More annual reports from Lynas Rare Earths:
2023 ReportCORPORATE DIRECTORY
ACN 009 066 648
Registered Offi ce
Suite 3/5 Tully Road
East Perth WA 6004 Australia
Tel: +61 8 6241 3800
Fax: +61 8 9225 6842
general@lynascorp.com
Principal Administrative Offi ce
PT17212 Jalan Gebeng 3
Kawasan Perindustrian Gebeng
26080 Kuantan, Pahang Darul Makmur
Malaysia
Tel: +60 9 582 5200
Fax: +60 9 582 5291
general@lynascorp.com
Share Register
Boardroom Pty Ltd
Level 12, Grosvenor Place
225 George Street
Sydney NSW 2000 Australia
Tel: +61 2 9290 9600
Fax: +61 2 9290 9655
Auditors
Ernst & Young
The EY Centre
200 George Street
Sydney NSW 2000
enquiries@boardroomlimited.com.au
www.lynascorp.com
2017
ANNUAL
REPORT
Contents
Letter from the Chairman
CEO Review
Directors’ Report
Corporate Governance Statement
Remuneration Report – Audited
Directors’ Declaration
Auditor’s Independence Declaration
Auditor’s Report
Financial Statements
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Mineral Resources and Ore Reserves
Additional Information
Corporate Directory Information
2
5
8
20
29
41
42
43
47
48
49
50
51
52
98
101
104
11
Lynas Corporation Limited | 2017 Annual ReportLetter from the Chairman
I am pleased to present this year’s annual report to the
shareholders of Lynas Corporation. This year has marked the
completion of a significant turnaround of the business and
the consolidation of Lynas’ position as the second largest
NdPr producer in the world.
As a result of the successful execution of strategies to improve the production process,
market position, cost management and debt arrangements, the company achieved record
sales and earnings results which, in turn, facilitated significant improvements to the
balance sheet of the company.
I said to you last year that the greatest challenge to our business was the continued low
pricing for our products. While those challenging market conditions continued into the
first half of FY2017, the second six months of the year was marked by improved market
conditions and a steady increase in the global price of rare earths, including in Lynas’
highest value product neodymium-praseodymium (NdPr). Many factors contributed
to this increase including supply side action taken by the China central government to
enforce environmental and licensing regulations throughout the rare earths industry.
This has translated to the forced closure of a number of separation units and better
control of resources.
A further factor contributing to the improved pricing was continued strong demand for
magnetic materials. Demand for permanent magnets continues to grow based on their
use in a range of applications, including electric and hybrid vehicles and wind turbines.
Demand in these segments is forecast to continue to grow, with consumer demand,
and with government and car manufacturers’ initiatives, accelerating the growth in the
market for electric and hybrid vehicles. For example, France and the U.K. have declared
they will end the sale of petrol and diesel cars by 2040 and car manufacturer Volvo has
announced it will make only fully electric or hybrid cars from 2019. A report published
in May this year by UBS estimates that the global fleet of electric cars will grow from
about two million today to 14.2 million by 2025. As the largest supplier of NdPr to the
open market, Lynas is ideally positioned to be a key supplier of magnetic materials in
this market.
The Company’s resource deposit in Mt Weld Western Australia, is acknowledged as the
highest grade rare earths mine in the world with an estimated life of 25 years. During
the year, Lynas completed a second mining campaign at Mt Weld on time and below
budgeted cost. The campaign, a simple depth extension of the current pit, secured a
further 240,000 tonnes of ore at an average grade of 17.6% REO. Processing operations
at the Lynas Advanced Materials Plant (LAMP) in Malaysia have continued to improve
and throughout the year the LAMP achieved sustained, stable throughput of product
to customer specification. Lynas now presents itself to its global customers as the
only miner and processor of rare earths outside China. Importantly, we can assure our
customers that Lynas delivers a sustainable and reliable supply of quality rare earth
materials with every bag traceable all the way back to the mine.
22
www.lynascorp.com
www.lynascorp.com“ Current market
prices and
structural
demand
dynamics for
our products
support cautious
optimism for the
year ahead. ”
Lynas is committed to the communities in which it operates. Since the commencement
of its operations in 2012, the LAMP has undergone detailed environmental monitoring
and has consistently met regulatory requirements that confirm it is safe for employees,
the community and the environment. Lynas continues to work to ensure that all facilities
are operated in ways that are consistent with best practice sustainability principles. Over
the course of the year, the Company maintained a very good safety record, with the
Company-wide 12-month rolling Lost Time Injury Frequency Rate, as at the end of June
2017, at 2.2 per million hours worked.
As foreshadowed at last year’s AGM, we have implemented a refresh of the Board in
recent months. Jake Klein retired as a Non-Executive Director on 15 May 2017 after
12 years of service. At that time, Professor John Humphrey was appointed to the Board
as a new Non-Executive Director. I am delighted to welcome Professor Humphrey to the
Lynas Board.
On 7 September 2017, we announced that, with effect from the Lynas AGM on
28 November 2017, Liam Forde will stand down after 10 years of service as a
Non-Executive Director of the Company. At that time we announced the appointment
of Grant Murdoch as a Non-Executive Director, with effect from 30 October 2017.
When Liam leaves the Board, Grant Murdoch, who has extensive experience in chartered
accountancy and audit, will become the Chairman of the Lynas Audit & Risk Committee.
33
Lynas Corporation Limited | 2017 Annual ReportI encourage you to read more about the impressive experience and skills that Professor
John Humphrey and Grant Murdoch bring to Lynas in the Directors’ Report section of
this Annual Report and in our announcement dated 7 September 2017.
Along with my fellow Board members, I would like to take this opportunity to recognise
and thank Jake and Liam for their long-standing service to Lynas. We wish them both the
very best for the future.
The Board remains extremely supportive of our Chief Executive, Amanda Lacaze, and her
entire team, who have delivered impressive strategic and operational improvements as
well as maintaining positive relationships with our key lenders in order to progressively
deleverage the balance sheet. I encourage you to read Amanda’s review that provides
more detail and we look forward to updating you further in the coming months.
Lynas is committed to delivering value for our customers and our shareholders, to
contributing positively to the communities of Mt Weld and Kuantan, and to providing
a safe and rewarding workplace for our people. Current market prices and structural
demand dynamics for our products support cautious optimism for the year ahead. We
have a strong management team and the dedicated workforce in place to realise the
potential for our Company.
Mike Harding
Chairman
Letter from the Chairman
4
www.lynascorp.comCEO Review
At the close of FY17, I am pleased to report that Lynas has
achieved each of the goals we set out at the beginning of the
financial year and we have improved and strengthened the
business on all operational measures.
Lynas is the second largest NdPr producer in the world and the largest supplier of
NdPr to the free market. Importantly, we are no longer a turnaround, nor are we in
start-up mode. In FY16, the Lynas team brought the final NdPr separation line (SX5
Train 4) into production. In FY17, the team has progressively improved operations
to deliver stable production and improved high quality final output at the LAMP.
The production of NdPr was 5,223 tonnes in FY17 compared to 3,896 tonnes in FY16.
The total production of rare earths oxide (REO) in FY17 was 16,003 tonnes up from
12,631 tonnes in FY16 and reflects the positive benefits of a full year with a fourth
SX5 train operational. NdPr production was above design rate production for 3 out
of 4 quarters in FY17.
Our mining and processing operations in Mt Weld continued to operate safely and
efficiently throughout the year. Mt Weld delivered successive months of record
production by continually improving plant performance and operation. We undertook
a second mining campaign, commencing in January 2017 and completed in May 2017,
below budgeted cost. The campaign was a depth extension of the initial pit to extract
additional CZ (Central Zone) ore not mined during the initial campaign. No overburden
removal was required and the campaign successfully mined approximately 240,000
tonnes of ore at 17.6% REO.
Lynas has continued to strengthen customer relationships in all jurisdictions. We engage
closely with our global customers to promote rare earths technology and to facilitate
product innovation and development as part of the manufacturing process. The record
total sales revenue after sales commission in FY17 of $257.0 million, compared with
$191.0 million in FY16, is a reflection of the increased production volumes, together
with the strong relationship with strategic customers in Japan and China.
With strong sales revenue and cost management disciplines in place, the company
achieved positive cash flows from operating activities of $34.0 million in FY17, a
significant improvement on FY16’s $4.1 million.
It was most pleasing to achieve a positive adjusted EBITDA of $31.9 million for the full
year – a first for the company after many years of negative EBITDA as the company
moved through its start-up phase. Note 6 in the Financial Report contains more
details. Marginally positive in the first 6 months at $2.5 million, EBITDA performance
accelerated through the second half, finishing the year with strong momentum, and at
a significant improvement on the FY16 adjusted EBITDA loss of $9.0m.
5
Lynas Corporation Limited | 2017 Annual ReportCEO Review
“ Lynas has now
been operating
safely for 5 years
in a way that is
safe for workers,
safe for the
community
and safe for the
environment.”
6
During the financial year, we successfully negotiated a further extension of both of
Lynas’ debt facilities until mid-2020 and significant reductions in the interest rates
attached to those facilities, reflecting the support of both lender groups. The debt
amendments have reset the balance sheet and better positioned the company for
future growth.
Lynas has now been operating safely for 5 years in a way that is safe for workers, safe
for the community and safe for the environment. During that time, we have continued
to improve relationships with the local communities in both our operating locations.
We have engaged extensively in community programs, including raising awareness
of our commitment and activities via national media, social media, community days,
site visits and our support of programs for students, the elderly and disadvantaged
members of the local communities. We have gained a high level of understanding and
acceptance among our local communities.
The responsible management of residues at both facilities is important, and continues
to be an area of focus. The residue management plan for the LAMP was approved by
the Malaysian regulatory authority, the Malaysian Atomic Energy Licensing Board
(AELB)and is being implemented under its guidance as well as guidance from other
regulatory bodies including the Department of Environment with the participation of
established national and international research organisations.
At every stage we have met all licence conditions relating to the operational and
environmental performance of the facility and in September 2016, the AELB renewed
Lynas’ Full Operating Stage Licence (FOSL) for the LAMP for a further 3 years until
September 2019. As part of an ongoing commitment to the Malaysian community,
Lynas has a requirement to place funds on deposit with the AELB for management of
residues, as outlined in Notes 18 and 32 of the financial report.
Of course the operation of our processing plants at Mt Weld and in Malaysia would not
be possible without our dedicated employees.
At Lynas, we actively support the local communities in which we operate by creating
shared value wherever possible. We do this by providing sustainable employment and
business opportunities.
Over the course of the year, our workforce at Mt Weld has increased to 92, including
our full time employees and those on contract. The second mining campaign was
completed by our outsourced partner, Kalgoorlie based, Hampton Mining and Civil
Services, safely, on time and on budget. We look forward to continuing our productive
relationship with Hamptons as we commence our next phase of mining operations.
Also, during the year, we relocated our mining camp and are now based in a camp in
Laverton, our closest community, allowing our workforce to engage more broadly with
the community, including social and economic activities.
www.lynascorp.com“ The experience
and success we
have achieved as a
team over the past
year demonstrates
our ability to
expertly mine and
process our unique
rare earth ore.”
In Malaysia, we source over 80 per cent of our inputs from local suppliers. Lynas
directly employs over 580 Malaysian staff, employs a further 100 staff through
employment agencies and every year, contributes over RM300 million to the Malaysian
economy and spends over RM2 million on research with local partners.
Other initiatives include consulting with community groups about their priorities for
investing in the local region and how we can help, participating in local associations to
further strengthen our community relationships, and promoting education initiatives to
help create future opportunities for the next generation.
Outlook
The significant operational and production improvements made over FY17 have
confirmed our leading position in the global rare earths market and our reputation
as a highly reliable, sustainable supplier of quality rare earth materials.
The global market conditions have changed. In the second half of the financial year,
we saw momentum in the demand and price of NdPr as this material increased in
importance and relevance in a world more focused on a future of clean energy and the
manufacture of high technology solutions.
Looking ahead, these market conditions are persisting and improving into the first half
of FY18. We will continue to focus on improving recovery and quality of our materials,
and working closely with our customers and end use manufacturers to deliver specified
quality, sustainable rare earths materials.
The experience and success we have achieved as a team over the past year
demonstrates our ability to expertly mine and process our unique rare earth ore.
We have an excellent resource, a reliable and well-performing processing facility, an
engaged customer portfolio and an experienced and dedicated management team.
Lynas has earned its leading position in the industry, and is now able to reap the
benefits of the strong demand and improved market conditions.
Amanda Lacaze
Chief Executive Officer
7
Lynas Corporation Limited | 2017 Annual Report
Directors’ Report
The Board of Directors (the ‘Board’ or the ‘Directors’) of Lynas Corporation Limited (the
‘Company’) and its subsidiaries (together referred to as the ‘Group’) submit their report for the
year ended June 30, 2017. In order to comply with the provisions of the Corporations Act 2001,
the Directors’ report as follows.
DIRECTORS
The names and details of the Company’s Directors who were in office during or since the end of the financial year are as set out below.
All Directors were in office for this entire period unless otherwise stated.
Mike Harding MSc (MecEn) – Chairman
Mr Harding joined the Company as Non-Executive Chairman on January 1, 2015 and has
significant experience with industrial businesses, having previously held management
positions around the world with British Petroleum (BP), including as President and General
Manager of BP Exploration Australia.
Mr Harding is currently Chairman of Downer EDI Ltd, and a Non-Executive Director of
Cleanaway Waste Management Limited (formerly Transpacific Industries Group Ltd). He is
a former Chairman of Roc Oil Company Limited and a former Non-Executive Director of
Santos Limited and Clough Limited.
Amanda Lacaze BA, MAICD – Managing Director
Ms Lacaze was appointed as Managing Director and Chief Executive Officer of the Company
on June 25, 2014 following her appointment as a Non-Executive Director of the Company on
January 1, 2014.
Ms Lacaze brings more than 25 years of senior operational experience to Lynas, including
as Chief Executive Officer of Commander Communications, Executive Chairman of Orion
Telecommunications and Chief Executive Officer of AOL 7. Prior to that, Ms Lacaze was
Managing Director of Marketing at Telstra and held various business management roles at
ICI Australia (now Orica and Incitec Pivot). Ms Lacaze’s early experience was in consumer
goods with Nestle.
Ms Lacaze is currently a Non-Executive Director of ING Bank Australia Ltd and McPherson’s
Ltd, and is a member of Chief Executive Women and the Australian Institute of Company
Directors. Ms Lacaze holds a Bachelor of Arts Degree from the University of Queensland and
postgraduate Diploma in Marketing from the Australian Graduate School of Management.
8
www.lynascorp.comWilliam (Liam) Forde BSc (Econ), MAICD – Non-Executive Director
Mr Forde joined the Company as a Non-Executive Director in December 2007 and was also
the Deputy Chairman of the Company until January 1, 2015. Mr Forde has many years’
experience in senior finance and managerial positions in Ireland and Australia. Mr Forde is a
Director of China Matters Ltd. He is also a former Director of Hastings Funds Management
Limited and Hastings High Yield Fund, and a former Chairman of Hastings Management Pty
Limited.
In addition, Mr Forde is a member of the Australian Institute of Company Directors. Mr Forde
was Chief Executive Officer of the Baulderstone Hornibrook Group from 2002 to 2005,
following 15 years as Chief Financial Officer for the group.
Kathleen Conlon BA (Econ) (Dist.), MBA, FAICD – Non-Executive
Director
Ms Conlon was appointed as a Non-Executive Director from November 1, 2011. Ms Conlon
is currently a Non-Executive Director of REA Group Limited, Aristocrat Leisure Limited and
The Benevolent Society and a former Non-Executive Director of CSR Limited. She is also a
member of Chief Executive Women, former President of the NSW division of the Australian
Institute of Company Directors and a former member of the National Board of the
Australian Institute of Company Directors. Ms Conlon is Chairperson of the audit committee
of the Commonwealth Department of Health. Prior to her Non-Executive Director career,
Ms Conlon spent 20 years in professional consulting where she successfully assisted compa-
nies achieve increased shareholder returns through strategic and operational improvements
in a diverse range of industries.
Ms Conlon is one of the pre-eminent thought leaders in the area of operations and
change management, both in Australia and globally. In 2003, Ms Conlon was awarded the
Commonwealth Centenary medal for services to business leadership.
Philippe Etienne MBA, BSc (Phys) (Pharm) – Non-Executive Director
Mr Etienne joined the Company as a Non-Executive Director on January 1, 2015. He is a
Non-Executive Director of Cleanaway Waste Management Limited (formerly Transpacific
Industries Group Ltd) and the former Managing Director and Chief Executive Officer of
Innovia Security Pty Ltd.
In addition, he was previously Chief Executive Officer of Orica Mining Services and was a
member of Orica Limited’s Executive Committee.
Mr Etienne is a graduate of the Australian Institute of Company Directors. His career includes
senior executive positions with Orica in Australia, the USA and Germany including strategy
and planning and responsibility for synergy delivery of large scale acquisitions.
9
Lynas Corporation Limited | 2017 Annual ReportJohn Humphrey LLB – Non-Executive Director
Professor Humphrey joined the Company as a Non-Executive Director on May 15, 2017.
His key areas of expertise include mergers and acquisitions, corporate finance and corporate
governance.
Professor Humphrey is the Dean of the Faculty of Law at Queensland University of
Technology. He has held Non-Executive Director positions at other listed companies over
many years and is currently Non-Executive Director of Horizon Oil Ltd, Auswide Bank Ltd
(formerly Wide Bay Australia) and Spotless Group Holdings Ltd. His previous positions
include Deputy Chairman of King & Wood Mallesons, Non-Executive Director of Downer EDI
Ltd, Villa World Ltd, and Sunshine Broadcasting Network Ltd and he has served as a member
of the Australian Takeovers Panel.
Jake Klein BCom (Hons), ACA – Non-Executive Director
Mr Klein was a Non-Executive Director of the Company from August 25, 2004 until May
15, 2017. Mr Klein has also been Executive Chairman of Evolution Mining since October
2011, a company formed following the merger of Conquest Mining Limited (of which he was
Executive Chairman from May 2010 until the merger) and Catalpa Resources Limited. Prior
to that, Mr Klein was President and Chief Executive Officer of Sino Gold Mining Limited,
where he managed the development of that company into the largest foreign participant
in the Chinese Gold Industry. Sino Gold Mining Limited was listed on the ASX in 2002 with
a market capitalisation of $100m and was purchased by Eldorado Gold Corporation in late
2009 for over $2 billion. Sino Gold Mining Limited was an ASX 100 company, operating two
award-winning gold mines and engaging over 2,000 employees and contractors in China. Mr
Klein resigned as a Director of Sino Gold Mining Limited in December 2009. Mr Klein was
also a Non-Executive Director of OceanaGold Corporation between December 2009 and
July 2014.
Prior to joining Sino Gold Mining Limited in 1995, Mr Klein was employed at Macquarie
Bank and PricewaterhouseCoopers. Mr Klein is a past president of the NSW Branch of the
Australia China Business Council and previously served on the NSW Asia Business Council.
Resignation
Mr Klein resigned as Non-Executive Director of the Company effective May 15, 2017.
There were no other resignations of Directors during the year and before the date of this report.
COMPANY SECRETARIES
Andrew Arnold
Mr Arnold was appointed as General Counsel and Company Secretary to the Group on July 23, 2008, following 15 years as a lawyer at
Deacons, including six years as a Partner. During that time Mr Arnold also spent two years on secondment at Riddell Williams, Seattle. In his
role at Deacons he had been overseeing the legal work of the Group since 2001. Mr Arnold is the responsible person for communication with
the Australian Securities Exchange (ASX) in relation to listing rule matters.
Ivo Polovineo
Mr Polovineo, appointed as Joint Company Secretary on October 20, 2014, was previously Chief Financial Officer and Company Secretary
for Sino Gold Mining Limited, formerly an ASX 100 company. He was with Sino Gold for 12 years forming part of the executive team. Mr
Polovineo is a Fellow of the Institute of Public Accountants (FIPA) with 35 years’ experience as a CFO and Company Secretary including 25
years in the resources sector. Mr Polovineo is also Company Secretary of Variscan Mines Limited, Silver City Minerals Limited and Thomson
Resources Ltd.
10
www.lynascorp.comDirectors’ ReportREMUNERATION OF KEY MANAGEMENT PERSONNEL
Information about the remuneration of key management personnel is set out in the remuneration report of this Directors’ Report. The term
‘key management personnel’ refers to those persons having authority and responsibility for planning, directing and controlling the activities
of the Group, directly or indirectly, including any Director of the Company.
CORPORATE INFORMATION
The Company is limited by shares and is incorporated and domiciled in Australia. The Group’s corporate structure is as follows:
Lynas Corporation Limited
ACN 009 066 648
ABN 27 009 066 648
Date of Incorporation 23/5/1983
Registered in WA
0.01%
100%
Lynas Services
Pty Ltd
ABN 31 103 936 232
Date of Incorporation
3/3/2003
Registered in Victoria
100%
Mt Weld
Holdings Pty Ltd
ABN 75 073 998 106
Date of Incorporation
15/5/1996
Registered in WA
100%
ACN 053 160
302 Pty Ltd
ABN 73 053 160 302
Pty Ltd
ABN 73 053 160 302
Date of Incorporation
29/7/1991
Registered in NSW
100%
Lynas Malaysia
Sdn Bhd
Malaysian Co
Number 752289D
Date of Incorporation
6/11/2006
Registered in Malaysia
100%
Lynas Africa
Holdings Pty Ltd
ACN 148 189 511
Date of Incorporation
13/1/2011
Registered in Victoria
100%
Mt Weld Mining
Pty Ltd
ABN 96 053 160 400
Date of Incorporation
29/7/1991
Registered in NSW
99.99%
Lynas Africa
Limited
Malawi Co No 8409
Date of Incorporation
12/7/2007
Registered in Malawi
NATURE OF OPERATIONS AND PRINCIPAL ACTIVITIES
The principal activities of the Group are:
•
Integrated extraction and processing of rare earth minerals, primarily in Australia and Malaysia; and
• Development of rare earth deposits.
PERFORMANCE REVIEW
The Directors together with management monitor the Group’s overall performance, from implementation of the strategic plan through to
the operating and financial performance of the Group.
11
Lynas Corporation Limited | 2017 Annual ReportBASIS OF PREPARATION OF FINANCIAL STATEMENTS
This Financial Report has been prepared on the basis of a going concern, subject to certain risks as outlined in note 2.2 to the financial report.
These include production levels, foreign currency exchange rates, regulatory environments in both jurisdictions, and price volatility in the rare
earth markets. In addition, Lynas has significant future repayments under the JARE loan facility and the convertible bond facility, as outlined
in note 2.2 and note 22 to the financial report.
The Directors have concluded that using the going concern assumption remains appropriate after considering the factors summarised above.
REVIEW OF OPERATIONS
Highlights
•
•
Lynas has consolidated its position as the second largest NdPr producer in the world and the largest supplier of NdPr to the free
market with strong customer relationships in all key jurisdictions. The Group achieved record total sales revenue after commission in
FY17 of $257.0m, compared with $191.0m in FY16, reflecting increased production volumes and continuing strong relationships with
strategic customers in Japan and China.
Positive improvements in the production process, throughput rates and quality of final output continued in FY17. Ready for sale
production of neodymium-praseodymium (NdPr) was 5,223 tonnes in FY17 compared to 3,896 tonnes in FY16.Total ready for sale
production of rare earth oxide (REO) in FY17 was 16,003 tonnes compared to 12,631 tonnes in FY16.
Positive cash flows from operating activities increased to $34.0m in FY17 from $4.1m.
•
• Costs remained well managed throughout the year, with general and administration expenses excluding depreciation of $21.3m,
compared to $22.8m in FY16.
• During the year, the Group successfully negotiated the further extension of both of its debt facilities until mid-2020 and significant
reductions in the interest rates, reflecting the support of both lender groups.;
• The Malaysian Atomic Energy Licensing Board (AELB) renewed our Full Operating Stage License (FOSL) for a further 3 years until
September 2019. This renewal followed a rigorous review undertaken by the AELB and other independent regulatory bodies in
Malaysia, all of whom have concluded that the LAMP is in compliance with applicable regulations.
Mt Weld
Mt Weld continued to operate safely and efficiently throughout the year.
The second mining campaign commenced in January 2017 and it was completed in May 2017 below budgeted cost. The campaign was a
depth extension of the initial pit to extract additional CZ (Central Zone) ore not mined during the initial mining campaign. No overburden
removal was required. The Mt Weld concentrator commenced treating ore from this campaign from March 16, 2017. Approximately 240,000
tonnes of ore at 17.8% REO was mined, sufficient for approximately 1 year’s production at current rates.
The third mining campaign will see the pit extended to the north. Planning for the third campaign is underway and removal of overburden is
expected to commence in late 2017.
Lynas Advanced Materials Plant (LAMP)
The site-wide improvement programs at the LAMP continue. Key focus areas include: debottlenecking and incremental increases in
production rates; improving product quality; increasing REO recovery; and reducing chemical costs. The cracking and leaching kilns continue
to operate at above design rates. The agitators in the leach neutralisation circuit were upgraded to handle the increased throughput and to
reduce chemical usage. Debottlenecking of the solvent extraction upstream circuits and removal of non-Rare Earth impurities by solvent
extraction instead of by pre-treatment in product finishing were also part of the improvement program.
In product finishing, the refinement of processes to produce high quality lanthanum and cerium products continued. Developments have
been made in controlling precipitation, and centrifuge washing was carried out to remove impurities to improve tunnel furnace operations.
Rare earth oxide (REO) ready for sale production at the LAMP during the year was 16,003 tonnes (2016: 12,631 tonnes), while shipments
during the year totalled 14,616 tonnes (2016: 12,514 tonnes).
Ready for sale by tonnage
Ready for sale production volume total (REOt)
Ready for sale production volume NdPr (REOt)
FY14
3,965
946
FY15
8,799
2,258
FY16
12,631
3,896
FY17
16,003
5,223
The average selling price (revenue basis) during the year was AUD18.0/kg REO (2016: AUD15.7/kg). The Company’s most significant
product is NdPr and prices remained low at the beginning of the year but began to recover in November 2016. The increase accelerated
from mid-June. Excluding any applicable value added taxes, the price reached USD39.0/kg in June and USD55.0/kg by early August 2017.
Many factors contributed to this increase including supply side action taken by the China central government to enforce environmental and
licensing regulations throughout the rare earths industry. This has translated to the forced shutdown of a number of separation units and
better control of resources.
12
www.lynascorp.comDirectors’ ReportA further factor contributing to improved pricing was continued strong demand for magnetic materials. Demand for permanent magnets
continues to grow based on their use in a range of applications, including electric vehicles and wind turbines. The continuing growth in
demand from the electric vehicles sector is particularly important and based on recent announcements by various automotive companies,
this strong demand is likely to accelerate in the medium term. Lynas is heavily engaged with participants in that sector to promote rare
earths technology as the technology of choice for environmentally-friendly vehicles and expects the strong demand to continue.
Significant quality improvements in Cerium products allowed us to increase our share of the catalyst and UV cut glass markets. In addition,
we have started developing new customized grades for niche applications in order to attract higher prices.
The LAMP has been operating safely for five years. During that time, we have undertaken extensive community engagement programs,
including via national media, social media, community days, LAMP site visits and our support of programs for students, the elderly and
disadvantaged members of local communities. We have achieved a high level of acceptance among our local communities.
Management of residues from the LAMP continues to be an area of focus. The Group remains committed to pay security deposit instalments
to the Malaysian Government’s Atomic Energy Licencing Board (“AELB”) totalling USD 50 million, in accordance with the conditions of
the Full Operating Stage Licence for the LAMP, The amount due to the AELB as at June 30, 2017 was A$20.3 million. This amount will be
deposited with the AELB in cash or a bond by 31 October 2017. Notes 18 and 32 contain more details.
The Group continues its commercialisation program of solid residues from the LAMP. Field trials have demonstrated the efficacy of the
residue material in enhancing soil structure, adjusting soil pH, enhancing growth and improving yields. A progress report was submitted
to Malaysia’s Department of Environment (DOE) as part of the commercialisation approval process. The DOE accepted that report, which
confirms that the soil conditioning product using LAMP residues known as “Condisoil” is safe for agricultural use and that Condisoil increases
paddy yield.
Malawi operations
Since fiscal year 2012, no further capital investment has been made on the Kangankunde Rare Earths (“KGK”) resource development in
Malawi and the project remains on hold.
Health, Safety and Environment
The Company’s Western Australian and Malaysian operations maintained certification to the OHSAS 18001 (Occupational Health and Safety
Management Systems), ISO 14001 (Environmental Management Systems) and ISO 9001 (Quality Management Systems) standards during
the year. The 12-month rolling lost time injury frequency rate as at June 30, 2017 was 2.2 per million hours worked (2016: 0.5 per million
hours). The Company continued to carefully manage all residues, air, water and solid, and met or exceeded all licence requirements.
FINANCIAL PERFORMANCE
For the year ended June 30
Revenue
Cost of sales
Gross profit / (loss)
General and administration expenses
Net foreign exchange (loss) / gain
Impairment expenses
Loss from operating activities
Net gain on extinguishment of debts
Other financial income
Financial expenses
Net financial expenses
2017
A$ million (m)
2016
A$ million (m)
257.0
(242.2)
14.8
(25.5)
(3.8)
–
(14.5)
22.9
0.3
(44.3)
(21.1)
191.0
(211.4)
(20.4)
(34.8)
0.8
(1.5)
(55.9)
–
0.2
(38.4)
(38.2)
Loss before income tax
(35.6)
(94.1)
13
Lynas Corporation Limited | 2017 Annual ReportOverall sales volumes in the year ending June 30, 2017 grew by 17% compared to the year ending June 30, 2016 reflecting continued
improvement in production rates, consistent demand for NdPr products, and some quality improvements for Cerium and Lanthanum
products. Revenue growth at 35% being slightly higher than the NdPr sales volume growth of 34% reflected the higher prices achieved
during the current year.
Market pricing remained low for all products, throughout most of the year. The average China domestic price of NdPr reduced from USD34.2/kg
towards the end of FY16 to USD30.6/kg in November 2016 before rising to USD39.0/kg in June 2017 mainly due to continued strong demand
for magnetic materials and the effects of the China central government’s initiatives to enforce stricter environmental controls. This trend is
expected to continue in the near term.
Gross profit for the year was $14.8m (2016: gross loss of $20.4m).
The loss from operating activities (EBIT) reduced by $41.4m compared to prior year, in part due to the increase in sales and reduction in general
and administration expenses. On an adjusted EBITDA basis (refer to note 6 to the financial report for the basis of this measure) the Group
reported a gain of $31.9m (2016: $9.0m loss) in the year ended June 30, 2017.
Due to the substantial amendments made to the terms of the Group’s debt facilities during the year, the extinguishment of the debts under
the previous terms and the establishment of the debt’s fair values based on the new terms were performed. This resulted in a net gain of
$22.9m. Financial expenses, on the other hand, increased by $5.9m due to reduced loan interest expenses offset by the effects of discounting
the deposit paid to the AELB. Loan interest expenses reduced in line with the amendments to the JARE loan facility and the convertible
bond facility. The interest rate on the JARE loan facility reduced from 6.0% to 2.5% effective October 26, 2016 and the coupon rate on the
convertible bonds reduced from 2.75% to 1.25% p.a. effective December 8, 2016.
General and administration expenses that predominantly consist of employee costs, unrecovered production costs and depreciation (net of
recovery) decreased by $9.3m during the year. Unrecovered employee costs and unrecovered production costs were $9.0m (2016: $10.4m)
and unrecovered depreciation was $4.2m (2016: $12.0m). Consistent with the prior year, production costs have been substantially accounted
for within cost of sales. Other general and administration expenses include insurance premiums, consultancy fees, telecommunications and
general office expenditures. Overall production cost recoveries increased by $1.7m in this year.
