage various business risks that could impact the Group’s operating and financial performance and its ability to successfully deliver strategic priorities including: • Fluctuations in iron ore market and movements in foreign exchange rates • Volatility in the electricity and gas price and availability • Develop increased profit opportunities from spot sales as a majority of sales are now locked in through off-take agreements • Geotechnical risks including wall stability There was no significant change in the state of affairs of the • Production risks and costs associated with aging Group that occurred during the year ended 31 December infrastructure 2017. Commentary on the overall state of affairs of the Group is set out in the Operating and Financial Review. Matters Subsequent to the End of the Financial Year Subsequent to the financial year-end date, the Group has entered into a joint venture with an experienced residential property developer in ROC Built to form Grange ROC Property to seek property development projects in the residential property market. • Project evaluation and development • Health, safety and environment Risk mitigation strategies include the following: • Optimise timing of sales to the fluctuations in iron ore prices and demands from different markets • Flexible strategy to determine the volume to be secured through off-take agreements 22 PB PB For personal use onlyKey revenue metrics for the year ended 31 December 2017 and the preceding Southdown Magnetite Project The Southdown Magnetite Project, situated 90km from the city of Albany in Western Australia, is a joint venture between Grange (70%) and SRT Australia Pty Ltd (SRTA) (30%). SRTA is jointly owned by Sojitz Corporation, a Japanese global trading company, and Kobe Steel, the fourth largest Japanese steel maker. This advanced project has 1.2 billion tonnes of high quality resource, which outcrops at the western end of its 12km strike length and has access to established infrastructure. During 2017, the joint venture partners continue to monitor all ongoing project requirements to ensure that the current status of the feasibility studies is such that the project can be fully recommenced as soon as an appropriate opportunity arises. The on-going strategy is to maintain the currency and good standing of all tenements, permits and project assets. Compliance with environmental and tenement conditions was maintained. This approach will continue into 2018, as we formulate a valid alternate development model and seek to secure equity partners for a strategic share of the Company’s interest in the project. Please refer to Note 4 of the Financial Report for segment information for sales to different geographical markets. The sales from long term off take agreements with Jiangsu Shagang International Trade Co. Ltd represents 47.6% of total sales for Financial Position Grange’s net assets increased during the year to $387.6 million (31 December 2016: $332.6 million) principally as a result of the following: • A profit after tax of $60.7 million; and offset by • A final 2016 dividend payment of $5.8 million Statement of Cash Flows Net cash flows from operating activities Net cash inflows from operating activities for the year were $71.2 million (2016: inflows $121.9 million) and reflect lower iron ore product sales and an increase in unit operating costs. Net cash flows from investing activities Net cash outflows from investing activities for the period were $51.6 million (2016: outflows $43.1 million) and principally related to expenditures for mine properties and development $29.7 million and property, plant and equipment $21.7 million. Net cash flows from financing activities Net cash outflows from financing activities for the period were $10.2 million (2016 outflow: $8.9 million) and principally related to the payment of 2016 final dividend ($5.8 million) and repayment of other borrowings ($6.5 million). Significant Changes in State of Affairs There was no significant change in the state of affairs of the Group that occurred during the year ended 31 December 2017. Commentary on the overall state of affairs of the Group is set out in the Operating and Financial Review. Matters Subsequent to the End of the Financial Year Subsequent to the financial year-end date, the Group has entered into a joint venture with an experienced residential property developer in ROC Built to form Grange ROC Property to seek property development projects in the residential property market. Grange Resources Limited » 2017 Annual Report 2016 year Iron Ore Pellet Sales (dmt) Iron Ore Concentrate Sales (dmt) Iron Ore Chip Sales (dmt) Total Iron Ore Product Sales (dmt) Average Realised Product Price (US$/t FOB Port Latta) Average Realised Exchange Rate (AUD:USD) Average Realised Product Price (A$/t FOB Port Latta) Total sales for the year ended 31 December 2017 was 1.90 million tonnes of high quality, low impurity iron ore products (2016: 2.75 million tonnes) and reflects sustained production from maintaining access to high grade ore. The average iron ore product price received during the year was $127.20 per tonne of product sold (FOB Port Latta) (2016: $98.06 per tonne). The upward movement was consistent with the increase in benchmark 62% Fe iron ore prices (CFR China) which was driven by stimulus policies following a slowing growth of the Chinese economy in late 2015 and structural reform in the Chinese steel industry that resulted in greater demand for higher grade iron ore. Key operating metrics for the year ended 31 December 2017 and the preceding 1,804,108 2,637,607 2017 134 91,841 1,896,083 97.84 0.7692 127.20 2016 118 112,378 2,750,103 72.94 0.7438 98.06 2017 12,461,515 1,193,821 1,959,604 49.5 262,212 $99.17 2016 9,514,884 1,218,363 2,397,318 41.6 171,140 $79.13 1,895,180 2,378,486 ‘C1’ Operating Cost (A$/t Product Produced)(1) (1) Note: ‘C1’ costs are the cash costs associated with producing iron ore products without allowance for mine development, deferred stripping and stockpile movements, and also excludes royalties, sustaining capital, depreciation and amortisation costs. As mining at South Deposit was completed in the first half of 2017 as planned, the focus had been on North Pit. Due to the incident in March 2017, some delays in access to the ore occurred as we dealt with some complex structures and faults on the east wall which required additional wall support and reinforcements. Remediation efforts continued safely, providing a good foundation for production into the coming year. Movement rates have also increased in the latter part of the year as the pre-stripping on the west wall is opening up larger and productive working areas. Annual planned maintenance was completed in the first half of 2017. The second Autogenous Mill Shell was replaced and commissioned successfully and on plan. Along with increased movement rates from the mine which provided increased ore supply, the concentrate and pellet plants ran at record run rates in the last quarter of the year, a significant achievement from the 50-year-old production plants. The South Deposit Tailings Storage Facility (SDTSF) is largely completed and final approval being sought. This is a significant project in terms of the ongoing viability of the Savage River operations as it will provide sufficient tailings storage capacity for the remaining life of the mine. This facility will also provide the ability for treatment of the legacy environmental issues arising from previous operations at Savage River. 2017 (2016: 39.6%). 2016 year Total BCM Mined Total Ore BCM Concentrate Produced (t) Weight Recovery (%) Pellets Produced (t) Pellet Stockpile (t) PB 2017 Annual Report « Grange Resources Limited Likely Developments and Expected Results of Operations Grange’s strategic focus is to generate shareholder value by safely producing high quality iron ore products from its Savage River and Port Latta operations in Tasmania and continuing to assess the feasibility of a major iron ore development project at Southdown, near Albany in Western Australia. The Group’s current strategic priorities include: Savage River and Port Latta Operations • Securing majority of sales through off take agreements • Broadening our customer base for the longer term to take advantage of market opportunities and to diversify geographic customer risk • Maintaining access to high grade ore by continuing to invest in mine development • Continuing to invest in process infrastructure • Optimising the Life of Mine Plan together with cost reduction strategies • Ongoing development of the Fluxed pellet project and continued communication with interested customers • Continuing focus on improving productivity and implementing cost control projects Southdown Project • Ensuring that all tenements, permits and project assets remain in good standing • Secure Commonwealth EPBC approval for the minesite, slurry pipeline, port facilities and desalination infrastructure • Maintaining the currency of all the elements of the Definitive Feasibility Study • Continuing review and identifying the potential for alternative development models • Continuing the search for new equity partners to take a strategic share of the Company’s interest in the Project Risk Management The Group continues to assess and manage various business risks that could impact the Group’s operating and financial performance and its ability to successfully deliver strategic priorities including: • Fluctuations in iron ore market and movements in foreign exchange rates • Volatility in the electricity and gas price and availability • Develop increased profit opportunities from spot sales as a majority of sales are now locked in through off-take agreements • Geotechnical risks including wall stability • Production risks and costs associated with aging infrastructure • Project evaluation and development • Health, safety and environment Risk mitigation strategies include the following: • Optimise timing of sales to the fluctuations in iron ore prices and demands from different markets • Flexible strategy to determine the volume to be secured through off-take agreements 23 PB For personal use onlyGrange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited • Intense program of geotechnical wall monitoring, modelling and redesign work to mitigate potential stability issues During the financial year there were no breaches of licence conditions. MEETINGS OF DIRECTORS • Continue disciplined and rigorous review process regarding budget development and cost control to ensure investment directed to highest priority areas while reducing overall operating costs • A well developed tool kit to ensure projects are adequately planned and peer reviewed prior to commitment and execution • Outstanding safety record is supported by comprehensive safety system that enables management to develop a resilient safety culture and ensure our stewardship over the environment Environmental Regulation The mining and exploration tenements held by the Group contain environmental requirements and conditions that the Group must comply with in the course of normal operations. These conditions and regulations cover the management of the storage of hazardous materials and rehabilitation of mine sites. The Group is subject to significant environmental legislation and regulation in respect of its mining, processing and exploration activities as set out below: Savage River and Port Latta Operations The Group obtained approvals to operate in 1996 and 1997 under the Land Use Planning and Approvals Act (LUPA) and the Environmental Management and Pollution Control Act (EMPCA) as well as the Goldamere Act and Mineral Resources Development Act. The land use permit conditions for Savage River and Port Latta are contained in Environmental Protection Notices 248/2 and 302/2 respectively. The currently approved Environmental Management Plans were submitted for Savage River and Port Latta on 21 December 2010. The extension of the project’s life was approved by the Department of Tourism, Arts and the Environment on 12 March 2007 and together with the Goldamere Act and the Environmental Protection Notices, is the basis for the management of all environmental aspects of the mining leases. The Group has been relieved of any environmental obligation in relation to contamination, pollutants or pollution caused by operations prior to the date of the Goldamere Agreement (December 1996). Southdown Joint Venture The Southdown Joint Venture has not been responsible for any activities which would cause a breach of environmental legislation. Mount Windsor Joint Venture The Group is a junior partner (30%) in the Mt Windsor project in North Queensland which is now being rehabilitated for future lease relinquishment. An ongoing Transitional Environment Program has been entered into voluntarily to identify and remediate various sources of pollution on site. A comprehensive plan has been developed and instigated to manage the leases with relinquishment expected in 2045. During the financial year there were no breaches of licence conditions. National Greenhouse and Energy Reporting Act 2007 The National Greenhouse and Energy Reporting Act 2007 requires the Group to report its annual greenhouse gas emissions and energy use by 31 October each year. The Group has implemented systems and processes for the collection and calculation of the data required and has submitted its annual reports to the Greenhouse and Energy Data Officer by 31 October each year. Clean Energy Act 2011 and the Clean Energy Legislation (Carbon Tax Repeal) Act 2014 The Group has complied with its obligations under the Clean Energy Act, the Clean Energy Legislation (Carbon Tax Repeal) Act and related legislation by completing True-up requirements with regard to assistance received through the Jobs and Competitiveness Program for the emissions-intensive trade- exposed activities of Production of Iron Ore Pellets and Production of Magnetite Concentrate in the moderately emissions-intensive category. 24 PB The numbers of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 31 December 2017, and the numbers of meetings attended by each Director were: Directors’ meetings Audit Remuneration Meetings of Committees - - - - - - - - - - A 4 5 5 B 5 5 5 B 6 6 3 3 Name M Li Y Jia D Tenardi L Huang H Zhao M Dontschuk A = Number of meetings attended ended 31 December 2017 A 10 11 11 4 11 5 B 11 11 11 5 11 5 M Li Y Jia(1) D Tenardi L Huang H Zhao(2) (1) (2) Beneficial 13,507 - - - - A 6 6 3 3 - - - - - B = Number of meetings held during the time the Director held office or was a member of the committee during the year Interests in the Shares, Rights and Options of the Company The relevant interest of each Director in the share capital and options of the Company as at the date of this report is: Director Non-Beneficial Rights Options Number of Fully Paid Ordinary Shares Y Jia is an employee of Jiangsu Shagang International Trade Co. Ltd which is a subsidiary of the Jiangsu Shagang Group, ultimate shareholder of Shagang International Holdings Limited. Shagang International Holdings Limited and its affiliates hold 554,762,656 ordinary fully paid shares in the Company as at the date of this report. H Zhao is a former Director on the Board of the Jiangsu Shagang Group, ultimate shareholder of Shagang International Holdings Limited. Shagang International Holdings Limited and its affiliates hold 554,762,656 ordinary fully paid shares in the Company as at the date of this report. REMUNERATION REPORT This remuneration report sets out remuneration information for Non-executive Directors, Executive Directors and other key management personnel of the Group and the company. i) Key management personnel disclosed in this report Non-executive Directors Executive Directors Position Michelle Li Yan Jia Daniel Tenardi Liming Huang Michael Dontschuk Retired 25 May 2017 Appointed 6 June 2017 Other key management Honglin Zhao personnel Steven Phan Ben Maynard Executive Director Chief Executive Officer Position Chief Financial Officer General Manager Operations ii) Remuneration governance The Board has an established Remuneration and Nomination The responsibilities and functions for the Remuneration Committee to assist in overseeing the development of policies and Nomination Committee include reviewing and making and practices which enable the Company to attract and recommendations on the following: retain capable Directors and employees, reward employees fairly and responsibly and meet the Board’s oversight responsibilities in relation to corporate governance practices. • Equity based executive and employee incentive plans; • Recruitment, retention, succession planning, performance measurement and termination policies and procedures The Remuneration and Nomination Committee is composed for Non-executive Directors, Executive Directors and Key of Mr Daniel Tenardi (Committee Chairperson), Ms Yan Jia Management Personnel; (Non-executive Deputy Chairperson) and Dr Michelle Li (Chairperson). PB For personal use only Grange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited • Intense program of geotechnical wall monitoring, modelling During the financial year there were no breaches of licence MEETINGS OF DIRECTORS The numbers of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 31 December 2017, and the numbers of meetings attended by each Director were: Meetings of Committees Name M Li Y Jia D Tenardi L Huang H Zhao M Dontschuk Directors’ meetings Audit A 10 11 11 4 11 5 B 11 11 11 5 11 5 A 6 6 3 3 B 6 6 3 3 Remuneration B A 5 4 5 5 5 5 A = Number of meetings attended B = Number of meetings held during the time the Director held office or was a member of the committee during the year ended 31 December 2017 Interests in the Shares, Rights and Options of the Company The relevant interest of each Director in the share capital and options of the Company as at the date of this report is: Director M Li Y Jia(1) D Tenardi L Huang H Zhao(2) Number of Fully Paid Ordinary Shares Beneficial 13,507 Non-Beneficial - - - - - - - - - Rights - - - - - Options - - - - - (1) (2) Y Jia is an employee of Jiangsu Shagang International Trade Co. Ltd which is a subsidiary of the Jiangsu Shagang Group, ultimate shareholder of Shagang International Holdings Limited. Shagang International Holdings Limited and its affiliates hold 554,762,656 ordinary fully paid shares in the Company as at the date of this report. H Zhao is a former Director on the Board of the Jiangsu Shagang Group, ultimate shareholder of Shagang International Holdings Limited. Shagang International Holdings Limited and its affiliates hold 554,762,656 ordinary fully paid shares in the Company as at the date of this report. REMUNERATION REPORT This remuneration report sets out remuneration information for Non-executive Directors, Executive Directors and other key management personnel of the Group and the company. i) Key management personnel disclosed in this report Non-executive Directors Executive Directors Michelle Li Yan Jia Daniel Tenardi Liming Huang Michael Dontschuk Honglin Zhao Other key management personnel Retired 25 May 2017 Appointed 6 June 2017 Steven Phan Ben Maynard Position Executive Director Chief Executive Officer Position Chief Financial Officer General Manager Operations ii) Remuneration governance The Board has an established Remuneration and Nomination Committee to assist in overseeing the development of policies and practices which enable the Company to attract and retain capable Directors and employees, reward employees fairly and responsibly and meet the Board’s oversight responsibilities in relation to corporate governance practices. The Remuneration and Nomination Committee is composed of Mr Daniel Tenardi (Committee Chairperson), Ms Yan Jia (Non-executive Deputy Chairperson) and Dr Michelle Li (Chairperson). The responsibilities and functions for the Remuneration and Nomination Committee include reviewing and making recommendations on the following: • Equity based executive and employee incentive plans; • Recruitment, retention, succession planning, performance measurement and termination policies and procedures for Non-executive Directors, Executive Directors and Key Management Personnel; 25 PB and redesign work to mitigate potential stability issues conditions. • Continue disciplined and rigorous review process regarding budget development and cost control to ensure investment directed to highest priority areas while reducing overall Southdown Joint Venture • A well developed tool kit to ensure projects are adequately planned and peer reviewed prior to commitment and Mount Windsor Joint Venture legislation. operating costs execution The Southdown Joint Venture has not been responsible for any activities which would cause a breach of environmental • Outstanding safety record is supported by comprehensive safety system that enables management to develop a resilient safety culture and ensure our stewardship over the environment Environmental Regulation The mining and exploration tenements held by the Group contain environmental requirements and conditions that the Group must comply with in the course of normal operations. These conditions and regulations cover the management of the storage of hazardous materials and rehabilitation of mine sites. The Group is subject to significant environmental legislation and regulation in respect of its mining, processing and exploration activities as set out below: Savage River and Port Latta Operations The Group obtained approvals to operate in 1996 and 1997 under the Land Use Planning and Approvals Act (LUPA) and the Environmental Management and Pollution Control Act (EMPCA) as well as the Goldamere Act and Mineral Resources Development Act. The land use permit conditions for Savage River and Port Latta are contained in Environmental Protection Notices 248/2 and 302/2 respectively. The currently approved Environmental Management Plans were submitted for Savage River and Port Latta on 21 December 2010. The extension of the project’s life was approved by the Department of Tourism, Arts and the Environment on 12 March 2007 and together with the Goldamere Act and the Environmental Protection Notices, is the basis for the management of all environmental aspects of the mining leases. The Group has been relieved of any environmental obligation in relation to contamination, pollutants or pollution caused by operations prior to the date of the Goldamere Agreement (December 1996). The Group is a junior partner (30%) in the Mt Windsor project in North Queensland which is now being rehabilitated for future lease relinquishment. An ongoing Transitional Environment Program has been entered into voluntarily to identify and remediate various sources of pollution on site. A comprehensive plan has been developed and instigated to manage the leases with relinquishment expected in 2045. During the financial year there were no breaches of licence conditions. National Greenhouse and Energy Reporting Act 2007 The National Greenhouse and Energy Reporting Act 2007 requires the Group to report its annual greenhouse gas emissions and energy use by 31 October each year. The Group has implemented systems and processes for the collection and calculation of the data required and has submitted its annual reports to the Greenhouse and Energy Data Officer by 31 October each year. Clean Energy Act 2011 and the Clean Energy Legislation (Carbon Tax Repeal) Act 2014 The Group has complied with its obligations under the Clean Energy Act, the Clean Energy Legislation (Carbon Tax Repeal) Act and related legislation by completing True-up requirements with regard to assistance received through the Jobs and Competitiveness Program for the emissions-intensive trade- exposed activities of Production of Iron Ore Pellets and Production of Magnetite Concentrate in the moderately emissions-intensive category. PB For personal use only Grange Resources Limited » 2017 Annual Report • The remuneration of the Chief Executive Officer; Chief Financial Officer; and General Manager Operations; • Periodically assessing the skills required by the Board; • Recommend processes to evaluate the performance of the Board, its Committees and individual Directors; and • Reviewing governance arrangements pertaining to remuneration matters. The Charter is reviewed annually and remuneration strategies are reviewed regularly. The Company did not receive any specific feedback at the annual general meeting or throughout the year on its remuneration practices. is the Company’s objective iii) Executive remuneration philosophy and framework It to provide maximum stakeholder benefit from the retention of a small high quality executive team by remunerating Executive Directors and executives fairly and appropriately with reference to relevant market conditions. To assist in achieving this objective, the Board attempts to link the nature and amount of executives’ emoluments to the Company’s performance. The remuneration framework aims to ensure that remuneration practices are: • acceptable to shareholders, transparent and easily financial statements have been audited and released to the Australian Securities Exchange (‘ASX’). 