Grange Resources Limited
Annual Report 2018

Plain-text annual report

ANNUAL REPORT 2018 AUSTRALIA’S MOST EXPERIENCED MAGNETITE PRODUCER Grange Resources Limited » 2018 Annual Report GRANGE RESOURCES LIMITED BOARD OF DIRECTORS SHARE REGISTRY Michelle Li Non-executive Chairperson Yan Jia Non-executive Deputy Chairperson Daniel Tenardi Non-executive Director Michael Dontschuk Non-executive Director David Woodall Non-executive Director – Appointed 1 March 2019 Honglin Zhao Chief Executive Officer / Managing Director COMPANY SECRETARY Piers Lewis REGISTERED OFFICE Grange Resources Limited ABN 80 009 132 405 34a Alexander Street, BURNIE, TAS 7320 Telephone: + 61 (3) 6430 0222 Email: GRR.Info@grangeresources.com.au Advance Share Registry Services Limited 110 Stirling Highway, Nedlands, WA 6009 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 2018 overview 2019 priorities About the Grange business Chairperson’s & chief executive officer’s review Outlook Operating and financial review Corporate governance statement 1 2 3 4 5 6 8 19 2018 Annual Report » Grange Resources Limited at Savage River, at an annual production rate of 10 million tonnes of premium magnetite concentrate. The Company is continuing to evaluate options related to 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 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 over 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 FINANCIAL OVERVIEW • Total iron ore product sales of 2.37 million tonnes (2017: 1.90 million tonnes). Continued cost control disciplines, although weather impacted lower production rate resulted in a unit C1 cash operating cost of $98.10 per tonne (2017: $99.17). Grange’s high quality, low impurity iron ore products attracted a high premium with average product prices of $149.76 per tonne (2017: $127.20) (FOB Port Latta). Weaker AUD:USD exchange rates have supported AUD revenues. Delivered profit after tax of $112.9 million (2017: profit after tax of $60.7 million), on revenues from mining operations of $368.2 million (2017: $247.90 million). Continued focus on selling cargoes to targeted customers and balancing opportunities in the spot market. Sustained strong cash and cash equivalents position at $204.5 million (2017: $168.0 million). • • • • • • Grange Resources Limited » 2018 Annual Report 2018 OVERVIEW The concentrate and pellet plants delivered at high production levels throughout the first half of 2018. This was a great achievement as Grange marked over 50 years operation of the Savage River Project. Production rates were impacted in the second half of the year due to wet weather conditions and near record rainfall. Access to ore supply was delayed as additional dewatering infrastructure was installed. This was rectified in Q4, supporting the full year production profile as planned. OPERATIONAL OVERVIEW • Achieved over 650 days Lost Time Injury free at the end of 2018. Supported full year production despite high rainfall and flooding hampering mining activity. Mining movements increased in Q4 after successful dewatering from the North Pit. Access to main ore zone restored. Waste stripping continued on the west wall of North Pit, with ore accessed from stages under the east wall. South Deposit Tailings Storage Facility completed and successfully commissioned. Cost control disciplines maintained to ensure sustainable operating costs. Preserved balance sheet strength with disciplined operational planning and execution enabling internal funding of critical mine re-development. (SDTSF) • • • • • • 2 2019 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. 2019 PRIORITIES Last year, the Board defined some key areas of focus to underpin the development of Grange’s business. The three main areas cover: maximising the value of our mineral assets and ensuring a stronger iron ore business; seeking a strategic partner to develop the Southdown magnetite project; and to generate, conserve and actively manage our cash reserve for future mine investment. Grange’s business and operational planning is directed to deliver into these core strategies. MAXIMISING THE VALUE OF OUR MINERAL ASSETS North Pit is the main source of ore for 2019 and Grange will continue to invest in stripping the west wall to deliver high grade ore. For longer term asset development, the focus will be on the completion of the exploration decline below North Pit. This will allow further exploration drilling and support the pre-feasibility study to inform a decision on potential underground operation. The feasibility study for Centre Pit is also seeking to support the realisation of additional resources to reduce risk for the future production profile. This will alleviate the reliance on North Pit as a sole source of ore. These resources will feed into the development of the optimised Life of Mine Plan with a view to maximise recovery of the existing mineral resource at Savage River. 2018 Annual Report » Grange Resources Limited DEVELOPMENT OF SOUTHDOWN PROJECT With increasing interest in the market, Grange continues to investigate alternate development models to develop the world class magnetite deposit at Southdown in WA. Assessment of different production profiles, development options and implementation planning is a priority for this year. The project team will continue to ensure that all tenements, permits and project assets remain in good standing. OPTIMISING CAPITAL ALLOCATION Conservation of cash and build-up of cash reserves is an important part of Grange’s strategy to enable future mine investment. The potential underground development, future pit expansion at Savage River, process improvements at the Port Latta pelletising facility and the development of Southdown will require significant capital. In order to position the business to develop these projects Grange will actively manage the reserve of cash to enhance returns within conservative risk parameters, whilst ensuring sufficient liquidity is available for expected drawdowns. The investment in the joint venture of Grange ROC Property is also targeted to maximise returns on capital allocation and is seeking a balance of feasible property development projects to deliver short to medium term returns. Maximise Mineral Asset Value  Invest in mine development  Complete the exploration decline below North Pit  Complete the pre-feasibility study into the potential for underground mining  Complete Centre Pit feasibility study  Optimise the Life of Mine Plan Strategic Partnership Southdown Project  Secure new strategic partner(s) to develop the project  Continue to investigate alternate development models to develop the project  Maintain project in good standing Optimise Capital Allocation Plan  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  Invest in process infrastructure  Actively manage our reserve of cash to enhance returns  Support our joint venture in Grange ROC Property OTHER AREAS OF MANAGEMENT FOCUS TO SUSTAIN AND ENHANCE CURRENT OPERATIONS INCLUDE: • Upgrade our “real time” operational scheduling and management processes to improve daily productivity • Maintain cost control disciplines and increase efficiencies • Invest in critical infrastructure at Port Latta to ensure long term sustainability of our assets • Pursue opportunities to add value to our product and improve and upgrade our pellet making assets • Deliver into committed sales contracts • Continue to develop our Mine-to-Market quality management processes 3 Grange Resources Limited » 2018 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 and magnetite. Most of the magnetite mined is 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. 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. 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 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 the Southdown magnetite mining project 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. 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 2018 Annual Report » Grange Resources Limited CHAIRPERSON’S & CHIEF EXECUTIVE OFFICER’S REVIEW Dear Shareholders, improvements Our strong performance in FY2018 was achieved thanks to the hard work and dedication of our people. Your Company has delivered strong financial results and has announced dividends of 2 cents per share fully franked. These results were achieved through a focused strategy of disciplined capital expenditure with in operating performance and safety, supported by a continued focus on productivity and high iron ore price. Our balance sheet remains strong. We have been reviewing our strategy against changes in the external environment. We have considered various scenarios, analysed the risks and opportunities we are facing and optimised our operations with a number of long-term improvement projects. We believe that the Board’s approach to strategy and risk management positions us to manage and respond to changes and 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. 2018 REVIEW The 2018 iron ore market remained volatile, and the iron ore price continued an upward trend from the end of 2017 into the early part of 2018, with a significant drop-off occurring in March. The price then recovered throughout the second half of the year. However, high grade pellet premiums have remained strong over much of the year, as healthy steel margins and China’s anti-pollution drive pushes buyers towards higher quality iron ore. Compared to other base metals, iron ore has not been majorly impacted by the trade war between USA and China. The high-grade market has shown resilience in its performance in 2018, where both its premium and its price have held fairly steady in the face of rapidly increasing interest rates and a US and China trade war. 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. Also, environmental controls became a more permanent feature of the policy landscape. The rise in premiums comes as China cuts pollution, aiding demand for direct iron charge products, and Brazil’s Samarco remains idle. The iron ore pellet premium peaked at a record high of over $US80/dmt in September 2018. Mining activity in the first six months of the year was strong despite wet weather conditions. The high level of rainfall increased in July and August and impacted mining activities in the main ore zone area. While this affected production rates through October, mining rates improved on the successful completion of the dewatering project and access to the main ore zone was restored in Q4 and supported full year planned production. Waste stripping continued on the west wall of North Pit, with ore accessed from stages under the east wall. The planned common equipment shut was brought forward to align mill downtime and key maintenance activities. The concentrate and pellet plants delivered at high production levels throughout the first half of 2018. Production rates were impacted in the second half of the year due to wet weather conditions impacting ore supply. The scheduled maintenance works at the pellet plant were completed safely and efficiently. This continues to be a great achievement for our 50-year-old production plants and demonstrates the value of the efforts and resources invested in sustaining maintenance. South Deposit Tailings Storage Facility (SDTSF) has been completed and successfully commissioned in November 2018. This is the culmination of many years of design, construction and approvals. The SDTSF will now provide tails storage for the next phase of the mine life. The raise of the Main Creek Tails Dam (MCTD) wall to final height commenced and will progress over the next 2 years to meet the requirements for closure of the MCTD. North pit underground development pre-feasibility study is advancing, a number of deep holes have been completed. A tender process is in progress to appoint a contractor to construct the decline. The feasibility study for Centre Pit is also continuing. We delivered profit after tax of $112.9 million, on revenues from mining operations of $368.2 million with improved iron ore price and record pellet premium with average product prices of $149.76 per tonne (FOB Port Latta). Total iron ore product sales of 2.37 million tonnes. Continued cost control disciplines, although lower production rate resulted in an increase in unit C1 cash operating costs to $98.10 per tonne. Our sustained strong cash equivalents position is at $204.5 million. We continued to maintain our unrelenting and disciplined management of personal safety in operations. Our company’s operations achieved over 650 days Lost Time Injury Free in 2018. We continued to seek a buyer for an equity interest 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 Grange Resources Limited » 2018 Annual Report OUTLOOK China’s environmental policies are a key uncertainty around the iron ore price. Having undergone supply-side structural reforms in previous years, the driving factors of the steel market in China will shift from the supply side to the demand side. An investment of 2.3 trillion RMB in 2019 by the Chinese government in transportation and infrastructure, such as intercity transportation, logistics, municipal administration, disaster prevention, civil and general aviation, and strengthening the construction of a new generation of information infrastructure, should see the demand for making steel increase. Following the strong iron ore market throughout most of 2018, Chinese iron ore imports have started on a positive note for 2019 as well. Iron ore prices soared to a near-two-year high in February after the second dam disaster at Brazil’s Vale. Vale announced its decommissioning of dams similar to the one involved in the fatal accident. The full impact of production cuts to the iron ore market is not certain. But it is clear that there will not only be a shortage of high-quality iron ore, but a shortage of pellets. Currently with high iron ore price, most Chinese steel mills are only making a small profit and some are already suffering losses. The premium of pellet has been decreasing as a result of increasing the use of low-grade ore in steel mills in order to cut costs. However, the demand for high grade pellets from Japan and Korea is on the rise in short to medium term, as tight supply from Brazil and the pellet premium is expected to remain high for these markets. In the near term, the significant disruption to Brazilian supply and the uncertainties associated with it will likely keep iron ore prices rising and volatile. Despite the uncertain conditions that we currently face, the long- term outlook for our sector remains positive. Our strong balance sheet remains a fundamental. Our strength is demonstrated by our solid cash flow. We continue to implement measures to both preserve the balance sheet strength and align our capital allocation framework with the cyclical nature of the industry. Our priorities for capital are to maintain safe and stable operations and a strong balance sheet through the cycle. The strength of our unique position enables us to take advantage of market conditions through the cycle. 6 Our prime goal is to remain competitive in a frequently changing iron ore market, where iron ore price is currently under pressure. 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. The Board and the 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 Chairman Honglin Zhao Chief Executive Officer Michelle Li Chairperson Honglin Zhao Chief Executive Officer 2018 Annual Report » Grange Resources Limited 7 Grange Resources Limited » 2018 Annual Report OPERATING AND FINANCIAL REVIEW PROPERTY DEVELOPMENT • Grange ROC Property has commenced construction and pre-sales of Lumley Court and Malvern Road. The units sold have achieved the budgeted sale price, supporting our confidence in the market for the entity’s business model and quality projects. The projects are planned to be fully constructed and sold in 2019. SAFETY PERFORMANCE Grange operations achieved over 650 consecutive days Lost Time Injury free by year end 2018. Focus on lead indicators, hazard identification and risk management has helped us sustain the current long running lost time injury free period. Unfortunately, there was a slight increase in disabling injuries and medical treatment injuries in 2018, however all persons involved were given meaningful work for their respective periods of incapacity and actively contributed to their return to work programs. During the year there was a substantial increase in manning at our worksites with numerous major projects meaning additional contractors and short term employees were trained to work safely on our sites. KEY HIGHLIGHTS • Full year production supported despite high rainfall and flooding hampering mining activity. • Waste stripping continued on the west wall of North Pit, • • with ore accessed from stages under the east wall. Delivered profit after tax of $112.9 million (2017: profit after tax of $60.7 million), on revenues from mining operations of $368.2 million (2017: $247.9 million). Grange’s high quality, low impurity iron ore products attracted a high premium with average product prices of $149.76 per tonne (2017: $127.20) (FOB Port Latta) • Total iron ore product sales of 2.37 million tonnes (2017: 1.90 million tonnes) Weaker AUD:USD exchange rates have supported AUD revenues Continued focus on selling cargoes to targeted customers and balancing opportunities in the spot market • • • • • Continued cost control disciplines resulted in unit C1 cash operating costs of $98.10 per tonne (2017: $99.17). Sustained strong cash and cash equivalents position at $204.5 million (2017: $168.0 million). South Deposit Tailings Storage Facility completed and successfully commissioned. (SDTSF) Lag Indicators 8 2018 Annual Report » Grange Resources Limited FULL YEAR RESULT Grange recorded a statutory profit after tax of $112.9 million for the year ended 31 December 2018 (2017: $60.7 million). Key revenue metrics for the year ended 31 December 2018 and the preceding 2017 year were as follows: Iron Ore Pellet Sales (dmt) Iron Ore Concentrate Sales (dmt) Iron Ore Chip Sales (dmt) Total Iron Ore Product Sales (dmt) Average Realised Product Price (US$/t FOB Port Latta) Average Realised Exchange Rate (AUD:USD) Average Realised Product Price (A$/t FOB Port Latta) 2018 2,258,487 10,042 105,151 2017 1,804,108 134 91,841 2,373,680 1,896,083 111.92 0.7473 149.76 97.84 0.7692 127.20 Total sales for the year ended 31 December 2018 was 2.37 million tonnes of high quality, low impurity iron ore products (2017: 1.90 million tonnes) and reflects sustained production from maintaining access to high grade ore. The average iron ore product price received during the year was $149.76 per tonne of product sold (FOB Port Latta) (2017: $127.20 per tonne). The increase compared to prior year was consistent with the increase in the pellet premium price which reached record levels before declining to more sustainable levels. This was driven by structural reform in the Chinese steel industry that resulted in greater demand for higher grade iron ore. Please refer to Note 4 of the Financial Report for segment information for sales to different geographical markets. The sales from long term off take agreements with Jiangsu Shagang International Trade Co. Ltd represents 40.6% of total sales for 2018 (2017: 47.6%). Key operating metrics for the year ended 31 December 2018 and the preceding 2017 year were as follows: Total BCM Mined Total Ore BCM Concentrate Produced (t) Weight Recovery (%) Pellets Produced (t) Pellet Stockpile (t) ‘C1’ Operating Cost (A$/t Product Produced)(1) 2018 14,730,697 1,050,067 2,275,718 53.2 2017 12,461,515 1,193,821 1,959,604 49.5 2,185,627 1,895,180 189,351 98.10 262,212 99.17 (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 activity in the first six months of the year were strong despite wet weather conditions. The high level of rainfall increased in July and August and impacted mining activities in the main ore zone area. While this affected production rates through October, mining rates improved on the successful completion of the dewatering project and access to the main ore zone restored in Q4 and supported full year planned production. Waste stripping continued on the west wall of North Pit, with ore accessed from stages under the east wall. The planned common equipment shut was brought forward to align mill downtime and key maintenance activities. The concentrate and pellet plants delivered at high production levels throughout the first half in 2018. Production rates were impacted in the second half of the year due to wet weather conditions impacting ore supply. The scheduled maintenance works at the pellet plant were completed safely and efficiently. This continues to be a great achievement for our 50-year-old production plants and demonstrates the value of the efforts and resources invested in sustaining maintenance. South Deposit Tailings Storage Facility (SDTSF) has been completed and successfully commissioned during the year. The final steps in the commissioning of pipe line for tails deposition were completed in Q4 and the SDTSF was commissioned in November. This is the culmination of many years of design, construction and approvals. The SDTSF will now provide tails storage for the next phase of the mine life. The raise of the Main Creek Tails Dam (MCTD) wall to final height commenced and will progress over the next 2 years to provide adequate water cover along with construction of the final spillway for closure of the MCTD over the next 2 years. 