CASH FLOW
For the year ended June 30
Net operating cash inflows
Net investing cash outflows
Net financing cash outflows
Net cash flows
2017
A$ million
2016
A$ million
34.0
(6.9)
(3.0)
24.1
4.1
(10.3)
(2.6)
(8.8)
Operating cash flows
During the year ended June 30, 2017 the Group’s cash receipts from sales were $260.4m (2016: $202.6m). Net operating cash flows
improved by $29.9m with increased sales and production volumes and effective overall cost management.
Investing cash flows
Net investing cash outflows decreased by $3.4m during the year ended June 30, 2017. The reduction in payments for property, plant and
equipment of $8.4m and increase in security bonds refund of $1.8m was offset by the increase in security bond payments of $6.8m. The
security bond payments include $5.9m deposited with the Malaysian Government’s Atomic Energy Licencing Board (‘AELB’).
Financing cash flows
Net financing cash outflows increased slightly due to interest on borrowings of $5.1m, increase in repayment of borrowings of $1.2m offset
by proceeds from the exercise of warrants of $5.9m.
14
www.lynascorp.comDirectors’ ReportFINANCIAL POSITION
For the year ended June 30
Assets
Cash and cash equivalents
Inventories
Property, plant and equipment
Deferred exploration, evaluation and development expenditure
Other assets
Total assets
Liabilities
Borrowings
Other liabilities
Total liabilities
Net assets
Equity
Share capital
Accumulated deficit
Reserves
Total equity
2017
A$ million
2016
A$ million
63.9
38.0
538.4
42.0
34.1
716.4
459.4
165.6
625.0
91.4
43.3
53.9
612.1
44.2
33.5
787.0
562.6
153.2
715.8
71.2
1,094.4
(1,024.8)
21.8
91.4
1,088.5
(989.0)
(28.3)
71.2
The overall increase in net assets of the Group during the year ended June 30, 2017 is primarily due to the extinguishment of the debts
and subsequent recognition of the debts at significantly lower values as a result of extension in maturity dates, lowered interest rates
and favourable foreign exchange movement on debts. This effect on net assets has been partially offset by the downward revaluation of
Malaysian property, plant and equipment due to the devaluation of Malaysian ringgit against Australian dollar.
Cash and cash equivalents at June 30, 2017 comprised $35.9m (June 30, 2016: $10.4m) of unrestricted cash and $28.0m (June 30, 2016:
$32.9m) of restricted cash. Restricted cash is available to fund future interest payments and principal repayments under the JARE loan facility
and the convertible bond facility. Prior to the latest debt facility amendments, interest on the JARE loan and convertible bond facilities was
paid into separate restricted bank accounts in the name of Lynas. Interest liabilities would only be paid to the lenders to the extent that there
was a total cash balance (unrestricted and restricted funds) in excess of $60m.
The debt facility amendments that were approved by shareholders at the 2016 annual general meeting came into effect in December 2016.
Future interest liabilities will be paid directly to the lenders.
USD3m was repaid on the JARE loan facility in October 2016 reducing the outstanding loan balance to USD200m at June 30, 2017. This
facility has a fair value of USD179.4m which has been converted to Australian dollars at June 30, 2017 exchange rate. The convertible bond
facility had an outstanding principal of USD225m at June 30, 2017. The liability component has been converted to Australian dollars at June
30, 2017 exchange rate and the equity component has been converted to Australian dollars at the effective date of the amended terms.
In addition, there are a number of other changes to the debt facilities under this new set of amendments.
In accordance with the terms of the JARE facility, the JARE restricted bank account was scheduled to be closed when the unrestricted cash
balance exceeded $25m on any date after July 31, 2017. Subsequent to year end, and following satisfaction of that test, the funds in the JARE
restricted bank account were applied as follows on August 4, 2017:
(a) USD15 million was paid to JARE as a principal repayment, reducing the principal balance of the JARE facility to USD185 million;
(b) The remaining balance in the JARE restricted interest account was used to partially settle the interest incurred from October 1,
2014 to December 31, 2015. The outstanding interest incurred in the same period was forgiven.
On each interest payment date, when the total unrestricted cash balance exceeds $40m, the surplus will be paid as a principal repayment to
JARE pursuant to a cash sweep mechanism. If Lynas received the proceeds from an equity raising (such as an issuance of shares or an exercise
of warrants), then the following amounts will be exempt from the cash sweep: (i) 75% of the proceeds received up to a cumulative balance of
USD50 million, and (ii) 50% of the proceeds above a cumulative balance of USD50 million.
15
Lynas Corporation Limited | 2017 Annual ReportOther key changes to the JARE loan facility include:
Extension of the maturity date from June 30, 2018 to June 30, 2020;
•
• The payment of interest in respect of the period commencing on January 1, 2016 and ending on December 31, 2016 will be deferred
to the maturity date (with no penalty, and no additional interest);
• Decrease in the interest rate from 6.0% to 2.5% per annum. If, on the last day of any calendar month (“test date”) the weighted
average sale price of NdPr products sold by the Group in the immediately preceding 6 calendar months is USD38 per kilogram or
greater, the interest rate will increase to 3.75% per annum, effective on and from the day after the test date;
• No fixed principal repayments from unrestricted cash during the term of the facility. Outstanding balance of the loan will be settled on
maturity date.
Key changes to the convertible bond facility include:
Extension of the maturity date from September 30, 2018 to September 30, 2020;
•
• Decrease in the coupon rate from 2.75% per annum to 1.25% per annum. If, on the last day of any calendar month (“test date”)
the weighted average sale price of NdPr products sold by the Group in the immediately preceding 6 calendar months is USD38 per
kilogram or greater, the interest rate will increase to 1.875% per annum, effective on and from the day after the test date;
• Adjustment to the conversion price of $0.5634 per share to $0.10 per share;
• Adjustment to the conversion exchange rate of USD1.00 = AUD0.9533 to AUD1.00 = USD0.7500;
•
Issue of 348,843,836 warrants with an exercise price of $0.05 each and an expiry date of September 30, 2020.
On August 2, 2017 the bondholders converted 25,000,000 convertible bonds with a principal value of USD25,000,000 into 333,333,332 ordi-
nary shares. On August 15, 2017 the bondholders converted another 37,833,333 convertible bonds with a principal value of USD37,833,333
into 504,444,440 ordinary shares. The outstanding principal of the convertible bonds has been reduced to USD162,166,667.
In accordance with the terms of the convertible bond facility, the convertible bond restricted bank account was scheduled to be closed when
the unrestricted cash balance exceeded $25m on any date after July 31, 2017. Subsequent to year end, and following satisfaction of that
test, the funds in the convertible bond restricted bank account were applied on August 4, 2017 in full payment of the interest incurred from
January 1, 2015 to December 31, 2015 and additional interest on withdrawals made in 2016.
Inventory reduced by $15.9m, or 30% during the year ended June 30, 2017. Holdings of raw materials and consumables were $12.0m
compared to $13.6m at June 30, 2016. Finished goods have decreased by $2.3m to $3.9m at June 30, 2017. Work in progress inventory was
reduced by $12.0m to $22.1m. As at June 30, 2017 the Group held 4,084 tonnes of processed concentrate containing 1,529 tonnes of REO
bagged and ready for export at its Mt Weld operations.
Property, plant and equipment decreased by $73.7m or 12% during the year driven by the weakened Malaysian ringgit against the Australian
dollar ($46.0m) and depreciation charged during the year ($37.0m) offset by additions of $9.4m.
Reserves were increased by the value of warrants issued to Lynas’ bondholders ($9.0m), the equity component of the amended convertible
bond ($68.7m) and share based payments ($2.5m). This was offset by the drop in foreign currency translation reserve ($30.1m) driven by the
weakened Malaysian ringgit against Australian dollar on overseas assets offset by the effects of the weakened USD against the AUD on the
Lynas’ loans that are denominated in USD.
CAPITAL STRUCTURE
During the year ended June 30, 2017 the Company issued shares as shown below:
Shares on issue June 30, 2016
Issue of shares pursuant to exercise of warrants
Issue of shares pursuant to exercise of Performance Rights
Shares on issue June 30, 2017
Number
3,488,438,369
156,153,962
33,151,018
3,677,743,349
In addition to the ordinary shares on issue there were 94,790,959 Performance Rights, 225,000,000 unlisted convertible bonds on issue each
with a conversion price of $0.10 (at a set exchange rate of $1.00 = USD0.75), 18,211,504 unlisted warrants with an exercise price of $0.038
each and another 348,843,836 unlisted warrants with an exercise price of $0.05 each.
Loss per share
For the year ended June 30
Basic and diluted loss per share (cents per share)
16
2017
cents per share
2016
cents per share
(0.42)
(2.70)
www.lynascorp.comDirectors’ ReportDIVIDENDS
There were no dividends declared or paid during the year ended June 30, 2017 (2016: nil) and no dividends have been declared or paid since
June 30, 2017.
STRATEGIC MARKETING AND SALES
Market pricing, for all products, remained low for in the first half of the year. However, due to continued strong demand for magnetic
materials and the effects of the China central government’s initiatives to enforce stricter environmental controls, NdPr prices in the second
half improved.
Demand for permanent magnets continues to grow based on their use in a range of applications, including electric vehicles and wind
turbines. The continuing growth in demand from the electric vehicles sector is particularly important and based on recent announcements
by various automotive companies, this demand is likely to accelerate in the medium term. Lynas is heavily engaged with participants in that
sector to promote rare earths technology as the technology of choice for environmentally-friendly vehicles and expects the strong demand
to continue.
Lynas has strengthened its reputation as a reliable and environmentally assured supplier of high quality NdPr, and Lynas is currently the
second largest NdPr producer in the world. With no in-house consumption in downstream activities, Lynas is the largest supplier of NdPr
to the free market.
Speculation about future demand for heavy rare earths, especially Dysprosium and Terbium, which are key additives for high performance
magnets essential to the electrification of cars, translated into significantly higher prices for our heavy rare earths mix (SEG) towards the
end of the year. Lanthanum remained in high demand outside China, especially for high performance ferrite magnets and NiMH batteries.
Significant quality improvements in Cerium products allowed Lynas to increase our share of the catalyst and UV cut glass markets. In addition,
Lynas has started developing new customised grades for niche applications in order to attract higher prices.
Sales by tonnage and value
H1 FY16
H2 FY16
FY16
H1 FY17
H2 FY17
FY17
Sales volume (REOt)
Cash receipts from customers (AUDm)
5,773
105.7
6,741
96.9
12,514
202.6
6,431
115.8
8,185
144.6
14,616
260.4
Lynas, with 100% of capacity commissioned and operating, can confidently serve these growing markets. The continuing growth in demand
from the electric vehicles sector is a key driver of demand increases for magnetic materials, and based on recent announcements by auto-
motive manufacturers may be reaching an inflection point. Lynas is heavily engaged with participants in that sector to promote rare earths
technology as the technology of choice for environmentally-friendly vehicles.
RISK MANAGEMENT
The Group takes a proactive approach to risk management. The Directors are responsible for ensuring that risks and opportunities are
identified on a timely basis and that the Group’s objectives and activities are aligned with these risks and opportunities.
The Group believes that it is crucial for Directors to be a part of this process, and as such has established an Audit and Risk Management
Committee and a Health, Safety and Environment Committee.
FACTORS AND BUSINESS RISKS THAT AFFECT FUTURE PERFORMANCE
Lynas operates in a changing environment and is therefore subject to factors and business risks that will affect future performance.
The following factors and business risks could have a material effect on Lynas’ future results from an operations and financial position:
Rare Earth prices
Lynas’ sales performance is affected by market fluctuations in rare earth prices. This is because the product prices used in the majority of
Lynas’ sales are calculated by pricing formulae that reference published pricing for various rare earths materials. The market price has been
volatile in the past because it is influenced by numerous factors and events that are beyond the control of Lynas. These include:
(i)
Supply side factors
Supply of rare earth materials is dominated by Chinese producers. Within China, including illegal operations, there has been excess
capacity which has provided downward pressure on market pricing. The China Central government regulates production via quotas
and environmental standards. The China Central government has recently significantly increased its focus on ensuring compliance
with these regulations leading to forced closure of some plants, the removal significant volumes of illegal production and the
requirement for other firms to invest in new environmental protections. All these actions have contributed to the recent firming
in rare earth prices.
17
Lynas Corporation Limited | 2017 Annual Report(ii)
Fluctuations in demand
A key factor influencing rare earth demand is automotive market demand, both in terms of production quantity and technology
incorporated in the vehicles manufactured. Energy-efficient (hybrid/electrical), green (emission controlled) and luxury vehicles
require significantly more rare earth materials during the manufacturing process than basic motor vehicles. The market price of rare
earth is influenced by rare earth market traders’ expectations of the demand for energy-efficient, green and luxury vehicles
as opposed to actual daily demand for those vehicles.
The table below illustrates how China domestic prices of NdPr (excluding VAT) have moved over FY17.
September 2016 Quarter December 2016 Quarter
March 2017 Quarter
June 2017 Quarter
USD/kg
32.1
31.0
33.0
36.5
Lynas’ approach to reduce pricing volatility for its customers includes:
Promoting fixed pricing to its direct customers, set for periods relevant to customer operations;
•
• Developing long term contracts that include clauses that aim to reduce price variations for end users such as car makers and wind
turbine manufacturers.
Lynas achieved a small price premium compared to the NdPr market price, supported by:
Sustained demand from the Japanese market and selected customers in China;
•
• The recognition by the market that Lynas is now well established as the second largest producer of NdPr in the world;
•
End users placing more importance on being able to trace the origin of rare earths from a safe and auditable source of production to
their end products.
Exchange rates
Lynas is exposed to fluctuations in the US dollar as all sales are denominated in US dollars. The Company borrows money and holds a portion
of cash in US dollars, which provides the Group with a partial natural hedge.
Accordingly, Lynas’ income from customers, and the value of its business, will be affected by fluctuations in the rates by which the US dollar
is exchanged with Australian dollars.
Lynas is exposed to fluctuations in the Malaysian ringgit (MYR) as the currency that dominates the Group’s cash operating outflows is MYR.
In addition, most of the Group’s non-current assets are LAMP assets which are denominated in MYR.
Adverse movements in the Australian dollar against the US dollar and Malaysian ringgit may have an adverse impact on Lynas. The following
table shows the average USD/AUD and MYR/AUD exchange rates over the last five years:
June 30, 2017
$
June 30, 2016
$
June 30, 2015
$
June 30, 2014
$
June 30, 2013
$
USD/AUD
MYR/AUD
0.7545
3.2331
0.7283
3.0098
0.8382
2.8828
0.9187
2.9804
1.0239
3.1659
A devaluation in the yuan would increase attractiveness in Chinese exports and China’s internal supply. Fluctuation in the Chinese yuan
against the USD therefore increases the foreign exchange exposure on the Group as well.
Refer to note 26 to the financial report for details of the Company’s foreign currency exposure and sensitivity analysis.
Operating and development risks
Lynas’ operations and development activities could be affected by various unforeseen events and circumstances, which may result in
increased costs, lower production levels and, following on from that, lower revenue levels. Any negative outcomes flowing from these
operational risks could have an adverse effect on Lynas’ business, financial condition, profitability and performance.
Lynas undertakes regular reviews of its operational, development and business interruption risks. Lynas seeks to minimise the potential
damage flowing from these risks by obtaining business interruption insurance for certain events and, where available, indemnities from
suppliers and contractors.
Debt facilities
Lynas has financing arrangements in place which are subject to acceleration and enforcement rights in the event a default were to arise
under them. The Japan Australia Rare Earths B.V. (JARE) loan facility is secured over all of the assets of the Group, other than Malawi assets.
So enforcement may involve enforcement of security over the assets of Lynas and its material subsidiaries, including appointing a receiver.
In addition, the principal amount of the convertible bonds was USD225m as at June 30, 2017. Unless the convertible bonds are fully
converted into ordinary shares in Lynas prior to maturity, the principal amount will be due for repayment on September 30, 2020.
18
www.lynascorp.comDirectors’ ReportIn the event of repayment default, Lynas may be required to seek amendments and/or waivers of non-compliance or alternative funding
arrangements such as a refinance. There is no assurance that Lynas’ lenders would consent to such an amendment or waiver in the event of
non-compliance, or that such consent would not be conditioned upon the receipt of a cash payment, revised payout terms, increased interest
rates, or restrictions on the expansion of debt facilities in the foreseeable future, or that its lenders would not exercise rights that would be
available to them, including among other things, accelerating repayment of outstanding borrowings, or appointing a receiver.
In the event significant uncertainty arises in relation to Lynas’ ability to fully repay, refinance or reschedule the outstanding balances of the
JARE loan facility and the convertible bonds by their respective maturity dates of June 30, 2020 and September 30, 2020 the Group’s ability
to continue as a going concern may also be affected.
Regulatory and title risk
Changes in legislative and administrative regimes, taxation laws, interest rates, other legal and government policies in Australia and Malaysia
may have an adverse effect on the assets, operations and ultimately the financial performance of Lynas and the market price of Lynas shares.
Lynas’ mining and production activities are dependent on the granting and maintenance of appropriate licences, permits and regulatory
consents and authorisations (including those related to interests in mining tenements and those related to the operation of the Lynas plants
in Australia and Malaysia), which may not be granted or may be withdrawn or be made subject to limitations at the discretion of government
or regulatory authorities. Although such licences, permits and regulatory consents and authorisations may be granted, continued or renewed
(as the case may be), there can be no assurance that such licences, permits and regulatory consents and authorisations will be granted,
continued or renewed, or as to the terms of renewals or grants. If there is a failure to obtain or retain the appropriate licences, permits and
regulatory consents and authorisations or there is a material delay in obtaining or renewing them or they are granted subject to onerous
conditions or withdrawn, then Lynas’ ability to conduct its mining and production activities may be adversely affected.
Interest rates
Lynas is exposed to some interest rate risk on its borrowings. The interest rate on the JARE loan facility and the convertible bonds facility can
vary in certain circumstances, as detailed in the notes to the financial statements. Fluctuation in interest rates would have an impact on the
Company’s earnings.
Health, safety and environment
Lynas is subject to regulation in respect of the health and safety of our people and the protection and rehabilitation of the environment
within which the plants operate. Health, safety and the environment matters are a key focus area and Lynas is committed to provide and
maintain a healthy and safe work environment and to comply with all relevant environmental legislation and other relevant requirements.
Given the sensitive nature of this area, Lynas may be exposed to litigation and foreseen and unforeseen compliance and rehabilitation costs
despite its best efforts.
STATEMENT OF COMPLIANCE
The financial report is based on the guidelines in The Group 100 Incorporated publication Guide to the Review of Operations and Financial
Condition.
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Group is bound by the requirements and guidelines of the relevant environmental protection authorities for the management and
rehabilitation of mining tenements owned or previously owned by the Group. Mining tenements are being maintained and rehabilitated
following these guidelines. There have been no known breaches of any of these conditions.
We continue to focus on ensuring positive relationships with regulators and complying with regulatory requirements in both of the
jurisdictions in which we operate.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Except as disclosed in the review of operations and subsequent events, there have been no significant changes in the state of affairs of the
Group during the current financial year.
19
Lynas Corporation Limited | 2017 Annual ReportCORPORATE GOVERNANCE STATEMENT
The Board of Directors of the Company is responsible for the corporate governance of the Group. The Board guides and monitors the business
and affairs of the Group on behalf of the shareholders by whom they are elected and to whom they are accountable. The Board has approved
this Corporate Governance Statement. This Corporate Governance Statement is current on the date that the Directors’ report is signed in
accordance with a resolution of Directors made pursuant to s.298 (2) of the Corporations Act 2001.
In accordance with the ASX Corporate Governance Council’s (the “Council’s”) Principles and Recommendations (3rd edition), the Corporate
Governance Statement must contain certain specific information and also report on the Group’s adoption of the Council’s best practice
recommendations on an exception basis, whereby disclosure is required of any recommendations that have not been adopted by the Group,
together with the reasons why they have not been adopted. The Group’s corporate governance principles and policies are therefore structured
with reference to the Council’s best practice recommendations.
The Group’s corporate governance practices were in place throughout the financial year ended June 30, 2017, and complied with all of the
Council’s Principles and Recommendations throughout the financial year.
Details of the Group’s corporate governance practices in place throughout the financial year ended June 30, 2017 are as follows.
Principle 1 – Lay solid foundations for management and oversight
Recommendation 1.1 – Functions reserved to the Board and delegated to Senior Executives
The Group has established the functions reserved to the Board and the functions delegated to senior executives. The functions reserved to
the Board include:
(1) oversight of the Group, including its control and accountability systems;
(2) appointing and removing the Chief Executive Officer (“CEO”) (or equivalent), including approving remuneration of the CEO and the
remuneration policy and succession plans for the CEO;
(3)
(4)
(5)
ratifying the appointment and, where appropriate, the removal of the Chief Financial Officer (“CFO”) (or equivalent) and the
Company Secretary;
input into the final approval of management’s development of corporate strategy and performance objectives;
reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct and legal compliance;
(6) monitoring senior management’s performance and implementation of strategy, and ensuring appropriate resources are available;
(7) approving and monitoring the progress of major capital expenditure, capital management and acquisitions and divestitures;
(8) approving and monitoring financial and other reporting;
(9) appointment and composition of committees of the Board;
(10) on recommendation of the Audit, Risk Management, Safety, Health and Environment Committee, appointment of external auditors; and
(11) on recommendation of the Nomination, Remuneration and Community Committee, initiating Board and Director evaluation.
The functions delegated to senior executives include:
(1)
implementing the Group’s strategic business plan;
(2) managing the business to agreed capital and operating expenditure budgets;
(3)
identifying and exploring opportunities to build and sustain the business;
(4) allocating resources to achieve the desired business outcomes;
(5)
(6)
(7)
sharing knowledge and experience to enhance success;
facilitating and monitoring the potential and career development of the Group’s people resources;
identifying and mitigating areas of risk within the business;
(8) managing effectively internal and external stakeholder relationships and engagement strategies;
(9)
sharing information and making decisions across functional areas;
(10) determining the senior executives’ position on strategic and operational issues; and
(11) determining the senior executives’ position on matters that will be referred to the Board.
In addition, the functions reserved for the Board are summarised in the Group’s Board Charter, a copy of which is available on the Group’s
website, www.lynascorp.com.
Recommendation 1.2 – Information in Relation to Board Candidates
The Nomination, Remuneration and Community Committee of the Board ensures that appropriate checks are undertaken before a person
is appointed as a Director, or before a person is put forward to shareholders as a candidate for election as a Director. If the Nomination,
Remuneration and Community Committee concludes that it would be appropriate to consider the appointment of an additional Director, an
extensive process is undertaken to identify suitable candidates, usually involving an external search firm. That process involves identifying the
skills and experience required of the candidate, compiling lists of potential candidates, identifying a short list of candidates to be interviewed,
conducting interviews, obtaining and checking information in relation to the character, experience, education, criminal record and bankruptcy
history of the short listed candidates, and selecting a recommended candidate.
20
www.lynascorp.comDirectors’ ReportThe Group provides shareholders with all material information in its possession relevant to a decision on whether or not to elect or re-elect
a Director by providing all material information concerning the proposed Director in the Explanatory Memorandum that accompanies each
Notice of Meeting at which candidates are proposed for election or re-election.
Recommendation 1.3 – Written Agreements with Directors and Senior Executives
The Group has signed letters of appointment with each non-executive Director, and service contracts with the CEO and the other senior
executives. Further details are set out in the Remuneration Report. The letters of appointment with the non-executive Directors cover topics
including:
(1)
(2)
(3)
the term of appointment;
the time commitment envisaged, including committee work;
remuneration;
(4) disclosure requirements;
(5)
(6)
(7)
(8)
(9)
the requirement to comply with key corporate policies;
the Group’s policy on non-executive Directors seeking independent professional advice;
the circumstances in which the Director’s office becomes vacant;
indemnity and insurance arrangements;
rights of access to corporate information; and
(10) confidentiality obligations.
Recommendation 1.4 – Company Secretary
The Company Secretary is accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board.
The role of the Company Secretary includes:
(1) advising the Board and its committees on governance matters;
(2) monitoring that Board and committee policy and procedures are followed;
(3) coordinating the timely completion and despatch of Board and committee papers;
(4) ensuring accurate minutes are taken of Board and committee meetings; and
(5) helping to organize and facilitate the induction and professional development of Directors.
Recommendation 1.5 – Diversity
The Group has established a policy concerning diversity. The Group recognises the need to set diversity measures in each of its operating
locations taking into account the differing diversity issues within each geographic location in which it operates. A copy of the ‘Diversity Policy’
is available from the Group’s website, www.lynascorp.com. The policy includes requirements for the Board to establish measurable objectives
for achieving gender diversity and for the Board to assess annually both the objectives and progress in achieving them.
Below are the measurable objectives set by the Board for achieving gender diversity together with the progress made in achieving those
objectives:
(1) Ensuring that recruitment of employees and Directors is made from a diverse pool of qualified candidates. Where appropriate, a
professional recruitment firm shall be engaged to select a diverse range of suitably qualified candidates.
The Group continues to ensure that professional recruitment firms provide a broad selection of suitably qualified candidates
together with prioritising local employment in the areas in which it operates. Further information on the skill set of the Directors is
provided in the Remuneration Report.
(2)
Increasing the number of women in operations and in other key areas of the workforce.
The Group has been very focussed on promoting the development of women within its business. The numbers of female employees
at the group’s largest plant in Kuantan Malaysia increased to 92 at the end of FY17 (the number was 65 at the end of FY16). In
addition, the Group has focussed on encouraging a wide range of ethnic backgrounds among its employees, and the workforce
includes people from a large number of backgrounds and cultures. The Group believes that its current diversity levels are good
compared to other companies in its industry. The Group’s policies of favouring local employment and promoting education in its
local communities will continue to contribute to the diversity of its workforce.
(3)
Identifying programmes that assist in the development of a broader pool of skilled and experienced candidates including:
(a)
initiatives focused on skills development, such as executive mentoring programmes; and
(b) career advancement programmes to develop skills and experience that prepare employees for senior management
and Board positions.
The Group has in place a formal talent management process including mentoring and succession planning.
(4) Taking action to correct inappropriate workplace behaviour and behaviour that is inconsistent with the diversity objectives of the
Group.
The Group has in place a Code of Conduct as well as an Harassment & Discrimination Policy which defines inappropriate behaviour
and the potential resultant disciplinary actions. A formal employee grievance process has been established to assist in identifying issues
such as inappropriate workplace behaviour and behaviour that is inconsistent with the values and diversity objectives of the Group.
21
Lynas Corporation Limited | 2017 Annual ReportCorporate Government Statement continued
The Group provides the following statistics on gender diversity as at June 30, 2017 (prior year: June 30, 2016):
(1) Proportion of women employees in the whole organisation: 14.8% (2016 – 10.6%).
(2) Proportion of women employees in senior executive positions: 28.6% (2016 – 33.0%).
(3) Proportion of women on the Board: 33.0% (2016 – 33.0%).
The Group defines ‘senior executive positions’ as members in the leadership team who have the authority and responsibility for planning,
directing and controlling major activities of the group.
The Group is not a ‘relevant employer’ under the Workplace Gender Equality Act, because the Group had less than 80 employees in Australia
for more than 6 months of the year ending June 30, 2017.
Recommendation 1.6 – Process for evaluating the performance of the Board
In accordance with the Charter of the Nomination, Remuneration and Community Committee, the Committee is responsible for the:
(1) evaluation and review of the performance of the Board against both measurable and qualitative indicators established by the
Committee;
(2) evaluation and review of the performance of individual Directors against both measurable and qualitative indicators established by
the Committee;
(3)
(4)
review of and making of recommendations on the size and structure of the Board; and
review of the effectiveness and programme of Board meetings.
An evaluation of the performance of the Board, its committees and individual Directors took place during the financial year. That evaluation
was in accordance with the above process.
Recommendation 1.7 – Performance evaluation of Senior Executives
The Group has established detailed written Key Responsibility Areas and Key Performance Indicators (KPIs) for each senior executive. The perfor-
mance of senior executives is periodically reviewed against their KPIs, at least once every 12 months, as part of the Group’s formal performance
review procedures. The Group has adopted a formal procedure whereby each senior executive meets with his/her direct supervisor to review
performance against KPI’s during the review period. The results of that review are recorded in writing for follow up during subsequent meetings,
and for internal reporting purposes.
Induction procedures are in place to allow new senior executives to participate fully and actively in management decision making at the
earliest opportunity.
An evaluation of senior executives took place during the financial year. The evaluation was in accordance with the above process.
Principle 2 – Structure the board to add value
Recommendation 2.1 – Nomination Committee
The Group has established a Nomination, Remuneration and Community Committee.
The Group’s Nomination, Remuneration and Community Committee complies with each of the requirements of Recommendation 2.1 as follows:
(1) The Committee consists of a majority of independent Directors. During the financial year ending June 30, 2017, the members of
the Committee were Ms Conlon, Mr Forde and Mr Harding.
(2) The Committee is chaired by Ms Conlon, who is an independent Director and who is not Chair of the Board.
(3) There were three formal meetings of the Committee during the financial year ending June 30, 2017. In addition, there were several
informal meetings. Further details, including the attendances of members, are provided in the Directors Meetings section of the
Directors’ Report.
(4) At all times during the financial year ending June 30, 2017, the Committee had three members.
The Group has adopted Charters for its Nomination, Remuneration and Community Committee. Copies of the Committee Charters are
available from the Group’s website, www.lynascorp.com.
Recommendation 2.2 – Board Skills
The Nomination, Remuneration and Community Committee recognizes that it is important that the Board has an appropriate mix of skills,
experience, expertise and diversity. The Board considers it important for the following skills and experience to be represented:
Experience as a Chief Executive;
International business experience;
Financial and accounting experience;
•
•
•
• Operational experience in the chemical and resources industries;
•
• Corporate governance, regulatory and risk management experience.
Strategy and strategic marketing experience;
22
www.lynascorp.comDirectors’ ReportThe Board’s skills matrix is based on the above sets of skills and experience. The Nomination, Remuneration and Community Committee
remains focussed on Board renewal, and the appointment of Professor Humphrey as a Director during the year further enhanced the Board’s
skill set. The Board considers that each of the above skills is currently reflected in the skills and experience of the existing members of the
Board. Further details of the skills and experience of the members of the Board are provided in the Directors section of the Directors’ Report.
Information about the diversity of the Board is set out under Recommendation 1.5 above.
Recommendation 2.3 – Independence of Directors
The Council defines independence as being free from any interest, position, association or relationship that might influence, or could
reasonably be perceived to influence, in a material respect his or her capacity to bring an independent judgement to bear on issues before the
board and to act in the best interests of the Group and its shareholders generally.
During the financial year ended June 30, 2017 the Board had a majority of independent Directors. In accordance with the definition of
independence above, and the materiality thresholds set, J. Klein, J. Humphrey, W. Forde, K. Conlon, M. Harding and P. Etienne were viewed
as independent Directors. During the financial year ending June 30, 2012, Mr Forde acted as Chairman of the LampsOn Board, which had
oversight of the construction of Phase 1 of the Rare Earths Project, and received consultancy fees for those services. As construction of Phase
1 of the Rare Earths Project has been completed, Mr Forde has not provided any consultancy services to the Group since June 30, 2012. The
Board does not view this historical consultancy arrangement as interfering with the exercise of unfettered and independent judgement. This
historical consultancy arrangement was for approximately 12 months, and it was not material. As Chairman of the LampsOn Board, Mr Forde
acted as the Lynas Board representative in the supervisory board for the construction of Phase 1 of the Rare Earths Project, and this role was
an extension of his role as a Non-Executive Director.
A. Lacaze’s appointment as Chief Executive Officer of the Group was effective from June 25, 2014 (previously, a Non-Executive Director from
January 1, 2014). As the Chief Executive Officer of the Group, Ms Lacaze is not an independent Director of the Group in accordance with the
definition above.
The length of service of each Director who held office as at June 30, 2017 is as follows:
Name
W. Forde
K. Conlon
A. Lacaze
M. Harding
P. Etienne
J. Humphrey
Term in office
9 years 5 months
5 years 8 months
3 years 6 months
2 years 6 months
2 years 6 months
1 month
Recommendation 2.4 – Majority of Independent Directors
As noted above in relation to Recommendation 2.3, at all times during the financial year ended June 30, 2017, the Board had a majority of
independent Directors.