50% of the STI relates to the achievement of company performance goals and 50% relates to the attainment of agreed personal performance goals. Variable Remuneration – Long Term Incentive (‘LTI’) a) Deferred Cash The Board determined that it was appropriate to simplify the Company LTI plan and introduce a 2 year deferred cash incentive scheme with immediate effect from 1 January 2014. The objective of this deferred cash scheme is to reward selected executive directors and senior employees with a cash payment which is linked to the Company satisfying financial performance hurdles and subject to ongoing employment with Grange. The deferred cash component is determined by measuring the Company’s: • sales volumes (weighting 33.33%) of iron ore products (pellets, chips and concentrate) • normalised EPS result (weighting 33.33%) (excluding abnormal items), and • generation of additional free cash flow (mainly operating and investing cash flows) over Budget (weighting 33.33%) (excluding capital management initiatives i.e. inflows from debt funding and outflows from dividends to shareholders). The deferred cash component is determined based on the Company’s performance for the year ended 31 December, with 50% payable on 31 December the following year, and the balance payable on or about the following 31 December (i.e. 2 years after the relevant calculation date). Payment of deferred cash is subject to continuing employment with Grange at the scheduled date of the payment. b) Rights to Grange Shares The objective for the issue of Rights under the LTI program was replaced with Deferred Cash from 1 January 2014 as discussed above. The Company did not issue any Rights to employees in the 12 months ended 31 December 2017. understood; • competitive and reasonable, enabling the company to attract and retain key talents who share the same values with Grange Resources; and • aligned to the Company’s strategic and business objectives and the creation of shareholder value. Using external remuneration sector comparative data, the Group has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation. The framework is reviewed regularly along with the remuneration strategy review. The Board decided it was not necessary to use the services of independent remuneration consultants during the year ended 31 December 2017. The framework provides a mix of fixed and variable pay, and a blend of short and long term incentives detailed as follows: Fixed Remuneration Fixed remuneration is reviewed annually by the Remuneration and Nomination Committee. The process consists of a review of Group and individual performance, relevant comparative remuneration externally and internally and, where appropriate, external advice on policies and practices. Executives are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits. It is intended that the manner of payment chosen is optimal for the recipient without creating any undue cost for the Group. There are no guaranteed fixed pay increases included in any executives’ contracts. Variable Remuneration – Short Term Incentive (‘STI’) The objective of the STI is to link the achievement of the Company’s annual operational targets (usually reflected in the approved budgets) and an individual’s personal targets with the remuneration received by selected executive directors and senior employees responsible for meeting those targets. Payments are made as a cash incentive payable after the 26 PB For personal use only2017 Annual Report « Grange Resources Limited iv) Relationship between remuneration and Grange Resources performance The table below shows key performance indicators of Company performance over the past five years. Revenue from mining operations Net profit/(loss) after tax Basic earnings/(loss) per share Dividend declared $ million $ million Cents $ million Share price (last trade day of financial year) Cents v) Non-executive director remuneration policy Fees and payments to Non-executive Directors reflect the responsibilities and demands made on them. Non-executive Directors’ fees and payments are reviewed periodically by the Board. The Board also considers comparative market data and if required the advice of independent remuneration consultants to ensure Non-executive Directors’ fees and payments are appropriate and in line with the market. The Chairperson’s fees are determined independently to the fees of Non-executive Directors based on comparative roles in the external market. The current remuneration was last reviewed with effect from 1 November 2014. The Chairperson’s remuneration is inclusive of committee fees while other Non-executive 2013 281.1 21.8 1.89 34.7 26.0 2014 297.2 (110.2) (9.52) 11.6 10.5 2015 205.6 (277.8) (24.00) - 9.0 2016 276.3 92.90 8.03 11.6 14.0 2017 247.9 60.71 5.25 11.6 21.5 Directors who chair a Committee receive additional yearly fees. The Deputy Chairperson is also entitled to receive an additional yearly fee. Non-executive Directors’ fees are determined within an aggregate Directors’ fee pool limit, which is periodically reviewed for adequacy. Any increase to the aggregate Directors’ fee pool is submitted to shareholders for approval. The maximum currently stands at $800,000 per annum and was approved by shareholders at the Annual General Meeting on 26 November 2010. Non-executive Directors do not receive performance-based pay. The following annual fees (inclusive of superannuation) have applied: From 1 November 2014 Board of Directors Chairperson (1) Deputy Chairperson Non-executive Director Audit and Risk Committee Chairperson Committee Member Remuneration and Nomination Committee Chairperson Committee Member (1) The Chairperson is not paid any additional amounts for Committee membership. $157,500 $89,250 $78,750 $15,750 $10,500 $15,750 $7,500 27 PB For personal use only Grange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited vi) Details of remuneration Details of the remuneration of the key management personnel of the Group are set out in the following tables. Table 2: Remuneration for the year ended 31 December 2016 Amounts of Remuneration Table 1: Remuneration for the year ended 31 December 2017 Short-term employee benefits Short term incentive (STI) (3) Non- monetary benefits Salary & fees Post employment benefits Long- term benefits Super- annuation Long service leave Long term incentive (LTI) Termination benefits Cash (3) Rights (3) Total $ 143,837 96,750 95,890 35,959 46,524 418,960 $ - - - - - $ - - - - - $ 13,665 - 9,110 4,099 4,420 31,294 $ - - - - - $ - - - - - - - - - - 430,009 55,419 41,195 40,851 29,908 - 41,477 $ $ - - - - - - - - 157,502 96,750 105,000 40,058 50,944 450,254 638,859 335,960 425,172 280,004 306,005 - - 17,337 48,044 26,600 29,071 2,985 11,393 1,016,018 55,419 106,576 96,522 44,286 TOTAL 1,434,978 55,419 106,576 127,816 44,286 L Huang retired as Non-executive Director on 25 May 2017. M Dontschuk was appointed Non-executive Director on 6 June 2017. 9,034 30,659 - - - - Represents short term and long term incentive payments for the year ended 31 December 2016 and 2015 granted on 21 March 2017 and 20 March 2016, respectively. Variable remuneration amounts awarded to Executive Directors and Other Key Management Personnel are disclosed during the period in which the Remuneration and Nomination Committee approves the remuneration entitlement. Non-executive Directors M Li Y Jia D Tenardi L Huang (1) M Dontschuk (2) Sub-total Non-executive Directors Executive Directors H Zhao Other Key Management Personnel S Phan B Maynard Sub-total Key Management Personnel (1) (2) (3) 28 PB 81,170 - 1,399,991 81,170 - 1,850,245 (1) (2) (3) B Zhang was Chief Financial Officer of the Company from 19 December 2014 to 7 March 2016. S Phan was appointed Chief Financial Officer of the Company on 11 April 2016. Represents short term and long term incentive payments for the year ended 31 December 2015 and 2014 granted on 20 March 2016 and 12 May 2015, respectively. Variable remuneration amounts awarded to Executive Directors and Other Key Management Personnel are disclosed during the period in which the Remuneration and TOTAL 1,247,984 72,564 134,549 126,017 25,834 210,097 113,702 - 1,930,747 Post employment Long- term Short-term employee benefits benefits benefits Non- Short term Long Long term incentive (LTI) Salary & monetary incentive Super- service Termination fees benefits (STI) (3) annuation leave benefits Cash (3) Rights (3) Total $ 143,837 96,750 95,890 86,302 422,779 $ - - - - - $ - 13,665 9,110 8,199 30,974 $ - - - - - Non- executive Directors M Li Y Jia D Tenardi L Huang Sub-total Non- executive Directors Executive Directors H Zhao Other Key Management Personnel B Zhang (1) S Phan (2) B Maynard Sub-total Key Management Personnel $ - - - - - - - 330,008 52,564 60,450 37,696 10,016 - 54,779 545,513 50,322 29,902 144,875 20,000 - 300,000 44,197 10,444 13,763 33,140 - 807 15,011 210,097 58,923 300,765 179,445 451,271 825,205 72,564 134,549 95,043 25,834 210,097 113,702 - 1,476,994 $ - - - - - - - - - - - - - - $ $ 157,502 96,750 105,000 94,501 453,753 - - - - - - - - - Nomination Committee approves the remuneration entitlement. Table 3: Relative proportions linked to performance The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Name Dec-17 Dec-16 Dec-17 Dec-16 Dec-17 Dec-16 Fixed Remuneration At Risk - STI At Risk - LTI Executive Directors H Zhao Other Key Management Personnel 77% 84% 80% 77% 84% 80% S Phan B Maynard 14% 8% 12% 14% 8% 12% 9% 8% 8% 9% 8% 8% PB For personal use onlyGrange Resources Limited » 2017 Annual Report vi) Details of remuneration Amounts of Remuneration Table 1: Remuneration for the year ended 31 December 2017 Details of the remuneration of the key management personnel of the Group are set out in the following tables. Post employment Long- term Short-term employee benefits benefits benefits Non- Short term Long Long term incentive (LTI) Salary & monetary incentive Super- service Termination fees benefits (STI) (3) annuation leave benefits Cash (3) Rights (3) Total $ 143,837 96,750 95,890 35,959 46,524 $ - - - - - $ - - - - - $ - 13,665 9,110 4,099 4,420 31,294 $ - - - - - Non-executive 418,960 430,009 55,419 41,195 40,851 29,908 - 41,477 638,859 280,004 306,005 - - 17,337 48,044 26,600 29,071 2,985 11,393 9,034 30,659 335,960 425,172 Management 1,016,018 55,419 106,576 96,522 44,286 81,170 - 1,399,991 TOTAL 1,434,978 55,419 106,576 127,816 44,286 81,170 - 1,850,245 L Huang retired as Non-executive Director on 25 May 2017. M Dontschuk was appointed Non-executive Director on 6 June 2017. (1) (2) (3) Nomination Committee approves the remuneration entitlement. $ $ 157,502 96,750 105,000 40,058 50,944 450,254 - - - - - - - - - - - - - $ - - - - - - - - - Non-executive Directors M Li Y Jia D Tenardi L Huang (1) M Dontschuk (2) Sub-total Directors Executive Directors H Zhao Other Key Management Personnel S Phan B Maynard Sub-total Key Personnel PB Table 2: Remuneration for the year ended 31 December 2016 2017 Annual Report « Grange Resources Limited Post employment benefits Long- term benefits Long term incentive (LTI) Short-term employee benefits Short term incentive (STI) (3) Non- monetary benefits Salary & fees Super- annuation Long service leave Termination benefits $ 143,837 96,750 95,890 86,302 422,779 $ - - - - - $ - - - - - $ 13,665 - 9,110 8,199 30,974 $ - - - - - $ - - - - - - - - - - Cash (3) Rights (3) Total $ $ 330,008 52,564 60,450 37,696 10,016 - 54,779 50,322 - 29,902 144,875 20,000 - 300,000 - 44,197 10,444 13,763 33,140 - 807 15,011 210,097 - - - - 58,923 825,205 72,564 134,549 95,043 25,834 210,097 113,702 - 1,476,994 Non- executive Directors M Li Y Jia D Tenardi L Huang Sub-total Non- executive Directors Executive Directors H Zhao Other Key Management Personnel B Zhang (1) S Phan (2) B Maynard Sub-total Key Management Personnel - - - - - - - - - 157,502 96,750 105,000 94,501 453,753 545,513 300,765 179,445 451,271 Represents short term and long term incentive payments for the year ended 31 December 2016 and 2015 granted on 21 March 2017 and 20 March 2016, respectively. Variable remuneration amounts awarded to Executive Directors and Other Key Management Personnel are disclosed during the period in which the Remuneration and Table 3: Relative proportions linked to performance TOTAL 1,247,984 72,564 134,549 126,017 25,834 210,097 113,702 - 1,930,747 (1) (2) (3) B Zhang was Chief Financial Officer of the Company from 19 December 2014 to 7 March 2016. S Phan was appointed Chief Financial Officer of the Company on 11 April 2016. Represents short term and long term incentive payments for the year ended 31 December 2015 and 2014 granted on 20 March 2016 and 12 May 2015, respectively. Variable remuneration amounts awarded to Executive Directors and Other Key Management Personnel are disclosed during the period in which the Remuneration and Nomination Committee approves the remuneration entitlement. The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Name Dec-17 Dec-16 Dec-17 Dec-16 Dec-17 Dec-16 Fixed Remuneration At Risk - STI At Risk - LTI Executive Directors H Zhao 77% Other Key Management Personnel S Phan B Maynard 84% 80% 77% 84% 80% 14% 8% 12% 14% 8% 12% 9% 8% 8% 9% 8% 8% 29 PB For personal use onlyGrange Resources Limited » 2017 Annual Report vii) Service agreements On appointment to the Board, all Non-executive Directors sign a letter of appointment with the Company. The document details the term of appointment, the role, duties and obligations of the Directors as well as the likely time commitment and performance expectations and review arrangements and circumstances relating to the vacation of office. In addition, it also summarises the major Board policies and terms, including compensation, relevant to the office of Director. Remuneration and other terms of employment for the executives are formalised in service agreements. Each of the agreements provides for the provision of fixed pay, performance related variable remuneration and other benefits. The agreements with executives are ongoing and provide for termination of employment at any time by giving three months’ notice or by the Company paying an amount equivalent to three months remuneration in lieu of notice. viii) Details of STI and LTI (including share-based payment) held by key management personnel M Li Short term incentive For each short term incentive benefit, the percentage of the available bonus was awarded and will be paid in the early coming year as follows. At the date of this report, the performance for the 2017 STI program had been approved: Name Executive Directors H Zhao Other Key Management Personnel S Phan B Maynard (1) Inclusive of superannuation. Long term incentive a) Deferred Cash Maximum possible incentive award $84,755 $30,660 $50,261 2017 STI Program Awarded Amount awarded Directors of Grange Resources Limited 87.2% 88.2% 89.7% $73,930(1) $27,051(1) $45,100(1) At the date of this report, the performance for the 2017 LTI program had been approved. Name Executive Directors H Zhao Other Key Management Personnel S Phan B Maynard (1) Inclusive of superannuation. b) Rights to Grange Shares 2017 LTI Program Maximum possible incentive award Awarded Amount awarded $56,470 $30,650 $33,490 86.7% 86.7% 86.7% $48,963(1) $26,569(1) $29,036(1) The Board will review regularly and reserves the right to vary from time to time the appropriate hurdles and vesting periods for Rights to Grange shares. Trade receivables (sales of iron ore products) The objective for the issue of Rights under the LTI program is to reward selected senior employees in a manner that aligns this element of their remuneration package with the creation of long term shareholder wealth while at the same time securing the employee’s tenure with the Company over the longer term. The LTI grants Rights to the Company’s shares to selected senior employees. There were no Rights to Grange shares issued to directors or senior employees in the years 2017 and 2016. 30 PB 2017 Annual Report « Grange Resources Limited Share holdings 31 December 2017 The number of shares in the Company held during the period by each Director of Grange Resources Limited and other key management personnel of the Group, including their personally related parties, are set out below: Balance On vesting of 1 January 2017 rights On market purchases On market disposals Balance 31 December 2017 Other Directors of Grange Resources Limited Other Key Management Personnel B Maynard 31 December 2016 Balance On vesting of 1 January 2016 rights On market purchases On market disposals Balance 31 December 2016 Other - - - - - - - - - - - - - - - - 13,507 68,121 13,507 68,121 13,507 68,121 13,507 68,121 M Li B Maynard Other Key Management Personnel ix) Loans to key management personnel There were no loans to key management personnel during the year (December 2016: Nil). x) Other transactions with key management personnel A director, Mr Honglin Zhao, is a former director of Jiangsu Trade Co. Ltd., which is a wholly owned subsidiary of Shagang Group (Shagang) to which sales of iron ore Jiangsu Shagang Group (Shagang) to which sales of iron products are made under long-term off-take agreements. As ore products are made under long-term off-take agreements. at 27 February 2018, Shagang holds 47.93% (29 February Each transaction between Shagang and Grange must be 2017: 47.93%) of the issued ordinary shares of Grange. either approved by non-associated Grange shareholders, or Each transaction between Shagang and Grange must be approved by the Grange independent directors. either approved by non-associated Grange shareholders, or approved by the Grange independent directors. A director, Ms Yan Jia, is an employee of Shagang International Aggregate amounts of each of the above types of other transactions with key management personnel of Grange: The following balances are outstanding at the end of the reporting period in relation to the above transactions: Sales of iron ore products Pellets Pellets Others Insurance of Officers During the financial period, the Company has paid premiums in respect of Directors’ and Officers’ Liability Insurance and Company Reimbursement policies, which cover all Directors and Officers of the Group to the extent permitted under the Corporations Act 2001. The policy conditions preclude the Group from any detailed disclosures. 2017 2016 $117,991,116 $105,507,651 2017 2016 13,069,589 (57,519) 13,012,070 5,130,461 (46,463) 5,083,999 PB For personal use onlyGrange Resources Limited » 2017 Annual Report vii) Service agreements On appointment to the Board, all Non-executive Directors Remuneration and other terms of employment for the sign a letter of appointment with the Company. The document executives are formalised in service agreements. Each details the term of appointment, the role, duties and obligations of the agreements provides for the provision of fixed pay, of the Directors as well as the likely time commitment and performance related variable remuneration and other performance expectations and review arrangements and benefits. The agreements with executives are ongoing and circumstances relating to the vacation of office. In addition, provide for termination of employment at any time by giving it also summarises the major Board policies and terms, three months’ notice or by the Company paying an amount including compensation, relevant to the office of Director. equivalent to three months remuneration in lieu of notice. viii) Details of STI and LTI (including share-based payment) held by key management personnel For each short term incentive benefit, the percentage of the available bonus was awarded and will be paid in the early At the date of this report, the performance for the 2017 STI program had been approved: 2017 STI Program Maximum possible incentive award Awarded Amount awarded At the date of this report, the performance for the 2017 LTI program had been approved. 2017 LTI Program Maximum possible incentive award Awarded Amount awarded $84,755 $30,660 $50,261 $56,470 $30,650 $33,490 87.2% 88.2% 89.7% 86.7% 86.7% 86.7% $73,930(1) $27,051(1) $45,100(1) $48,963(1) $26,569(1) $29,036(1) Short term incentive coming year as follows. Name Executive Directors H Zhao Other Key Management Personnel S Phan B Maynard (1) Inclusive of superannuation. Long term incentive a) Deferred Cash Name Executive Directors H Zhao Other Key Management Personnel S Phan B Maynard (1) Inclusive of superannuation. b) Rights to Grange Shares for Rights to Grange shares. The objective for the issue of Rights under the LTI program is to reward selected senior employees in a manner that aligns this element of their remuneration package with the creation of long term shareholder wealth while at the same time securing the employee’s tenure with the Company over the longer term. The LTI grants Rights to the Company’s shares to selected senior employees. There were no Rights to Grange shares issued to directors or senior employees in the years 2017 and 2016. 2017 Annual Report « Grange Resources Limited Share holdings The number of shares in the Company held during the period by each Director of Grange Resources Limited and other key management personnel of the Group, including their personally related parties, are set out below: 31 December 2017 Balance 1 January 2017 On vesting of rights On market purchases On market disposals Directors of Grange Resources Limited M Li 13,507 Other Key Management Personnel B Maynard 68,121 - - 31 December 2016 - - - - Balance 1 January 2016 On vesting of rights On market purchases On market disposals Directors of Grange Resources Limited M Li 13,507 Other Key Management Personnel B Maynard 68,121 - - - - - - ix) Loans to key management personnel There were no loans to key management personnel during the year (December 2016: Nil). Balance 31 December 2017 Other - - 13,507 68,121 Balance 31 December 2016 Other - - 13,507 68,121 x) Other transactions with key management personnel A director, Mr Honglin Zhao, is a former director of Jiangsu Shagang Group (Shagang) to which sales of iron ore products are made under long-term off-take agreements. As at 27 February 2018, Shagang holds 47.93% (29 February 2017: 47.93%) of the issued ordinary shares of Grange. Each transaction between Shagang and Grange must be either approved by non-associated Grange shareholders, or approved by the Grange independent directors. Trade Co. Ltd., which is a wholly owned subsidiary of Jiangsu Shagang Group (Shagang) to which sales of iron ore products are made under long-term off-take agreements. Each transaction between Shagang and Grange must be either approved by non-associated Grange shareholders, or approved by the Grange independent directors. Aggregate amounts of each of the above types of other transactions with key management personnel of Grange: A director, Ms Yan Jia, is an employee of Shagang International Sales of iron ore products Pellets 2017 2016 $117,991,116 $105,507,651 The following balances are outstanding at the end of the reporting period in relation to the above transactions: The Board will review regularly and reserves the right to vary from time to time the appropriate hurdles and vesting periods Trade receivables (sales of iron ore products) Pellets Others Insurance of Officers 2017 2016 13,069,589 (57,519) 13,012,070 5,130,461 (46,463) 5,083,999 During the financial period, the Company has paid premiums in respect of Directors’ and Officers’ Liability Insurance and Company Reimbursement policies, which cover all Directors and Officers of the Group to the extent permitted under the Corporations Act 2001. The policy conditions preclude the Group from any detailed disclosures. PB 31 PB For personal use onlyGrange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited Indemnity of Auditors The Company has entered into an agreement to indemnify its auditor, PricewaterhouseCoopers, against any claims or liabilities (including legal costs) asserted by third parties arising out of their services as auditor of the Company, where the liabilities arise as a direct result of the Company’s breach of its obligations to the Auditors, unless prohibited by the Corporations Act 2001. Audit and Non-audit Services Details of the amounts paid or payable to the auditor for audit and non-audit services provided during the year are set out below. The Board of Directors has considered the position and, in accordance with advice received from the Company’s Audit and Risk Committee, is satisfied that the provision of non- audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: 2017 $’000 274 - 16 - 290 5 - 2016 $’000 235 50 16 37 338 24 1 Auditor PwC continues in office in accordance with section 327 of the Corporations Act 2001. The report is made in accordance with a resolution of Directors. Michelle Li Chairperson of the Board of Directors Perth, Western Australia 27 February 2018 (a) PwC - Australia Audit and review of financial reports Audit fee relating to 2016 and paid in 2017 Other assurance services Other advisory services Total remuneration of PwC - Australia (b) Related practices of PwC - Australia Audit and review of financial reports Taxation compliance It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where PricewaterhouseCoopers’s expertise and experience with the Group are important. These assignments are principally tax consulting and advice or where PricewaterhouseCoopers is awarded assignments on a competitive basis. It is the Group’s policy to seek competitive tenders on all major consulting assignments. Group policy also requires the Chairperson of the Audit and Risk Committee to approve all individual assignments performed by PricewaterhouseCoopers with total fees greater than $10,000. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 21. Rounding of amounts The Company is of a kind referred to in ASIC Legislative Instrument 2016/19, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with the instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. 32 PB Auditor’s Independence Declaration As lead auditor for the audit of Grange Resources Limited for the year ended 31 December 2017, 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 Grange Resources Limited and the entities it controlled during the period. John O'Donoghue Partner PricewaterhouseCoopers Melbourne 27 February 2018 PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. PB For personal use onlyGrange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited Indemnity of Auditors The Company has entered into an agreement to indemnify its auditor, PricewaterhouseCoopers, against any claims or liabilities (including legal costs) asserted by third parties arising out of their services as auditor of the Company, where the liabilities arise as a direct result of the Company’s breach of its obligations to the Auditors, unless prohibited by the Corporations Act 2001. Audit and Non-audit Services Details of the amounts paid or payable to the auditor for audit and non-audit services provided during the year are set out below. The Board of Directors has considered the position and, in accordance with advice received from the Company’s Audit and Risk Committee, is satisfied that the provision of non- audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: (a) PwC - Australia Audit and review of financial reports Audit fee relating to 2016 and paid in 2017 Other assurance services Other advisory services Total remuneration of PwC - Australia (b) Related practices of PwC - Australia Audit and review of financial reports Taxation compliance 2017 $’000 274 16 - - 290 5 - 2016 $’000 235 50 16 37 338 24 1 It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where PricewaterhouseCoopers’s expertise and experience with the Group are important. These assignments are principally tax consulting and advice or where PricewaterhouseCoopers is awarded assignments on a competitive basis. It is the Group’s policy to seek competitive tenders on all major consulting assignments. Group policy also requires the Chairperson of the Audit and Risk Committee to approve all individual assignments performed by PricewaterhouseCoopers with Auditor Directors. total fees greater than $10,000. Michelle Li PwC continues in office in accordance with section 327 of the Corporations Act 2001. The report is made in accordance with a resolution of Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out Perth, Western Australia 27 February 2018 Chairperson of the Board of Directors on page 21. Rounding of amounts The Company is of a kind referred to in ASIC Legislative Instrument 2016/19, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with the instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. PB Auditor’s Independence Declaration As lead auditor for the audit of Grange Resources Limited for the year ended 31 December 2017, 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 Grange Resources Limited and the entities it controlled during the period. John O'Donoghue Partner PricewaterhouseCoopers Melbourne 27 February 2018 PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 33 PB For personal use onlyGrange Resources Limited » 2017 Annual Report STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017 Consolidated Revenues from mining operations Cost of sales Gross profit from mining operations Administration expenses Operating profit before other income Exploration and evaluation expenditure Other income (expenses) Operating profit before finance costs Finance income Finance expenses Profit before tax Income tax expense Profit for the year Total comprehensive income for the year Profit for the period attributable to: - Equity holders of Grange Resources Limited Total comprehensive income for the period attributable to: - Equity holders of Grange Resources Limited NOTES 4, 5 6 7 8 9 9 10 2017 $’000 247,877 (173,347) 74,530 (3,534) 70,996 (799) 439 70,636 5,342 (9,228) 66,750 (6,037) 60,713 60,713 60,713 60,713 60,713 60,713 Earnings per share for profit attributable to the ordinary equity holders of Grange Resources Limited Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 33 33 5.25 5.25 The above statement of comprehensive income should be read in conjunction with the accompanying notes. 