9 Grange Resources Limited » 2018 Annual Report NORTH PIT UNDERGROUND DEVELOPMENT PROJECT Phase 1 of the diamond drilling program to investigate the access of the ore body in North Pit through underground mining was undertaken. Nine holes were drilled for an advance of approximately 9,192m. Laboratory testing of diamond core for geophysical and assay information is progressing. Phase 2 of the drilling has commenced with 1,980m completed to date. This program comprises nine holes and focusses on the northern part of the ore body at depth. Preliminary works on the exploration decline have commenced with 2 diamond holes for an advance of 350m. These were drilled along the portal alignment to provide structural information into the east wall. A tender process is in progress to appoint a contractor to construct the decline. CENTRE PIT FEASIBILITY STUDY Work continues on the feasibility study for Centre Pit. Additional diamond holes are in progress in the north eastern area of the potential pit to further define structural domains for modelling and geotechnical slope analysis. FINANCIAL POSITION Grange’s net assets increased during the year to $477.8 million (31 December 2017: $387.6 million) principally as a result of the following: • A profit after tax of $112.9 million • A final 2017 dividend payment of $11.6 million • An interim 2018 dividend payment of $11.6 million The Group’s market capitalisation as at 31 March 2019 is $318.27 million. STATEMENT OF CASH FLOWS Net cash flows from operating activities Net cash inflows from operating activities for the year were $167.4 million (2017: inflows $71.2 million) and reflect higher iron ore product sales and a decrease in unit operating costs. Net cash flows from investing activities Net cash outflows from investing activities for the period were $110.1 million (2017: outflows $51.6 million) and principally related to expenditures for mine properties and development $54.8 million and property, plant and equipment $35.3 million. Net cash flows from financing activities Net cash outflows from financing activities for the period were $27.6 million (2017 outflow: $10.2 million) and principally related to the payment of 2017 final dividend ($11.6 million) and 2018 interim dividend ($11.6 million). 10 EXPLORATION AND EVALUATION The resource definition during the last year ending Dec 31, 2018 focussed on the mining lease areas around North Pit and Centre Pit. The objectives of the programs were to confirm continuity of the magnetite mineralisation at depth below North Pit and to improve confidence in the resource model for Centre Pit. This has included RC and Diamond holes drilled both into the mineralisation and out into the surrounding host rocks. The Mineral Resource stands at 545.2 million tonnes at 46.7% DTR. This significant increase of over 170MT from the previous statement in 2017 is driven by the deep holes drilled as part of the underground pre-feasibility study. Ore Reserves are 94.0MT @ 49.8%DTR, reflecting mine production during the year and are based on future open pit extraction. The increase in Ore Reserve is attributed to increased confidence of material in the ultimate pit shell. Resource drilling and estimation on the deposit will continue in 2019, as part of the pre-feasibility studies. For details on the Mineral Resource please refer to the ASX release made on 8 April 2019. 2018 Annual Report » Grange Resources Limited 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 2018. 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 significantly increased since the previous estimate dated 31 December 2017 as a result of the resource drilling and exploration activity. Ore Reserves have increased with improved confidence in ore defined within the ultimate North Pit design. The increase also accounts for ore mined during 2018. 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 Mineral Resources A summary of the total Mineral Resources for Savage River as at 31 December 2018 is as follows: Measured Indicated Inferred Total (1) Davis Tube Recovery – a measure of recoverable magnetite As at December 2018 Tonnes (Mt) Grade % DTR (1) 55.6 155.0 As at December 2017 Tonnes (Mt) Grade % DTR (1) 53.8 66.2 231.7 158.5 545.2 45.9 39.2 46.7 153.1 155.1 374.4 49.8 42.5 47.6 11 Grange Resources Limited » 2018 Annual Report Ore Reserve A summary of the ore reserve for Savage River as at 31 December 2018 is as follows: Proved Probable Total As at December 2018 Tonnes (Mt) Grade % DTR (1) 54.0 75.9 As at December 2017 Tonnes (Mt) Grade % DTR (1) 54.2 26.8 18.1 94.0 32.3 49.8 56.6 83.4 51.8 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 8 April 2019. 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, 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 integrated of those around them Safety performance can always be improved • 12 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, both our own employees and our contractors, 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; and 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. in-house During 2018 we continued our focus on reducing costs without reducing support services via: for ERT • training again saved Initiatives considerable costs for external training providers. ERT training to meet underground requirements was undertaken at a local mine in order to significantly reduce travel and accommodation costs. Vital underground emergency response equipment was sourced second hand at around one third of the cost of new equipment. Managing the emergency response team size 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 third 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. Developing a highwall scaling excavator locally promises to provide a machine capable of restoring lost berm catch capacity in the mine, cleaning batters and improving mining safety. Participating in the Insurance Underwriters safety audit has provided initiatives to help reduce insurance costs. Continued investment 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 2018 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 by our continued lost time injury free status. 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 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. Grange have also added a very effective online “Isolations” training package allowing our offsite contract workforce to learn our systems before coming to site. During the year Grange continued to work closely and openly with the Office of the Chief inspector of Mines (OCIM), with our company providing an outlet to GMIRM (Global Mining Industry Risk Management) training, a risk management initiative sponsored by the Chief inspector of Mines. GMIRM has four levels of Risk Management training G1 for workers, G2 for Supervisors, G3 for Management and G4 for Directors and Senior Executives. Grange ran two, week long 2018 Annual Report » Grange Resources Limited G3 forums and two, 2-day G2 forums both with participants from other local companies. The company is actively developing its own G1 compliant training program and working with University of Queensland to develop an effective G4 program. We aim to ensure everyone at Grange has an effective understanding of Risk Management. These forums have had a positive impact on the Tasmanian operations involved and received a very positive response from the Workplace Inspectorate. 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. 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, mental health awareness and in 2018 we added a Motor Neurone Disease awareness campaign. During 2018 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. 13 Grange Resources Limited » 2018 Annual Report 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 (TMERC) Emergency Rescue Rescue Committee Competition for 2018 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 2018 our management and workers have again participated in 2018 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. 14 Goldamere Act 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 operation commenced in Q4 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 Tasmanian EPA issued EPN 10006/1 enabling the construction of the Exploration Decline for the North Pit Underground Project in November 2018. 2018 Annual Report » Grange Resources Limited Goldamere Agreement Savage River Rehabilitation Project (‘SRRP’) 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. 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. 15 Grange Resources Limited » 2018 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 16 rock dump was well established and work was commencing on the consolidated section of the dam. • 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 2019. • 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. • Grange progressed design and construction work for the Main Creek Tails Dam closure during 2018. It is expected that the closure process will take approximately two years. Air Emissions Reduction Program – 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. 2018 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. Progressed studies relating to project engineering and 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. • • 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 2019, 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 Annual Report » Grange Resources Limited • 2019 Project Priorities • Continue to investigate 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. 17 Grange Resources Limited » 2018 Annual Report Conventional Mining 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. 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. Transporting the Concentrate Slurry 110 km to the Port Operations Planning 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 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. 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 the community, including traditional owners of the land, to ensure a safe and environmentally responsible project. to work alongside MINERAL RESOURCES AND ORE RESERVES – SOUTHDOWN PROJECT Mineral Resources The Mineral Resource estimate for the Southdown Project as at 31 December 2018 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 2018 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 2018 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 An additional 24.4 Mt of Inferred Resources is included within the designed pit. ROM (Mt) 384.6 3.1 387.7 DTR* (%) 35.6 41.7 35.6 18 2018 Annual Report » Grange Resources Limited 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. 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. The 2018 corporate governance statement was approved by the Board on 27 February 2019. 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 to 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 2018. 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 in the following table. ‘Recommendation’ Ref (‘Principle No’ Ref followed by Recommendation Ref) 7.3(a) 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. internal review of periodically The Company’s Management undertakes an financial systems and processes and where systems are considered to require improvement these systems are developed. The Board also considers external the reviews of specific areas and monitors implementation of system improvements. 19 Grange Resources Limited » 2018 Annual Report AUSTRALIA’S MOST EXPERIENCED MAGNETITE PRODUCER Grange Resources Limited ABN 80 009 132 405 and Controlled Entities FINANCIAL REPORT For the Year Ended 31 December 2018 Contents Directors’ Report Auditor’s Independence Declaration Financial Statements 21 36 37 Directors’ Declaration Independent Auditor’s Report 72 73 20 PB 2018 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 2018. The following persons were directors of the Company during the whole year and up to the date of this report: Michelle Li, PhD, GAICD Independent 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 metallurgical engineer with over 30 years’ experience in the 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 Independent 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. Michael Dontschuk BSc(Hons), FFTP, GAICD Independent 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. 21 PB Grange Resources Limited » 2018 Annual Report Company Secretary Mr Piers Lewis, BComm, CA, AGIA Mr Lewis has more than 20 years’ global corporate experience and is currently the Company Secretary for ASX listed companies Cycliq Group Limited and Ultima United Limited. Mr Lewis also serves as Chairman of Digital Wine Ventures Limited and eSense-Lab Ltd and on the Board of Cycliq Group 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. 22 PB 2018 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. Dividends Dividends paid to members during the financial year were as follows: Fully franked interim dividend for half year ended 30 June 2018 - 1.0 cent per share Fully franked final dividend for the year ended 31 December 2017 - 1.0 cent per share Fully franked final dividend for the year ended 31 December 2016 - 0.5 cent per share 2018 $’000 11,574 11,574 - Total dividends paid 23,148 2017 $’000 - - 5,787 5,787 Since the end of the financial year the directors have recommended the payment of a 1.0 cent final dividend of $11.6 million. This represents a total of $23.1 million (2.0 cents per share) fully franked dividend for the year-end 31 December 2018. The final dividend was declared NIL conduit foreign income and will be paid on 29 March 2019. OPERATING AND FINANCIAL REVIEW PROPERTY DEVELOPMENT Grange ROC Property has commenced construction and pre-sales of Lumley Court and Malvern Road. The units sold have achieved the budgeted sale price, supporting our confidence in the market for the entity’s business model and quality projects. The projects are planned to be fully constructed and sold in 2019. SAFETY PERFORMANCE A focus on safety has been maintained across the business with over 650 days Lost Time Injury Free achieved. Key Highlights MINING OPERATIONS • Full year production supported despite high rainfall and flooding hampering mining activity. • Waste stripping continued on the west wall of North Pit, with ore accessed from stages under the east wall. • Delivered profit after tax of $112.9 million (2017: profit after tax of $60.7 million), on revenues from mining operations of $368.2 million (2017: $247.9 million). • Grange’s high quality, low impurity iron ore products attracted a high premium with average product prices of $149.76 per tonne (2017: $127.20) (FOB Port Latta) • Total iron ore product sales of 2.37 million tonnes (2017: 1.90 million tonnes) • Weaker AUD:USD exchange rates have supported AUD revenues • Continued focus on selling cargoes to targeted customers and balancing opportunities in the spot market • Continued cost control disciplines resulted in unit C1 cash operating costs of $98.10 per tonne (2017: $99.17). • Sustained strong cash and cash equivalents position at $204.5 million (2017: $168.0 million). • South Deposit Tailings Storage Facility completed and successfully commissioned. (SDTSF) 23 PB Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited Key revenue metrics for the year ended 31 December 2018 and the preceding 2017 year: Iron Ore Pellet Sales (dmt) Iron Ore Concentrate Sales (dmt) Iron Ore Chip Sales (dmt) Total Iron Ore Product Sales (dmt) Average Realised Product Price (US$/t FOB Port Latta) Average Realised Exchange Rate (AUD:USD) Average Realised Product Price (A$/t FOB Port Latta) 2018 2,258,487 10,042 105,151 2017 1,804,108 134 91,841 2,373,680 1,896,083 part of the ore body at depth. Significant Changes in State of Affairs 111.92 0.7473 149.76 97.84 0.7692 127.20 Preliminary works on the exploration decline have commenced There was no significant change in the state of affairs of the with 2 diamond holes for an advance of 350m. These were Group that occurred during the year ended 31 December 2018. drilled along the portal alignment to provide structural information Commentary on the overall state of affairs of the Group is set out into the east wall. A tender process is in progress to appoint a in the Operating and Financial Review. North Pit Underground Development Project Phase 1 of the diamond drilling program to investigate the access of the ore body in North Pit through underground mining was undertaken. Nine holes were drilled for an advance of approximately 9,192m. Laboratory testing of diamond core for geophysical and assay information is progressing. Phase 2 of the drilling has commenced with 1,980m completed to date. This program comprises nine holes and focuses on the northern related to expenditures for mine properties and development $54.8 million and property, plant and equipment $35.3 million. Net cash flows from financing activities Net cash outflows from financing activities for the period were $27.6 million (2017 outflow: $10.2 million) and principally related to the payment of 2017 final dividend ($11.6 million) and 2018 interim dividend ($11.6 million). Total sales for the year ended 31 December 2018 was 2.37 million tonnes of high quality, low impurity iron ore products (2017: 1.90 million tonnes) and reflects sustained production from maintaining access to high grade ore. The average iron ore product price received during the year was $149.76 per tonne of product sold (FOB Port Latta) (2017: $127.20 per tonne). The increase compared to prior year was consistent with the increase in the pellet premium price which reached record levels before declining to more sustainable levels. This was driven by structural reform in the Chinese steel industry that resulted in greater demand for higher grade iron ore. Please refer to Note 4 of the Financial Report for segment information for sales to different geographical markets. The sales from long term off take agreements with Jiangsu Shagang International Trade Co. Ltd represents 40.6% of total sales for 2018 (2017: 47.6%). Key operating metrics for the year ended 31 December 2018 and the preceding 2017 year: Total BCM Mined Total Ore BCM Concentrate Produced (t) Weight Recovery (%) Pellets Produced (t) Pellet Stockpile (t) ‘C1’ Operating Cost (A$/t Product Produced)(1) 2018 14,730,697 1,050,067 2,275,718 53.2 2017 12,461,515 1,193,821 1,959,604 49.5 2,185,627 1,895,180 189,351 98.10 262,212 $99.17 (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 activity in the first six months of the year were strong despite wet weather conditions. The high level of rainfall increased in July and August and impacted mining activities in the main ore zone area. While this affected production rates through October, mining rates improved on the successful completion of the dewatering project and access to the main ore zone restored in Q4 and supported full year planned production. Waste stripping continued on the west wall of North Pit, with ore accessed from stages under the east wall. The planned common equipment shut was brought forward to align mill downtime and key maintenance activities. The concentrate and pellet plants delivered at high production levels throughout the first half in 2018. Production rates were impacted in the second half of the year due to wet weather conditions impacting ore supply. The scheduled maintenance works at the pellet plant were completed safely and efficiently. This continues to be a great achievement for our 50-year-old production plants and demonstrates the value of the efforts and resources invested in sustaining maintenance. South Deposit Tailings Storage Facility (SDTSF) has been completed and successfully commissioned during the year. The final steps in the commissioning of pipe line for tails deposition were completed in Q4 and the SDTSF was commissioned in November. This is the culmination of many years of design, construction and approvals. The SDTSF will now provide tails storage for the next phase of the mine life. The raise of the Main Creek Tails Dam (MCTD) wall to final height commenced and will progress over the next 2 years to provide adequate water cover along with construction of the final spillway for closure of the MCTD over the next 2 years. 24 PB contractor to construct the decline. Centre Pit Feasibility Study Work continues on the feasibility study for Centre Pit. Additional diamond holes are in progress in the north eastern area of the potential pit to further define structural domains for modelling and geotechnical slope analysis. Southdown Magnetite Project The Southdown Magnetite Project, situated 90km from the 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 2018, the joint venture partners continue to monitor all ongoing project requirements to ensure that the current status Matters Subsequent to the End of the Financial Year • • • No matter or circumstance has arisen since 31 December 2018 that has significantly affected, or may significantly affect: the Group’s operations in future financial years; or the results of those operations in future financial years; or the Group’s state of affairs in future financial years. 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 city of Albany in Western Australia, is a joint venture between Likely Developments and Expected Results of Operations of the feasibility studies is such that the project can be fully • Optimising the Life of Mine Plan together with cost reduction recommenced as soon as an appropriate opportunity arises. The strategies 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 2019, 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 net assets increased during the year to $477.8 million (31 December 2017: $387.6 million) principally as a result of the following: • A profit after tax of $112.9 million • A final 2017 dividend payment of $11.6 million • An interim 2018 dividend payment of $11.6 million Statement of Cash Flows Net cash flows from operating activities • Completing feasibility study into the ability to access the ore body in North Pit through underground development • Reviewing the potential to deliver ore from Centre Pit • 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 • Continuing focus on improving productivity and implementing cost control projects Southdown Project • Ensuring that all tenements, permits and project assets remain in good standing Net cash inflows from operating activities for the year were $167.4 million (2017: inflows $71.2 million) and reflect higher iron ore product sales and a decrease in unit operating costs. • Secure Commonwealth EPBC approval for the mine site, slurry pipeline, port facilities and desalination infrastructure • Maintaining the currency of all the elements of the Definitive Net cash flows from investing activities Feasibility Study Net cash outflows from investing activities for the period were $110.1 million (2017: outflows $51.6 million) and principally project development models • Continuing review and identifying the potential for alternative PB Key revenue metrics for the year ended 31 December 2018 and the preceding North Pit Underground Development Project Phase 1 of the diamond drilling program to investigate the access of the ore body in North Pit through underground mining was undertaken. Nine holes were drilled for an advance of approximately 9,192m. Laboratory testing of diamond core for geophysical and assay information is progressing. Phase 2 of the drilling has commenced with 1,980m completed to date. This program comprises nine holes and focuses on the northern part of the ore body at depth. Preliminary works on the exploration decline have commenced with 2 diamond holes for an advance of 350m. These were drilled along the portal alignment to provide structural information into the east wall. A tender process is in progress to appoint a contractor to construct the decline. Centre Pit Feasibility Study Work continues on the feasibility study for Centre Pit. Additional diamond holes are in progress in the north eastern area of the potential pit to further define structural domains for modelling and geotechnical slope analysis. 