Mount Gibson Iron Limited
Annual Report 2013

Plain-text annual report

M o u n t G i b s o n i r o n L i M i t E D 2 0 1 3 A N N U A L R E P O R T 2013 ANNUAL REPORT 2012/13 Performance Summary Operational Highlights Financial Highlights Chairman’s Report Chief Executive Officer’s Report Operational Review Koolan Island Mid West Exploration Health and Safety, Environment, Community Affairs Health and Safety Environment Community Affairs Resources and Reserves Statement Financial Statements Corporate Directory 2 2 3 4 6 8 8 11 12 14 15 16 18 20 21 105 Mount Gibson Iron Limited is an Australian “pure play” iron ore producer and an established force in the bulk commodities sector. The Company was incorporated in Perth in 1996 and was listed on the Australian Securities Exchange in 2002. Mount Gibson owns and operates three hematite iron ore mines in Western Australia – the Koolan Island mine off the Kimberley coast in the remote north-west of the State, while in the Mid West region there is the Extension Hill mine in the Mt Gibson range south-east of Geraldton, and the Tallering Peak mine, east of Geraldton. Mount Gibson seeks to optimise the returns from its existing operations and grow long-term profitability through the discovery, development, participation and/or acquisition of mineral resources. As an established exporter of direct shipping hematite ore, Mount Gibson has a clearly defined operating strategy to operate as a successful Australian supplier of raw materials to the global carbon steel market, providing sustainable, long-term returns to shareholders. Extension Hill Crusher Superintendent Chris Farrall tHE MGX WAY To succeed we do the essential things well. Our Values guide us in working the MGX Way by defining the behaviours expected of all employees. Courage Integrity Safety Agility Respect Taking and giving feedback Do what you say you will do Genuine care for self and others Make timely decisions Be prepared to admit being wrong Do the right thing, even when no one is looking Constant concern (hazard identification) Be dynamic and embrace change Be approachable and open to other points of view Treat others as you would expect to be treated Challenge the norm constructively “Walk the talk” Actively intervene to improve Grab the opportunity Encourage and develop people Make the hard calls Mount Gibson Iron Limited 2013 Annual Report 1 2012/13 PErforMAncE suMMArY OPERATiONAL HigHLigHTs Record ore sales of 8.8 million tonnes Total ore mined of 5.8 million tonnes Record 7.7 million tonnes of ore crushed Record Mid West ore sales of 5.3 million tonnes Increased Koolan Island sales of 3.5 million tonnes Koolan Island mine optimisation completed and production ramp-up to 4 million tonnes commenced Tallering Peak mine life extended after approval of T1 mining proposal RECORD ORE SALES 8.8Mt 2 Mount Gibson Iron Limited 2013 Annual Report RECORD SALES REvEnuE $853M FiNANciAL HigHLigHTs Record sales revenue of $852.9 million Net profit after tax of $157.3 million Underlying net profit after tax of $92.9 million, excluding MRRT tax credit Total fully franked dividends of 4.0 cents per share Cash and term deposits at 30 June 2013 increased to $376 million Significant savings delivered through ongoing cost reduction program Minimal debt Net assets of $1,182 million Mount Gibson Iron Limited 2013 Annual Report 3 cHAirMAn’s rEPort With difficult trading conditions in the first half, Mount Gibson achieved significant improvement in its underlying business. The transformation during the year under our new management team has created a robust platform to build long-term value for all shareholders. Building our existing business remained a key strategic focus. After completing the rebuilding of our management team with senior appointments at the start of the year, we focused on extracting the most from our existing resource assets, optimising costs, and maintaining our strong balance sheet. uP28% TOTAL CASH RESERvES 4 Mount Gibson Iron Limited 2013 Annual Report The Company delivered a reasonable performance in extremely volatile market conditions, especially given the first half when commodity prices fell sharply. At Tallering Peak, which was previously expected to close in mid-2013, the delineation of the T1 deposit has helped add another year of high value production. And at Extension Hill, we are extremely excited about the exploration potential to add resources to the south of the current pit. Similarly, our acquisition of the Field’s Find exploration tenements north of Extension Hill highlights our strategy of expanding our footprint within reach of our current operations and infrastructure. I would like to record my appreciation of the efforts of my fellow Directors and acknowledge the assistance of Mr Lee Seng Hui who was appointed Non-Executive Deputy Chairman during the year. Mr Lee has been a Non-Executive Director of Mount Gibson since 2010 and plays an important role in our relationships with China. On behalf of the Board, I would like to thank our employees for their dedication and contribution to the results that we have collectively achieved for Mount Gibson’s shareholders during the year. Geoffrey Hill Chairman For the year, Mount Gibson reported record sales volumes of 8.8 million tonnes and revenue of $852.9 million, trebled operating cash flow to $179.7 million and increased total cash reserves by 28% to $376 million, with little debt. Net profit after tax of $157.3 million was a strong result in the volatile conditions. This profit included a non-cash tax accounting credit of $64.5 million relating to the Mineral Resource Rent Tax. We are targeting higher sales volumes in 2014 and further permanent cost reductions in addition to the $50 million of permanent savings captured in the year just completed. On the back of this strong performance, the Board was pleased to reward shareholders by maintaining our record of dividend payments with a fully franked distribution of 4.0 cents per share for the year. The 2013 distribution takes total dividends declared to approximately $130 million since September 2011. While we do not have a formal dividend policy, the view of the Board remains that shareholders should be rewarded when the Company is performing well, and can afford to do so. I am pleased to note the Company made significant gains in adding value to its existing business during the year. At Koolan Island, the Company has significantly reduced costs and is undertaking a staged ramp-up that will increase production by a third and maximise returns from this long-life asset. We have also stepped up exploration both on the island, and the mainland nearby. Mount Gibson Iron Limited 2013 Annual Report 5  cHiEf EXEcutivE officEr’s rEPort The iron ore price volatility that continued through the latter part of 2012 and into 2013 underlines the importance of our focus on business optimisation, operational agility and cost reduction in order that our business can remain robust even during times of high volatility. This approach required some extremely difficult decisions, in particular a significant reduction of our workforce in October 2012. However, our actions were necessary to reposition the business to meet the challenges of the market. As planned, the Company’s approach reduced total cash expenditure by $140 million compared with our original internal budget for the year, and captured at least $50 million in permanent ongoing annual savings. Our focus on costs remains unrelenting and we are confident of identifying additional permanent savings in the year ahead. This commitment, combined with the continued strength of our balance sheet, also will allow us to better capture the benefits of stronger iron ore prices in periods of improved market performance. I am pleased to provide my report for Mount Gibson Iron Limited for the 2012/13 financial year. As always, the safety and wellbeing of our employees is at the forefront of conducting our business. Our performance on this front was mixed during the year and we are committed to achieving continuous improvement across our entire business. Both our Mid West mines delivered excellent results. In January, Extension Hill passed 12 months without a Lost Time Injury (LTI) and remained LTI-free at the end of the financial year. Tallering Peak also achieved significant improvement, and subsequent to the end of the year, passed 12 months LTI-free in early September 2013. Unfortunately Koolan Island’s performance declined, however we have implemented a range of actions that have contributed to an encouraging level of improvement since the end of the financial year. On the production front, the year was characterised by strong performance, delivering record full year sales of 8.8 million tonnes and providing a substantial buffer against the prevailing volatile market conditions. Particularly pleasing was the record performance of our Mid West operations, which offset the planned short-term slow-down in ore production at Koolan Island in the first half of the financial year after which we commenced our ramp-up to 4 million tonnes that is forecast to be achieved by the end of 2014. These achievements demonstrate the merits of our portfolio management approach to operating our business, giving us confidence of further increased sales to more than 9 million tonnes in the current year. 6 8 Mount Gibson Iron Limited 2013 Annual Report Mount Gibson Iron Limited 2013 Annual Report Our strong performance in the year was built on significant improvement across all our operations. In March 2013, the Company announced the completion of the Koolan Island optimisation study, which confirmed a staged production ramp-up as the most value accretive development strategy. This will enable us to maximise returns from Koolan Island for the minimum risk in a volatile iron ore market. This will also better balance the overall performance of Mount Gibson’s existing asset portfolio. Our Mid West business Tallering Peak Crusher Manager Carlos Munoz is now in its peak production and cash generation phase, which will be followed by Koolan Island’s peak cash generating phase later in the decade. At Tallering Peak, we addressed significant operational problems which affected the mine’s performance in early 2012, and further extended the mine life by 12 months to mid 2014, delivering significant additional value to Mount Gibson. Similarly at Extension Hill, we successfully debottlenecked and ramped-up port and rail throughput, enabling us to maximise sales from this high-margin operation. Our efforts at Tallering Peak and Extension Hill demonstrate our ongoing commitment to the Mid West region, where we have invested heavily in strategic export capacity and are targeting opportunities that will complement our existing operations. Mount Gibson intends to remain a substantial producer in this region. In April 2013, Mount Gibson completed the purchase of a substantial exploration landholding that covers exploration tenements at Field’s Find, north of the Extension Hill mine. This acquisition is a result of carefully focusing our resources on growth opportunities where we have existing infrastructure and proven expertise. The Company is also looking to the area immediately south of Extension Hill, which – based on detailed reviews of past exploration data – we believe has the most exciting near-mine exploration potential for iron ore in the Mid West. We are excited about the potential of both areas and look forward to commencing work at the earliest opportunity. programs delivering significant improvement, we are increasingly turning our attention to broader long-term opportunities to expand our business. In this, our primary focus remains on iron ore opportunities that complement our existing operations. Rest assured that we will apply the same strict discipline and diligence that we have demonstrated in our operational performance during the last year to any opportunities we may consider. The primary consideration is to create superior value for shareholders. Mount Gibson remains committed to operating in a sustainable manner with regards to the environment and the local communities in our areas of operation. We have improved our environmental reporting and introduced a new Corporate Risk Policy. Our community affairs activities included implementing a new community consultation program for our Mid West sites, and a review of our Traditional Owner agreements. I would like to take this opportunity to thank all of our employees, contractors and suppliers for their efforts, as well as the support of our diverse stakeholder groups including our valued shareholders. I would also like to thank the Board for its contribution and continued strong support. Our strong financial position, expanding sales outlook, capable team and our demonstrated ability to deliver business enhancement position Mount Gibson well for further operating improvement and business growth for the near future. With our new executive team being well established and our site optimisation Jim Beyer Chief Executive Officer Mount Gibson Iron Limited 2013 Annual Report Mount Gibson Iron Limited 2013 Annual Report 7 9 oPErAtionAL rEviEW During 2012/13, Mount Gibson achieved record total ore sales of 8.8 million tonnes, a 69% increase over the previous year. This comprised a record 8.1 million tonnes of direct shipping ore (DSO) hematite, and 709,000 tonnes of Rizhao Special Product (RSP). Higher sales were achieved in line with the Company’s strategy of temporarily moderating mining activity whilst maximising sales from ore stockpiles. This both helped minimise cash expenditure during a period of extreme price volatility, but also enabled considered business optimisation plans to be implemented across all sites without curtailing sales. KOOLAN isLANd The 2012/13 financial year was one of transition at Koolan Island as management focused on optimising the mining schedule for Main Pit. Total ore sales increased 22% to 3.5 million tonnes, as conventional ore sales were supplemented by the first sales of Rizhao Special Product (RSP). Although a low-grade product, the low cost of RSP to Mount Gibson makes it a high-margin product, and the Company looks forward to achieving similar RSP sales in the 2014 financial year. These sales were particularly important in 2012/13 in supplementing a planned reduction of ore production from Main Pit to allow the mine plan to be optimised. This planned reduction was implemented in October 2012 as part of a business-wide initiative to reduce costs and prepare a base to establish improved productivity. This initiative included a reduction of approximately 240 positions at Koolan Island. In March 2013, Mount Gibson announced the optimisation work had confirmed a staged ramp-up to 4 million tonnes per annum (Mtpa) as the most value accretive development strategy for Koolan Island. The ramp-up commenced in April 2013, with the final target expected to be achieved by the end of calendar 2014. The staged ramp-up will reduce financial and technical risks of Main Pit development. Though June quarter production was adversely affected by heavy unseasonal rain, the optimisation work progressed well and significant cost and productivity improvements were achieved as mining activity increased. A major maintenance shutdown of the crushing circuit was also undertaken during the June quarter to coincide with the planned period of reduced ore production. Construction of a new maintenance workshop also continued, with final fit-out nearing completion. These initiatives will assist in achieving targeted production and productivity levels. Koolan Island Port Control Officer Rebecca Keys 8 Mount Gibson Iron Limited 2013 Annual Report KOOLAN isLANd HigHLigHTs 22% increase in total ore sales to 3.5 million tonnes Rizhao Special Product sales commenced Ramp-up to 4 million tonnes per annum underway Improving productivity and cost profile as ramp-up progresses uP22% KOOLAn ISLAnD TOTAL ORE SALES Mount Gibson Iron Limited 2013 Annual Report 9 Mid WEsT HigHLigHTs Record sales of 5.3 million tonnes, more than double the previous year Strong rail availability delivering 5.1 million tonnes to Geraldton Port Record ore shipments from Geraldton of 1.6 million tonnes in the June quarter, equivalent to an annualised export rate of more than 6 Mtpa Delineation of T1 deposit extends Tallering Peak mine life by one year uP124% MID WEST ORE SALES 10 Mount Gibson Iron Limited 2013 Annual Report Mid WEsT Extension Hill The year commenced with a contraction in mining rates, reflecting a planned reduction in activity to reduce costs and maximise sales from the substantial ore stockpiles built up at both the mine site and Perenjori rail siding as a result of port and rail constraints experienced in the previous year. This approach delivered record ore sales of 2.8 million tonnes on mine production of only 1.8 million tonnes. At year end, stockpiles of crushed finished product at the Perenjori rail siding had more than halved to 295,000 tonnes, while mine-site stockpiles of uncrushed standard product had also been reduced to approximately 446,000 tonnes. Rail availability reached contracted capacity before the end of the 2012 calendar year, following the completion of works on the regional rail network and Mount Gibson’s upgraded facilities at Geraldton Port. This resulted in record June quarter sales from Extension Hill of 968,000 tonnes, including opportunistic mine gate sales totalling 176,000 tonnes from the Perenjori siding to a third party with available rail capacity. Extension Hill Excavator Operator Rebecca Reid Tallering Peak The Tallering Peak mine performed strongly throughout the year. A total of 2.1 million tonnes were mined, representing a 10% increase over the previous year. More than half of this ore was mined in the first half of the year, with activity slowing as the mine approached the end of the reserve life. However, ore sales increased 60% to 2.6 million tonnes, reflecting increased sales from stockpiles and improved rail availability following the completion of regional rail upgrades. Most importantly, a maiden resource for the T1 satellite deposit was reported in the March quarter, followed by the declaration of ore reserves in July 2013. Development commenced following the receipt of mining approval in July 2013. Critically, mine design optimisation of the existing T6 pit and the development of T1 has extended the expected life of Tallering Peak by approximately 12 months to mid 2014. Tallering Peak is now expected to generate total ore sales of 2.5 million tonnes in the 2014 financial year, including 700,000 tonnes of lower grade ore already in stockpiles. This extra year of sales represents the creation of significant additional value for Mount Gibson. Mount Gibson Iron Limited 2013 Annual Report 11 EXPLORATiON Mid West Mount Gibson’s long-term growth strategy is to seek and evaluate opportunities to complement its existing businesses, with a near-term focus on identifying suitable opportunities in the Mid West region where the Company’s existing processing and infrastructure footprint gives Mount Gibson a strategic competitive advantage. EXTENSION HILL Extension Hill South Early in 2013, Mount Gibson completed a detailed review of past exploration data from the area immediately south of the Extension Hill open pit, with the result that the Company considers the area to have the most exciting near mine exploration potential for iron ore in the Mid West. A Program of Work for a drilling program at Extension Hill South is currently being assessed by the Department of Mines and Petroleum (DMP). An environmental survey was conducted in April across the exploration area yielding encouraging data to assist access. Heritage approvals have been granted for the planned exploration. In June, Mount Gibson applied for an additional exploration licence over ground adjacent to the Field’s Find project tenements. The application is on the strike extension of Baron Rothschild and Stone Hut prospects and covers a portion of the Pinyalling Hills that is considered prospective for iron ore. TALLERING PEAK Exploration activity at the T1 prospect at Tallering Peak – comprising two phases of RC drilling – commenced towards the end of the 2012 financial year and continued through to December. Evaluation of the technical data from this drilling combined with historical data led to the reporting of a maiden Indicated and Inferred Mineral Resource for T1 in March 2013. The T1 deposit Mineral Resource stands at 1.4 million tonnes at a grade of 60.4% Fe, and shortly after year end, Mount Gibson announced Probable Ore Reserves of 801,000 tonnes grading 61.0% Fe. With key State Government approvals received, Mount Gibson commenced development of T1 in July 2013. Production is expected to conclude in mid 2014. Field’s Find Koolan Island In December 2012, Mount Gibson announced it had reached agreement with Royal Resources Ltd to acquire a substantial landholding at Field’s Find, approximately 60 kilometres north of the Extension Hill mine. The land package covers approximately 250 square kilometres and includes a number of iron ore targets, including the Plateau prospect. It also covers the historic Baron Rothschild and Field’s Find gold camps and the abandoned Warriedar copper mine. Technical due diligence for the acquisition was completed in the early part of 2013, with the acquisition finalised in April. Several field visits were conducted before year end, including surface mapping and review of workings. Permitting is well advanced and drilling is expected to commence later in 2013. Mount Gibson’s Koolan South exploration licence is located on the mainland directly south of Koolan Island, covering an under- explored area of 230 square kilometres considered prospective for iron ore and base metals. A helicopter-supported exploration and reconnaissance program commenced during the last week of the year – the first time Mount Gibson geologists have had access to the area since grant of the tenement in October 2012 – and a second program was conducted early in the new financial year. While exploration on this project area is at a very early stage, the geology is now better understood, with data from the initial phase proving to be of significant value for future exploration activity. The Company is also revisiting the exploration potential of the western end of the island following a review of prior exploration results. 