Recommendation 2.5 – The Chair should be an independent Director and not the same person as the CEO
M. Harding was the Chairman of the Board throughout the financial year ended June 30, 2017. Mr Harding is an independent Director and
he is not the CEO. Accordingly, the Group was compliant with Recommendation 2.5 throughout the financial year ended June 30, 2017.
Recommendation 2.6 – Director Induction and Professional Development
The Group has adopted a Board Induction Policy that summarizes the key matters to be addressed in the induction of each new Director.
Among other things, the Induction Policy deals with information to be provided to new Directors, the Chair’s role, key contacts, remuneration,
indemnities, insurance, access to information, and disclosure.
The Nomination, Remuneration and Community Committee regularly reviews the skills and experience of the Directors and assists Directors
to identify professional development opportunities to develop and maintain the skills required to perform their roles effectively.
Principle 3 – Act ethically and responsibly
Recommendation 3.1 – Code of Conduct
The Group has established a code of conduct for its directors, senior executives and employees concerning the:
(1) practices necessary to maintain confidence in the Group’s integrity;
(2) practices necessary to take into account the Group’s legal obligations and the expectations of stakeholders; and
responsibility and accountability of individuals for reporting and investigating reports of unethical practices.
(3)
A copy of the code of conduct is available from the Group’s website, www.lynascorp.com.
23
Lynas Corporation Limited | 2017 Annual ReportCorporate Government Statement continued
Conflict Of Interest Policy
The Group has established a ‘conflict of interest’ policy to:
(1) protect the integrity of the decision-making processes within the Group by avoiding ethical, legal, financial or other conflicts of
interest;
(2) establish internal procedures so that all employees understand their obligation to avoid actual, potential or perceived conflicts of
interest;
(3) provide guidance to employees for dealing with any conflicts of interest in an open and transparent manner;
(4) provide guidance to employees for recognising and reporting on related party transactions; and
(5) establish internal procedures to ensure that related party transactions are referred to the Group’s shareholders where required.
A copy of the conflict of interest policy is available from the Group’s website, www.lynascorp.com.
Principle 4 – Safeguard integrity in corporate reporting
Recommendation 4.1 – Audit Committee
The Group has established an Audit and Risk Committee.
The Group’s Audit and Risk Committee complies with each of the requirements of Recommendation 4.1 as follows:
(1) The Committee consists only of Non-Executive Directors. From July 1, 2016 to May 15, 2017, the members of the Committee were
Mr Forde, Mr Klein, Ms Conlon and Mr Etienne. From May 15, 2017 onwards, the members of the Committee were Mr Forde, Mr
Humphrey, Ms Conlon and Mr Etienne. Further details, including the relevant qualifications and experience of the members of the
Committee, are provided in the Directors section of the Directors’ Report.
(2) Six meetings of the Committee were held during the financial year ending June 30, 2017. Further details, including the attendances
of members, are provided in the Directors Meetings section of the Directors’ Report.
(3) All of the members of the Committee are independent Directors.
(4) The Committee is chaired by Mr Forde, who is an independent Director and who is not Chair of the Board.
(5) At all times during the financial year ending June 30, 2017, the Committee had at least three members.
The Group has adopted Charters for its Audit and Risk Committee. Copies of the Committee Charters are available from the Group’s website,
www.lynascorp.com.
Recommendation 4.2 – Statement from the Chief Executive Officer and the Chief Financial Officer
Before the Board approves the Group’s financial statements for a financial period, the Board receives a declaration from the Chief Executive
Officer and the Chief Financial Officer in accordance with section 295A of the Corporations Act 2001 that, in their opinion, the financial
records of the Group have been properly maintained and that the financial statements comply with the appropriate accounting standards
and give a true and fair view of the financial position and performance of the Group, and that the opinion has been formed on the basis of
a sound system of risk management and internal control which is operating effectively.
Recommendation 4.3 – Auditor Attendance at AGM
The Group holds an Annual General Meeting of shareholders (‘AGM’) in October or November of each year. The Group ensures that its
external auditor attends the AGM and is available to answer questions from shareholders relevant to the audit.
Principle 5 – Make timely and balanced disclosure
Recommendation 5.1 – ASX Listing Rule Disclosure Requirements
The Group has established a written policy designed to ensure:
(1) compliance with ASX Listing Rules continuous disclosure obligations; and
(2) accountability at a senior executive level for that disclosure.
A copy of the Group’s Continuous Disclosure Policy is available from the Group’s website, www.lynascorp.com..
Principle 6 – Respect the rights of shareholders
Recommendation 6.1 – Information on the Group’s Website
The Group provides information about itself and its governance to its shareholders via the Group’s website, www.lynascorp.com. Information
about governance is available in the Corporate Governance section of the Group’s website.
24
www.lynascorp.comDirectors’ ReportRecommendation 6.2 – Investor Relations Program
The Group has an investor relations program to facilitate effective two-way communication with shareholders. The Group’s investor relations
program includes the following:
(1) an email link on the Group’s website, www.lynascorp.com for shareholders to ask questions;
(2) actively engaging with shareholders at the AGM;
(3) periodic meetings with institutional investors, analysts and financial media representatives; and
(4)
recorded CEO interviews at the time of the release of quarterly reports, which are accessible via www.asx.com.au and the Group’s
website, www.lynascorp.com.
Recommendation 6.3 – Encouraging Shareholder Participation at AGMs
The Group’s processes to encourage shareholder participation at AGMs include:
(1) providing an email link on the Group’s website, www.lynascorp.com for shareholders to ask questions ahead of AGMs; and
(2) providing a facility for online lodgement of proxies.
In addition, the Group has adopted a Shareholder Communications Policy for:
(1) promoting effective communication with shareholders; and
(2) encouraging shareholder participation at AGMs.
A copy of the Group’s Shareholder Communications Policy is available from the Group’s website, www.lynascorp.com
Recommendation 6.4 – Electronic Communications
The Group gives shareholders the option to receive communications from, and to send communications to, the Group and its share registry
electronically. The Group periodically sends communications to those shareholders who have provided an email address. There is a facility
on the Group’s website, www.lynascorp.com for shareholders to subscribe to receive emailed copies of the Group’s ASX announcements.
In addition, there is an email link on the Group’s website, www.lynascorp.com for shareholders to communicate with the Group electronically.
The Group’s share registry, Boardroom Pty Ltd, has similar arrangements that are accessible via its website www.boardroomlimited.com.au.
Principle 7 – Recognise and manage risk
Recommendation 7.1 – Risk Management Committee
The Group has established an Audit and Risk Committee to oversee risk.
The Group’s Audit and Risk Committee complies with each of the requirements of Recommendation 7.1 as follows:
(1) The Committee consists only of Non-Executive Directors. From July 1, 2016 to May 15, 2017, the members of the Committee
were Mr Forde, Mr Klein, Ms Conlon and Mr Etienne. From May 15, 2017 onwards, the members of the Committee were Mr Forde,
Mr Humphrey, Ms Conlon and Mr Etienne. Further details, including the relevant qualifications and experience of the members of
the Committee, are provided in the Directors section of the Directors’ Report.
(2) Six meetings of the Committee were held during the financial year ending June 30, 2017. Further details, including the attendances
of members, are provided in the Directors Meetings section of the Directors’ Report.
(3) All of the members of the Committee are independent Directors.
(4) The Committee is chaired by Mr Forde, who is an independent Director and who is not Chair of the Board.
(5) At all times during the financial year ending June 30, 2017, the Committee had at least three members.
The Group has adopted Charters for its Audit and Risk Committee. Copies of the Committee Charters are available from the Group’s website,
www.lynascorp.com.
Recommendation 7.2 – Risk Management Framework
The Group has adopted a Risk Management Policy and a Risk Management Framework for oversight and management of its material business
risks. The Audit and Risk Committee reviews the Group’s Risk Management Framework at least annually to satisfy itself that it continues to
be sound. Such a review has taken place in the financial year ending June 30, 2017.
Recommendation 7.3 – Internal Audit
The Group does not have an internal audit function. The processes that the Group employs for evaluating and continually improving the
effectiveness of its risk management and internal control processes include the following:
(1) The Group’s Risk Management Policy and Risk Management Framework clearly describe the roles and accountabilities of the Board,
the Audit & Risk Committee, the Health Safety & Environment Committee and management.
(2) The Audit & Risk Committee and the Health Safety & Environment Committee oversee the Group’s material business risks.
(3) Those members of the Group’s management team who are accountable for risk management, safety, health, environment and
community matters manage the Group’s material business risks.
25
Lynas Corporation Limited | 2017 Annual ReportCorporate Government Statement continued
(4) The Audit & Risk Committee oversees financial risks pursuant to its Charter. This includes internal controls to deal with both the
effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting
records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational
key performance indicators.
(5) The members of the Group’s finance department manage financial risks.
(6) The Group has adopted the following policies for the oversight and management of material business risks: Risk Management
Policy, Environmental Policy, Community Policy and Occupational Health and Safety Policy.
Copies of the following documents referred to in this section are available from the Group’s website, www.lynascorp.com:
(1) Audit & Risk Committee and Health Safety & Environment Committee Charters;
(2) Risk Management Policy;
(3) Environmental Policy;
(4) Community Policy; and
(5) Occupational Health and Safety Policy.
Recommendation 7.4 – Economic, Environmental and Social Sustainability Risks
The categories of risk to which the Group has exposure include economic, environmental and social sustainability risks. The Group manages
these risks as follows:
(1) The Group seeks to reduce the impact of fluctuations in rare earths prices and demand by building strategic relationships with
customers and other parties in the Group’s key markets. The Group seeks to reduce the impact of exchange rate variations by
having both revenue under its sales contracts and its debt repayment obligations denominated in US dollars, and by broadly
matching the currencies in which funds are held with the currencies of anticipated outgoings.
(2) The Group manages environmental risks by adopting environmental management programs for each of its sites. The Group has
detailed environmental monitoring at each of its sites, and the Group has invested significant amounts in environmental controls
such as the Group’s Malaysian waste gas treatment plant, waste water treatment plant and solid residues commercialisation
programs. These measures have ensured that the Group has complied with all applicable environmental standards at each site.
(3) The Group recognises that a strong mutual relationship with each community in which it operates is necessary for successful
operations. In addition, the Group recognises the importance of maintaining its reputation with all of its stakeholders including
shareholders, regulatory authorities, communities, customers and suppliers. The Group has adopted a Community and Stakeholder
Engagement Plan and the Group engages in community programs that build relationships with each of the communities in which
the Group operates
Principle 8 – Remunerate fairly and responsibly
Recommendation 8.1 – Remuneration Committee
The Group has established a Nomination, Remuneration and Community Committee.
The Group’s Nomination, Remuneration and Community Committee complies with each of the requirements of Recommendation 8.1 as follows:
(1) The Committee consists of a majority of independent Directors. During the financial year ending June 30, 2017 the members of the
Committee were Ms Conlon, Mr Forde and Mr Harding.
(2) The Committee is chaired by Ms Conlon, who is an independent Director and who is not Chair of the Board.
(3) There were three formal meetings of the Committee during the financial year ending June 30, 2017. In addition, there were several
informal meetings. Further details, including the attendances of members, are provided in the Directors Meetings section of the
Directors’ Report.
(4) At all times during the financial year ending June 30, 2017 the Committee had three members.
The Group has adopted Charters for its Nomination, Remuneration and Community Committee. Copies of the Committee Charters are
available from the Group’s website, www.lynascorp.com.
Recommendation 8.2 – Remuneration of Executive Directors, Executives and Non-Executive Directors
The remuneration of Executive Directors and senior executives during the financial year consisted of the following:
(1) Fixed remuneration, superannuation payments and termination payments.
(2) Performance Rights granted for the benefit of the relevant individuals pursuant to the Group’s employee incentive plans.
(3) Non-monetary benefits.
Details of the remuneration of Executive Directors and senior executives during the financial year are set out in the Remuneration Report
section of the Directors’ Report.
The remuneration of Non-Executive Directors during the financial year consisted only of cash fees and superannuation payments.
Details of the remuneration of Non-Executive Directors during the financial year are set out in the Remuneration Report section of the
Directors’ Report.
26
www.lynascorp.comDirectors’ ReportThe fixed remuneration paid to Executive Directors and senior executives is clearly distinguished from the cash fees paid to Non-Executive
Directors.
The Group complies with Recommendation 8.2 by clearly distinguishing the structure of Non-Executive Directors’ remuneration from that of
Executive Directors and senior executives. During the financial year ended June 30, 2017 no Options or Performance Rights were issued
to Non-Executive Directors.
Recommendation 8.3 – Use of Derivatives and Similar Transactions
In accordance with the Group’s share trading policy, Directors and employees must not at any time enter into transactions in associated
products which limit the economic risk of participating in unvested entitlements under equity-based remuneration schemes. A copy of the
share trading policy is available from the Group’s website, www.lynascorp.com.
SHARES ISSUED AS A RESULT OF EXERCISE OF OPTIONS AND PERFORMANCE RIGHTS
During the financial year 33,151,018 Performance Rights were exercised as set out in note 29 to the financial report.
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
During or since the end of the financial year, the Group has paid a premium in respect of a contract insuring all Directors and Officers of the
Group against liabilities incurred as a Director or Officer of the Group, to the extent permitted by the Corporations Act 2001, that arise as a
result of the following:
(a) a wilful breach of duty; or
(b) a contravention of sections 182 or 183 of the Corporations Act 2001, as permitted by section 199B of the Corporations Act 2001.
The total amount of insurance contract premiums paid was $482,964 (2016: $355,290). This amount is not included as part of the Directors’
remuneration in note 27 to the financial report.
INDEMNIFICATION AND INSURANCE OF AUDITOR
During or since the end of the financial year, the Group entered into an agreement with its auditors, Ernst & Young, indemnifying them
against any claims by third parties arising from their report on the Annual Financial Report, except where the liability arises out of conduct
involving a lack of good faith. No payment has been made to indemnify Ernst & Young during or since the financial year.
NON-AUDIT SERVICES
During the year Ernst & Young, the Group’s auditor, has performed certain other services in addition to the audit and review of the financial
statements.
Details of amounts paid or payable to the auditor for non-audit services provided during the year are outlined in note 9 to the financial
report. The Directors have considered the non-audit services provided during the year by the auditor, and are satisfied that the provision of
non-audit services by the auditor during the year is compatible, and did not compromise, the auditor independence requirements of the
Corporations Act 2001 for the following reasons:
(a) all non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the
audit committee to ensure they do not impact the integrity and objectivity of the auditor; and
(b)
the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES
110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a
management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards.
DIRECTORS MEETINGS
Committee membership
During the financial year, the Group had the following Committees of the Board of Directors: Audit & Risk Committee, Health Safety &
Environment Committee, and Nomination, Remuneration and Community Committee.
27
Lynas Corporation Limited | 2017 Annual ReportDirectors acting on the committees of the Board during the period July 1, 2016 to May 15, 2017:
Audit and Risk
Health, Safety and Environment
Nomination, Remuneration and Community
W. Forde(c)
K. Conlon
J. Klein(1)
P. Etienne
W. Forde(c)
K. Conlon
J. Klein(1)
P. Etienne
K. Conlon(c)
M. Harding
W. Forde
(c) Designates the Chair of the Committee as at June 30, 2017.
(1) Resigned on May 15, 2017.
Directors acting on the committees of the Board from May 15, 2017 onwards:
Audit and Risk
W. Forde(c)
K. Conlon
J. Humphrey(1)
P. Etienne
Health, Safety and Environment
Nomination, Remuneration and Community
W. Forde(c)
K. Conlon
M. Harding
P. Etienne
K. Conlon(c)
M. Harding
W. Forde
(c) Designates the Chair of the Committee as at June 30, 2017.
(1) Appointed on May 15, 2017.
As summarised in the Corporate Governance Statement, the Audit & Risk Committee consists of independent Directors.
The number of Directors’ meetings held during the year and the number of meetings attended by each Director was as follows:
Meetings of the Board and Committees
Directors’ Meetings
Audit and Risk
Health, Safety and
Environment
Nomination,
Remuneration and
Community
Number of meetings held:
Number of meetings attended:
M. Harding
A. Lacaze
W. Forde
K. Conlon
J. Klein(1)
P. Etienne
J. Humphrey(2)
(1) Resigned on May 15, 2017.
(2) Appointed on May 15, 2017.
9
8
9
9
9
5
9
1
6
–
–
6
6
3
6
1
2
–
–
2
2
–
2
–
3
3
–
3
3
–
–
–
AUDITOR’S INDEPENDENCE DECLARATION
We have obtained an independence declaration from our auditors, Ernst & Young, which follows the Directors’ Declaration.
ROUNDING OF AMOUNTS
The Company is of a kind referred to in Instrument 2016/191 issued by the Australian Securities and Investments Commission, in relation
to the ‘rounding off’ of amounts. Amounts in the Directors’ Report and Financial Report have been rounded off, in accordance with the
Instrument, to the nearest thousand dollars, unless otherwise stated.
28
www.lynascorp.comDirectors’ ReportDirectors’ Report
Remuneration Report – Audited
Dear Shareholder,
I am pleased to present our Remuneration Report for the year ended June 30, 2017 (FY17).
As with other areas of the business, during FY17 we continued to restructure executive remuneration. As production has ramped up,
we have increasingly focussed on objectives that are aligned with the creation of value for our key stakeholders.
Despite the improved operating performance and share price of the Company in FY17 (as summarised in Section D below), there have been
no increases in the fixed pay of the Executives since FY14. In addition, the fees paid to Non-Executive directors have not increased since
FY11. Remuneration has been simplified. Total remuneration for Directors and Executives in FY17 is shown in the table on page 36.
The incentive structure has also been simplified. Payments have been made only where specific objectives that underpin improved performance
have been delivered. These have included:
Improved production
•
• Achievement of significant cost reductions
•
Strong cash management
In FY17, the only remuneration paid to Non-Executive Directors was fees (i.e. no options or similar benefits were issued).
We hope that the report will assist your understanding of our remuneration objectives and policies. We welcome your feedback on how
we can further improve the remuneration report in the future.
Yours sincerely,
Kathleen Conlon
Chair
Nomination, Remuneration and Community Committee
29
Lynas Corporation Limited | 2017 Annual ReportRemuneration Report – Audited continued
This report sets out the remuneration arrangements of Directors and KMP of the Group in accordance with the Corporations Act 2001 and its
regulations.
A.
EXPLANATION OF KEY TERMS
The following table explains some key terms used in this report:
Executives
At as June 30, 2017, the Chief Executive Officer and Managing Director (‘CEO’), the Chief Financial Officer (‘CFO’),
the VP Production, the VP Sales & Marketing and the General Counsel & Company Secretary.
Key Management
Personnel (‘KMP’)
Those people who have authority and responsibility for planning, directing and controlling the major activities
of the Group, directly or indirectly, including the Directors (whether executive or otherwise) and the Executives.
Lynas Advanced
Materials Plant
(‘LAMP’)
Long Term
Incentive (‘LTI’)
Option
The LAMP, which is located in the State of Pahang, Malaysia, is the facility for the cracking and separation of
concentrate into separated rare earths products.
LTI is the long term incentive component of Total Remuneration. LTI usually comprises Options or Performance
Rights with a three year vesting period that are subject to specified vesting conditions. Further details of the
vesting conditions are in Section D. Options and Performance Rights cannot be exercised unless the vesting
conditions are satisfied.
An Option is a right to purchase a share in the future, subject to the relevant Executive paying an exercise price.
Options are issued for the benefit of selected Executives as part of their LTI remuneration. The exercise price is
usually set at a premium to the volume weighted average price of the shares on the ASX over the five days prior
to the date of offer of the Options.
Performance Right
A Performance Right is similar to an Option, except that no “exercise price” is payable when a Performance Right
is exercised.
Short Term
Incentive (‘STI’)
STI is the short term incentive component of Total Remuneration. An STI could be in the form of cash or
Performance Rights and it is only received by the Executive if specified goals are achieved.
Total
Remuneration
Total Shareholder
Return (‘TSR’)
Total Remuneration comprises fixed pay (including superannuation) plus STI and (if applicable) LTI.
Total Shareholder Return is the total return from a share to an investor (i.e. capital gain plus dividends).
The KMP during the financial year ended June 30, 2017 were as follows:
Non-Executive Directors:
M. Harding
Chairman
W. Forde
K. Conlon
J. Klein
P. Etienne
Non-Executive Director, Chair of the Audit & Risk Committee and Chair of the Health Safety & Environment Committee
Non-Executive Director, and Chair of the Nomination, Remuneration & Community Committee
Non-Executive Director (resigned on May 15, 2017)
Non-Executive Director
J. Humphrey
Non-Executive Director (appointed on May 15, 2017)
Executives:
A. Lacaze
CEO and Managing Director
G. Sturzenegger
CFO
K. Leung
P. Le Roux
A. Arnold
VP Production
VP Sales & Marketing
General Counsel and Company Secretary
Except as noted, the named person held their current position for the whole of the financial year and since the end of the financial year.
30
www.lynascorp.comDirectors’ ReportB. OUR REMUNERATION PHILOSOPHY
The Group’s objective is to provide maximum stakeholder benefit by attracting, retaining and motivating a high quality board of directors
and executive management team. Remunerating Directors and Executives fairly and appropriately, consistent with relevant employment
market conditions, is an important part of achieving this goal. We align rewards to sustainable value through creating links between the
achievement of organisational goals, both long and short term in nature, with the non-fixed elements of individual remuneration.
To help the Group achieve this objective, the Committee links the nature and amount of the remuneration paid to the Executives to the
Group’s financial and operational performance.
Total remuneration (that is, fixed remuneration plus STI and LTI) is paid at market rates except in exceptional cases where skills are scarce or
particularly valuable, in which case we pay as necessary. Our market is defined by location and function, i.e. Malaysia, WA resources and the
global rare earths market. In addition, our senior ex-patriate executives are remunerated at market rates necessary to attract ex-patriates
with their skills and experience to work in our main office in Kuantan, in regional Malaysia. Those ex-patriate executives have been key drivers
of the business’ strong performance in FY17, as described below.
STI awards, which create an ‘at risk’ component with a value equal to approximately 50% of total fixed remuneration for senior Executives
(with 25% available to be paid in cash and 25% available to be paid in Performance Rights).
LTI awards for senior Executives are subject to TSR and strategic milestone performance hurdles, and are granted equal to approximately
25% of total fixed remuneration for senior Executives, and 50% of total fixed remuneration for the Chief Executive Officer.
External advisors and remuneration advice
The Committee engages external advisors to provide advice and market related information as required.
• During the year, the Committee did not receive any remuneration recommendations (as defined in the Corporations Act 2001).
C. ROLE OF THE NOMINATION, REMUNERATION AND COMMUNITY COMMITTEE
The Board is responsible for determining and reviewing remuneration arrangements for Directors and Executives. The Committee assesses,
on a regular basis, the appropriateness of the nature and amount of KMP remuneration. In fulfilling these duties and to support effective
governance processes, the Committee:
consists of independent Non-Executive Directors and is chaired by an independent chair;
•
• has unrestricted access to management and any relevant documents; and
•
engages external advisers for assistance to the extent appropriate and necessary (e.g. detailing market levels of remuneration).
D.
OUR EXECUTIVE REMUNERATION FRAMEWORK
Structure
Executive remuneration consists of the following key elements:
• fixed pay (base salary and superannuation); and
•
variable remuneration, being:
•
STI; and
•
LTI.
The Group provides no retirement benefits, other than statutory superannuation.
Fixed pay
Despite the improving performance of the business in FY17, there have been no increases in the fixed pay of the Executives since FY14. Gross
profit for FY17 was $14.7m (FY16: $20.4m loss) reflecting increased production volumes and improved selling prices towards the end of FY17.
Net operating cash flows for FY17 were $34.0m (FY16: $4.1m) reflecting similar factors. The Company’s share price on 1 July 2016 was 5.7 cents.
By June 30, 2017, the Company’s share price had increased to 10.5 cents. The Company’s share price has increased further since June 30, 2017.
The CEO’s fixed pay and total remuneration have not increased since the CEO was appointed in June 2014. The CEO’s package was benchmarked
to market based on data provided by Mercer, an external consulting firm. Ms Lacaze’s total fixed remuneration is 30% less than the total fixed
remuneration of the previous CEO. In addition, Ms Lacaze’s package reflected the difficulty in recruiting a suitable candidate in June 2014
to undertake the challenging role of Lynas CEO, at a time of uncertainty regarding the Group’s future. The package also reflects the Group’s
requirement for an ex-patriate CEO with the skills and experience necessary to manage the Group, and the need to attract and retain such a
CEO in our main office in Kuantan, in regional Malaysia. Since June 2014, Ms Lacaze has led a significant turnaround in the Group’s performance,
reflected in the improved operating metrics summarised in the previous paragraph. There remains significant work to be done in the business
by a CEO with Ms Lacaze’s skill set, including strengthening the Company’s position in the volatile global market for Rare Earth products and
maintaining the Company’s improved relations with its lenders, customers, investors, local communities and other key stakeholders.
31
Lynas Corporation Limited | 2017 Annual ReportRemuneration Report – Audited continued
Variable remuneration
Our structure for STI awards and LTI awards is described in Section B above.
In summary:
STIs
Fixed Pay
= base + super
Variable remuneration
= STI (Cash and Deferred) + LTI
For Executives, up to 50% of fixed pay is available for STI awards.
The goals and measures of the STI programme (including individual, team and company performance goals and measures), the relative
weightings of those measures and goals, and STI target amounts are determined and approved at the commencement of each review period
by the Remuneration Committee. During the financial year ended June 30, 2017 the STI Program had 4 goals as follows:
1.
Lynas Group unrestricted cash balance – 25%
2. NdPr production volume – 25%
3. Operating cost targets – 25%
4.
Team / Individual Performance – 25%
The table below summarises the STI targets and outcomes for the financial year ended June 30, 2017 on Cash Balance and NdPr Production.
Targets for Operating Costs were set at the start of FY17 based on NdPr unit operating costs, excluding employee share payments, after
crediting non-NdPr realised revenue. Those figures are commercial-in-confidence because it is not in the interest of the Group to disclose
those figures to third parties such as customers and competitors. However we confirm that the actual result for FY17 was a 21% reduction
on the actual per NdPr unit Operating Costs result for FY16. Based on the targets set, an award was made for FY17 at the 105% level for
Operating Costs.
FY17 STI Goal
Target for
80% of Award
Target for
100% of Award
Target for
120% of Award
Unrestricted cash balance
AUD28,001,735
AUD39,412,640
AUD43,353,904
NdPr production volume (PF output)
4,989t
4,989t
5,488t
FY17 Outcome
AUD35,857,798
94% of Award
5,238t
110% of Award
As shown in the above table, three bands of performance were specified at the beginning of FY17 for each STI goal, with awards to be made
equal to 80%, 100% or 120% of the available STI award pool for each goal, depending on which performance band was achieved. Awards
would be prorated if performance fell between the 80%, 100% or 120% targets.
In addition, 25% of the STI award pool was available based on Team / Individual Performance goals. Team / Individual Performance goals
included safety performance, customer development, environmental compliance, reputational management and community engagement. In
FY17, the Group maintained a very good safety record, with the Group-wide 12-month rolling Lost Time Injury Frequency Rate, as at the end
of June 2017, at 2.2 per million hours worked. In addition, significant progress was made in each of the other goals specified above, as detailed
in the Review of Operations section of the Directors’ Report. In assessing the award for Team / Individual Performance, the Board considered
each of the outcomes on the goals specified above and the improved financial performance of the Group in FY17, as detailed in the Review
of Operations and Financial Performance sections on pages 12 to 19 of the Director’s Report. The Board concluded that the performance of the
Executives had been excellent during FY17 and an award was made at the 110% level for Team / Individual Performance in FY17.
In accordance with the above calculations, the overall outcome was that 105% of the available STI awards will be made in respect of the
financial year ended June 30, 2017. Those awards will be made 50% in cash and 50% in Performance Rights with a 12 month vesting period.
After the end of the financial year, the Board calculates the STI award outcome based on the above criteria, and the Board reserves the right
to adjust the outcome, or the timing of payments, based on factors such as cash availability to pay the proposed award. No such adjustment
was made for FY17. In addition, if there had been a fatality during the year (which there was not), no STI awards would have been made
unless so resolved by the Board.
LTIs
LTI options and Performance Rights are granted to KMPs and other selected employees to provide greater alignment to strategic business
objectives. They usually have three year vesting periods, and are usually exercisable between three and five years after they were granted
provided the award recipient is still employed with the Group (unless this requirement, in limited circumstances, is waived by the Board),
and any relevant performance conditions are achieved.
32
www.lynascorp.comDirectors’ ReportLTI Performance Rights Forfeited During FY17
The following LTI Performance Rights were forfeited during FY17.
8,094,340 LTI Performance Rights, granted as part of the FY15 LTI plan, were conditional on a Right First Time (RFT) hurdle measured over
calendar year 2016. The performance hurdle required that the percentage of first time conforming produced tonnes over total produced
tonnes for Mt Weld and the LAMP during calendar year 2016 must be at least 85%. That hurdle was satisfied by Mt Weld production during
2016, however it was not satisfied by LAMP production, in particular it was not satisfied in respect of the high volume product cerium that
was produced at the LAMP. The overall RFT percentage in 2016 was approximately 77%. Accordingly, the 8,094,340 Performance Rights were
forfeited in the financial year ended June 30, 2017.
In addition, 6,745,283 LTI Performance Rights, granted as part of the FY15 LTI plan, were conditional on Total Shareholder Return (TSR) being
at least at the 51st percentile of ASX 200 companies over a 3 year vesting period expiring on September 23, 2017. That TSR hurdle cannot be
measured until after September 23, 2017. Depending on the comparative performance of ASX 200 companies over the 3 year period ending
September 23, 2017, there is a risk that the 6,745,283 Performance Rights may also be forfeited.
LTI Performance Rights that Vested During FY17
No LTI Performance Rights vested during FY17, due to the non-satisfaction of the performance hurdles summarized above.
LTI Performance Rights Awarded During FY17
A summary of the performance hurdles attached to the Performance Rights awarded during the financial year ended June 30, 2017 is set out
below:
(i)
50% will be conditional on the Company’s cumulative NdPr production during the period 1 July 2016 to 30 June 2019, in
accordance with the following sliding scale:
(a)
(b)
(c)
If cumulative NdPr production from 1 July 2016 to 30 June 2019 is at least 13,903 tonnes, then 50% of the NdPr
production portion will vest.
If cumulative NdPr production from 1 July 2016 to 30 June 2019 is at least 15,448 tonnes, then 100% of the NdPr
production portion will vest.
If cumulative NdPr production from 1 July 2016 to 30 June 2019 is at least 16,993 tonnes, then 120% of the NdPr
production portion will vest.
(ii) 50% will be conditional on the company’s Total Shareholder Return (TSR) being at least at the 51st percentile of ASX 300 Metals
and Mining Index companies calculated over the 3-year vesting period, in accordance with the following sliding scale:
(a)
If the Lynas TSR is at least at the 51st percentile, 50% of the TSR portion will vest.
(b)
If the Lynas TSR is at least at the 76th percentile, 100% of the TSR portion will vest.
(c)
If the Lynas TSR is between the 51st percentile and the 76th percentile, a pro rata amount of between 50% and 100%
of the TSR portion will vest (with the relevant percentile being rounded up or down to the nearest 5%, for ease of
calculation).
The above performance hurdles were selected as key measures of long-term success for the Group that were aligned with the interests of
shareholders. The NdPr production hurdle in paragraph (i) defined long-term success in the context of production of the product for which
the Group receives significantly higher prices than any other product. Increased NdPr production has been a key driver of the Group’s
improved results in FY17. In addition, the NdPr production hurdles were set at higher production rates than the equivalent JARE senior debt
facility NdPr production targets that applied at the time, which were announced to the ASX on 17 August 2015.