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 2018, 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 2019, 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 net assets increased during the year to $477.8 million (31 December 2017: $387.6 million) principally as a result of the following: • A profit after tax of $112.9 million • A final 2017 dividend payment of $11.6 million • An interim 2018 dividend payment of $11.6 million Statement of Cash Flows Net cash flows from operating activities 2018 Annual Report « Grange Resources Limited related to expenditures for mine properties and development $54.8 million and property, plant and equipment $35.3 million. Net cash flows from financing activities Net cash outflows from financing activities for the period were $27.6 million (2017 outflow: $10.2 million) and principally related to the payment of 2017 final dividend ($11.6 million) and 2018 interim dividend ($11.6 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 2018. 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 No matter or circumstance has arisen since 31 December 2018 that has significantly affected, or may significantly affect: • • • the Group’s operations in future financial years; or the results of those operations in future financial years; or the Group’s state of affairs in future financial years. 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 • Optimising the Life of Mine Plan together with cost reduction strategies • Completing feasibility study into the ability to access the ore body in North Pit through underground development • Reviewing the potential to deliver ore from Centre Pit • 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 • Continuing focus on improving productivity and implementing cost control projects Southdown Project • Ensuring that all tenements, permits and project assets remain in good standing Net cash inflows from operating activities for the year were $167.4 million (2017: inflows $71.2 million) and reflect higher iron ore product sales and a decrease in unit operating costs. • Secure Commonwealth EPBC approval for the mine site, slurry pipeline, port facilities and desalination infrastructure • Maintaining the currency of all the elements of the Definitive Net cash flows from investing activities Feasibility Study Net cash outflows from investing activities for the period were $110.1 million (2017: outflows $51.6 million) and principally • Continuing review and identifying the potential for alternative project development models 25 PB Grange Resources Limited » 2018 Annual Report 2017 year: Iron Ore Pellet Sales (dmt) Iron Ore Concentrate Sales (dmt) Iron Ore Chip Sales (dmt) Total Iron Ore Product Sales (dmt) Average Realised Product Price (US$/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 2018 was 2.37 million tonnes of high quality, low impurity iron ore products (2017: 1.90 million tonnes) and reflects sustained production from maintaining access to high grade ore. The average iron ore product price received during the year was $149.76 per tonne of product sold (FOB Port Latta) (2017: $127.20 per tonne). The increase compared to prior year was consistent with the increase in the pellet premium price which reached record levels before declining to more sustainable levels. This was driven by 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 40.6% of total sales for Key operating metrics for the year ended 31 December 2018 and the preceding 2018 2017 2,258,487 1,804,108 2,373,680 1,896,083 10,042 105,151 111.92 0.7473 149.76 134 91,841 97.84 0.7692 127.20 2018 2017 14,730,697 12,461,515 1,050,067 2,275,718 53.2 189,351 98.10 1,193,821 1,959,604 49.5 262,212 $99.17 2,185,627 1,895,180 ‘C1’ Operating Cost (A$/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. Mining activity in the first six months of the year were strong despite wet weather conditions. The high level of rainfall increased in July and August and impacted mining activities in the main ore zone area. While this affected production rates through October, mining rates improved on the successful completion of the dewatering project and access to the main ore zone restored in Q4 and supported full year planned production. Waste stripping continued on the west wall of North Pit, with ore accessed from stages under the east wall. The planned common equipment shut was brought forward to align mill downtime and key maintenance activities. The concentrate and pellet plants delivered at high production levels throughout the first half in 2018. Production rates were impacted in the second half of the year due to wet weather conditions impacting ore supply. The scheduled maintenance works at the pellet plant were completed safely and efficiently. This continues to be a great achievement for our 50-year-old production plants and demonstrates the value of the efforts and resources invested in sustaining maintenance. South Deposit Tailings Storage Facility (SDTSF) has been completed and successfully commissioned during the year. The final steps in the commissioning of pipe line for tails deposition were completed in Q4 and the SDTSF was commissioned in November. This is the culmination of many years of design, construction and approvals. The SDTSF will now provide tails storage for the next phase of the mine life. The raise of the Main Creek Tails Dam (MCTD) wall to final height commenced and will progress over the next 2 years to provide adequate water cover along with construction of the final spillway for closure of the MCTD over the next 2 years. 2018 (2017: 47.6%). 2017 year: Total BCM Mined Total Ore BCM Concentrate Produced (t) Weight Recovery (%) Pellets Produced (t) Pellet Stockpile (t) PB 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). During the financial year there were no breaches of licence conditions. 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. Grange Resources Limited » 2018 Annual Report • 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 • Mitigate market demand risk through securing 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 • Intense program of geotechnical wall monitoring, modelling and redesign work to mitigate potential stability issues • 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 • Hedging strategies for key energy exposures • 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 26 PB 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 2018, and the numbers of meetings attended by each Director were: 2018 Annual Report « Grange Resources Limited Directors’ meetings Audit Remuneration Meetings of Committees A 9 8 9 9 9 B 9 9 9 9 9 A 6 6 6 B 6 6 6 A 4 4 4 B 4 4 4 Name M Li Y Jia D Tenardi H Zhao M Dontschuk A = Number of meetings attended ended 31 December 2018 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 Number of Fully Paid Ordinary Shares Rights Options 13,507 41,500 - - - - - - - - - - - - - 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 540,255,987 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 540,255,987 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 M Li Y Jia(1) D Tenardi M Dontschuk H Zhao(2) (1) (2) Michelle Li Yan Jia Daniel Tenardi Michael Dontschuk 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 recommendations on the following: Committee to assist in overseeing the development of policies and practices which enable the Company to attract and • Equity based executive and employee incentive plans; retain capable Directors and employees, reward employees • Recruitment, retention, succession planning, performance fairly and responsibly and meet the Board’s oversight responsibilities in relation to corporate governance practices. measurement and termination policies and procedures for Non-executive Directors, Executive Directors and Key The Remuneration and Nomination Committee is composed Management Personnel; of Mr Daniel Tenardi (Committee Chairperson), Ms Yan Jia • The remuneration of the Chief Executive Officer; Chief (Non-Executive Deputy Chairperson) and Dr Michelle Li Financial Officer; and General Manager Operations; (Chairperson). The responsibilities and functions for the Remuneration and Nomination Committee include reviewing and making • Periodically assessing the skills required by the Board; • Recommend processes to evaluate the performance of PB Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited • Continuing the search for new equity partners to take a Notices 248/2 and 302/2 respectively. The currently approved strategic share of the Company’s interest in the Project Environmental Management Plans were submitted for Savage MEETINGS OF DIRECTORS River and Port Latta on 21 December 2010. The extension of the project’s life was approved by the Department of Tourism, The numbers of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 31 December 2018, and the numbers of meetings attended by each Director were: Meetings of Committees Name M Li Y Jia D Tenardi H Zhao M Dontschuk A = Number of meetings attended Directors’ meetings Audit A 9 8 9 9 9 B 9 9 9 9 9 A 6 6 6 B 6 6 6 Remuneration B A 4 4 4 4 4 4 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 2018 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 M Dontschuk H Zhao(2) Number of Fully Paid Ordinary Shares 13,507 - - 41,500 - 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 540,255,987 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 540,255,987 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 Michael Dontschuk Honglin Zhao Other key management personnel 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; • 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 27 PB Risk Management priorities including: exchange rates agreements infrastructure The Group continues to assess and manage various business Arts and the Environment on 12 March 2007 and together with risks that could impact the Group’s operating and financial the Goldamere Act and the Environmental Protection Notices, performance and its ability to successfully deliver strategic is the basis for the management of all environmental aspects • Fluctuations in iron ore market and movements in foreign • Volatility in the electricity and gas price and availability • Mitigate market demand risk through securing off-take conditions. 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). During the financial year there were no breaches of licence • Geotechnical risks including wall stability • Production risks and costs associated with aging The Southdown Joint Venture has not been responsible for any activities which would cause a breach of environmental Southdown Joint Venture legislation. Mount Windsor Joint Venture • 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 • Intense program of geotechnical wall monitoring, modelling 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 operating costs • Hedging strategies for key energy exposures • A well developed tool kit to ensure projects are adequately planned and peer reviewed prior to commitment and October each year. execution 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 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 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. • 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 PB Grange Resources Limited » 2018 Annual Report 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. 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: 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 2018. • • • acceptable to shareholders, transparent and easily 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 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 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. 28 PB 2018 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 per share Dividend declared $ million $ million Cents $ million 2014 297.2 (110.2) (9.52) 2015 205.6 (277.8) (24.00) 2016 276.3 92.90 2017 247.9 60.71 2018 368.2 112.94 8.03 5.25 9.79 11.6 - 11.6 11.6 23.1 Share price (last trade day of financial year) Cents 10.5 9.0 14.0 21.5 20.0 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 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: 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. $170,000 $92,000 $81,000 $15,750 $10,500 $15,750 $7,500 29 PB Salary & fees Non- monetary benefits Short-term employee benefits Short term incentive (STI) (1) Post employment benefits Long- term benefits Super- annuation Long service leave Long term incentive (LTI) Termination benefits Cash (1) Rights (1) Total Grange Resources Limited » 2018 Annual Report 2018 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 1: Remuneration for the year ended 31 December 2018 Table 2: Remuneration for the year ended 31 December 2017 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 $ $ $ $ $ 13,665 9,110 4,099 4,420 31,294 $ - - - - - - - - - - - $ - - - - - - - - 143,837 96,750 95,890 35,959 46,524 418,960 - - 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 Personnel - - - - - - - - - - - - - - - - - - 157,502 96,750 105,000 40,058 50,944 450,254 - - - - - - - - - - - - - $ - - - - - - - - - - - - - 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 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. Table 3: Relative proportions linked to performance 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 The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Name Dec-18 Dec-17 Dec-18 Dec-17 Dec-18 Dec-17 Fixed Remuneration At Risk - STI At Risk - LTI Executive Directors H Zhao Other Key Management Personnel 76% 82% 79% 77% 84% 80% S Phan B Maynard 14% 8% 12% 14% 8% 12% 10% 10% 9% 9% 8% 8% Non-executive Directors M Li Y Jia D Tenardi M Dontschuk Sub-total Non-Executive Directors Executive Directors H Zhao Other Key Management Personnel S Phan B Maynard Sub-total Key Management Personnel $ 155,253 99,502 97,948 88,358 441,061 $ - - - - $ - - - - $ 14,749 - 9,305 8,394 32,448 $ - - - - $ - - - - - - - - 494,509 120,657 73,930 46,978 25,760 - 48,331 319,941 352,003 - - 27,051 45,100 30,366 33,440 6,905 26,277 - - 22,318 32,586 $ $ - - - - - - - 170,002 99,502 107,253 96,752 473,509 810,165 406,581 489,406 1,166,453 120,657 146,081 110,784 58,942 - 103,235 - 1,706,152 Management 1,016,018 55,419 106,576 96,522 44,286 81,170 - 1,399,991 TOTAL 1,607,514 120,657 146,081 143,232 58,942 - 103,235 - 2,179,661 (1) Represents short term and long-term incentive payments for the year ended 31 December 2017 and 2016 granted in February 2018 and 2017, 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. 30 PB PB Grange Resources Limited » 2018 Annual Report vi) Details of remuneration Details of the remuneration of the key management personnel of the Group are set out in the following tables. Table 1: Remuneration for the year ended 31 December 2018 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) (1) annuation leave benefits Cash (1) Rights (1) Total $ 155,253 99,502 97,948 88,358 $ - - - - $ - - - - $ - 14,749 9,305 8,394 32,448 $ - - - - $ - - - - $ $ 170,002 99,502 107,253 96,752 473,509 - - - - 494,509 120,657 73,930 46,978 25,760 - 48,331 810,165 Non-Executive 441,061 Non-executive Directors M Li Y Jia D Tenardi M Dontschuk Sub-total Directors Executive Directors H Zhao Other Key Management Personnel S Phan B Maynard Sub-total Key Personnel 319,941 352,003 - - 27,051 45,100 30,366 33,440 6,905 26,277 - - 22,318 32,586 406,581 489,406 Management 1,166,453 120,657 146,081 110,784 58,942 - 103,235 - 1,706,152 TOTAL 1,607,514 120,657 146,081 143,232 58,942 - 103,235 - 2,179,661 (1) Represents short term and long-term incentive payments for the year ended 31 December 2017 and 2016 granted in February 2018 and 2017, 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. - - - - - - - Table 2: Remuneration for the year ended 31 December 2017 2018 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 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 $ $ $ $ 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 - 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. (1) (2) (3) Cash (3) Rights (3) Total $ $ - - - - - - - 41,477 - 9,034 30,659 - - - - - - - - - - - 157,502 96,750 105,000 40,058 50,944 450,254 - 638,859 - 335,960 425,172 81,170 - 1,399,991 81,170 - 1,850,245 $ - - - - - - - - - - - - - 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. 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-18 Dec-17 Dec-18 Dec-17 Dec-18 Dec-17 Fixed Remuneration At Risk - STI At Risk - LTI Executive Directors H Zhao 76% Other Key Management Personnel S Phan B Maynard 82% 79% 77% 84% 80% 14% 8% 12% 14% 8% 12% 10% 10% 9% 9% 8% 8% PB 31 PB Grange Resources Limited » 2018 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 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. Other Key Management Personnel At the date of this report, the performance for the 2018 STI program had been approved: 2018 STI Program Maximum possible incentive award Awarded Amount awarded $112,086 $40,250 $66,488 91% 92% 91% $102,286(1) $37,081(1) $60,675(1) Name Executive Directors H Zhao Other Key Management Personnel S Phan B Maynard (1) Inclusive of superannuation. Long term incentive a) Deferred Cash At the date of this report, the performance for the 2018 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 2018 LTI Program Maximum possible incentive award Awarded Amount awarded $71,475 $38,500 $42,398 100% 100% 100% $71,475(1) $38,500(1) $42,398(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. 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. Pellets Others There were no Rights to Grange shares issued to directors or senior employees in the years 2018 and 2017. 2018 Annual Report « Grange Resources Limited Share holdings 31 December 2018 M Li M Dontschuk B Maynard 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 2018 rights On market purchases On market disposals Balance 31 December 2018 Other Directors of Grange Resources Limited Balance On vesting of 1 January 2017 rights On market purchases On market disposals Balance 31 December 2017 Other - - - - - 41,500 - - - - - - - - - - - - - - 13,507 41,500 68,121 13,507 68,121 13,507 - 68,121 13,507 68,121 Directors of Grange Resources Limited 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 2017: Nil). x) Other transactions with key management personnel A director, Mr Honglin Zhao, is a former director of Jiangsu International Trade Co. Ltd., which is a wholly owned Shagang Group (Shagang) to which sales of iron ore subsidiary of Jiangsu Shagang Group (Shagang) to which products are made under long-term off-take agreements. As sales of iron ore products are made under long-term off-take at 28 February 2019, Shagang holds 46.68% (27 February agreements. Transactions between Shagang and Grange 2018: 46.68%) of the issued ordinary shares of Grange. must be approved by non-associated shareholders of Transactions between Shagang and Grange must be Shagang, or approved by the Grange independent directors. approved by non-associated shareholders of Shagang or approved by the Grange independent directors. A director, Ms Yan Jia, is an employee of Shagang 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 Trade receivables (sales of iron ore products) 2018 2017 149,342,457 117,991,116 2018 2017 (2,772,327) 13,069,589 (57,519) (2,772,327) 13,012,070 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 . The policy conditions preclude the Group from any detailed disclosures. 32 PB PB 2018 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 2018 For each short term incentive benefit, the percentage of the available bonus was awarded and will be paid in the early Other Key Management Personnel At the date of this report, the performance for the 2018 STI program had been approved: B Maynard 68,121 31 December 2017 Directors of Grange Resources Limited M Li M Dontschuk 13,507 - - - - - 41,500 - - - - Balance 1 January 2018 On vesting of rights On market purchases On market disposals 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 - - - - - - ix) Loans to key management personnel There were no loans to key management personnel during the year (December 2017: Nil). Balance 31 December 2018 Other - - - 13,507 41,500 68,121 Balance 31 December 2017 Other - - 13,507 68,121 Grange Resources Limited » 2018 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 benefits. performance expectations and review arrangements and The agreements with executives are ongoing and provide for circumstances relating to the vacation of office. In addition, termination of employment at any time by giving three months’ it also summarises the major Board policies and terms, notice or by the Company paying an amount equivalent to including compensation, relevant to the office of Director. three months remuneration in lieu of notice. viii) Details of STI and LTI (including share-based payment) held by key management personnel 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. 