2016 $’000 276,345 (172,553) 103,792 (8,115) 95,677 (1,391) 426 94,712 3,955 (3,858) 94,809 (1,906) 92,903 92,903 92,903 92,903 92,903 92,903 8.03 8.03 34 PB For personal use only STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017 Consolidated NOTES $’000 $’000 31 December 2017 31 December 2016 2017 Annual Report « Grange Resources Limited ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Other financial assets Total current assets Non-current assets Receivables Property, plant and equipment Mine properties and development Deferred tax assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Provisions Total current liabilities Non-current liabilities Borrowings Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Retained profits Capital and reserves attributable to owners of Grange Resources Limited Total equity 2, 11 12 13 2 14 15 16 17 2, 18 2, 19 20 21 22 23 24 167,989 30,118 63,166 66 261,339 8,030 138,389 75,323 6,880 228,622 489,961 23,525 4,830 12,821 41,176 - 61,206 61,206 102,382 387,579 331,513 56,066 387,579 387,579 The above statement of financial position should be read in conjunction with the accompanying notes. 165,958 31,288 35,541 19 232,806 7,864 120,259 59,330 8,697 196,150 428,956 17,827 6,530 11,828 36,185 2,724 57,394 60,118 96,303 332,653 331,513 1,140 332,653 332,653 35 PB For personal use only Retained earnings $’000 1,140 60,713 TOTAL $’000 332,653 60,713 60,713 60,713 (5,787) (5,787) 56,066 (85,976) 92,903 (5,787) (5,787) 387,579 245,537 92,903 92,903 92,903 (5,787) (5,787) 1,140 (5,787) (5,787) 332,653 - - - - - - - - - - Grange Resources Limited » 2017 Annual Report STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017 NOTES Contributed equity $’000 331,513 Reserves $’000 Balance at 1 January 2017 Profit for the year Total comprehensive profit for the year Transactions with owners in their capacity as owners Dividends paid Balance at 31 December 2017 Balance at 1 January 2016 Profit for the year Total comprehensive profit for the year Transactions with owners in their capacity as owners Dividends paid - - - - 331,513 331,513 - - - - 25 25 Balance at 31 December 2016 331,513 The above statements of changes in equity should be read in conjunction with the accompanying notes. 36 PB For personal use only STATEMENT OF CASHFLOW FOR THE YEAR ENDED 31 DECEMBER 2017 Consolidated NOTES 2017 $’000 2016 $’000 2017 Annual Report « Grange Resources Limited 249,301 255,524 (183,095) (124,691) Cash flows from operating activities Receipts from customers and other debtors (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Proceeds from insurance claim Interest received Interest paid Income taxes (paid) / received Net cash inflow from operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Payments for property, plant and equipment Payments for mine properties and development (Payments) / proceeds for term deposits Net cash outflow from investing activities Cash flows from financing activities Repayment of borrowings Proceeds from borrowings Dividends paid to shareholders Finance lease payments Net cash outflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Net foreign exchange differences 33 15 16 25 Cash and cash equivalents at end of the year 11 66,206 - 4,917 (517) 619 71,225 - (21,749) (29,730) (117) (51,596) (6,535) 2,147 (5,787) - (10,175) 9,454 165,958 (7,423) 167,989 The above statement of cash flows should be read in conjunction with accompanying notes. 130,833 345 2,791 (738) (11,292) 121,939 15 (40,667) (46,300) 43,862 (43,090) (4,962) 2,154 (5,787) (329) (8,924) 69,925 94,698 1,335 165,958 37 PB For personal use only Grange Resources Limited » 2017 Annual Report NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied for all the periods presented, unless otherwise stated. financial statements are The the consolidated entity consisting of Grange Resources Limited and its subsidiaries. for a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Compliance with IFRS The consolidated financial statements of the Grange Resources Limited group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention These financial statements have been prepared under the historical costs convention, except for certain assets which, as noted, are at fair value. Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 3. b) Principles of consolidation i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Grange Resources Limited as at 31 December 2017 and the results of all subsidiaries for the year then ended. Grange Resources Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity. Subsidiaries are those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Details of subsidiaries are set out in Note 30. The acquisition method of accounting is used to account for business combinations by the Group (refer to note 1(e)). Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. 38 PB Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. ii) Joint arrangements Joint operations The Group recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. These have been incorporated in the financial statements under the appropriate headings. Details of the joint operations are set out in Note 31. c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. Refer to Note 4 for further information on segment descriptions. d) Foreign currency translation i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Grange Resources Limited’s functional and presentation currency. ii) Transactions and balances the foreign currency transactions during All financial period are translated into the functional currency using the exchange rate prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. Non-monetary items that are measured in terms of historical cost in foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. iii) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet, 2017 Annual Report « Grange Resources Limited • income and expenses for each income statement are Contingent consideration is classified either as equity or a translated at average exchange rates (unless this is not a financial liability. Amounts classified as a financial liability are reasonable approximation of the cumulative effect of the subsequently remeasured to fair value with changes in fair rates prevailing on the transaction dates, in which case value recognised in profit or loss. income and expenses are translated at the dates of the • all resulting exchange differences are recognised in other transactions), and comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are reclassified to the income statement, as part of the gain or loss on sale where applicable. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entities and translated at the closing rate. e) Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred liabilities incurred to the former owners of the acquired • • business • equity interests issued by the Group • fair value of any asset or liability resulting from a contingent consideration arrangement, and • fair value of any pre-existing equity interest in the subsidiary. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquire is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss. f) Revenue recognition Revenue is recognised and measured at the fair value of the consideration received or receivable. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that the economic benefits will flow to the Group and specific criteria have been met for each of the Group’s activities described below. Amounts disclosed as revenue are net of agency commissions and amounts collected on behalf of third parties. Revenue is recognised for the major business transactions as follows: Sales of iron ore Revenues from the sales of iron ore are recognised when the significant risks and rewards of ownership of the goods have passed to the customer and the amount of revenue can be measured reliably. Risks and rewards are considered passed to the buyer at the time when title passes to the customer. The majority of the Group’s sales arrangements specify that title passes when the product is transferred to the vessel on which the product will be shipped. Revenues are generally recognised on the bill of lading date. Sales arrangements allow for an adjustment to the sales price based on a survey of the goods by the customer (an assay for mineral content). Accordingly, sales revenue is initially recognised Identifiable assets acquired and liabilities and contingent on a provisional basis using the most recently determined liabilities assumed in a business combination are, with estimate of the product specifications and subsequently limited exceptions, measured initially at their fair values at the adjusted, if necessary, based on a survey of the goods by acquisition date. The Group recognises any non-controlling the customer. interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s Interest revenue proportionate share of the acquired entity’s net identifiable Interest revenue is recognised on a time proportion basis assets. Acquisition-related costs are expensed as incurred. using the effective interest method. • amount of any non-controlling interest in the acquired there is reasonable assurance that the grant will be received The excess of the • consideration transferred, entity, and in the acquired entity. • acquisition-date fair value of any previous equity interest over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. g) Government Grants Government grants are recognised at their fair value when and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. When the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments. PB For personal use onlyGrange Resources Limited » 2017 Annual Report NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation Accounting policies of subsidiaries have been changed of the consolidated financial statements are set out below. where necessary to ensure consistency with the policies These policies have been consistently applied for all the adopted by the Group. periods presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Grange Resources Limited and its ii) Joint arrangements Joint operations subsidiaries. a) Basis of preparation The Group recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and This general purpose financial report has been prepared expenses. These have been incorporated in the financial in accordance with Australian Accounting Standards statements under the appropriate headings. Details of the and Interpretations issued by the Australian Accounting joint operations are set out in Note 31. Standards Board and the Corporations Act 2001. Compliance with IFRS c) Segment reporting Operating segments are reported in a manner consistent The consolidated financial statements of the Grange with the internal reporting provided to the chief operating Resources Limited group also comply with International decision maker. The chief operating decision maker, who Financial Reporting Standards (IFRS) as issued by the is responsible for allocating resources and assessing International Accounting Standards Board (IASB). performance of the operating segments, has been identified Historical cost convention as noted, are at fair value. Critical accounting estimates These financial statements have been prepared under the historical costs convention, except for certain assets which, d) Foreign currency translation Refer to Note 4 for further information on segment descriptions. i) Functional and presentation currency Items included in the financial statements of each of the The preparation of financial statements requires the use Group’s entities are measured using the currency of the primary of certain critical accounting estimates. It also requires economic environment in which the entity operates (‘the management to exercise its judgement in the process of functional currency’). The consolidated financial statements applying the Group’s accounting policies. The areas involving are presented in Australian dollars, which is Grange Resources a higher degree of judgement or complexity, or areas where Limited’s functional and presentation currency. assumptions and estimates are significant to the financial ii) Transactions and balances statements, are disclosed in Note 3. b) Principles of consolidation i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Grange Resources Limited as at 31 December 2017 and the results of all subsidiaries for the year then ended. Grange Resources Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity. All foreign currency transactions during the financial period are translated into the functional currency using the exchange rate prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a Subsidiaries are those entities over which the Group has foreign operation. control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Non-monetary items that are measured in terms of historical cost in foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair Subsidiaries are fully consolidated from the date on which value was determined. control is transferred to the Group. They are de-consolidated from the date that control ceases. Details of subsidiaries are iii) Group companies set out in Note 30. The acquisition method of accounting is used to account for business combinations by the Group (refer to note 1(e)). The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation Intercompany transactions, balances and unrealised gains currency as follows: on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet, PB • income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and • all resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are reclassified to the income statement, as part of the gain or loss on sale where applicable. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entities and translated at the closing rate. as the Chief Executive Officer. e) Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the • • fair values of the assets transferred liabilities incurred to the former owners of the acquired business • equity interests issued by the Group • fair value of any asset or liability resulting from a contingent consideration arrangement, and fair value of any pre-existing equity interest in the subsidiary. • Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred. The excess of the • consideration transferred, • amount of any non-controlling interest in the acquired entity, and • acquisition-date fair value of any previous equity interest in the acquired entity. over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. 2017 Annual Report « Grange Resources Limited Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquire is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss. f) Revenue recognition Revenue is recognised and measured at the fair value of the consideration received or receivable. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that the economic benefits will flow to the Group and specific criteria have been met for each of the Group’s activities described below. Amounts disclosed as revenue are net of agency commissions and amounts collected on behalf of third parties. Revenue is recognised for the major business transactions as follows: Sales of iron ore Revenues from the sales of iron ore are recognised when the significant risks and rewards of ownership of the goods have passed to the customer and the amount of revenue can be measured reliably. Risks and rewards are considered passed to the buyer at the time when title passes to the customer. The majority of the Group’s sales arrangements specify that title passes when the product is transferred to the vessel on which the product will be shipped. Revenues are generally recognised on the bill of lading date. Sales arrangements allow for an adjustment to the sales price based on a survey of the goods by the customer (an assay for mineral content). Accordingly, sales revenue is initially recognised on a provisional basis using the most recently determined estimate of the product specifications and subsequently adjusted, if necessary, based on a survey of the goods by the customer. Interest revenue Interest revenue is recognised on a time proportion basis using the effective interest method. g) Government Grants Government grants are recognised at their fair value when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. When the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments. 39 PB For personal use onlyGrange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited h) Leases • depreciation of property, plant and equipment used in the same taxation authority. Current tax assets and tax liabilities Other non-mine plant and equipment typically has the Leases are classified as either operating or finance leases at the inception of the leases based on the economic substance of their agreement so as to reflect the risks and rewards incidental to ownership. Finance leases, which are those leases that transfer substantially all of the risks and rewards incidental to ownership of the leased item to the Group, are capitalised at the present value of the minimum lease payments and disclosed as property, plant and equipment. A lease liability of equal value is also recognised. Each lease payment is allocated between the liability and financing costs. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability over the period. The property, plant and equipment acquired under a finance lease is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Operating leases are those leases that do not transfer a significant portion of the risks and rewards of ownership to the Group as lessee. Payments made under operating leases are charged to the income statement on a straight- line basis over the period of the lease. i) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. j) Trade and other receivables Trade receivables are recognised and carried at the original invoice amount less provision for impairment. Trade receivables are generally due for settlement within 14 days. Collectability of trade receivables are reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the impairment loss is recognised in the income statement within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectable in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the income statement. k) Inventories Raw materials and stores, ore stockpiles, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost is determined primarily on the basis of weighted average costs and comprises of the cost of direct materials and the costs of production which include: • labour costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore; 40 PB extraction and processing of ore; and are offset where the entity has a legally enforceable right to following estimated useful lives: • production overheads directly attributable to the extraction and processing of ore. Stockpiles represent ore that has been extracted and is available for further processing. If there is significant uncertainty as to when the stockpiled ore will be processed it is expensed as incurred. Where the future processing of the ore can be predicted with confidence because it exceeds the mine’s cut-off grade, it is valued at the lower of cost and net realisable value. Work in progress inventory includes partly processed material. Quantities are assessed primarily through surveys and assays. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. l) Income tax The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses, only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and the tax bases of investments in foreign operations where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Buildings Plant and Equipment Grange Resources Limited and its wholly-owned Australian Computer Equipment 10 years 4 to 8 years 3 to 5 years controlled entities have implemented the tax consolidation legislation. As a consequence, Grange Resources Limited and its subsidiaries are taxed as a single entity and the deferred tax assets and liabilities of the Group are set off in the consolidated financial statements. m) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: • when GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as The assets residual values, useful lives and amortisation methods are reviewed and adjusted if appropriate, at each financial period end. An item of property, plant and equipment is derecognised upon disposal or when no further economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the period the asset is derecognised. The carrying value of property, plant and equipment is assessed annually for impairment in accordance with Note 1(r). applicable; and amount of GST included. • receivables and payables, which are stated with the o) Exploration and evaluation Exploration and evaluation expenditure comprises costs The net amount of GST recoverable from, or payable to, which are directly attributable to: the taxation authority is included as part of receivables or • research and analysing exploration data payables in the balance sheet. • conducting geological studies, exploratory drilling and Cash flows are included in the Statement of Cash Flows on sampling a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are presented as operating cash flows. Commitments and contingencies are presented net of the amount of GST recoverable from, or payable to, the taxation authority. n) Property, plant and equipment • examining and testing extraction and treatment methods • compiling pre-feasibility and definitive feasibility studies Exploration and evaluation expenditure also includes the costs incurred in acquiring rights, the entry premiums paid to gain access to areas of interest and amounts payable to third parties to acquire interests in existing projects. Exploration and evaluation expenditure is charged against profit and loss as incurred; except for expenditure incurred Land and buildings and plant and equipment are measured at after a decision to proceed to development is made, in which cost less, where applicable, any accumulated depreciation, case the expenditure is capitalised as an asset. amortisation or impairment in value. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. 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. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to the income statement during the reporting period in which they are incurred. Land is not depreciated. Assets under construction are measured at cost and are not depreciated until they are ready and available for use. Depreciation on assets is calculated using either a straight-line or diminishing value method to allocate the cost, net of their residual values, over the estimated useful lives or the life of the mine, whichever is shorter. Leasehold improvements and certain leased plant and equipment are depreciated over the shorter lease term. p) Mine properties and development Mine properties and development represent the accumulation of all exploration, evaluation and development expenditure incurred by, not on behalf of, the entity in relation to areas of interest in which mining of a mineral resource has commenced. Where further development expenditure is incurred in respect of a production property after the commencement of production, such expenditure is carried forward as part of the cost of that production property only when substantial future economic benefits arise, otherwise such expenditure is classified as part of the cost of production. Costs on production properties in which the Group has an interest are amortised over the life of the area of interest to which such costs relate on the production output basis. Changes to the life of the area of interest are accounted for prospectively. The carrying value of each mine property and development are assessed annually for impairment in accordance with Note 1(r). PB For personal use onlyGrange Resources Limited » 2017 Annual Report h) Leases Leases are classified as either operating or finance leases at the inception of the leases based on the economic substance of their agreement so as to reflect the risks and rewards incidental to ownership. Finance leases, which are those leases that transfer substantially all of the risks and rewards incidental to ownership of the leased item to the Group, are capitalised at the present value of the minimum lease payments and disclosed as property, plant and equipment. A lease liability of equal value is also recognised. Each lease payment is allocated between the liability and financing costs. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability over the period. The property, plant and equipment acquired under a finance lease is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Operating leases are those leases that do not transfer a significant portion of the risks and rewards of ownership to the Group as lessee. Payments made under operating leases are charged to the income statement on a straight- line basis over the period of the lease. i) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. j) Trade and other receivables Trade receivables are recognised and carried at the original invoice amount less provision for impairment. Trade receivables are generally due for settlement within 14 days. Collectability of trade receivables are reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the impairment loss is recognised in the income statement within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectable in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the income statement. k) Inventories Raw materials and stores, ore stockpiles, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost is determined primarily on the basis of weighted average costs and comprises of the cost of direct materials and the costs of production which include: • labour costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore; • depreciation of property, plant and equipment used in the extraction and processing of ore; and • production overheads directly attributable to the extraction and processing of ore. Stockpiles represent ore that has been extracted and is available for further processing. If there is significant uncertainty as to when the stockpiled ore will be processed it is expensed as incurred. Where the future processing of the ore can be predicted with confidence because it exceeds the mine’s cut-off grade, it is valued at the lower of cost and net realisable value. Work in progress inventory includes partly processed material. Quantities are assessed primarily through surveys and assays. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. l) Income tax The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses, only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and the tax bases of investments in foreign operations where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the PB same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Grange Resources Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. As a consequence, Grange Resources Limited and its subsidiaries are taxed as a single entity and the deferred tax assets and liabilities of the Group are set off in the consolidated financial statements. m) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: • when GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables, which are stated with the amount of GST included. • The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are presented as operating cash flows. Commitments and contingencies are presented net of the amount of GST recoverable from, or payable to, the taxation authority. n) Property, plant and equipment impairment Land and buildings and plant and equipment are measured at cost less, where applicable, any accumulated depreciation, amortisation or includes expenditure that is directly attributable to the acquisition of the item. In the event that all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. in value. Cost 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. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to the income statement during the reporting period in which they are incurred. Land is not depreciated. Assets under construction are measured at cost and are not depreciated until they are ready and available for use. Depreciation on assets is calculated using either a straight-line or diminishing value method to allocate the cost, net of their residual values, over the estimated useful lives or the life of the mine, whichever is shorter. Leasehold improvements and certain leased plant and equipment are depreciated over the shorter lease term. 2017 Annual Report « Grange Resources Limited Other non-mine plant and equipment typically has the following estimated useful lives: Buildings Plant and Equipment Computer Equipment 10 years 4 to 8 years 3 to 5 years The assets residual values, useful lives and amortisation methods are reviewed and adjusted if appropriate, at each financial period end. An item of property, plant and equipment is derecognised upon disposal or when no further economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the period the asset is derecognised. The carrying value of property, plant and equipment is assessed annually for impairment in accordance with Note 1(r). o) Exploration and evaluation Exploration and evaluation expenditure comprises costs which are directly attributable to: • • conducting geological studies, exploratory drilling and research and analysing exploration data sampling • examining and testing extraction and treatment methods • compiling pre-feasibility and definitive feasibility studies Exploration and evaluation expenditure also includes the costs incurred in acquiring rights, the entry premiums paid to gain access to areas of interest and amounts payable to third parties to acquire interests in existing projects. Exploration and evaluation expenditure is charged against profit and loss as incurred; except for expenditure incurred after a decision to proceed to development is made, in which case the expenditure is capitalised as an asset. p) Mine properties and development Mine properties and development represent the accumulation of all exploration, evaluation and development expenditure incurred by, not on behalf of, the entity in relation to areas of interest in which mining of a mineral resource has commenced. Where further development expenditure is incurred in respect of a production property after the commencement of production, such expenditure is carried forward as part of the cost of that production property only when substantial future economic benefits arise, otherwise such expenditure is classified as part of the cost of production. Costs on production properties in which the Group has an interest are amortised over the life of the area of interest to which such costs relate on the production output basis. Changes to the life of the area of interest are accounted for prospectively. The carrying value of each mine property and development are assessed annually for impairment in accordance with Note 1(r). 41 PB For personal use onlyGrange Resources Limited » 2017 Annual Report q) Deferred stripping costs Stripping (i.e. overburden and other waste removal) costs incurred in the production phase of a surface mine are capitalised to the extent that they improve access to an identified component of the ore body and are subsequently amortised on a systematic basis over the expected useful life of the identified component of the ore body. Capitalised stripping costs are disclosed as a component of Mine Properties and Development. Components of an ore body are determined with reference to life of mine plans and take account of factors such as the geographical separation of mining locations and/or the economic status of mine development decisions. Capitalised stripping costs are initially measured at cost and represent an accumulation of costs directly incurred in performing the stripping activity that improves access to the identified component of the ore body, plus an allocation of directly attributable overhead costs. The amount of stripping costs deferred is based on a relevant production measure which uses a ratio obtained by dividing the tonnage of waste mined by the quantity of ore mined for an identified component of the ore body. Stripping costs incurred in the period for an identified component of the ore body are deferred to the extent that the current period ratio exceeds the expected ratio for the life of the identified component of the ore body. Such deferred costs are then charged against the income statement on a systematic units of production basis over the expected useful life of an identified component of the ore body. Changes to the life of mine plan, identified components of an ore body, stripping ratios, units of production and expected useful life are accounted for prospectively. Deferred stripping costs form part of the total investment in a cash generating unit, which is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. r) Impairment of assets At each reporting date, the Group assesses whether there is any indication that an asset, including capitalised development expenditure, may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of the recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognised in the income statement. Recoverable amount is the greater of fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Where there is no binding sale agreement or active market, fair value less costs of disposal is based on the best information available to reflect the amount the Group could receive for the cash generating unit in an arm’s length transaction. In assessing fair value, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the pre- impairment value, adjusted for any depreciation that would have been recognised on the asset had the initial impairment loss not occurred. Such reversal is recognised in profit or loss. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. s) Investments and other financial assets Classification The Group classifies its financial assets in the following categories: financial assets at fair value through profit and loss, loans and receivables, held-to-maturity financial assets and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition, and in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Due to the short-term nature of the current receivables, their carrying amount is assumed to be the same as their fair value. For the majority of the non-current receivables, the fair values are also not significantly different to their carrying amounts. The fair values were calculated based on cash flows discounted using a current lending rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counterparty credit risk. Interest and dividends Interest and dividends are classified as expenses or as distributions of profit consistent with the balance sheet classification of the related debt or equity instruments or component parts of compound instruments. 2017 Annual Report « Grange Resources Limited Term deposits Term deposits held with financial institutions with maturities of more than three months are presented separately on the statement of financial position. Term deposits with a maturity date of more than 12 months after the reporting date are classified as non-current. t) Derivatives as defined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves of December 2012 (the JORC 2012 code). Reserves, and certain mineral resources determined in this way, are used in the calculation of depreciation, amortisation and impairment charges, the assessment of life of mine stripping ratios and for forecasting the timing of the payment of close down and restoration costs. Derivatives are initially recognised at fair value on the date In assessing the life of a mine for accounting purposes, a derivative contract is entered into and are subsequently mineral resources are only taken into account where there is remeasured to their fair value at the end of each reporting a high degree of confidence of economic extraction. period. The accounting for subsequent changes in fair value depends on whether the derivative is designated w) Trade and other payables as a hedging instrument, and if so, the nature of the item Trade payables and other payables are carried at amortised being hedged. Changes in the fair value of any derivative cost and represent liabilities for goods and services provided instrument that does not qualify for hedge accounting are to the Group prior to the end of the financial period that are recognised immediately in profit or loss and are included in unpaid. Trade payables and other payables arise when other income or other expenses. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a of recognition. current asset or liability when the remaining maturity of the x) Borrowings the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days hedged item is less than 12 months. u) Non-current assets held for sale Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. All borrowings are initially recognised at the fair value of the consideration received, less transaction costs. After initial recognition, borrowings are subsequently measured at amortised cost. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility Non-current assets and disposal groups are classified will be drawn down. In this case the fee is deferred until the as held for sale if their carrying amount will be recovered draw down occurs. To the extent there is no evidence that it through a sale transaction rather than through continuing is probable that some or all of the facility will be drawn down, use. This condition is regarded as met only when the sale is the fee is capitalised as a prepayment for liquidity services highly probable and the asset (or disposal group) is available and amortised over the period of the facility to which it relates. for immediate sale in its present condition. The sale of the asset (or disposal group) is expected to be completed within one year from the date of classification. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. Borrowings are classified as current liabilities unless An impairment loss is recognised for any initial or subsequent the Group has an unconditional right to defer settlement of write-down of the asset to fair value less costs to sell. A gain the liability for at least 12 months after the reporting date. is recognised for any subsequent increases in fair value less costs to sell of an asset, but not in excess of any cumulative Borrowing costs impairment loss previously recognised. A gain or loss not Borrowing costs incurred for the construction of any previously recognised by the date of the sale of the non- qualifying asset are capitalised during the period of time that current asset is recognised at the date of derecognition. is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other y) Provisions expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised. Provisions are recognised when the Group has a present obligation, it is probable that there will be a future sacrifice Non-current assets classified as held for sale and the assets of economic benefits and a reliable estimate can be made of of a disposal group classified as held for sale are presented the amount of the obligation. separately from the other assets in the balance sheet. The liabilities of a disposal group are held for sale are presented separately from other liabilities in the balance sheet. v) Ore reserves The Group estimates its mineral resources and ore reserves based on information compiled by Competent Persons When the Group expects some or all of a provision to be recovered from a third party, for example under an insurance contract, the receivable is recognised as a separate asset but only when the reimbursement is virtually certain and it can be measured reliably. The expense relating to any provision is presented in the income statement net of any reimbursement. 42 PB PB For personal use onlyGrange Resources Limited » 2017 Annual Report q) Deferred stripping costs Stripping (i.e. overburden and other waste removal) costs incurred in the production phase of a surface mine are capitalised to the extent that they improve access to an identified component of the ore body and are subsequently amortised on a systematic basis over the expected useful life of the identified component of the ore body. Capitalised stripping costs are disclosed as a component of Mine Properties and Development. Components of an ore body are determined with reference to life of mine plans and take account of factors such as the geographical separation of mining locations and/or the economic status of mine development decisions. Where there is no binding sale agreement or active market, fair value less costs of disposal is based on the best information available to reflect the amount the Group could receive for the cash generating unit in an arm’s length transaction. In assessing fair value, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates Capitalised stripping costs are initially measured at cost used to determine the asset’s recoverable amount since the and represent an accumulation of costs directly incurred in last impairment loss was recognised. If that is the case the performing the stripping activity that improves access to the carrying amount of the asset is increased to its recoverable identified component of the ore body, plus an allocation of amount. That increased amount cannot exceed the pre- directly attributable overhead costs. The amount of stripping impairment value, adjusted for any depreciation that would costs deferred is based on a relevant production measure have been recognised on the asset had the initial impairment which uses a ratio obtained by dividing the tonnage of loss not occurred. Such reversal is recognised in profit or waste mined by the quantity of ore mined for an identified loss. component of the ore body. Stripping costs incurred in the period for an identified component of the ore body are deferred to the extent that the current period ratio exceeds the expected ratio for the life of the identified component of the ore body. Such deferred costs are then charged against After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. the income statement on a systematic units of production s) Investments and other financial assets basis over the expected useful life of an identified component Classification of the ore body. Changes to the life of mine plan, identified components of an ore body, stripping ratios, units of production and expected useful life are accounted for prospectively. The Group classifies its financial assets in the following categories: financial assets at fair value through profit and loss, loans and receivables, held-to-maturity financial assets and available-for-sale financial assets. The classification Deferred stripping costs form part of the total investment in depends on the purpose for which the investments were a cash generating unit, which is reviewed for impairment if acquired. Management determines the classification of its events or changes in circumstances indicate that the carrying investments at initial recognition, and in the case of assets classified as held-to-maturity, re-evaluates this designation value may not be recoverable. r) Impairment of assets at each reporting date. Loans and receivables At each reporting date, the Group assesses whether there is any indication that an asset, including capitalised Loans and receivables are non-derivative financial assets development expenditure, may be impaired. Where an with fixed or determinable payments that are not quoted in indicator of impairment exists, the Group makes a formal an active market. Due to the short-term nature of the current estimate of the recoverable amount. Where the carrying receivables, their carrying amount is assumed to be the amount of an asset exceeds its recoverable amount the asset same as their fair value. For the majority of the non-current is considered impaired and is written down to its recoverable receivables, the fair values are also not significantly different amount. Impairment losses are recognised in the income to their carrying amounts. The fair values were calculated statement. Recoverable amount is the greater of fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for based on cash flows discounted using a current lending rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counterparty credit risk. which there are separately identifiable cash inflows which Interest and dividends are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Interest and dividends are classified as expenses or as distributions of profit consistent with the balance sheet classification of the related debt or equity instruments or component parts of compound instruments. Term deposits Term deposits held with financial institutions with maturities of more than three months are presented separately on the statement of financial position. Term deposits with a maturity date of more than 12 months after the reporting date are classified as non-current. t) Derivatives Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in profit or loss and are included in other income or other expenses. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. u) Non-current assets held for sale Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. The sale of the asset (or disposal group) is expected to be completed within one year from the date of classification. An impairment loss is recognised for any initial or subsequent write-down of the asset to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non- current asset is recognised at the date of derecognition. Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised. Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group are held for sale are presented separately from other liabilities in the balance sheet. v) Ore reserves The Group estimates its mineral resources and ore reserves based on information compiled by Competent Persons 2017 Annual Report « Grange Resources Limited as defined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves of December 2012 (the JORC 2012 code). Reserves, and certain mineral resources determined in this way, are used in the calculation of depreciation, amortisation and impairment charges, the assessment of life of mine stripping ratios and for forecasting the timing of the payment of close down and restoration costs. In assessing the life of a mine for accounting purposes, mineral resources are only taken into account where there is a high degree of confidence of economic extraction. w) Trade and other payables Trade payables and other payables are carried at amortised cost and represent liabilities for goods and services provided to the Group prior to the end of the financial period that are unpaid. Trade payables and other payables arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. x) Borrowings All borrowings are initially recognised at the fair value of the consideration received, less transaction costs. After initial recognition, borrowings are subsequently measured at amortised cost. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. y) Provisions Provisions are recognised when the Group has a present obligation, it is probable that there will be a future sacrifice of economic benefits and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be recovered from a third party, for example under an insurance contract, the receivable is recognised as a separate asset but only when the reimbursement is virtually certain and it can be measured reliably. The expense relating to any provision is presented in the income statement net of any reimbursement. PB 43 PB For personal use onlyGrange Resources Limited » 2017 Annual Report If the effect of the time value of money is material, provisions are discounted using a pre-tax rate that reflects the current market assessment of the time value of money. Where this is the case, its carrying amount is the present value of these estimated future cash flows. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Decommissioning and restoration Decommissioning and restoration provisions include the dismantling and demolition of infrastructure and the removal of residual materials and remediation of disturbed areas. The provision is recognised in the accounting period when the obligation arising from the related disturbance occurs, whether this occurs during the mine development or during the production phase, based on the net present value of estimated future costs. The costs are estimated on the basis of a closure plan. The cost estimates are calculated annually during the life of the operation to reflect known developments and are subject to formal review at regular intervals. The amortisation or ‘unwinding’ of the discount applied in establishing the net present value of provisions is charged to the income statement in each accounting period. The amortisation of the discount is shown as a financing cost, rather than as an operating cost. Other movements in the provisions for close down and restoration costs, including those resulting from new disturbance, updated cost estimates, changes to the lives of operations and revisions to discount rates are capitalised within mine properties and development, to the extent that any amount of deduction does not exceed the carrying amount of the asset. Any deduction in excess of the carrying amount is recognised in the income statement immediately. If an adjustment results in an addition to the cost of the related asset, consideration will be given to whether an indication of impairment exists and the impairment policy will apply. These costs are then depreciated over the life of the area of interest to which they relate. Onerous contracts An onerous contract is considered to exist where the Company has a contract under which the unavoidable cost of meeting the contractual obligations exceed the economic benefits estimated to be received. Present obligations arising under onerous contracts are recognised as a provision to the extent that the present obligation exceeds the economic benefits estimated to be received. Restructuring A provision for restructuring is recognised when the Company has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by: • starting to implement the plan; or • announcing its main features to those affected by it. z) Employee entitlements Wages, salaries and sick leave Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in 44 PB other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Annual leave Liabilities for annual leave expected to be settled within 12 months of the reporting date are recognised in the provision for employee benefits in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation funds Contributions to defined contribution funds are recognised as an expense in the income statement as they become payable. Share-based payment transactions Share based compensation benefits are provided to Directors and eligible employees under various plans. Information relating to the plans operated by the Company is set out in Note 35. The fair value of rights granted under the plans is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at the grant date and recognised over the period during which the Director or eligible employee become unconditionally entitled to the rights. The fair value of rights is determined with reference to the fair value of rights issued, which includes the volume weighted average price of the Company’s shares. in included the Non-market vesting conditions are assumptions about the number of rights that are expected to be exercisable. At each reporting date, the entity revises its estimate of the number of rights that are expected to vest or become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity. Where an equity-settled award is modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modifications, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. 2017 Annual Report « Grange Resources Limited However, if a new award is substituted for the cancelled Financial guarantees award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. aa) Contributed equity Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment. Ordinary share capital is recognised at the fair value of the ae) Rounding of amounts consideration received by the Company. The Group is of a kind referred to in ASIC Legislative Any transaction costs arising on the issue of ordinary shares Instrument 2016/191 Class, issued by the Australian are recognised directly in equity as a reduction, net of tax, of Securities and Investments Commission, relating to the Provision is made for the amount of any dividend declared, certain cases, the nearest dollar. being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial period but the share proceeds received. ab) Dividends not distributed at balance date. ac) Earnings per share (EPS) i) Basic earnings per share ‘rounding off’ of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with the instrument to the nearest thousand dollars, or in af) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2017 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set out below. Basic earnings per share is calculated by dividing: i) AASB 9 Financial Instruments, AASB 2009-11 • the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares; • by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the period and January 2018) Amendments to Australian Accounting Standards arising from AASB 9 and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) and AASB 2012-6 Amendments to Australian Accounting Standards (effective from 1 excluding treasury shares. ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into • the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares; account: and • the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. ad) Parent entity financial information The financial information for the parent entity, Grange Resources Limited, disclosed in Note 34 has been prepared on the same basis as the consolidated financial statements, except as set out below. Investments in subsidiaries, associates and joint venture entities Investments in subsidiaries and joint venture entities are accounted for at cost in the financial statements of Grange Resources Limited. Dividends received from associates are recognised in the parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments. AASB 9 Financial Instruments, establishes principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of the entity’s future cash flows. AASB 9 replaces AASB 139 Financial instruments: Recognition and Measurement. The standard is mandatory from 1 January 2018 and is to be applied retrospectively. AASB 9 Financial Instruments carries forward the guidance of AASB 139 with regard to recognition and derecognition of financial instruments, however it provides a new model for the classification and measurement of financial instruments after initial recognition, a new expected credit loss model for calculation of impairment on financial assets, and new general hedge accounting requirements. The Group is in the process of making a detailed assessment of the impact of the new standard on the classification and measurement on its financial assets and liabilities and the interaction it has with AASB 15 Revenue from Contracts with Customers. The Group does not expect the new standard to affect the classification and measurement of its financial liabilities. Grange has only trade creditors, loans and other payables as financial liabilities. These would be subsequently measured at amortised cost after initial recognition. As for the financial assets, the Group will measure sales contracts containing embedded derivatives at fair value through profit and loss. PB For personal use onlyGrange Resources Limited » 2017 Annual Report If the effect of the time value of money is material, provisions other payables in respect of employees’ services up to the are discounted using a pre-tax rate that reflects the current reporting date and are measured at the amounts expected market assessment of the time value of money. Where this to be paid when the liabilities are settled. is the case, its carrying amount is the present value of these estimated future cash flows. When discounting is used, Annual leave the increase in the provision due to the passage of time is Liabilities for annual leave expected to be settled within 12 recognised as a finance cost. Decommissioning and restoration months of the reporting date are recognised in the provision for employee benefits in respect of employees’ services up to the reporting date and are measured at the amounts Decommissioning and restoration provisions include the expected to be paid when the liabilities are settled. dismantling and demolition of infrastructure and the removal of residual materials and remediation of disturbed areas. Long service leave The provision is recognised in the accounting period when The liability for long service leave is recognised in the the obligation arising from the related disturbance occurs, provision for employee benefits and measured as the present whether this occurs during the mine development or during value of expected future payments to be made in respect the production phase, based on the net present value of of services provided by employees up to the reporting date estimated future costs. The costs are estimated on the basis using the projected unit credit method. of a closure plan. The cost estimates are calculated annually during the life of the operation to reflect known developments and are subject to formal review at regular intervals. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using The amortisation or ‘unwinding’ of the discount applied in market yields at the reporting date on corporate bonds with establishing the net present value of provisions is charged terms to maturity and currency that match, as closely as to the income statement in each accounting period. The possible, the estimated future cash outflows. amortisation of the discount is shown as a financing cost, rather than as an operating cost. Other movements in the provisions for close down and restoration costs, including those resulting from new disturbance, updated cost estimates, changes to the lives of operations and revisions payable. Defined contribution superannuation funds Contributions to defined contribution funds are recognised as an expense in the income statement as they become to discount rates are capitalised within mine properties and development, to the extent that any amount of deduction does not exceed the carrying amount of the asset. Any deduction in excess of the carrying amount is recognised in the income statement immediately. If an adjustment results in an addition to the cost of the related asset, consideration will be given to whether an indication of impairment exists and the impairment policy will apply. These costs are then depreciated over the life of the area of interest to which they relate. Onerous contracts An onerous contract is considered to exist where the Company has a contract under which the unavoidable cost of meeting the contractual obligations exceed the economic benefits estimated to be received. Present obligations arising under onerous contracts are recognised as a provision to the extent that the present obligation exceeds the economic benefits estimated to be received. Restructuring A provision for restructuring is recognised when the Company has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by: • starting to implement the plan; or • announcing its main features to those affected by it. z) Employee entitlements Wages, salaries and sick leave Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in Share-based payment transactions Share based compensation benefits are provided to Directors and eligible employees under various plans. Information relating to the plans operated by the Company is set out in Note 35. rights. The fair value of rights granted under the plans is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at the grant date and recognised over the period during which the Director or eligible employee become unconditionally entitled to the The fair value of rights is determined with reference to the fair value of rights issued, which includes the volume weighted average price of the Company’s shares. Non-market vesting conditions are included in the assumptions about the number of rights that are expected to be exercisable. At each reporting date, the entity revises its estimate of the number of rights that are expected to vest or become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity. Where an equity-settled award is modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modifications, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. PB However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. aa) Contributed equity Ordinary share capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction, net of tax, of the share proceeds received. ab) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial period but not distributed at balance date. ac) Earnings per share (EPS) i) Basic earnings per share Basic earnings per share is calculated by dividing: • the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares; • by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the period and excluding treasury shares. ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account: • the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares; and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. • ad) Parent entity financial information The financial information for the parent entity, Grange Resources Limited, disclosed in Note 34 has been prepared on the same basis as the consolidated financial statements, except as set out below. Investments in subsidiaries, associates and joint venture entities Investments in subsidiaries and joint venture entities are accounted for at cost in the financial statements of Grange Resources Limited. Dividends received from associates are recognised in the parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments. 2017 Annual Report « Grange Resources Limited Financial guarantees Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment. ae) Rounding of amounts issued by The Group is of a kind referred to in ASIC Legislative Instrument 2016/191 Class, the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with the instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. af) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2017 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set out below. i) AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) and AASB 2012-6 Amendments to Australian Accounting Standards (effective from 1 January 2018) AASB 9 Financial Instruments, establishes principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of the entity’s future cash flows. AASB 9 replaces AASB 139 Financial instruments: Recognition and Measurement. The standard is mandatory from 1 January 2018 and is to be applied retrospectively. AASB 9 Financial Instruments carries forward the guidance of AASB 139 with regard to recognition and derecognition of financial instruments, however it provides a new model for the classification and measurement of financial instruments after initial recognition, a new expected credit loss model for calculation of impairment on financial assets, and new general hedge accounting requirements. The Group is in the process of making a detailed assessment of the impact of the new standard on the classification and measurement on its financial assets and liabilities and the interaction it has with AASB 15 Revenue from Contracts with Customers. The Group does not expect the new standard to affect the classification and measurement of its financial liabilities. Grange has only trade creditors, loans and other payables as financial liabilities. These would be subsequently measured at amortised cost after initial recognition. As for the financial assets, the Group will measure sales contracts containing embedded derivatives at fair value through profit and loss. 45 PB For personal use onlyGrange Resources Limited » 2017 Annual Report ii) AASB 15 Revenue from Contracts with Customers – Mandatory Effective Date of AASB 15 (effective from 1 January 2018) for accounting AASB 15 Revenue from contracts with Customers, introduces a new for framework revenue and will replace AASB 118 Revenue, AASB 111 Construction Contracts and IFRIC 13 Customer Loyalty Programs. AASB 15 establishes principals for reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contract with customers. The new standard is based on the principle that revenue is recognised when control of a good or services transfers to customer, therefore the notion of control replaces the existing notion of risks and rewards. The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Group’s disclosure about its revenue from contracts with customers and associated assets and particularly in the year of the adoption of the new standard. AASB 15 becomes mandatory for reporting periods beginning on or after 1 January 2018. The standard allows a full retrospective or a modified retrospective approach for the adoption. A team was established in 2017 to review the implications of AASB 15 to timing, measurement and disclosure of the Group’s revenue and to assess the potential impact to the Group’s Financial Statements. Given the nature of the Group’s contracts, this new standard is not expected to change the timing of when revenue is recognised in the Financial accounts however the team have determined that the majority of these contracts may include embedded derivatives that are within the scope of AASB 9 Financial Instruments. The initial assessment of this change indicates that this reclassification would not have a material impact on 2017 reported Sales Revenue. The team are still assessing the extent of the disclosures that will be required under the new standard and as such, have not reached a decision as to which method of adoption will be chosen. iii) AASB 16 Leases (effective from 1 January 2019) AASB 16 Leases will replace the current guidance in AASB 16 requires all operating leases to be recognised on the balance sheet. AASB 16 becomes mandatory for reporting periods beginning on or after 1 January 2019. The standard allows a full retrospective or alternatively not restate comparative but recognise the cumulative effect of initially applying this standard as an adjustment to opening equity at the date of application. The Group has not reached a decision as to which method of adoption will be chosen. The Group is in the process of making detailed assessment of the impact of the new standard. There are existing operating leases and potential embedded lease from contracts with suppliers that may need to be recognised on the Balance Sheet. It is therefore not yet possible to estimate the amount of right-of-use assets and lease liabilities that will have to be recognised on the adoption of the new standard and how this may affect the Group’s profit or loss and classification of cash flow going forward. The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2017: • AASB 2016 – 1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses. • AASB 2016 – 2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 1017 (effective from 1 January 2017). • AASB 12 – Disclosure of Interests in Other Entities. The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods. 46 PB For personal use only2017 Annual Report « Grange Resources Limited NOTE 2. FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group has used derivative financial instruments such as foreign exchange contracts and forward commodity contracts to manage certain risk exposures. Derivatives are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The Group uses different methods to measure different types of risks to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and commodity price risks and aging analysis for credit risk. Risk management is carried out by the management team following guidance received from the Audit and Risk Committee. The Group holds the following financial instruments: Financial Assets Cash and cash equivalents Trade and other receivables Derivative financial instruments Financial Liabilities Trade and other payables Borrowings a) Market Risk i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar. Foreign exchange risk arises from commercial transactions, given that the Group’s sales revenues are denominated in US dollars and the majority of its operating costs are denominated in Australian dollars, and recognised assets Cash and cash equivalents Trade and other receivables Trade and other payables Net US dollar surplus Group sensitivity 2017 $’000 167,989 36,233 66 204,288 23,525 4,830 28,355 2016 $’000 165,958 37,287 19 203,264 17,827 9,254 27,081 and liabilities denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. The Group entered into short-term AUD vs USD Dual Currency Investments and a contract to buy USD currency at a specified rate in March 2018 but there was no open currency hedges as at 31 December 2017 (2016: nil) The Group’s exposure to US dollar denominated foreign currency risk at the reporting date, expressed in Australian dollars, was as follows: 2017 $’000 75,080 24,752 (126) 99,706 ii) Price risk 2016 $’000 66,503 25,789 (201) 92,091 Based on the financial instruments held at 31 December 2017, had the Australian dollar weakened/strengthened by 10% against the US dollar with all other variables held constant, the Group’s post tax profit for the financial period would have been $6.3 million higher / $7.7 million lower (2016: $5.9 million higher / $7.2 million lower), mainly as a result of foreign exchange gains/losses on US dollar denominated cash and cash equivalents, term deposits and receivables as detailed in the above table. The Group is exposed to commodity price risk. During prior years, the Group agreed with its customers to price its iron ore pellets at index based market prices. At this time, the Group does not manage its iron ore price risk with financial instruments. Going forward, the Group may consider using financial instruments to manage commodity price risk given exposures to market prices arising from the adoption of index based market pricing mechanisms. 47 PB For personal use only Grange Resources Limited » 2017 Annual Report iii) Cash flow and fair value interest rate risk b) Credit Risk d) Capital Risk Management The Group’s main interest rate risk arises from cash and cash equivalents and term deposits. At the reporting date, the Group has no variable rate borrowings outstanding. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk if the borrowings are carried at fair value. The Group’s fixed rate borrowings are carried at amortised cost. As they are fixed rate borrowings, they are not subject to interest rate risk as defined by AASB 7, Financial Instruments: Disclosures. The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate shift. No financial instruments are used to manage interest rate risk. Group sensitivity The Group’s fixed rate borrowings are carried at amortised cost. As they are fixed rate borrowings, they are not subject to interest rate risk and are excluded from the interest rate sensitivity analysis. As at 31 December 2017, if interest rates had increased by 50 basis points (bps) or decreased by 50 basis points from the period end rates with all other variables held constant, post tax profit for the period would have been $0.8 million higher / $0.8 million lower (2016 changes of 50 bps / 50 bps: $0.3 million higher / $0.3 million lower). Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. The Group is exposed to a concentration of risk with sales of iron ore being made to a limited number of customers. The maximum exposure to credit risk at the reporting date is limited to the carrying value of trade receivables, cash and cash equivalents and deposits with banks and financial institutions. As at 31 December 2017, there were no trade receivables (2016 nil) that are past due. The other classes within trade and other receivables do not contain impaired assets and are not past due. c) Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Maturities of financial liabilities The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period as at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Less than 6 months 6-12 months $’000 $’000 Between 1 and 2 years $’000 Between 2 and 5 years Over 5 years $’000 $’000 Total contractual cash flows $’000 Carrying amount liabilities $’000 23,525 - 3,267 1,604 26,792 1,604 - - - - - - - - - Less than 6 months 6-12 months $’000 $’000 Between 1 and 2 years $’000 Between 2 and 5 years Over 5 years $’000 $’000 23,525 23,525 reasonable under the circumstances. including expectations of future events that may have a financial impact on the entity and that are believed to be Where there is an indication of a possible impairment, a formal estimate of the recoverable amount of each Cash Generating Unit (CGU) is made, which is deemed to be 4,871 4,830 28,396 28,355 Total contractual cash flows $’000 Carrying amount liabilities $’000 17,827 - - 4,320 2,406 2,755 22,147 2,406 2,755 - - - - - - 17,827 17,827 9,481 9,254 27,308 27,081 2017 - Consolidated Non-derivatives Trade and other payables Fixed rate borrowings Total non- derivatives 2016 - Consolidated Non-derivatives Trade and other payables Fixed rate borrowings Total non- derivatives 48 PB 2017 Annual Report « Grange Resources Limited Group’s financial position including cash flow forecasts to determine future capital management requirements. To ensure sufficient funding, a range of assumptions are When managing capital, the Group’s objective is to safeguard the ability to continue as a going concern so that the Group continues to provide returns for shareholders and benefits modelled. for other stakeholders, and to maintain an optimal capital e) Derivatives structure to reduce the cost of capital. Management is constantly reviewing and adjusting, where and not as speculative investments. The Group has the necessary, the capital structure. This involves the use of following derivative financial instruments: corporate forecasting models which enable analysis of the Derivatives are only used for economic hedging purposes 2017 $’000 255 (189) - 66 2016 $’000 - (394) 413 19 Fixed forward contract for purchase of US dollar Dual Currency Investment Diesel Commodity Swap Derivative financial instruments f) Classification of derivatives 31 December 2017, all the derivative financial instruments disclosed above are classified as fair value measurements Derivatives are classified as held for trading and accounted for at fair value through profit or loss. They are presented level 2. as current assets or liabilities if they are expected to be Level 2: The fair value of financial instruments that are not settled within 12 months after the end of the reporting traded in an active market (for example, over-the-counter period. g) Recognised fair value measurements derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all This section explains the judgements and estimates made significant inputs required to fair value an instrument are in determining the fair values of the financial instruments observable, the instrument is included in level 2. that are recognised and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Group has classified its financial instruments into the three levels prescribed under the accounting standards. As at Specific valuation techniques used to value the derivative financial instruments mainly include determining the fair value of forward contracts using forward rates at the balance sheet date provided by the dealers. NOTE 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and b) Impairment of property, plant and equipment and are based on historical experience and other factors, mine properties and development The Group makes estimates and assumptions concerning the higher of a cash generating unit’s fair value less costs the future. The resulting accounting estimates will, by of disposal and its value in use. definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts Details in relation to the Group’s impairment assessment are disclosed at Note 26. of assets and liabilities within the next financial year are c) Stripping costs in the production phase of a discussed below. surface mine (Interpretation 20) a) Net realisable value of inventories The Group reviews the carrying value of its inventories at each reporting date to ensure that the cost does not exceed net realisable value. Estimates of net realisable value include a number of assumptions, including commodity price expectations, foreign exchange rates and costs to complete inventories to a saleable product. As at 31 December 2017 the net realisable value exceeded cost for all significant inventory balances. The application of Interpretation 20 requires management judgement in determining whether a surface mine is in the production phase and whether the benefits of production stripping activities will be realised in the form of inventory produced through improved access to ore. PB For personal use onlyThe Group’s main interest rate risk arises from cash and Credit risk is managed on a Group basis. Credit risk arises cash equivalents and term deposits. At the reporting date, the Group has no variable rate borrowings outstanding. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings transactions. from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed issued at fixed rates expose the Group to fair value interest The Group is exposed to a concentration of risk with sales rate risk if the borrowings are carried at fair value. The Group’s of iron ore being made to a limited number of customers. fixed rate borrowings are carried at amortised cost. As they The maximum exposure to credit risk at the reporting date are fixed rate borrowings, they are not subject to interest rate is limited to the carrying value of trade receivables, cash risk as defined by AASB 7, Financial Instruments: Disclosures. and cash equivalents and deposits with banks and financial The Group analyses its interest rate exposure on a institutions. dynamic basis. Various scenarios are simulated taking into As at 31 December 2017, there were no trade receivables consideration refinancing, renewal of existing positions, (2016 nil) that are past due. The other classes within trade alternative financing and hedging. and other receivables do not contain impaired assets and Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate shift. No financial c) Liquidity Risk are not past due. instruments are used to manage interest rate risk. Group sensitivity The Group’s fixed rate borrowings are carried at amortised cost. As they are fixed rate borrowings, they are not subject to interest rate risk and are excluded from the interest rate sensitivity analysis. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. As at 31 December 2017, if interest rates had increased by 50 basis points (bps) or decreased by 50 basis points from Maturities of financial liabilities the period end rates with all other variables held constant, The table below analyses the Group’s financial liabilities post tax profit for the period would have been $0.8 million into relevant maturity groupings based on the remaining higher / $0.8 million lower (2016 changes of 50 bps / 50 bps: period as at the reporting date to the contractual maturity $0.3 million higher / $0.3 million lower). date. The amounts disclosed in the table are the contractual undiscounted cash flows. Less than 6 Between 1 Between 2 months 6-12 months and 2 years and 5 years Over 5 years 2017 - Consolidated $’000 $’000 $’000 $’000 $’000 $’000 Grange Resources Limited » 2017 Annual Report iii) Cash flow and fair value interest rate risk b) Credit Risk d) Capital Risk Management When managing capital, the Group’s objective is to safeguard the ability to continue as a going concern so that the Group continues to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. Management is constantly reviewing and adjusting, where necessary, the capital structure. This involves the use of corporate forecasting models which enable analysis of the Fixed forward contract for purchase of US dollar Dual Currency Investment Diesel Commodity Swap Derivative financial instruments f) Classification of derivatives Derivatives are classified as held for trading and accounted for at fair value through profit or loss. They are presented as current assets or liabilities if they are expected to be settled within 12 months after the end of the reporting period. g) Recognised fair value measurements This section explains the judgements and estimates made in determining the fair values of the financial instruments that are recognised and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Group has classified its financial instruments into the three levels prescribed under the accounting standards. As at 2017 Annual Report « Grange Resources Limited Group’s financial position including cash flow forecasts to determine future capital management requirements. To ensure sufficient funding, a range of assumptions are modelled. e) Derivatives Derivatives are only used for economic hedging purposes and not as speculative investments. The Group has the following derivative financial instruments: 2017 $’000 255 (189) - 66 2016 $’000 - (394) 413 19 31 December 2017, all the derivative financial instruments disclosed above are classified as fair value measurements level 2. Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Specific valuation techniques used to value the derivative financial instruments mainly include determining the fair value of forward contracts using forward rates at the balance sheet date provided by the dealers. 