The TSR hurdle compares shareholder returns from Lynas to shareholder returns from ASX 300 Metals and Mining Index companies over
the 3-year vesting period. Lynas is currently a member of the ASX 300 Metals and Mining Index, and therefore this was considered to be an
appropriate benchmark for the TSR hurdle.
In accordance with the Group’s policy governing the trading of the Company’s shares by Directors and employees, award recipients are not
permitted to hedge their Options or Performance Rights before they vest.
Clawback Policy
In circumstances where the Group becomes aware of any material misstatement in its financial statements due to: (i) non-compliance with a
financial reporting requirement; (ii) the KMP’s misconduct; or (iii) the misconduct of any other Lynas personnel under the supervision of the
relevant KMP, the Board has authority under the clawback policy to:
(a) require a KMP to repay some or all of any STI award or LTI award granted to the KMP from July 1, 2013 (‘Relevant Award’), to the
extent such award has vested;
(b) forfeit the reference units representing all or a part of the KMP’s Relevant Award, to the extent such award remains unvested; or
(c) withhold the payment or allocation of all or a part of the KMP’s Relevant Award, to the extent such award has not been paid or
given to that KMP.
33
Lynas Corporation Limited | 2017 Annual Report
Remuneration Report – Audited continued
E. SERVICE AGREEMENTS
The CEO and Managing Director has an executive services agreement with the Group containing reasonable commercial conditions.
Subject to the following provisions, the agreement is for an indefinite duration. The key provisions of the agreement are:
Notice by CEO:
Ms Lacaze must give three months’ written notice of an intention to resign.
Notice by Group:
The Group may terminate the agreement by giving six months’ written notice.
The Group may terminate Ms Lacaze’s employment at any time without notice if serious misconduct has
occurred.
Treatment of
incentives on
termination:
On resignation, any unvested Options and Performance Rights may be forfeited subject to the discretion of the
Board. Upon termination of Ms Lacaze’s employment by the Group other than as a result of misconduct, Ms
Lacaze will be entitled to retain a pro – rata portion of any unvested Options and Performance Rights held by
her on the date of termination. For example, where 50% of the vesting period has been served, Ms Lacaze will be
entitled to retain 50% of the unvested Options or Performance Rights. Ms Lacaze will also be entitled to retain
any Options or Performance Rights that have vested prior to the date of termination.
Termination
benefits:
In accordance with the Corporations Act 2001, the maximum termination payment payable to Ms Lacaze is equal
to her base salary for one year (i.e. excluding any LTI component).
Employment conditions for all other KMPs are on the following terms:
each may give three month’s written notice of their intention to resign;
the Group may terminate the employment by providing three to six months’ written notice;
•
•
• on resignation or termination (other than as a result of misconduct), unvested incentives will be treated in the same manner set out
above in respect of Ms Lacaze; and
the Group may terminate employment at any time without notice if serious misconduct has occurred.
•
LINKING REMUNERATION AND GROUP PERFORMANCE
F.
Refer to Section D above for a summary of how Executive remuneration is linked to Group performance. In particular, despite the improving
performance of the business in FY17 as summarized in Section D above, there have been no increases in the fixed pay of the Executives since FY14.
In recent years, LTI grants have been subject to hurdles that are aligned with the interests of key stakeholders in the Group. For example,
in the financial year ended June 30, 2017, LTI grants were subject to a TSR hurdle and an operations hurdle related to NdPr production, as
detailed in Section D above. The reference period for these hurdles has not yet expired. In addition, as detailed in Section D above, significant
numbers of Performance Rights were forfeited in FY17 due to non-satisfaction of vesting conditions.
Individual performance reviews link total remuneration to individual and business unit performance. From July 1, 2012 the mix of fixed pay
and variable remuneration has been adjusted by the introduction of a formal STI plan. The introduction of the STI plan reflects the transition
of the Group from a development phase to an operational phase, and it recognises that we have important short term goals based on
successful ramp-up, production volumes, cash flows, costs and safety and community programmes.
Separately, changes in the share based remuneration from one year to the next reflect the impact of amortising the accounting value of
Options and Performance Rights over their three year vesting period and the impact of forfeitures which can relate to both the current and
prior periods in a given fiscal period. In certain periods, a negative value may be presented which results when the forfeitures recognised in a
period are greater than the accounting amortisation expense for the current portion of the vesting period.
For further context the following table provides reported financial information on which remuneration has been based. As noted elsewhere
the Group has moved from a development phase and is now in its operational phase, as evident in the revenue metrics noted below.
June 30
2010
June 30
2011
June 30
2012
June 30
2013
June 30
2014
June 30
2015
June 30
2016
June 30
2017
Revenue ( $‘000 )
Loss before tax ( $‘000 )
Loss after tax ( $‘000 )
Shareholder capital ( $’000 )
Annual average share price
Closing share price
at financial year end
Basic loss per share (cents)
Diluted loss per share (cents)
–
(43,041)
(43,041)
719,857
$0.55
$0.55
(3.23)
(3.23)
–
(57,288)
(59,086)
821,994
$1.66
$1.98
(3.54)
(3.54)
–
(97,879)
(87,770)
823,161
$1.30
950
(141,014)
(143,555)
994,645
$0.65
64,570
(345,431)
(345,488)
1,034,634
$0.29
144,596
(118,559)
(118,685)
1,083,898
$0.08
190,956
(94,117)
(94,082)
1,088,469
$0.07
256,976
(35,642)
(14,876)
1,094,403
$0.08
$0.85
(5.12)
(5.12)
$0.38
(5.13)
(5.13)
$0.13
(15.41)
(15.41)
$0.03
(3.82)
(3.82)
$0.05
(2.70)
(2.70)
$0.11
(0.42)
(0.42)
34
www.lynascorp.comDirectors’ ReportG. NON-EXECUTIVE DIRECTOR REMUNERATION
Objective
Remuneration of Non-Executive Directors (“NEDs”) is set at a level that enables the Group to attract and retain talented and motivated
people at a cost which is acceptable to shareholders. In setting remuneration, the Group takes into account, among other factors:
•
•
•
•
fees paid to NEDs of companies of a similar size/industry;
the time commitment required for NEDs to properly fulfil their duties;
the risks and responsibilities associated with the roles; and
the relevant commercial and industry experience required
NED Skill Set
The Group has focussed on ensuring that its Directors reflect the broad range of skills necessary to oversee the emergence of the Group as a
significant participant in the volatile global market for Rare Earth products. The Group is now the second largest NdPr producer in the world
and the largest supplier of NdPr to the free market. The key skills reflected among the Board members include:
Industrial / operating;
Finance / accounting;
•
•
• Marketing;
•
• Corporate finance / strategy; and
• Government / regulatory.
International business;
Remuneration Structure
The Company’s Constitution and the ASX Listing Rules specify that the maximum aggregate remuneration of NEDs must be determined from
time to time by a general meeting. The last determination was at the AGM held on November 20, 2012, and an aggregate pool of $1,250,000
was approved. The aggregate fees for NEDs for the period did not exceed this amount.
Components of Non-Executive Director Remuneration
Each NED receives a fee for being a Director of the Company, and (other than the Chairman of the Board) each NED receives a fee for each
committee of which they are members. The NED fees, including committee fees, include statutory superannuation contributions where
appropriate.
Base Fees
The base fees for NEDs have not increased since FY11. The base fees for NEDs for the financial year ended June 30, 2017 were:
• Chairman $250,000 per annum;
• Non-Executive Director $100,000 per annum.
Committee Fees
Board Committee
Audit and Risk, Health, Safety and Environment Committee
Nomination, Remuneration and Community Committee
Chair
$
30,000
25,000
Member
$
15,000
12,500
The remuneration for NEDs for the financial years ended June 30, 2016 and June 30, 2017 is set out in Section H of this report.
35
Lynas Corporation Limited | 2017 Annual Report
Remuneration Report – Audited continued
H.
DETAILS OF REMUNERATION
Short term benefits
Post-employment benefits
Long term benefits
y
r
a
l
a
s
h
s
a
C
s
e
e
f
d
n
a
e
e
y
o
l
p
m
e
m
r
e
t
t
r
o
h
s
r
e
h
t
O
s
t
fi
e
n
e
b
y
r
a
t
e
n
o
m
-
n
o
N
s
t
fi
e
n
e
b
n
o
i
t
a
n
m
r
e
T
i
s
t
n
e
m
y
a
p
n
o
i
s
n
e
p
r
e
h
t
o
d
n
a
n
o
i
t
a
u
n
n
a
r
e
p
u
S
s
t
n
e
m
y
a
p
e
c
i
v
r
e
s
g
n
o
L
e
v
a
e
l
)
1
(
)
t
e
n
(
s
t
n
e
m
y
a
p
d
e
s
a
b
-
e
r
a
h
S
l
a
t
o
T
f
o
%
d
e
t
a
l
e
r
e
c
n
a
m
r
o
f
r
e
P
l
a
t
o
T
Name
FY2017
Executive Director
A. Lacaze
Non-Executive Directors
K. Conlon
W. Forde
M. Harding
J. Klein(2)
P. Etienne
J. Humphrey(3)
Executives
A. Arnold
G. Sturzenegger
K. Leung
P. Le Roux
1,180,384
158,250
63,492
140,000
142,500
250,000
100,625
115,000
14,839
487,400
485,732
480,384
411,364
–
–
–
–
–
–
–
–
–
–
–
–
62,257
66,266
66,875
68,855
5,477
–
29,603
96,257
Total
3,808,228
422,503
194,829
FY2016
Executive Director
A. Lacaze
Non-Executive Directors
K. Conlon
W. Forde
M. Harding
J. Klein(2)
P. Etienne
Executives
A. Arnold
G. Sturzenegger
K. Leung
M. Ahmad
P. Le Roux
1,180,867
200,000
62,314
140,000
142,500
250,000
115,000
115,000
476,171
507,605
480,866
331,214
447,014
–
–
–
–
–
–
–
–
–
–
–
–
–
36,929
–
12,911
241
31,204
212
45,229
Total
4,186,237
236,929
152,111
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19,616
8,633
1,051,424
42%
2,481,799
–
13,538
19,590
–
10,925
1,410
–
–
19,616
65,088
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,382
–
291,698
166,706
297,228
173,619
0%
0%
0%
0%
0%
0%
34%
23%
33%
21%
140,000
156,038
269,590
100,625
125,925
16,249
846,832
718,704
900,088
815,183
149,783
15,015
1,980,675
30% 6,571,033
19,133
6,238
1,101,687
43%
2,570,239
–
13,538
19,133
–
10,925
–
–
19,133
60,377
63,489
–
–
–
–
–
–
–
–
–
–
–
–
9,794
–
–
153,290
109,858
227,905
119,543
106,379
0%
0%
0%
0%
0%
24%
18%
30%
22%
16%
140,000
156,038
269,133
115,000
125,925
642,372
617,704
768,902
548,275
662,111
205,728
16,032
1,818,662
28% 6,615,699
(1) Represents the cumulative impact of amortising the accounting value of Options and Performance Rights over their vesting period including the impact of forfeitures
recognised during the period. At times a negative value may be presented which results when the forfeitures recognised in the period (which may relate also to earlier
periods) are greater than the accounting expense for the current portion of the vesting period.
(2) Resigned on May 15, 2017.
(3) Appointed on May 15, 2017.
36
www.lynascorp.comDirectors’ Report
I. KMP EQUITY HOLDINGS
(i) Shareholdings
The following table outlines the shares held directly, indirectly and beneficially by directors and KMP as at June 30, 2017.
Name
A. Lacaze
K. Conlon
P. Etienne
W. Forde
M. Harding
J. Klein(1)
J. Humphrey(2)
A. Arnold
G. Sturzenegger
K. Leung
P. Le Roux
Balance at
beginning
of year
1,030,976
856,180
166,300
1,575,893
–
2,825,893
–
46,688
–
40,890
–
Total
6,542,820
(1)
(2)
Resigned on May 15, 2017.
Appointed on May 15, 2017.
On exercise
of perfor-
mance rights
Purchased
Sold
Other
Balance at
end of year
Held nominally
at end of year
–
–
–
–
–
–
–
–
–
–
–
–
11,385,140
–
–
–
–
–
–
1,912,246
2,044,804
2,095,300
2,099,869
–
–
–
–
–
–
–
(956,123)
(559,214)
(2,095,300)
(574,273)
–
–
–
–
–
(2,825,893)(1)
–
–
–
–
–
12,416,116
856,180
166,300
1,575,893
–
–
–
1,002,811
1,485,590
40,890
1,525,596
19,537,359
(4,184,910)
(2,825,893)
19,069,376
–
–
–
–
–
–
–
–
–
–
–
–
(ii) Share Based Remuneration – Performance Rights
Performance Rights are issued on the same terms as Options, except there is no consideration payable on exercise. As at year end the Group
had on issue to directors and KMP the following Performance Rights to acquire ordinary fully paid shares:
Series Grant date
Number
September 23, 2014
September 23, 2014
November 28, 2014
November 28, 2014
September 18, 2015
September 18, 2015
November 23, 2015
November 23, 2015
August 30, 2016
August 30, 2016
November 30, 2016
November 30, 2016
3,792,453
3,160,378
3,396,227
2,830,189
7,576,066
9,091,279
10,588,235
8,823,529
4,015,406
8,833,894
2,453,488
5,581,396
Y
Z
AC
AD
AG
AH
AJ
AK
AL
AM
AN
AO
AP
Total
74,793,703
Date vested
and exercisable
September 23, 2017
September 23, 2017
September 23, 2017
September 23, 2017
September 18, 2018
September 18, 2018
September 18, 2018
September 18, 2018
August 30, 2017
August 30, 2019
August 30, 2017
August 30, 2019
Expiry date
September 23, 2019
September 23, 2019
September 23, 2019
September 23, 2019
September 18, 2020
September 18, 2020
September 18, 2020
September 18, 2020
August 30, 2017
August 30, 2021
August 30, 2017
August 30, 2021
November 30, 2016
4,651,163
August 30, 2019
August 30, 2021
Exercise
price
Value per right at
grant date
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.116
$ 0.096
$ 0.059
$ 0.031
$ 0.029
$ 0.039
$ 0.090
$ 0.080
$ 0.065
$ 0.065
$ 0.065
$ 0.068
$ 0.050
37
Lynas Corporation Limited | 2017 Annual ReportRemuneration Report – Audited continued
Fair value of Performance Rights
The fair value of each Performance Right is estimated on the date it is granted using volume-weighted average share price, Monte Carlo and
Binomial valuation methodologies. The following assumptions were considered in the valuation of Performance Rights granted during the
year ended June 30, 2017:
Grant date
5 day VWAP
Exercise price
Dividend yield
Expected volatility
Risk-free Rate
Expiry date
Series AL
Series AM
Series AN
Series AO
Series AP
Aug 30, 2016
$0.065
$0.00
Nil
N/A
N/A
Aug 30, 2017
Aug 30, 2016
$0.065
$0.00
Nil
N/A
N/A
Aug 30, 2021
Nov 30, 2016
$0.065
$0.00
Nil
N/A
N/A
Aug 30, 2017
Nov 30, 2016
$0.068
$0.00
Nil
82.80%
1.910%
Aug 30, 2021
Nov 30, 2016
$0.068
$0.00
Nil
82.80%
1.910%
Aug 30, 2021
No dividends have been paid in the past and so it is not appropriate to estimate future possible dividends in arriving at the fair values. The
life of the Performance Right is up to 5 years from date of grant (as specified above) and is therefore not necessarily indicative of exercise
patterns that may occur.
The resulting weighted average fair values for all Performance Rights granted for the benefit of Directors and KMP during the year are:
Grant date
Number of
Performance Rights
Fair value per
Instrument at
valuation date
Exercise price
per Instrument
First exercise date
Last exercise
or Expiry date
August 30, 2016
August 30, 2016
November 30, 2016
November 30, 2016
November 30, 2016
4,015,406
8,833,894
2,453,488
5,581,396
4,651,163
$ 0.065
$ 0.065
$ 0.065
$ 0.068
$ 0.050
Total
25,535,347
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
August 30, 2017
August 30, 2019
August 30, 2017
August 30, 2021
August 30, 2017
August 30, 2017
August 30, 2019
August 30, 2019
August 30, 2021
August 30, 2021
Except as specified in the table above, all Performance Rights granted for the benefit of Directors and KMP have three-year vesting periods.
The Performance Rights are exercisable up to five years after issue date, subject to achievement of the relevant performance hurdles.
38
www.lynascorp.comDirectors’ ReportThe following tables outline the Performance Rights granted for the benefit of Directors and KMP during the 2017 and 2016 financial years
and those Performance Rights which have vested at each respective year-end.
Performance
Rights
exercised/
cancelled/
forfeited/
other
Performance
Rights
expired
without
exercise
Granted
Grant Date
June 30, 2017
A. Lacaze(1)
K. Conlon
P. Etienne
W. Forde
M. Harding
J. Klein(2)
J. Humphrey(3)
A. Arnold
G. Sturzenegger
K. Leung
P. Le Roux
Balance at
beginning
of year
37,023,320
–
–
–
–
–
–
9,776,142
6,218,334
9,903,979
6,430,888
12,686,047 Nov 30, 2016 (11,385,140)
–
–
–
–
–
–
–
–
–
–
–
–
(2,378,690)
Aug 30, 2016
(2,044,804)
Aug 30, 2016
(2,144,033)
Aug 30, 2016
(2,141,640)
Aug 30, 2016
–
–
–
–
–
–
3,006,404
3,200,000
3,317,830
3,325,066
Net
change
1,300,907
–
–
–
–
–
–
627,714
1,155,196
1,173,797
1,183,426
Balance
at end
of year
38,324,227
–
–
–
–
–
–
10,403,856
7,373,530
11,077,776
7,614,314
5,441,040
74,793,703
Amount
vested and
exercisable at
June 30, 2017
Amount
vested
and not
exercisable at
June 30, 2017
–
–
–
–
–
–
–
–
–
–
–
–
38,324,227
–
–
–
–
–
–
10,403,856
7,373,530
11,077,776
7,614,314
74,793,703
–
–
–
–
–
–
–
–
–
–
–
–
Total
69,352,663
25,535,347
(20,094,307)
June 30, 2016
A. Lacaze
K. Conlon
P. Etienne
W. Forde
M. Harding
J. Klein(2)
A. Arnold
12,639,728
–
–
750,000
–
600,000
5,781,293
G. Sturzenegger
–
K. Leung
3,583,629
M. Ahmad
988,366
P. Le Roux
1,111,589
24,383,592 Nov 23, 2015
–
–
–
–
–
–
–
–
–
–
5,833,283 Jul 28, 2015 &
Sep 18, 2015
6,218,334 Jul 28, 2015 &
Sep 18, 2015
6,378,830 Jul 28, 2015 &
Sep 18, 2015
5,255,356 Jul 28, 2015 &
Sep 18, 2015
6,389,117 Jul 28, 2015 &
Sep 18, 2015
–
–
–
–
–
–
(1,088,434)
–
(58,480)
(116,056)
–
–
–
(750,000)
–
(600,000)
(750,000)
24,383,592
–
–
(750,000)
–
(600,000)
3,994,849
37,023,320
–
–
–
–
–
9,776,142
6,413,312
–
–
–
–
–
–
–
–
–
6,218,334
6,218,334
6,320,350
9,903,979
5,139,300
6,127,666
–
–
–
–
(69,818)
(1,000,000)
5,319,299
6,430,888
Total
25,454,605 54,458,512
(1,332,788)
(3,100,000) 50,025,724
75,480,329
6,413,312
(1)
12,686,047 performance Rights approved by the Board were granted to A. Lacaze on August 30, 2016 and subsequently approved by the shareholders of the
Company at the AGM on November 30, 2016
(2) Resigned as Non-Executive Director on May 15, 2017.
(3) Appointed as Non-Executive Director on May 15, 2017
–
–
–
–
–
–
–
–
–
–
–
–
39
Lynas Corporation Limited | 2017 Annual ReportRemuneration Report – Audited continued
Subsequent Events
On August 2, 2017 the bondholders converted 25,000,000 convertible bonds with a principal value of USD25,000,000 into 333,333,332 ordi-
nary shares. On August 15, 2017 the bondholders converted another 37,833,333 convertible bonds with a principal value of USD37,833,333
into 504,444,440 ordinary shares. The outstanding principal of the convertible bonds has been reduced to USD162,166,667.
In accordance with the terms of the JARE facility, the JARE restricted bank account was scheduled to be closed when the unrestricted cash
balance exceeded $25m on any date after July 31, 2017. Subsequent to year end, and following satisfaction of that test, the funds in the JARE
restricted bank account were applied as follows on August 4, 2017:
(a) USD15 million was paid to JARE as a principal repayment, reducing the principal balance of the JARE facility to USD185 million;
(b) The remaining balance in the JARE restricted interest account was be used to partially settle the interest incurred from October 1,
2014 to December 31, 2015. The outstanding interest incurred in the same period was forgiven.
In accordance with the terms of the convertible bond facility, the convertible bond restricted bank account was scheduled to be closed when
the unrestricted cash balance exceeded $25m on any date after July 31, 2017. Subsequent to year end, and following satisfaction of that
test, the funds in the convertible bond restricted bank account were applied on August 4, 2017 in full payment of the interest incurred from
January 1, 2015 to December 31, 2015 and additional interest on withdrawals made in 2016.
Since June 30, 2017 the company received $692,037 from the exercise of 18,211,504 warrants with an exercise price of $0.038 and
$3,759,761 from the exercise of 75,195,227 warrants with an exercise price of $0.05 by the bondholders. As a result of the exercises,
93,406,731 new ordinary shares were issued.
With the exception of the above, there have been no other events subsequent to June 30, 2017 that would require accrual or disclosure in
this financial report.
The Directors’ report is signed in accordance with a resolution of Directors made pursuant to s.298 (2) of the Corporations Act 2001.
On behalf of the Directors,
Mike Harding
Chairman
Sydney
September 19, 2017
40
www.lynascorp.comDirectors’ ReportDirectors’ Declaration
The Directors declare that:
(a)
(b)
(c)
in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable;
in the Directors’ opinion, the attached financial report is in compliance with International Financial Reporting Standards, as stated
in note 2.1 to the financial report;
in the Directors’ opinion, the attached financial report and notes thereto are in accordance with the Corporations Act 2001,
including compliance with accounting standards and giving a true and fair view of the financial position and performance of the
Group; and
(d)
the Directors have been given the declarations required by s.295A of the Corporations Act 2001.
At the date of this declaration, the Company is within the class of companies affected by ASIC Class Order 98/1418. The nature of the
deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full of any debt in
accordance with the deed of cross guarantee.
In the Directors’ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC Class Order
applies, as detailed in note 33 to the financial report will, as a Group, be able to meet any obligations or liabilities to which they are, or may
become, subject by virtue of the deed of cross guarantee.
Signed in accordance with a resolution of the directors made pursuant to s.295 (5) of the Corporations Act 2001.
On behalf of the Directors,
Mike Harding
Chairman
Sydney
September 19, 2017
41
Lynas Corporation Limited | 2017 Annual Report
Auditor’s Independence Declaration
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
AUDITOR’S INDEPENDENCE DECLARATION TO
THE DIRECTORS OF LYNAS CORPORATION LIMITED
As lead auditor for the audit of Lynas Corporation Limited for the financial year ended 30 June 2017, I declare to the best of my knowledge
and belief, there have been:
a)
b)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Lynas Corporation Limited and the entities it controlled during the financial year.
Ernst & Young
Glenn Maris
Partner
Sydney
19 September 2017
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
42
www.lynascorp.comAuditor’s Report
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF LYNAS CORPORATION LIMITED
Opinion
We have audited the financial report of Lynas Corporation Limited (the Company) and its subsidiaries (collectively the Group), which
comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income,
consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial
statements, including a summary of significant accounting policies, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
a)
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated
financial performance for the year ended on that date; and
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
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 Report section of our report. 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 to our audit of the financial report in
Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the
current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon,
but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is
provided in that context.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
43
Lynas Corporation Limited | 2017 Annual ReportAuditor’s Report
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report,
including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment
of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to
address the matters below, provide the basis for our audit opinion on the accompanying financial report.
1. Debt restructure
Why significant
On 26 October 2016 the Group executed amended debt agree-
ments for both the JARE loan facility and convertible bonds facility.
The key components of the amendments were to extend maturity
of both instruments to 2020, reduce interest rates, reschedule
principal repayments and reduce the bond conversion price.
As required by Australian Accounting Standard – AASB 139 Financial
Instruments: recognition and measurement, this was accounted
for as an extinguishment of existing debt and recognition of new
amended debt. This required the new financial instruments to be
recognised at fair value at the date of the amendment.
The updated carrying values of the loans on amendment were
$477.8m, resulting in a gain on extinguishment of $22.9m recog-
nised on the consolidated statement of comprehensive income.
There is a significant degree of estimation and judgment used to
determine the fair value of the original debt at settlement and the
fair value of the new JARE and convertible bonds facilities. This
determined the new carrying values and gain on extinguishment
as disclosed in Note 22 in the financial report. Accordingly, this was
considered to be a key audit matter.
How our audit addressed the key audit matter
The Group obtained external accounting advice relating to the fair
value and accounting treatment of the extinguishment, gain on
extinguishment and the new carrying values of the amended JARE
loan facility and convertible bonds facility. Our procedures included
the following:
• We compared the terms of the amendments to the existing
debt agreements to assess the appropriateness of the Group
accounting for these transactions as an extinguishment.
• We involved our valuation specialists to assess the fair value
of the original and amended facilities in order to evaluate the
appropriateness of the values determined by the Group.
• We assessed the independence and competence of the third
party expert engaged by the Group regarding the appropriate
treatment in respect of the existing and new debt.
• We assessed whether the disclosure within Note 22 of the
financial report was in accordance with AASB 139 Financial
instruments: recognition and measurement.
2. Going concern assumption – effect of key assumptions
Why significant
How our audit addressed the key audit matter
The Directors have prepared the Group’s financial statements on
a going concern basis, as set out in section 2.2 on page 52 of the
financial report.
We considered the inputs and process supporting the Board
approved cash flow model prepared by the Group for the purpose
of the Directors’ going concern assessment.
Rare earth prices, production volumes, foreign exchange rates and
the regulatory environment were key assumptions that impact
estimated cash flows forecast by the Group when it concluded
there will be sufficient free cash flow to pay its debts as and when
they fall due.
We considered the budgeting process and reviewed the appropriate-
ness of assumed future production volumes. We compared forecast
revenues and costs to historical performance and assessed historical
accuracy of the Group’s previous forecasts. We assessed whether the
cash flow model accurately reflected the Board approved 2018 budget.
Accordingly, this was considered to be a key audit matter.
We evaluated the external inputs and assumptions including rare
earths pricing within the model by comparing these to assumptions
and estimates used elsewhere in the preparation of the financial report
and benchmarked them against previous experience, our understanding
of the industry and market observable external data where available.
We assessed the sensitivities and stress testing that the Group
performed on the going concern forecast.
We considered the adequacy of the financial report disclosures
contained in Note 2.2 that detail the circumstances under which
the directors are comfortable that the financial report is prepared
on a going concern basis.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
44
www.lynascorp.comInformation Other than the Financial Report and Auditor’s Report
The directors are responsible for the other information. The other information comprises the information included in the Company’s 2017
Annual Report, but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance
conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.
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, 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.
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 Group’s ability to continue as a going concern, disclosing, as
applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate
the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional
scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
•
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made
by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the
Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial
report represents the underlying transactions and events in a manner that achieves fair presentation.
•
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group
to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We
remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings,
including any significant deficiencies in internal control that we identify during our audit.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
45
Lynas Corporation Limited | 2017 Annual ReportWe also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and
to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial
report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communi-
cated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of
such communication.
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 29 to 40 of the directors’ report for the year ended 30 June 2017.
In our opinion, the Remuneration Report of Lynas Corporation Limited for the year ended 30 June 2017, 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.
Ernst & Young
Glenn Maris
Partner
Sydney
19 September 2017
Graham Ezzy
Partner
Sydney
19 September 2017
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
46
www.lynascorp.comFinancial Statements
as at June 30, 2017
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Reporting entity
Basis of presentation
Summary of significant accounting policies
Critical accounting estimates and assumptions
Determination of fair values
Segment reporting
General and administration expenses
Other expenses
Auditor’s remuneration
Financial income and expenses
Income taxes
Notes to Consolidated Financial Statements
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12. Deferred tax assets and liabilities
13. Other comprehensive income
14.
15.
16.
17.
Cash and cash equivalents
Trade and other receivables
Inventories
Reconciliation of the loss for the year with
the net cash from (used in) operating activities
18. Other non-current assets
19.
20.
Property, plant and equipment
Deferred exploration, evaluation and
development expenditure
Trade and other payables
21.
Borrowings
22.
Employee benefits
23.
Provisions
24.
Equity and reserves
25.
Financial risk management
26.
27.
Related parties
28. Group Entities
29.
30. Warrants
31. Operating leases
32.
33. Deed of cross guarantee
34.
35.
36.
Parent entity information
Contingencies
Subsequent events
Employee share option plan
Capital commitments
48
49
50
51
52
52
52
53
65
67
67
69
69
70
70
71
72
73
73
74
74
75
76
77
78
79
79
82
82
83
84
90
90
91
93
94
94
95
96
97
97
47
Lynas Corporation Limited | 2017 Annual ReportConsolidated Statement of Profit or Loss
and Other Comprehensive Income
for the year ended June 30, 2017
Revenue
Cost of sales
Gross profit / (loss)
General and administration expenses
Net foreign exchange (loss) / gain
Other expenses
Loss from operating activities
Financial income
Financial expenses
Net financial expenses
Loss before income tax
Income tax benefit
Loss for the year
Note
7
8
10
10
11
2017
A$ ‘000
256,976
(242,239)
2016
A$ ‘000
190,956
(211,401)
14,737
(20,445)
(25,501)
(3,736)
–
(34,785)
798
(1,468)
(14,500)
(55,900)
23,115
(44,257)
196
(38,413)
(21,142)
(38,217)
(35,642)
(94,117)
20,766
35
(14,876)
(94,082)
Other comprehensive loss for the year net of income tax that
may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
13
(30,099)
(28,149)
Total other comprehensive loss for the year, net of income tax
(30,099)
(28,149)
Total comprehensive loss for the year attributable to equity holders
of the Company
(44,975)
(122,231)
Loss per share
Basic and diluted loss per share (cents per share)
Note
25.3
2017
cents per share
2016
cents per share
(0.42)
(2.70)
The Consolidated Statement of Profit or Loss and Comprehensive Income should be read in conjunction with the notes to the financial statements.
48
www.lynascorp.comConsolidated Statement
of Financial Position
as at June 30, 2017
Assets
Cash and cash equivalents
Trade and other receivables
Prepayments
Tax receivable
Inventories
Total current assets
Inventories
Property, plant and equipment
Deferred exploration, evaluation and development expenditure
Intangible assets – software
Other non-current assets
Total non-current assets
Total assets
Liabilities
Interest payable
Trade and other payables
Borrowings
Employee benefits
Deferred income
Provisions
Total current liabilities
Trade and other payables
Interest payable
Borrowings
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Accumulated losses
Reserves
Note
2017
A$ ‘000
2016
A$ ‘000
14
15
16
16
19
20
18
21
22
23
24
21
22
23
24
25
25
63,925
4,518
2,846
98
37,448
43,348
3,065
2,029
111
53,643
108,835
102,196
515
538,400
41,999
17
26,616
607,547
716,382
34,553
44,286
19,516
2,112
–
309
219
612,065
44,206
100
28,259
684,849
787,045
49,761
32,770
26,878
2,146
1,178
411
100,776
113,144
1,362
25,206
439,928
166
57,543
524,205
624,981
91,401
11,519
535,686
359
55,127
602,691
715,835
71,210
1,094,403
(1,003,822)
820
1,088,469
(988,946)
(28,313)
Total equity attributable to the equity holders of the Company
91,401
71,210
The Consolidated Statement of Financial Position should be read in conjunction with the notes to the financial statements.