12 Mount Gibson Iron Limited 2013 Annual Report EXPLORATiON HigHLigHTs Exploration activity at T1 deposit at Tallering Peak leads to resource declaration and approval of mining proposal Advancement of exploration permitting at Extension Hill South Acquisition of exploration landholding at Field’s Find, north of Extension Hill Commencement of Koolan South exploration program Tallering Peak Mining Manager Folker Schilling Mount Gibson Iron Limited 2013 Annual Report 13 HEALtH AnD sAfEtY EnvironMEnt coMMunitY AffAirs 14 Mount Gibson Iron Limited 2013 Annual Report Koolan Island Maintenance Superintendent Scott Quintrell Koolan Island Occupational Health Nurse Sandy Daniels HEALTH ANd sAFETy • a study to address musculoskeletal as well as other injuries across all sites, and Corporate Mount Gibson made significant progress during 2012/13 in raising a higher level of safety awareness across all of its operations. This included implementation of a new web-based system to record and report health and safety statistics, enabling more effective document control, consistency between sites, accountability and transparency. Following an external risk review of all operations, risk registers have been developed for all operations. The risk registers are monitored and documented through status reports/presentations to executive management and the Operational Risk and Sustainability Committee (ORSC). The ORSC is a sub-committee of the Board of Directors and is responsible for formally reporting the operational risk status to the Board on an annual basis. External health and safety management systems audits were conducted across all operations. Further corporate achievements for the year included: • Crisis Management Standard developed and mock scenarios conducted, • “Good to Go” OH&S contractor management process developed and implemented, • developed and implemented a consistent CONTAM (air quality monitoring program) process and subsequent risk assessments to satisfy the requirements of the Department of Mines and Petroleum (DMP), • conducted Section 44 training for line managers, • line management leadership training at Koolan Island as part of the “Journey” Program, • implementation of business systems for training competence and flight and roster coordination across all operations. Mid West EXTENSION HILL The implementation of new safety management systems allowed a more focused approach to addressing safety issues and solutions, resulting in a strong safety performance by Extension Hill during the year and an outstanding average Lost Time Injury Frequency Rate (LTIFR) at 30 June of 0.0. The site recorded a 73% reduction in all recordable injury rates, and remained Lost Time Injury (LTI) and Medical Treatment Injury (MTI) free over this period, after achieving 12 months LTI-free in January 2013. This was aided by audits of all facets of the operation, including contractors, together with broad training programs to provide employees with the required skills and knowledge necessary to safely and competently complete their duties A key result of this training has been the site’s Emergency Response Team’s ability to positively respond to motor traffic incidents on the Great Northern Highway, with positive feedback from emergency services in attendance. The Extension Hill Fatigue Management Program was a runner-up finalist in the Chambers of Minerals and Energy Safety Awards for 2013. TALLERING PEAK Tallering Peak achieved a 32% reduction in the site Total Recordable Injury Frequency Rate during the 2012/13 year, while the 12 month average LTIFR at 30 June had halved to 2.0. This reflected a range of initiatives aimed at injury prevention and promoting a positive safety culture. Subsequent to the end of the period, in early September 2013, Tallering Peak passed the milestone of 12 months LTI-free. A strong focus on increasing the participation of crew-based toolbox meetings also led to increased employee buy-in and consultation on all safety matters. Injury prevention and injury management was a strong focus throughout the year, with assistance from an external injury management provider to expedite the return to work of injured workers. Scenario-based training and the procurement of additional rescue and medical equipment have strengthened the site’s emergency response and first aid capabilities. Koolan Island Koolan Island’s safety performance was disappointing in the year, with an average LTIFR at 30 June of 10.0, compared with 5.0 at the end of the previous year. A number of initiatives have been implemented to improve performance focused on the strengthening of policies, procedures and work instructions, coupled with an emphasis on safety behaviour as part of the drive to achieve and ensure a safe place of work. Importantly, performance has improved significantly since the end of the financial year. Site leaders were supported with the introduction of a safety-oriented leadership training package for managers, superintendents and supervisors. The site-based training team was strengthened in preparation for the ramp-up in employee numbers, and the induction process was enhanced to capture the changes to safety procedures and expected behaviours. The year also saw the development of a single integrated Health, Safety, Environment and Training (HSET) department. This has ensured the consistent development of documentation and training packages and Mount Gibson Iron Limited 2013 Annual Report 15 creates the opportunity to align processes whenever possible. To ensure the capability of the Emergency Response Team (ERT) was maintained, two block training sessions were conducted such that the experienced ERT members continued to improve their skillset and the new members learnt new skills. The ERT is a critical aspect of the island operation given its remote location. ENviRONMENT Corporate The 2012/13 financial year was one of significant achievements in the area of environmental protection and preservation. Mount Gibson formed a dedicated internal Environmental Reporting Team to streamline and standardise the processes for tracking and reporting fuel consumption and energy production, data collection and verification. The group’s report and recommendations will improve the accuracy and efficiency of future Greenhouse reporting to government. A Safety and Environment Team conducted risk workshops across all sites, introduced a new Corporate Risk Policy and risk likelihood/consequence matrix, and ran an assessment of progress against Risk Action Plans. In addition, a review of safety risks specific to site-based environmental personnel was conducted, resulting in the development of a range of management strategies to mitigate those risks. Environment and heritage field surveys were conducted for the proposed exploration areas of Field’s Find in the Mid West, and the mainland south of Koolan Island. Various requests for approvals or amendments were submitted to government departments, including the Department of Mines and Petroleum (DMP), the Department of Sustainability, Environment, Water, Populations and Community (DSEWPaC), the Department of Environment and Conservation (DEC) and the Office of the Environmental Protection Authority (OEPA). Detailed third party mine closure cost estimates and decommissioning plans were delivered for each of the sites. These cost estimates build on previous, desk top and high level cost estimates and will enable Mount Gibson to better plan the rehabilitation of its sites at the end of mine life. Environmental audits were conducted during the year at all Mount Gibson operations, focusing on identifying potential gaps in the sites’ environmental systems to ensure regulatory compliance, and enable the implementation of appropriate action plans. A legal reference system for inclusion on all Mount Gibson intranet sites was created, providing site-wide intranet access to all current legislation and Australian Standards relating to environment and safety. The first two biodiversity offset payments associated with DSEWPaC approvals were made to the DEC to fund the implementation of recovery actions related to the Kimberley region and island populations of the Northern Quoll. Koolan Island Regulatory approvals A series of regulatory approvals were gained for Koolan Island during the past 12 months: • approval from DSEWPaC to develop Acacia East under the Environmental Protection and Biodiversity Conservation Act 1999, and • revision and approval of the Significant Species Management Plans from the OEPA. Rehabilitation and mine closure During the period Koolan Island developed and submitted a Mine Closure Plan to the DMP with the assistance of relevant expertise in accordance with the DMP mine closure guidelines. The plan will be utilised to manage the environmental impacts of the mine during its operation and after it closes. It will assist in minimising the environmental and financial liability of the operation. Koolan Island engaged a consultant to assist with the development of a rehabilitation plan and guidelines. To date the focus has been on determining the appropriate soil and vegetation associations with native species to determine those species most appropriate for use. A specialised seed storage facility was constructed and will be used for the storage of native seed species collected for later use in rehabilitation programs. Contaminated sites With the assistance of specialised expertise, Koolan Island undertook investigations into legacy and current contaminated sites across the island in order to identify and determine the level and extent of contamination. It is intended that areas will be remediated to prevent both current and future potential impacts to the environment. These efforts have been made in consultation with the DEC. Reporting Koolan Island submitted a range of regulatory reports during the year, including: • Annual Compliance Certificate – DSEWPaC • Annual Audit Compliance Report and Annual Environmental Report – DEC and DMP • Annual groundwater and aquifer review – DEC and OEPA • National Pollutant Inventory and National Greenhouse Energy Report – DSEWPaC 16 Mount Gibson Iron Limited 2013 Annual Report Koolan Island Training Supervisor Chris Thompson and Manager External Relations John Phaceas formed part of Koolan Island’s approach to conducting further research on the species and sharing this information with the scientific community. An island-wide survey was also conducted on the Northern Quoll due to requirements of approvals granted by DSEWPaC. The initial report indicates a 9% increase in individual captures, which demonstrates the population’s health and abundance continues to be maintained. The 2012/13 Annual Northern Quoll Populations Survey showed an increase in population to numbers above the 2006 baseline survey. The four marine monitoring surveys conducted during the reporting year indicated that the marine environment surrounding Koolan Island was not being impacted by mining activity. In addition, the exotic marine pest survey found no exotic pests in the marine environment surrounding Koolan Island. Weather monitoring The Koolan Island weather station was commissioned during the year, providing real-time weather information to the site and to Mount Gibson’s intra and internet. It is also designed to provide a constant stream of weather information to personnel in the cyclone shelter in the event of a cyclone. During the period Koolan Island was also subject to an audit by the OEPA for compliance under Part IV of the Environmental Protection Act 1986. The audit concluded that Koolan Island was in substantial compliance with the relevant obligations under this act. Approvals were also sought for an extension to the capacity of areas designated for the disposal of general waste. Once approved, this extension will allow for the responsible disposal of waste generated for the life of mine. Flora and fauna Wild passionfruit (Passiflora foetida) is a weed species that is widespread throughout the Kimberley region of Western Australia. Koolan Island recently contributed to an offset program with the DEC and CSIRO to determine an appropriate control that would reduce the extent of the weed. Koolan Island is working in collaboration with CSIRO scientists to undertake the research. The project is planned to continue during the next reporting period. Koolan Island is home to the Northern Quoll (Dasyurus hallucatus), which is listed as an endangered species under the Environmental Protection and Biodiversity Conservation Act 1999. The frequency of the monitoring regime was increased in an effort to better understand seasonal variations such as changes in health and mass, life span, offspring gender and survival, and population structure. This Mid West EXTENSION HILL Regulatory approvals During the year, the following approvals were received: • a revised Mining Proposal Addendum, which included changes to the waste dump design to incorporate the results of the erosion modelling study completed in the previous period, • an exemption from Total Fire Ban, granted under s22c of the Bush Fires Act 1954, • changes to the mining rate, vegetation clearing area and power supply, granted under s45c of the Environmental Protection Act 1986, • amendments to the DEC Prescribed Premises Licence, allowing for additional waste types to be disposed of on site, a relocation of the landfill and permitting the burning of some waste materials for Emergency Response training, • amendments to the groundwater licence and operating strategy, such as burying the water pipelines for fire protection and reducing the monitoring obligation, and • amendment to the Dangerous Goods Licence to include the ability to store LPG at the camp. A Program of Works application has been submitted to the DMP for an exploration drilling program on Iron Hill and Gibson Hill. Malleefowl A Malleefowl Mound Monitoring Survey is conducted once every breeding season, and this was undertaken during November and December 2012. A total of 10 mounds were recorded as being active. Mount Gibson communicates regularly with the North Central Malleefowl Conservation Group to remain abreast of any new developments or improvements in Malleefowl conservation practices, and regularly promotes awareness on site of the plight of the bird through various media including inductions, photographs, signs and site notices. Mount Gibson Iron Limited 2013 Annual Report 17 cOMMUNiTy AFFAiRs Corporate A formal tripartite (government, community and Mount Gibson) Community Consultation program has been implemented for the Mid West mine sites, with two meetings held during November 2012, including a bus tour of the mine site by community stakeholders. The Extension Hill Community Consultation process was updated to the new standard with a meeting held in May 2013, and this process will flow on to Koolan Island later in 2013. Environment and community affairs personnel, together with Koolan Island site personnel, represented the organisation again at the annual Norwest Expo held in Broome. A Donations Team has been implemented for the assessment of applications for sponsorship from various community groups. Sponsorship is focused on education, health and community events, and over $100,000 was provided in 2012/13 to a wide range of community programs, with particular emphasis on initiatives in the Mid West and Kimberley, including an Arts and Writers Award for children in the Mid West. Declared Rare Flora Annual monitoring of the health status of two Declared Rare Flora (DRF) species – Darwinia masonii and Lepidosperma gibsonii – was conducted during the year by external consultants. To support this activity, additional environmental factors such as dust, wind, rainfall and groundwater are also regularly monitored. There have been no recorded detrimental impacts due to mining activities detected to date in the regular weekly and monthly visual assessments of these species. TALLERING PEAK Regulatory approvals During the year, the following approvals were received from the DMP: • a second Program of Works for the T1 exploration area (new areas of clearing required) • a Mining Proposal to expand the truck turnaround bay at the entrance to the operations • a Mining Proposal to establish in-pit dumping areas on the eastern and western ends of the T6 pit A targeted DRF flora survey was conducted along the proposed exploration drilling lines on Iron Hill and Gibson Hill. • a Mining Proposal for the T1 Pit, Haul Road and Waste Rock Management Project Audits/inspections The following audits/inspections were conducted by regulatory authorities during the year: • • the OEPA conducted a desktop audit in November 2012 and found the site to be compliant with Ministerial Statement 786, and the DEC conducted a compliance inspection of the site in August 2012 and found no compliance issues. Reporting Regulatory reports submitted during the year included: • Annual and Quarterly Potable Water Reports – Department of Health Key State mining approval was received for the T1 deposit in July, with first ore anticipated in September 2013. Audits/inspections The following audits/inspections were conducted during the year: • an internal audit of the site in May 2013, • a compliance inspection of the site by the DMP in May 2013, resulting in receipt of a letter requesting further information for several items related to closure, and • a compliance inspection of the site by the DEC in June 2013, resulting in receipt of a letter requesting some minor improvements to the management of hydrocarbons and dust suppression. • Annual Groundwater Report – Department of Water Reporting • Consolidated Annual Environmental Report – DSEWPaC, DEC (Geraldton), OEPA and DMP • Annual Environmental Report for the Road and Rail – OEPA • Annual Compliance Certificate – DSEWPaC Regulatory reports submitted during the year included: • Annual Groundwater Report – Department of Water • Annual Environmental Report – DEC (Geraldton) • Annual Audit Compliance Report • Annual Audit Compliance Report – – DEC (Geraldton) DEC (Geraldton) Other An external consultant was commissioned to conduct a closure costing assessment of the mine site. The bio-remediation pad and the landfill were both relocated to the waste dump footprint to improve accessibility by machinery and improve the management regime. Negotiations with the DEC were completed regarding the employment of a part-time DEC officer, to be advertised by the DEC. • Annual Environmental Report – DMP (Perth) • Annual Clearing Reports for all approved clearing permits – DMP (Perth) Mine closure An external consultant was commissioned to produce a decommissioning plan and conduct a closure costing assessment of the site, while the Mine Closure Plan Version 7 was submitted to the DMP for approval in October 2012. This plan was reviewed – and was provisionally accepted – by the DMP, and Version 8 was submitted in August 2013. 