2018 STI Program Maximum possible incentive award Awarded Amount awarded $112,086 $40,250 $66,488 $71,475 $38,500 $42,398 91% 92% 91% 100% 100% 100% $102,286(1) $37,081(1) $60,675(1) $71,475(1) $38,500(1) $42,398(1) At the date of this report, the performance for the 2018 LTI program had been approved. 2018 LTI Program Maximum possible incentive award Awarded Amount awarded A director, Ms Yan Jia, is an employee of Shagang Sales of iron ore products Pellets 2018 2017 149,342,457 117,991,116 The Board will review regularly and reserves the right to vary from time to time the appropriate hurdles and vesting periods The following balances are outstanding at the end of the reporting period in relation to the above transactions: 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 2018 and 2017. Trade receivables (sales of iron ore products) Pellets Others Insurance of Officers 2018 2017 (2,772,327) 13,069,589 (57,519) (2,772,327) 13,012,070 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 . The policy conditions preclude the Group from any detailed disclosures. PB 33 PB 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 28 February 2019, Shagang holds 46.68% (27 February 2018: 46.68%) of the issued ordinary shares of Grange. Transactions between Shagang and Grange must be approved by non-associated shareholders of Shagang or approved by the Grange independent directors. International 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. Transactions between Shagang and Grange must be approved by non-associated shareholders of Shagang, or approved by the Grange independent directors. Aggregate amounts of each of the above types of other transactions with key management personnel of Grange: Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited Indemnity of Auditors The Company has entered into an agreement to indemnify its auditor, PwC, 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 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: 2018 $’000 291 42 23 356 13 5 374 2017 $’000 293 41 5 339 - - 339 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 28 February 2019 Assurance services PwC Australia Audit and review of financial reports Other assurance services Network firms of PwC Australia Total assurance services Non-assurance services PwC Australia Other consulting services Taxation compliance services Total remuneration paid It is the Group’s policy to employ PwC on assignments additional to their statutory audit duties where PwC’s expertise and experience with the Group are important. These assignments are principally tax consulting and advice or where PwC 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 PwC 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 36. 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. 34 PB 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. The 2018 corporate governance statement was approved by the Board on 27 February 2019. 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 2018. 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 in the following table. “Recommendation” Ref Recommendation Ref) 7.3(a) (“Principle No” Ref followed by Departure Explanation A separate internal audit function has An Internal Audit function has not been not been formed. 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. PB Grange Resources Limited » 2018 Annual Report 2018 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. The 2018 corporate governance statement was approved by the Board on 27 February 2019. 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 2018. 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 in the following table. “Recommendation” Ref (“Principle No” Ref followed by Recommendation Ref) 7.3(a) 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 the Company’s and complexity of operations. Indemnity of Auditors The Company has entered into an agreement to indemnify its auditor, PwC, 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 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: Assurance services PwC Australia Audit and review of financial reports Other assurance services Network firms of PwC Australia Total assurance services Non-assurance services PwC Australia Other consulting services Taxation compliance services Total remuneration paid 2018 $’000 291 42 23 356 13 5 374 2017 $’000 293 41 5 339 - - 339 It is the Group’s policy to employ PwC on assignments additional to their statutory audit duties where PwC’s expertise and experience with the Group are important. These assignments are principally tax consulting and advice or where PwC 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 PwC with total fees greater than $10,000. Auditor Directors. 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 Michelle Li A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out Chairperson of the Board of Directors on page 36. Rounding of amounts Perth, Western Australia 28 February 2019 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. The Company’s Management periodically undertakes an internal financial systems and review of 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 system improvements. implementation of PB 35 PB Grange Resources Limited » 2018 Annual Report Auditor’s Independence Declaration As lead auditor for the audit of Grange Resources Limited for the year ended 31 December 2018, 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. Amanda Campbell Partner PricewaterhouseCoopers Melbourne 28 February 2019 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. 36 PB STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018 2018 Annual Report « Grange Resources Limited 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 Total comprehensive income (loss) for the period attributable to: - Equity holders of Grange Resources Limited - Non Controlling Interests NOTES 4, 5 6 7 8 9 9 10 2018 $’000 368,204 (238,938) 129,266 (5,177) 124,089 (822) 281 123,548 13,316 (1,536) 135,328 (22,390) 112,938 112,938 113,325 (387) 112,938 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) 35 35 9.79 9.79 The above statement of comprehensive income should be read in conjunction with the accompanying notes. 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 5.25 5.25 37 PB Grange Resources Limited » 2018 Annual Report STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 Consolidated ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Other financial assets Total current assets Non-current assets Receivables Inventories 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 Non-Controlling Interests Total equity 31 December 2018 31 December 2017 NOTES $’000 $’000 2, 11 12 13 2 14 15 16 17 18 2, 19 2, 20 21 22 23 24 25 27 204,497 31,715 60,730 19,734 316,676 8,654 222 77,345 193,302 12,416 291,939 608,615 45,116 7,126 20,168 72,410 611 57,764 58,375 130,785 477,830 331,513 146,243 477,756 74 477,830 167,989 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. 38 PB STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018 2018 Annual Report « Grange Resources Limited Balance at 1 January 2018 Profit for the period attributable to owners of Grange Resources Limited Loss attributable to non-controlling interests Total comprehensive profit for the year Transactions with owners in their capacity as owners Dividends paid Non-controlling interest Contributed equity Balance at 31 December 2018 Balance at 1 January 2017 Profit for the year Total comprehensive income/(loss) for the year Transactions with owners in their capacity as owners Dividends paid Contributed equity $’000 331,513 Non- Controlling Interests $’000 - NOTES Retained earnings $’000 56,066 TOTAL $’000 387,579 - - - - - 331,513 331,513 - - - - 26 27 26 - 113,325 113,325 (387) - (387) (387) 113,325 112,938 - (23,148) (23,148) 461 461 74 - - - - - - - (23,148) 146,243 1,140 60,713 60,713 461 (22,687) 477,830 332,653 60,713 60,713 (5,787) (5,787) 56,066 (5,787) (5,787) 387,579 Balance at 31 December 2017 331,513 The above statements of changes in equity should be read in conjunction with the accompanying notes. 39 PB Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited STATEMENT OF CASHFLOW FOR THE YEAR ENDED 31 DECEMBER 2018 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NOTES 2018 $’000 2017 $’000 The principal accounting policies adopted in the preparation For the remaining lease commitments, the group expects to of the consolidated financial statements are set out below. recognise right-of-use assets of approximately $768,000 on 1 These policies have been consistently applied for all the January 2019, lease liabilities of $593,000 (after adjustments 376,960 249,301 (207,728) (183,095) subsidiaries. periods presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Grange Resources Limited and its Consolidated 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) Interest received Interest paid Income taxes paid 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 short term managed funds (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 Contributed equity - non-controlling interests 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 34 16 17 2 26 169,232 6,508 (226) (8,132) 167,382 2 (35,297) (54,779) (20,000) (25) (110,099) (11,395) 6,433 (23,148) 461 (27,649) 29,634 167,989 6,874 204,497 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 Cash and cash equivalents at end of the year 11 The above statement of cash flows should be read in conjunction with accompanying notes. 40 PB (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. new rules. 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. New and amended standards adopted by the group The group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2018: • AASB 9 Financial Instruments • AASB 15 Revenue from Contracts with Customers New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2018 reporting periods and have not been early adopted by the group. The group’s assessment of the impact of these new standards and interpretations is set out below. AASB 16 Leases (effective from 1 January 2019) for prepayments and accrued lease payments recognised as at 31 December 2018) and deferred tax assets of ($53,000). Overall net assets will be approximately $228,000 higher, and net current assets will be $21,000 higher due to the presentation of a portion of the liability as a current liability. The group expects that net profit after tax will decrease by approximately $51,000 for 2019 as a result of adopting the Operating cash flows will increase, and financing cash flows decrease by approximately $33,000 as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities. The group’s activities as a lessor are not material and hence the group does not expect any significant impact on the financial statements. However, some additional disclosures will be required from next year. The group will apply the standard from its mandatory adoption date of 1 January 2019. The group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. Right-of-use assets for property leases will be measured on transition as if the new rules had always been applied. All other right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses). There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. 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 AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, statements, are disclosed in Note 3. as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low- value leases. The group has set up a project team which has reviewed all of the group’s leasing arrangements over the last year in light of the new lease accounting rules in AASB 16. The standard will affect primarily the accounting for the group’s operating leases. As at the reporting date, the group has non-cancellable operating lease commitments of $545,000 within 5 years, see note 30. Of these commitments, none relate to short- term leases and nil to low value leases which would be recognised on a straight-line basis as expense in profit or loss under the new standard. (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 2018 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 PB Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited STATEMENT OF CASHFLOW FOR THE YEAR ENDED 31 DECEMBER 2018 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidated 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) Interest received Interest paid Income taxes paid 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 short term managed funds (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 Contributed equity - non-controlling interests 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 34 16 17 2 26 376,960 249,301 (207,728) (183,095) 169,232 6,508 (226) (8,132) 167,382 2 (35,297) (54,779) (20,000) (25) (110,099) (11,395) 6,433 (23,148) 461 (27,649) 29,634 167,989 6,874 204,497 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 Cash and cash equivalents at end of the year 11 The above statement of cash flows should be read in conjunction with accompanying notes. PB NOTES 2018 $’000 2017 $’000 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. New and amended standards adopted by the group The group has applied following standards and the amendments for the first time for their annual reporting period commencing 1 January 2018: • AASB 9 Financial Instruments • AASB 15 Revenue from Contracts with Customers New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2018 reporting periods and have not been early adopted by the group. The group’s assessment of the impact of these new standards and interpretations is set out below. AASB 16 Leases (effective from 1 January 2019) AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low- value leases. The group has set up a project team which has reviewed all of the group’s leasing arrangements over the last year in light of the new lease accounting rules in AASB 16. The standard will affect primarily the accounting for the group’s operating leases. As at the reporting date, the group has non-cancellable operating lease commitments of $545,000 within 5 years, see note 30. Of these commitments, none relate to short- term leases and nil to low value leases which would be recognised on a straight-line basis as expense in profit or loss under the new standard. For the remaining lease commitments, the group expects to recognise right-of-use assets of approximately $768,000 on 1 January 2019, lease liabilities of $593,000 (after adjustments for prepayments and accrued lease payments recognised as at 31 December 2018) and deferred tax assets of ($53,000). Overall net assets will be approximately $228,000 higher, and net current assets will be $21,000 higher due to the presentation of a portion of the liability as a current liability. The group expects that net profit after tax will decrease by approximately $51,000 for 2019 as a result of adopting the new rules. Operating cash flows will increase, and financing cash flows decrease by approximately $33,000 as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities. The group’s activities as a lessor are not material and hence the group does not expect any significant impact on the financial statements. However, some additional disclosures will be required from next year. The group will apply the standard from its mandatory adoption date of 1 January 2019. The group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. Right-of-use assets for property leases will be measured on transition as if the new rules had always been applied. All other right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses). There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. 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 2018 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 41 PB Grange Resources Limited » 2018 Annual Report from the date that control ceases. Details of subsidiaries are set out in note 32. 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. 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 33. (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 financial statements are presented in Australian dollars, which is Grange Resources Limited’s functional and presentation currency. functional currency’). The consolidated (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. 42 PB (iii) Group companies • acquisition-date fair value of any previous equity interest unperformed freight services. Cash received before control 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, 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. (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 2018 Annual Report « Grange Resources Limited 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 Interest revenue passes is recognised as a contract liability. The amount of consideration does not contain a significant financing component as payment terms are less than one year. 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 Interest revenue is recognised on a time proportion basis using the effective interest method. future are discounted to their present value as at the date of Sale of apartments 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. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer therefore the notion of control replaces the existing notion of risks and rewards. In most instances, Contingent consideration is classified either as equity or a control passes, and sales revenue is recognised when legal financial liability. Amounts classified as a financial liability are title of the property is transferred to the buyer. There may be subsequently remeasured to fair value with changes in fair circumstances when judgment is required based on the five value recognised in profit or loss. indicators of control below: If the business combination is achieved in stages, the i. The buyer has the significant risks and rewards of acquisition date carrying value of the acquirer’s previously held equity interest in the acquire is remeasured to fair value ownership and has the ability to direct the use of, and obtain substantially all of the remaining benefits from the at the acquisition date. Any gains or losses arising from such good or service; remeasurement are recognised in profit or loss. (f) Revenue recognition Revenue is recognised for the major business transactions as follows: Sale of ore and the related freight revenue Sales revenue is recognised on individual sales when control transfers to the customer. In most instances, control passes and sales revenue is recognised when the product is delivered to the vessel on which it will be transported. There may be circumstances when judgment is required when recognising revenue based on the five-step model below: i. Identify the contract(s) with a customer ii. Identify the performance obligations in the contact iii. Determine the transaction price iv. Allocate the transactions price to the performance of obligations in the contract. v. Recognise revenue when (or as) the entity satisfies the performance obligation. The Group sells a portion of its product on Cost and Freight (CFR). This means that the Group is responsible for providing shipping services. Using the 5-step model above, the Group has determined that freight services is a separate performance obligation. Therefore, the revenue for ii. The buyer has a present obligation to pay in accordance with the terms of the sales contract. For property disposed of, this is generally on transfer of legal title, at which time settlement of the remaining contract price occurs; iii. The buyer has accepted the asset; iv. The buyer has legal title to the asset; and v. The buyer has physical possession of the asset AASB 15 required the Group to identify deliverables in contracts with customers that qualify as ‘performance obligations’. The transaction price receivable from customers must be allocated between the Group’s performance obligations under the contracts on a relative stand-alone selling price basis. Revenue will be recognised at a point in time when the performance obligations are met. The Group has assessed the impact of the application of AASB 15. There was no revenue from the sale of property for the period ended 31 December 2018. Therefore, the adoption of this standard has no impact on the financial statements. Distribution Income Distribution income from short term managed funds is recognised when the right to receive the income has been established. (g) Government Grants shipping services is recognised as the Group satisfies the Government grants are recognised at their fair value when performance obligation over time rather than at point when there is reasonable assurance that the grant will be received, product is transferred to the vessel on which the product will and all attaching conditions will be complied with. be shipped. When the grant relates to an expense item, it is recognised Application of the new accounting standard AASB 15 did not as income over the periods necessary to match the grant have a significant impact on the financial statements in the on a systematic basis to the costs that it is intended to comparative period as all shipments with CFR terms arrived compensate. at the port of destinations before 31 December 2017. Typically, the Group has a right to payment at the point to a deferred income account and is released to the income that control of the goods passes including a right, where statement over the expected useful life of the relevant asset applicable, to payment for provisionally priced products and by equal annual instalments. When the grant relates to an asset, the fair value is credited PB Grange Resources Limited » 2018 Annual Report from the date that control ceases. Details of subsidiaries are (iii) Group companies set out in note 32. The acquisition method of accounting is used to account for (none of which has the currency of a hyperinflationary business combinations by the Group (refer to note 1(e)). economy) that have a functional currency different from the The results and financial position of all the Group entities presentation currency are translated into the presentation Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. currency as follows: Unrealised losses are also eliminated unless the transaction • assets and liabilities for each balance sheet presented provides evidence of the impairment of the asset transferred. are translated at the closing rate at the date of that Accounting policies of subsidiaries have been changed balance sheet, where necessary to ensure consistency with the policies adopted by the Group. (ii) Joint arrangements Joint operations • 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 The Group recognises its direct right to the assets, liabilities, of the transactions), and 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 • all resulting exchange differences are recognised in other comprehensive income. statements under the appropriate headings. Details of the On consolidation, exchange differences arising from the joint operations are set out in note 33. (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. 