49
Lynas Corporation Limited | 2017 Annual ReportConsolidated Statement
of Changes in Equity
for the year ended June 30, 2017
Accu-
mulated
losses
A$ ‘000
Foreign
currency
translation
reserve
A$ ‘000
Equity
settled
employee
benefits
reserve
A$ ‘000
Share
Capital
A$ ‘000
Note
Warrant
reserves
A$ ‘000
Other
reserves*
A$ ‘000
Total
A$ ‘000
Balance at July 1, 2016
Other comprehensive loss
for the year
Total loss for the year
Total comprehensive
loss for the year
Issue of warrants
Adjustment for extinguishment
of convertible note
Recognition of convertible
note based on new terms
Exercise of warrants
Employee remuneration settled
through share-based payments
1,088,469
(988,946)
(125,943)
37,490
31,397
28,743
71,210
13
30
22
22
25
25
–
–
–
–
–
–
5,934
–
–
(14,876)
(30,099)
–
(14,876)
(30,099)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,480
–
–
–
9,016
–
–
–
–
–
–
–
–
(30,099)
(14,876)
(44,975)
9,016
(1,127)
(1,127)
48,863
–
48,863
5,934
–
2,480
Balance at June 30, 2017
1,094,403 (1,003,822)
(156,042)
39,970
40,413
76,479
91,401
Balance at July 1, 2015
Other comprehensive loss
for the year
Total loss for the year
Total comprehensive loss
for the year
Issue of warrants
Exercise of options and perfor-
mance rights, net of issue costs
Shares issued pursuant
to settlement of liability
Employee remuneration settled
through share-based payments
1,083,898
(894,864)
(97,794)
35,105
28,143
28,743
183,231
13
25
25
25
–
–
–
–
160
4,411
–
–
(94,082)
(28,149)
–
(94,082)
(28,149)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,385
–
–
–
3,313
(59)
–
–
–
–
–
–
–
–
–
(28,149)
(94,082)
(122,231)
3,313
101
4,411
2,385
Balance at June 30, 2016
1,088,469
(988,946)
(125,943)
37,490
31,397
28,743
71,210
*
Equity component of convertible bond
The Consolidated Statement of Changes in Equity should be read in conjunction with the notes to the financial statements.
50
www.lynascorp.comConsolidated Statement
of Cash Flows
for the year ended June 30, 2017
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Royalties paid
Income taxes paid
Note
2017
A$ ‘000
2016
A$ ‘000
260,426
(220,813)
(5,505)
(115)
202,638
(193,921)
(4,489)
(81)
Net cash from operating activities
17
33,993
4,147
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Security bonds paid
Security bonds refunded
Net cash used in investing activities
Cash flows from financing activities
Interest received
Interest and other financing costs paid
Proceeds from the issue of share capital
Repayment of long-term borrowing (JARE loan facility)
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate fluctuations (net) on cash held
(2,276)
-
(6,830)
2,193
(10,667)
33
-
359
(6,913)
(10,275)
178
(5,131)
5,934
(3,950)
73
(66)
102
(2,767)
(2,969)
(2,658)
24,111
43,348
(3,534)
(8,786)
51,973
161
Closing cash and cash equivalents
14
63,925
43,348
The Consolidated Statement of Cash Flows should be read in conjunction with the notes to the financial statements.
51
Lynas Corporation Limited | 2017 Annual ReportFinancial Statements
Notes to the Financial Statements
for the year ended 30 June 2017
1. REPORTING ENTITY
Lynas Corporation Limited (the ‘Company’) is a for-profit company domiciled and incorporated in Australia.
The financial report of Lynas Corporation Limited as at and for the year ended June 30, 2017 comprises the Company and its subsidiaries
(together referred to as the ‘Group’).
The Group is principally engaged in the extraction and processing of rare earth minerals, primarily in Australia and Malaysia.
The address of the registered office of the Company is Suite 3, 5 Tully Road, East Perth WA 6004, Australia.
2. BASIS OF PRESENTATION
2.1 Statement of compliance
The financial report is a general purpose financial report and has been prepared in accordance with Australian Accounting Standards (‘AASBs’)
adopted by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001.
The financial report also complies with International Financial Reporting Standards and Interpretations (‘IFRS’) as issued by the International
Accounting Standards Board (‘IASB’).The financial report was approved by the Board of Directors (the ‘Directors’) on September 19, 2017.
2.2 Going concern
The financial report has been prepared using the going concern assumption. The Directors note the Group generated a net loss and had net
cash inflows from operations in FY17, and had net current assets as at June 30, 2017.
The Directors have concluded that using the going concern assumption remains appropriate after considering a number of key assumptions
affecting the business. These include prices for rare earth products, forecast production volumes, foreign currency exchange rates, regulatory
environments in both jurisdictions, recent reductions in principal amounts of the Company’s loan facilities, and the continuing improvements
in cost performance.
Details of the Company’s loan facilities are set out in Note 22. The Directors are of the view that the Company will continue meeting its
financial obligations based on the key assumptions mentioned above.
2.3 Basis of measurement
The financial report has been prepared under the historical cost convention except certain components of inventory which are measured at
net realisable value, derivatives and certain available for sale financial assets (being listed securities) which are measured at fair value and
certain non-current assets that are presented on a revalued amount. The methods used to measure fair values are discussed further in Note 5.
Information as disclosed in the consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated statement of cash flows for the current year is for the 12 month period ended June 30, 2017. Information for the comparative
year is for the 12 month period ended June 30, 2016.
2.4 Presentation currency
The financial report of the Company and the Group is presented in Australian Dollars (‘AUD’), which is both the Company’s and the Group’s
presentation currency.
2.5 Rounding of amounts
The Company is of a kind referred to in Instrument 2016/191 issued by the Australian Securities and Investments Commission, in relation
to the ‘rounding off’ of amounts. Amounts in the Directors’ Report and Financial Report have been rounded off, in accordance with the
Instrument, to the nearest thousand dollars, unless otherwise stated.
2.6 Use of estimates and judgements
The preparation of the financial report requires the Directors to make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income and expenses and disclosure of contingent assets and liabilities.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates. These estimates and underlying assumptions are reviewed on an
52
www.lynascorp.comongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that
year or in the year of the revision and future years if the revision affects both the current and future years.
Information about the significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most
material effect on the amounts recognised in the financial report are described in Note 4.
2.7 Reclassification of comparative information
Certain elements of the information presented for comparative purposes have been revised to conform to the current year presentation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all years presented in this financial report and have been applied
consistently by all Group entities.
3.1 Basis of consolidation
(a) Subsidiaries
Subsidiaries are entities controlled by the Company or the Group. Control is achieved when the Company or Group has power over the
investee, is exposed, or has the rights to variable returns from its involvement with the investee; and has the ability to use its power to affect
its returns. In assessing control, potential voting rights that are presently exercisable are taken into account. The financial statements of
subsidiaries are included in the financial report from the date control (or effective control) commences until the date that control ceases. As
per Note 28 all entities within the Group are 100% owned and controlled.
The Group has adopted AASB 3 Business Combinations (2008) and AASB 127 Consolidated and Separate Financial Statement (2008) under
which the acquisition method of accounting is used to account for the acquisition of subsidiaries and businesses by the Group. The cost of an
acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of the
acquisition, including the fair value of any contingent consideration and share-based payment awards (as measured in accordance with AASB
2 Share Based Payment) of the acquiree that are mandatorily replaced as a result of the transaction. Transaction costs that the Group incurs
in connection with an acquisition are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in
a business combination are measured at their fair value at the acquisition date, irrespective of the extent of any non-controlling interests.
Non-controlling interests are initially recognised at their proportionate share of the fair value of the net assets acquired.
During the measurement year an acquirer can report provisional information for a business combination if by the end of the reporting year
in which the combination occurs the accounting is incomplete. The measurement year, however, ends at the earlier of when the acquirer has
received all of the necessary information to determine the fair values or one year from the date of the acquisition.
(b) Transactions eliminated on consolidation
Intra-group balances and unrealised items of income and expense arising from intra-group transactions are eliminated in preparing the
financial report. Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the Group’s
interest in the investee. Unrealised losses are eliminated in the same manner as gains, but only to the extent that there is no evidence of
impairment.
3.2 Foreign currency
(a) Functional and presentation currency
Items included in the financial report 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’).
(b) Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency of the respective
entities at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical
cost are translated to the functional currency of the respective entities at the date of the transaction. Non-monetary assets and liabilities
denominated in foreign currencies that are measured at fair value are translated to the functional currency of the respective entities at the
exchange rate at the date that the fair value was determined.
Foreign currency differences arising on translation are recognised in the statement of comprehensive income as a component of the profit or loss.
53
Lynas Corporation Limited | 2017 Annual Report3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
(c) Foreign operations
The results and financial position of those entities that have a functional currency different from the presentation currency of the Group are
translated into the Group’s presentation currency as follows:
•
•
•
•
assets and liabilities for each statement of financial position presented are translated at the closing rate at the reporting date of the
statement of financial position;
income and expense items for each profit or loss item are translated at average exchange rates;
items of other comprehensive income are translated at average exchange rates; and
all resulting exchange differences are recognised as a separate component of equity.
(d) Changes in functional currency
Any change in a Group company’s functional currency is applied prospectively from the date of the change. All items are translated into the
new functional currency using the exchange rate at the date of the change. The resultant translated amounts for non-monetary items are
thereafter treated as their historical cost.
Following the issue of the convertible bonds, the primary economic environment in which the Company operates was changed. Management
performed a functional currency review and concluded that the functional currency of the Company should change prospectively to the
United States dollar (‘USD’), effective as of January 24, 2012. Prior to this date the functional currency of the Company was AUD.
3.3 Non-derivative financial instruments
Non-derivative financial instruments comprise cash and cash equivalents, receivables, available for sale financial assets, trade and other
payables, interest bearing borrowings and compound instruments.
A non-derivative financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument.
Non-derivative financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if
the Group transfers the financial asset to another party without retaining control or substantially all the risks and rewards of the asset.
Non-derivative financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through the profit or loss,
any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described
further.
Non-derivative financial instruments are recognised on a gross basis unless a current and legally enforceable right to offset exists and the
Group intends to either settle the instrument net or realise the asset and liability simultaneously.
Upon initial acquisition the Group classifies its financial instruments in one of the following categories, which is dependent on the purpose
for which the financial instruments were acquired.
(a) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with banks, restricted cash and other short-term highly liquid
investments with maturities of less than three months.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They
are included in current assets, except for instruments with maturities greater than 12 months from the reporting date, which are classified
as non-current assets. The Group’s loans and receivables comprise trade and other receivables (including related party receivables) which are
stated at their cost less impairment losses.
(c) Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the
Group has the positive intention to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at
amortised cost using the effective interest method, less any impairment losses.
The effective interest method is a method of calculating the amortised cost of a financial instrument and allocating the interest over the
relevant years. The effective interest method results in an interest rate that exactly discounts estimated future cash payments or receipts over
the expected life of the financial instrument, or, where appropriate, a shorter period to the net amount of the financial instrument.
(d) Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the
other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the
reporting date.
54
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continuedAvailable-for-sale financial assets are measured at fair value on initial recognition plus transaction costs. Subsequent to initial recognition,
the assets are measured at fair value and changes therein, other than impairment losses and foreign exchange gains and losses on availa-
ble-for-sale monetary items, are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is
transferred to the statement of comprehensive income as a component of the profit or loss.
(e) Other liabilities
Other liabilities comprise all non-derivative financial liabilities that are not disclosed as liabilities at fair value through profit or loss. Other
liabilities 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. The Group’s other liabilities comprise trade and other payables and interest bearing borrowings, including
compound instruments and those with related parties. The Group’s other liabilities are measured as follows:
(i)
Trade and other payables
Subsequent to initial recognition trade and other payables are stated at amortised cost using the effective interest method.
(ii)
Interest bearing borrowings including related party borrowings
Subsequent to initial recognition interest bearing loans and borrowings are measured at amortised cost using the effective interest
method.
(f) Compound financial instruments
Compound financial instruments issued by the Group comprise convertible notes that can be converted to share capital at the option of the
holder, with the number of shares to be issued being fixed.
The liability component of a compound financial instrument is recognised initially at the fair value of a similar financial liability that does not
have the equity conversion option. The equity component is recognised initially as the difference between the fair value of the compound
financial instrument as a whole and the fair value of the financial liability component. Any directly attributable transaction costs are then
allocated to the liability and equity components in proportion to their initial carrying amounts.
Subsequent to the initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the
effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition.
Interest related to the financial liability is recognised in the statement of comprehensive income as a component of the profit or loss.
On conversion the financial liability is reclassified to equity and no gain or loss is recognised in the statement of comprehensive income.
3.4 Derivative financial instruments
A derivative financial instrument is recognised if the Group becomes a party to the contractual provisions of an instrument at the trade date.
Derivative financial instruments are initially recognised at fair value (which includes, where applicable, consideration of credit risk), with
transaction costs being expensed as incurred. Subsequent to initial recognition, derivative financial instruments are stated at fair value.
The gain or loss on re-measurement to fair value is recognised in the statement of comprehensive income as a component of the profit
or loss unless the derivative financial instruments qualify for hedge accounting. Where a derivative financial instrument qualifies for hedge
accounting, recognition of any resulting gain or loss depends on the nature of the hedging relationship.
Derivative financial instruments are recognised on a gross basis unless a current and legally enforceable right to offset exists.
Derivative financial assets are derecognised if the Group’s contractual right to the cash flows from the instrument expire or if the Group
transfers the financial asset to another party without retaining control or substantially all the risks and rewards of the asset.
Derivative financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.
(a) Cash flow hedges
Changes in the fair value of a derivative financial instrument designated as a cash flow hedge are recognised directly in equity as a component
of other comprehensive income to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are
recognised in the statement of comprehensive income as a component of the profit or loss for the year.
If a hedging instrument no longer meets the criteria for hedge accounting or it expires, is sold, terminated or exercised, then hedge
accounting is discontinued prospectively. At this point in time, the cumulative gain or loss previously recognised in equity remains there until
the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying
amount of the asset when it is recognised. In all other cases the amount recognised in equity is transferred within the statement of compre-
hensive income in the same year that the hedged item affects this statement and is recognised as part of financial income or expenses. If the
forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred within
the statement of comprehensive income and is recognised as part of financial income or expenses in the profit or loss.
(b) Fair value hedges
Changes in the fair value of a derivative financial instrument designated as a fair value hedge are recognised in the statement of comprehen-
sive income as a component of the profit or loss in financial income or expenses together with any changes in the fair value of the hedged
assets or liabilities that are attributable to the hedged risk.
55
Lynas Corporation Limited | 2017 Annual Report
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
(c) Embedded derivatives
Embedded derivatives are separated from the host contract and accounted for separately if the following conditions are met:
the economic characteristics and risks of the host contract and the embedded derivative are not closely related;
a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and
the combined instrument is not measured at fair value through profit or loss.
•
•
•
At the time of initial recognition of the embedded derivative, an equal adjustment is also recognised against the host contract. The adjust-
ment against the host contract is amortised over the remaining life of the host contract using the effective interest method.
Any embedded derivatives that are separated are measured at fair value with changes in fair value recognised through net financial expense
in the statement of comprehensive income as a component of the profit or loss.
3.5 Inventories
(a) Raw materials, work in progress and finished goods
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based either on the first in first out (‘FIFO’)
or weighted average principles and includes expenditure incurred in acquiring the inventories and bringing them to their existing location
and condition. In the case of manufactured or refined inventories and work in progress, cost includes an appropriate share of production
overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the
estimated costs of completion and selling expenses. Inventory expected to be sold or consumed within the next 12 months is classified as
current, with amounts expected to be consumed or sold after this time being classified as non-current.
(b) Engineering and maintenance materials
Engineering and maintenance materials (representing either critical or long order components but excluding rotable spares) are measured at
the lower of cost and net realisable value. The cost of these inventories is based on the weighted average principle and includes expenditure
incurred in acquiring the inventories and bringing them to their existing location and condition. Net realisable value is determined with
reference to the cost of replacement of such items in the ordinary course of business compared to the current market prices.
3.6 Property, plant and equipment
(a) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses (if any).
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of property, plant and equipment acquired in
a business combination is determined by reference to its fair value at the date of acquisition. The cost of self-constructed assets includes the
cost of materials and direct labour and any other costs directly attributable to bringing the asset to a working condition for its intended use.
Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property,
plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of the cost of
that equipment.
(b) Assets under construction
Assets under construction are transferred to the appropriate asset category when they are ready for their intended use. Assets under
construction are not depreciated but tested for impairment at least annually or when there is an indication of impairment.
(c) Borrowing costs
Borrowing costs directly attributable to the acquisition or construction of an item of property, plant and equipment are capitalised until such
time as the assets are substantially ready for their intended use. The interest rate used equates to the effective interest on debt where general
borrowings are used or the relevant interest rate where specific borrowings are used to finance the construction.
(d) Subsequent costs
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that
the future economic benefits embodied within that part will flow to the Group and its cost can be measured reliably. The carrying amount of
the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in the statement of
comprehensive income as a component of the profit or loss as incurred.
56
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued(e) Depreciation
Depreciation is recognised in the statement of comprehensive income as a component of the profit or loss or capitalised as a component of
inventory in the statement of financial position (which is subsequently released to the profit or loss through the cost of goods sold on the sale
of the underlying product) using a method that reflects the pattern in which the economic benefits embodied within the asset are consumed.
Generally this is on a straight-line basis over the estimated useful life of each part or component of an item of property, plant and equipment.
The estimated useful lives for the material classes of property, plant and equipment are as follows:
Leasehold land
Plant and Equipment
30 to 99 years
2 to 30 years
Buildings
5 to 30 years
Fixtures and fittings
2 to 15 years
Leasehold improvements
5 to 30 years
Motor vehicles
8 years
Depreciation methods, useful lives and residual values are reassessed on an annual basis.
Gains and losses on the disposal of items of property, plant and equipment are determined by comparing the proceeds (if any) at the time of
disposal with the net carrying amount of the asset.
3.7 Mineral exploration, evaluation and development expenditure
(a) Exploration and evaluation expenditure
Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. Exploration and evaluation
expenditure includes:
researching and analysing historical exploration data;
gathering exploration data through topographical, geochemical and geophysical studies;
exploratory drilling, trenching and sampling;
•
•
•
• determining and examining the volume and grade of the mineral resource;
•
•
•
•
surveying transportation and infrastructure requirements;
conducting market and finance studies;
administration costs that are directly attributable to a specific exploration area; and
licencing costs.
These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area of
interest, or where activities in the area have not yet reached a stage that permits a reasonable assessment of the existence or otherwise of
economically recoverable reserves.
A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to
that area of interest. Accumulated costs in relation to an abandoned area of interest are written off in full in the statement of comprehensive
income as a component of the profit or loss in the period in which the decision to abandon the area is made.
(b) Development expenditure
Once an area of interest has been established as commercially viable and technically feasible, expenditure other than that relating to land, build-
ings and plant and equipment is capitalised as development expenditure. Development expenditure includes previously capitalised exploration
and evaluation expenditure, pre-production development expenditure and other subsurface expenditure pertaining to that area of interest. Costs
related to surface plant and equipment and any associated land and buildings are accounted for as property, plant and equipment.
Development costs are accumulated in respect of each separate area of interest. Costs associated with commissioning new assets in the period
before they are capable of operating in the manner intended by management, are capitalised. Development costs incurred after the commence-
ment of production are capitalised to the extent they are expected to give rise to a future economic benefit.
When an area of interest is abandoned or the Directors decide that it is not commercially viable or technically feasible, any accumulated costs
in respect of that area are written off in full in the statement of comprehensive income as a component of the profit or loss in the period in
which the decision to abandon the area is made to the extent that they will not be recoverable in the future.
Development assets are assessed for impairment if the facts and circumstance suggest that the carrying amount exceed the recoverable
amount. For the purpose of impairment testing, development assets are allocated to the cash-generating units (‘CGUs’) to which the develop-
ment activity relates.
(c) Deferred stripping
Overburden and other mine waste materials are often removed during the initial development of a mine in order to access the mineral
deposit. This activity is referred to as development or pre-production stripping. The directly attributable costs associated with these activities
are capitalised as a component of development costs. Capitalisation of development stripping ceases and amortisation of those capitalised
costs commences upon extraction of ore. Amortisation of capitalised development stripping costs occurs on a straight line basis with
reference to the life of mine of the relevant area of interest.
Removal of waste material normally continues through the life of a mine. This activity is referred to as production stripping and commences
upon the extraction of ore.
57
Lynas Corporation Limited | 2017 Annual Report3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
(d) Amortisation of development
Amortisation of development is recognised either in the statement of comprehensive income as a component of the profit or loss or
capitalised as a component of inventory in the statement of financial position (which is subsequently released to the profit or loss through
the cost of goods sold on the sale of the underlying product) on a units of production basis which aims to recognise cost proportionally to
the depletion of the economically recoverable mineral resources. Costs are amortised from the commencement of commercial production.
3.8 Intangible assets
(a) Research and development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technological knowledge and understanding,
is recognised in the statement of comprehensive income as a component of the profit or loss as incurred.
Development activities involve a plan or design for the production of new or substantially improved products and processes. Development
expenditure is capitalised only if development costs can be measured reliably, the product or process is technologically and commercially
feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use
or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable
to preparing the asset for its intended use. Other development expenditure is recognised in the statement of comprehensive income as a
component of the profit or loss as incurred.
Intangible assets arising from development activities are measured at cost less accumulated amortisation and accumulated impairment
losses (if any).
(b) Other intangible assets
Other intangible assets comprise internally developed software (which is capitalised in accordance with the Group’s policy in respect of
Research and Development as outlined at Note 3.8(a)). Other intangible assets have finite useful lives and are carried at cost less accumu-
lated amortisation and impairment losses (if any).
(c) Subsequent expenditure
Subsequent expenditure in respect of intangible assets is capitalised only when the expenditure increases the future economic benefits
embodied in the specific asset to which the expenditure relates and it can be reliably measured. All other expenditure, including expenditure
on internally generated goodwill and other intangibles, is recognised in the statement of comprehensive income as a component of the profit
or loss as incurred.
(d) Amortisation
Amortisation is recognised in either the statement of comprehensive income as a component of the profit or loss or capitalised as a
component of inventory in the statement of financial position (which is subsequently released to the profit or loss through the cost of goods
sold on the sale of the underlying product) on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill
and indefinite life trademarks, from the date that the intangible assets are available for use. The estimated useful lives for the material classes
of intangible assets are as follows:
Software/technology – 4 to 5 years
3.9 Impairment
The carrying amounts of the Group’s assets are reviewed regularly and at least annually to determine whether there is any objective evidence
of impairment. An impairment loss is recognised whenever the carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses directly reduce the carrying amount of assets and are recognised in the statement of comprehensive income as a
component of the profit or loss.
Impairment of loans and receivables and held-to-maturity financial assets
(a)
The recoverable amount of the Group’s loans and receivables and held-to-maturity financial assets carried at amortised cost is calculated
with reference to the present value of the estimated future cash flows, discounted at the original effective interest rate (i.e. the effective
interest rate computed at the date of initial recognition of these financial assets). Receivables with a short duration are not discounted.
Impairment losses on individual instruments that are considered significant are determined on an individual basis through an evaluation
of the specific instruments’ exposures. For trade receivables which are not significant on an individual basis, impairment is assessed on a
portfolio basis taking into consideration the number of days overdue and the historical loss experiences on a portfolio with a similar number
of days overdue.
58
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continuedThe criteria that the Group uses to determine that there is objective evidence of an impairment loss include:
significant financial difficulty of the issuer or obligor;
a breach of contract, such as default or delinquency in respect of interest or principal repayment; or
•
•
• observable data indicating that there is a measureable decrease in the estimated future cash flows from a portfolio
(b) Non-financial assets
The carrying amounts of the Group’s non-financial assets are reviewed at least annually to determine whether there is any indication of
impairment. If any such indicators exist then the asset or CGU’s recoverable amount is estimated. For goodwill and intangible assets that
have indefinite lives or that are not yet available for use, recoverable amounts are estimated at least annually and whenever there is an
indication that they may be impaired.
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its recoverable amount. A CGU is the smallest iden-
tifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are recognised in
the statement of comprehensive income as a component of the profit or loss. Impairment losses recognised in respect of a CGU are allocated
first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount of the other non-financial
assets in the CGU on a pro-rata basis.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing the value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset or CGU. In assessing the fair value less cost to sell, the Company uses a variety
of methods and assumptions that are based on market conditions and risks existing at each reporting date. The methods used to determine
fair value include a discounted future cash flows analysis and adjusted EBITDA (forecasted) multiplied by a relevant market indexed multiple.
In respect of assets other than goodwill, impairment losses recognised in prior years are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that the asset’s revised carrying amount will not exceed the
carrying amount that would have been determined net of depreciation or amortisation, if no impairment loss had been recognised.
3.10 Assets and liabilities classified as held for sale
Assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sale rather than through
continuing use are classified as held for sale. Immediately before classification as held for sale, the assets or components of a disposal
group are re-measured in accordance with the Group’s accounting policies. Thereafter the assets (or disposal groups) are measured at the
lower of their carrying amount or fair value less costs to sell. Upon reclassification the Group ceases to depreciate or amortise non-current
assets classified as held for sale. Any impairment loss on a disposal group is first allocated to goodwill and then to the remaining assets on a
pro-rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets or employee benefit assets, which continue
to be measured in accordance with the Group’s accounting policies. Impairment losses incurred on the initial classification as being held for
sale and subsequent gains or losses on re-measurement are recognised in the statement of comprehensive income as a component of the
profit or loss. Gains are not recognised in excess of any prior cumulative impairment loss.
3.11 Employee benefits
(a) Pension and superannuation obligations
A defined contribution pension and superannuation plan is a plan under which the employee and the Group pay fixed contributions to a
separate entity. The Group has no legal or constructive obligation to pay further contributions in relation to an employee’s service in the
current and prior years. The contributions are recognised in the statement of comprehensive income as a component of the profit or loss as
and when they fall due.
(b) Short-term employee benefits
Short-term employee benefits are expected to be settled within one year and measured on an undiscounted basis and are expensed in the
statement of comprehensive income as a component of the profit or loss as the related services are provided. A provision is recognised for
the amount expected to be paid under short-term cash bonus plans and outstanding annual leave balances if the Group has a present legal or
constructive obligation to pay this amount as a result of past services provided by the employee and the obligation can be estimated reliably.
(c) Other long-term employee benefits
The liability for annual leave and long service leave for which settlement can be deferred beyond 12 months from the balance date is
measured as the present value of expected future payments to be made in respect of services provided by employees. 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 national government bonds with terms to maturity and currency that match, as
closely as possible, the estimated future cash outflows.
59
Lynas Corporation Limited | 2017 Annual Report3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
(d) Termination benefits
Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal,
to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are
recognised if the Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted and the number of
acceptances can be estimated reliably.
Incentive compensation plans
(e)
The Group recognises a liability and associated expense for incentive compensation plans based on a formula that takes into consideration
certain threshold targets and the associated measures of profitability. The Group recognises a provision when it is contractually obligated or
when there is a past practice that has created a constructive obligation to its employees.
3.12 Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably,
and it is probable that an outflow of economic benefit will be required to settle the obligation. Provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the
liability. Where discounting is used, the increase in the provision for the passage of time is recognised as a financial expense in the statement
of comprehensive income as a component of the profit or loss.
(a) Warranties
A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data
and a weighting of all possible outcomes against their associated probabilities.
(b) Business closure and rationalisation
A provision for business closure and rationalisation is recognised when the Group has approved a detailed and formal restructuring plan, and
the restructuring has either commenced or has been publicly announced. Future operating costs are not provided for.
(c) Rehabilitation
The mining/extraction and refining/processing activities of the Group give rise to obligations for asset and site rehabilitation. Rehabilitation
obligations can include facility decommissioning and dismantling, removal or treatment of waste materials, land rehabilitation and site
restoration. The extent of work required and the associated costs are estimated based on feasibility and engineering studies using current
restoration standards and techniques. Provisions for the cost of each rehabilitation programme are recognised at the time that the environ-
mental disturbance occurs.
Rehabilitation provisions are initially measured at the expected value of future cash flows required to rehabilitate the relevant site, discounted
to their present value. The value of the provision is progressively increased over time as the effect of discounting unwinds. When provisions
for rehabilitation are initially recognised, the corresponding cost is capitalised as an asset, representing part of the cost of acquiring the
future economic benefits of the operation. The capitalised cost of rehabilitation activities for the Group’s mining operations is recognised as a
component of ‘development expenditure’, whereas those relating to its refining operations are recognised as a component of either ‘buildings’
or ‘plant and equipment’. Amounts capitalised are depreciated or amortised accordingly.
Where rehabilitation is expected to be conducted systematically over the life of the operation, rather than at the time of closure, a provision
is made for the present obligation or estimated outstanding continuous rehabilitation work at each balance sheet date with the costs
recognised in the statement of comprehensive income as a component of the profit or loss in line with the remaining future cash flows.
At each reporting date the rehabilitation liability is re-measured to account for any new disturbance, updated cost estimates, changes to
the estimated lives of the associated operations, new regulatory requirements and revisions to discount rates. Changes to the rehabilitation
liability are added or deducted from the related rehabilitation asset and amortised accordingly.
(d) Onerous Contracts
Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist
where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic
benefits expected to be received from the contract.
3.13 Royalties
Royalties are treated as taxation arrangements when they have the characteristics of a tax. This is considered to be the case when they are
imposed under government authority and the amount payable is calculated by reference to revenue derived (net of any allowable deduc-
tions) after adjustment for temporary differences. For such arrangements, current and deferred tax is provided on the same basis as described
in Note 3.20(a) for other forms of taxation. Obligations arising from royalty arrangements that do not satisfy these criteria are recognised as
current provisions (as outlined in Note 3.12) and included as part of the cost of goods sold in the statement of comprehensive income as a
component of profit or loss.
60
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued3.14 Dividends
Dividends to the Group’s shareholders are recognised as a liability in the Group’s statement of financial position in the period in which the
dividends are declared.
3.15 Share capital
Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares are shown in equity as a deduction from the
proceeds.
Where equity instruments are reacquired by the Group, for example, as a result of a share buy-back, those instruments are deducted from
equity and the associated shares are cancelled. No gain or loss is recognised in the statement of comprehensive income and the considera-
tion paid including any directly attributable incremental costs (net of income taxes) is directly recognised in equity.
3.16 Share-based payment
Share-based remuneration benefits are provided to employees via a variety of schemes which are further set out in Note 29.
The fair values of the performance rights granted under these various schemes are recognised as an employee benefit expense with a
corresponding increase in equity. The fair value is measured at the grant date and recognised over the period during which the employees
become unconditionally entitled to the performance rights.
The fair value at grant date is independently determined using an performance right pricing model that takes into account the exercise price,
the term of the performance right, the impact of dilution, the share price at grant date and expected price volatility of the underlying share,
the expected dividend yield and the risk free interest rate for the term of the performance right.
The fair value of the performance right granted is measured to reflect the expected market vesting conditions, but excludes the impact of any
non-market vesting conditions (for example, profitability and production targets). Non-market vesting conditions are included in assumptions
about the number of performance rights that are expected to become exercisable. At the end of each reporting period, the Group revises its
estimates of the number of performance rights that are expected to become exercisable. The employee benefits expense recognised each
period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the statement of
comprehensive income as a component of profit or loss, with a corresponding adjustment to equity.
3.17 Revenue
(a) Sale of goods
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable net of sales commissions, returns and
allowances, trade discounts, volume rebates and other customer incentives. Revenue is recognised when the significant risks and rewards of
ownership have been substantially transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return
of goods can be estimated reliably, and there is no continuing management involvement with the goods.
Transfers of risks and rewards vary depending on the individual terms of the contract of sale.