18 Mount Gibson Iron Limited 2013 Annual Report Traditional Dambimangari dancers celebrating the opening of the Centre Koolan Island A visit by Dambimangari Elders to Koolan Island resulted in the granting of permission, by the Koolan Island Traditional Owners, to conduct a preliminary non- ground disturbing exploration of the mainland south of Koolan Island. Ongoing consultation with the Dambimangari people included discussions on how the new Dambimangari rangers could be used on Koolan Island for work such as seed collecting for mine site rehabilitation, weed control, preparation for the Indigenous Protected Area (IPA) and the official opening of the Cultural Heritage Centre. The Cultural Heritage Centre on Koolan Island is a requirement of the Coexistence Deed between Mount Gibson and the Dambimangari People. Since its construction by Mount Gibson in 2010, the Centre has been used for a range of training and development programs including development of a Cultural Awareness Program. Koolan Island has supported a range of community activities including sponsorship for the local Boab Festival, school camps, art and local sport awards. In addition Koolan Island continues to support local business through the purchase of goods locally and use of local contractors where possible. Mid West EXTENSION HILL To encourage communication with key stakeholders, Mount Gibson hosted a Project Update and Environmental Discussion Meeting on site in June 2013, involving representatives from the local Shires, the North Central Malleefowl Preservation Group, neighbours and the DEC. Mount Gibson continued to host and participate in biannual meetings of the Badimia Monitoring and Liaison Committee on site throughout the period, and regularly participated in the Gunduwa Regional Conservation Association, which will be hosting an “Understanding Our Region” workshop in October 2013. The Perenjori Public Benefit Committee met twice during the year to assess applications from the community for the Public Benefit Funds provided by Mount Gibson. Recipients of funding include the Perenjori Cricket Club, St John Ambulance, the Perenjori Tourist Bureau and the Latham Golf and Bowls Club. The Yalgoo Public Benefit Agreement was amended slightly to improve the administration of the funding, and Mount Gibson contributed to the Perenjori Early Childhood Centre through a Public Infrastructure Fund payment. Biodiversity offsets payments were made to Bush Heritage Australia, the Australian Wildlife Conservancy and the Pindiddy Aboriginal Corporation to assist in the biodiversity and conservation projects in the immediate vicinity of the mine site. Funding was provided to the Badimia Native Title Party, including a payment specifically to promote the Law and Culture of Indigenous Australians and the Badimia people in particular. TALLERING PEAK A formal stakeholder consultation program, outlining key mine closure issues, was initiated in November 2012. A public meeting was held in Mullewa at that time and a public tour of the mine was conducted in April 2013. Further stakeholder consultation will occur as the mine progresses towards closure in mid-2014. Regular meetings with the Pastoral Lease Holder and the Traditional Owner Group were held during the year. Traditional Owners on site at Tallering Peak were involved in a detailed heritage assessment and subsequently provided participants to observe exploration drilling at T1. CEO Jim Beyer and Dambimangari Aboriginal Corporation Chairman Warren Barunga officially opening the Koolan Island Cultural Heritage and Training Centre, with traditional dancers and members of the Dambimangari Rangers. Mount Gibson Iron Limited 2013 Annual Report 19 rEsourcEs AnD rEsErvEs as at 30 June 2013 Tonnes millions Fe % SiO2 % Al2O3 % Koolan Island Mineral Resources, above 50% Fe Measured Indicated Inferred Total Ore Reserves, above 50% Fe Proved Probable Total Extension Hill Mineral Resources, above 50% Fe Measured Indicated Inferred Total Ore Reserves, above 50% Fe Proved Probable Total Tallering Peak Mineral Resources, above 50% Fe Measured Indicated Inferred Total Ore Reserves, above 50% Fe Proved Probable Total 8.4 44.6 15.4 68.5 4.2 26.0 30.2 10.5 4.1 0.3 14.8 9.7 3.1 12.8 2.0 3.1 0.3 5.4 0.5 1.6 2.1 59.7 64.5 60.7 63.0 59.5 64.8 64.0 58.0 58.1 52.9 57.9 58.1 58.9 58.3 60.0 57.9 54.7 58.5 59.8 58.1 58.5 TOTAL GROUP MINERAL RESOURCES AND ORE RESERVES AT 30 JUNE 2013 Total Mineral Resources Total Ore Reserves NOTE: Errors may occur due to rounding. 88.6 45.2 61.9 62.1 12.72 6.21 12.15 8.35 14.18 5.70 6.89 6.50 9.06 10.71 7.28 6.54 8.92 7.12 5.53 10.12 15.56 8.72 6.39 10.93 9.81 8.19 7.09 1.14 0.77 0.60 0.78 0.37 0.82 0.76 2.24 1.61 5.46 2.12 2.18 1.23 1.96 3.27 2.40 2.99 2.76 2.91 1.88 2.14 1.12 1.16 P % 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.06 0.07 0.05 0.06 0.06 0.06 0.06 0.04 0.05 0.05 0.04 0.05 0.04 0.04 0.02 0.03 Attributions: The information in this report relating to Mineral Resources is based on information compiled by Elizabeth Haren, who is a member and Chartered Professional of the Australasian Institute of Mining and Metallurgy. Elizabeth Haren has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Elizabeth Haren consents to the inclusion in the report of the matters based on her information in the form and context in which it appears. Elizabeth Haren was a full-time employee of, and is a consultant to Mount Gibson Mining Limited. The information in this report relating to Ore Reserves is based on information compiled by Weifeng Li, who is a member of the Australasian Institute of Mining and Metallurgy. Weifeng Li has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Weifeng Li consents to the inclusion in the report of the matters based on her information in the form and context in which it appears. Weifeng Li is a consultant to Mount Gibson Mining Limited. 20 Mount Gibson Iron Limited 2013 Annual Report FINANCIAL STATEMENTS Directors’ Report Auditor’s Independence Declaration Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Report Directors’ Declaration Independent Auditor’s Report Corporate Governance Statement ASX Additional Information 22 39 40 41 42 43 44 45 92 93 95 101 Mount Gibson Iron Limited 2013 Annual Report 21 Directors’ report Your Directors submit their report for the year ended 30 June 2013 for Mount Gibson Iron Limited (“Company” or “Mount Gibson”) and the consolidated entity incorporating the entities that it controlled during the financial year (“Group”). Directors The names and details of the Company’s Directors in office during the financial period and until the date of this report are set out below. Directors were in office for the entire period unless otherwise stated. Names, qualifications, experience and special responsibilities Geoffrey Hill B.Econ, MBA, FCPA, FCDA, FSIA Chairman, Independent Non-Executive Director Mr Hill was appointed as an Independent Non-Executive Director on 20 May 2011 and Chairman on 24 August 2011. He is a company director and merchant banker. He served as Managing Director and Chief Executive Australia of the Morgan Grenfell group in the mid- 1980s, before forming his own investment advisory business, International Pacific Securities. He is currently the Chairman of Texas and Oklahoma Coal Company Limited and Metals Finance Limited, and a director of Broken Hill Prospecting Limited and Asian Property Investments Limited and is the Executive Chairman of International Pacific Securities Inc. During the past three years Mr Hill has also served as a director of Centrex Metals Limited, Hills Holdings Limited, Outback Metals Limited and Heritage Gold Limited. Lee Seng Hui LLB (Hons) Non-Executive Deputy Chairman Mr Lee was appointed as a Non-Executive Director on 29 January 2010 and was appointed as Non-Executive Deputy Chairman on 14 December 2012. Mr Lee graduated with Honours from the University of Sydney Law School. Mr Lee is the Chief Executive and an Executive Director of Allied Group Limited which is listed on the Hong Kong Stock Exchange. He is also the Chairman and a Non- Executive Director of Tian An China Investments Company Limited and a Non-Executive Director of both Tanami Gold NL and APAC Resources Limited, the latter being one of Mount Gibson’s substantial shareholders. Mr Lee was previously the Chairman and an Executive Director of Yu Ming Investments Limited (now known as SHK Hong Kong Industries Limited). During the past 3 years Mr Lee has not served as a director of any other listed companies. Alan Jones CA Independent Non-Executive Director Mr Jones was appointed as an Independent Non-Executive Director on 28 July 2006. Mr Jones is a Chartered Accountant with extensive senior management and board experience in listed and unlisted Australian public companies, particularly in the construction, engineering, finance and investment industries. Mr Jones has been involved in the successful merger and acquisition of a number of public companies in Australia and internationally. He is a Non-Executive Director of Mulpha Australia Ltd, Sun Hung Kai & Co Ltd (Hong Kong), Allied Group Ltd (Hong Kong), Allied Properties Ltd (Hong Kong) and Air Change International Limited. Chen Zhouping CPA Non-Executive Director Mr Chen was appointed as a Non-Executive Director on 19 January 2009. Mr Chen is a graduate from the School of Economics and Management, Beijing Tsinghua University, and is a member of the Chinese Institute of Certified Public Accountants. He has extensive experience in the steel industry, engineering design, human resources and management. Mr Chen was appointed as Deputy Managing Director of Shougang Concord International Enterprises Company Limited (“Shougang International”) in November 2002. He is also the Deputy Managing Director of Shougang Holding (Hong Kong) Limited (“Shougang Holding”) and the Vice Chairman and Managing Director of Shougang Fushan Resources Group Limited formerly known as Fushan International Energy Group Limited (a Hong Kong listed company), a substantial shareholder of Mount Gibson. He is a director of a number of other companies of which Shougang Holding or Shougang International is the holding company. During the past three years Mr Chen has not served as a director of any other listed companies. Li Shaofeng B.Automation Non-Executive Director Mr Li was appointed as a Non-Executive Director on 23 February 2012. Mr Li has extensive experience in the management of and investments in various listed companies, Sino-foreign joint ventures and steel industry entities. He holds a bachelor degree in Automation from University of Science and Technology Beijing. He is the Vice Chairman and Managing Director of Shougang Holding (Hong Kong) Limited. Mr Li is the Managing Director of Shougang Concord International Enterprises Company Limited and the Chairman of each of Shougang Fushan Resources Group Limited, a substantial shareholder of Mount Gibson, Shougang Concord Century Holdings Limited, Shougang Concord Technology Holdings Limited, Shougang Concord Grand (Group) Limited and Global Digital Creations Holdings Limited, all of which are companies listed on the Hong Kong Stock Exchange. He is also a director of Sinocop Resources (Holdings) Limited, a Hong Kong listed company. Russell Barwick Dip.Mining Engineering, FAICD, FAusIMM Independent Non-Executive Director Mr Barwick was appointed as an Independent Non-Executive Director on 16 November 2011. Mr Barwick is a mining engineer with 40 years of technical, operational, managerial and corporate experience in international mining companies covering various commodities. He has worked for Bougainville Copper Limited (CRA), Pancontinental Mining Ltd (Jabiluka Uranium) and CSR Limited (coal). He has spent 17 years with Placer Dome Asia Pacific in key development, operational and corporate roles in numerous countries culminating in his appointment as Managing Director of Placer Niugini Ltd. He then served as Managing Director of Newcrest Mining Limited (2000 to 2001). For the four years to the end of 2006, Mr Barwick was the Chief Operating Officer of Wheaton River Minerals Ltd and Goldcorp Inc., based in Vancouver, Canada. He was subsequently the Chief Executive Officer of Canada-based Gammon Gold Inc. before returning to Australia in 2008. He is currently the Chairman of Red Metal Ltd. 22 Mount Gibson Iron Limited 2013 Annual Report Directors’ report Simon Bird B.Acc.Science (Hons) FCPA, FAICD Independent Non-Executive Director Mr Bird was appointed as an Independent Non-Executive Director on 23 February 2012 and is Chairman of the Audit and Financial Risk Management Committee. Mr Bird has 27 years of international finance experience, including holding the positions of General Manager Finance for Stockland Ltd, Chief Financial Officer of GrainCorp Ltd for six years, and Chief Financial Officer of Wizard Mortgage Corp for two years. He was also until recently the CEO of ASX-listed King Island Scheelite Ltd which is developing the tungsten mines on King Island in Tasmania. Mr Bird is a Non-Executive Director and Chairman of the Audit Committee of Metals Finance Limited, the Chairman of Rawson Resources Limited and a former director of CPA Australia Limited and Kosciusko Alpine Club Limited. Professor Paul Dougas B.Eng (Chem), M.Eng.Science, FAICD, CEng., Hon Fellow Engineers Australia Independent Non-Executive Director Professor Dougas was appointed as an Independent Non-Executive Director on 16 November 2011. He has 40 years of design, process, project engineering, managerial, commercial and corporate experience having commenced his career in the Melbourne & Metropolitan Board of Works before joining engineering firm Sinclair Knight Merz (“SKM”) in 1978. From initial technical roles, he soon assumed leadership roles in Sydney before returning to Melbourne as Associate Director and Victorian Branch Manager in 1985. In 1995 he was appointed Managing Director Elect and Director of Marketing before becoming Chief Executive Officer and Managing Director in 1996. For the next 15 years, he led a significant expansion of SKM locally and internationally involving more than 50 local and international acquisitions. He also oversaw SKM’s expansion into South-East Asia with the opening of offices in Shanghai and Hong Kong. During his leadership, SKM developed strong project alliances with major mining companies including BHP Billiton, Rio Tinto and Vale Metals Group. Professor Dougas was a Non-Executive Director of ConnectEast Ltd from 2009 until its takeover in September 2011 and was also on the SKM Board from 1990 until 2011. Peter Curry B.Comm, LLB, CA, FAICD Alternate Director to Lee Seng Hui Mr Curry was an Alternate Director until 25 September 2012. With over 35 years of business experience, he worked as Tax Partner in Peat Marwick Mitchell (now known as “KPMG”) and thereafter in different listed and unlisted companies in Australia as executive director or managing director specialising in natural resources, corporate finance and mergers and acquisitions. He has extensive experience in public and private capital raisings, initial public offering related services and corporate and financial advisory services. Mr Curry is a director of APAC Resources Limited, Sun Hung Kai & Co Limited and Ormil Energy Limited. During the past four years Mr Curry has also served as a director of Forrest Enterprises Australia Limited. Andrew Ferguson Alternate Director to Lee Seng Hui Mr Ferguson was appointed Alternate Director to Lee Seng Hui on 24 September 2012, replacing Mr Curry. Mr Ferguson is Chief Executive Officer and an Executive Director of APAC Resources Ltd, one of Mount Gibson’s substantial shareholders. Mr Ferguson holds a Bachelor of Science Degree in Natural Resource Development and worked as a mining engineer in Western Australia in the mid 1990s. He has 14 years of experience in the finance industry specialising in global natural resources. In 2003, Mr Ferguson co-founded New City Investment Managers in the United Kingdom. He was the former co-fund manager of City Natural Resources High Yield Trust, and managed New City High Yield Trust Ltd and Geiger Counter Ltd. He has also worked as Chief Investment Officer for New City Investment Managers CQS Hong Kong. Mr Ferguson is currently a Non-Executive Director of Metals X Limited and ABM Resources NL, both of which are listed on the Australian Securities Exchange. coMpANY secretArY David Stokes B.Bus, LLB, ACIS Company Secretary and General Counsel Mr Stokes was appointed Company Secretary and General Counsel in April 2012. He is a corporate lawyer with a diverse range of mining and governance experience having worked at a corporate and operational level in the energy and resources sectors for over 15 years. Prior to joining Mount Gibson, Mr Stokes was General Counsel and Company Secretary at Gindalbie Metals Limited, Corporate Counsel for Iluka Resources Limited and Resolute Mining Limited, and has also worked in private practice for a number of years. Mount Gibson Iron Limited 2013 Annual Report 23 Directors’ report corporAte iNForMAtioN corporate structure Mount Gibson is a company limited by shares that is incorporated and domiciled in Australia. It is the ultimate parent entity and has prepared a consolidated financial report incorporating the entities that it controlled during the financial year. The structure of the Group as at 30 June 2013 was as follows: Mount Gibson Iron Limited ABN: 87 008 670 817 100% 100% 100% Mount Gibson Mining Limited ABN: 32 074 575 885 Aztec Resources Limited ABN: 45 078 548 562 Geraldton Bulk Handling Pty Ltd ABN: 45 100 105 388 100% 100% 100% Brockman Minerals Pty Ltd ABN: 75 094 634 401 Koolan Iron Ore Pty Ltd ABN: 87 099 455 277 Koolan Shipping Pty Ltd ACN: 110 647 848 Nature of operations and principal activities The principal activities of the entities within the Group are: • • • mining and shipment of hematite iron ore at Koolan Island in the Kimberley region of Western Australia; mining of hematite iron ore deposits at the Tallering Peak and Extension Hill mine sites in the Mid West region of Western Australia and haulage of the ore via road and rail for sale from the Geraldton Port; and exploration and development of hematite iron ore deposits at Koolan Island and in the Mid West region of Western Australia. employees The Group employed 599 employees (excluding contractors) as at 30 June 2013 (2012: 694 employees). The decrease in employees from the prior year resulted from the cost reduction initiatives announced in October 2012. operAtiNG AND FiNANciAL reVieW introduction The Board presents the 2012/13 Operating and Financial Review which has been prepared to provide shareholders with a clear and concise overview of Mount Gibson’s operations, financial position, business strategies and prospects. This review also provides a summary of the impact of key events which occurred in 2012/13 and the material business risks so that shareholders can make an informed assessment of the results and prospects of the Group. The review complements Mount Gibson’s financial statements for the year ended 30 June 2013 and has been prepared in accordance with the recently released guidance set out in Regulatory Guidance 247 published by the Australian Securities and Investments Commission (“ASIC”). overview of the 2012/13 financial year Several significant developments occurred during the 2012/13 financial year. Group ore sales increased 68% to a record 8.8 million wet metric tonnes (“wmt”) during the financial year. The increase reflected a number of factors, including the sale of 709,000 wmt of Rizhao Special Product (“RSP”, previously referred to as mineralised waste) from Koolan Island under the offtake agreement entered into with Rizhao Steel in October 2011. The increase also reflected the commissioning of upgraded rail unloading and ore storage facilities at the Geraldton Port in mid-2012, and an upgrade of the regional Mid-West rail network which resulted in improved rail availability from late 2012. The significant increase in sales volumes was offset by a decline in the average iron ore price over the year, and increased price volatility. In September 2012, the Platts CFR price for 62% Fe fines fell to a three year low of just under US$89/dmt, before recovering to peak at US$159/dmt in January 2013. Mount Gibson achieved an average realised fines price, excluding sales of RSP, of US$108 per dry metric tonne (“dmt”) Free On Board (“FOB”) for the year, compared with an average of US$124/dmt in 2011/12. This reflected a decline in the average Platts CFR price (where the supplier pays shipping freight costs) for 62% Fe fines delivered to China from US$150/dmt in 2011/12 to US$125/dmt in 2012/13. In October 2012, following the rapid decline in iron ore prices described above and the anticipated ongoing price volatility, Mount Gibson announced a range of business optimisation measures to reduce expenditure and position the business to operate in more volatile market conditions. These initiatives were detailed in the Company’s Half Year Financial Report for the six months ended 31 December 2012, and included a manpower reduction of approximately 270 positions, primarily at Koolan Island, and reduced mining activity to enable increased sales from ore stockpiles and provide time to complete the optimisation of the Koolan Island mine plan. In March 2013, Mount Gibson announced the completion of the Koolan Island optimisation plan, which confirmed a staged ramp-up in production to 4 million tonnes per annum by the end of calendar year 2014 as the most value accretive outcome for the Company. The plan included a smoothing of the anticipated waste stripping profile and the identification of measures to achieve a significant reduction in unit cash mining costs to between $8 and $10 per tonne of material moved as mining rates increased. The ramp-up, and staged recruitment of approximately 100 workers, commenced in April 2013. 