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 Refer to note 4 for further information on segment descriptions. translated at the closing rate. (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 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 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. • • • • • • (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 PB • 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. 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 for the major business transactions as follows: Sale of ore and the related freight revenue Sales revenue is recognised on individual sales when control transfers to the customer. In most instances, control passes and sales revenue is recognised when the product is delivered to the vessel on which it will be transported. There may be circumstances when judgment is required when recognising revenue based on the five-step model below: i. Identify the contract(s) with a customer ii. Identify the performance obligations in the contact iii. Determine the transaction price iv. Allocate the transactions price to the performance of obligations in the contract. v. Recognise revenue when (or as) the entity satisfies the performance obligation. The Group sells a portion of its product on Cost and Freight (CFR). This means that the Group is responsible for providing shipping services. Using the 5-step model above, the Group has determined that freight services is a separate performance obligation. Therefore, the revenue for shipping services is recognised as the Group satisfies the performance obligation over time rather than at point when product is transferred to the vessel on which the product will be shipped. Application of the new accounting standard AASB 15 did not have a significant impact on the financial statements in the comparative period as all shipments with CFR terms arrived at the port of destinations before 31 December 2017. Typically, the Group has a right to payment at the point that control of the goods passes including a right, where applicable, to payment for provisionally priced products and 2018 Annual Report « Grange Resources Limited unperformed freight services. Cash received before control passes is recognised as a contract liability. The amount of consideration does not contain a significant financing component as payment terms are less than one year. Interest revenue Interest revenue is recognised on a time proportion basis using the effective interest method. Sale of apartments The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer therefore the notion of control replaces the existing notion of risks and rewards. In most instances, control passes, and sales revenue is recognised when legal title of the property is transferred to the buyer. There may be circumstances when judgment is required based on the five indicators of control below: i. The buyer has the significant risks and rewards of ownership and has the ability to direct the use of, and obtain substantially all of the remaining benefits from the good or service; ii. The buyer has a present obligation to pay in accordance with the terms of the sales contract. For property disposed of, this is generally on transfer of legal title, at which time settlement of the remaining contract price occurs; iii. The buyer has accepted the asset; iv. The buyer has legal title to the asset; and v. The buyer has physical possession of the asset AASB 15 required the Group to identify deliverables in contracts with customers that qualify as ‘performance obligations’. The transaction price receivable from customers must be allocated between the Group’s performance obligations under the contracts on a relative stand-alone selling price basis. Revenue will be recognised at a point in time when the performance obligations are met. The Group has assessed the impact of the application of AASB 15. There was no revenue from the sale of property for the period ended 31 December 2018. Therefore, the adoption of this standard has no impact on the financial statements. Distribution Income Distribution income from short term managed funds is recognised when the right to receive the income has been established. (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. 43 PB Grange Resources Limited » 2018 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. 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 extraction and processing of ore. to the 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. Development work in progress pertains to development and construction of housing units and comprises expenditures relating to: (i) Cash and cash equivalents • Cost of acquisition 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 initially at fair value and subsequently measured at amortised cost using the effective interest method, less loss allowance. As permitted by IFRS 9, the Group applies the ‘simplified approach’ to trade receivable balances and the ‘general approach’ to all other financial assets. The simplified approach requires expected lifetime credit losses to be recognised from initial recognition of the receivables. The general approach incorporates a review for any significant increase in counterparty credit risk since inception. The expected credit losses (ECL) review include assumptions about the risk of default and expected credit loss rates. In determining the recoverability of a trade or other receivable using the ECL model, the Group performs a risk analysis considering the type and age of the outstanding receivables, the creditworthiness of the counterparty, contract provisions, letter of credit and timing of payment. (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 The cost of acquisition comprises the purchase price of the land along with any direct costs incurred as part of the acquisition including legal, valuation and stamp duty costs. • Development and other costs Cost includes variable and fixed costs directly related to specific contracts, costs related to general contract activity which can be allocated to specific projects on a reasonable basis, and other costs specifically chargeable under the contract. • Interest capitalised Financing costs on the purchase and development of housing units are also included in the cost of inventory. (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 44 PB 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 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 2018 Annual Report « Grange Resources Limited (n) Property, plant and equipment Land and buildings and plant and equipment are measured at cost less, where applicable, any accumulated depreciation, 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. 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 (o) Exploration and evaluation Exploration and evaluation expenditure comprise costs which are directly attributable to: research and analysing exploration data conducting geological studies, exploratory drilling and sampling examining and testing extraction and treatment methods 1(r). • • • • Exploration and evaluation expenditure also include the costs incurred in acquiring rights, the entry premiums paid to PB amount of GST recoverable from, or payable to, the taxation compiling pre-feasibility and definitive feasibility studies authority. Grange Resources Limited » 2018 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 of ore; 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- sale. line basis over the period of the lease. relating to: materials and the costs of production which include: • labour costs, materials and contractor expenses which are directly attributable to the extraction and processing • 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 Development work in progress pertains to development and construction of housing units and comprises expenditures (i) Cash and cash equivalents • Cost of acquisition 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 The cost of acquisition comprises the purchase price of the land along with any direct costs incurred as part of the acquisition including legal, valuation and stamp duty or less that are readily convertible to amounts of cash and costs. which are subject to an insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current • Development and other costs liabilities on the balance sheet. (j) Trade and other receivables Cost includes variable and fixed costs directly related to specific contracts, costs related to general contract activity which can be allocated to specific projects on a reasonable basis, and other costs specifically chargeable Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less loss allowance. under the contract. • Interest capitalised As permitted by IFRS 9, the Group applies the ‘simplified approach’ to trade receivable balances and the ‘general approach’ to all other financial assets. The simplified approach requires expected lifetime credit losses to be recognised from initial recognition of the receivables. The general approach incorporates a review for any significant increase in counterparty credit risk since inception. The expected credit losses (ECL) review include assumptions about the risk of default and expected credit loss rates. In determining the recoverability of a trade or other receivable using the ECL model, the Group performs a risk analysis considering the type and age of the outstanding receivables, the creditworthiness of the counterparty, contract provisions, letter of credit and timing of payment. (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 Financing costs on the purchase and development of housing units are also included in the cost of inventory. (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 PB 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 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. 2018 Annual Report « Grange Resources Limited (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. 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 comprise costs which are directly attributable to: • • • • research and analysing exploration data conducting geological studies, exploratory drilling and sampling examining and testing extraction and treatment methods compiling pre-feasibility and definitive feasibility studies Exploration and evaluation expenditure also include the costs incurred in acquiring rights, the entry premiums paid to 45 PB Grange Resources Limited » 2018 Annual Report 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). (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 46 PB useful life are accounted for prospectively. for managing the financial assets and the contractual terms income from these financial assets is included in finance 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) (i) Investments and other financial assets • FVOCI: Assets that are held for collection of contractual Classification From 1 January 2018, the group classifies its financial assets in the following measurement categories: • those to be measured subsequently at fair value (either through other comprehensive income (OCI) or through profit or loss), and • those to be measured at amortised cost. The classification depends on the entity’s business model 2018 Annual Report « Grange Resources Limited of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/ (losses) and impairment expenses are presented as separate line item in the statement of profit or loss. depend on whether the group has made an irrevocable • FVPL: Assets that do not meet the criteria for amortised election at the time of initial recognition to account for the cost or FVOCI are measured at FVPL. A gain or loss on a equity investment at fair value through other comprehensive debt investment that is subsequently measured at FVPL income (FVOCI). (ii) Recognition The group reclassifies debt investments when and only when its business model for managing those assets changes. Equity instruments is recognised in profit or loss and presented net within other gains/(losses) in the period in which it arises. The group subsequently measures all equity investments at fair value. Where the group’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the group’s right to receive payments is established. Changes in the fair value of financial assets at FVPL are recognised in other gains/(losses) in the statement of profit Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the group has transferred substantially all the risks and rewards of ownership. (iii) Measurement At initial recognition, the group measures a financial asset at or loss as applicable. Impairment losses (and reversal of its fair value plus, in the case of a financial asset not at fair impairment losses) on equity investments measured at value through profit or loss (FVPL), transaction costs that are FVOCI are not reported separately from other changes in directly attributable to the acquisition of the financial asset. fair value. Transaction costs of financial assets carried at FVPL are (iv) Impairment expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Debt instruments From 1 January 2018, the group assesses on a forward- looking basis, the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. Subsequent measurement of debt instruments depends Based on the risk analysis above, the Group has determined on the group’s business model for managing the asset and that the expected provision for credit losses is not material the cash flow characteristics of the asset. There are three at transition date. measurement categories into which the group classifies its debt instruments: • Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of profit or loss. effective interest rate method. Any gain or loss arising Classification cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses). Interest (v) Accounting policies applied until 31 December 2017 The group has applied AASB 9 retrospectively but has elected not to restate comparative information. As a result, the comparative information provided continues to be accounted for in accordance with the group’s previous accounting policy. Until 31 December 2017, the group classified its financial assets in the following categories: financial assets at fair value through profit or loss, • • loans and receivables, The classification depended on the purpose for which the investments were acquired. Management determined the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluated this designation at the end of each reporting period. Reclassification The group could choose to reclassify a non-derivative trading financial asset out of the held for trading category if the financial asset was no longer held for the purpose of selling it in the near term. Financial assets other than loans PB Grange Resources Limited » 2018 Annual Report gain access to areas of interest and amounts payable to third useful life are accounted for prospectively. parties to acquire interests in existing projects. Deferred stripping costs form part of the total investment in Exploration and evaluation expenditure is charged against a cash generating unit, which is reviewed for impairment if profit and loss as incurred; except for expenditure incurred events or changes in circumstances indicate that the carrying after a decision to proceed to development is made, in which value may not be recoverable. case the expenditure is capitalised as an asset. (p) Mine properties and development (r) Impairment of assets At each reporting date, the Group assesses whether Mine properties and development represent the accumulation there is any indication that an asset, including capitalised of all exploration, evaluation and development expenditure development expenditure, may be impaired. Where an incurred by, not on behalf of, the entity in relation to areas indicator of impairment exists, the Group makes a formal of interest in which mining of a mineral resource has estimate of the recoverable amount. Where the carrying 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 statement. 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 the cost of that production property only when substantial Recoverable amount is the greater of fair value less costs future economic benefits arise, otherwise such expenditure of disposal and value in use. For the purposes of assessing 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. 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). Changes to the life of the area of interest are accounted for Where there is no binding sale agreement or active prospectively. note 1(r). The carrying value of each mine property and development are assessed annually for impairment in accordance with (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 loss. (s) (i) 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 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. Investments and other financial assets Classification deferred to the extent that the current period ratio exceeds From 1 January 2018, the group classifies its financial assets the expected ratio for the life of the identified component of in the following measurement categories: 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 • those to be measured subsequently at fair value (either through other comprehensive income (OCI) or through profit or loss), and • those to be measured at amortised cost. ore body, stripping ratios, units of production and expected The classification depends on the entity’s business model PB for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). The group reclassifies debt investments when and only when its business model for managing those assets changes. (ii) Recognition Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the group has transferred substantially all the risks and rewards of ownership. (iii) Measurement At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Debt instruments Subsequent measurement of debt instruments depends on the group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the group classifies its debt instruments: • Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of profit or loss. • FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses). Interest 2018 Annual Report « Grange Resources Limited income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/ (losses) and impairment expenses are presented as separate line item in the statement of profit or loss. • FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net within other gains/(losses) in the period in which it arises. Equity instruments The group subsequently measures all equity investments at fair value. Where the group’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the group’s right to receive payments is established. Changes in the fair value of financial assets at FVPL are recognised in other gains/(losses) in the statement of profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value. (iv) Impairment From 1 January 2018, the group assesses on a forward- looking basis, the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. Based on the risk analysis above, the Group has determined that the expected provision for credit losses is not material at transition date. (v) Accounting policies applied until 31 December 2017 The group has applied AASB 9 retrospectively but has elected not to restate comparative information. As a result, the comparative information provided continues to be accounted for in accordance with the group’s previous accounting policy. Classification Until 31 December 2017, the group classified its financial assets in the following categories: • • financial assets at fair value through profit or loss, loans and receivables, The classification depended on the purpose for which the investments were acquired. Management determined the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluated this designation at the end of each reporting period. Reclassification The group could choose to reclassify a non-derivative trading financial asset out of the held for trading category if the financial asset was no longer held for the purpose of selling it in the near term. Financial assets other than loans 47 PB Grange Resources Limited » 2018 Annual Report and receivables were permitted to be reclassified out of the held for trading category only in rare circumstances arising from a single event that was unusual and highly unlikely to recur in the near term. In addition, the group could choose to reclassify financial assets that would meet the definition of loans and receivables out of the held for trading or available- for-sale categories if the group had the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification. Reclassifications were made at fair value as of the reclassification date. Fair value became the new cost or amortised cost as applicable, and no reversals of fair value gains or losses recorded before reclassification date were subsequently made. Effective interest rates for financial assets reclassified to loans and receivables and held-to- maturity categories were determined at the reclassification date. Further increases in estimates of cash flows adjusted effective interest rates prospectively. Subsequent Measurement The measurement at initial recognition did not change on adoption of AASB 9, see description above. Subsequent to the initial recognition, loans and receivables and held-to-maturity investments were carried at amortised cost using the effective interest method. Financial assets at FVPL were subsequently carried at fair value. Gains or losses arising from changes in the fair value were recognised in profit or loss within other gains/(losses). Details on how the fair value of financial instruments is determined are disclosed in note 2(f). Impairment The group assessed at the end of each reporting period whether there was objective evidence that a financial asset or group of financial assets was impaired. A financial asset or a group of financial assets was impaired and impairment losses were incurred only if there was objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) had an impact on the estimated future cash flows of the financial asset or group of financial assets that could be reliably estimated. (u) Ore reserves The Company estimates its mineral resources and ore reserves based on information compiled by Competent Persons 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. (v) 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. (w) 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. (t) Derivatives Borrowing costs 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. 