(b) Government grants
Government grants are recognised when there is reasonable assurance that they will be received and that the Group will comply with the
conditions associated with the grant. Grants that compensate the Group for an item which is to be expensed are recognised in the statement
of comprehensive income on a systematic basis in the same years in which the expenses are recognised or, for expenses already incurred
the grants are recognised in the year in which they become receivable. Grants that compensate the Group for the cost of purchasing,
constructing or otherwise acquiring a long-term asset are recognised as a reduction in the cost of that asset and included in the statement of
comprehensive income as a component of depreciation expense in accordance with the Group’s depreciation policy.
(c) Dividend income
Dividend income is recognised when the right to receive payment is established.
(d) Royalties
Royalty revenue is recognised on an accruals basis in accordance with the substance of the relevant agreement (provided that it is probable
that the economic benefits will flow to the Group and the amount of revenue can be measured reliably). Royalties determined on a time
basis are recognised on a straight-line basis over the period of the agreement. Royalty arrangements that are based on production, sales and
other measures are recognised by reference to the underlying arrangement.
3.18 Lease payments
Minimum lease payments made under finance leases are apportioned between the finance charges and the reduction of the outstanding
liability. The finance charges which are recognised in the statement of comprehensive income as a component of the profit or loss are
allocated to each year during the lease term so as to produce a constant rate of interest on the remaining balance of the liability. Contingent
lease payments are accounted for in the years in which the payments are incurred.
61
Lynas Corporation Limited | 2017 Annual Report3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Payments made under operating leases are recognised in the statement of comprehensive income as a component of the profit or loss on
a straight-line basis over the term of the lease, except where another systematic basis is more representative of the time pattern in which
economic benefits from the leased asset are consumed. Contingent lease payments arising under operating leases are recognised as an
expense in the year in which the payments are incurred.
In the event that lease incentives are received to enter into an operating lease, such incentives are deferred and recognised as a liability. The
aggregated benefits of the lease incentives are recognised as a reduction to the lease expenses on a straight-line basis, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
3.19 Financial income and expenses
Financial income comprises interest income, foreign currency gains and gains on derivative financial instruments in respect of financing
activities that are recognised in the statement of comprehensive income as a component of the profit or loss. Interest income is recognised
as it accrues using the effective interest method.
Financial expenses comprise interest expense, foreign currency losses, impairment losses recognised on financial assets (except for trade
receivables) and losses in respect of financing activities on derivative instruments that are recognised in the statement of comprehensive
income as a component of the profit or loss. All borrowing costs not qualifying for capitalisation are recognised in the statement of
comprehensive income as a component of the profit or loss using the effective interest method.
3.20
Income tax
Income tax
(a)
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the statement of comprehensive income as a
component of the profit or loss except to the extent that it relates to items recognised directly in equity or other comprehensive income, in
which case it is recognised with the associated items on a net basis.
Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantially enacted at the reporting
date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method of providing for temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the carrying amounts for taxation purposes. Deferred tax is not recognised for the
following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not
a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and
jointly controlled entities to the extent that they probably will not reverse in the foreseeable future and the Group is in a position to control
the timing of the reversal of the temporary differences. Deferred tax is measured at the tax rates that are expected to be applied to the
temporary differences when they reverse, based on the laws that have been enacted or substantially enacted at the reporting date.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary
differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time the liability to pay the related dividend
is recognised. Deferred income tax assets and liabilities in the same jurisdiction are offset in the statement of financial position only to the
extent that there is a legally enforceable right to offset current tax assets and current tax liabilities and the deferred balances relate to taxes
levied by the same taxing authority and are expected either to be settled on a net basis or realised simultaneously.
(b) Tax consolidation
The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from July 1, 2002 and are
therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Lynas Corporation Limited. Current tax
liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax-consolidated
group are recognised by the Company (as head entity in the tax-consolidated group).
Entities within the tax-consolidated group have entered into a tax sharing agreement with the Company. The tax sharing agreement entered
into between members of the tax-consolidated group provides for the determination of the allocation of income tax liabilities between the
entities should the Company default on its tax payment obligations or if an entity should leave the tax-consolidated group. The effect of the
tax sharing agreement is that each member’s liability for tax payable by the tax-consolidated group is limited to the amount payable to the
head entity under the tax funding arrangement.
62
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued3.21 Sales tax, value added tax and goods and services tax
All amounts (including cash flows) are shown exclusive of sales tax, value added tax (‘VAT’) and goods and services tax (‘GST’) to the extent
the taxes are reclaimable, except for receivables and payables that are stated inclusive of sales tax, VAT and GST.
3.22 Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
(a) The Group as lessor – finance leases
Amounts due from lessees under finance leases are recorded as receivables at the amount of the Group’s net investment in the leases.
(b) The Group as lessee – finance leases
Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum
lease payments. The corresponding liability to the lessor is included within loans and borrowings as a finance lease obligation. Subsequent to
initial recognition, the liability is accounted for in accordance with the accounting policy described at Note 3.3(f) and the asset is accounted
for in accordance with the accounting policy applicable to that asset.
3.23 Earnings per share
(a) Basic earnings per share
Basic earnings per share is calculated by dividing the profit or loss 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 period,
adjusted for bonus elements in ordinary shares issued during the financial period.
(b) Diluted earnings per share
Diluted earnings per share adjusts the amount used in the determination of the 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 shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. Potential ordinary
shares are treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per share from continuing
operations.
3.24 Segment reporting
The Group’s operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by
the Chief Operating Decision Makers (‘CODM’) in order to allocate resources to the segment and to assess its performance.
3.25 Company entity financial information
The financial information for the Company entity as disclosed in Note 34 has been prepared on the same basis as that applied by the Group,
except as set out below:
Investments in subsidiaries, associates and joint venture entities
(a)
Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial information of the Company.
Dividends received from associates are recognised in the statement of comprehensive income as a component of profit or loss, rather than
being deducted from the carrying amount of these investments.
(b) Effect of tax consolidation
Current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the
tax-consolidated group, are accounted for by the Company rather than by the members of the tax-consolidated group themselves.
63
Lynas Corporation Limited | 2017 Annual Report3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
3.26 New and revised standards and interpretations
(a) Standards and Interpretations affecting amounts reported
The following new and revised Standards and Interpretations have been adopted in the current year.
Standard/Interpretation
Effective for the annual
reporting period
beginning on
Expected to be initially
applied in the financial
year ending
AASB 2014-3 Amendments to Australia Accounting Standards –
Accounting for Acquisitions of Interests in Joint Operations [AASB 1 and AASB 11]
July 1, 2016
June 30, 2017
AASB 2014-4 Clarification of Acceptable Methods of Depreciation
and Amortisation (Amendments to AASB 116 and AASB 138)
AASB1057 Application of Australian Accounting Standards
AASB 2014-9 Amendments to Australian Accounting Standards –
Equity Method in Separate Financial Statements
July 1, 2016
June 30, 2017
July 1, 2016
July 1, 2016
June 30, 2017
June 30, 2017
AASB 2015-1 Amendments to Australian Accounting Standards –
Annual Improvements to Australian Accounting Standards 2012-2014 Cycle
July 1, 2016
June 30, 2017
AASB 2015-2 Amendments to Australia Accounting Standards –
Disclosure Initiative: Amendments to AASB 101
AASB 2015-5 Amendments to Australian Accounting Standards –
Investment Entities: Applying the Consolidation Exception
AASB 2015-9 Amendments to Australian Accounting Standards –
Scope and Application Paragraphs [AASB8, AASB 133 and AASB 10557]
July 1, 2016
June 30, 2017
July 1, 2016
June 30, 2017
July 1, 2016
June 30, 2017
Their adoption has not had any significant impact on the amounts reported in these consolidated financial statements but may affect the
accounting for future transactions or arrangements.
Standards and Interpretations in issue not yet adopted
(b)
The Australian Accounting Standards issued but not yet mandatory for the financial year ending June 30, 2017 have not been adopted by the
Group in the preparation of this interim financial report and are set out below:
Standard/Interpretation
AASB 9 Financial Instruments
AASB 15 Revenue from Contracts with Customers
AASB 2014-10 Amendments to Australian Accounting Standards –
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
AASB 16 Leases
AASB 2016-1 Amendments to Australian Accounting Standards –
Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112]
AASB 2016-2 Amendments to Australian Accounting Standards –
Disclosure Initiative: Amendments to AASB 107
Effective for the annual
reporting period
beginning on
Expected to be initially
applied in the financial
year ending
July 1, 2018
July 1, 2018
July 1, 2018
July 1, 2019
July 1, 2017
June 30, 2019
June 30, 2019
June 30, 2019
June 30, 2020
June 30, 2018
July 1, 2017
June 30, 2018
AASB 2016-5 Amendments to Australian Accounting Standards –
Classification and Measurement of Share-based Payment Transactions [AASB 21]
July 1, 2018
June 30, 2019
AASB 2016-6 Amendments to Australian Accounting Standards –
Applying AASB 9 Financial Instruments with AASB 4 Insurance Contracts [AASB 4]
July 1, 2018
June 30, 2019
64
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continuedStandard/Interpretation
Effective for the annual
reporting period
beginning on
Expected to be initially
applied in the financial
year ending
AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration
July 1, 2018
June 30, 2019
AASB 2017-1 Amendments to Australian Accounting Standards –
Transfers of Investments Property, Annual Improvements 2014-2016 Cycle
and Other Amendments
AASB 2017-2 Amendments to Australian Accounting Standards –
Further Annual Improvements 2014-2016 Cycle
IFRIC 23 Uncertainty over Income Tax Treatments
IFRS 17 Insurance Contracts
July 1, 2018
June 30, 2019
July 1, 2017
June 30, 2018
July 1, 2019
July 1, 2021
June 30, 2020
June 30, 2022
The Group will be evaluating the impact of AASB 9 ‘Financial Instruments’, AASB 15 ‘Revenue from Contracts with Customers’, and AASB
Interpretation 22 ‘Foreign Currency Transactions and Advance Considerations’ which are mandatory in FY19 and AASB 16 ‘Leases’ which is
mandatory in FY20.
The Group’s process of implementation of new pronouncements will be in four stages:
• Diagnostic – the high level identification of accounting issues in the new pronouncement that will impact the Group;
• Confirmation of understanding – the detailed review of contracts or other relevant data and training for finance, commercial,
procurement and other teams;
Solution development – identifying and progressing system and data changes; and
Implementation.
•
•
AASB 9 Financial Instrument
The standard includes a single approach for the classification and measurement of financial assets, based on cash flow characteristics and
the business model used for the management of the financial instruments. It introduces the expected credit loss model for impairment of
financial assets. Lastly, the standard amends the rules on hedge accounting to align the accounting treatment with the risk management
practices of the business.
AASB 15 Revenue from Contracts with Customers
The core principle of AASB 15 is that an entity recognises revenue related to the transfer of promised goods or services when control of the
goods or services passes to the customers. The amount of revenue recognised should reflect the consideration to which the entity expects to
be entitled in exchange for those goods or services.
AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration
The Interpretation addresses how to determine the date of a transaction for the purpose of determining the exchange rate to use on initial
recognition of an asset, expense or income (or part of it) when a related non-monetary asset or liability arising from the payment or receipt
of advance consideration in a foreign currency is derecognised.
AASB 16 Leases
Adoption of AASB 16, to apply in FY20 and be implemented retrospectively, will require leases currently treated as operating leases, such as
rental of office premises, to be recognised on the balance sheet. This change will impact the classification of certain expenses such as rental
expense, deprecation and financing costs. Consequently, non IFRS measures such as EBITDA and EBIT will also be impacted.
The Group anticipates that the remainder of the above amendments and interpretations will not have a material impact on the financial
report of the Group in the year or period of initial application.
4. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
In the process of applying the Group’s accounting policies, management has made certain estimates and assumptions about the carrying
values of assets and liabilities, income and expenses and the disclosure of contingent assets and liabilities. Management has not made any
significant judgements apart from those involving estimations (as discussed further below). The key assumptions concerning the future and
other key sources of uncertainty in respect of estimates at the reporting date that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial reporting period are as listed below.
65
Lynas Corporation Limited | 2017 Annual Report4. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS continued
4.1 Reserve estimates and mine life
Reserves are estimates of the amount of product that can be economically and legally extracted from the Group’s mining tenements. In order
to calculate reserves, estimates and assumptions are required to be formulated about a range of geological, technical and economic factors
including quantities, grades, production techniques, recovery rates, production costs, transportation costs, refining costs, commodity demand,
commodity prices and exchange rates. Estimating the quantity and/or grade of reserves requires the size, shape and depth of the ore bodies
or field to be determined by analysing geological data such as drilling samples. This process may require complex and difficult geological
judgement and calculation to interpret the data.
As the economic assumptions used to estimate reserves change from period to period, and because additional geological data is generated
during the course of operations, estimates of reserves may change from period to period. Changes in reported reserves may affect the
Group’s financial results and financial position in a number of ways, including:
asset carrying values may be affected due to changes in the estimated future cash flows; and
•
• depreciation and amortisation charges in the statement of comprehensive income may change as result of the change in the useful
economic lives of assets.
4.2 Impairment of non-financial assets
The Group assesses, at each reporting date, whether there is an indication that an assets may be impaired. If any indication exists, or when
annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the
higher of an asset’s or cash generating unit’s (CGU) fair value less costs of disposal and its value in use. The recoverable amount is determined
for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of
assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to
its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset. The value in use calculation is based on a 25-year discounted
cash flow (DCF) model. The cash flows are derived from the two-year budget and forecast model that is extrapolated over 25 years and do not
include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s perfor-
mance of the CGU being tested. The recoverable amount is sensitive to product price movement, the discount rate used for the discounted cash
flows model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.
4.3 Exploration, evaluation and development expenditure
The Group’s accounting policy for exploration and evaluation expenditure results in certain items of expenditure being capitalised for an area
of interest where it is considered likely to be recoverable by future exploitation or sale or where the activities have not reached a stage which
permits a reasonable assessment of the existence of reserves. This policy requires management to make certain estimates and assumptions as to
future events and circumstances, in particular whether an economically viable extraction operation can be established. Any such estimates and
assumptions may change as new information becomes available. If, after having capitalised the expenditure under the policy, a judgement is made
that recovery of the expenditure is unlikely, the relevant capitalised amount will be written off to the statement of comprehensive income.
Development activities commence after project sanctioning by the appropriate level of management and the Board. Judgement is applied by
management in determining when a project is economically viable. In exercising this judgement, management is required to make certain
estimates and assumptions similar to those described above for capitalised exploration and evaluation expenditure. Any such estimates and
assumptions may change as new information becomes available. If, after having commenced the development activity, a judgement is made
that a development asset is impaired, the appropriate amount will be written off to the statement of comprehensive income.
4.4 Restoration and rehabilitation expenditure
The Group’s accounting policy for its restoration and rehabilitation closure provisions requires significant estimates and assumptions such as:
requirements of the relevant legal and regulatory framework; the magnitude of possible contamination; and the timing, extent and costs of
required closure and rehabilitation activity. These uncertainties may result in future actual expenditure differing from the amounts currently
provided. The provision recognised is periodically reviewed and updated based on the facts and circumstances available at the time. Changes
to the estimated future costs for operating sites are recognised in the statement of financial position by adjusting both the closure and
rehabilitation asset and the provision.
LAMP Production Residues
The Group continues its commercialisation program of solid residues from the LAMP. Field trials have demonstrated the efficacy of the
residue material in enhancing soil structure, adjusting soil pH, enhancing growth and improving yields. A progress report was submitted to
Malaysia’s Department of Environment (DOE) as part of the commercialisation approval process. DOE confirmed that the soil conditioning
product using LAMP residues known as ‘Condisoil’ is safe for agricultural use and that Condisoil increases paddy yield.
The restoration and rehabilitation closure provision excludes costs for the disposal LAMP’s production residues.
66
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued5. DETERMINATION OF FAIR VALUES
Fair values are those amounts at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s
length transaction. A number of the Group’s accounting policies and associated disclosures require the determination of fair values for both
financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the
following methods. Where applicable, further information regarding the assumptions made in determining fair values is disclosed in the notes
specific to that asset or liability.
5.1 Trade and other receivables
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest
at the reporting date. Given the short-term nature of trade receivables, the carrying amount is a reasonable approximation of fair value.
5.2 Investments in equity securities
The fair value of investments in listed equity securities is determined by reference to their quoted bid price at the reporting date.
5.3 Derivatives
The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair
value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity
of the contract using a risk-free interest rate (based on government bonds).
The fair value of interest rate swaps is based on broker quotes. These quotes are tested for reasonableness by discounting estimated future
cash flows based on the terms and maturity of each contract using market interest rates for a similar instrument at the measurement date.
The fair value of commodity and other price derivatives is based on a valuation model. The valuation model (which includes where relevant
the consideration of credit risk) discounts the estimated future cash flows based on the terms and maturity of each contract using forward
curves and market interest rates at the reporting date.
5.4 Trade and other payables
The fair value of trade and other payables is estimated as the present value of future cash flows, discounted at the market rate of interest at
the reporting date. Given the short-term nature of trade payables, the carrying amount is a reasonable approximation of fair value.
5.5 Non-derivative financial liabilities
The fair value of borrowings which is normally calculated for disclosure purposes by discounting the future contractual cash flows at the
current market interest rates that are available for similar financial instruments.
6. SEGMENT REPORTING
AASB 8 Operating Segments (‘AASB 8’) requires operating segments to be identified on the basis of internal reports about components of
the Group that are regularly reviewed by the Chief Operating Decision Makers (CODM) in order to allocate resources to the segment and to
assess its performance.
At year end, the Group’s CODM are the Board of Directors of the Company, the Chief Executive Officer, the Chief Financial Officer, the VP
Production, the VP Sales & Marketing and the General Counsel & Company Secretary. Information reported to the Group’s CODM for the
purposes of resource allocation and assessment of performance currently focuses on the operation of the Group’s integrated rare earth
extraction and process facilities.
The Group has only one reportable segment under AASB 8 being its rare earth operations. The CODM does not review the business activities
of the Group based on geography.
The accounting policies applied by this segment are the same as the Group’s accounting policies. Results from operating activities represent
the profit earned by this segment without allocation of interest income and expense and income tax benefit (expense). The CODM assess the
performance of the operating segment based on adjusted EBITDA. Adjusted EBITDA is defined as net profit before income tax expense, net of
financial expenses, depreciation and amortisation and adjusted to exclude certain significant items, including but not limited to such items as
employee remuneration settled through share-based payments, restructuring costs, unrealised gains or losses on derivatives, gains or losses
on the sale of non-strategic assets, asset impairments and write downs.
78% of the Group’s non-current assets are located in Malaysia and the remaining 22% are in Australia.
67
Lynas Corporation Limited | 2017 Annual Report6. SEGMENT REPORTING continued
For the year ended June 30, 2017
For the year ended June 30, 2016
Rare Earth
Operations
Corporate/
Unallocated
Total
Continuing
Operations
Rare Earth
Operations
Corporate/
Unallocated
Total
Continuing
Operations
Note
A$’000
A$’000
A$’000
A$’000
A$’000
A$’000
Business segment reporting
Revenue
Cost of sales
Gross profit / (loss)
General expenses and other income
Net foreign exchange (loss) / gain
Impairment expenses
256,976
(242,239)
14,737
–
–
–
256,976
(242,239)
190,956
(211,401)
14,737
(20,445)
–
–
–
190,956
(211,401)
(20,445)
(15,118)
–
–
(10,383)
(3,736)
–
(25,501)
(3,736)
–
(23,291)
–
(1,468)
(11,494)
798
–
(34,785)
798
(1,468)
Earnings before interest and tax (‘EBIT’)
(381)
(14,119)
(14,500)
(45,204)
(10,696)
(55,900)
Net gain on extinguishment of debts
Other financial income
Financial expenses
Loss before income tax
Income tax (expense) / benefit
Loss for the year
Reconciliation of EBIT to Earnings
before interest, tax, depreciation
and amortisation (‘EBITDA’)
EBIT
Depreciation and amortisation
EBITDA
Included in EBITDA:
Impairment charge – inventory
Non-cash employee remuneration settled
through share based payments comprising:
Share based payments expense
for the year
Impact of options and performance
rights forfeited during the year
16
8
29.1
29.1
–
22,882
22,882
233
(44,257)
(35,642)
20,766
(14,876)
–
–
–
196
(38,413)
(94,117)
35
(94,082)
(381)
42,580
(14,119)
1,355
(14,500)
43,935
(45,204)
41,558
(10,696)
1,481
(55,900)
43,039
42,199
(12,764)
29,435
(3,646)
(9,215)
(12,861)
–
–
–
–
–
1,468
–
1,468
2,622
2,622
(142)
(142)
–
–
2,701
2,701
(315)
(315)
Adjusted EBITDA
42,199
(10,284)
31,915
(2,178)
(6,829)
(9,007)
Total assets
Total liabilities
704,810
(161,590)
11,572
(463,391)
716,382
(624,981)
769,740
(145,161)
17,305
(570,674)
787,045
(715,835)
68
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued7. GENERAL AND ADMINISTRATION EXPENSES
Employee and production costs net of costs recovered through production
Depreciation expenses net of cost recovered through production
Other
Total general and administration expenses
7.1 Employee costs
The following items are gross employee costs before recoveries included in general and administration expenses:
Wages and salaries
Superannuation and pension contributions
Employee remuneration settled through share–based payments (Note 29.1)
Other
Total employee costs
8. OTHER EXPENSES
Impairment loss – inventory
Total other expenses
For the year ended June 30
2017
A$’000
8,990
4,223
12,288
2016
A$’000
10,415
11,995
12,375
25,501
34,785
For the year ended June 30
2017
A$’000
35,108
1,083
2,480
881
2016
A$’000
33,681
985
2,386
668
39,552
37,720
Note
16
For the year ended June 30
2017
A$’000
–
–
2016
A$’000
1,468
1,468
A review on the carrying value of inventory and property, plant and equipment was completed in both years.
No impairment losses were recognised in the current year.
69
Lynas Corporation Limited | 2017 Annual ReportFor the year ended June 30
2017
A$’000
2016
A$’000
286,875
–
300,000
5,850
286,875
305,850
139,501
38,747
92
150,000
33,617
624
178,340
184,241
For the year ended June 30
2017
A$’000
2016
A$’000
22,882
233
23,115
–
196
196
(10,744)
(21,328)
(6,284)
(434)
(12,035)
(4,738)
(875)
(8,907)
(240)
(9,359)
(1,127)
(5,688)
–
(910)
–
(1)
(44,257)
(38,413)
(21,142)
(38,217)
9. AUDITOR’S REMUNERATION
The following items of expenditure are included in general and administration expenses:
Auditor’s remuneration to Ernst & Young (Australia), comprising:
Audit fees
Tax fees
Total auditor’s remuneration Ernst & Young (Australia)
Auditor’s remuneration to Ernst & Young (other locations), comprising:
Audit fees
Tax fees
Other fees
Total auditor’s remuneration Ernst & Young (other locations)
10. FINANCIAL INCOME AND EXPENSES
Net gain on extinguishment of debts*
Interest income on cash and cash equivalents
Total financial income
Interest expense on JARE loan facility*
Interest expense on financial liabilities:
Convertible bond facility
Amortisation of deferred transaction costs – convertible bond facility
Unwinding of discount on convertible bond facility
Unwinding of discount on JARE loan facility
Unwinding of discount on restoration and rehabilitation provision
Discount recognition on AELB deposit**
Financing transaction costs and fees
Total financial expenses
Net financial expenses
*
**
refer to Note 22 for more information
refer to Notes 18 & 32 for more information
70
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued
11. INCOME TAXES
Current tax
Current tax expense / (benefit) in respect of the current year
Adjustments recognised in the current year in relation to the current tax in prior years
Deferred tax
Deferred tax expense / (benefit) recognised in the year
Total income tax expense / (benefit) relating to the continuing operations
11.1
Income tax recognised in profit/(loss)
Loss before tax for continuing operations
Income tax benefit calculated at 30% (2016: 30%)
Add (deduct):
Effect of expenses that are not deductible in determining taxable profit
Effect of foreign exchange gains and losses
Effect of unused tax losses not recognised as deferred tax assets
Effect of adjustments recognised in equity
Effect of temporary differences not recognised as deferred tax assets
Effect of different tax rate of subsidiaries and branches
Effect of prior year losses not recognised
Other adjustments
For the year ended June 30
2017
A$’000
2016
A$’000
175
–
175
(20,941)
(20,766)
(35)
–
(35)
–
(35)
For the year ended June 30
2017
A$’000
2016
A$’000
(35,642)
(94,117)
(10,693)
(28,235)
6,497
3,858
2,721
20,941
(49,070)
5,251
(31)
(241)
12,510
(4,863)
5,481
–
8,304
6,587
–
181
Total current year income tax expense / (benefit)
(20,766)
(35)
11.2
Income tax recognised directly in equity
Deferred tax
Initial recognition of equity component of convertible bonds
Total income tax expense / (benefit) recognised directly in equity
For the year ended June 30
2017
A$’000
2016
A$’000
20,941
20,941
–
–
71
Lynas Corporation Limited | 2017 Annual Report12. DEFERRED TAX ASSETS AND LIABILITIES
12.1 Deferred tax balances
Temporary differences
Inventory
Deferred exploration, evaluation and development
expenditure
Property plant and equipment
Borrowings
Costs of equity and debt raisings
Trade payables
Provisions
Unused tax losses and credits
Tax losses
Deferred tax asset recognised
Temporary differences
Inventory
Deferred exploration, evaluation and development
expenditure
Property plant and equipment
Borrowings
Share-based payments
Costs of equity and debt raisings
Trade payables
Provisions
Other
Unused tax losses and credits
Tax losses
Balance at
July 1, 2016
A$’000
Recognised in
Profit or loss
A$’000
Recognised in
equity
A$’000
Recognised
in OCI
A$’000
Balance at
June 30, 2017
A$’000
774
(8,091)
8,367
49,151
867
42
8,429
(774)
164
(7,356)
(7,153)
(864)
51
(165)
–
–
–
(20,941)
–
–
–
59,539
(16,097)
(20,941)
(59,539)
–
–
37,038
–
–
–
20,941
(20,941)
–
–
–
–
–
–
–
–
–
–
–
–
(7,927)
1,011
21,057
3
93
8,264
22,501
(59,539)
37,038
–
Balance at
July 1, 2015
A$’000
Recognised in
Profit or loss
A$’000
Recognised in
equity
A$’000
Recognised
in OCI
A$’000
Balance at
June 30, 2016
A$’000
(2,141)
(10,193)
9,963
43,127
(88)
3,527
56
7,898
1,173
53,322
2,915
2,102
(1,596)
6,024
88
(2,660)
(14)
531
(1,173)
6,217
(53,322)
(6,217)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
774
(8,091)
8,367
49,151
–
867
42
8,429
–
59,539
(59,539)
–
72
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued12.2 Unrecognised deferred tax assets
Deductible temporary differences and unused tax losses for which no deferred
tax assets have been recognised are attributable to the following:
Tax losses – revenue in nature
Tax losses – capital in nature
Deductible temporary differences
As at June 30
2017
A$’000
2016
A$’000
340,414
370,764
74,054
351,162
2,145
204,277
785,232
557,584
The Group’s unused tax losses of a revenue nature for which no deferred tax assets have been recognised relate to Australia (2017: $174.4m,
2016:$177.6m), Malaysia (2017: $165.5m, 2016: $172.5m) and Malawi (2017: $0.5m, 2016: $1.0m). At June 30, 2017 it was not probable
that the Group would have future taxable profits in these jurisdictions against which these tax losses can be utilised. The potential tax benefit
of these tax losses to the Group is $92.0m (2016: $95.0m).
The Group’s unused tax losses of a capital nature for which no deferred tax assets have been recognised relate to Australia (2017: $2.1m,
2016: $2.1m) and Malaysia (2017: $368.6m, 2016:333.6m). At June 30, 2017 it was not probable that the Group would have future taxable
profits in Australia against which these tax losses can be utilised. The potential tax benefit of these tax losses and temporary differences to
the Group is $89.1m (2016: $80.7m).
The Group’s net deductible temporary differences for which no deferred tax assets have been recognised relate to Australia (2017: $78.8m,
2016: $175.2m) and Malaysia (2017: $0.0m, 2016: $29.1m). At June 30, 2017 it was not probable that the Group would have future
taxable profits in these jurisdictions against which these deductible temporary differences can be utilised. The potential tax benefit of these
deductible temporary differences to the Group is $23.6m (2016: $59.5m).
The Group’s assessable temporary differences for which no deferred tax liability has been recognised due to the Group having sufficient
deferred tax assets to offset relate to Malaysia (2017: 4.8m, 2016: $0.0m).
13. OTHER COMPREHENSIVE INCOME
Within the statement of comprehensive income the Group has disclosed certain items of other comprehensive income net of the associated
income tax expense or benefit. The pre-tax amount of each of these items and the associated tax effect is as follows:
For the year ended June 30,
2017
2016
Pre–tax
A$’000
Tax effect
A$’000
Total
A$’000
Pre–tax
A$’000
Tax effect
A$’000
Exchange differences on translating
foreign operations
(30,099)
Total other comprehensive income
(30,099)
–
–
(30,099)
(28,149)
(30,099)
(28,149)
–
–
14. CASH AND CASH EQUIVALENTS
Total
A$’000
(28,149)
(28,149)
Cash at bank and on hand
Restricted cash
Total cash and cash equivalents
As at June 30
2017
A$’000
2016
A$’000
35,858
28,067
63,925
10,402
32,946
43,348
73
Lynas Corporation Limited | 2017 Annual Report14. CASH AND CASH EQUIVALENTS continued
Restricted cash for JARE loan facility
In accordance with the terms of the JARE facility, the JARE restricted bank account was scheduled to be closed when the unrestricted cash
balance exceeded $25m on any date after July 31, 2017. Subsequent to year end, and following satisfaction of that test, the funds in the JARE
restricted bank account were applied as follows on August 4, 2017:
(a) USD15 million was paid to JARE as a principal repayment, reducing the principal balance of the JARE facility to USD185 million;
(b) The remaining balance in the JARE restricted interest account was used to partially settle the interest incurred from October 1,
2014 to December 31, 2015. The outstanding interest incurred in the same period was forgiven.
There is a JARE principal repayment test on each interest payment date that commenced on December 31, 2016. On each interest payment
date, when total unrestricted cash balance exceeds $40m, the surplus is paid as a principal repayment to JARE pursuant to a cash sweep
mechanism. Under the terms agreed with JARE and the bondholders, if Lynas received the proceeds from an equity raising (such as an
issuance of shares or an exercise of warrants), then the following amounts will be exempt from the cash sweep: (i) 75% of the proceeds
received up to a cumulative balance of USD50 million, and (ii) 50% of the proceeds above a cumulative balance of USD50 million.
Restricted cash for convertible bond facility
In accordance with the terms of the convertible bond facility, the convertible bond restricted bank account was scheduled to be closed when
the unrestricted cash balance exceeded $25m on any date after July 31, 2017. Subsequent to year end, and following satisfaction of that
test, the funds in the convertible bond restricted bank account were applied on August 4, 2017 in full payment of the interest incurred from
January 1, 2015 to December 31, 2015 and additional interest on withdrawals made in 2016
15. TRADE AND OTHER RECEIVABLES
Trade receivables
Other receivables
Total current trade and other receivables
As at June 30
2016
A$’000
1,483
1,582
3,065
2017
A$’000
2,639
1,879
4,518
The Group’s exposure to credit risk is primarily in its trade receivables. Credit risk is assessed on a customer by customer basis and includes
a credit analysis of each customer, negotiated payment terms, and payment history. As at June 30, 2017 (2016: $nil), $21,000 of trade
receivables were past due and not impaired.
16.
INVENTORIES
Raw materials and consumables
Work in progress
Finished goods
Total inventories
Current inventories
Non-current inventories
Total inventories
As at June 30
2017
A$’000
2016
A$’000
11,988
22,075
3,900
13,585
34,113
6,164
37,963
53,862
37,448
515
37,963
53,643
219
53,862
Restrictions on the title of inventories are outlined in Note 22
During the year ended June 30, 2017 inventories of $242.2m (2016: $212.9m) were recognised as an expense. All of which were included in
‘cost of sales’ (2016: $211.4m).