24 Mount Gibson Iron Limited 2013 Annual Report Directors’ report The Company also made significant progress with respect to other business development initiatives. The rebuilding of the Company’s executive team was completed in September 2012 with the commencement of Mr Peter Kerr as the Company’s Chief Financial Officer and Mr Andrew Thomson as Chief Operating Officer. At 30 June 2013, the Company’s cash and term deposits totalled $376,018,000 compared with $292,678,000 at the end of June 2012. In March 2013, the Company announced a maiden mineral resource estimate for the T1 satellite deposit at Tallering Peak, and commenced detailed mine planning. Subsequent to year-end in July 2013, Mount Gibson announced Probable Ore Reserves for T1 of 801,000 tonnes grading 61.0% Fe, with the first ore scheduled to be extracted in September 2013. Development of T1, and optimisation of the existing main T6 pit, is now expected to extend mining operations at Tallering Peak by approximately one year to mid-2014. Tallering Peak is now expected to achieve total ore sales of approximately 2.5 million wmt in 2013/14, including approximately 700,000 wmt of stockpiled lower grade ore. In April 2013, Mount Gibson also completed the acquisition of a substantial exploration landholding at Field’s Find, approximately 60 kilometres north of Extension Hill, for an upfront payment of $500,000. The landholding covers 250 square kilometres and is considered highly prospective for iron ore, gold and base metals. The package includes the Plateau iron prospect where drilling by the previous owner intersected shallow hematite/goethite iron mineralisation on a plateau covering an area of approximately 12 square kilometres. In early 2013, Mount Gibson also completed a detailed review of previous exploration data from the Extension Hill South area, on granted mining leases immediately south of the Extension Hill mine. This review confirmed the area as having significant potential to host additional DSO iron resources. Applications to obtain exploration access were submitted in the June quarter of 2013, and Mount Gibson anticipates field work will commence in the September quarter of 2013. In late June 2013, Mount Gibson also commenced an initial helicopter-supported reconnaissance program on the Koolan South tenement, located on the Kimberley mainland immediately south of Koolan Island. The tenement was granted in October 2012 and is considered prospective for iron ore and base metals. The initial reconnaissance program represented the first substantial exploration activity undertaken on the tenement in approximately 15 years. operating results for the financial year For the year ended 30 June 2013, Mount Gibson achieved a net profit before tax of $128,440,000 and, after recording a normal tax expense of $35,559,000 and a tax benefit of $64,461,000 relating to recognition of the Company’s starting base for the purposes of the Australian Minerals and Resource Rent Tax (MRRT), a net profit after tax of $157,342,000. Excluding the tax benefit attributable to the MRRT, the net profit after tax for the period was $92,881,000. Year ended: Net profit before tax Taxation benefit/(expense) Net profit after tax Earnings per share 30 June 2013 Restated* 30 June 2012 30 June 2011 30 June 2010 30 June 2009 128,440 224,621 342,888 188,308 61,709 28,902 (62,605) (103,388) (55,913) (19,091) $’000 157,342 162,016 239,500 132,395 $/share 0.1445 0.1496 0.2214 0.1230 42,618 0.0456 * Restated to reflect adjustments made on the adoption of new accounting requirements, as detailed in Note 1(e) of the 2012/13 financial statements. Amounts in prior years are not restated. Consolidated quarterly operating and sales statistics for the 2012/13 financial year are tabulated below: Sept Qtr 2012 Dec Qtr 2012 Mar Qtr 2013 Jun Qtr 2013 2012/13 2011/12 Mining and crushing Total waste mined Total ore mined Total ore crushed Shipping/sales^ Lump* Fines RSP Total Ave. Platts 62%Fe CFR price MGX FOB Ave. realised fines price** kwmt = thousand wet metric tonnes kwmt kwmt kwmt kwmt kwmt kwmt kwmt US$/dmt US$/dmt 9,376 1,643 1,930 895 864 - 1,759 113 110 4,650 1,923 2,254 1,317 1,068 283 2,668 122 96 2,721 1,294 1,889 750 1,102 148 2,000 148 117 5,574 948 1,585 1,230 834 279 2,343 126 107 22,321 40,987 5,808 7,658 4,193 3,869 709 8,771 127 108 7,275 6,943 2,382 2,830 - 5,212 150 124 ^ Includes mine gate sales totalling 42kwmt of DSO lump and 134kwmt of DSO fines in the June 2013 quarter. * Includes the sale of 115kwmt of lower grade DSO lump in the September 2012 quarter and 115kwmt in the June 2013 quarter. ** Reflects the realised fines price for standard DSO fine ore only, after adjustments for shipping freight and grade. Contract pricing in the year was based on a mix of lagging- monthly and month-of-shipment averages. Minor discrepancies may appear due to rounding. Mount Gibson Iron Limited 2013 Annual Report 25 Directors’ report Koolan island The Koolan Island iron ore mine is located on Koolan Island in the Buccaneer Archipelago of Yampi Sound in the Kimberley region of Western Australia. The mine was originally opened by BHP in 1965 and operated until 1993. Mount Gibson acquired and reopened the mine in 2007. The 2012/13 financial year was one of significant transition at Koolan Island. This reflected the major operational restructure and temporary mining slowdown announced in October 2012 in response to volatile market conditions, and the need to complete mine optimisation work which in April 2013 confirmed a staged ramp-up in production to 4 million tonnes per annum as the most value accretive outcome for the Group. Waste movement and ore production were significantly lower in 2012/13, due to the planned mining slow-down and the adverse effects of unseasonal rain in the June 2013 quarter. Full year ore sales, however, were increased 22% to 3.5 million wmt, reflecting increased sales from ore stockpiles early in the financial year and the commencement of RSP shipments in October 2012. RSP sales totalled 709,000 wmt for the year. The most significant development at Koolan Island was the commencement of the mining ramp-up in April 2013 in order to achieve annualised ore production of 4 million tonnes per annum by the end of calendar year 2014. Consequently, waste mining increased significantly in the June 2013 quarter and unit cash mining costs began to decline, in line with the ramp-up plan. In the month of June, unit cash mining costs were approximately 11% lower than the average achieved in the December 2012 half year, reflecting increased productivity levels. Concurrent with the mining ramp-up commencement, a major maintenance shutdown of the crushing circuit was undertaken and construction of a new maintenance workshop was further advanced. In addition, further detailed geotechnical evaluation at the end of the financial year reduced expected ongoing sustaining capital expenditure for pit wall geotechnical support to less than $10 million per annum, being 50% lower than initial estimates. As at 30 June 2013, crushed DSO stockpiles at Koolan Island totalled approximately 67,000 wmt, and uncrushed DSO stockpiles totalled 134,000 wmt. Production summary Mining Waste mined Ore mined Crushing Lump Fines RSP* Shipping Lump Fines RSP* Unit wmt wmt wmt wmt wmt wmt wmt wmt Sept Qtr 2012 ’000 Dec Qtr 2012 ’000 Mar Qtr 2013 ’000 Jun Qtr 2013 ’000 Year 2012/13 ’000 Year 2011/12 ’000 % Incr/ (decr) 5,373 555 2,668 707 1,256 460 4,033 134 13,330 1,856 20,750 2,959 232 464 97 793 151 635 - 786 254 396 263 913 364 651 283 1,298 170 352 224 746 217 435 148 800 27 40 267 334 213 87 279 578 683 1,252 851 2,787 945 1,807 709 3,461 (36%) (37%) (45%) (35%) - 1,252 1,912 - 3,164 (12%) 1,012 1,831 - 2,843 (7%) (1%) - 22% * Rizhao Special Product (“RSP”). Minor discrepancies may appear due to rounding. In accordance with the Company’s stated accounting policy, deferred waste expenditure for the period has been capitalised in the Group’s Balance Sheet and will be amortised on a units of production basis. Expenditure on waste development at Koolan Island during the financial year was as follows: Waste mined Waste mined Ore mined Ore mined Deferred waste capitalised Amortisation of deferred waste 12 Months ended 30 June 2013 12 Months ended 30 June 2012 mill bcm mill wmt mill bcm mill wmt $ mill $ mill 5.43 13.33 0.48 1.86 97.10 46.15 8.40 20.75 0.77 2.96 147.07* 46.77* * Restated to reflect adjustments made on the adoption of new accounting requirements, as detailed in Note 1(e) of the 2012/13 financial statements. 26 Mount Gibson Iron Limited 2013 Annual Report Directors’ report tallering peak The Tallering Peak mine is located approximately 130 kilometres north east of Geraldton in the Mid West region of Western Australia. Ore is mined, crushed and screened on-site, transported by sealed road 65 kilometres to Mullewa, where it is loaded onto rail wagons and railed 107 kilometres to the Geraldton Port. Tallering Peak performed well during 2012/13 in what was previously expected to be its final year of operation. Total material movement declined substantially, reflecting the approaching completion of mining in the main T6 pit, while the operation also benefited from operating improvements implemented in October 2012 and the completion of regional rail upgrades in late 2012. Ore production increased 10% to 2.1 million wmt, while ore sales increased 60% to 2.5 million wmt, including the sale of approximately 230,000 wmt of lower grade lump DSO from crushed ore stockpiles at the Mullewa rail siding. Substantial additional value was also realised at Tallering Peak through the successful definition of the T1 Mineral Resource and Ore Reserve, located one kilometre east of the main T6 pit, and further optimisation of the T6 final pit design. As a result, mining in the T6 pit is now expected to continue until January 2014, and first ore from the T1 deposit is scheduled for September 2013. These two initiatives will extend mining operations at Tallering Peak by approximately one year to mid-2014. Tallering Peak is now forecast to achieve total ore sales of approximately 2.5 million wmt in 2013/14, including the sale of approximately 700,000 wmt of stockpiled lower grade ore. All ore sales from Tallering Peak are presently expected to be concluded in the September quarter of 2014. As at 30 June 2013, approximately 218,000 wmt of crushed standard product were stockpiled at the mine, in addition to stockpiles of approximately 29,000 wmt of uncrushed standard product. Uncrushed stocks of lower grade ore at the mine totalled approximately 335,000 wmt. At the Mullewa rail siding, stockpiles of crushed standard product totalled approximately 182,000 wmt, while stockpiles of crushed lower grade lump material totalled approximately 647,000 wmt. Production summary Mining Waste mined Ore mined Crushing Lump Fines Unit wmt wmt wmt wmt Transported to Mullewa Railhead Lump Fines wmt wmt Transported to Geraldton Port Lump Fines Shipping Lump Fines wmt wmt wmt wmt Minor discrepancies may appear due to rounding. Sept Qtr 2012 ’000 Dec Qtr 2012 ’000 Mar Qtr 2013 ’000 Jun Qtr 2013 ’000 Year 2012/13 ’000 Year 2011/12 ’000 % Incr/ (decr) 3,076 558 1,387 627 320 184 504 275 140 415 260 154 414 275 113 388 428 247 675 389 225 614 449 150 599 592 178 771 820 517 396 246 642 411 245 656 385 302 687 353 241 594 832 445 365 218 583 397 216 613 537 276 813 487 310 797 6,115 2,146 1,509 895 2,404 1,472 826 2,298 1,631 882 2,513 1,707 842 2,550 16,888 1,949 (64%) 10% 1,166 967 2,133 1,328 839 2,167 880 737 1,617 831 763 1,594 29% (7%) 13% 11% (2%) 6% 85% 20% 55% 105% 10% 60% In accordance with the Company’s stated accounting policy, deferred waste expenditure for the period has been capitalised in the Group’s Balance Sheet and will be amortised on a units of production basis. Expenditure on waste development at Tallering Peak during the financial year was as follows: Waste mined Waste mined Ore mined Ore mined Deferred waste capitalised Amortisation of deferred waste 12 Months ended 30 June 2013 12 Months ended 30 June 2012 mill bcm mill wmt mill bcm mill wmt $ mill $ mill 2.04 6.12 0.52 2.15 3.81 51.39 5.77 16.89 0.47 1.95 62.50* 6.51* * Restated to reflect adjustments made on the adoption of new accounting requirements, as detailed in Note 1(e) of the 2012/13 financial statements. Mount Gibson Iron Limited 2013 Annual Report 27 Directors’ report extension Hill The Extension Hill mine is located in the Mount Gibson Ranges, 85 kilometres east of Perenjori and 260 kilometres east south east of Geraldton in the Mid West region of Western Australia. The project has similar operational characteristics to Tallering Peak, with ore mined, crushed and screened on-site, transported by sealed road 85 kilometres to Perenjori, where it is loaded onto rail wagons and railed 240 kilometres to the Geraldton Port. Mining commenced at Extension Hill in the 2011/12 financial year. The Extension Hill mine performed strongly in 2012/13, reflecting the commissioning of upgraded rail unloading and ore storage facilities at the Geraldton Port in mid-2012, and the completion of a regional rail network upgrade in late 2012. Production summary Mining Waste mined Ore mined Crushing Lump Fines Unit wmt wmt wmt wmt Transported to Perenjori Railhead Lump Fines wmt wmt Transported to Geraldton Port Lump (Rail) Lump (Road) Fines (Rail) Shipping Lump Fines Mine gate sales Lump Fines wmt wmt wmt wmt wmt wmt wmt Minor discrepancies may appear due to rounding. Sept Qtr 2012 ’000 Dec Qtr 2012 ’000 Mar Qtr 2013 ’000 Jun Qtr 2013 ’000 Year 2012/13 ’000 Year 2011/12 ’000 % Incr/(decr) 927 530 387 246 633 428 166 594 464 - 61 525 469 116 585 - - - 595 589 371 295 666 339 285 624 410 - 320 730 361 239 600 - - - 645 317 281 220 501 262 336 598 199 - 426 625 180 426 606 - - - 709 370 381 286 667 330 269 599 442 - 249 691 488 304 792 42 134 176 2,876 1,805 1,420 1,047 2,467 1,359 1,056 2,415 1,515 - 1,056 2,571 1,498 1,085 2,583 42 134 176 3,349 2,368 1,033 613 1,646 919 519 1,438 484 62 298 844 539 236 775 - - - (14%) (24%) 37% 71% 50% 48% 103% 68% 213% (100%) 254% 205% 178% 360% 233% - - - Ore production of 1.8 million wmt was lower than in the previous year, reflecting the operational focus on reducing expenditure and maximising the drawdown of ore stockpiles built up due to infrastructure constraints during the previous financial year. Expenditure on waste development at Extension Hill during the financial year was as follows: Waste mined Waste mined Ore mined Ore mined Deferred waste capitalised Amortisation of deferred waste 12 Months ended 30 June 2013 12 Months ended 30 June 2012 mill bcm mill wmt mill bcm mill wmt $ mill $ mill 1.15 2.88 0.62 1.81 - - 1.36 3.35 0.80 2.37 -* -* * Restated to reflect adjustments made on the adoption of new accounting requirements, as detailed in Note 1(e) of the 2012/13 financial statements. Total sales in the mine’s first full year of shipping consequently increased significantly to 2.8 million tonnes. The full year total included mine gate sales to an unrelated party of 176,000 tonnes of DSO in the June 2013 quarter made possible under a short-term opportunity to utilise available third party rail capacity in excess of the Company’s allocated train paths from the Perenjori rail siding. 28 Mount Gibson Iron Limited 2013 Annual Report Directors’ report Mine gate sales were priced on a Free on Train basis, reflecting the prevailing market price less rail, port and shipping costs (which are incurred by the purchaser). These sales delivered Mount Gibson a cash margin comparable to conventional DSO shipments from the Geraldton Port. At 30 June 2013, stockpiles of crushed finished product at the Perenjori rail siding totalled approximately 295,000 wmt. At the mine site, stockpiles of uncrushed product ready for crushing totalled approximately 446,000 wmt, while stockpiles of crushed finished product totalled 169,000 wmt. Minesite stockpiles of uncrushed lower grade material totalled 1.8 million wmt. Financial position During the course of the financial year, the Group’s mining operations performed well in a volatile iron ore price environment. Cash flows from operating activities totalled $179,652,000, a significant improvement on the prior financial year operating cash flows of $56,169,000, driven by increased sales volumes. At 30 June 2013, the Group’s cash and term deposit balances totalled $376,018,000, an increase of $83,340,000 from the prior year’s closing balance of $292,678,000. This increase was achieved after the payment of $40,004,000 in cash dividends, $54,092,000 in income taxes and $27,189,000 in the repayment of lease liabilities and other borrowings. Accordingly, as at 30 June 2013, Mount Gibson had a robust working capital position with limited borrowings in the form of equipment lease and hire purchase liabilities totalling $28,392,000. As at the date of this report, the Group has sufficient funds as well as access to further equity and debt funding to operate and sell iron ore from the Koolan Island, Tallering Peak and Extension Hill mines, and to advance its exploration and growth objectives. income tax Mount Gibson has in prior periods had the benefit of taxation arrangements for the treatment of provisional invoices for the sale of iron ore. These arrangements have now ended and, accordingly, revenue which was previously deferred for tax purposes from the prior financial year will be assessed in the 2013 financial year. The expected corporate taxation arising from cessation of the previous arrangements has been reflected in the results for the 2013 financial year. early adoption of new deferred waste stripping requirements Mount Gibson has elected to early adopt the new Australian and international accounting requirements for waste stripping activities in the operating phase of an open pit mine. The new accounting requirements result in the capitalisation of only a portion of waste stripping costs where the benefit of such stripping activity is the improved access to components of the orebody in future periods. Capitalised waste stripping costs are amortised over the remaining ore reserves of the relevant ore component being mined. In accordance with the transitional provisions of the new requirements, this new policy has been applied from the start of the prior comparative period, being 1 July 2011, resulting in the restatement of the prior period’s results. Minerals resource rent tax (Mrrt) Based on updated internal modelling, Mount Gibson does not currently expect to pay any MRRT over the life of its current operating mines. It is expected that Mount Gibson will utilise a portion of its MRRT starting base allowances to offset any MRRT which might otherwise arise and, accordingly, a deferred tax asset and a corresponding reduction in tax expense has been recognised in the year. Mount Gibson’s accounting treatment relating to MRRT remains dependent on future iron ore prices, foreign exchange rates and operating costs. Likely developments and expected results Mount Gibson’s overall objective is to maintain and grow long-term profitability through the discovery, development, operation and acquisition of mineral resources. As an established producer and seller of hematite iron ore, Mount Gibson’s strategy is to maintain and grow its profile as a successful and profitable supplier of raw materials to the global carbon steels sector. Mount Gibson’s strategic