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. (x) 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. 48 PB 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. (y) 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 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. 2018 Annual Report « Grange Resources Limited 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. (z) 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. (aa) 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. (ab) 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. (ac) Parent entity financial information The financial information for the parent entity, Grange Resources Limited, disclosed in note 36 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 49 PB Grange Resources Limited » 2018 Annual Report than being deducted from the carrying amount of these investments. 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. (ad) 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. NOTE 2. FINANCIAL RISK MANAGEMENT Financial assets measured at FVPL include the following: 2018 Annual Report « Grange Resources Limited 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: Current Assets Short Term Managed Funds Derivative financial instruments Amounts recognised in profit or loss During the year, the following gains/(losses) were recognised in profit or loss: Current Assets Fair value gain(loss) on short term managed funds held at FVPL recognised in Gain/(loss) on financial instruments Fair value gain(loss) on derivative financial instruments at FVPL recognised in Gain/(loss) on financial instruments 2017 $’000 167,989 - 36,233 66 204,288 23,525 4,830 28,355 2017 $’000 - - - - - Financial Assets Cash and cash equivalents Short Term Managed Funds Trade and other receivables Derivative financial instruments Financial Liabilities Trade and other payables Borrowings 2018 $’000 204,497 19,988 36,566 (254) 260,797 45,116 7,738 52,854 The carrying amount and movement in Short Term Managed Funds are set out below: Short Term Managed Funds Units in unlisted securities Carrying amount at the end of the year Movements in Short Term Managed Funds Balance at the beginning of the year Movement in Short Term Managed Funds 2018 $’000 19,988 19,988 - 19,988 19,988 Financial assets at fair value through profit or loss Classification The group classifies the following financial assets at fair value through profit or loss (FVPL) short term managed funds derivative financial instruments • • 50 PB a) Market Risk i) Foreign exchange risk primarily with respect to the US dollar. The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, 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 and liabilities denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and The Group’s exposure to US dollar denominated foreign currency risk at the reporting date, expressed in Australian dollars, cash flow forecasting. was as follows: Cash and cash equivalents Trade and other receivables Trade and other payables Net US dollar surplus 2018 $’000 19,988 (254) 19,734 2018 $’000 (12) (320) (332) 2018 $’000 65,431 17,645 (66) 83,010 2017 $’000 - 66 66 2017 $’000 - 46 46 2017 $’000 75,080 24,752 (126) 99,706 PB than being deducted from the carrying amount of these NOTE 2. FINANCIAL RISK MANAGEMENT Financial assets measured at FVPL include the following: 2018 Annual Report « Grange Resources Limited Current Assets Short Term Managed Funds Derivative financial instruments 2018 $’000 19,988 (254) 19,734 Amounts recognised in profit or loss During the year, the following gains/(losses) were recognised in profit or loss: Current Assets Fair value gain(loss) on short term managed funds held at FVPL recognised in Gain/(loss) on financial instruments Fair value gain(loss) on derivative financial instruments at FVPL recognised in Gain/(loss) on financial instruments a) Market Risk i) Foreign exchange risk 2018 $’000 (12) (320) (332) 2017 $’000 - 66 66 2017 $’000 - 46 46 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 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’s exposure to US dollar denominated foreign currency risk at the reporting date, expressed in Australian dollars, was as follows: The carrying amount and movement in Short Term Managed Funds are set out below: Cash and cash equivalents Trade and other receivables Trade and other payables Net US dollar surplus 2018 $’000 65,431 17,645 (66) 83,010 2017 $’000 75,080 24,752 (126) 99,706 51 PB Grange Resources Limited » 2018 Annual Report investments. 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. (ad) Rounding of amounts The Group is of a kind referred to in ASIC Legislative Instrument 2016/191 Class, issued by 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. 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: 2017 $’000 167,989 36,233 - 66 204,288 23,525 4,830 28,355 2017 $’000 - - - - - Financial Assets Cash and cash equivalents Short Term Managed Funds Trade and other receivables Derivative financial instruments Financial Liabilities Trade and other payables Borrowings Short Term Managed Funds Units in unlisted securities Carrying amount at the end of the year Movements in Short Term Managed Funds Balance at the beginning of the year Movement in Short Term Managed Funds 2018 $’000 204,497 19,988 36,566 (254) 260,797 45,116 7,738 52,854 2018 $’000 19,988 19,988 - 19,988 19,988 Financial assets at fair value through profit or loss Classification The group classifies the following financial assets at fair value through profit or loss (FVPL) • • short term managed funds derivative financial instruments PB Grange Resources Limited » 2018 Annual Report Group sensitivity Based on the financial instruments held at 31 December 2018, 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 $5.3 million higher / $6.4 million lower (2017: $6.3 million higher / $7.7 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. 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. 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. ii) Price risk 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. Short term managed funds are exposed to price risk arising from investments held by the fund for which the future prices are uncertain. The investment manager moderates this risk through a careful selection of securities within specified limits. The fund actively maintains a high level of diversification in its holdings, thus potentially reducing the amount of risk in the fund. iii) Cash flow and fair value interest rate risk The Group’s main interest rate risk arises from cash and cash equivalents, term deposits and short term managed funds. For short term managed funds, the interest-bearing financial assets in each of the Funds expose it to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The main interest rate risk arises from the Fund’s investments in bonds. As 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 b) Credit Risk 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 2018, there were no trade receivables (2017 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 45,116 - 1,349 6,184 - 739 - - - 45,116 45,116 - 8,272 7,738 46,465 6,184 739 - - 53,388 52,854 2018 - Consolidated Non-derivatives Trade and other payables Fixed rate borrowings Total non- derivatives 52 PB 2018 Annual Report « Grange Resources Limited 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 - - - - 23,525 23,525 3,267 1,604 - - - 4,871 4,830 26,792 1,604 - - - 28,396 28,355 2017 - Consolidated Non-derivatives Trade and other payables Fixed rate borrowings Total non- derivatives 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 Group’s financial position including cash flow forecasts to determine future capital management requirements. To ensure sufficient funding, a range of assumptions are modeled. e) Derivatives Derivatives are only used for economic hedging purposes and not as speculative investments. (i) 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. f) 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. Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives and equity securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in level 1. 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. Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. 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. The following table presents the group’s assets and liabilities measured and recognised at fair value at 31 December 2018 and 31 December 2017. 2018 Financial Assets Short Term Managed Funds Derivative financial instruments Total Financial Assets 2017 Financial Assets Derivative financial instruments Total Financial Assets Level 1 $’000 823 - 823 Level 1 $’000 - - Level 2 $’000 18,763 (254) 18,509 Level 2 $’000 66 66 Level 3 $’000 402 - 402 Level 3 $’000 - - Total $’000 19,988 (254) 19,734 Total $’000 66 66 53 PB Grange Resources Limited » 2018 Annual Report 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 including value commodity price expectations, foreign exchange rates and costs to complete inventories to a saleable product. As at 31 December 2018 the net realisable value exceeded cost for all significant inventory balances. Development Properties Property acquired for development and sale in the ordinary course of business is carried at the lower of cost and Net Realisable Value (NRV). The cost of development properties includes expenditure incurred in acquiring the property, preparing it for sale and borrowing costs incurred, The NRV is the estimated selling price, less the estimated costs of completion and selling expenses. Management considers the estimation of both selling prices and costs of completion to be an area of estimation uncertainty, as these estimations take into consideration market conditions affecting each property and the underlying strategy for selling the property. The recoverable amount of each property is assessed at each balance date and accounting judgement is required to assess whether a provision is raised where cost (including costs to complete) exceeds NRV. 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 28. 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. 54 PB 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 becomes available. Such changes could impact on capitalisation and amortisation rates for capitalised stripping costs and deferred stripping asset values. d) Determination of mineral resources and ore reserves 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 The Group’s accounting policy requires 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. 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 these deferred tax assets assumptions have been made regarding the Group’s ability to generate future taxable profits. Utilization 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. 2018 Annual Report « Grange Resources Limited f) Provision for decommissioning and restoration costs NOTE 4. SEGMENT INFORMATION 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. 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 two reportable segments: i. Exploration, evaluation, and development of mineral resources and iron ore mining operations; and ii. Development and construction of housing units 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. Segment information Revenue Total Assets Total Liabilites 2018 $’000 368,204 2018 $’000 590,462 124,946 Ore Mining 2017 $’000 247,877 Property Development 2017 $’000 - 2018 $’000 - 2017 $’000 489,961 102,382 2018 $’000 18,153 5,839 2017 $’000 - - The Group holds 51% ownership of the property development segment and is fully consolidated (refer to note 27). 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 Australia China Japan Korea Malaysia Philippines TOTAL 2018 $’000 47,493 224,179 11,876 46,506 22,914 15,236 2017 $’000 36,715 189,017 21,293 852 - - 368,204 247,877 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 2018 and 31 December 2017. The total costs incurred during the current and comparative periods to acquire segment assets were also predominately incurred in Australia. 55 PB Grange Resources Limited » 2018 Annual Report NOTE 5. REVENUE Disaggregation of revenue from contracts with customers From mining operations Sales of iron ore products 2018 2017 Revenue from Contracts with Customers $’000 Other Revenue (Loss) $’000 Consolidated Revenues $’000 Consolidated Revenues $’000 370,596 370,596 (2,392) (2,392) 368,204 368,204 247,877 247,877 Revenue from contracts with provisional pricing is recognised based on the estimated forward prices which the Group expects to receive at the end of the quotation period. The quotation period exposure is considered to be an embedded derivative and forms part of trade receivables. The subsequent changes in the fair value were recognised in the statement of profit or loss and other comprehensive income as other revenue (loss). Changes in fair value over, and until the end of the quotation period, are estimated by reference to updated forward market prices. 2018 $’000 123,530 99,802 3,379 12,731 7,725 - 1,230 (45,728) 24,865 12,658 (1,254) 238,938 231 7,391 145 7,767 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 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 56 PB 2018 Annual Report « Grange Resources Limited NOTE 7. ADMINISTRATIVE EXPENSES Salaries Consultancy fees Other Provision for rehabilitation - Interest in joint operation NOTE 8. OTHER INCOME (EXPENSES) GST refund relating to prior years Rent income equipment Other income (expenses) Net gain (loss) on the disposal of property, plant and NOTE 9. FINANCE INCOME (EXPENSES) 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) Provisions: unwinding of discount - Decommissioning and restoration (Note 22) 2018 $’000 3,096 749 282 1,050 5,177 2018 $’000 - 137 (531) 675 281 2018 $’000 6,774 (332) 6,874 13,316 - (238) (1,298) (1,536) 2017 $’000 2,113 882 154 385 3,534 2017 $’000 397 210 (45) (123) 439 2017 $’000 5,296 46 - 5,342 (7,423) (479) (1,326) (9,228) PB Grange Resources Limited » 2018 Annual Report NOTE 5. REVENUE Disaggregation of revenue from contracts with customers From mining operations Sales of iron ore products Revenue from contracts with provisional pricing is recognised based on the estimated forward prices which the Group expects to receive at the end of the quotation period. The quotation period exposure is considered to be an embedded derivative and forms part of trade receivables. The subsequent changes in the fair value were recognised in the statement of profit or loss and other comprehensive income as other revenue (loss). Changes in fair value over, and until the end of the quotation period, are estimated by reference to updated forward market prices. 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 - Amounts capitalised during the year - Amortisation expense Deferred stripping - Amortisation expense Changes in inventories Foreign exchange gain Depreciation and amortisation Land and buildings Plant and equipment Computer equipment PB NOTE 7. ADMINISTRATIVE EXPENSES 2018 Annual Report « Grange Resources Limited Revenue from 2018 2017 Salaries Contracts with Other Revenue Consolidated Consolidated Consultancy fees Customers $’000 (Loss) $’000 Revenues Revenues $’000 $’000 Provision for rehabilitation - Interest in joint operation Other 370,596 370,596 (2,392) (2,392) 368,204 368,204 247,877 247,877 NOTE 8. OTHER INCOME (EXPENSES) GST refund relating to prior years Rent income Net gain (loss) on the disposal of property, plant and equipment Other income (expenses) NOTE 9. FINANCE INCOME (EXPENSES) 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) Provisions: unwinding of discount - Decommissioning and restoration (Note 22) 2018 $’000 123,530 99,802 3,379 12,731 7,725 - 1,230 (45,728) 24,865 12,658 (1,254) 238,938 231 7,391 145 7,767 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 2018 $’000 3,096 749 282 1,050 5,177 2018 $’000 - 137 (531) 675 281 2018 $’000 6,774 (332) 6,874 13,316 - (238) (1,298) (1,536) 2017 $’000 2,113 882 154 385 3,534 2017 $’000 397 210 (45) (123) 439 2017 $’000 5,296 46 - 5,342 (7,423) (479) (1,326) (9,228) 57 PB Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited NOTE 10. INCOME TAX BENEFIT (EXPENSE) a) Risk exposure 2018 $’000 2017 $’000 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. 27,926 4,220 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 (5,536) 22,390 (5,536) (5,536) (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% (2017: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Sundry items Net movement in previously unrealised deferred tax assets Adjustments to tax of prior period Income tax expense (c) Taxation Losses 135,328 40,598 183 40,781 (17,051) (1,340) 22,390 Unused taxation losses for which no deferred tax asset has been recognised Potential tax benefit @ 30% 54,104 16,231 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. (d) Unrecognised temporary differences Temporary difference for which deferred tax assets not recognised Potential tax benefit @ 30% Unrecognised deferred tax assets relating to above temporary differences NOTE 11. CASH AND CASH EQUIVALENTS Cash at bank and in hand Short-term deposits Cash at bank and in hand as per statement of cash flows 244,179 304,635 73,254 73,254 2018 $’000 7,664 196,833 204,497 2018 $’000 204,497 204,497 91,390 91,390 2017 $’000 5,245 162,744 167,989 2017 $’000 167,989 167,989 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 2018 the weighted average interest rate on the Australian dollar accounts was 2.52% (31 December 2017: 2.77%) and the weighted average interest rate on the United States dollar accounts was 4.16% (31 December 2017: 3.50%). 58 PB Trade receivables Security deposits Loan receivable Other receivables Prepayments 1,817 6,037 1,817 1,817 66,750 20,025 (630) 19,395 (13,252) (106) 6,037 54,104 16,231 2018 $’000 18,220 362 5,372 3,958 3,803 31,715 2018 $’000 24,219 7,327 378 18,159 10,647 60,730 Trade receivables include provisionally priced receivables relating to sales contracts where the selling price is determined after delivery to the customers, based on the market price at the relevant quotation point stipulated in the contract (note 5 – Revenue). The quotation period exposure is considered to be an embedded derivative and not separated from the entire balance. The entire balance is accounted for as one instrument and measured at fair value. Loans receivable, classified as financial asset held at amortised cost, from the other partner in the arrangement of $5.4 million, representing the other partner’s portion of the shareholder loans. This loan is secured, carries an annual interest of 7% to 9% and will be receivable upon completion and subsequent sale of the property development projects. 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. b) Foreign exchange and interest rate risk carrying amount is assumed to be 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 Information about the Group’s exposure to foreign currency mentioned above. Refer to note 2 for more information on risk and interest rate risk in relation to trade and other the credit quality of the Group’s trade and other receivables. receivables is provided in note 2. NOTE 13. INVENTORIES Stores and spares Ore stockpiles Work in progress Finished goods (at lower of cost and net realisable value) Development work in progress Inventories are valued at the lower of weighted average cost and estimated net realisable value. An expense of $12.66 million in 2018 and a credit of $23.48 million in 2017 were recognised for the movements in finished goods inventories (note 6). Development work in progress pertains to property acquired for development and sale with completion and sale expected to occur within the next 12 months. 