74
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continuedThe Group recognised depreciation on its property, plant and equipment and amortisation on its deferred exploration, evaluation and
development expenditure and intangible assets for the years ended June 30, 2017 and 2016 respectively in the following categories:
Recognised in General and
Administration Expense
Recognised in Inventory
Total
2017
A$’000
2016
A$’000
1,941
2,208
74
10,141
1,390
464
2017
A$’000
35,094
–
2016
A$’000
29,811
–
2017
A$’000
37,035
2,208
2016
A$’000
39,952
1,390
–
–
74
464
Property, plant and equipment
Deferred exploration and evaluation
expenditure
Intangibles
Total
4,223
11,995
35,094
29,811
39,317
41,806
On the sale of inventory to customers, the component of the depreciation or amortisation expense capitalised within inventory is reflected
in the cost of goods sold in the statement of comprehensive income as a component of the profit or loss. This was $39.7m in the year ended
June 30, 2017 (2016: $31.0m).
During the year ended June 30, 2017 the Group recognised royalties paid to the Western Australian Government totalling $5.8m (2016:
$4.7m). Royalties arise on the shipment of the Group’s concentrate from Australia to Malaysia.
17.
RECONCILIATION OF THE LOSS FOR THE YEAR WITH THE NET CASH
FROM (USED IN) OPERATING ACTIVITIES
Loss for the year
Adjustments for:
Depreciation and amortisation
Employee remuneration settled through share-based payments
Impairment loss on inventories
Net financial income expenses
Loss on disposal of property, plant and equipment
Income tax expense / (benefit)
Change in trade and other receivables
Change in inventories
Change in trade and other payables
Change in other assets and liabilities
Change in provisions and employee benefits
Change in deferred income
Foreign exchange
Net cash from operating activities
For the year ended June 30
Note
2017
A$’000
2016
A$’000
(14,876)
(94,082)
8
10
11
43,935
2,480
–
21,143
347
(20,881)
(2,272)
3,262
576
13
(2,087)
(1,178)
3,531
33,993
43,039
2,386
1,468
37,419
–
(35)
4,084
7,978
2,029
(89)
(1,067)
1,178
(161)
4,147
75
Lynas Corporation Limited | 2017 Annual Report18. OTHER NON–CURRENT ASSETS
Security deposits – banking facilities and other, Malaysia
Security deposits – banking facilities and other, Australia
Security deposits – AELB, Malaysia
As at June 30
2017
A$’000
2016
A$’000
2,562
570
23,484
4,087
636
23,536
26,616
28,259
Local banking facilities relate both to cash provided for security bonds issued to secure natural gas and electricity supply to LAMP and
restricted deposits pledged as collateral for bank facilities in Australia and Malaysia. The weighted average annual interest rate in Australia
was 2.10% (2016: 2.20%) and the weighted average annual interest rate in Malaysia was 2.75% (2016: 3.30%).
Deposits to the Malaysian Government’s Atomic Energy Licencing Board (‘AELB’) form a component of a total USD50m of instalments
due in accordance with the conditions underlying the granting of the Full Operating Stage Licence to the Group for the LAMP in Malaysia.
During the year, the total amount paid to the AELB to date as a security deposit increased to USD11.03m. In this report, the amount of the
security deposit to the AELB is shown as reduced by $0.6m (2016: $10.5m increase) because the amount paid to AELB has been discounted
over the life of the LAMP. During the year, it was clarified that the security deposit paid to the AELB are likely to be non-interest bearing, and
accordingly the amount paid has been discounted for accounting purposes at 4.94% per annum. This discounting process does not affect the
actual amount paid to the AELB as a security deposit.
The discount will be updated as additional deposits are paid to AELB and unwound over the remainder life of the LAMP.
Please refer to Note 32 for the residual commitment to the AELB.
76
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued19. PROPERTY, PLANT AND EQUIPMENT
Leasehold
land
A$’000
Buildings
plant and
equipment
A$’000
Fixtures and
fittings
A$’000
Motor
vehicles
A$’000
Assets under
construction
A$’000
Leasehold
improve-
ments
A$’000
Total
A$’000
As at June 30, 2017
Cost
Accumulated impairment losses
Accumulated depreciation
55,848
–
(5,540)
799,452
(172,424)
(151,044)
6,782
(394)
(4,718)
Carrying amount
50,308
475,984
1,670
As at June 30, 2016
Cost
Accumulated impairment losses
Accumulated depreciation
56,562
–
(4,931)
858,543
(192,365)
(125,931)
7,086
(360)
(4,420)
Carrying amount
51,631
540,247
2,306
947
(53)
(668)
226
698
(54)
(582)
62
698
1,468
(234)
–
18,379
(6,781)
(2,620)
882,876
(179,886)
(164,590)
1,234
8,978
538,400
7,702
(265)
–
20,235
(7,524)
(2,329)
950,826
(200,568)
(138,193)
7,437
10,382
612,065
7,702
20,235
950,826
Cost at July 1, 2016
Accumulated depreciation and
impairment losses at July 1, 2016
56,562
858,543
7,086
(4,931)
(318,296)
(4,780)
(636)
(265)
(9,853)
(338,761)
Carrying amount at July 1, 2016
51,631
540,247
2,306
Additions
Disposals
Depreciation for the year
Transfers of assets under construction
Transfer to inventory
Other movement
Effect of movements in exchange rates
4,897
–
(1,120)
–
–
–
(5,100)
2,311
(238)
(34,734)
7,165
(61)
–
(38,706)
5
–
(553)
–
–
228
(316)
Carrying amount at June 30, 2017
50,308
475,984
1,670
Cost at July 1. 2015
Accumulated depreciation and
impairment losses at July 1, 2015
58,243
869,912
8,697
(3,834)
(288,337)
(4,673)
Carrying amount at July 1, 2015
54,409
581,575
4,024
Additions
Disposals
Depreciation for the year
Transfers of assets under construction
Other movement
Effect of movements in exchange rates
–
–
(1,203)
–
–
(1,575)
1,814
(966)
(37,222)
9,207
(3,531)
(10,630)
15
(199)
(867)
–
(411)
(256)
62
90
–
(98)
–
–
179
(7)
226
681
(535)
146
22
–
(103)
–
–
(3)
7,437
10,382
612,065
2,078
(215)
–
(7,224)
–
–
(842)
54
–
(530)
59
–
–
(987)
9,435
(453)
(37,035)
–
(61)
407
(45,958)
1,234
8,978
538,400
7,485
20,834
965,852
(249)
(9,871)
(307,499)
7,236
10,963
658,353
11,007
(1,152)
–
(9,207)
(200)
(247)
–
–
(558)
–
–
(23)
12,858
(2,317)
(39,953)
–
(4,142)
(12,734)
Carrying amount at June 30, 2016
51,631
540,247
2,306
62
7,437
10,382
612,065
Restrictions on the title of property plant and equipment are outlined in Note 22.
77
Lynas Corporation Limited | 2017 Annual Report20. DEFERRED EXPLORATION, EVALUATION AND DEVELOPMENT EXPENDITURE
As at June 30, 2017
Cost
Accumulated impairment losses
Accumulated amortisation
Exploration
and evaluation
expenditure
A$’000
Development
expenditure
A$’000
Pre–
production
stripping
A$’000
Rehabilitation
Asset
A$’000
Total
A$’000
21,302
(14,483)
(1,871)
17,542
(3,639)
(2,445)
4,078
–
(499)
24,602
–
(2,588)
67,524
(18,122)
(7,403)
Carrying amount
4,948
11,458
3,579
22,014
41,999
As at June 30, 2016
Cost
Accumulated impairment losses
Accumulated amortisation
21,317
(14,483)
(1,699)
17,542
(3,639)
(1,681)
4,078
–
(323)
24,602
–
(1,508)
67,539
(18,122)
(5,211)
Carrying amount
5,135
12,222
3,755
23,094
44,206
Cost at July 1, 2016
Accumulated amortisation and impairment
losses at July 1, 2016
Carrying amount at July 1, 2016
Effect of movements in exchange rates
Amortisation for the year
21,317
17,542
4,078
24,602
67,539
(16,812)
5,135
1
(188)
(5,320)
12,222
–
(764)
(323)
3,755
–
(176)
(1,508)
(23,333)
23,094
–
(1,080)
44,206
1
(2,208)
Carrying amount at June 30, 2017
4,948
11,458
3,579
22,014
41,999
Cost at July 1, 2015
Accumulated amortisation and impairment losses at
July 1, 2015
Carrying amount at July 1, 2015
Effect of movements in exchange rates
Amortisation for the year
Change in rehabilitation obligations
21,304
17,543
4,078
24,602
67,527
(15,981)
(4,778)
5,323
12,765
14
(202)
–
–
(543)
–
(198)
3,880
–
(125)
–
(786)
(21,743)
23,816
45,784
–
(722)
–
14
(1,592)
–
Carrying amount at June 30, 2016
5,135
12,222
3,755
23,094
44,206
Restrictions on the title of the deferred exploration, evaluation and development expenditure are outlined in Note 22.
78
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued21. TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Security deposit payable to AELB
Other payables
Total trade and other payables
Current
Non-current
Total trade and other payables
As at June 30
2017
A$’000
2016
A$’000
8,747
9,136
20,267
7,498
11,370
10,281
16,718
5,920
45,648
44,289
44,286
1,362
45,648
32,770
11,519
44,289
Trade and other payables are non-interest bearing and are normally settled on 30 to 60 day terms.
22. BORROWINGS
This note provides information about the contractual terms of the Group’s interest bearing loans and borrowings. For more information
about the Group’s exposure to interest rate and foreign currency risk, see Note 26.
Current borrowings
JARE loan facility
Non–current borrowings
JARE loan facility
Convertible bond facility
Total borrowings(1)
JARE loan facility
Total JARE loan facility carrying amount
Principal value of convertible bond facility(2)
Unamortised equity component(2)
Unamortised transaction costs
Total convertible bond facility carrying amount
As at June 30
2017
A$’000
2016
A$’000
19,516
26,878
213,901
226,027
245,935
289,751
459,444
562,564
233,417
272,813
233,417
272,813
292,512
(66,485)
–
302,379
(10,265)
(2,363)
226,027
289,751
(1)
There has been no additional drawdown under the loan facilities. Due to the substantial amendments made to the terms of the Group’s debt facilities during the
year, the extinguishment of the debt under the previous terms and the establishment of the debt’s fair values based on the terms were performed. Details on the
revised terms and conditions of the Group’s borrowings are set out below.
(2)
The principal balance reflects the full value of the convertible bonds. On initial recognition, part of this value is recognised as a component of equity.
On October 26, 2016 the Company announced debt facility amendments that were agreed with its debt providers. The amendments were
subsequently approved by shareholders at the 2016 annual general meeting.
79
Lynas Corporation Limited | 2017 Annual Report22. BORROWINGS continued
Japan Australia Rare Earths B.V. (JARE) loan facility
The maturity date of the JARE loan facility was extended from June 30, 2018 to June 30, 2020.
Prior to the latest debt facility amendments, interest on the JARE loan and convertible bond facilities was paid into separate restricted
bank accounts in the name of Lynas. Interest liabilities would only be paid to the lenders to the extent that there was a total cash balance
(unrestricted and restricted funds) in excess of $60m. The balance in the restricted accounts is available, at the lenders’ discretion, for reuse in
the Lynas business.
The principal repayments due prior to maturity under the JARE facility were as follows:
Repayment date
21 December 2016
30 June 2017
21 December 2017
30 June 2018
Amount
USD5m
USD15m
USD30m
USD153m
The debt facility amendments came into effect after the 2016 annual general meeting. The interest rate on the JARE facility reduced from 6.0%
to 2.5% effective October 26, 2016. If, on the last day of any calendar month (‘test date’) the weighted average sale price of NdPr products sold
by the Group in the immediately preceding 6 calendar months is USD38 per kilogram or greater, the interest rate will increase to 3.75% per
annum, effective on and from the day after the test date. The interest rate will remain 3.75% per annum until there have been 6 consecutive
test dates on which the weighted average sale price of NdPr products sold by the Group in the immediately preceding 6 calendar months is less
than USD38 per kilogram, in which case the interest rate will revert to 2.5% per annum effective on and from the day after such 6th consecu-
tive test date, and will remain 2.5% per annum until any test date on which the weighted average realized sale price of NdPr products sold by
the Group in the immediately preceding 6 calendar month is USD38 per kilogram or greater.
Future interest liabilities will be paid directly to the lenders. There are no fixed principal repayments from unrestricted cash during the term
of the facility. In accordance with the terms of the JARE facility, the JARE restricted bank account was scheduled to be closed when the
unrestricted cash balance exceeded $25m on any date after July 31, 2017. Subsequent to year end, and following satisfaction of that test, the
funds in the JARE restricted bank account were applied as follows on August 4, 2017:
(a) USD15 million was paid to JARE as a principal repayment, reducing the principal balance of the JARE facility to USD185 million;
(b) The remaining balance in the JARE restricted interest account was used to partially settle the interest incurred from October 1,
2014 to December 31, 2015. The outstanding interest incurred in the same period was forgiven.
Except as indicated below there are no compulsory principal repayments due until the maturity date. Additional voluntary principal
repayments can be made without penalty at any time.
On each interest payment date, when the total unrestricted cash balance exceeds $40m, the surplus is paid as a principal repayment to JARE
pursuant to a cash sweep mechanism. Under the terms agreed with JARE and the bondholders, if Lynas received the proceeds from an equity
raising (such as an issuance of shares or an exercise of warrants), then the following amounts will be exempt from the cash sweep: (i) 75% of
the proceeds received up to a cumulative balance of USD50 million, and (ii) 50% of the proceeds above a cumulative balance of USD50 million.
The payment of interest in respect of the period commencing on January 1, 2016 and ending on December 31, 2016 will be deferred to the
maturity date (with no penalty, and no additional interest).
Lynas shall ensure that in the event of competing demands from the Japanese market and a non-Japanese market for the supply of
NdPr produced from the LAMP, the Japanese market shall have priority of supply up to 3,600 tonnes per year subject to the terms of the
Availability Agreement that was announced on March 30, 2011 and to the extent that Lynas will not have any opportunity loss.
The JARE loan facility is secured over all of the assets of the Group, other than the Malawi assets. Pursuant to a binding term sheet dated
September 24, 2014, the parties agreed that all of the Senior Lender’s securities will remain in place for the term of the JARE facility.
Mt Kellett convertible bonds
As at June 30, 2017, the Company had on issue 225,000,000 convertible bonds, each with a face value of USD 1.00. The bonds are convert-
ible at any time prior to maturity of the bonds at the election of the bondholder. None of the convertible bonds had been converted as at
June 30, 2017. The maturity of the bonds has been extended from September 30, 2018 to September 30, 2020 and the coupon rate on the
convertible bonds reduced from 2.75% to 1.25% p.a. effective December 8, 2016. The conversion price has been reduced from $0.5634 per
share to $0.10 per share with the conversion exchange rate adjusted from USD 1.00 = AUD 0.9533 to AUD 1.00 = USD 0.7500. If all of the
convertible bonds were converted into ordinary shares, 3,000,000,000 ordinary shares would be issued. In addition, 348,843,836 warrants
were issued to the bondholders with an exercise price of $0.05 each and expiry date of September 30, 2020.
If the bonds are not converted prior to the maturity date, the face value of the bonds is repayable to the bondholder on the maturity date.
Prior to the maturity date, the Company is liable to pay interest on the convertible bonds, as detailed below. A bondholder may, at any time
80
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continuedfollowing the occurrence of a defined ‘Redemption Event’, require the Company to redeem some or all of the convertible bonds held by the
bondholder. The Redemption Events include, for example, an insolvency event occurring in relation to a Group Company, a Group Company
ceasing (or threatening to cease) to carry on all or part of its business which is likely to be materially adverse to the Group as a whole, a cross
default by the Group in relation to certain other financial indebtedness (including the JARE loan facility), and a change in control of
any member of the Group.
If, prior to the maturity date, the 30-day VWAP of the shares is equal to or exceeds 160% of the conversion price, the Company may give
notice of its intention to redeem all of the convertible bonds on issue by delivering a redemption notice to bondholders.
The convertible bonds are unsecured. The convertible bond terms include customary covenants which restrict the Group from incurring any
financial liabilities or creating any security interests which in each case would rank senior to or pari passu with the convertible bonds, subject
to specified exceptions which include the JARE loan facility.
If, on the last day of any calendar month (‘test date’) the weighted average sale price of NdPr products sold by the Group in the immediately
preceding 6 calendar months is USD38 per kilogram or greater, the interest rate will increase to 1.875% per annum, effective on and from
the day after the test date. The interest rate will remain 1.875% per annum until there have been 6 consecutive test dates on which the
weighted average sale price of NdPr products sold by the Group in the immediately preceding 6 calendar months is less than USD38 per
kilogram, in which case the interest rate will revert to 1.25% per annum effective on and from the day after such 6th consecutive test date,
and will remain 1.25% per annum until any test date on which the weighted average realized sale price of NdPr products sold by the Group
in the immediately preceding 6 calendar month is USD38 per kilogram or greater.
The interest payment dates remain the same at 30 June and 31 December each year. Prior to the amendments, payment of interest was
made into restricted bank accounts in the name of Lynas. Interest liabilities would only be paid to the lenders to the extent that there was
a total cash balance (unrestricted and restricted funds) in excess of $60m after June 30, 2016. The balance in the restricted accounts was
available, at the lenders’ discretion, for reuse in the Lynas business. Subsequent to the amendment, interest incurred from January 1, 2017
until maturity will be paid directly to the bondholders as they fall due. The interest incurred from January 1, 2016 to December 31, 2016 was
deferred to the maturity date with no penalty and no additional interest.
In accordance with the terms of the convertible bond facility, the convertible bond restricted bank account was scheduled to be closed when the
unrestricted cash balance exceeded $25m on any date after July 31, 2017. Subsequent to year end, and following satisfaction of that test, the
funds in the convertible bond restricted bank account were applied on August 4, 2017 in full payment of the interest incurred from January 1,
2015 to December 31, 2015 and additional interest on withdrawals made in 2016.
Terms and debt repayment schedule
As at June 30, 2017
As at June 30, 2016
Nominal
interest
rate
Currency
Year of
maturity
Face value
USD ‘000
JARE loan facility
Convertible bond facility*
USD
USD
2.50%
1.25%
2020
2020
200,000
225,000
Carrying
amount
AUD ‘000
233,417
226,027
Face value
USD ‘000
203,000
225,000
Carrying
amount
AUD ‘000
272,813
289,751
425,000
459,444
428,000
562,564
*
The carrying amount of the convertible bond facility reflects the current value of the debt component of the instrument.
Average for the year ended June 30, 2017
Average for the year ended June 30, 2016
Base rate
Margin
Total rate
Base rate
Margin
Total rate
JARE loan facility
Convertible bond facility
3.75%
1.88%
–
–
3.75%
1.88%
6.75%
2.75%
–
–
6.75%
2.75%
81
Lynas Corporation Limited | 2017 Annual Report23. EMPLOYEE BENEFITS
Provision for annual leave
Provision for long service leave
Other
Total employee benefits
Current
Non-current
Total employee benefits
24. PROVISIONS
Balance at the beginning of the year
Provisions made during the year
Provisions utilised during the year
Effects of foreign exchange movement
Unwinding of discount on provision
Balance at June 30, 2017
Current
Non-current
Total provisions at June 30, 2017
Current
Non-current
Total provisions at June 30, 2016
Restoration and Rehabilitation
As at June 30
2017
A$’000
2016
A$’000
1,893
385
–
2,278
2,112
166
2,278
1,482
460
563
2,505
2,146
359
2,505
Restoration
and
rehabilitation
A$’000
Onerous
contracts
A$’000
Other
A$’000
Total
A$’000
54,415
4,897
–
(3,001)
875
57,186
–
57,186
57,186
–
54,415
54,415
1,007
–
(457)
–
–
550
309
241
550
411
596
1,007
116
–
–
–
–
116
–
116
116
–
116
116
55,538
4,897
(457)
(3,001)
875
57,852
309
57,543
57,852
411
55,127
55,538
The activities of the Group give rise to obligations for asset and site restoration and rehabilitation at the LAMP in Malaysia and the Mount
Weld concentration plant. The key areas of uncertainty in estimating the provisions for these obligations are set out in Note 4.4. Upon
cessation of operations, the site including the processing assets, ancillary facilities, utilities and the onsite storage facility will be decommis-
sioned and any materials removed from the location.
The Group has engaged third party specialists to assist in estimating costs and will review these estimates periodically over time as the
operations continue to develop.
The unwinding effect of discounting of the provision is recognised as a financial expense.
Onerous Lease Provision
Since the relocation of headquarters from Sydney to Kuantan, the Company has endeavoured to sub-let the Sydney office to save on rental
expenses going forward. Due to prevailing market conditions, the Sydney office was sub-let at a rent lower than the rent payable under
the head lease. An onerous contract provision of $0.6m has been taken up, which is based on the future rental payments net of estimated
recoveries from sub-letting.
82
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued25. EQUITY AND RESERVES
25.1 Share capital
Balance at the beginning of the year
Issue of shares pursuant to exercised options
Issue of shares pursuant to exercised warrants
Issue of shares pursuant to exercised performance rights
Issue of shares pursuant to settlement of liability
As at June 30
2017
2016
Number of
shares
‘000
3,488,438
–
156,154
33,151
–
A$’000
1,088,469
–
5,934
–
–
Number of
shares
‘000
3,371,232
1,129
–
–
116,077
A$’000
1,083,898
160
–
–
4,411
Balance at the end of the year
3,677,743
1,094,403
3,488,438
1,088,469
All issued ordinary shares are fully paid and have no par value. The holders of ordinary shares are entitled to receive dividends as declared from
time to time and are entitled to one vote per share. All shares rank equally with regard to the Group’s residual assets in the event of a wind-up.
Further detail regarding the issue of shares on option or performance right conversion is provided in Note 29.
25.2 Reserves
Equity settled employee benefits
Foreign currency translation
Warrant reserve
Equity component of convertible bond
Balance at June 30
As at June 30
2017
A$’000
2016
A$’000
39,971
(156,043)
40,413
76,479
37,490
(125,943)
31,397
28,743
820
(28,313)
The equity settled employee benefits reserve relates to performance rights granted by the Group to its employees under the employee share
option plan. Further information about share-based payments to employees is set out in Note 29.
Exchange differences relating to the translation of the results and net assets of the Group’s foreign operations from their functional
currencies to the Group’s presentation currency are recognised directly in other comprehensive income and accumulated in the foreign
currency translation reserve.
The other reserve represents the equity component of the USD225m unsecured convertible bond facility issued in 2012 and amended in
2016, net of the associated deferred tax (see Note 22).
25.3 Loss per share
Basic earnings per share amounts are calculated by dividing net profit / (loss) for the year attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be
issued on conversion of all dilutive potential ordinary shares into ordinary shares.
83
Lynas Corporation Limited | 2017 Annual Report25. EQUITY AND RESERVES continued
The loss and weighted average number of ordinary shares used in the calculations of basic and diluted loss per share are as follows:
Net loss attributed to ordinary shareholders
Loss used in calculating basic and diluted loss per share
Number of ordinary shares on issue (‘000)
Weighted average number of ordinary shares used in calculating basic loss per share (‘000)
Basic and diluted loss per share (cents per share)
As at June 30
2017
A$’000
2016
A$’000
(14,876)
(94,082)
(14,876)
(94,082)
Number
of shares
’000
Number
of shares
’000
3,677,743
3,518,418
3,488,438
3,481,875
cents
per share
cents
per share
(0.42)
(2.70)
Options, warrants, convertible bonds and performance rights which would normally be dilutive are considered to be anti-dilutive in the
current reporting period. For further details regarding these options and performance rights, refer to Note 29.
25.4 Capital management
The Directors are responsible for monitoring and managing the Group’s capital structure.
The Directors’ policy is to maintain an acceptable capital base to promote the confidence of the Group’s financiers and creditors and to
sustain the future development of the business. The Directors monitor the Group’s financial position to ensure that it complies at all times
with its financial and other covenants as set out in its financing arrangements.
In order to maintain or adjust the capital structure, the Directors may elect to take a number of measures including, for example, to dispose
of assets or operating segments of the business, to alter its short to medium term plans in respect of capital projects and working capital
levels, or to re-balance the level of equity and external debt in place.
Capital comprises share capital, external debt and reserves.
26. FINANCIAL RISK MANAGEMENT
26.1 Overview
This note presents information about the Group’s exposure to market risk, credit risk and liquidity risk, and, where applicable, the Group’s
objectives, policies and procedures for managing these risks.
Exposure to market, credit and liquidity risks arise in the normal course of the Group’s business. The Directors and management of the Group
have overall responsibility for the establishment and oversight of the Group’s risk management framework.
The Directors have established a treasury policy that identifies risks faced by the Group and sets out policies and procedures to mitigate
those risks. Monthly consolidated treasury reports are prepared for the Directors, who ensure compliance with the Group’s risk management
policies and procedures.
28.2 Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices will affect the
Group’s cash flows or the fair value of its holdings of financial instruments. The objective of market risk management is to manage and
control market risk exposures within acceptable parameters.
84
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued(a) Foreign exchange risk
As a result of the Group’s international operations, foreign exchange risk exposures exist on purchases, assets and borrowings that are
denominated in foreign currencies (i.e. currencies other than the functional currency of each of the Group’s operating entities). The currencies
in which these transactions are primarily denominated are the AUD, USD and MYR.
The Group takes advantage of natural offsets to the extent possible. Therefore, when commercially feasible, the Group borrows in the same
currencies in which cash flows from operations are generated. Generally the Group does not use forward exchange contracts to hedge
residual foreign exchange risk arising from receipts and payments denominated in foreign currencies. However, when considered appropriate
the Group may enter into forward exchange contracts to hedge foreign exchange risk arising from specific transactions.
The Group’s primary exposure to foreign exchange risk is on the translation of net assets of Group entities which are denominated in
currencies other than AUD, which is the Group’s presentation currency. The impact of movements in exchange rates is recognised primarily in
the other comprehensive income component of the Group’s statement of comprehensive income.
Certain subsidiaries within the Group are exposed to foreign exchange risk on purchases denominated in currencies that are not the
functional currency of that subsidiary. In these circumstances, a change in exchange rates would impact the net operating profit recognised in
the profit or loss component of the Group’s statement of comprehensive income.
Effective from January 24, 2012, the functional currency of Lynas Corporation Limited (the Parent) changed from AUD to USD, following the
issue of the USD225m convertible bond facility.
Exposure to foreign exchange risk
The Group’s members are exposed to foreign exchange risk on financial assets and financial liabilities that are denominated in foreign currencies
i.e. currencies other than the functional currency of each member of the group. Whilst a member of the group with MYR as its functional currency
is exposed to USD and AUD, another member with USD as its functional currency is exposed to AUD. This exposure on financial assets and
liabilities by currency, which has potential impact on the profit or loss component of the statement of comprehensive income, is detailed below:
June 30, 2017
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Total exposure
June 30, 2016
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Total exposure
AUD
A$’000
USD
A$’000
Total
A$’000
980
–
–
980
53
–
–
53
7,542
2,643
(644)
8,522
2,643
(644)
9,541
10,521
4,676
1,483
(8,184)
4,729
1,483
(8,184)
(2,025)
(1,972)
In addition, the Group’s members are exposed to foreign exchange risk on the translation of its operations that are denominated in currencies
other than AUD. The Group’s net assets denominated in currencies other than the AUD which have the potential of impacting the other
comprehensive income component of the statement of comprehensive income are:
June 30, 2017
Net asset exposure – local currency
June 30, 2016
Net asset exposure – local currency
MYR
’000
USD
’000
737.871
1,085,889
1,049,984
980,571
85
Lynas Corporation Limited | 2017 Annual Report26. FINANCIAL RISK MANAGEMENT continued
Significant exchange rates
The following significant exchange rates applied to the translation of net assets of Group entities which are denominated in currencies other
than AUD during the year:
AUD/USD
AUD/MYR
USD/MYR
Sensitivity analysis
Average rate for the year
ended June 30
Closing rate
as at June 30
2017
2016
2017
2016
0.7545
3.2331
4.2872
0.7283
3.0098
4.1329
0.7692
3.3029
4.2925
0.7441
2.9764
4.0000
A change in exchange rates would impact future payments and receipts on the Group’s financial assets and liabilities denominated in
differing currencies to each respective member of the Group’s functional currency. A 10% strengthening or weakening of these currencies
against the respective Group member’s functional currency, at the reporting date, would have increased / (decreased) the reported profit or
loss for the year by the amounts shown. This analysis assumes that all other variables, in particular interest rates, remain constant. The same
basis has been applied for all periods presented.
in A$’000
USD
AUD
Increase/(Decrease) in Profit After Tax
For the year ended June 30, 2017
Increase/(Decrease) in Profit After Tax
For the year ended June 30, 2016
10% Strengthening
10% Weakening
10% Strengthening
10% Weakening
(1,070)
195
1,070
(195)
(203)
12
203
(12)
A change in exchange rates would also impact the translation of net assets of Group operations whose functional currencies are denominated
in currencies other than AUD, which is the Group’s presentation currency. A 10% strengthening or weakening of these currencies against the
Group’s presentation currency, at the reporting date, would have increased (decreased) the reported net asset. This analysis assumes that all
other variables remain constant. The same basis has been applied for all periods presented.
Increase/(Decrease) in Equity
For the year ended June 30, 2017
Increase/(Decrease) in Equity
For the year ended June 30, 2016
10% Strengthening
10% Weakening
10% Strengthening
10% Weakening
22,340
80,539
(22,340)
(80,539)
35,195
75,785
(35,195)
(75,785)
in A$’000
MYR
USD
(b)
Interest rate risk
The Group’s interest rate risk arises from long-term borrowings at both fixed and floating rates and deposits which earn interest at floating
rates. Borrowings and deposits at floating rates expose the Group to cash flows interest rate risk. Borrowings at fixed rates expose the Group
to fair value interest rate risk.
The Group’s primary exposure is to fixed interest rates on borrowings in Australia denominated in USD.
Interest rate risk on borrowings is partially offset by the Group as it has a component of its cash deposits in both floating and fixed rate
accounts.
86
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continuedThe following table sets out the Group’s interest rate risk re-pricing profile:
Total
A$’000
6 months
or less
A$’000
6 to 12
months
A$’000
1 to 2
years
A$’000
2 to 5
years
A$’000
More than
5 years
A$’000
June 30, 2017
Floating rate instruments
Cash and cash equivalents
Other non-current assets
Convertible bond facility*
JARE loan facility**
Total
June 30, 2016
Fixed rate instruments
Loans and borrowings
Convertible bond facility
Total fixed rate instruments
Floating rate instruments
Cash and cash equivalents
Other non-current assets
JARE loan facility
–
–
–
–
–
–
–
(292,512)
(240,510)
(533,022)
63,925
3,132
(292,512)
(260,011)
63,925
3,132
–
(19,501)
(485,466)
47,556
–
(302,379)
(302,379)
–
–
–
–
–
–
–
–
–
–
–
–
(302,379)
(302,379)
43,348
4,723
(272,813)
43,348
4,723
(6,720)
–
–
(20,158)
–
–
(245,935)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total variable rate instruments
(224,742)
41,351
(20,158)
(245,935)
Total
(527,121)
41,351
(20,158)
(548,314)
*
**
If, on the last day of any calendar month (‘test date’) the weighted average sale price of NdPr products sold by the Group in the immediately preceding 6 calendar
months is USD38 per kilogram or greater, the convertible bond interest rate will increase from 1.25% per annum to 1.875% per annum, effective on and from the
date after the test date.
If, on the last day of any calendar month (‘test date’) the weighted average sale price of NdPr products sold by the Group in the immediately preceding 6 calendar
months is USD38 per kilogram or greater, the JARE loan facility interest rate will increase from 2.5% per annum to 3.75% per annum, effective on and from the date
after the test date.