priority is to operate its existing mines in a responsible manner in order to generate maximum cash flows from each operation. Accordingly, over the last 12 months, Mount Gibson management has made a series of fundamental changes to the Group’s operations in order to create a solid base from which its operations can continue to perform well in volatile commodity and foreign exchange markets. For the coming 2013/14 financial year, Mount Gibson expects to grow its annual sales to between 9.0 and 9.5 million wmt of iron ore. Key influences on the success of Mount Gibson are not only iron ore and foreign exchange prices but also consistency in government policy, the continued attainment of regulatory approvals, the ability to delineate new mineral resources and ore reserves, and the continued control of operating and capital costs. Looking forward, a key focus of the Mount Gibson management team is therefore continued reductions in unit operating costs and the pursuit of production efficiencies across its operating mine sites. In addition, priority has been placed on the search for new mineral resources which would provide low capital mine life extensions for its mines, in particular the Extension Hill operation. Mount Gibson has a growth ambition in the carbon steels sector, in particular in the bulk commodities of iron ore and metallurgical coal. The Board and management team therefore continuously assesses possible acquisition opportunities for assets which would grow the Company’s production and extend its cash flow profile beyond the life of its current mining operations. Mount Gibson is particularly focused on low capital intensity projects, preferably within Australia or comparable political risk regions, which are of an affordable size to acquire and develop, as appropriate. Potential acquisition opportunities are assessed against a base case scenario of Mount Gibson continuing to operate its existing mines well and generate optimal investment returns. Mount Gibson Iron Limited 2013 Annual Report 29 Directors’ report siGNiFicANt eVeNts AFter BALANce DAte On 22 August 2013, the Company declared a final dividend on ordinary shares in respect of the 2012/13 financial year of $0.02 per share fully franked. The total amount of the dividend is $21,812,000. The dividend has not been provided for in the 30 June 2013 financial statements. Subsequent to the end of the period, the Board approved the award of certain amounts under the Company’s Short Term and Long Term Incentive Plans to members of executive management team. These amounts have been included in the financial statements and Directors’ Report for the year. Apart from the above, as at the date of this report there are no significant events after balance date of the Company or of the Group that require adjustment of or disclosure in this report. iNDeMNiFicAtioN AND iNsUrANce oF Directors AND oFFicers The Company has, during current or previous financial periods, entered into deeds of access and indemnity with certain Directors. These deeds provide access to documentation and indemnification against liability for loss suffered, as a result of any act or omission, to the extent permitted by the Corporations Act 2001, from conduct of the Group’s business. During the financial year, the Company paid a premium in respect of a contract insuring the Directors of the Company, the Company Secretary and all executive officers of the Company and of any related body corporate against a liability incurred as such a Director, Company Secretary or executive officer to the extent permitted by the Corporations Act 2001. The Directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the Directors’ and officers’ liability and legal expenses’ insurance contracts, as such disclosure is prohibited under the terms of the contract. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or any related body corporate against a liability incurred as such an officer or auditor. sHAre optioNs Unissued shares There are no options over ordinary shares in the Company on issue as at balance date and at the date of this report. shares issued as a result of the exercise of options There were no options exercised or forfeited during the financial year or to the date of this report. DiViDeNDs During the financial year, dividends of $43,526,253 (2012: $64,957,156) were paid as follows: • • A final dividend of 2 cents per share fully franked in respect of the 2011/12 financial year was paid by way of $18,192,154 in cash and 4,855,802 new shares issued under the Company’s Dividend Reinvestment Plan; and An interim dividend of 2 cents per share fully franked in respect of the 2012/13 financial year was paid in cash totalling $21,811,685. A final dividend of 2.0 cents fully franked has been declared for the year ended 30 June 2013. Refer “Significant Events After Balance Date” above. With the declaration of this final dividend for the 2012/13 financial year, Mount Gibson has now paid $130,295,000 in dividends since its maiden dividend in September 2011. Directors’ iNterests iN tHe sHAres AND optioNs oF tHe coMpANY As at the date of this report, the interests of the Directors in the shares and options of the Company were: Ordinary shares Options over shares Performance rights over shares G Hill Lee SH A Jones Chen Z Li S R Barwick S Bird P Dougas A Ferguson 70,000 - 100,000 - - - 20,000 203,866 - - - - - - - - - - - - - - - - - - - 30 Mount Gibson Iron Limited 2013 Annual Report Directors’ report Directors’ MeetiNGs The number of meetings of Directors (including meetings of Committees of Directors) held during the year and the number of meetings attended by each Director are as follows: Directors’ meetings Audit and Risk Management Committee Nomination, Remuneration and Governance Committee Operational Risk and Sustainability Committee Contracts Committee Number of meetings held G Hill Lee SH A Jones Chen Z Li S R Barwick S Bird P Dougas P Curry[1] A Ferguson[2] 7 7 7 7 7 6 6 7 6 - - 4 4 - 4 - - - 4 - - - [1] Mr Curry was an Alternate Director to Mr Lee until 25 September 2012. [2] Mr Ferguson was appointed as an Alternate Director to Mr Lee from 24 September 2012. eNViroNMeNtAL reGULAtioN AND perForMANce 6 6 - 6 - - 6 - - - - 2 - - - 1 - 2 - 2 - - 2 - - 2 - - 2 2 2 - - The Group has developed Environmental Management Plans for its operations at Koolan Island, Tallering Peak and Extension Hill. The Environmental Management Plans have been approved by the Western Australian Government Departments of Mines and Petroleum, Environment and Conservation and where applicable the Department of Health. In addition, plans associated with specific species have been approved by the federal Department of Sustainability, Environment, Water, Population and Communities. The Environmental Protection Authority (EPA) has also granted approval for the sites’ Environmental Management Plans. In addition, the Department of Environment and Conservation has granted approval of environmental works to allow construction of “prescribed” facilities and the Department of Mines and Petroleum has granted approval for Mining Proposals at each of the three mine sites. The Group holds various environmental licences and authorities, issued under both State and Federal law, to regulate its mining and exploration activities in Australia. These licences include conditions and regulations in relation to specifying limits on discharges into the environment, rehabilitation of areas disturbed during the course of mining, exploration activities, tenement conditions associated with exploration and mining and the storage of hazardous substances. There have been no material breaches of the Group’s licences. A formal letter of warning was received following a site inspection of Koolan Island conducted in September 2012 by the Western Australian Department of Environment Regulation (“DER”). The letter was given for alleged breaches of a number of licence conditions and, following work conducted by Mount Gibson to remediate the areas of concern, the DER acknowledged the actions undertaken. The Group continues to report under the National Greenhouse and Energy Reporting (NGER) Act 2009. Diesel combustion is the largest source of greenhouse gas emissions. proceeDiNGs oN BeHALF oF tHe coMpANY There are no proceedings on behalf of the Company under section 237 of the Corporations Act 2001 in the financial year or at the date of this report. roUNDiNG Amounts in this report and the accompanying financial report have been rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the company under ASIC Class Order 98/0100. The Company is an entity to which the class order applies. cUrreNcY Amounts in this report and the accompanying financial report are presented in Australian dollars unless otherwise stated. corporAte GoVerNANce The Company’s Corporate Governance Statement is contained in the Additional ASX Information section of the Annual Report. AUDitor’s iNDepeNDeNce DecLArAtioN In accordance with section 307C of the Corporations Act 2001, the Directors received the attached Independence Declaration from the auditor of the Company on page 39 which forms part of this Report. Mount Gibson Iron Limited 2013 Annual Report 31 Directors’ report NoN-AUDit serVices The following non-audit services were provided by the Company’s auditor, EY, during the financial year ended 30 June 2013. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. EY received or is due to receive the following amounts for the provision of non-audit services: Native title royalty audit Agreed upon procedures engagement Insurance review 2013 $ 3,500 4,635 5,150 13,285 reMUNerAtioN report (AUDiteD) This report outlines the remuneration arrangements in place for Directors and Key Management Personnel of the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report Key Management Personnel of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any Directors of the Company. Nomination, remuneration and Governance committee (“NrGc”) The NRGC comprises three independent Non-Executive Directors, being Messrs Hill (Chairman), Jones and Barwick. The NRGC of the Board of Directors of the Company is responsible for determining and reviewing remuneration arrangements for the Board and Key Management Personnel. The NRGC assesses the appropriateness of the nature and amount of remuneration of Key Management Personnel on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality, high performing Board and executive team. remuneration policy The Remuneration Policy of the Group has been put in place to ensure that: • • • remuneration policies and systems support the Company’s wider objectives and strategies; Directors’ and senior executives’ remuneration is aligned to the long-term interests of shareholders within an appropriate control framework; and there is a clear relationship between the executives’ performance and remuneration. remuneration structure In accordance with best practice corporate governance, the structure of Non-Executive Director and senior executive management remuneration is separate. Non-executive Director remuneration Objective The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. Structure The Constitution and the ASX Listing Rules specify that the aggregate remuneration of Non-Executive Directors shall be determined from time to time by a general meeting of shareholders. An amount not exceeding the amount determined is then divided between the Non-Executive Directors as agreed. The latest determination was at the Annual General Meeting held on 16 November 2011 when Shareholders approved an aggregate remuneration of $1,250,000 per year. Each Non-Executive Director receives a fee for being a Director of the Company. Non-Executive Directors should be adequately remunerated for their time and effort and the risks involved. Non-Executive Directors are remunerated to recognise the responsibilities, accountabilities and associated risks of Directors. Each Non-Executive Director’s performance and remuneration is reviewed on an annual basis by the Chairman and NRGC. Non-Executive Directors’ fixed remuneration will comprise the following elements: • • cash remuneration; and superannuation contributions made by the Company. Board operating costs do not form part of Non-Executive Directors’ remuneration. Amount With the price volatility experienced during the first half of the financial year, and as part of the Company’s overall cost reduction program, the Board of Directors of the Company agreed to a 10% reduction in Directors’ fees for the year. 32 Mount Gibson Iron Limited 2013 Annual Report Directors’ report senior executives’ remuneration Objective The Company aims to reward senior executives with a level and mix of remuneration commensurate with their position and responsibilities within the Company and so as to: • • • • reward senior executives for Company and individual performance against targets set by reference to appropriate benchmarks; align the interests of senior executives with those of shareholders; link reward with the strategic goals and performance of the Company; and ensure total remuneration is competitive by market standards. Fixed remuneration The components of the senior executives’ fixed remuneration are determined individually and may include: • • • • • cash remuneration; superannuation; accommodation and travel benefits; motor vehicle, parking and other benefits; and reimbursement of entertainment, home office and telephone expenses. The senior executives’ remuneration is reviewed on an annual basis by the Chief Executive Officer, whose remuneration is reviewed annually by the NRGC. In determining the remuneration package, the NRGC reviews the individual’s remuneration with the use of market data for positions with comparable companies. Where appropriate, the package is adjusted so as to keep pace with market trends and ensure continued remuneration competitiveness. In conducting a comparative analysis, the Company’s expected performance for the year is considered in the context of the Company’s capacity to fund remuneration budgets. Use of remuneration consultants The NRGC from time to time seeks advice from independent remuneration consultants regarding senior executives’ remuneration structures and levels. Such consultants are engaged by, and report directly to, the NRGC, and are required to confirm in writing their independence from the Group’s senior and other executives. During the year, the NRGC sought advice from Egan Associates regarding market data in relation to senior executives’ remuneration packages and incentive structures. The recommendations were provided to the NRGC as an input to the decision-making process, and the NRGC considered these recommendations, along with other factors, in making its remuneration decisions and recommendations to the Board. The fees paid to Egan Associates during the year totalled $22,680 and no other services were provided by Egan Associates. The NRGC and Board are satisfied the advice received was free from undue influence from the senior executives to whom the remuneration recommendations applied, and Egan Associates confirmed this in writing to the NRGC. Variable remuneration Short-term incentives (“STI”) The senior executives may receive variable remuneration in the form of STI of up to one half of their annual salary package. STI payments are linked to defined performance measures and provide rewards for completing actions and objectives that are expected to materially improve Company performance. The total potential STI available for award is ultimately at the Board’s discretion but is measured to provide sufficient incentive to the senior executives to achieve the objectives set such that the cost to the Group is reasonable in the circumstances. The performance measures comprise a combination of group and individual measures, chosen to align the interests of senior executives with shareholders, representing the key drivers for short-term success of the business and providing a framework for delivering long-term value. Group and individual performance measures are weighted and specify performance required to meet or exceed expectations. The Group performance measures for the 2012/13 STI were: • • • • • • • Safety: objectives relate to reduction in the Total Recordable Injury Frequency Rate (TRIFR) and implementation of corporate risk and safety management processes and projects. Production: objectives relate to delivering at or beyond planned ore sales. Costs: objectives relate to delivering at or below planned cost levels and implementation of cost management and operational efficiency programs. Capital: objectives relate to delivering at or below the agreed program of expenditure. Ore reserve/mineral resource addition: objectives relate to maintaining and growing the mineral resource and ore reserve base. Organisation development: objectives relate to organisational reviews and implementation of performance management and talent management programs designed to improve organisational effectiveness. Corporate growth: objectives relate to the development of growth options. These Group measures are cascaded into individual performance measures for each senior executive, depending upon the executive’s role and area of responsibility. In addition to these cascaded group measures, executives have personal performance measures which are role-specific and focus on areas or projects above and beyond the performance expected on a day to day basis. The focus of the personal measures is to improve business effectiveness. Individual performance measures are agreed annually and documented in the Company’s performance review process. Mount Gibson Iron Limited 2013 Annual Report 33 Directors’ report On an annual basis, the individual performance of each senior executive is reviewed after consideration of the executive’s performance against individual performance measures. This process usually occurs prior to or just after the reporting date. The NRGC then determines the amount of STI to be allocated to each executive. Payments made are delivered as a cash bonus prior to or just after the reporting date. For the 2013 financial year, a total STI cash bonus of $877,537 was approved, of which $110,000 was paid during the year and $767,537 was paid after year end. Long-term incentive (“LTI”) for 2013 financial year The Company established the Mount Gibson Iron Limited Performance Rights Plan (“PRP”) in the 2008 financial year. Under the PRP, the Board may invite eligible executives to apply for performance rights, which are an entitlement to receive ordinary shares in the Company, subject to satisfaction by the executive of specified performance hurdles set by the Board. The rights are granted at no cost to the executives and will convert into ordinary shares on completion by the executive of three years’ continuous service, subject to satisfaction of specified performance hurdles. Current LTI awards are issued and tested for vesting against the Company’s Total Shareholder Return (“TSR”) relative to the TSR of a comparator group of companies over the same period. The PRP provides its executives with long-term incentives linked between the delivery of value to shareholders, financial performance and rewarding and retaining the executives. The Board is currently undertaking a review of the hurdles within the PRP and may consider modification of the hurdles in future periods. The employment contracts for the Chief Executive Officer, Mr Beyer, the Company Secretary and General Counsel, Mr Stokes, the Chief Financial Officer, Mr Kerr and the Chief Operating Officer, Mr Thomson, incorporate payment of a LTI. Under their employment contracts, these executives may each year be invited to apply for, and the Company will grant, a number of performance rights equivalent to up to one third of their respective base salaries (including superannuation) divided by the volume weighted average price of the Company’s shares as traded on ASX for the 30 day period prior to 30 June for the relevant year. As part of the overall cost reduction program commenced during the year, by mutual consent with the senior executives, the LTI award was reduced by an average of 55% in order to achieve the committed 10% reduction in total executive remuneration. At year end, 633,590 performance rights were granted by the Company to senior executives in respect of the 2012/13 financial year. The Company has a policy restricting executives from entering into arrangements to protect the value of unvested LTI entitlements under equity-based remuneration plans. employment contracts As at the date of this report, the Group had entered into employment contracts with the following executives: Jim Beyer The key terms of his contract include: • • • • • Commenced 14 May 2012 with no set term; Annual Salary Package increase by minimum of CPI from 1 July every year. Mr Beyer waived this increase as part of the Company’s cost reduction program; STI bonus of up to one half of Annual Salary Package; LTI bonus of up to one third of Annual Salary Package; and If the Company wishes to terminate the contract other than if Mr Beyer is guilty of any grave misconduct, serious or persistent breach of the terms of the contract or wilful neglect in the discharge of his duties, the Company is obliged to pay out 12 months Annual Salary Package plus any other accrued entitlements and bonuses. If Mr Beyer wishes to terminate the contract, he must provide six months’ notice. David Stokes The key terms of his contract include: • • • • • Commenced 2 April 2012 with no set term; Annual Salary Package increase by minimum of CPI from 1 July every year; STI bonus of up to one half of Annual Salary Package; LTI bonus of up to one third of Annual Salary Package; and If the Company wishes to terminate the contract other than if Mr Stokes is guilty of any grave misconduct, serious or persistent breach of the terms of the contract or wilful neglect in the discharge of his duties, the Company is obliged to pay out 12 months Annual Salary Package plus any other accrued entitlements and bonuses. If Mr Stokes wishes to terminate the contract, he must provide six months’ notice. Peter Kerr The key terms of his contract include: • • • • • Commenced 19 September 2012 with no set term; Annual Salary Package increase by minimum of CPI from 1 July every year; STI bonus of up to one half of Annual Salary Package; LTI bonus of up to one third of Annual Salary Package; and If the Company wishes to terminate the contract other than if Mr Kerr is guilty of any grave misconduct, serious or persistent breach of the terms of the contract or wilful neglect in the discharge of his duties, the Company is obliged to pay out 12 months Annual Salary Package plus any other accrued entitlements and bonuses. If Mr Kerr wishes to terminate the contract, he must provide six months’ notice. 