23,525 - 3,267 1,604 26,792 1,604 - - - Total contractual cash flows Carrying amount liabilities $’000 23,525 23,525 4,871 4,830 28,396 28,355 Total contractual cash flows Carrying amount liabilities $’000 - - - - - - - - - - - - NOTE 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. a) Net realisable value of inventories include a number of assumptions, The Group reviews the carrying value of its inventories at each reporting date to ensure that the cost does not exceed net realisable value. Estimates of net realisable value including commodity price expectations, foreign exchange rates and costs to complete inventories to a saleable product. As at 31 December 2017 the net realisable value exceeded cost for all significant inventory balances. b) Impairment of property, plant and equipment and mine properties and development Where there is an indication of a possible impairment, a formal estimate of the recoverable amount of each Cash Generating Unit (CGU) is made, which is deemed to be the higher of a cash generating unit’s fair value less costs of disposal and its value in use. Details in relation to the Group’s impairment assessment are disclosed at Note 26. c) Stripping costs in the production phase of a surface mine (Interpretation 20) The application of Interpretation 20 requires management judgement in determining whether a surface mine is in the production phase and whether the benefits of production stripping activities will be realised in the form of inventory produced through improved access to ore. Less than 6 Between 1 Between 2 months 6-12 months and 2 years and 5 years Over 5 years 2016 - Consolidated $’000 $’000 $’000 $’000 $’000 $’000 17,827 - - 17,827 17,827 4,320 2,406 2,755 9,481 9,254 22,147 2,406 2,755 27,308 27,081 49 PB Non-derivatives Trade and other payables Fixed rate borrowings Total non- derivatives Non-derivatives Trade and other payables Fixed rate borrowings Total non- derivatives PB For personal use onlyGrange Resources Limited » 2017 Annual Report Judgement is also applied in identifying the component of the ore body and the manner in which stripping costs are capitalised and amortised. There are a number of uncertainties inherent in identifying components of the ore body and the inputs to the relevant production methods for capitalising and amortising stripping costs and these assumptions may change significantly when new information impact on becomes available. Such changes could capitalisation and amortisation rates for capitalised stripping costs and deferred stripping asset values. these deferred tax assets assumptions have been made regarding the Group’s ability to generate future taxable profits. Utilisation of the tax losses also depends on the ability of the tax consolidated entities to satisfy certain tests at the time the losses are recouped. There is an inherent risk and uncertainty in applying these judgments and a possibility that changes in legislation or forecasts will impact upon the carrying amount of deferred tax assets and deferred tax liabilities recognised on the balance sheet. f) Provision for decommissioning and restoration d) Determination of mineral resources and ore reserves costs Mineral resources and ore reserves are based on information compiled by a Competent Person as defined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC 2012 code). There are numerous uncertainties inherent in estimating ore reserves and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of ore reserves and may, ultimately, result in the reserves being restated. Such changes in reserves could impact on depreciation and amortisation rates, asset carrying values and provisions for rehabilitation. e) Taxation for taxation requires The Group’s accounting policy management judgment in relation to the application of income tax legislation. There are many transactions and calculations undertaken during the ordinary course of business where the ultimate tax determination is uncertain. The Group recognises liabilities for tax, and if appropriate taxation investigation or audit issues, based on whether tax will be due and payable. Where the taxation outcome of such matters is different from the amount initially recorded, such difference will impact the current and deferred tax positions in the period in which the assessment is made. Decommissioning and restoration costs are a normal consequence of mining, and the majority of this expenditure is incurred at the end of a mine’s life. In determining an appropriate level of provision, consideration is given to the expected future costs to be incurred, the timing of these expected future costs (largely dependent on the life of the mine), and the estimated future level of inflation. The ultimate cost of decommissioning and restoration is uncertain and costs can vary in response to many factors including changes to the relevant legal requirements, changes to mine plan, and the emergence of new restoration techniques or experience at other mine sites. The expected timing of expenditure can also change, for example in response to changes in reserves or to production rates. Certain rehabilitation activities are undertaken as part of the mining operations included in the life of mine plan. Should the life of mine plan be amended in the future to exclude these activities, the provision for rehabilitation would increase correspondingly. Changes to any of the estimates could result in significant changes to the level of provisioning required, which would in turn impact future financial results. These estimates are reviewed annually and adjusted where necessary to ensure that the most up to date data is used. g) Share-based payment transactions The Group merged its multiple tax consolidated groups on 6 January 2011 which has impacted the carrying amount of deferred tax assets and deferred tax liabilities recognised on the balance sheet. Management has used judgment in the application of income tax legislation on accounting for this tax consolidation. These judgments are based on management’s interpretation of the income tax legislation applicable at the time of the consolidation. In addition, certain deferred tax assets for deductible temporary differences have been recognised. In recognising The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value for shares issued is determined by the volume weighted average trading price over a specified number of days. h) Revenue recognition - Provisional pricing As at 31 December 2017 the Group did not recognise any revenue from the sale of iron ore products which requires quantity and quality verification by the customer (31 December 2016: nil). NOTE 4. SEGMENT INFORMATION a) Description of segments Operating segments are determined based on the reports reviewed by the Chief Executive Officer, who is the Group’s chief operating decision maker in terms of allocating resources and assessing performance. The Group has one reportable segment, being the exploration, evaluation and development of mineral resources and iron ore mining operations. The Chief Executive Officer allocates resources and assesses performance, in terms of revenues earned, expenses incurred and assets employed, on a consolidated basis in a manner consistent with that of the measurement and presentation in the financial statements. Exploration, evaluation and development projects (including the Southdown project) are not deemed reportable operating segments at this time as the financial performance of these operations is not separately included in the reports provided to the Chief Executive Officer. These projects may become segments in the future. 50 PB For personal use onlyThe following table presents revenues from sales of iron ore based on the geographical location of the port of discharge. Segment revenues from sales to external customers 2017 Annual Report « Grange Resources Limited Australia China Japan Korea TOTAL 2017 $’000 36,715 189,017 21,293 852 247,877 2016 $’000 29,483 195,445 30,493 20,924 276,345 Segment assets and capital are allocated based on where the assets are located. The consolidated assets of the Group were predominately located in Australia as at 31 December 2017 and 31 December 2016. The total costs incurred during the current and comparative periods to acquire segment assets were also predominately incurred in Australia. NOTE 5. REVENUE From mining operations Sales of iron ore products 2017 $’000 247,877 247,877 2016 $’000 276,345 276,345 51 PB For personal use only Grange Resources Limited » 2017 Annual Report NOTE 6. COST OF SALES Mining costs Production costs Government royalties Freight Depreciation and amortisation expense Property, Plant and Equipment - Amounts capitalised during the year Mine properties and development - Amortisation expense Deferred stripping - Amounts capitalised during the year - Amortisation expense Changes in inventories Foreign exchange gain Depreciation and amortisation Land and buildings Plant and equipment Computer equipment Profit before income tax includes the following specific expenses Employee benefits expense NOTE 7. ADMINISTRATIVE EXPENSES Salaries Consultancy fees Provision for rehabilitation - Interest in joint operation Other NOTE 8. OTHER INCOME (EXPENSES) GST refund relating to prior years Rent income Net gain (loss) on the disposal of property, plant and equipment Insurance claim Other income (expenses) 52 PB 2017 $’000 100,422 92,633 5,847 6,702 3,560 (1,275) 539 (29,730) 15,750 (23,480) 2,379 173,347 117 3,405 38 3,560 53,408 2017 $’000 2,113 882 154 385 3,534 2017 $’000 397 210 (45) - (123) 439 2016 $’000 94,073 96,824 9,876 6,670 3,455 (35,136) 3,436 (46,300) 838 39,352 (535) 172,553 171 3,215 69 3,455 55,118 2016 $’000 2,062 915 4,754 384 8,115 2016 $’000 - 50 11 345 20 426 For personal use only NOTE 9. FINANCE INCOME (EXPENSES) 2017 Annual Report « Grange Resources Limited Finance Income Interest income received or receivable Gain on financial instruments Exchange gains on foreign currency deposits / borrowings (net) Finance expenses Exchange loss on foreign currency deposits / borrowings (net) Interest charges paid or payable Finance lease interest charges paid or payable Loss on financial instruments Provisions: unwinding of discount - Decommissioning and restoration (Note 22) 2017 $’000 5,296 46 - 5,342 (7,423) (479) - - (1,326) (9,228) 2016 $’000 2,620 - 1,335 3,955 - (705) (42) (2,035) (1,076) (3,858) 53 PB For personal use only Grange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited NOTE 10. INCOME TAX BENEFIT (EXPENSE) NOTE 12. TRADE AND OTHER RECEIVABLES (a) Income tax expense (benefit) Current tax Deferred tax Deferred income tax included in income tax expense (benefit) comprises: (Increase) decrease in deferred tax assets 2017 $’000 4,220 1,817 6,037 1,817 1,817 (b) Numerical reconciliation of income tax (benefit) / expense to prima facie tax payable Profit from continuing operations before income tax (benefit) / expense Tax expense (credit) at the Australian tax rate of 30% (2016: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Sundry items Movement in previously unrealised deferred tax assets Movement in deferred tax assets recognised Adjustments to tax of prior period Income tax expense (c) Taxation Losses Unused taxation losses for which no deferred tax asset has been recognised Potential tax benefit @ 30% 66,750 20,025 (630) 19,395 (15,069) 1,817 (106) 6,037 54,104 16,231 2016 $’000 6,299 (4,393) 1,906 (4,393) (4,393) 94,809 28,443 (227) 28,216 (22,105) (5,553) 1,348 1,906 54,104 16,231 Trade receivables Security deposits(1) Other receivables Prepayments Income tax refund receivables is provided in Note 2. NOTE 13. INVENTORIES Stores and spares Ore stockpiles Work in progress value) Finished goods (at lower of cost and net realisable (1) Security deposits comprises of restricted deposits that are used for monetary backing for performance guarantees. a) Impaired trade receivables c) Fair value and credit risk Information regarding the impairment of trade and other Due to the short-term nature of these receivables, their receivables is provided in Note 2. As at 31 December 2017, carrying amount is assumed to approximate their fair there were no trade receivables (2016 nil) that are past due. value. The maximum exposure to credit risk at the end of b) Foreign exchange and interest rate risk the reporting period is the carrying amount of each class of receivables mentioned above. Refer to Note 2 for more Information about the Group’s exposure to foreign currency information on the credit quality of the Group’s trade and risk and interest rate risk in relation to trade and other other receivables. All unused taxation losses were incurred by Australian entities that are part of the tax consolidated group. The tax losses as disclosed above have not been recognised as they are not presently available for use. Their availability is subject to the satisfaction of the same business test under Australia’s tax loss integrity rules. Inventories are valued at the lower of weighted average cost and estimated net realisable value. A credit of $23.48 million in 2017 and an expense of $39.35 million in 2016 were recognised for the movements in finished goods inventories (note 6). (d) Unrecognised temporary differences Temporary difference for which deferred tax assets not recognised Potential tax benefit @ 30% NOTE 11. CASH AND CASH EQUIVALENTS Cash at bank and in hand Short-term deposits 304,635 91,390 2017 $’000 5,245 162,744 167,989 349,073 104,722 2016 $’000 101,177 64,781 165,958 NOTE 14. RECEIVABLES Security deposits(1) a) Risk exposure (1) Non-current security deposits comprise of restricted deposits that are used for monetary backing for performance guarantees. Information about the Group’s exposure to credit risk, foreign exchange risk and interest rate risk in relation to security deposits is provided in Note 2. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above. 2017 $’000 25,176 362 2,665 1,915 - 30,118 2017 $’000 24,644 15,724 1,001 21,797 63,166 2017 $’000 8,030 8,030 Total cash is held in trading accounts or term deposits with major financial institutions under normal terms and conditions appropriate to the operation of the accounts. These deposits earn interest at rates set by these institutions. As at 31 December 2017 the weighted average interest rate on the Australian dollar accounts was 2.77% (31 December 2016: 2.85%) and the weighted average interest rate on the United States dollar accounts was 3.50% (31 December 2016: 2.46%). a) Risk exposure The Group’s exposure to interest rate risk is discussed in Note 2. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of cash and cash equivalents mentioned above. 54 PB 2016 $’000 26,102 271 2,175 1,865 875 31,288 2016 $’000 20,500 2,536 2,434 10,071 35,541 2016 $’000 7,864 7,864 PB For personal use only Grange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited NOTE 10. INCOME TAX BENEFIT (EXPENSE) NOTE 12. TRADE AND OTHER RECEIVABLES (b) Numerical reconciliation of income tax (benefit) / expense to prima facie tax payable (a) Income tax expense (benefit) Current tax Deferred tax comprises: Deferred income tax included in income tax expense (benefit) (Increase) decrease in deferred tax assets Profit from continuing operations before income tax (benefit) / expense Tax expense (credit) at the Australian tax rate of 30% (2016: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Sundry items Movement in previously unrealised deferred tax assets Movement in deferred tax assets recognised Adjustments to tax of prior period Income tax expense (c) Taxation Losses been recognised Potential tax benefit @ 30% Unused taxation losses for which no deferred tax asset has (d) Unrecognised temporary differences Temporary difference for which deferred tax assets not recognised Potential tax benefit @ 30% NOTE 11. CASH AND CASH EQUIVALENTS Cash at bank and in hand Short-term deposits 2017 $’000 4,220 1,817 6,037 1,817 1,817 66,750 20,025 (630) 19,395 (15,069) 1,817 (106) 6,037 54,104 16,231 304,635 91,390 2017 $’000 5,245 162,744 167,989 2016 $’000 6,299 (4,393) 1,906 (4,393) (4,393) 94,809 28,443 (227) 28,216 (22,105) (5,553) 1,348 1,906 54,104 16,231 349,073 104,722 2016 $’000 101,177 64,781 165,958 Trade receivables Security deposits(1) Other receivables Prepayments Income tax refund 2017 $’000 25,176 362 2,665 1,915 - 30,118 2016 $’000 26,102 271 2,175 1,865 875 31,288 (1) Security deposits comprises of restricted deposits that are used for monetary backing for performance guarantees. a) Impaired trade receivables c) Fair value and credit risk Information regarding the impairment of trade and other receivables is provided in Note 2. As at 31 December 2017, there were no trade receivables (2016 nil) that are past due. b) Foreign exchange and interest rate risk Information about the Group’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is provided in Note 2. Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of receivables mentioned above. Refer to Note 2 for more information on the credit quality of the Group’s trade and other receivables. NOTE 13. INVENTORIES Stores and spares Ore stockpiles Work in progress Finished goods (at lower of cost and net realisable value) 2017 $’000 24,644 15,724 1,001 21,797 63,166 2016 $’000 20,500 2,536 2,434 10,071 35,541 Inventories are valued at the lower of weighted average cost and estimated net realisable value. A credit of $23.48 million in 2017 and an expense of $39.35 million in 2016 were recognised for the movements in finished goods inventories (note 6). NOTE 14. RECEIVABLES Security deposits(1) 2017 $’000 8,030 8,030 2016 $’000 7,864 7,864 (1) Non-current security deposits comprise of restricted deposits that are used for monetary backing for performance guarantees. a) Risk exposure Information about the Group’s exposure to credit risk, foreign exchange risk and interest rate risk in relation to security deposits is provided in Note 2. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above. All unused taxation losses were incurred by Australian entities that are part of the tax consolidated group. The tax losses as disclosed above have not been recognised as they are not presently available for use. Their availability is subject to the satisfaction of the same business test under Australia’s tax loss integrity rules. Total cash is held in trading accounts or term deposits with major financial institutions under normal terms and conditions appropriate to the operation of the accounts. These deposits earn interest at rates set by these institutions. As at 31 December 2017 the weighted average interest rate on the Australian dollar accounts was 2.77% (31 December 2016: 2.85%) and the weighted average interest rate on the United States dollar accounts was 3.50% (31 December 2016: 2.46%). a) Risk exposure The Group’s exposure to interest rate risk is discussed in Note 2. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of cash and cash equivalents mentioned above. PB 55 PB For personal use only Grange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited NOTE 15. PROPERTY, PLANT AND EQUIPMENT NOTE 16. MINE PROPERTIES AND DEVELOPMENT As at 1 January 2017 Cost Accumulated depreciation and impairment Net book amount Year ended 31 December 2017 Opening net book amount Additions Disposals - net book value Depreciation charge Closing net book amount As at 31 December 2017 Cost Accumulated depreciation and impairment Net book amount As at 1 January 2016 Cost Accumulated depreciation and impairment Net book amount Year ended 31 December 2016 Opening net book amount Additions Disposals - net book value Depreciation charge Closing net book amount As at 31 December 2016 Cost Accumulated depreciation and impairment Net book amount a) Assets under construction Land and buildings $’000 44,666 (37,264) Plant and equipment $’000 430,104 (317,451) Computer equipment $’000 7,969 (7,765) 7,402 112,653 7,402 756 - (118) 8,040 112,653 20,862 - (3,411) 130,104 45,422 450,966 (37,382) (320,862) 8,040 130,104 44,491 389,863 (37,091) (314,323) 7,400 7,400 175 - (173) 7,402 44,666 (37,264) 75,540 75,540 40,338 (5) (3,220) 112,653 430,104 (317,451) 7,402 112,653 204 204 131 (45) (45) 245 8,055 (7,810) 245 7,815 (7,689) 126 126 154 - (76) 204 7,969 (7,765) 204 Total $’000 482,739 (362,480) 120,259 120,259 21,749 (45) (3,574) 138,389 504,443 (366,054) 138,389 442,169 (359,103) 83,066 83,066 40,667 (5) (3,469) 120,259 482,739 (362,480) 120,259 The carrying amounts of the assets disclosed above includes expenditure of $110.73 million (2016: $98.14 million) recognised in relation to property, plant and equipment which is in the course of construction. Movements in mine properties and development are set out below: Mine properties and development (at cost) Accumulated amortisation and impairment Net book amount Deferred stripping costs (net book amount) Total mine properties and development Mine properties and development Opening net book amount Change in rehabilitation estimate Amortisation expense Closing net book amount Deferred stripping costs Opening net book amount Current year expenditure capitalised Amortisation expense Closing net book amount NOTE 17. DEFERRED TAX ASSETS The balance comprises temporary differences attributable to: NOTE 18. TRADE AND OTHER PAYABLES Property, plant and equipment Mine properties and development Trade and other payables Employee benefits Decommissioning and restoration Total deferred tax assets Trade payables and accruals Tax payable Other payables a) Risk exposure 2017 $’000 470,692 (466,255) 4,437 70,886 75,323 2,424 2,552 (539) 4,437 56,906 29,730 (15,750) 70,886 2017 $’000 2,547 2,945 1 310 1,077 6,880 2017 $’000 18,543 3,965 1,017 23,525 Trade payables are non-interest bearing and are normally settled on repayment terms between 7 and 30 days. Information about the Group’s exposure to foreign exchange risk is provided in Note 2. 56 PB 2016 $’000 468,140 (465,716) 2,424 56,906 59,330 5,110 750 (3,436) 2,424 11,444 46,300 (838) 56,906 2016 $’000 3,398 3,883 4 359 1,053 8,697 2016 $’000 16,886 - 941 17,827 PB For personal use only Grange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited NOTE 15. PROPERTY, PLANT AND EQUIPMENT NOTE 16. MINE PROPERTIES AND DEVELOPMENT As at 1 January 2017 Cost Accumulated depreciation and impairment Net book amount Year ended 31 December 2017 Opening net book amount Additions Disposals - net book value Depreciation charge Closing net book amount As at 31 December 2017 Cost Cost Accumulated depreciation and impairment Net book amount As at 1 January 2016 Accumulated depreciation and impairment Net book amount Year ended 31 December 2016 Opening net book amount Additions Disposals - net book value Depreciation charge Closing net book amount As at 31 December 2016 Cost Accumulated depreciation and impairment Net book amount a) Assets under construction Land and buildings $’000 7,402 112,653 45,422 450,966 (37,382) (320,862) 8,040 130,104 44,491 389,863 (37,091) (314,323) Plant and equipment $’000 430,104 (317,451) 112,653 20,862 - (3,411) 130,104 75,540 75,540 40,338 (5) (3,220) 112,653 430,104 (317,451) Computer equipment $’000 7,969 (7,765) 204 204 131 (45) (45) 245 8,055 (7,810) 245 7,815 (7,689) 126 126 154 - (76) 204 7,969 (7,765) 204 Total $’000 482,739 (362,480) 120,259 120,259 21,749 (45) (3,574) 138,389 504,443 (366,054) 138,389 442,169 (359,103) 83,066 83,066 40,667 (5) (3,469) 120,259 482,739 (362,480) 120,259 44,666 (37,264) 7,402 756 - (118) 8,040 7,400 7,400 175 - (173) 7,402 44,666 (37,264) Mine properties and development (at cost) Accumulated amortisation and impairment Net book amount Deferred stripping costs (net book amount) Total mine properties and development Movements in mine properties and development are set out below: Mine properties and development Opening net book amount Change in rehabilitation estimate Amortisation expense Closing net book amount Deferred stripping costs Opening net book amount Current year expenditure capitalised Amortisation expense Closing net book amount NOTE 17. DEFERRED TAX ASSETS The balance comprises temporary differences attributable to: Property, plant and equipment Mine properties and development Trade and other payables Employee benefits Decommissioning and restoration Total deferred tax assets NOTE 18. TRADE AND OTHER PAYABLES 7,402 112,653 The carrying amounts of the assets disclosed above includes expenditure of $110.73 million (2016: $98.14 million) recognised in relation to property, plant and equipment which is in the course of construction. Trade payables and accruals Tax payable Other payables a) Risk exposure 2017 $’000 470,692 (466,255) 4,437 70,886 75,323 2,424 2,552 (539) 4,437 56,906 29,730 (15,750) 70,886 2017 $’000 2,547 2,945 1 310 1,077 6,880 2017 $’000 18,543 3,965 1,017 23,525 2016 $’000 468,140 (465,716) 2,424 56,906 59,330 5,110 750 (3,436) 2,424 11,444 46,300 (838) 56,906 2016 $’000 3,398 3,883 4 359 1,053 8,697 2016 $’000 16,886 - 941 17,827 Trade payables are non-interest bearing and are normally settled on repayment terms between 7 and 30 days. Information about the Group’s exposure to foreign exchange risk is provided in Note 2. PB 57 PB For personal use only Grange Resources Limited » 2017 Annual Report NOTE 19. BORROWINGS (CURRENT) Insurance premium funding (1) Other borrowings (2) 2017 $’000 1,717 3,113 4,830 2016 $’000 1,436 5,094 6,530 (1) (2) Insurance premium funding represents an unsecured loan which carries a fixed interest rate of 1% and will be fully paid in March 2018. Other borrowings represent a multi-advance secured loan facility secured by a charge over the 789 Dump Trucks (‘equipment’) and all parts, improvements and replacements thereof to secure all amounts payable under the facility upon default. NOTE 20. PROVISIONS (CURRENT) Employee benefits Decommissioning and restoration Movements in provision for decommissioning and restoration are set out below Balance at beginning of the year Payments Transfers from non-current provisions Balance at the end of the year NOTE 21. BORROWINGS (NON-CURRENT) Secured Other borrowings 2017 $’000 12,108 713 12,821 680 (327) 360 713 2017 $’000 - - 2016 $’000 11,148 680 11,828 581 (356) 455 680 2016 $’000 2,724 2,724 Other borrowings represent a multi-advance secured loan facility secured by a charge over the 789 Dump Trucks (‘equipment’) and all parts, improvements and replacements thereof to secure all amounts payable under the facility upon default. NOTE 22. PROVISIONS (NON-CURRENT) Employee benefits Decommissioning and restoration Movements in provision for decommissioning and restoration are set out below Balance at beginning of the year Change in estimate Unwinding of discount Transfers to current provisions Balance at the end of the year 2017 $’000 4,411 56,795 61,206 52,949 2,880 1,326 (360) 56,795 2016 $’000 4,445 52,949 57,394 46,629 5,699 1,076 (455) 52,949 58 PB For personal use only 2017 Annual Report « Grange Resources Limited NOTE 23. CONTRIBUTED EQUITY Shares a) Ordinary shares 2017 Shares 1,157,338,698 2016 Shares 1,157,338,698 1,157,338,698 1,157,338,698 2017 $’000 331,513 331,513 2016 $’000 331,513 331,513 Ordinary shares entitle the holder to participate in dividends and the proceeds of winding up of the Company in proportion to the number of and amounts paid on the shares held. Ordinary shares entitle their holder to one vote per share, either in person or by proxy, at a meeting of the Company. Ordinary shares have no par value and the Company does not have a limited amount of authorised share capital. b) Share options and rights The Company has share based payment schemes under which rights for the Company’s shares have been granted to certain executives and eligible employees. NOTE 24. RETAINED PROFITS Retained profits Movements in retained profits were as follows: Balance at the beginning of the year Profit for the year Dividends paid Balance at the end of the year NOTE 25. DIVIDENDS Fully franked final dividend for the year ended 31 December 2016 - .5 cents per share Fully franked interim dividend for half year ended 30 June 2016 - .5 cents per share Total dividends provided for or paid 2017 $’000 1,140 60,713 (5,787) 56,066 2017 $’000 5,787 - 5,787 2016 $’000 (85,976) 92,903 (5,787) 1,140 2016 $’000 - 5,787 5,787 Since the end of the financial year the directors have recommended the payment of a final dividend of $11.6 million. This represents a total of $11.6 million (1.0 cent per share) fully franked dividend for the year-end 31 December 2017. The final dividend was declared NIL conduit foreign income and will be paid on 28 March 2018. 