The Group’s sensitivity to interest rate risk can be expressed in two ways:
Fair value sensitivity analysis
A change in interest rates impacts the fair value of the Group’s fixed rate borrowings. Given all debt instruments are carried at amortised
cost, a change in interest rates would not impact the statement of comprehensive income as a component of the profit or loss or the
statement of financial position.
Cash flow sensitivity analysis
A change in interest rates would have an impact on future interest payments and receipts on the Group’s floating rate assets and liabilities.
An increase or decrease in interest rates of 50 basis points at the reporting date would negatively or positively impact both the statement
of financial position and profit or loss through the statement of comprehensive income by the amounts shown, based on the assets and
liabilities held at the reporting date and a one year time frame. This analysis assumes that all other variables, in particular foreign currency
rates, remain constant. The analysis is performed on the same basis for comparative periods.
50 basis point parallel increase in interest rates
50 basis point parallel decrease in interest rates
For the year ended June 30
2017
A$’000
(2,427)
2,427
2016
A$’000
(1,124)
1,124
87
Lynas Corporation Limited | 2017 Annual Report26. FINANCIAL RISK MANAGEMENT continued
(c) Commodity and other price risk
Commodity and other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the
individual financial instrument or its issuer or factors affecting all similar financial instruments traded in the market.
26.3 Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers and related entities.
The Group’s exposure to credit risk is primarily in its trade and other receivables and is influenced mainly by the individual characteristics of
each customer. Demographically there are no material concentrations of credit risk.
Management believes that the Group’s trade and other receivables are collectible in full, based on historical behaviour and extensive analysis
of customer credit risk, including underlying customers’ credit ratings if they are applicable.
26.4 Liquidity risk
Liquidity risk is the risk that the Group will not meet its contractual obligations as they fall due. The Group’s approach to managing liquidity
risk is to ensure that it will always have sufficient liquidity to meet its liabilities as and when they fall due and comply with covenants under
both normal and stressed conditions.
The Group evaluates its liquidity requirements on an on-going basis and ensures that it has sufficient cash on demand to meet expected
operating expenses including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot
reasonably be predicted, such as natural disasters.
The following table sets out contractual cash flows for all financial liabilities including derivatives.
Weighted
average
effective
interest rate
Total
A$’000
1 month
or less
A$’000
1 to 3
months
A$’000
3 months
to 1 year
A$’000
1 to 5 years
A$’000
More than
5 years
A$’000
June 30, 2017
Non–derivative financial liabilities
Trade and other payables
Loans and borrowings
JARE loan facility
Convertible bond facility
Total
June 30, 2016
Non–derivative financial liabilities
Trade and other payables
Loans and borrowings
JARE loan facility
Convertible bond facility
Total
(1)
(2)
(3)
N/A
44,286
44,286
–
–
–
(1)
(2)
296,829
305,583
327
–
19,501
–
6,659
4,022
270,342
301,561
646,698
44,613
19,501
10,681
571,903
N/A
32,770
32,770
–
–
–
6.75%
(3)
337,541
322,197
–
–
692,508
32,770
–
2,287
2,287
26,878
6,860
310,663
313,050
33,738
623,713
–
–
–
–
–
–
–
–
The JARE loan facility has a nominal interest rate of 2.50% and effective interest rate (EIR) is 7.00%. The EIR is the rate at which
the debt balance will be unwound through financial expenses over the facility term.
The convertible bond facility has a coupon rate of 1.25% and EIR of 9.50%. The EIR is the rate at which the debt component of the
facility will be unwound through financial expenses over the facility term.
The convertible bond facility had a coupon rate of 2.75% and EIR of 4.37%. The EIR is the rate at which the debt component of the
facility will be unwound through financial expenses over the facility term.
(4) The above liquidity table excludes other non-contractual financial commitments as disclosed in Note 31.
Refer to Notes 2.2, 22 and 35 with respect to the events subsequent to June 30, 2017 which address the Group’s year end liquidity
requirements.
88
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued26.5 Classification and fair values
Fair value
through the
profit and loss
A$’000
Cash, loans &
receivables
A$’000
Other
liabilities
A$’000
Total
carrying
amount
A$’000
Total
fair value
A$’000
June 30, 2017
Assets
Cash and cash equivalents
Trade and other receivables
Current tax receivable
Other assets
Total assets
Liabilities
Trade and other payables
Loans and borrowings
JARE loan facility
Convertible bond facility
Total liabilities
June 30, 2016
Assets
Cash and cash equivalents
Trade and other receivables
Other assets
Total assets
Liabilities
Trade and other payables
Total liabilities
–
–
–
–
–
–
–
–
–
–
–
–
–
63,924
7,365
98
26,617
98,004
–
–
–
43,348
5,094
111
28,259
76,812
–
–
–
–
–
63,924
7,365
98
26,617
63,924
7,365
98
26,617
98,004
98,004
45,648
45,648
45,648
233,417
226,027
233,417
226,027
233,417
226,027
505,092
505,092
505,092
–
–
–
–
–
43,348
5,094
111
28,259
43,348
5,094
111
28,259
76,812
76,812
–
–
44,289
44,289
44,289
44,289
44,289
44,289
The methods used in determining fair values of financial instruments are discussed in Note 5 and Note 26.7.
26.6 Fair value measurements recognised in the statement of comprehensive income
Upon initial recognition, the Group measures financial instruments at fair value grouped into the following levels based on the degree to
which the fair value is observable.
•
•
•
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for
the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
As at June 30, 2017 the Group did not hold any Level 1 and Level 2 financial instruments. All financial instruments held are level 3 financial
instruments.
26.7 Fair value of borrowings
The fair value of borrowings, which have been determined for disclosure purposes, is calculated by discounting the future contractual cash
flows at the current market interest rates that are available for similar financial instruments.
89
Lynas Corporation Limited | 2017 Annual Report27. RELATED PARTIES
27.1 Key management personnel compensation
The aggregate compensation made to the Directors and other members of KMP of the Group is set out below:
Short-term employee benefits
Long-term employee benefits
Post-employment benefits
Share based payments
Total compensation paid to key management personnel
For the year ended June 30
2017
A$
2016
A$
4,425,560
15,015
149,783
1,980,675
4,575,277
16,032
205,728
1,818,662
6,571,033
6,615,699
The compensation of each member of the KMP of the Group for the current and prior year is set out within the Remuneration Report.
All transactions with these related parted have been considered and included in the report.
The Share-based payments amount represents the cumulative impact of amortising the accounting value of options and performance rights
over their vesting periods including the impact of forfeitures recognised during the period. At times, a negative value may be presented which
results from the forfeitures recognised in the period (which may relate also to earlier periods) are greater than the accounting expense for the
current portion of the vesting period.
27.2 Other related party transactions
Lynas Corporation Limited is the ultimate controlling party of the Group. Balances and transactions between the Company and its subsidi-
aries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.
28. GROUP ENTITIES
Name of Group entity
Principal activity
Lynas Malaysia Sdn Bhd
Operation and development of
advanced material processing plant
Lynas Services Pty Ltd*
Provision of corporate services
Mount Weld Holdings Pty Ltd*
Holding company
Mount Weld Mining Pty Ltd*
Development of mining areas of interest
and operation of concentration plant
ACN 053 160 302 Pty Ltd*
Dormant
Lynas Africa Holdings Pty Ltd*
Holding company
Lynas Africa Ltd
Mineral exploration
Country of
incorporation
Malaysia
Australia
Australia
Australia
Australia
Australia
Malawi
Ownership interest
as at June 30
2017
100%
100%
100%
100%
100%
100%
100%
2016
100%
100%
100%
100%
100%
100%
100%
*
Entity has entered into a deed of cross guarantee with Lynas Corporation Limited pursuant to ASIC Class Order 98/1418 and is relieved from the requirement to
prepare and lodge an audited financial report, as discussed in Note 33. Entity is also a member of the tax-consolidated group.
90
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued29. EMPLOYEE SHARE OPTION PLAN
The Group has established an employee share plan whereby, at the discretion of Directors, options and performance rights may be granted over
the ordinary shares of the Company for the benefit of Directors, Executives and certain employees of the Group. The options and performance
rights are granted in accordance with performance guidelines established by the Nomination, Remuneration and Community Committee.
Other than short term incentives, each option or performance right is convertible into one ordinary share of the Company during the two years
following the vesting date, which is the third anniversary of the grant date. The exercise price for the options is not less than the VWAP for the
five days preceding the date the option is granted. The options or performance rights hold no voting or dividend rights, and are not transferrable.
Options and performance rights are granted for the benefit of Key Management Personnel (‘KMP’) and other selected employees to provide
greater alignment to our strategic business objectives. KMP are those people who have authority and responsibility for planning, directing and
controlling the major activities of the Group, directly or indirectly, including any Executive Director of the Group and the Executives. At year end,
the Executives include the Chief Executive Officer, the Chief Financial Officer, the Group’s General Counsel and Company Secretary, Vice President
for Production, and Vice President for Sales and Marketing.
29.1 Movements in employee performance rights during the year
For the year ended June 30, 2017
For the year ended June 30, 2016
No. of performance
rights
‘000
Weighted average
exercise price
$
No. of performance
rights
‘000
Weighted average
exercise price
$
Balance at beginning of year
Granted during the year
Expired during the year
Exercised during the year
Forfeited during the year
Balance at end of year
Exercisable at end of year
97,090
34,461
–
(33,151)
(3,609)
94,791
–
0.00
0.00
0.00
0.00
0.00
0.00
0.00
33,893
73,396
(7,850)
–
(2,349)
97,090
6,413
0.29
–
1.14
–
0.30
0.00
0.00
During the year ended June 30, 2017 the Group recognised net share based payment expense of $2.5m (2016: $2.4m) within the profit and
loss component of the statement of comprehensive income. The net expense during the year included the reversal of expenses totalling
$0.1m (2016: $0.4m) associated with the forfeiture of 3,608,491 performance rights.
29.2 Options, warrants and performance rights exercised during the year
No options were exercised during the year.
Warrants have been issued to lenders as part of the amendments in debt facilities. The following warrants were exercised:
Exercise date
March 8, 2017
April 28, 2017
Number exercised
Share price at exercise date ($)
Exercise price ($)
135,617,585
20,536,377
156,153,962
0.092
0.091
0.038
0.038
The following performance rights were exercised during the year:
Exercise date
December 12, 2016
June 27, 2017
Number exercised
Share price at exercise date ($)
Exercise price ($)
32,461,096
689,922
33,151,018
0.07
0.10
0.00
0.00
91
Lynas Corporation Limited | 2017 Annual Report29. EMPLOYEE SHARE OPTION PLAN continued
29.3 Performance rights outstanding at the end of the year
The employee performance rights outstanding at the end of the year had nil weighted average exercise price and a weighted average
remaining contractual life of 1,088 days.
29.4 Options and performance rights granted in the period
The following table summarises the performance conditions attached to Options and Performance Rights granted during the financial year
ended June 30, 2017 with respect to the performance of the Group’s employees during the financial year ended June 30, 2016:
TSR hurdle (50%)
(performance against ASX
300 Metals and Mining Index
companies during the vesting
period)
NdPr Production Hurdle (50%)
(NdPr production from July, 1
2016 to June 30, 2019)
Vesting schedule
For grants made in FY2017
50% of the TSR portion will vest for:
51st percentile performance
100% of the TSR portion will vest for:
76th percentile performance
Pro-rata vesting will occur between each of the above points
50% of the NdPr production portion will vest for:
100% of the NdPr production portion will vest for:
Additional 20% of the NdPr production portion,
giving a total of 120% of the NdPr production
portion:
13,903 tonnes of NdPr production from
July 1, 2016 to June 30, 2019.
15,448 tonnes of NdPr production from
July 1, 2016 to June 30, 2019.
16,993 tonnes of NdPr production from
July 1, 2016 to June 30, 2019
In accordance with the Group’s policy that governs trading of the Company’s shares by Directors and employees, Directors and employees
are not permitted to hedge their options or performance rights before the options vest.
The performance rights granted during the financial year had a weighted average fair value of $166,339 (2016:$ 157,203) and were priced
using volume-weighted average share prices, Monte Carlo and Binomial valuation methodologies. Where relevant the expected life used in
the model has been adjusted based on management’s best estimate for the effects of non-transferability, exercise restrictions (including
the probability of meeting market conditions attached to the option), and behavioural considerations. Expected volatility is based on the
historical share price volatility over the past three years and peer volatility.
Grant date
5 day VWAP
Exercise price
Dividend yield
Expected volatility
Risk-free Rate
Expiry date
Series AL
Series AM
Series AN
Series AO
Series AP
Aug 30, 2016
$0.065
$0.00
Nil
N/A
N/A
Aug 30, 2017
Aug 30, 2016
$0.065
$0.00
Nil
N/A
N/A
Aug 30, 2021
Nov 30, 2016
$0.065
$0.00
Nil
N/A
N/A
Aug 30, 2017
Nov 30, 2016
$0.068
$0.00
Nil
82.80%
1.910%
Aug 30, 2021
Nov 30, 2016
$0.068
$0.00
Nil
82.80%
1.910%
Aug 30, 2021
92
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued29.5 Options and performance rights still to vest or yet to expire
Performance Rights are issued on the same terms as Options, except there is no consideration payable on exercise. The following table lists
any options and performance rights which are still to vest, or have yet to expire.
Series Grant date
Number
Date vested
and exercisable
Expiry date
Exercise
price
Value per
option at
grant date
September 23, 2014
September 23, 2014
November 28, 2014
November 28, 2014
September 18, 2015
September 18, 2015
November 23, 2015
November 23, 2015
August 30, 2016
August 30, 2016
November 30, 2016
November 30, 2016
November 30, 2016
Y
Z
AC
AD
AG
AH
AJ
AK
AL
AM
AN
AO
AP
Total
4,698,113
3,915,094
3,396,227
2,830,189
11,553,699
15,215,146
10,588,235
8,823,529
7,600,531
13,484,149
2,453,488
5,581,396
4,651,163
94,790,959
September 23, 2017
September 23, 2017
September 23, 2017
September 23, 2017
September 18, 2018
September 18, 2018
September 18, 2018
September 18, 2018
August 30, 2017
August 30, 2019
August 30, 2017
August 30, 2019
August 30, 2019
September 23, 2019
September 23, 2019
September 23, 2019
September 23, 2019
September 18, 2020
September 18, 2020
September 18, 2020
September 18, 2020
August 30, 2017
August 30, 2021
August 30, 2017
August 30, 2021
August 30, 2021
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.116
$ 0.096
$ 0.059
$ 0.031
$ 0.029
$ 0.039
$ 0.090
$ 0.080
$ 0.065
$ 0.065
$ 0.065
$ 0.068
$ 0.050
30. WARRANTS
On December 9, 2016 the Group issued 348,843,836 unlisted warrants to the Mt. Kellett led bond holder group as part of the commercial
terms relating to the maturity extension of the convertible bond. From the date of issue, each warrant is exercisable into one ordinary share
at an exercise price of $0.05 and has an expiry date of September 30, 2020.
The costs of these equity-settled transactions have been measured by reference to the fair value at the date at which they were granted
using the Black Scholes pricing model. Each warrant had a fair value of $0.0235.
The following table discloses how the number of warrants has changed over the year:
Exercise price
Expiry date
Balance as at June 30, 2016
Issued on December 9, 2016
Exercised on March 8, 2017
Exercised on April 28, 2017
September 2015 Issue
December 2016 Issue
$0.038
September 30, 2018
174,365,466
–
(135,617,585)
(20,536,377)
$0.05
September 30, 2020
–
348,843,836
–
–
Balance as at June 30, 2017
18,211,504
348,843,836
93
Lynas Corporation Limited | 2017 Annual Report31. OPERATING LEASES
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
Total
As at June 30
2016
A$’000
3,773
10,313
1,541
2017
A$’000
3,241
8,561
–
11,802
15,627
The Group has contracts for several operating leases for business premises located in Sydney, Perth, Laverton and Kuantan. The Group also
has several operating leases for motor vehicles and mobile plant and equipment.
32. CAPITAL COMMITMENTS
There were no outstanding commitments which are not disclosed in the consolidated financial report of the Group as at June 30, 2017 other than:
Exploration commitments
Less than one year
Between one and five years
More than five years
Total
As at June 30
2017
A$’000
2016
A$’000
364
1,415
1,767
3,546
317
1,237
2,472
4,026
These include commitments relating to tenement lease rentals and the minimum expenditure requirements of the Department of Mines
and Petroleum attaching to the tenements and are subject to re-negotiation upon expiry of the exploration leases or when application for a
mining licence is made. These are necessary in order to maintain the tenements in which the Group and other parties are involved. All parties
are committed to meet the conditions under which the tenements were granted in accordance with the relevant mining legislation.
Capital commitments
Less than one year
Total
At June 30, 2017 capital commitments relate to on-going capital project costs in Malaysia.
Other commitments
Less than one year
Between one and five years
More than five years
Total
As at June 30
2016
A$’000
709
709
2017
A$’000
1,632
1,632
As at June 30
2017
A$’000
2016
A$’000
30,432
20,271
–
6,222
52,372
–
50,703
58,594
Lynas is required to pay in instalments, a total of USD50m to the Malaysia’s AELB in accordance with the conditions underlying the granting
of Lynas’ Full Operating Stage License for the LAMP in Gebeng Malaysia. The amount due to AELB as at June 30, 2017 has been recorded as
payables (refer to Note 21).
94
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued33. DEED OF CROSS GUARANTEE
Pursuant to ASIC Class Order 98/1418 (as amended) dated August 13, 1998, the wholly-owned Australian subsidiaries of Lynas Corporation
Limited are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and Director’s reports.
It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed
is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain
provisions of the Corporations Act 2001. If a winding up event occurs under any other provision of the Act, the Company will only be liable in
the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the
Company is wound-up.
The subsidiaries in addition to the Company subject to the deed are specified in Note 28.
A statement of comprehensive income and statement of financial position, comprising the Company and controlled entities which are party
to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee is presented as follows:
Statement of Financial Position
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Total current assets
Inventories
Property, plant and equipment
Deferred exploration, evaluation and development expenditure
Intangible assets – software
Investments in subsidiaries
Other assets
Total non-current assets
Total assets
Liabilities
Interest payable
Trade and other payables
Borrowings
Employee benefits
Total current liabilities
Trade and other payables
Provisions
Employee benefits
Borrowings
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Accumulated deficit
Reserves
Total equity
As at June 30
2017
A$’000
2016
A$’000
29,572
228,799
6,655
265,026
515
94,969
41,999
13
375,080
29,636
542,212
807,238
6,837
34,553
19,516
1,686
62,592
753
51,208
277
439,928
492,166
554,758
252,480
34,379
147,928
13,412
195,719
219
102,085
44,206
75
375,080
120,185
641,850
837,569
49,761
8,322
26,878
1,776
86,737
–
25,551
359
535,686
561,596
648,333
189,236
1,094,403
(1,070,456)
228,533
1,088,469
(1,075,287)
176,054
252,480
189,236
95
Lynas Corporation Limited | 2017 Annual Report33. DEED OF CROSS GUARANTEE continued
Statement of comprehensive income
Revenue
Cost of sales
Gross profit / loss
Other (expenses) / income
General and administration expenses net of recoveries
Loss from operating activities
Financial income
Financial expenses
Net financial expenses
Loss before income tax
Income tax benefit / (expense)
Profit / (loss) for the year from continuing operations
Other comprehensive loss, net of income tax
Exchange differences on foreign currency transactions
Total other comprehensive loss for the year, net of income tax
Total comprehensive income / (loss) for the year
34. PARENT ENTITY INFORMATION
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Share capital
Accumulated deficit
Reserves
Total shareholders’ equity
Gain / (loss) of the Company
Total comprehensive gain / (loss) of the parent Company
96
As at June 30
2017
A$’000
2016
A$’000
80,758
(70,164)
10,594
(28)
(13,697)
(3,131)
22,905
(34,347)
78,097
(86,880)
(8,783)
48
6,604
(2,131)
9
(37,489)
(11,442)
(37,480)
(14,573)
20,766
6,193
(1,362)
(1,362)
4,831
(39,611)
(44)
(39,655)
(1,275)
(1,275)
(40,930)
As at June 30
2017
A$’000
2016
A$’000
29,512
33,055
856,205
903,221
(54,069)
(76,639)
(517,283)
(610,404)
338,922
292,817
1,094,443
(1,109,826)
354,305
1,088,469
(1,116,792)
321,140
338,922
292,817
6,966
6,966
(40,544)
(40,544)
www.lynascorp.comFinancial StatementsNotes to the Financial Statements continued35. CONTINGENCIES
Litigation and legal proceedings
As a result of its operations the Group has certain contingent liabilities related to certain litigation and legal proceedings. The Group has
determined that the possibility of a material outflow related to these contingent liabilities is remote.
Security and guarantee arrangements
Certain members of the Group have entered into guarantee and security arrangements in respect of the Group’s indebtedness as described in
Note 22.
36. SUBSEQUENT EVENTS
On August 2, 2017 the bondholders converted 25 million convertible bonds with a principal value of USD25 million into 333,333,332 ordi-
nary shares. On August 15, 2017 the bondholders converted another 37,833,333 convertible bonds with a principal value of USD37,833,333
into 504,444,440 ordinary shares. The outstanding principal of the convertible bonds has been reduced to USD162,166,667.
In accordance with the terms of the JARE facility, the JARE restricted bank account was scheduled to be closed when the unrestricted cash
balance exceeded $25m on any date after July 31, 2017. Subsequent to year end, and following satisfaction of that test, the funds in the JARE
restricted bank account were applied as follows on August 4, 2017:
(a) USD15 million was paid to JARE as a principal repayment, reducing the principal balance of the JARE facility to USD185 million;
(b) The remaining balance in the JARE restricted interest account was be used to partially settle the interest incurred from October 1,
2014 to December 31, 2015. The outstanding interest incurred in the same period was forgiven.
In accordance with the terms of the convertible bond facility, the convertible bond restricted bank account was scheduled to be closed when
the unrestricted cash balance exceeded $25m on any date after July 31, 2017. Subsequent to year end, and following satisfaction of that
test, the funds in the convertible bond restricted bank account were applied on August 4, 2017 in full payment of the interest incurred from
January 1, 2015 to December 31, 2015 and additional interest on withdrawals made in 2016.
Since June 30, 2017 the company received $692,037 from the exercise of 18,211,504 warrants with an exercise price of $0.038 and
$3,759,761 from the exercise of 75,195,227 warrants with an exercise price of $0.05 by the bondholders. As a result of the exercises,
93,406,731 new ordinary shares were issued.
97
Lynas Corporation Limited | 2017 Annual ReportMineral Resources and Ore Reserves
as at 30 June 2017
1. CENTRAL LANTHANIDE DEPOSIT ORE RESERVES
The Ore Reserve estimation for the Central Lanthanide Deposit is shown in Table 1.
TABLE 1: CLASSIFICATION OF ORE RESERVES FOR THE CENTRAL LANTHANIDE DEPOSIT
CATEGORY
Ore Reserves within Designed Pit
Proven
Probable
Designed Pit Total
Ore Reserves on Stockpiles
Proven
Probable
Stockpiles Total
Total Ore Reserves
Proven
Probable
Total
MILLION
TONNES
REO
%
CONTAINED REO
‘000 TONNES
5.1
4.2
9.3
0.3
0.0
0.3
5.4
4.2
9.6
11.5
9.3
10.5
14.5
0
14.5
11.7
9.3
10.6
587
391
978
40
0
40
627
391
1,018
* REO (%) includes all lanthanide element oxides and ytrrium oxide
Note:
The 2017 Ore Reserve estimation is as of June 30, 2017. The 2017 Ore Reserve update is based on depletion of the in-situ ore reserves by
mining activities and depletion and addition to the stockpiles by processing and mining activities. The depletion of the in-situ Ore Reserve
was estimated by using the end of financial year survey of the open pit to deplete the in-situ Ore Reserve. The stockpiles were estimated
using survey volumes of the stockpiles and grades assigned to the stockpiles by the grade control processes. The surveys have been carried
out by Mr Bradley Hughes an employee of Lynas Corporation. The grade control during the mining was managed by Mr Mark Carder an
employee of Lynas Corporation. Mr Steve Lampron (Auralia Mining Consulting, MAusIMM) has carried out a review and audit of these figures
and found them to fall within expected error deviations. There have been no other material changes to the previously announced Ore Reserve
since the previous Ore Reserve release in the 2016 annual report.
98
www.lynascorp.com2. CENTRAL LANTHANIDE DEPOSIT MINERAL RESOURCES
The Mineral Resource estimation for the Central Lanthanide Deposit is shown in Table 2.
TABLE 2: CLASSIFICATION OF MINERAL RESOURCES FOR THE CENTRAL LANTHANIDE DEPOSIT
CATEGORY
Central Lanthanide Deposit
Measured
Indicated
Inferred
Total
* REO (%) includes all lanthanide element oxides and ytrrium oxide
Note:
MILLION
TONNES
REO
%
CONTAINED REO
‘000 TONNES
5.9
5.4
3.4
14.7
11.4
8.6
4.1
8.8
667
472
135
1,274
The Mineral Resource estimation for the Central Lanthanide Deposit is as of June 30, 2017. The company confirms that all material assump-
tions and technical parameters underpinning the estimated Mineral Resources and Ore Reserves continue to apply and have not materially
changed to those reported as per the Lynas ASX announcement dated October 5, 2015 with the exception of depletion of stockpiles
processed and depletion of the in-situ resources by a small mining campaign since the 2015 announcement.
3. DUNCAN DEPOSIT MINERAL RESOURCES
The Mineral Resource estimation for the Duncan Deposit is shown in Table 3.
TABLE 3: CLASSIFICATION OF MINERAL RESOURCES FOR THE DUNCAN DEPOSIT
CATEGORY
Duncan Deposit
Measured
Indicated
Inferred
Total
MILLION
TONNES
REO
%
CONTAINED REO
‘000 TONNES
3.8
3.3
1.1
8.2
5.2
4.6
3.6
4.7
198
152
39
389
* REO (%) includes all lanthanide element oxides and ytrrium oxide
Note:
The Mineral Resource estimation for the Duncan Deposit is as per the Lynas ASX announcement dated October 5, 2015. The company
confirms that all material assumptions and technical parameters underpinning the estimated Mineral Resources and Ore Reserves continue to
apply and have not materially changed.
99
Lynas Corporation Limited | 2017 Annual ReportMineral Resources and Ore Reserves
4. NIOBIUM RICH RARE METALS MINERAL RESOURCES
The Mineral Resource estimation for the niobium rich rare metals prospect referred to as the Rare Metals Project is shown in Table 4.
The Rare Metals Project is located at Mt Weld.
TABLE 4: CLASSIFICATION OF MINERAL RESOURCES FOR THE RARE METALS PROJECT
CATEGORY
Measured
Indicated
Inferred
Total
MILLION
TONNES
0
1.5
36.2
37.7
TA2O5
%
0
0.037
0.024
0.024
NB2O5
%
TLNO
%
0
1.4
1.06
1.07
0
1.65
1.14
1.16
ZRO
%
0
0.32
0.3
0.3
P2O5
%
0
8.9
7.96
7.99
Y2O3
%
0
0.1
0.09
0.09
TIO2
%
0
5.8
3.94
4.01
Notes:
1. All figures are percentages. Ta2O5 Tantulum Oxide, Nb2O5 Niobium Oxide, TLnO Total Rare Earth Oxide, ZrO zirconia, P2O5 Phosphate,Y2O3
yttria, TiO2 titanium oxide.
2. The Mineral Resource estimation for the niobium rich rare metals is as per ASX announcement dated October 6, 2004. Lynas Corp
confirms that all material assumptions and technical parameters underpinning the estimated Mineral Resources continue to apply and
have not materially changed. Figures in the table may not sum due to rounding.
The only change to the Central Lanthanide Deposit Ore Reserve and Mineral Resource has been depletion by processing of ore between
July 1, 2016 and June 30, 2017. A small mining campaign transferred ore from the in-situ ore reserve and mineral resource to the stockpiles
and ore was processed from the stockpiles during this period of time.
There have been no changes to the Duncan Deposit Mineral Resource since the previous reporting period.
There have been no changes to the niobium rich rare metals prospect Mineral Resource since the previous reporting period.
Note on governance arrangements and internal controls:
All Lynas mineral resource and ore reserve estimations are managed by an experienced competent person employed by Lynas. The competent
person employed by Lynas ensures all aspects of the mineral resource and ore reserve estimations meet the JORC code requirements. In
addition, in the past, Lynas has engaged experienced third parties to review specific aspects of its mine plan and ore reserve estimations.
COMPETENT PERSON’S STATEMENTS – MINERAL RESOURCES
The Mineral Resources and Ore Reserves Statement in this report is based on, and fairly represents, information compiled by Mr Brendan
Shand who is a consultant geologist to Lynas Corporation. Mr Shand is a Member of The Australian Institute of Geoscientists and has
sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is
undertaking, to qualify as Competent Person as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves. Mr Shand consents to the inclusion in the document of the information in the form and context in
which it appears.
COMPETENT PERSON’S STATEMENTS – ORE RESERVES
The information in this Report which relates to the Central Lanthanide Deposit Ore Reserve estimate accurately reflects information prepared
by Competent Persons (as defined by the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves). The
information in this public statement relating to the Central Lanthanide Deposit Ore Reserves at the Mt Weld Rare Earths Project is based on
information resulting from Feasibility-level updated Ore Reserve works carried out by Auralia Mining Consulting Pty Ltd. Mr Steve Lampron
completed the Ore Reserve estimate. Mr Steve Lampron is a Member of the Australasian Institute of Mining and Metallurgy and has sufficient
experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking to
qualify him as a Competent Person as defined in accordance with the 2012 Edition of the Australasian Joint Ore Reserves Committee (JORC).
Mr Lampron consents to the inclusion in the document of the information in the form and context in which it appears.
100
www.lynascorp.comAdditional Information
Additional information required by the Australian Securities Exchange Ltd and not shown elsewhere in this report.
The information is current as at 23 August 2017.
(A) Distribution of Ordinary Shares
The number of shareholders by size of holding of ordinary shares is:
Holdings Ranges
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Totals
Holders
3,818
7,438
4,274
10,582
3,434
Number
of Shares
Percentage
of Shares
2,228,758
21,758,016
34,080,665
389,992,469
4,160,867,944
0.048
0.472
0.739
8.462
90.278
29,546
4,608,927,852
100.000
The number of shareholders holding less than
a marketable parcel of shares
8,483
11,982,402
(B) Distribution of Employee Options/Performance Rights
There are 94,790,959 unlisted employee options/performance rights. The number of beneficial holders, by size of holding, of employee
options/performance rights are:
Holdings Ranges
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Holders
0
0
0
1
16
17
(C) Distribution of 1.25% Unsecured Convertible Bonds Maturing 30 September 2020
There are 162,166,667 unlisted Convertible Bonds maturing 30 September 2020. The number of holders, by size of holding, of Convertible
Bonds maturing 30 September 2020 are:
Holdings Ranges
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Mount Kellett Capital Partners (Ireland) II DAC holds 87,550,737 Convertible Bonds.
Holders
0
0
0
0
14
14
101
Lynas Corporation Limited | 2017 Annual ReportAdditional Information
(D) Distribution of $0.05 Warrants Expiring 30 September 2020
There are 273,648,609 unlisted Warrants expiring 30 September 2020. The number of holders, by size of holding, of $0.05 Warrants expiring
30 September 2020 are:
Holdings Ranges
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Mount Kellett Capital Partners (Ireland) II DAC holds 214,326,561 Warrants.
(E) Twenty Largest Shareholders
The names of the twenty largest registered holders of quoted shares are:
CITICORP NOMINEES PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
1
2 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
3
4 NATIONAL NOMINEES LIMITED
5
6 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
7
8
9 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
UBS NOMINEES PTY LTD
CS FOURTH NOMINEES PTY LIMITED
Continue reading text version or see original annual report in PDF format above