34 Mount Gibson Iron Limited 2013 Annual Report Directors’ report Andrew Thomson The key terms of his contract include: • • • • • Commenced 18 September 2012 with no set term; Annual Salary Package increase by minimum of CPI from 1 July every year; STI bonus of up to one half of Annual Salary Package; LTI bonus of up to one third of Annual Salary Package; and If the Company wishes to terminate the contract other than if Mr Thomson is guilty of any grave misconduct, serious or persistent breach of the terms of the contract or wilful neglect in the discharge of his duties, the Company is obliged to pay out 12 months Annual Salary Package plus any other accrued entitlements and bonuses. If Mr Thomson wishes to terminate the contract, he must provide six months’ notice. Details of Directors and Key Management personnel disclosed in this report [i] Directors Non-Executive Director, Chairman G Hill Non-Executive Deputy Chairman (from 14 December 2012) and Non-Executive Director (until 14 December 2012) Lee SH Non-Executive Director A Jones Non-Executive Director Chen Z Li S Non-Executive Director R Barwick Non-Executive Director Non-Executive Director S Bird Non-Executive Director P Dougas P Curry Alternate Director to Mr Lee (until 25 September 2012) A Ferguson Alternate Director to Mr Lee (from 24 September 2012) [ii] Key Management Personnel Chief Executive Officer Chief Financial Officer (from 19 September 2012) Acting Chief Financial Officer (from 1 July 2012 to 19 September 2012) J Beyer P Kerr K Bozanic A Thomson Chief Operating Officer (from 18 September 2012) K Faulkner D Stokes Acting Chief Operating Officer (from 17 April 2012 to 18 September 2012) Company Secretary and General Counsel remuneration of Key Management personnel for the year ended 30 June 2013 Short term Post employment Long term Non monetary Cash bonuses Super- annuation Retirement benefits Long service leave Share-based payment Termination payment Options and performance rights $ $ $ $ $ $ $ Total $ % Performance related Salary & fees $ 179,816 81,345 102,232 88,196 81,345 Directors G Hill Lee SH A Jones Chen Z Li S R Barwick 105,718 S Bird P Dougas 98,929 99,067 Sub-total 836,648 - - - - - - - - - - - - - - - - - - 16,183 7,321 9,201 7,938 7,321 9,515 8,904 8,916 75,299 25,000 17,872 14,661 25,033 - Other KMP J Beyer P Kerr K Bozanic A Thomson K Faulkner 675,000 331,016 162,900 361,474 152,100 6,741 2,015 463 372,496 130,833 - 2,015 144,939 60 - D Stokes 290,010 5,332 118,129 25,000 Sub-total 1,972,500 16,626 766,397 107,566 Totals 2,809,148 16,626 766,397 182,865 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,211 179,586 217 - 244 - 245 30,586 - 33,883 - 33,537 1,917 277,592 1,917 277,592 - - - - - - - - 44 31 - 32 - 32 - - - - - - - - - - - - - - - - - 195,999 88,666 111,433 96,134 88,666 115,233 107,833 107,983 911,947 1,260,034 512,539 178,024 567,588 152,160 472,253 3,142,598 4,054,545 Mount Gibson Iron Limited 2013 Annual Report 35 Directors’ report options granted as part of remuneration for the year ended 30 June 2013 There is currently a Directors, Officers, Employees and Other Permitted Persons option plan. Options issued pursuant to this plan do not have performance conditions but do contain a vesting condition requiring the employee to remain employed by the Group until a certain date. The cost of these options is measured by reference to their fair value at the date at which they are granted. The fair value is determined by using a binomial model. There were no options granted to Directors and executives during the year ended 30 June 2013 and there are no options outstanding at 30 June 2013. performance rights granted as part of remuneration for the year ended 30 June 2013 J Beyer P Kerr A Thomson D Stokes Grant date 01-Jul-12 19-Sep-12 19-Sep-12 01-Jul-12 Number granted 243,450 121,340 134,420 109,560 Value of performance rights granted during the year $ % of remuneration 223,974 109,206 120,978 100,795 18 21 21 21 The estimated maximum and minimum possible total value of these performance rights is $554,953 and $nil respectively. Performance rights granted above as part of remuneration are valued using the Black-Scholes methodology which considers the incorporation of the market-based hurdles. The value per performance right at grant date is calculated using the following assumptions: Accounting grant date Share price Risk free interest rate Volatility factor 01-Jul-12 $0.92 2.35%pa 51% 19-Sep-12 $0.90 2.55%pa 51% The vesting of these performance rights is subject to a relative TSR hurdle to be measured on 30 June 2015 and re measured on 31 December 2015. As noted earlier, the Board is undertaking a review of the performance rights hurdles. Mount Gibson’s TSR performance is ranked relative to a comparator group consisting of resource companies listed on ASX. The comparator group comprises companies in the ASX Metals and Mining index with market capitalisations above certain sizes. The vesting scale is as follows: Percentile rank achieved Proportion of target award vesting >76th percentile 100% > 51st percentile and ≤76th percentile Pro rata allocation 51st percentile <51st percentile performance rights vested 50% 0% The following performance rights vested to the following Directors and executives: Year ended 30 June 2013 Year ended 30 June 2012 A Rule D Berg Total - - - 211,778 83,128 294,906 There were no performance rights vested during the financial year. 36 Mount Gibson Iron Limited 2013 Annual Report Directors’ report performance rights benefits For each grant of performance rights, the percentage of the available grant that was paid, or that vested, in the financial year, and the percentage that was forfeited because the person did not meet the service and performance criteria is set out below. The performance rights vest after three years, providing the vesting conditions are met (refer above). J Beyer J Beyer P Kerr A Thomson D Stokes Year granted Vested % Forfeited % Financial years performance rights may vest 2012 2013 2013 2013 2013 - - - - - - - - - - 2014 2015 2015 2015 2015 shares issued on exercise of options for the year ended 30 June 2013 There were no shares issued on exercise of options by the Directors and executives during the year ended 30 June 2013 (2012: nil). remuneration of Key Management personnel for the year ended 30 June 2012 Short term Post employment Long term Non monetary Cash bonuses Super- annuation Retirement benefits Long service leave Share-based payment Termination payment Options and performance rights $ $ $ $ $ $ $ Total $ % Performance related Salary & fees $ 177,275 104,129 90,844 87,156 30,868 62,572 33,467 56,915 65,512 39,857 59,156 364,582 Directors G Hill A Jones Chen Z Lee SH Li S R Barwick S Bird P Dougas C Readhead I Macliver Cao Z L Tonkin Sub-total 1,172,333 Other KMP A Rule J Beyer D Berg D Stokes 580,482 686,651 221,248 73,347 K Faulkner 140,400 - - - - - - - - - - - 1,151 1,151 2,303 1,343 1,919 576 480 - - - - - - - - - - - - - 292,340 100,000 140,331 - - 15,955 9,372 6,681 7,844 2,778 5,632 3,012 5,122 - 3,587 4,178 25,000 89,161 25,000 25,000 25,000 6,192 - Sub-total 1,702,128 6,621 532,671 81,192 Totals 2,874,461 7,772 532,671 170,353 [1] Reversal of performance rights on termination - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 256 - - - - - - - - - - - - - - - - - - - - - - - - - 193,230 113,501 97,525 95,000 33,646 68,204 36,479 62,037 65,512 43,444 63,334 - - - - - - - - - - - (305,237)[1] 745,370 830,866 (37) (305,237) 745,370 1,702,778 137,641 13,816 37,792 - - - - 1,037,766 827,066 27,653 453,943 - - 80,115 140,880 41 14 39 - - 256 189,249 27,653 2,539,770 256 (115,988) 773,023 4,242,548 Accrued annual leave and long service leave benefits were paid on termination to Mr Tonkin of $198,284, to Mr Rule of $326,651, and to Mr Berg of $37,016. These amounts are not included in the table above. options granted as part of remuneration for the year ended 30 June 2012 There were no options granted to Directors and executives during the year ended 30 June 2012 and there are no options outstanding at 30 June 2012. Mount Gibson Iron Limited 2013 Annual Report 37 Directors’ report performance rights granted as part of remuneration for the year ended 30 June 2012 Grant date 30-Jun-12 Number granted 271,318 Value of performance rights granted during the year $ 276,907 % of remuneration 14 J Beyer The estimated maximum and minimum possible total value of these performance rights is $276,907 and $nil respectively. Performance rights granted above as part of remuneration are valued using the Black-Scholes methodology which considers the incorporation of the market-based hurdles. The value per performance right at grant date is calculated using the following assumptions: Accounting grant date Share price at accounting grant date Risk free interest rate Volatility factor 30-Jun-12 $1.03 2.67%pa 51% The vesting of these performance rights is subject to a relative TSR hurdle to be measured on 30 June 2014 and re-measured on 31 December 2014. As noted earlier, the Board is undertaking a review of the performance rights hurdles. Mount Gibson’s TSR performance is ranked relative to a comparator group consisting of resource companies listed on ASX. The comparator group comprises companies in the ASX Metals and Mining index with market capitalisations above certain sizes. The vesting scale is as follows: Percentile rank achieved Proportion of target award vesting >76th percentile 100% > 51st percentile and ≤76th percentile Pro rata allocation 51st percentile <51st percentile company performance 50% 0% The table below shows the performance of the Group over the last five years: Year ended Net profit after tax Earnings per share Closing share price 30 June 2013 Restated* 30 June 2012 30 June 2011 30 June 2010 30 June 2009 $’000 $/share $ 157,342 0.1445 0.47 162,016 0.1496 0.86 239,500 132,395 0.2214 1.84 0.1230 1.55 42,618 0.0456 0.90 * Restated to reflect adjustments made on the adoption of new accounting requirements, as detailed in Note 1(e) of the 2012/13 financial statements. Amounts in prior years are not restated. Signed in accordance with a resolution of the Directors. G HILL Chairman Perth, 22 August 2013 38 Mount Gibson Iron Limited 2013 Annual Report AUDitor’s iNDepeNDeNce DecLArAtioN to the Directors of Mount Gibson Iron Limited Mount Gibson Iron Limited 2013 Annual Report 39 coNsoLiDAteD iNcoMe stAteMeNt for the year ended 30 June 2013 Continuing operations Sale of goods Other revenue Total revenue Cost of sales Gross profit Other income Administration expenses Exploration expenses Profit from continuing operations before tax and finance costs Finance costs Profit from continuing operations before tax Tax benefit/(expense) Net profit after tax attributable to members of the Company Earnings per share (cents per share) • basic earnings per share • diluted earnings per share Notes 2[a] 2[a] 2[d] 2[b] 2[e] 2[c] 3 22 22 2013 $’000 852,873 11,951 864,824 (698,291) 166,533 162 (30,798) (144) 135,753 (7,313) 128,440 28,902 157,342 Restated[1] 2012 $’000 648,464 20,425 668,889 (413,526) 255,363 163 (23,554) (53) 231,919 (7,298) 224,621 (62,605) 162,016 14.45 14.45 14.96 14.95 [1] Certain numbers shown here do not correspond to the 30 June 2012 financial statements and reflect adjustments made on the adoption of new accounting requirements, as detailed in note 1(e). 40 Mount Gibson Iron Limited 2013 Annual Report coNsoLiDAteD stAteMeNt oF coMpreHeNsiVe iNcoMe for the year ended 30 June 2013 Net profit for the period after tax Other comprehensive income Items that may be subsequently reclassified to profit or loss Change in fair value of cash flow hedges Reclassification adjustments for losses on cash flow hedges included in the Income Statement Deferred income tax on cash flow hedges Other comprehensive income for the year, net of tax 2013 $’000 Restated[1] 2012 $’000 157,342 162,016 (18,860) 9,062 2,790 (7,008) (11,170) 11,453 61 344 Total comprehensive income for the year 150,334 162,360 [1] Certain numbers shown here do not correspond to the 30 June 2012 financial statements and reflect adjustments made on the adoption of new accounting requirements, as detailed in note 1(e). Mount Gibson Iron Limited 2013 Annual Report 41 coNsoLiDAteD BALANce sHeet as at 30 June 2013 Notes 2013 $’000 Restated[1] 2012 $’000 Restated[1] 1 July $’000 Assets Current assets Cash and cash equivalents Term deposits Trade and other receivables Inventories Prepayments Derivative financial assets Total current assets Non-current assets Property, plant and equipment Deferred acquisition, exploration and evaluation Mine properties Deferred tax assets Total non-current assets Total assets LiABiLities Current liabilities Trade and other payables Interest-bearing loans and borrowings Derivative financial liabilities Income tax payable Provisions Total current liabilities Non-current liabilities Provisions Interest-bearing loans and borrowings Deferred tax liabilities Total non-current liabilities Total liabilities Net assets eQUitY Issued capital Retained earnings Reserves Total equity 4 5 6 7 8 10 11 12 3 13 14 15 16 16 14 3 62,018 314,000 47,301 151,973 2,732 - 40,678 252,000 23,792 209,966 3,186 5,584 117,007 270,000 22,249 160,358 3,210 386 578,024 535,206 573,210 247,924 861 661,213 67,350 977,348 283,381 344 673,059 2,889 959,673 246,695 309 457,409 - 704,413 1,555,372 1,494,879 1,277,623 105,736 19,188 4,607 26,010 12,384 167,925 78,637 9,204 117,557 205,398 373,323 122,530 21,702 393 9,440 10,603 164,668 78,098 25,322 155,453 258,873 423,541 1,182,049 1,071,338 17[a] 19 18 568,328 600,978 12,743 564,710 487,162 19,466 1,182,049 1,071,338 99,556 28,607 63 22,793 4,348 155,367 24,228 16,461 110,641 151,330 306,697 970,926 561,585 390,103 19,238 970,926 [1] Certain numbers shown here do not correspond to the 30 June 2012 financial statements and reflect adjustments made on the adoption of new accounting requirements, as detailed in note 1(e). 42 Mount Gibson Iron Limited 2013 Annual Report coNsoLiDAteD cAsH FLoW stAteMeNt for the year ended 30 June 2013 Notes 2013 $’000 2012 $’000 cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest paid Income tax paid Net cash flows provided by operating activities 4[b] cash flows from investing activities Interest received Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Payment (for)/from term deposits Payment for deferred exploration and evaluation expenditure Payment for mine properties Net cash flows (used in) investing activities cash flows from financing activities Repayment of lease liabilities Proceeds from borrowings Repayment of borrowings Payment of borrowing costs Dividends paid Net cash flows (used in) financing activities Net increase/(decrease) in cash and cash equivalents Net foreign exchange difference Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 4[a] 830,510 (593,288) (3,478) (54,092) 179,652 13,028 15 (42,421) (62,000) (216) (2,511) (94,105) (21,275) 5,527 (5,914) (1,806) (40,004) (63,472) 22,075 (735) 40,678 62,018 639,176 (548,883) (53) (34,071) 56,169 19,765 1,273 (86,191) 18,000 (35) (6,359) (53,547) (18,290) 7,005 (5,497) (1,075) (61,935) (79,792) (77,170) 841 117,007 40,678 Mount Gibson Iron Limited 2013 Annual Report 43 coNsoLiDAteD stAteMeNt oF cHANGes iN eQUitY for the year ended 30 June 2013 Attributable to equity holders of the parent (Accumulated losses)/ retained earnings $’000 Share-based payments reserve $’000 Issued capital $’000 Net unrealised gains/ (losses) reserve $’000 Total equity Other reserves $’000 $’000 At 1 July 2011 – as previously reported 561,585 585,718 18,991 3,439 (3,192) 1,166,541 Change in accounting policy (note 1(e)) - (195,615) - - - (195,615) 18,991 3,439 (3,192) 970,926 At 1 July 2011 restated[1] Profit for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners - Deferred income tax on capital raising cost - Shares issued - Dividends paid - Share-based payment At 30 June 2012 restated[1] At 1 July 2012 restated Profit for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners - Deferred income tax on capital raising cost - Shares issued - Dividends paid - Share-based payment At 30 June 2013 561,585 - - - (94) 3,219 - - 564,710 - - - 95 3,523 - - 390,103 162,016 - 162,016 - - (64,957) 487,162 157,342 - 157,342 - - (43,526) - - - - - - - - - - - - - 344 344 - - - - - - - - - - 162,016 344 162,360 (94) 3,219 (64,957) (116) - (7,008) (7,008) - - - - - - - - - - - 157,342 (7,008) 150,334 95 3,523 (43,526) 285 - (116) 564,710 487,162 18,875 3,783 (3,192) 1,071,338 18,875 3,783 (3,192) 1,071,338 - 285 568,328 600,978 19,160 (3,225) (3,192) 1,182,049 [1] Certain numbers shown here do not correspond to the 30 June 2012 financial statements and reflect adjustments made on the adoption of new accounting requirements, as detailed in note 1(e). 