59 PB For personal use only Grange Resources Limited » 2017 Annual Report NOTE 26. IMPAIRMENT OF NON-CURRENT ASSETS At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. The Company considers the relationship between its market capitalisation and its book value among other factors, when reviewing for indicators for impairment. During the year and as at 31 December 2017, the market capitalisation of the Company was below the book value of its net assets indicating a potential trigger for impairment of assets. a) Impairment Testing i) Methodology An impairment loss is recognised for a Cash Generating Unit (CGU) when the recoverable amount is less than the carrying amount. The recoverable amount of each CGU has been estimated using a fair value less costs of disposal basis. The costs of disposal have been estimated by management based on prevailing market conditions. The fair value assessment is categorised within level 3 in the fair value hierarchy. Fair value is estimated based on the net present value of estimated future cash flows for a CGU. Future cash flows are based on a number of assumptions, including commodity price expectations, foreign exchange rates, reserves and resources and expectations regarding future operating performance and capital requirements which are subject to risk and uncertainty. An adverse change in one or more of the assumptions used to estimate fair value could result in a reduction of the CGU’s fair value. ii) Key assumptions The key assumptions which are used by the Directors in determining the recoverable amount for the Group’s Savage River CGU were in the following ranges as at 31 December 2017: Assumptions 2018 2019 - 2023 Iron ore pellets (FOB Port Latta) (US$ per DMT) AUD:USD exchange rate Post-tax real discount rate US$90.57 US$73.90 - US$94.68 $0.7275 $0.7370 9.10% 31 December 2017 Long Term 2024+ US$82.48 $0.7300 Commodity prices and foreign exchange rates Commodity prices and foreign exchange rates are estimated with reference to analysis performed by an external party and are updated at least once every six months, in-line with the Group’s reporting dates. Operating performance (production, operating costs and capital costs) Life of mine production, operating cost and capital cost assumptions are based on the Group’s most recent life of mine plan approved by the Board adjusted for expected improvements reflecting the Group’s objective of maximising free cash flow (mainly operating and investing cash flows) by optimising production and improving productivity. Mineral resources and ore reserves not in the most recent life of mine plan are not included in the determination of recoverable amount. The Board has decided to investigate a capital project – Pit Rim Crushing and Conveying in order to save operating costs. The capital investment and operating cost offset benefit have been included in the fair value model. Management is continuously working on different mining and production plans. Discount rate To determine the recoverable amount, the estimated future cash flows have been discounted to their present value using a post-tax real discount rate that reflects a current market assessment of the time value of money and risks specific to the asset. iii) Impacts The Group has conducted a carrying value analysis and has not identified further impairment to its net assets carrying value as at 31 December 2017. iv) Sensitivity analysis It is estimated that changes in the following key assumptions would have the following approximate impact on the fair value of the Savage River CGU as at 31 December 2017: Decrease in fair value resulting from: US$1 per dmt decrease in iron ore pellet prices (FOB Port Latta) $0.01 increase in the AUD:USD exchange rate 1% increase in estimated operating costs 25 bps increase in the discount rate $16.36 million $21.20 million $11.09 million $7.36 million Reasonably possible changes in circumstances may affect these key assumptions and therefore the fair value. In reality, a change in any one of the aforementioned assumptions (including operating performance) would usually be accompanied by a change in another assumption which may have an off-setting impact. Action is usually taken to respond to adverse changes in assumptions to mitigate the impact of any such change. If the carrying amount is assessed to be impaired, the impairment charge is recognised in profit or loss. 60 PB For personal use onlyNOTE 27. REMUNERATION OF AUDITORS During the period the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms. 2017 Annual Report « Grange Resources Limited (a) PwC - Australia Audit and review of financial reports Audit fee relating to 2016 and paid in 2017 Other assurance services Other advisory services Total remuneration of PwC - Australia (b) Related practices of PwC - Australia Audit and review of financial reports Taxation compliance Total remuneration of related practices of PwC - Australia NOTE 28. COMMITMENTS AND CONTINGENCIES a) Tenement expenditure commitments 2017 $’000 274 - 16 - 290 5 - 5 2016 $’000 235 50 16 37 338 24 1 25 In order to maintain the mining and exploration tenements in which the Group is involved, the Group is committed to meet conditions under which the tenements were granted. If the Group continues to hold those tenements, the minimum expenditure requirements (including interests in joint venture arrangements) will be approximately: Within one year After one year but not more than five years b) Capital expenditure commitments Within one year After one year but not more than five years 2017 $’000 689 2,201 2,890 2017 $’000 11,271 - 11,271 2016 $’000 924 3,817 4,741 2016 $’000 2,997 - 2,997 61 PB For personal use onlyGrange Resources Limited » 2017 Annual Report c) Operating lease expenditure commitments Within one year After one year but not more than five years 2017 $’000 140 381 521 2016 $’000 - - - d) Bank Guarantees Bank guarantees have been provided on the Group’s behalf to secure, on demand by the Minister for Mines and Energy for the State of Queensland, any sum to a maximum aggregate amount of $2,012,963 (2016: $2,012,963), in relation to the rehabilitation of the Highway Reward project. A Bank guarantee has been provided by Grange Resources (Tasmania) Pty Ltd, held by the Tasmanian Government, as required under Environmental Management and Pollution Control Act 1994 (EMPCA) for the amount of $3,097,941 (2016: $3,071,180). This amount is to guarantee the rehabilitation responsibilities under the mining lease at Savage River. A Bank guarantee has been provided by Grange Resources (Tasmania) Pty Ltd, held by the National Australia Bank, as required under the Goldamere Agreement and applicable Deeds of Variation, for the amount of $2,800,000 (2016: $2,800,000). This amount is a guarantee against the purchase price outstanding with the Tasmanian government as specified in the Goldamere Agreement. No material losses are anticipated in respect to the above bank guarantees and the rehabilitation provisions include these amounts. e) Contingent Assets and Liabilities The Group did not have any contingent assets or liabilities at the Balance Sheet Date. NOTE 29. RELATED PARTY TRANSACTIONS a) Ultimate Parent Grange Resources Limited (Grange) is the ultimate Australian parent company. b) Subsidiaries Interests in subsidiaries are set out in Note 30. c) Key management personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits Termination benefits Long-term incentives 2017 $ 1,596,973 127,816 44,286 - 81,170 1,850,245 2016 $ 1,455,097 126,017 25,834 210,097 113,702 1,930,747 Detailed remuneration disclosures are provided in the remuneration report on pages 25 to 32. d) Transactions with related parties During the year the following transactions occurred with related parties: Sales of iron ore products(1) 2017 $ 117,991,116 2016 $ 105,507,651 (1) Sales of iron ore products to Jiangsu Shagang International Trade Co., Ltd, a wholly owned subsidiary of Jiangsu Shagang Group, under long-term off-take agreements. During the year, 935,449 dry metric tonnes of iron ore products were sold to Shagang in accordance with the terms of the long term off-take agreements (2016: 1,087,446 dry metric tonnes) 62 PB For personal use only e) Outstanding balances arising from transactions with related parties The following balances are outstanding at the end of the reporting period in relation to transactions with related parties: 2017 Annual Report « Grange Resources Limited Trade receivables (sales of iron ore products) Pellets Others 2017 $ 13,069,589 (57,519) 13,012,070 2016 $ 5,130,461 (46,463) 5,083,999 Amounts outstanding under the long term off-take agreement with Shagang are unsecured whereas amounts outstanding in respect of spot sales are secured against an irrecoverable letter of credit. All outstanding balances will be settled in cash. The credit balance of the receivables represents the final price adjustments due to the quotation periods and final discharge port results. There is no allowance account for impaired receivables in relation to any outstanding balances with related parties, and no expense has been recognised during the year in respect of impaired receivables due from related parties (2016: Nil). Long term off-take agreement Grange Resources (Tasmania) Pty Ltd (Grange Tasmania) is party to a long term off-take agreements (Pellets and Chips) with Jiangsu Shagang International Trade Co. Ltd (Shagang), a wholly owned subsidiary of Jiangsu Shagang Group Co. Ltd, who, as at 27 February 2018, holds 47.93% (27 February 2018: 47.93%) of the issued ordinary shares of Grange. Pellets The key terms of the agreement with Shagang, as advised to the ASX on 19 November 2012, are as follows: • The sale of 1 million dry metric tonnes of iron ore pellets per annum until 2022. • The price for the iron ore pellets will be the fair market value as agreed by the parties having regard to: • seaborne iron ore supply and demand conditions; • available published price benchmarks for iron ore; and • product quality differentials and potential freight costs. As set out in the Grange Notice of Meeting dated 5 November 2008, each transaction between Shagang and Grange (including the off-take arrangements) must be either approved by non-associated Grange shareholders, or approved by the Grange independent directors. Agency agreements with related parties Grange sold some product on the spot market through sales agency agreements with sales agents who were related parties of Grange directors. Any appointment of a related party sales agent was non-exclusive and negotiated and appointed by Grange directors and management independent of related parties, acting in the best interests of all Grange shareholders. The majority of related party sales had nil commission. Where commission was payable to the related party sales agent it was determined on the basis of an amount equal to a market-determined percentage of the US dollar price of product sold to the third party, and the sales agency agreement did not confer a right to any other royalty or similar revenue scheme. The appointment of the related party sales agent and the precise percentage of the commission payable was determined by Grange directors and management independent of related parties on the basis of it comprising reasonable, arm’s length terms. 63 PB For personal use onlyGrange Resources Limited » 2017 Annual Report NOTE 30. SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 1. Percentage of equity interest held by the Group NOTE 32. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES 2017 Annual Report « Grange Resources Limited Name Ever Green Resources Co., Limited (1) Grange Tasmania Holdings Pty Ltd Beviron Pty Ltd Grange Resources (Tasmania) Pty Ltd Grange Capital Pty Ltd Grange Administrative Services Pty Ltd Barrack Mines Pty Ltd Bamine Pty Ltd BML Holdings Pty Ltd Horseshoe Gold Mine Pty Ltd Grange Resources (Southdown) Pty Ltd Southdown Project Management Company Pty Ltd Grange Developments Sdn Bhd (2) Grange Resources Investments Pty Ltd (3) Grange ROC Property Pty Ltd (4) 2017 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 (1) (2) (3) (4) Ever Green Resources Co., Limited is incorporated in Hong Kong, and registered as a foreign company under the Corporations Act 2001. Grange Developments Sdn Bhd is incorporated in Malaysia. Grange Resources Investments Pty Ltd was incorporated on 10th March 2017. Grange ROC Property Pty Ltd was incorporated on 4th December 2017. 2016 % 100 100 100 100 100 100 100 100 100 100 100 100 100 - - Profit for the year Unwinding of discount Depreciation and amortisation Mine properties and development amortisation Interest expense Loss (profit) on sale of property, plant and equipment Loss (gain) on derivative financial instruments Net unrealised foreign exchange loss/(gain) Change in operating assets and liabilities (Increase) decrease in trade and other receivables (excluding income tax refund) Decrease (increase) in inventories Decrease (increase) in deferred tax assets Increase in trade and other payables (excluding tax payable) Increase in other provisions Increase (decrease) provision for income tax payable Net cash inflow from operating activities NOTE 33. EARNINGS PER SHARE % Interest 2017 70.00 31.15 30.00 30.00 30.00 15.00 % Interest 2016 70.00 31.15 30.00 30.00 30.00 15.00 From continuing operations attributable to the ordinary equity holders Basic earnings per share of the Company Diluted earnings per share of the Company From continuing operations attributable to the ordinary equity holders a) Reconciliations of earnings used in calculating earnings per share Mt Windsor Exploration is a joint venture between BML Holdings Pty Limited, a subsidiary of Grange Resources Limited, and Thalanga Copper Mines Pty Ltd. The joint venture was engaged in ore mining and is now being rehabilitated for future lease relinquishment. The principal place of business of the joint venture is at 1 Penghana Road, Queenstown, Tasmania, 7326. Profit attributable to the ordinary equity holders of the Company used in calculating basic earnings per share from continuing operations Diluted earnings per share Profit attributable to the ordinary equity holders of the Company used in calculating diluted earnings per share from continuing operations 60,713 92,903 b) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 2017 2016 1,157,338,698 1,157,338,698 NOTE 31. INTEREST IN JOINT OPERATIONS Name of Joint Operation Southdown Magnetite and Associated Pellet Project(s) – Iron Ore Reward – Copper / Gold Highway – Copper Reward Deeps / Conviction – Copper Mt Windsor Exploration – Gold / Base Metals Durack / Wembley – Exploration Gold The joint operations are not separate legal entities. They are contractual arrangements between the participants for the sharing of costs and output and do not in themselves generate revenue and profit. Southdown Magnetite and Associated Pellet Project(s) is a joint venture between Grange Resources Limited and SRT Australia Pty Ltd. The joint venture proposes to mine and export premium iron ore pellets and concentrates. The principal place of business of the joint venture is at 34a Alexander Street, Burnie, Tasmania, 7320. 64 PB 2017 $’000 60,713 1,326 3,574 16,289 - 45 (46) 7,423 386 (27,626) 1,817 1,694 789 4,841 71,225 2017 Cents 5.25 5.25 2017 $’000 60,713 2016 $’000 92,903 1,076 3,469 4,274 8 (11) 2,036 (1,335) (20,668) 43,583 (4,393) 1,755 4,234 (4,992) 121,939 2016 Cents 8.03 8.03 2016 $’000 92,903 PB For personal use onlyGrange Resources Limited » 2017 Annual Report NOTE 30. SUBSIDIARIES with the accounting policy described in Note 1. Name Ever Green Resources Co., Limited (1) Grange Tasmania Holdings Pty Ltd Beviron Pty Ltd Grange Resources (Tasmania) Pty Ltd Grange Capital Pty Ltd Grange Administrative Services Pty Ltd Barrack Mines Pty Ltd Bamine Pty Ltd BML Holdings Pty Ltd Horseshoe Gold Mine Pty Ltd Grange Resources (Southdown) Pty Ltd Southdown Project Management Company Pty Ltd Grange Developments Sdn Bhd (2) Grange Resources Investments Pty Ltd (3) Grange ROC Property Pty Ltd (4) (1) (2) (3) (4) Grange Developments Sdn Bhd is incorporated in Malaysia. Grange Resources Investments Pty Ltd was incorporated on 10th March 2017. Grange ROC Property Pty Ltd was incorporated on 4th December 2017. NOTE 31. INTEREST IN JOINT OPERATIONS Southdown Magnetite and Associated Pellet Project(s) – Iron Ore Name of Joint Operation Reward – Copper / Gold Highway – Copper Reward Deeps / Conviction – Copper Mt Windsor Exploration – Gold / Base Metals Durack / Wembley – Exploration Gold 2017 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 Ever Green Resources Co., Limited is incorporated in Hong Kong, and registered as a foreign company under the Corporations Act 2001. 2016 % 100 100 100 100 100 100 100 100 100 100 100 100 100 - - 2016 70.00 31.15 30.00 30.00 30.00 15.00 generate revenue and profit. Southdown Magnetite and Associated Pellet Project(s) is a joint venture between Grange Resources Limited and SRT Australia Pty Ltd. The joint venture proposes to mine and export premium iron ore pellets and concentrates. The principal place of business of the joint venture is at 34a Alexander Street, Burnie, Tasmania, 7320. venture was engaged in ore mining and is now being rehabilitated for future lease relinquishment. The principal place of business of the joint venture is at 1 Penghana Road, Queenstown, Tasmania, 7326. NOTE 32. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH INFLOW 2017 Annual Report « Grange Resources Limited The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance FROM OPERATING ACTIVITIES Percentage of equity interest held by the Group Profit for the year Unwinding of discount Depreciation and amortisation Mine properties and development amortisation Interest expense Loss (profit) on sale of property, plant and equipment Loss (gain) on derivative financial instruments Net unrealised foreign exchange loss/(gain) Change in operating assets and liabilities (Increase) decrease in trade and other receivables (excluding income tax refund) Decrease (increase) in inventories Decrease (increase) in deferred tax assets Increase in trade and other payables (excluding tax payable) Increase in other provisions Increase (decrease) provision for income tax payable Net cash inflow from operating activities NOTE 33. EARNINGS PER SHARE % Interest % Interest 2017 70.00 31.15 30.00 30.00 30.00 15.00 Basic earnings per share From continuing operations attributable to the ordinary equity holders of the Company Diluted earnings per share From continuing operations attributable to the ordinary equity holders of the Company a) Reconciliations of earnings used in calculating earnings per share The joint operations are not separate legal entities. They Mt Windsor Exploration is a joint venture between BML are contractual arrangements between the participants for Holdings Pty Limited, a subsidiary of Grange Resources the sharing of costs and output and do not in themselves Limited, and Thalanga Copper Mines Pty Ltd. The joint Profit attributable to the ordinary equity holders of the Company used in calculating basic earnings per share from continuing operations Diluted earnings per share 2017 $’000 60,713 1,326 3,574 16,289 - 45 (46) 7,423 386 (27,626) 1,817 1,694 789 4,841 71,225 2017 Cents 5.25 5.25 2017 $’000 60,713 2016 $’000 92,903 1,076 3,469 4,274 8 (11) 2,036 (1,335) (20,668) 43,583 (4,393) 1,755 4,234 (4,992) 121,939 2016 Cents 8.03 8.03 2016 $’000 92,903 Profit attributable to the ordinary equity holders of the Company used in calculating diluted earnings per share from continuing operations 60,713 92,903 b) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 2017 2016 1,157,338,698 1,157,338,698 PB 65 PB For personal use onlyGrange Resources Limited » 2017 Annual Report NOTE 34. PARENT ENTITY FINANCIAL INFORMATION a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Balance Sheet Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Contributed equity Reserves - Share-based payments Retained losses Total equity Profit (loss) for the year Total comprehensive income (loss) for the year b) Contingent liabilities of the parent entity Other contingent liabilities 2017 $’000 6,059 268,798 2,315 34,456 392,475 31,191 (189,324) 234,342 (2,616) (2,616) 2016 $’000 6,984 270,850 2,547 32,994 392,475 31,191 (185,810) 237,856 5,951 5,951 Pursuant to the terms of an agreement dated 21 November 2003, under which the Company purchased certain tenements comprising the Southdown project, the Company is required to make a further payment of $1,000,000 to MedAire, Inc upon commencement of commercial mining operations from those tenements. NOTE 35. EVENTS OCCURRING AFTER THE REPORTING PERIOD Subsequent to the financial year-end date, the Group has entered into a joint venture with an experienced residential property developer in ROC Built to form Grange ROC Property to seek property development projects in the residential property market. DIRECTORS’ DECLARATION In the Directors’ opinion: a) the financial statements and notes set out on pages 38 to 68 are in accordance with the Corporations Act 2001, including: i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and ii) giving true and fair view of the consolidated entity’s financial position as at 31 December 2017 and of its performance We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for for the financial year ended on that date, and b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable, and Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations of the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. Michelle Li Chairperson of the Board of Directors Perth, Western Australia, 27 February 2018 66 PB 2017 Annual Report « Grange Resources Limited Independent auditor’s report Independent auditor’s report To the members of Grange Resources Limited Independent auditor’s report To the members of Grange Resources Limited Report on the audit of the financial report To the members of Grange Resources Limited Report on the audit of the financial report Our opinion Report on the audit of the financial report Our opinion In our opinion: In our opinion: Our opinion The accompanying financial report of Grange Resources Limited (the Company) and its controlled The accompanying financial report of Grange Resources Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: In our opinion: entities (together the Group) is in accordance with the Corporations Act 2001, including: The accompanying financial report of Grange Resources Limited (the Company) and its controlled giving a true and fair view of the Group's financial position as at 31 December 2017 and of its entities (together the Group) is in accordance with the Corporations Act 2001, including: giving a true and fair view of the Group's financial position as at 31 December 2017 and of its financial performance for the year then ended (a) (a) financial performance for the year then ended complying with Australian Accounting Standards and the Corporations Regulations 2001. giving a true and fair view of the Group's financial position as at 31 December 2017 and of its complying with Australian Accounting Standards and the Corporations Regulations 2001. financial performance for the year then ended complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited What we have audited The Group financial report comprises: The Group financial report comprises:  What we have audited the consolidated statement of financial position as at 31 December 2017 The Group financial report comprises: the consolidated statement of financial position as at 31 December 2017 the consolidated statement of comprehensive income for the year then ended   the consolidated statement of comprehensive income for the year then ended the consolidated statement of financial position as at 31 December 2017 the consolidated statement of changes in equity for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of comprehensive income for the year then ended the consolidated statement of cash flows for the year then ended the consolidated statement of cash flows for the year then ended the consolidated statement of changes in equity for the year then ended the notes to the consolidated financial statements, which include a summary of significant the notes to the consolidated financial statements, which include a summary of significant the consolidated statement of cash flows for the year then ended accounting policies the notes to the consolidated financial statements, which include a summary of significant (b) (a) (b) (b)               accounting policies the directors’ declaration. the directors’ declaration. accounting policies  Basis for opinion Basis for opinion the directors’ declaration. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial Basis for opinion report section of our report. those standards are further described in the Auditor’s responsibilities for the audit of the financial We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under report section of our report. those standards are further described in the Auditor’s responsibilities for the audit of the financial We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for report section of our report. our opinion. our opinion. Independence our opinion. Independence Independence We are independent of the Group in accordance with the auditor independence requirements of the We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant We are independent of the Group in accordance with the auditor independence requirements of the Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant in accordance with the Code. in accordance with the Code. to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. PricewaterhouseCoopers, ABN 52 780 433 757 PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE, VIC 3001 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE, VIC 3001 T +61 3 8603 1000, F +61 3 8603 1999, www.pwc.com.au PricewaterhouseCoopers, ABN 52 780 433 757 T +61 3 8603 1000, F +61 3 8603 1999, www.pwc.com.au 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE, VIC 3001 Liability limited by a scheme approved under Professional Standards Legislation. T +61 3 8603 1000, F +61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Liability limited by a scheme approved under Professional Standards Legislation. PB For personal use onlyGrange Resources Limited » 2017 Annual Report NOTE 34. PARENT ENTITY FINANCIAL INFORMATION a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Balance Sheet Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Contributed equity Reserves - Share-based payments Retained losses Total equity Profit (loss) for the year Total comprehensive income (loss) for the year b) Contingent liabilities of the parent entity Other contingent liabilities 2017 $’000 6,059 268,798 2,315 34,456 392,475 31,191 (189,324) 234,342 (2,616) (2,616) 2016 $’000 6,984 270,850 2,547 32,994 392,475 31,191 (185,810) 237,856 5,951 5,951 Pursuant to the terms of an agreement dated 21 November 2003, under which the Company purchased certain tenements comprising the Southdown project, the Company is required to make a further payment of $1,000,000 to MedAire, Inc upon commencement of commercial mining operations from those tenements. NOTE 35. EVENTS OCCURRING AFTER THE REPORTING PERIOD Subsequent to the financial year-end date, the Group has entered into a joint venture with an experienced residential property developer in ROC Built to form Grange ROC Property to seek property development projects in the residential property market. DIRECTORS’ DECLARATION In the Directors’ opinion: including: requirements, and a) the financial statements and notes set out on pages 38 to 68 are in accordance with the Corporations Act 2001, i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting ii) giving true and fair view of the consolidated entity’s financial position as at 31 December 2017 and of its performance for the financial year ended on that date, and b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable, and Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations of the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. Michelle Li Chairperson of the Board of Directors Perth, Western Australia, 27 February 2018 PB 2017 Annual Report « Grange Resources Limited Independent auditor’s report Independent auditor’s report To the members of Grange Resources Limited Independent auditor’s report To the members of Grange Resources Limited Report on the audit of the financial report To the members of Grange Resources Limited Report on the audit of the financial report Our opinion Report on the audit of the financial report Our opinion In our opinion: In our opinion: Our opinion The accompanying financial report of Grange Resources Limited (the Company) and its controlled The accompanying financial report of Grange Resources Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: In our opinion: entities (together the Group) is in accordance with the Corporations Act 2001, including: giving a true and fair view of the Group's financial position as at 31 December 2017 and of its (a) The accompanying financial report of Grange Resources Limited (the Company) and its controlled giving a true and fair view of the Group's financial position as at 31 December 2017 and of its (a) financial performance for the year then ended entities (together the Group) is in accordance with the Corporations Act 2001, including: financial performance for the year then ended complying with Australian Accounting Standards and the Corporations Regulations 2001. giving a true and fair view of the Group's financial position as at 31 December 2017 and of its complying with Australian Accounting Standards and the Corporations Regulations 2001. financial performance for the year then ended (b) (a) (b) What we have audited (b) What we have audited The Group financial report comprises: The Group financial report comprises: What we have audited   The Group financial report comprises:                the consolidated statement of financial position as at 31 December 2017 the consolidated statement of financial position as at 31 December 2017 the consolidated statement of comprehensive income for the year then ended the consolidated statement of comprehensive income for the year then ended the consolidated statement of financial position as at 31 December 2017 the consolidated statement of changes in equity for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of comprehensive income for the year then ended the consolidated statement of cash flows for the year then ended the consolidated statement of cash flows for the year then ended the consolidated statement of changes in equity for the year then ended the notes to the consolidated financial statements, which include a summary of significant the notes to the consolidated financial statements, which include a summary of significant accounting policies the consolidated statement of cash flows for the year then ended accounting policies the directors’ declaration. the notes to the consolidated financial statements, which include a summary of significant the directors’ declaration. accounting policies complying with Australian Accounting Standards and the Corporations Regulations 2001. the directors’ declaration. Basis for opinion  Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Basis for opinion those standards are further described in the Auditor’s responsibilities for the audit of the financial those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under report section of our report. those standards are further described in the Auditor’s responsibilities for the audit of the financial We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for report section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. our opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for Independence our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Independence Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant We are independent of the Group in accordance with the auditor independence requirements of the Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant in accordance with the Code. to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. PricewaterhouseCoopers, ABN 52 780 433 757 PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE, VIC 3001 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE, VIC 3001 T +61 3 8603 1000, F +61 3 8603 1999, www.pwc.com.au PricewaterhouseCoopers, ABN 52 780 433 757 T +61 3 8603 1000, F +61 3 8603 1999, www.pwc.com.au 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE, VIC 3001 T +61 3 8603 1000, F +61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Liability limited by a scheme approved under Professional Standards Legislation. Liability limited by a scheme approved under Professional Standards Legislation. 