2017 $’000 25,176 362 - 2,665 1,915 30,118 2017 $’000 24,644 15,724 1,001 21,797 - 63,166 PB Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited NOTE 10. INCOME TAX BENEFIT (EXPENSE) 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. NOTE 12. TRADE AND OTHER RECEIVABLES Trade receivables Security deposits Loan receivable Other receivables Prepayments 2018 $’000 18,220 362 5,372 3,958 3,803 31,715 2017 $’000 25,176 362 - 2,665 1,915 30,118 Trade receivables include provisionally priced receivables relating to sales contracts where the selling price is determined after delivery to the customers, based on the market price at the relevant quotation point stipulated in the contract (note 5 – Revenue). The quotation period exposure is considered to be an embedded derivative and not separated from the entire balance. The entire balance is accounted for as one instrument and measured at fair value. Loans receivable, classified as financial asset held at amortised cost, from the other partner in the arrangement of $5.4 million, representing the other partner’s portion of the shareholder loans. This loan is secured, carries an annual interest of 7% to 9% and will be receivable upon completion and subsequent sale of the property development projects. 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. 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 be 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 244,179 304,635 91,390 73,254 73,254 Stores and spares Ore stockpiles Work in progress Finished goods (at lower of cost and net realisable value) Development work in progress 2018 $’000 24,219 7,327 378 18,159 10,647 60,730 2017 $’000 24,644 15,724 1,001 21,797 - 63,166 Inventories are valued at the lower of weighted average cost and estimated net realisable value. An expense of $12.66 million in 2018 and a credit of $23.48 million in 2017 were recognised for the movements in finished goods inventories (note 6). Development work in progress pertains to property acquired for development and sale with completion and sale expected to occur within the next 12 months. 59 PB 27,926 4,220 (5,536) (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% (2017: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Sundry items Net movement in previously unrealised deferred tax assets 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 differences Potential tax benefit @ 30% Unrecognised deferred tax assets relating to above temporary NOTE 11. CASH AND CASH EQUIVALENTS Cash at bank and in hand Short-term deposits Cash at bank and in hand as per statement of cash flows 2018 $’000 22,390 (5,536) (5,536) 135,328 40,598 183 40,781 (17,051) (1,340) 22,390 2018 $’000 7,664 196,833 204,497 2018 $’000 204,497 204,497 2017 $’000 1,817 6,037 1,817 1,817 66,750 20,025 (630) 19,395 (13,252) (106) 6,037 54,104 16,231 91,390 2017 $’000 5,245 162,744 167,989 2017 $’000 167,989 167,989 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. 54,104 16,231 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 2018 the weighted average interest rate on the Australian dollar accounts was 2.52% (31 December 2017: 2.77%) and the weighted average interest rate on the United States dollar accounts was 4.16% (31 December 2017: 3.50%). PB Grange Resources Limited » 2018 Annual Report NOTE 14. NON-CURRENT RECEIVABLES Loan Receivables Security deposits 2018 $’000 611 8,043 8,654 2017 $’000 - 8,030 8,030 Non-current loans receivable, classified as financial asset held at amortised cost, from the other partner in the arrangement of $0.6 million. This loan is secured, carries an annual interest of 7% to 9% and will be receivable upon completion and subsequent sale of the property development projects. 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. NOTE 15. NON-CURRENT INVENTORIES Development work in progress 2018 $’000 222 222 2017 $’000 - - Non-current development work in progress pertains to property acquired for development and sale. Completion of development and sale of this property is not expected to occur within the next 12 months. 60 PB 2018 Annual Report « Grange Resources Limited NOTE 16. PROPERTY, PLANT AND EQUIPMENT Land and buildings $’000 Plant and equipment $’000 Computer equipment $’000 As at 1 January 2018 Cost Accumulated depreciation and impairment Net book amount Year ended 31 December 2018 Opening net book amount Additions Disposals - net book value Depreciation charge Transfer to MP&D Closing net book amount As at 31 December 2018 Cost Accumulated depreciation and impairment Net book amount As at 1 January 2017 Cost Accumulated depreciation and impairment Net book amount Year ended 31 December 2017 Opening net book amount Additions Disposals Depreciation charge Closing net book amount As at 31 December 2017 Cost Accumulated depreciation and impairment Net book amount a) Assets under construction 45,422 450,966 (37,382) (320,862) 8,040 130,104 8,040 487 - (231) - 8,296 130,104 34,513 (533) (7,391) (88,041) 68,652 45,908 396,905 (37,612) (328,253) 8,296 68,652 44,666 (37,264) 430,104 (317,451) 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 8,055 (7,810) 245 245 297 - (145) - 397 8,353 (7,956) 397 7,969 (7,765) 204 204 131 (45) (45) 245 8,055 (7,810) 245 Total $’000 504,443 (366,054) 138,389 138,389 35,297 (533) (7,767) (88,041) 77,345 451,166 (373,821) 77,345 482,739 (362,480) 120,259 120,259 21,749 (45) (3,574) 138,389 504,443 (366,054) 138,389 The carrying amounts of the assets disclosed above includes expenditure of $27.66 million (2017: $110.73 million) recognised in relation to property, plant and equipment which is in the course of construction. 61 PB Grange Resources Limited » 2018 Annual Report NOTE 17. MINE PROPERTIES AND DEVELOPMENT 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 Current year expenditure capitalised/transfer 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 18. DEFERRED TAX ASSETS The balance comprises temporary differences attributable to: Deferred Tax Assets Property, plant and equipment Mine properties and development Trade and other payables Employee benefits Decommissioning and restoration Foreign exchange Total deferred tax assets Deferred Tax Liabilities Inventory Foreign exchange Total deferred tax liabilities Total net deferred tax assets NOTE 19. TRADE AND OTHER PAYABLES Trade payables and accruals Tax payable Other payables a) Risk exposure 2018 $’000 569,038 (467,485) 101,553 91,749 193,302 4,437 97,092 1,254 (1,230) 101,553 70,886 45,728 (24,865) 91,749 2018 $’000 5,983 7,493 - 1,031 3,027 - 17,534 (3,916) (1,202) (5,118) 12,416 2018 $’000 20,156 23,759 1,201 45,116 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 7,821 1 310 1,077 54 11,810 (4,930) - (4,930) 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. 62 PB NOTE 20. BORROWINGS (CURRENT) Insurance premium funding (1) Other borrowings (2) 2018 Annual Report « Grange Resources Limited 2018 $’000 1,798 5,328 7,126 2017 $’000 1,717 3,113 4,830 (1) (2) Insurance premium funding represents an unsecured loan which carries a fixed interest rate of 1.63% and will be fully paid in August 2019. Loans payable to the other partner in the arrangement of $5.3 million, representing the other partner’s portion of the shareholder loans. This loan is secured, carries an annual interest of 7% to 9% and will be payable upon completion of the development property projects. NOTE 21. PROVISIONS (CURRENT) Leave Obligations Employee benefits Decommissioning and restoration 2018 $’000 12,488 2,174 5,506 20,168 2017 $’000 10,446 1,662 713 12,821 The leave obligations cover the group’s liabilities for long service leave and annual leave which are classified as either current or non-current benefits. The current portion of this liability includes all of the accrued annual leave, the unconditional entitlements to long service leave where employees have completed the required period of service and also for those employees that are entitled to pro-rata payments in certain circumstances. The entire amount of the provision of $12.49 million (2017 - $10.45 million) is presented as current, since the group does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. The following amounts reflect leave that is not expected to be taken or paid within the next 12 months. Current leave obligations expected to be settled after 12 months 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 22. BORROWINGS (NON-CURRENT) Secured Loans Payable 2018 $’000 5,861 713 (419) 5,212 5,506 2018 $’000 611 611 2017 $’000 4,697 680 (327) 360 713 2017 $’000 - - Loans payable to the other partner in the arrangement of $0.6 million. This loan is secured, carries an annual interest of 7% to 9% and will be payable upon completion of the development property projects. 63 PB Grange Resources Limited » 2018 Annual Report NOTE 23. PROVISIONS (NON-CURRENT) Leave obligations 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 NOTE 24. CONTRIBUTED EQUITY Ordinary shares 2018 $’000 3,123 77 54,564 57,764 56,795 1,683 1,298 (5,212) 54,564 2017 $’000 4,338 73 56,795 61,206 52,949 2,880 1,326 (360) 56,795 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. NOTE 25. RETAINED PROFITS ATTRIBUTABLE TO OWNERS OF GRANGE RESOURCES 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 26. DIVIDENDS Fully franked interim dividend for half year ended 30 June 2018 - 1.0 cent per share Fully franked final dividend for the year ended 31 December 2017 - 1.0 cent per share Fully franked final dividend for the year ended 31 December 2016 - 0.5 cent per share 2018 $’000 56,066 113,325 (23,148) 146,243 2018 $’000 11,574 11,574 - 2017 $’000 1,140 60,713 (5,787) 56,066 2017 $’000 - - 5,787 Total dividends provided for or paid 23,148 5,787 Since the end of the financial year the directors have recommended the payment of a 1.0 cent final dividend of $11.6 million. This represents a total of $23.1 million (2.0 cents per share) fully franked dividend for the year-end 31 December 2018. The final dividend was declared NIL conduit foreign income and will be paid on 29 March 2019. 64 PB 2018 Annual Report « Grange Resources Limited Franked Dividends The final dividends recommended after 31 December 2018 will be fully franked out of existing franking credits, or out of franking credits arising from the payment of income tax in the year ending 31 December 2018. Franking credits available for subsequent reporting periods Based on a tax rate of 30% (2017 – 30%) 2018 $’000 12,269 2017 $’000 14,097 The above amounts are calculated from the balance of the franking account as at the end of the reporting period, adjusted for franking credits and debits that will arise from the settlement of liabilities or receivables for income tax and dividends after the end of the year. NOTE 27. NON-CONTROLLING INTEREST Non-controlling interest pertains to the 49% interest in Grange ROC Property Pty Ltd. This entity is involved in the development and construction of apartments. prestige apartment. Construction has commenced, and 2 units have been pre-sold. The project is planned to be fully constructed and sold in 2019. As at 31 December 2018, there are three projects which are 100% owned by Grange ROC Property Pty Ltd : Grange ROC Property Pty Ltd is a controlled entity and therefore is fully consolidated as the Group has: i. Lumley Court which will construct a 3-level, 5 units prestige apartment. Construction has commenced, and 2 units have been pre-sold. The project is planned to be fully constructed and sold in 2019. ii. Brookville Road which will construct a 3-level prestige residential apartment and is in the planning approval stage. iii. GRP Malvern Road which will construct a 3-level, 8 units i. Exposure, or rights, to variable returns from its involvement with the other partner in the arrangement; ii. Power over the entity (i.e., existing rights that give it the current ability to direct the relevant activities of the entity); and iii. The ability to use its powers over the entity to affect its return. NOTE 28. 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 2018, 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 at 31 December 2018: Assumptions 2019 2020 - 2024 Iron ore pellets (FOB Port Latta) (US$ per DMT) AUD:USD exchange rate Post-tax real discount rate US$115.83 US$98.30 – US$108.77 $0.7375 $0.7730 9.10% 31 December 2018 Long Term 2025+ US$106.95 $0.78 65 PB 2018 Annual Report « Grange Resources Limited NOTE 30. COMMITMENTS AND CONTINGENCIES a) Tenement expenditure commitments 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: Grange Resources Limited » 2018 Annual Report 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 2018. (iv) Sensitivity analysis 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 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 2018: c) Operating lease expenditure commitments 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 $16.71 million $25.38 million $13.10 million $10.18 million Within one year After one year but not more than five years 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. NOTE 29. 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. 2018 $’000 291 42 23 356 13 5 374 2017 $’000 293 41 5 339 - - 339 Assurance services PwC Australia Audit and review of financial reports Other assurance services Network firms of PwC Australia Total assurance services Non-assurance services PwC Australia Other consulting services Taxation compliance services Total remuneration paid 66 PB 2018 $’000 688 2,188 2,876 2018 $’000 15,801 - 15,801 2018 $’000 123 422 545 2017 $’000 689 2,201 2,890 2017 $’000 11,271 - 11,271 2017 $’000 140 381 521 PB 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 (2017: $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 $3,122,535 (2017: $3,097,941). 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 (2017: $2,800,000). This amount is a guarantee against the purchase price outstanding with the Tasmanian government as No material losses are anticipated in respect to the above bank guarantees and the rehabilitation provisions include these specified in the Goldamere Agreement. amounts. e) Contingent Assets and Liabilities The Group did not have any contingent assets or liabilities at the Balance Sheet Date. 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. Grange Resources Limited » 2018 Annual Report Commodity prices and foreign exchange rates Commodity prices and foreign exchange rates are estimated with reference to analysis performed by an external party and a) Tenement expenditure commitments NOTE 30. COMMITMENTS AND CONTINGENCIES 2018 Annual Report « Grange Resources Limited 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 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 b) Capital expenditure commitments The Group has conducted a carrying value analysis and has not identified further impairment to its net assets carrying value After one year but not more than five years Within one year Discount rate asset. (iii) Impacts as at 31 December 2018. (iv) Sensitivity analysis It is estimated that changes in the following key assumptions would have the following approximate impact on the fair value c) Operating lease expenditure commitments $16.71 million $25.38 million $13.10 million $10.18 million Within one year After one year but not more than five years 2018 $’000 688 2,188 2,876 2018 $’000 15,801 - 15,801 2018 $’000 123 422 545 2017 $’000 689 2,201 2,890 2017 $’000 11,271 - 11,271 2017 $’000 140 381 521 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 (2017: $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 $3,122,535 (2017: $3,097,941). 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 (2017: $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. 67 PB of the Savage River CGU as at 31 December 2018: 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 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. NOTE 29. 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. 2018 $’000 291 42 23 356 13 5 374 2017 $’000 293 41 5 339 - - 339 Assurance services PwC Australia Audit and review of financial reports Other assurance services Network firms of PwC Australia Total assurance services Non-assurance services PwC Australia Other consulting services Taxation compliance services Total remuneration paid PB Grange Resources Limited » 2018 Annual Report NOTE 31. 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 32. c) Key management personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits Long-term incentives 2018 $ 1,874,252 143,232 58,942 103,235 2,179,661 Detailed remuneration disclosures are provided in the remuneration report on pages 27 to 34. d) Transactions with related parties During the year the following transactions occurred with related parties: Sales of iron ore products(1) Agency commissions – Spot Sales 2018 $ 149,394,404 (51,947) 2017 $ 1,596,973 127,816 44,286 81,170 1,850,245 2017 $ 117,991,116 - (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, 1,014,306 dry metric tonnes of iron ore products were sold to Shagang in accordance with the terms of the long term off-take agreements (2017: 935,449 dry metric tonnes) 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 $ 2018 $ Trade receivables (sales of iron ore products) Pellets Others (2,772,327) - (2,772,327) 13,069,589 (57,519) 13,012,070 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 (2017: 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 28 February 2019, holds 46.68% (27 February 2018: 46.68%) 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, transactions between Shagang and Grange must be approved by non-associated shareholders of Grange, or approved by the Grange independent directors. 68 PB 2018 Annual Report « Grange Resources Limited • seaborne iron ore supply and demand conditions; and appointed by Grange directors and management • available published price benchmarks for iron ore; and • product quality differentials and potential freight costs. all Grange shareholders. independent of related parties, acting in the best interests of As set out in the Grange Notice of Meeting dated 5 November 2008, transactions between Shagang and Grange must be approved by non-associated shareholders of Grange, 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 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. NOTE 32. 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 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 Grange ROC Property Pty Ltd 2018 % 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. (1) (2) Grange Developments Sdn Bhd is incorporated in Malaysia. 2017 % 100 100 100 100 100 100 100 100 100 100 100 100 100 - - PB Grange Resources Limited » 2018 Annual Report NOTE 31. RELATED PARTY TRANSACTIONS a) Ultimate Parent b) Subsidiaries Interests in subsidiaries are set out in note 32. c) Key management personnel compensation Grange Resources Limited (Grange) is the ultimate Australian parent company. Short-term employee benefits Post-employment benefits Long-term benefits Long-term incentives Detailed remuneration disclosures are provided in the remuneration report on pages 27 to 34. d) Transactions with related parties During the year the following transactions occurred with related parties: 2018 $ 1,874,252 143,232 58,942 103,235 2,179,661 2018 $ 149,394,404 (51,947) 2018 $ (2,772,327) - (2,772,327) 2017 $ 1,596,973 127,816 44,286 81,170 1,850,245 2017 $ - 117,991,116 2017 $ 13,069,589 (57,519) 13,012,070 Sales of iron ore products(1) Agency commissions – Spot Sales (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, 1,014,306 dry metric tonnes of iron ore products were sold to Shagang in accordance with the terms of the long term off-take agreements (2017: 935,449 dry metric tonnes) 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: Trade receivables (sales of iron ore products) Pellets Others Amounts outstanding under the long term off-take agreement Pellets 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 The key terms of the agreement with Shagang, as advised to the ASX on 19 November 2012, are as follows: cash. The credit balance of the receivables represents the • The sale of 1 million dry metric tonnes of iron ore pellets final price adjustments due to the quotation periods and final per annum until 2022. 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 (2017: Nil). • • • 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; 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 28 February 2019, holds 46.68% (27 February 2018: 46.68%) of the issued ordinary shares of Grange. and costs. • product quality differentials and potential freight As set out in the Grange Notice of Meeting dated 5 November 2008, transactions between Shagang and Grange must be approved by non-associated shareholders of Grange, or approved by the Grange independent directors. PB 2018 Annual Report « Grange Resources Limited • seaborne iron ore supply and demand conditions; • available published price benchmarks for iron ore; and • product quality differentials and potential freight costs. and appointed by Grange directors and management independent of related parties, acting in the best interests of all Grange shareholders. As set out in the Grange Notice of Meeting dated 5 November 2008, transactions between Shagang and Grange must be approved by non-associated shareholders of Grange, 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 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. NOTE 32. 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 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 Grange ROC Property Pty Ltd 2018 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 (1) (2) 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. 2017 % 100 100 100 100 100 100 100 100 100 100 100 100 100 - - 69 PB Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited NOTE 33. INTEREST IN JOINT OPERATIONS NOTE 35. EARNINGS PER SHARE 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 % Interest 2018 70.00 31.15 30.00 30.00 30.00 15.00 % Interest 2017 70.00 31.15 30.00 30.00 30.00 15.00 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. 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. NOTE 34. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES 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 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 2018 $’000 112,938 1,298 7,767 26,094 531 332 (6,874) 5,573 2,213 (5,536) 1,797 1,455 19,794 167,382 2017 $’000 60,713 1,326 3,574 16,289 45 (46) 7,423 386 (27,625) 1,817 1,694 789 4,841 71,226 70 PB 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 Profit (loss) attributable to the ordinary equity holders of the Company used in calculating basic earnings per share from continuing operations Diluted earnings per share 2018 Cents 9.79 9.79 2018 $’000 113,325 Profit attributable to the ordinary equity holders of the Company used in calculating diluted earnings per share from continuing operations 113,325 60,713 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 NOTE 36. PARENT ENTITY FINANCIAL INFORMATION a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: 2018 2017 1,157,338,698 1,157,338,698 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 *Figure includes dividends declared and approved for the corresponding year of $9m. **Includes final FY 2017 dividend declared March 2018 of $14.6m. b) Contingent liabilities of the parent entity Other contingent liabilities 2018 $’000 3,131 316,688 26,495 58,620 392,475 31,191 (165,598) 258,068 37,878** 37,878** 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. 2017 Cents 5.25 5.25 2017 $’000 60,713 2017 $’000 6,059 277,798* 2,315 34,456 392,475 31,191 (180,324)* 243,342 6,384* 6,384* PB Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited Name of Joint Operation Reward – Copper / Gold Highway – Copper Reward Deeps / Conviction – Copper Mt Windsor Exploration – Gold / Base Metals Durack / Wembley – Exploration Gold 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. 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. NOTE 33. INTEREST IN JOINT OPERATIONS NOTE 35. EARNINGS PER SHARE % Interest % Interest Southdown Magnetite and Associated Pellet Project(s) – Iron Ore 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 The joint operations are not separate legal entities. They are contractual arrangements between the participants for the a) Reconciliations of earnings used in calculating earnings per share Profit (loss) attributable to the ordinary equity holders of the Company used in calculating basic earnings per share from continuing operations Diluted earnings per share 2018 Cents 9.79 9.79 2018 $’000 113,325 2017 Cents 5.25 5.25 2017 $’000 60,713 NOTE 34. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH INFLOW b) Weighted average number of shares used as the denominator FROM OPERATING ACTIVITIES Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share NOTE 36. PARENT ENTITY FINANCIAL INFORMATION a) Summary financial information 2018 2017 1,157,338,698 1,157,338,698 The individual financial statements for the parent entity show the following aggregate amounts: Profit attributable to the ordinary equity holders of the Company used in calculating diluted earnings per share from continuing operations 113,325 60,713 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 *Figure includes dividends declared and approved for the corresponding year of $9m. **Includes final FY 2017 dividend declared March 2018 of $14.6m. b) Contingent liabilities of the parent entity Other contingent liabilities 2018 $’000 3,131 316,688 26,495 58,620 392,475 31,191 (165,598) 258,068 37,878** 37,878** 2017 $’000 6,059 277,798* 2,315 34,456 392,475 31,191 (180,324)* 243,342 6,384* 6,384* 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. 71 PB 2018 70.00 31.15 30.00 30.00 30.00 15.00 2018 $’000 112,938 1,298 7,767 26,094 531 332 (6,874) 5,573 2,213 (5,536) 1,797 1,455 19,794 167,382 2017 70.00 31.15 30.00 30.00 30.00 15.00 2017 $’000 60,713 1,326 3,574 16,289 45 (46) 7,423 386 (27,625) 1,817 1,694 789 4,841 71,226 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 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 PB Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited NOTE 37. EVENTS OCCURRING AFTER THE REPORTING PERIOD No matter or circumstance has arisen since 31 December 2018 that has significantly affected, or may significantly affect: • • • the Group’s operations in future financial years; or the results of those operations in future financial years; or the Group’s state of affairs in future financial years. DIRECTORS’ DECLARATION In the Directors’ opinion: a) the financial statements and notes set out on pages 37 to 72 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 2018 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, 28 February 2019 72 PB Independent auditor’s report To the members of Grange Resources Limited Independent auditor’s report Report on the audit of the financial report To the members of Grange Resources Limited Our opinion Report on the audit of the financial report In our opinion: Our opinion 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: (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 2018 and of its entities (together the Group) is in accordance with the Corporations Act 2001, including: financial performance for the year then ended (b) (a) 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 financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises: What we have audited the statement of financial position as at 31 December 2018 • The Group financial report comprises: the statement of comprehensive income for the year then ended • the consolidated statement of financial position as at 31 December 2017 the statement of changes in equity for the year then ended the consolidated statement of comprehensive income for the year then ended the 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 financial statements, which include a summary of significant accounting policies the consolidated statement of cash flows for the year then ended the directors’ declaration. the notes to the consolidated financial statements, which include a summary of significant We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under the directors’ declaration. 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 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for those standards are further described in the Auditor’s responsibilities for the audit of the financial Basis for opinion accounting policies Basis for opinion report section of our report. our opinion. report section of our report. Independence our opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for 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 Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant Independence to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities We are independent of the Group in accordance with the auditor independence requirements of the in accordance with the Code. 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 Our audit approach to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. 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 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 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 Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited Independent auditor’s report To the members of Grange Resources Limited Independent auditor’s report Report on the audit of the financial report To the members of Grange Resources Limited Our opinion Report on the audit of the financial report In our opinion: Our opinion 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: (a) giving a true and fair view of the Group's financial position as at 31 December 2018 and of its The accompanying financial report of Grange Resources Limited (the Company) and its controlled financial performance for the year then ended entities (together the Group) is in accordance with the Corporations Act 2001, including: (b) (a) 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 financial performance for the year then ended What we have audited (b) The Group financial report comprises: complying with Australian Accounting Standards and the Corporations Regulations 2001. the statement of financial position as at 31 December 2018 the statement of comprehensive income for the year then ended the consolidated statement of financial position as at 31 December 2017 the statement of changes in equity for the year then ended the consolidated statement of comprehensive income for the year then ended the 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 financial statements, which include a summary of significant accounting policies the consolidated statement of cash flows for the year then ended the directors’ declaration. the notes to the consolidated financial statements, which include a summary of significant accounting policies What we have audited • The Group financial report comprises: •  •  •  •  •  Basis for opinion  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. the directors’ declaration. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for those standards are further described in the Auditor’s responsibilities for the audit of the financial our opinion. report section of our report. Independence We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for We are independent of the Group in accordance with the auditor independence requirements of the our opinion. 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 Independence to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities We are independent of the Group in accordance with the auditor independence requirements of the in accordance with the Code. 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 Our audit approach to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. 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 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 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. 73 PB NOTE 37. EVENTS OCCURRING AFTER THE REPORTING PERIOD No matter or circumstance has arisen since 31 December 2018 that has significantly affected, or may significantly affect: • • • the Group’s operations in future financial years; or the results of those operations in future financial years; or the Group’s state of affairs in future financial years. DIRECTORS’ DECLARATION In the Directors’ opinion: including: requirements, and a) the financial statements and notes set out on pages 37 to 72 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 2018 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, 28 February 2019 PB Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited 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 • • 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 $6.6 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 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 We evaluated the cash flow forecasts in the model and generating unit (CGU) Refer to Note 28 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 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 2036) and budget. amount to the statement of financial position. There were In order to assess the Group’s ability to make reliable also a number of factors in the impairment assessment forecasts, we compared current year (2018) actual requiring 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 2036 (Life of Mine). During the year ended 31 December 2018, 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 28. forecasts (2017). 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 We obtained the Group’s calculation of the Refer to Note 21 and 23 ($60.1 million) rehabilitation obligation (the model). We checked 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 $54.6 million (non-current) and $5.5 million (current), for a total of $60.1 million. Given the significance of this balance and the business. complexities and uncertainties outlined below, our examination of the provision for rehabilitation was a key audit matter. the timing of the cash flows in the model for consistency with the current Life of Mine plan. We compared the discount rate used to 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. We compared the Group’s assumptions on rehabilitation costs to other similar costs in the 74 PB PB Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited 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 • 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 $6.6 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 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 Impairment assessment for the Savage River cash generating unit (CGU) Refer to Note 28 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 amount to the statement of financial position. 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 2036 (Life of Mine). During the year ended 31 December 2018, 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 28. Accounting for the cost of rehabilitation Refer to Note 21 and 23 ($60.1 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 $54.6 million (non-current) and $5.5 million (current), for a total of $60.1 million. 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. How our audit addressed the key audit matter 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 2036) and budget. In order to assess the Group’s ability to make reliable forecasts, we compared current year (2018) actual results with the figures included in the prior year forecasts (2017). 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. 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 compared the discount rate used to 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. We compared the Group’s assumptions on rehabilitation costs to other similar costs in the business. PB 75 PB Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited Key audit matter How our audit addressed the key audit matter 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. 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 2018, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included About Grange, 2018 Overview, 2019 Priorities, About the Grange Business, Chairperson’s and Chief Executive Officer’s Review, Tenement Schedule, ASX Additional Information and List of Significant ASX Announcements. We expect the remaining other information to be made available to us after the date of this auditor's report. 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 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 that we 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, 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. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In 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 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 9 to 15 of the directors’ report for the year ended 31 December 2018. In our opinion, the remuneration report of Grange Resources Limited for the year ended 31 December 2018 complies with section 300A of the Corporations Act 2001. 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. PricewaterhouseCoopers Amanda Campbell Partner Melbourne 28 February 2019 76 PB PB Grange Resources Limited » 2018 Annual Report 2018 Annual Report « Grange Resources Limited Key audit matter How our audit addressed the key audit matter 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. 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 2018, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included About Grange, 2018 Overview, 2019 Priorities, About the Grange Business, Chairperson’s and Chief Executive Officer’s Review, Tenement Schedule, ASX Additional Information and List of Significant ASX Announcements. We expect the remaining other information to be made available to us after the date of this auditor's report. 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 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 that we 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, 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. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In 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 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 9 to 15 of the directors’ report for the year ended 31 December 2018. In our opinion, the remuneration report of Grange Resources Limited for the year ended 31 December 2018 complies with section 300A of the Corporations Act 2001. 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. PricewaterhouseCoopers Amanda Campbell Partner Melbourne 28 February 2019 PB 77 PB Grange Resources Limited » 2018 Annual Report TENEMENT SCHEDULE AS AT 28 FEBRUARY 2019 LIST OF SIGNIFICANT ASX ANNOUNCEMENTS FROM 1 JANUARY 2018 THROUGH TO 15 MARCH 2019 2018 Annual Report « Grange Resources Limited 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 Limited 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 Limited 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) PROSPECT TASMANIA Savage River WESTERN AUSTRALIA Southdown Wembley Horseshoe Lights Abercromby Well Red Hill Freshwater Pilbara QUEENSLAND Mt Windsor JV NORTHERN TERRITORY Mt Samuel True Blue Aga Khan Black Cat 78 PB Date Announcement 1/03/2019 Initial Director's Interest Notice 1/03/2019 Director Appointment 28/02/2019 Corporate Governance Statement 28/02/2019 Dividend/Distribution - GRR 28/02/2019 Appendix 4G 28/02/2019 Grange Full Yr Statutory Accts 12 Months Ended 31 Dec 2018 28/02/2019 Grange Resources Limited Appendix 4E - 31 December 2018 23/01/2019 GRR - Quarterly Report for 3 months ended 31 December 2018 24/10/2018 GRR - Quarterly Report for 3 months ended 30 September 2018 28/09/2018 Change in substantial holding 28/08/2018 Dividend/Distribution - GRR 28/08/2018 Half Yearly Report and Accounts 28/08/2018 Appendix 4D - Half Year Ending 30 June 2018 26/07/2018 GRR - Quarterly Report for 3 months ended 30 June 2018 26/06/2018 Corporate Governance Statement 30/05/2018 Results of Meeting 30/05/2018 AGM Presentation 3/05/2018 Change of Director's Interest Notice 27/04/2018 Notice of Annual General Meeting/Proxy Form 26/04/2018 GRR - Quarterly Report for 3 months ended 31 March 2018 23/04/2018 Annual Report to shareholders 3/04/2018 Updated Resource & Reserve Statement - Savage River 29/03/2018 Change in substantial holding 26/03/2018 Change of Director's Interest Notice 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 Dec 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 PB (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 Limited 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 Limited Royalty interest with Santexco Pty Ltd Royalty interest with Giants Reef Exploration Pty Ltd Grange Resources Limited » 2018 Annual Report TENEMENT SCHEDULE AS AT 28 FEBRUARY 2019 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) PROSPECT TASMANIA Savage River WESTERN AUSTRALIA Southdown Wembley Horseshoe Lights Abercromby Well Red Hill Freshwater Pilbara QUEENSLAND Mt Windsor JV NORTHERN TERRITORY Mt Samuel True Blue Aga Khan Black Cat PB LIST OF SIGNIFICANT ASX ANNOUNCEMENTS FROM 1 JANUARY 2018 THROUGH TO 15 MARCH 2019 2018 Annual Report « Grange Resources Limited Date Announcement 1/03/2019 Initial Director's Interest Notice 1/03/2019 Director Appointment 28/02/2019 Corporate Governance Statement 28/02/2019 Dividend/Distribution - GRR 28/02/2019 Appendix 4G 28/02/2019 Grange Full Yr Statutory Accts 12 Months Ended 31 Dec 2018 28/02/2019 Grange Resources Limited Appendix 4E - 31 December 2018 23/01/2019 GRR - Quarterly Report for 3 months ended 31 December 2018 24/10/2018 GRR - Quarterly Report for 3 months ended 30 September 2018 28/09/2018 Change in substantial holding 28/08/2018 Dividend/Distribution - GRR 28/08/2018 Half Yearly Report and Accounts 28/08/2018 Appendix 4D - Half Year Ending 30 June 2018 26/07/2018 GRR - Quarterly Report for 3 months ended 30 June 2018 26/06/2018 Corporate Governance Statement 30/05/2018 Results of Meeting 30/05/2018 AGM Presentation 3/05/2018 Change of Director's Interest Notice 27/04/2018 Notice of Annual General Meeting/Proxy Form 26/04/2018 GRR - Quarterly Report for 3 months ended 31 March 2018 23/04/2018 Annual Report to shareholders 3/04/2018 Updated Resource & Reserve Statement - Savage River 29/03/2018 Change in substantial holding 26/03/2018 Change of Director's Interest Notice 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 Dec 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 79 PB Grange Resources Limited » 2018 Annual Report 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 18 February 2019 except where otherwise indicated. ORDINARY SHARES Twenty Largest Shareholders as at 18 February 2019 Distribution of Equity Securities The twenty largest holders of ordinary fully paid shares are listed below: Analysis of number of shareholders by size and holding: Number % 540,225,987 46.68 1 - 1,000 Ordinary Director Employee Shares Options - 464 Other Options Options - - Name Shagang International (Australia) Pty Ltd (Australia) Pacific International Co (Hong Kong) Realindex Investments Pty Ltd (Australia) RGL Holdings Ltd (Hong Kong) Nero Resource Fund Pty Ltd (Australia) 79,909,035 39,601,568 24,085,466 17,460,511 DFA Australia Ltd (Australia) 16,650,398 ABN AMRO Bank NV (Netherlands) Coöperatieve Rabobank U.A. (Netherlands) Interactive Brokers Bank Julius Baer & Co. AG (Switzerland) UBS AG Switzerland (Switzerland) IFM Investors Pty Ltd (Australia) Credit Suisse AG (Switzerland) 15,648,883 10,254,881 9,804,413 9,763,941 9,311,077 7,957,731 7,669,720 Mr Adam Garrigan (Australia) 7,500,000 JPMorgan Chase Bank 7,200,000 Dimensional Fund Advisors LP (United States) 7,167,862 Morgan Stanley & Co. International Plc (United Kingdom) LSV Asset Management (United States) 6.90 3.42 2.08 1.51 1.44 1.35 0.89 0.85 0.84 0.80 0.69 0.66 0.65 0.62 0.62 1,001 - 10,000 10,001 - 100,000 100,001 - and over 2,069 2,156 463 Total 5,152 - - - 0 - - - 0 - - - 0 The number of shareholders holding less than a marketable parcel of Ordinary Shares at 15 March 2019 was 686. 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 18 February 2019 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 | | >564,311,453 48.76% | Pacific International Co 79,909,035 6.90% Securities Subject to Voluntary Escrow The following securities are subject to voluntary escrow: Class of Security Number of Securities Escrow period ends 6,409,202 0.55 6,183,400 0.53 Fully Paid Ordinary Shares Nil Not applicable APAC Resources Commodity Trading Limited (China) 5,800,000 Mrs Karen Hislop (Australia) 5,681,548 Sub-total 834,285,623 0.50 0.49 72.09 80 PB 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 

Continue reading text version or see original annual report in PDF format above