67 PB For personal use onlyGrange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited Our audit approach Key audit matters An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. The Group’s operations consist principally of owning and operating the Savage River integrated iron ore mining and pellet production business located in the north-west region of Tasmania. cash generating unit (CGU) (Refer to note 26) Materiality Audit scope Key audit matters   Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. Our audit mainly consisted of procedures performed by the audit engagement team at the Burnie head office, with site visits as necessary.   Amongst other relevant topics, we communicated the following key audit matters to the Audit and Risk Committee:  Impairment assessment for the Savage River cash generating unit (CGU)  Accounting for the cost of rehabilitation These are further described in the Key audit matters section of our report.  For the purpose of our audit we used overall group materiality of $3.3 million, which represents approximately 5% of the Group’s profit before tax.  We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole.  We chose group profit before tax because, in our view, it is the benchmark against which the performance of the Group is most commonly measured. We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. Key audit matter How our audit addressed the key audit matter Impairment assessment for the Savage River We evaluated the cash flow forecasts in the model and developed our understanding of the process by which they were prepared. We satisfied ourselves that the operating and capital expenditure forecasts were The impairment assessment of the Savage River CGU, consistent with the latest Board approved Life of Mine which consists of the mine and pelletising plant, was a plan (to 2033) and budget. key audit matter given the significance of the carrying value to the balance sheet. There were also a number of In order to assess the Group’s ability to make reliable factors in the impairment assessment requiring forecasts, we compared current year (2017) actual judgement including: results with the figures included in the prior year ● ● The pellet (final product) price and the AUD/USD exchange rate Estimation uncertainty associated with forecast operating and capital expenditure for the period to 2033 (Life of Mine). forecasts (2016). We also assessed: During the year ended 31 December 2017, the Group rely on future capital projects; ● ● ● The long term pellet price and AUD/USD exchange rate in the forecasts by comparing them to economic and industry forecasts; The projected cost savings in future years which The discount rate used by assessing the cost of capital for the Group, assisted by PwC valuations experts, and comparing the rate to market data and industry research. prepared a discounted cashflow model (the model) to determine the recoverable amount of the Savage River CGU balance, which requires a number of assumptions as described in Note 26. Accounting for the cost of rehabilitation (Refer to note 20 and 22) ($57.5 million) We obtained the Group’s calculation of the The main component of the provision is for the Group’s rehabilitation obligation (the model). We checked the obligation to rehabilitate the Savage River and Port timing of the cash flows in the model for consistency Latta sites for the disturbance caused by its operations. with the current Life of Mine plan. The rehabilitation provision also includes an obligation under the Tasmanian Goldamere Pty Ltd Act 1996 to We checked the discount rate used with market data. repay the Tasmanian Government for part of the purchase of the mine through expenditure on Where external and internal experts were used by the remediation. Group to estimate remediation costs, we assessed our ability to use their estimates for the purposes of our The net present value of the cost of rehabilitation is audit. recorded as a provision of $56.8 million (non-current) and $0.7 million (current), for a total of $57.5 million. 68 PB PB For personal use onlyGrange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited Our audit approach Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. Key audit matter How our audit addressed the key audit matter Impairment assessment for the Savage River cash generating unit (CGU) (Refer to note 26) The impairment assessment of the Savage River CGU, which consists of the mine and pelletising plant, was a key audit matter given the significance of the carrying value to the balance sheet. There were also a number of factors in the impairment assessment requiring judgement including: ● ● The pellet (final product) price and the AUD/USD exchange rate Estimation uncertainty associated with forecast operating and capital expenditure for the period to 2033 (Life of Mine). During the year ended 31 December 2017, the Group prepared a discounted cashflow model (the model) to determine the recoverable amount of the Savage River CGU balance, which requires a number of assumptions as described in Note 26. ● ● We evaluated the cash flow forecasts in the model and developed our understanding of the process by which they were prepared. We satisfied ourselves that the operating and capital expenditure forecasts were consistent with the latest Board approved Life of Mine plan (to 2033) and budget. In order to assess the Group’s ability to make reliable forecasts, we compared current year (2017) actual results with the figures included in the prior year forecasts (2016). We also assessed: ● The long term pellet price and AUD/USD exchange rate in the forecasts by comparing them to economic and industry forecasts; The projected cost savings in future years which rely on future capital projects; The discount rate used by assessing the cost of capital for the Group, assisted by PwC valuations experts, and comparing the rate to market data and industry research. Accounting for the cost of rehabilitation (Refer to note 20 and 22) ($57.5 million) The main component of the provision is for the Group’s obligation to rehabilitate the Savage River and Port Latta sites for the disturbance caused by its operations. The rehabilitation provision also includes an obligation under the Tasmanian Goldamere Pty Ltd Act 1996 to repay the Tasmanian Government for part of the purchase of the mine through expenditure on remediation. The net present value of the cost of rehabilitation is recorded as a provision of $56.8 million (non-current) and $0.7 million (current), for a total of $57.5 million. We obtained the Group’s calculation of the rehabilitation obligation (the model). We checked the timing of the cash flows in the model for consistency with the current Life of Mine plan. We checked the discount rate used with market data. Where external and internal experts were used by the Group to estimate remediation costs, we assessed our ability to use their estimates for the purposes of our audit. PB 69 PB An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. The Group’s operations consist principally of owning and operating the Savage River integrated iron ore mining and pellet production business located in the north-west region of Tasmania. Materiality Audit scope Key audit matters  For the purpose of our audit we  Our audit focused on where the  Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events.  Our audit mainly consisted of procedures performed by the audit engagement team at the Burnie head office, with site visits as necessary. Amongst other relevant topics, we communicated the following key audit matters to the Audit and Risk Committee:  Impairment assessment for the Savage River cash generating unit (CGU)  Accounting for the cost of rehabilitation  These are further described in the Key audit matters section of our report. used overall group materiality of $3.3 million, which represents approximately 5% of the Group’s profit before tax.  We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole.  We chose group profit before tax because, in our view, it is the benchmark against which the performance of the Group is most commonly measured. We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. For personal use onlyGrange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited Key audit matter How our audit addressed the key audit matter Responsibilities of the directors for the financial report Given the significance of this balance and the complexities and uncertainties outlined below, our examination of the provision for rehabilitation was a key audit matter. Calculating the final rehabilitation obligation is challenging and requires significant estimation and judgement by the Group, given some of the uncertainties over methods of rehabilitation, costs and timing. The calculation of the provision requires significant input from specialists and experts, both from within and external to the Group. We compared the Group’s assumptions on rehabilitation costs to other similar costs in the business. Other information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 31 December 2017, including the Directors’ Report, Operating and Financial Review and Corporate Governance Statement, which we obtained prior to the date of this auditor’s report, but does not include the financial report and our auditor’s report thereon. We also expect the remaining other information to be made available after the date of this auditor’s report including About Grange, 2017 Overview, 2018 Priorities, About the Grange Business, Chairperson’s and Chief Executive Officer’s Review, Tenement Schedule, ASX Additional Information and List of Significant ASX Announcements, which are expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the other information not yet received as identified above, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take. 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 preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor's report. Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 10 to 18 of the directors’ report for the year ended 31 December 2017. In our opinion, the remuneration report of Grange Resources Limited for the year ended 31 December 2017 complies with section 300A of the Corporations Act 2001. 70 PB PB For personal use onlyGrange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited Key audit matter How our audit addressed the key audit matter Responsibilities of the directors for the financial report Given the significance of this balance and the complexities and uncertainties outlined below, our examination of the provision for rehabilitation was a We compared the Group’s assumptions on key audit matter. rehabilitation costs to other similar costs in the business. Calculating the final rehabilitation obligation is challenging and requires significant estimation and judgement by the Group, given some of the uncertainties over methods of rehabilitation, costs and timing. The calculation of the provision requires significant input from specialists and experts, both from within and external to the Group. Other information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 31 December 2017, including the Directors’ Report, Operating and Financial Review and Corporate Governance Statement, which we obtained prior to the date of this auditor’s report, but does not include the financial report and our auditor’s report thereon. We also expect the remaining other information to be made available after the date of this auditor’s report including About Grange, 2017 Overview, 2018 Priorities, About the Grange Business, Chairperson’s and Chief Executive Officer’s Review, Tenement Schedule, ASX Additional Information and List of Significant ASX Announcements, which are expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the other information not yet received as identified above, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take. 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 preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor's report. Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 10 to 18 of the directors’ report for the year ended 31 December 2017. In our opinion, the remuneration report of Grange Resources Limited for the year ended 31 December 2017 complies with section 300A of the Corporations Act 2001. PB 71 PB For personal use onlyGrange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited Responsibilities 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. WESTERN AUSTRALIA Southdown PricewaterhouseCoopers John O'Donoghue Partner Melbourne 27 February 2018 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) Held by Grange Resources (Tasmania) Pty Ltd Under application Medaire Inc Subject to conditional purchase agreement with Subject to Joint Venture Implementation Agreement with SRT Australia Pty Ltd Subject to 1% Net Smelter Return royalty with Lac Minerals (Australia) NL Subject to joint venture agreement with Aragon Resources Pty Ltd Royalty interest with Horseshoe Metals Ltd Royalty interest with Nova Energy Pty Ltd Royalty interest with Kanowna Mines Pty Ltd Royalty interest with Dampier (Plutonic) Pty Ltd Royalty interest with Northern Star Resources Royalty interest with Fortescue Metals Group Ltd Subject to joint venture agreement with Thalanga Copper Mines Pty Ltd Royalty interest with Santexco Pty Ltd Royalty interest with Giants Reef Exploration Pty Ltd Ltd TENEMENT SCHEDULE AS AT 28 FEBRUARY 2018 PROSPECT TASMANIA Savage River TENEMENT INTEREST Notes: 2M/2001 14M/2007 11M/2008 EL30/2003 EL8/2014 M70/1309 G70/217 E70/2512 E70/3073 L70/185 L70/186 M52/801 M52/743 E52/2042 M53/336 M27/57 M52/278,279,299 M52/295-296 M52/300-301 M52/305-306 M52/369-370 E47/1846 ML 1571 ML 1734 ML 1739 ML 10028 ML 1758 MLC 49 MLC 527 MLC 599 MLC 617 MCC 174 MCC 212 MCC 308 MCC 344 MCC 342 MLC 619 MLC 522 MCC 287-288 MCC 338-339 MCC 316-317 MCC 340-341 100% (1) 100% (1) 100% (1) 100% (1) 100% (1) 70% (3) (4) 70% (4) 70% (4) 70% (4) 70% (4) 70% (4) 15% (5) (6) 0% (7) 0% (7) 0% (8) 0% (9) 0% (10) 0% (11) 0% (11) 0% (10) 0% (10) 0% (12) 30% (13) 30% (13) 30% (13) 30% (13) 30% (13) 0% (14) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) Wembley Horseshoe Lights Abercromby Well Red Hill Freshwater Pilbara QUEENSLAND Mt Windsor JV NORTHERN TERRITORY Mt Samuel True Blue Aga Khan Black Cat 72 PB PB For personal use onlyGrange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited TENEMENT SCHEDULE AS AT 28 FEBRUARY 2018 PROSPECT TASMANIA Savage River 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. WESTERN AUSTRALIA Southdown Responsibilities PricewaterhouseCoopers John O'Donoghue Partner Melbourne 27 February 2018 Wembley Horseshoe Lights Abercromby Well Red Hill Freshwater Pilbara QUEENSLAND Mt Windsor JV NORTHERN TERRITORY Mt Samuel True Blue Aga Khan Black Cat TENEMENT INTEREST Notes: Held by Grange Resources (Tasmania) Pty Ltd Under application Subject to conditional purchase agreement with Medaire Inc Subject Agreement with SRT Australia Pty Ltd to Joint Venture Implementation Subject to 1% Net Smelter Return royalty with Lac Minerals (Australia) NL Subject to joint venture agreement with Aragon Resources Pty Ltd Royalty interest with Horseshoe Metals Ltd Royalty interest with Nova Energy Pty Ltd Royalty interest with Kanowna Mines Pty Ltd Royalty interest with Dampier (Plutonic) Pty Ltd Royalty interest with Northern Star Resources Ltd Royalty interest with Fortescue Metals Group Ltd Subject to joint venture agreement with Thalanga Copper Mines Pty Ltd Royalty interest with Santexco Pty Ltd Royalty interest with Giants Reef Exploration Pty Ltd (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) 2M/2001 14M/2007 11M/2008 EL30/2003 EL8/2014 M70/1309 G70/217 E70/2512 E70/3073 L70/185 L70/186 M52/801 M52/743 E52/2042 M53/336 M27/57 M52/278,279,299 M52/295-296 M52/300-301 M52/305-306 M52/369-370 E47/1846 ML 1571 ML 1734 ML 1739 ML 10028 ML 1758 MLC 49 MLC 527 MLC 599 MLC 617 MCC 174 MCC 212 MCC 287-288 MCC 308 MCC 344 MCC 342 MLC 619 MLC 522 MCC 338-339 MCC 316-317 MCC 340-341 100% (1) 100% (1) 100% (1) 100% (1) 100% (1) 70% (3) (4) 70% (4) 70% (4) 70% (4) 70% (4) 70% (4) 15% (5) (6) 0% (7) 0% (7) 0% (8) 0% (9) 0% (10) 0% (11) 0% (11) 0% (10) 0% (10) 0% (12) 30% (13) 30% (13) 30% (13) 30% (13) 30% (13) 0% (14) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) 0% (15) PB 73 PB For personal use onlyGrange Resources Limited » 2017 Annual Report 2017 Annual Report « Grange Resources Limited LIST OF SIGNIFICANT ASX ANNOUNCEMENTS ASX ADDITIONAL INFORMATION FROM 1 JANUARY 2017 THROUGH TO 29 MARCH 2018 Additional information required by the Australian Securities Exchange Limited and not shown elsewhere in this report is as follows. The shareholder information set out below was applicable as at 21 March 2018 except where otherwise indicated. Date Announcement 2/03/2018 Corporate Update - Grange Strategic Developments 27/02/2018 Dividend/Distribution - GRR 27/02/2018 Appendix 4G 27/02/2018 Grange Full Yr Statutory Accts 12 Months Ended 31 December 2017 27/02/2018 Grange Resources Limited Appendix 4E - 31 December 2017 23/02/2018 Market Update - Southdown Magnetite Project 24/01/2018 GRR - Quarterly Report for 3 months ended 31 December 2017 20/10/2017 GRR - Quarterly Report for 3 months ended 30 September 2017 23/08/2017 Half Yearly Report and Accounts 23/08/2017 Appendix 4D - Half Year Ending 30 June 2017 24/07/2017 GRR - Quarterly Report for 3 months ended 30 June 2017 6/06/2017 Initial Director’s Interest Notice 6/06/2017 Board Appointment 5/06/2017 Market Update 29/05/2017 Final Director’s Interest Notice 25/05/2017 Results of Meeting 25/05/2017 AGM Presentation 24/05/2017 Board Update 24/04/2017 Notice of Annual General Meeting 24/04/2017 Annual Report to Shareholders 21/04/2017 GRR - Quarterly Report for 3 months ended 31 March 2017 18/04/2017 Investor Presentation 30/03/2017 Updated Resource & Reserve Statement - Savage River 20/03/2017 Serious Incident at Grange Resources Savage River Mine 17/03/2017 Trading Halt 28/02/2017 Dividend/Distribution - GRR 28/02/2017 Appendix 4G 28/02/2017 Grange Full Yr Statutory Accts 12 Months Ended 31 December 2016 28/02/2017 Grange Resources Limited Appendix 4E - 31 December 2016 24/01/2017 GRR - Quarterly Report for 3 months ended 30 December 2016 74 PB 16,568,433 All shares carry one vote per share without restriction. Voting Rights ORDINARY SHARES Twenty Largest Shareholders as at 21 March 2018 Distribution of Equity Securities The twenty largest holders of ordinary fully paid shares are Analysis of number of shareholders by size and holding: listed below: Name Shagang Group (Jiangsu) 540,255,987 Number % 46.68 Pacific International Co (Hong Kong) Realindex Investments (Sydney) 95,154,884 44,452,898 Bank Julius Baer (Singapore) 33,173,377 Dimensional Fund Advisors (Sydney) 23,711,904 RGL Holdings Co (Beijing) 19,735,466 ABN AMRO Bank (Amsterdam) Nero Resource Fund (Perth) 14,242,364 IFM Investors (Melbourne) 12,458,709 Mr Peter A Ternes (Sydney) 11,725,000 Rabobank Nederland (Amsterdam) 11,205,019 Spheria Asset Mgt (Sydney) 10,355,962 BinckBank (Amsterdam) 10,330,421 APAC Resources (Hong Kong) Theodoor Gilissen Bankiers (Amsterdam) UBS (Zurich) Mr Adam Garrigan (Hobart) Mirabaud & Cie Banquiers Prives (Geneva) 9,600,000 8,434,908 8,309,158 7,500,000 6,580,834 5,271,249 LSV Asset Mgt (Chicago) 6,183,400 JPMorgan Securities Australia (Sydney) Ordinary Director Employee Other Shares Options Options Options 1 - 1,000 1,001 - 10,000 10,001 - 100,000 100,001 - and over 459 1,677 1,593 415 Total 4,144 - - - - 0 - - - - 0 - - - - 0 The number of shareholders holding less than a marketable parcel of Ordinary Shares at 21 March 2018 was 953. Substantial Shareholders An extract of the Company’s Register of Substantial Shareholders as at 21 March 2018 is set out below: Name Shagang International (Australia) Pty Ltd Shagang International Holdings Limited Ever Lucky Developments Limited RGL Holdings Co. Ltd Number of fully paid shares Voting power | | | >559,991,453 Securities Subject to Voluntary Escrow The following securities are subject to voluntary escrow: Class of Security Number of Escrow Securities period ends 8.22 3.84 2.87 2.05 1.71 1.43 1.23 1.08 1.01 0.97 0.89 0.89 0.83 0.73 0.72 0.65 0.57 0.53 0.46 Sub-total 895,249,973 77.35 Fully Paid Ordinary Shares Nil Not applicable PB For personal use onlyGrange Resources Limited » 2017 Annual Report LIST OF SIGNIFICANT ASX ANNOUNCEMENTS FROM 1 JANUARY 2017 THROUGH TO 29 MARCH 2018 Date Announcement 2/03/2018 Corporate Update - Grange Strategic Developments 27/02/2018 Dividend/Distribution - GRR 27/02/2018 Appendix 4G 27/02/2018 Grange Full Yr Statutory Accts 12 Months Ended 31 December 2017 27/02/2018 Grange Resources Limited Appendix 4E - 31 December 2017 23/02/2018 Market Update - Southdown Magnetite Project 24/01/2018 GRR - Quarterly Report for 3 months ended 31 December 2017 20/10/2017 GRR - Quarterly Report for 3 months ended 30 September 2017 23/08/2017 Half Yearly Report and Accounts 23/08/2017 Appendix 4D - Half Year Ending 30 June 2017 24/07/2017 GRR - Quarterly Report for 3 months ended 30 June 2017 6/06/2017 Initial Director’s Interest Notice 6/06/2017 Board Appointment 5/06/2017 Market Update 29/05/2017 Final Director’s Interest Notice 25/05/2017 Results of Meeting 25/05/2017 AGM Presentation 24/05/2017 Board Update 24/04/2017 Notice of Annual General Meeting 24/04/2017 Annual Report to Shareholders 21/04/2017 GRR - Quarterly Report for 3 months ended 31 March 2017 18/04/2017 Investor Presentation 30/03/2017 Updated Resource & Reserve Statement - Savage River 20/03/2017 Serious Incident at Grange Resources Savage River Mine 17/03/2017 Trading Halt 28/02/2017 Dividend/Distribution - GRR 28/02/2017 Appendix 4G 28/02/2017 Grange Full Yr Statutory Accts 12 Months Ended 31 December 2016 28/02/2017 Grange Resources Limited Appendix 4E - 31 December 2016 24/01/2017 GRR - Quarterly Report for 3 months ended 30 December 2016 2017 Annual Report « Grange Resources Limited ASX ADDITIONAL INFORMATION Additional information required by the Australian Securities Exchange Limited and not shown elsewhere in this report is as follows. The shareholder information set out below was applicable as at 21 March 2018 except where otherwise indicated. ORDINARY SHARES Twenty Largest Shareholders as at 21 March 2018 Distribution of Equity Securities The twenty largest holders of ordinary fully paid shares are listed below: Name Shagang Group (Jiangsu) Number 540,255,987 % 46.68 Pacific International Co (Hong Kong) Realindex Investments (Sydney) 95,154,884 44,452,898 Bank Julius Baer (Singapore) 33,173,377 Dimensional Fund Advisors (Sydney) 23,711,904 RGL Holdings Co (Beijing) 19,735,466 ABN AMRO Bank (Amsterdam) 16,568,433 Nero Resource Fund (Perth) 14,242,364 IFM Investors (Melbourne) 12,458,709 Mr Peter A Ternes (Sydney) 11,725,000 Rabobank Nederland (Amsterdam) 11,205,019 Spheria Asset Mgt (Sydney) 10,355,962 BinckBank (Amsterdam) 10,330,421 APAC Resources (Hong Kong) Theodoor Gilissen Bankiers (Amsterdam) UBS (Zurich) Mr Adam Garrigan (Hobart) Mirabaud & Cie Banquiers Prives (Geneva) 9,600,000 8,434,908 8,309,158 7,500,000 6,580,834 LSV Asset Mgt (Chicago) 6,183,400 JPMorgan Securities Australia (Sydney) 5,271,249 8.22 3.84 2.87 2.05 1.71 1.43 1.23 1.08 1.01 0.97 0.89 0.89 0.83 0.73 0.72 0.65 0.57 0.53 0.46 Analysis of number of shareholders by size and holding: Ordinary Director Employee 1 - 1,000 Shares Options - 459 1,001 - 10,000 10,001 - 100,000 100,001 - and over 1,677 1,593 415 Total 4,144 - - - 0 Other Options Options - - - - - 0 - - - 0 The number of shareholders holding less than a marketable parcel of Ordinary Shares at 21 March 2018 was 953. Voting Rights All shares carry one vote per share without restriction. Substantial Shareholders An extract of the Company’s Register of Substantial Shareholders as at 21 March 2018 is set out below: Name Shagang International (Australia) Pty Ltd Shagang International Holdings Limited Ever Lucky Developments Limited RGL Holdings Co. Ltd Number of fully paid shares Voting power | | | >559,991,453 Securities Subject to Voluntary Escrow The following securities are subject to voluntary escrow: Class of Security Number of Securities Escrow period ends Sub-total 895,249,973 77.35 Fully Paid Ordinary Shares Nil Not applicable PB 75 PB For personal use onlyFor personal use onlyFor personal use onlyBurnie Office - Tasmania (Registered Office) 34A Alexander Street BURNIE TAS 7320 PO Box 659 BURNIE TAS 7320 Telephone: + 61 (3) 6430 0222 Facsimile: + 61 (3) 6432 3390 Email: grr.info@grangeresources.com.au For personal use only

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