44 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 1. sUMMArY oF siGNiFicANt AccoUNtiNG poLicies (a) Corporate information The consolidated financial statements of the Group, comprising the Company and the entities that it controlled during the year ended 30 June 2013, was authorised for issue in accordance with a resolution of the Directors on 22 August 2013. The Company is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of operations and principal activities of the Group are the mining of hematite iron ore deposits at Tallering Peak, Koolan Island and Extension Hill and exploration and development of hematite deposits in the Mid West region of Western Australia. The address of the registered office is Level 1, 2 Kings Park Road, West Perth, Western Australia, 6005, Australia. (b) Basis of preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, applicable Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under Australian Securities and Investment Commission (ASIC) Class Order 98/0100. The Company is an entity to which the class order applies. For the purposes of preparing the consolidated financial statements, the Company is a for-profit entity. (c) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its controlled entities. The financial statements of controlled entities are prepared for the same reporting period as the Company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Controlled entities are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is loss of control of a controlled entity, the consolidated financial statements include the results for the part of the reporting period during which the Company has control. (d) Compliance with IFRS The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. (e) New accounting standards and interpretations The accounting policies adopted are consistent with those of the previous financial year, except for the change arising due to the early adoption of AASB Interpretation 20 “Stripping Costs in the Production Phase of a Surface Mine” (“Interpretation 20”). Interpretation 20 clarifies when an entity should recognise production phase waste removal (stripping) costs (production stripping costs) incurred in relation to a surface mining operation as an asset. Such an asset will be referred to as a stripping activity asset. The interpretation has been adopted for the annual reporting period beginning on 1 July 2011 and has impacted the way in which the Group accounts for production stripping costs. Prior to the issuance of Interpretation 20, the Group deferred all costs attributable to waste stripping and concurrently recognised as an expense the amortisation of capitalised waste stripping costs over the remaining ore reserves of the relevant mine. The amortisation rate was calculated based on the historical and estimated future waste mining costs. The accounting treatment in accordance with Interpretation 20 differs from the Group’s previous policy in that not all waste development costs are initially capitalised, and the capitalisation and amortisation of waste stripping costs is undertaken at the level of individual deposits or components thereof rather than on a whole-of-mine basis. In addition, specific transitional rules are provided to deal with any opening deferred stripping balances an entity may have recognised under its previous accounting policy. In order to reflect the new requirements of Interpretation 20, the Group has adopted the following accounting policy: Mount Gibson Iron Limited 2013 Annual Report 45 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 1. sUMMArY oF siGNiFicANt AccoUNtiNG poLicies (coNtiNUeD) (e) New accounting standards and interpretations (continued) Deferred stripping (waste removal) costs As part of its mining operations, the Group incurs mining stripping (waste removal) costs both during the development and production phases of its operations. When stripping costs are incurred in the development phase of a mine before the production phase commences (development stripping), such expenditure is capitalised as part of the cost of constructing the mine and subsequently amortised over its useful life using a units of production method, in accordance with the policy applicable to mine properties. The capitalisation of development stripping costs ceases when the mine/component is commissioned and ready for use as intended by management. Stripping activities undertaken during the production phase of a surface mine (production stripping) are accounted for as set out below. After the commencement of production, further development of the mine may require a phase of unusually high stripping that is similar in nature to initial development phase stripping. The costs of such stripping are accounted for in the same way as development stripping, as outlined above. Waste development costs incurred in the production phase create two benefits, being either the production of inventory or improved access to the ore to be mined in the future. Where the benefits are realised in the form of inventory produced in the period, the production stripping costs are accounted for as part of the cost of producing those inventories. Where production stripping costs are incurred and the benefit is improved access to ore to be mined in the future, the costs are recognised as a non-current asset, referred to as a stripping activity asset if the following criteria are met: a) b) c) Future economic benefits (being improved access to the ore body) are probable; The component of the orebody for which access will be improved can be accurately identified; and The costs associated with the improved access can be reliably measured. If not all of the criteria are met, the production stripping costs are charged to the Income Statement as operating costs as they are incurred. In identifying components of the orebody, the Group works closely with its mining operations personnel to analyse its various mine plans. Mines may be divided into more than one ore component with deposits potentially comprising geographically separated components or major pushbacks forming part of a larger investment decision. The stripping activity asset is initially measured at cost, which is the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified component of ore, plus an allocation of directly attributable overhead costs. If incidental operations are occurring at the same time as the production stripping activity, but are not necessary for the production stripping activity to continue as planned, these costs are not included in the cost of the stripping activity asset. If the costs of the inventory produced and the stripping asset are not separately identifiable, the allocation is undertaken based on the waste-to-ore stripping ratio for the particular ore component concerned. If mining of waste in a period occurs in excess of the expected life-of-component average waste-to-ore strip ratio, the excess is recognised as part of the stripping asset. Where mining occurs at or below the expected life-of-component stripping ratio in a period, the entire production stripping cost is allocated to the cost of the ore inventory produced. The stripping activity asset is accounted for as an addition to “mine properties” in the statement of financial position. This forms part of the total investment in the relevant cash generating units, which are reviewed for impairment if events or changes of circumstances indicate that the carrying value may not be recoverable. The stripping activity asset is carried at cost less amortisation and any impairment losses. The stripping activity asset is subsequently amortised using the units of production method over the life of the identified component of the orebody that became more accessible as a result of the stripping activity. A regular review is undertaken of each ore component to determine the appropriateness of continuing to carry forward costs in relation to that component. Should the carrying value of the expenditure not yet amortised exceed its estimated recoverable amount in any year, the excess is written off to the Income Statement. Transition Interpretation 20 is to be applied prospectively to production stripping costs incurred on or after the beginning of the earliest period presented, which for the Group is 1 July 2011. Any previously recognised asset balance(s) that resulted from stripping activity undertaken during the production phase “predecessor stripping asset” is reclassified as a part of an existing asset to which the stripping activity related, to the extent that there remains an identifiable component of the orebody with which the predecessor stripping asset can be associated. Such balances are then amortised over the remaining expected useful life of the identified component of the orebody to which each predecessor stripping asset balance relates. If there is no identifiable component of the orebody to which the predecessor asset relates, it has been written off through opening retained earnings at the beginning of the earliest period presented, being 1 July 2011. Impact as at transition date and on the comparative financial information In accordance with the transitional provisions of Interpretation 20, this new policy has been applied prospectively from the start of the comparative period, being 1 July 2011. As a result of the adoption of Interpretation 20, the adjustments outlined below were made to the financial statements. The Group has three mining operations, Tallering Peak, Koolan Island and Extension Hill, all of which are in the production phase. The Group had previously accounted for production stripping costs using a life-of-mine approach as explained above. As at 1 July 2011, the Group’s total deferred stripping balance was $427,650,000, of which $116,499,000 related to Tallering Peak, $300,270,000 related to Koolan Island and $10,881,000 related to Extension Hill. In applying the requirements of Interpretation 20, the Group has determined that, at the date of transition (i.e. 1 July 2011), Tallering Peak had three ore components, Koolan Island had five ore components and Extension Hill had one ore component. 46 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 Given the nature of the Group’s mining operations and the way the Group plans to mine the remaining components of the orebodies, it has been determined that $279,451,000 of the predecessor stripping asset relates to components of the orebodies where the associated ore has already been extracted. Accordingly, an amount of $279,451,000 ($195,616,000 net of tax) has been derecognised via opening retained earnings at the date of transition, 1 July 2011 (see adjustments below). Based on reasonable assumptions and guidance from technical personnel, the balance of the predecessor stripping asset amounting to $148,199,000 has been allocated to identified components and will be amortised over the remaining useful lives of these components using a units of production method. The Group has determined that it is not practicable to quantify the impact for the 2013 financial year under the pre-Interpretation 20 approach. The adoption of Interpretation 20 had the following impact at the transition date of 1 July 2011 and for the year ended 30 June 2012: 30 June 2012 – closing balance 581,204 (279,450) Description Retained earnings 1 July 2011 – opening balance Derecognise opening deferred stripping balance Tax effect at 30% 585,718 - - 1 July 2011 – adjusted opening retained earnings 585,718 Mine properties Stripping activity asset 1 July 2011 – opening balance Derecognise opening deferred stripping balance Sub total Additions under previous approach Deferred stripping recognised in profit or loss Production stripping costs capitalised under Interpretation 20 Stripping activity asset depreciated during the period 427,650 - 427,650 384,326 (230,772) - - Other 1 July 2011 – opening balance Net movement 30 June 2012 – closing balance Total mine properties at 30 June 2012 – closing balance Inventory 30 June 2012 – closing balance Net adjustment to stripping costs allocated directly to inventory 30 June 2012 – closing balance 227,694 - 227,694 Profit or Loss Profit after tax for the year ended 30 June 2012 172,496 Decrease in profit due to adjustment to stripping costs allocated directly to inventory Increase in profit due to adjustments to production stripping costs capitalised and stripping activity asset depreciated during the period Sub total Tax effect of adjustments at 30% - - 172,496 - Profit after tax for the year ended 30 June 2012 172,496 Impact on earnings per share Previously reported $’000 Transition adjustments $’000 Adjustment due to adoption of Interpretation 20 $’000 Adjusted balance $’000 - (279,450) 83,835 (195,615) - (279,450) (279,450) - - - - - - - - - - - (384,326) 230,772 209,578 (53,268) 2,756 - - - 585,718 (279,450) 83,835 390,103 427,650 (279,450) 148,200 - - 209,578 (53,268) 304,510 309,209 59,340 368,549 309,209 59,340 368,549 - - - 949,753 (279,450) 2,756 673,059 - - - - - - - - - - (17,728) 227,694 (17,728) (17,728) 209,966 - (17,728) 172,496 (17,728) 2,756 2,756 (14,972) 4,492 (10,480) 157,524 4,492 162,016 The effect on basic earnings per share related to the 30 June 2012 restatement was a decrease of 0.97 cents per share. Mount Gibson Iron Limited 2013 Annual Report 47 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 1. sUMMArY oF siGNiFicANt AccoUNtiNG poLicies (coNtiNUeD) (e) New accounting standards and interpretations (continued) From 1 July 2012 the Group has adopted all new and amended accounting standards mandatory for annual periods beginning on or after 1 July 2012 including: Reference Title AASB 2010-8 Amendments to Australian Accounting Standards Deferred Tax: Recovery of Underlying Assets [AASB 112] These amendments address the determination of deferred tax on investment property measured at fair value and introduce a rebuttable presumption that deferred tax on investment property measured at fair value should be determined on the basis that the carrying amount will be recoverable through sale. The amendments also incorporate SIC-21 Income Taxes – Recovery of Revalued Non-Depreciable Assets into AASB 112. Application date of standard 1 January 2012 Application date for Group 1 July 2012 AASB 2011-9 Amendments to Australian Accounting Standards Presentation of Other Comprehensive Income 1 July 2012 1 July 2012 [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049] This standard requires entities to group items presented in other comprehensive income on the basis of whether they might be reclassified subsequently to profit or loss and those that will not. The adoptions of the above Accounting Standards and Interpretations did not have an impact on the financial position or performance of the Group. Other Australian Accounting Standards and Interpretations that have recently been issued or amended, are not yet effective and have not been adopted by the Group for the period ended 30 June 2013 are outlined in the table below: Application date of standard Application date for Group 1 January 2013 1 July 2013 Reference Title Summary AASB 10 Consolidated Financial Statements AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation – Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Consequential amendments were also made to this and other standards via AASB 2011-7 and AASB 2012-10. AASB 11 Joint Arrangements AASB 11 replaces AASB 131 Interests in Joint Ventures and UIG-113 Jointly-controlled Entities – Non-monetary Contributions by Ventures. 1 January 2013 1 July 2013 AASB 11 uses the principle of control in AASB 10 to define joint control and therefore the determination of whether joint control exists may change. In addition it removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, accounting for a joint arrangement is dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the venturers a right to the underlying assets and obligations themselves is accounted for by recognising the share of those assets and obligations. Joint ventures that give the venturers a right to the net assets is accounted for using the equity method. Consequential amendments were also made to this and other standards via AASB 2011-7, AASB 2010-10 and amendments to AASB 128. 48 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 Reference Title Summary AASB 12 Disclosure of Interests in Other Entities AASB 13 Fair Value Measurement AASB 119 Employee Benefits AASB 2012-2 AASB 2012-5 AASB 2012-9 AASB 2011-4 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle Amendment to AASB 1048 arising from the withdrawal of Australian Interpretation 1039 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124] AASB 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. New disclosures have been introduced about the judgements made by management to determine whether control exists, and to require summarised information about joint arrangements, associates, structured entities and subsidiaries with non-controlling interests. AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB 2011-8. The revised standard changes the definition of short-term employee benefits. The distinction between short-term and other long-term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after the reporting date. Consequential amendments were also made to other standards via AASB 2011-10. AASB 2012-2 principally amends AASB 7 Financial Instruments: Disclosures to require disclosure of the effect or potential effect of netting arrangements. This includes rights of set-off associated with the entity’s recognised financial assets and liabilities on the entity’s financial position, when offsetting criteria of AASB 132 are not all met. Application date of standard Application date for Group 1 January 2013 1 July 2013 1 January 2013 1 July 2013 1 January 2013 1 July 2013 1 January 2013 1 July 2013 AASB 2012-5 makes amendments resulting from the 2009-2011 Annual Improvements Cycle. The standard addresses a range of improvements, including the following: 1 January 2013 1 July 2013 • • Repeat application of AASB 1 is permitted (AASB 1) Clarification of the comparative information requirements when an entity provides a third Balance Sheet (AASB 101 Presentation of Financial Statements). AASB 2012-9 amends AASB 1048 Interpretation of Standards to evidence the withdrawal of Australian Interpretation 1039 Substantive Enactment of Major Tax Bills in Australia. 1 January 2013 1 July 2013 This amendment deletes from AASB 124 individual Key Management Personnel disclosure requirements for disclosing entities that are not companies. It also removes the individual KMP disclosure requirements for all disclosing entities in relation to equity holdings, loans and other related party transactions. 1 July 2013 1 July 2013 Mount Gibson Iron Limited 2013 Annual Report 49 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 1. sUMMArY oF siGNiFicANt AccoUNtiNG poLicies (coNtiNUeD) (e) New accounting standards and interpretations (continued) Reference Title Summary Application date of standard Application date for Group 1 January 2014 1 July 2014 AASB 2012-3 adds application guidance to AASB 132 Financial Instruments: Presentation to address inconsistencies identified in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of “currently has a legally enforceable right of set-off” and that some gross settlement systems may be considered equivalent to net settlement. This standard establishes a differential financial reporting framework consisting of two tiers of reporting requirements for preparing general purpose financial statements: 1 July 2013 1 July 2013 (a) (b) Tier 1: Australian Accounting Standards Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. The following entities apply Tier 1 requirements in preparing general purpose financial statements: (a) (b) For-profit entities in the private sector that have public accountability (as defined in this standard) The Australian Government and State, Territory and local governments The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: (a) For-profit private sector entities that do not have public accountability (b) All not-for-profit private sector entities (c) Public sector entities other than the Australian Government and State, Territory and local governments. Consequential amendments to other standards to implement the regime were introduced by AASB 2010-2, 2011-6, 2011-11, 2012- 1, 2012-7 and 2012-11. AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below. (a) Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. (b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading on other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. 1 January 2015 1 July 2015 AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities AASB 1053 Application of Tiers Australian Accounting Standards AASB 9 Financial Instruments 50 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 Reference Title Summary AASB 9 Financial Instruments (c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. Application date of standard Application date for Group 1 January 2015 1 July 2015 (d) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: • • The change attributable to changes in credit risk are presented in other comprehensive income (OCI) The remaining change is presented in profit or loss If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Further amendments were made by AASB 2012-6 which amends the mandatory effective date to annual reporting periods beginning on or after 1 January 2015. AASB 2012-6 also modifies the relief from restating prior periods by amending AASB 7 to require additional disclosures on transition to AASB 9 in some circumstances. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7 and 2010-10. AASB 10 Consolidated Financial Statements – based on investments held by the Group at 30 June 2013, this Standard is not expected to have a significant impact on the entities that are currently consolidated in the year of initial application. AASB 11 Joint Arrangements - the Group does not have any joint arrangements therefore this Standard is not expected to have any impact on the Group’s financial results in the initial year of application. AASB 12 Disclosure of Interests in Other Entities – based on investments held by the Group at 30 June 2013, this Standard will have no impact on the Group’s financial results and Balance Sheet in the initial year of application. AASB 13 Fair Value Measurement – this Standard establishes a single source of guidance for determining the fair value of assets and liabilities. Based on the fair value measurements of the Group’s assets and liabilities at 30 June 2013, this Standard is not expected to have a significant impact on the Group’s financial results in the initial year of application. Except as disclosed above, the Group has yet to fully assess the impact of the other Accounting Standards and Amendments to Accounting Standards will have on the financial statements, when applied in future financial periods. (f) Foreign currency translation The functional currency of the Company and its controlled entities is Australian dollars (A$). Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the Balance Sheet date. All such exchange differences are taken to the Income Statement in the consolidated financial report. (g) Cash and cash equivalents Cash and short-term deposits in the Balance Sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. (h) Trade and other receivables Trade receivables are recognised and carried at amortised cost less any allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An allowance for impairment of trade receivables is made when there is objective evidence that the Group will not be able to collect the debts. Indicators of impairment would include financial difficulties of the debtor, likelihood of the debtor’s insolvency and default in payment. Any impairment is recognised in the Income Statement. The vast majority of sales revenue is invoiced and received in US dollars (US$). The balance is invoiced and received in A$. Generally, on presentation of shiploading documents and provisional invoice, the customer settles 90-95% of the provisional sales invoice value within 10 days of receipt of shiploading documents and provisional invoice, and the remaining 5-10% is settled within 30 days of presentation of the final invoice. The final value is subject to minor adjustments based on the final analyses of weight, chemical and physical composition, and moisture content. Mount Gibson Iron Limited 2013 Annual Report 51 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 1. sUMMArY oF siGNiFicANt AccoUNtiNG poLicies (coNtiNUeD) (i) Inventories Inventories are valued at the lower of cost and net realisable value. Cost comprises direct material, labour and expenditure in getting such inventories to their existing location and condition, based on weighted average costs incurred during the period in which such inventories were produced. Consumable materials for plant and equipment are recognised as inventory. Consumable stocks are carried at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. (j) Property, plant and equipment Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation The cost of owned property, plant and equipment directly engaged in mining operations is written off over its expected economic life on a units-of-production method, in the establishment of which, due regard is given to the life of the related area of interest. Plant and equipment under hire purchase or finance lease directly engaged in mining operations is written down to its residual value over the lesser of the hire purchase or finance lease term or useful life. Other assets which are depreciated or amortised on a basis other than the units-of-production method typically are depreciated on a straight-line basis over the estimated useful life of the asset as follows: • • • • • Buildings Motor vehicles Office equipment Leasehold improvements Koolan Island mining fleet on hire purchase 5 - 20 years 4 - 5 years 3 - 5 years Shorter of lease term or useful life of 5 - 10 years 5 years Impairment The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash- generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash- generating units are written down to their recoverable amount. Derecognition An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Income Statement in the period the item is derecognised. (k) Mine properties Deferred stripping As part of its mining operations, the Group incurs mining stripping (waste removal) costs both during the development and production phase of its operations. When stripping costs are incurred in the development phase of a mine before the production phase commences (development stripping), such expenditure is capitalised as part of the cost of constructing the mine and subsequently amortised over its useful life using a units of production method, in accordance with the policy applicable to mine properties. The capitalisation of development stripping costs ceases when the mine/component is commissioned and ready for use as intended by management. Waste development costs incurred in the production phase creates two benefits, being either the production of inventory or improved access to the ore to be mined in the future. Where the benefits are realised in the form of inventory produced in the period, the production stripping costs are accounted for as part of the cost of producing those inventories. Where production stripping costs are incurred and the benefit is improved access to ore to be mined in the future, the costs are recognised as a stripping activity asset in mine properties. If the costs of the inventory produced and the stripping asset are not separately identifiable, the allocation is undertaken based on waste-to-ore stripping ratio for the particular ore component concerned. If mining of waste in a period occurs in excess of the expected life-of-component average waste-to-ore strip ratio, the excess is recognised as part of the stripping asset. Where mining occurs at or below the expected life-of-component stripping ratio in a period, the entire production stripping cost is allocated to the cost of the ore inventory produced. Amortisation is provided on the units-of-production method over the life of the identified component of orebody. The units- of-production method results in an amortisation charge proportional to the depletion of the economically recoverable mineral resources (comprising proven and probable reserves). 52 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 Other mine properties Other mine properties represent the accumulation of all acquisition, exploration, evaluation and development expenditure incurred by or on behalf of the Group in relation to areas of interest in which mining of mineral resource has commenced. When further development expenditure is incurred in respect of a mine property after the commencement of production, such expenditure is carried forward as part of the cost of that mine property only when substantial future economic benefits are established, otherwise such expenditure is classified as part of the cost of production. Amortisation is provided on the units-of-production method over the life of the mine, with separate calculations being made for each mineral resource. The units-of-production method results in an amortisation charge proportional to the depletion of the economically recoverable mineral resources (comprising proven and probable 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. Should the carrying value of the expenditure not yet amortised exceed its estimated recoverable amount in any year, the excess is written off to the Income Statement. (l) Acquisition, exploration and evaluation costs Acquisition costs Exploration and evaluation costs arising from acquisitions are carried forward where exploration and evaluation activities have not, at balance date, reached a stage to allow a reasonable assessment regarding the existence of economically recoverable reserves. Exploration and evaluation costs Costs arising from exploration and evaluation activities are capitalised if activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that it is determined in the future that this capitalised expenditure should be written off, this will reduce profits and net assets in the period in which this determination is made. 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. Where uncertainty exists as to the future viability of certain areas, the value of the area of interest is written off to the Income Statement or provided against. (m) Rehabilitation costs Long-term environmental obligations are based on the Group’s environmental management plans, in compliance with current environmental and regulatory requirements. Full provision is made based on the net present value of the estimated cost of restoring the environmental disturbance that has occurred up to the Balance Sheet date. Increases due to additional environmental disturbances, relating to the development of an asset, are capitalised and amortised over the remaining lives of the area of interest. Annual increases in the provision relating to the change in the net present value of the provision are accounted for in the Income Statement as borrowing costs. The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for changes in legislation, technology or other circumstances. Cost estimates are not reduced by potential proceeds from the sale of assets. (n) Recoverable amount of assets At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. Recoverable amount is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less cost to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. 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. An assessment is also made at each reporting date as to whether there is any indication that a previously recognised impairment loss may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Mount Gibson Iron Limited 2013 Annual Report 53 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 1. sUMMArY oF siGNiFicANt AccoUNtiNG poLicies (coNtiNUeD) (o) Financial assets Financial assets are classified into the following specified categories: ‘held-to-maturity’ investments, ‘loans and receivables’ and ‘available-for-sale financial assets’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period, to the net carrying amount of the financial asset. [i] Held-to-maturity investments Commercial bills and bonds with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortised cost using the effective interest method less impairment, with revenue recognised on an effective yield basis. [ii] Loans and receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Trade receivables, loans and other receivables are recorded at amortised cost, using the effective interest rate method, less any impairment. Interest is recognised by applying the effective interest rate method. (p) Trade and other payables Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. (q) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Fees paid on the establishment of loan facilities are included as part of the carrying amount of the loans and borrowings. Gains and losses are recognised in the profit or loss when the liabilities are derecognised. (r) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. A provision for dividends is not recognised as a liability unless the dividends have been declared, determined or publicly recommended on or before the balance date. (s) Share-based payment transactions The Group provides benefits to employees (including Directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (“equity-settled transactions”). Options There is currently a Directors, Officers, Employees and Other Permitted Persons option plan. The cost of these options is measured by reference to their fair value at the date at which they are granted. The fair value is determined by using a binomial model. In valuing these options, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company. 54 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 Performance rights There is a Mount Gibson Iron Limited Performance Rights Plan (“PRP”). The PRP enables the Company to provide its executives with long-term incentives which create a link between the delivery of value to shareholders, financial performance and rewarding and retaining the executives. The cost of these performance rights is measured by reference to the fair value at the date at which they are granted. The fair value is determined using a Black-Scholes option valuation model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the Directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share. (t) Employee benefits Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave due to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for sick leave are recognised when the leave is taken and are measured at the rates paid or payable. Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of future payments due to be settled in respect of services provided by employees up to the reporting date. Consideration is given to future wage and salary levels, experience of employee departures, and periods of service. Future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. Superannuation Contributions made by the Group to employee superannuation funds, which are defined contribution plans, are charged as an expense when incurred. (u) Borrowing costs Borrowing costs are recognised as an expense when incurred except when borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. (v) Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Operating leases The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense in the Income Statement on a straight-line basis over the lease term. Contingent rentals are recognised as an expense in the financial year in which they are incurred. Mount Gibson Iron Limited 2013 Annual Report 55 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 1. sUMMArY oF siGNiFicANt AccoUNtiNG poLicies (coNtiNUeD) (v) Leases (continued) Finance leases Leases which effectively transfer substantially all the risks and benefits incidental to ownership of the leased item to the Group are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the Income Statement. Capitalised leased assets are depreciated over the estimated useful life of the asset or where appropriate, over the estimated life of the mine. The cost of improvements to or on leasehold property is capitalised, disclosed as leasehold improvements, and amortised over the unexpired period of the lease or the estimated useful lives of the improvements, whichever is the shorter. (w) Revenue Revenue is recognised and measured at the fair value of consideration received or receivable to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Interest Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Dividends Revenue is recognised when the shareholders’ right to receive the payment is established. (x) Taxation Income tax Deferred income tax is provided on all temporary differences at the Balance Sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable differences: • • except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: • • except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in controlled entities, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each Balance Sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the Balance Sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the Income Statement. Mineral Resource Rent Tax (MRRT) MRRT is considered, for accounting purposes, to be a tax based on income. Accordingly, current and deferred MRRT tax expense is measured and disclosed on the same basis as income tax. The Group has recognised deferred income tax assets in respect of the tax base of MRRT assets to the extent that the Group estimates these deferred income tax assets will be utilised in the future. 56 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 (y) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Balance Sheet. Cash flows are included in the cash flow statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (z) Derivative financial instruments and hedging The Group uses foreign currency contracts to hedge its risks associated with foreign currency fluctuations. Such derivative financial instruments are initially recognised at fair value on the date the derivative contract is entered into and are subsequently remeasured to fair value. Any gains and losses arising from changes in the fair value of derivatives, except those that qualify as cash flow hedges, are taken directly to net profit or loss for the year. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. For the purpose of hedge accounting, hedges are classified as either fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; or cash flow hedges where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction. Cash flow hedges – forward foreign currency contracts In relation to cash flow hedges (forward foreign currency contracts) to hedge firm commitments which meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement. When the hedged firm commitment results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability. For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to the Income Statement in the same year in which the hedged firm commitment affects the net profit and loss, for example when the future sale actually occurs. The Group tests each of the designated cash flow hedges for effectiveness on a monthly basis both retrospectively and prospectively using regression analysis. A minimum of 50 data points is used for regression analysis and if the testing falls within the 80:125 range, the hedge is considered highly effective and continues to be designated as a cash flow hedge. At each balance date, the Group measures ineffectiveness using the ratio offset method. For foreign currency cash flow hedges if the risk is over hedged, the ineffective portion is taken immediately to other income or expense in the Income Statement. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the Income Statement. (aa) Financial instruments issued by the Group [i] Debt and equity instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. [ii] Transaction costs on the issue of equity instruments Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued. (bb) Earnings per share Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit attributable to members of the company, adjusted for: • • • costs of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. Mount Gibson Iron Limited 2013 Annual Report 57 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 1. sUMMArY oF siGNiFicANt AccoUNtiNG poLicies (coNtiNUeD) (cc) Significant accounting judgements, estimates and assumptions Significant accounting judgements, estimates and assumptions have been made as follows: (i) Mine rehabilitation provision The Group assesses its mine rehabilitation provision annually in accordance with the accounting policy stated in Note 1(m). Significant judgement is required in determining the provision for mine rehabilitation as there are many transactions and other factors that will affect the ultimate liability payable to rehabilitate the mine site. Factors that will affect this liability include future development, changes in technology, commodity price changes and changes in interest rates. When these factors change or become known in the future, such difference will impact the mine rehabilitation provision in the period in which they change or become known. (ii) Units of production method of depreciation The Group applies the units of production method of depreciation of its mine assets based on ore tonnes mined. These calculations require the use of estimates and assumptions. Significant judgement is required in assessing the available ore reserves and mineral resources and the production capacity of the operations to be depreciated under this method. Factors that are considered in determining ore reserves and mineral resources and production capacity are the Group’s history of converting mineral resources to ore reserves and the relevant time frames, the complexity of metallurgy, markets and future developments. The Group uses economically recoverable mineral resources (comprising proven and probable ore reserves) to depreciate assets on a unit of production basis. However, where a mineral property has been acquired and an amount has been attributed to the fair value of mineral resources not yet designated as ore reserves, the additional mineral resources have been taken into account. When these factors change or become known in the future, such differences will impact pre-tax profit and carrying values of assets. (iii) Determination of mineral resources and ore reserves The Group estimates its mineral resources and ore reserves in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2012 (the ‘JORC Code’). The information on mineral resources and ore reserves was prepared by or under the supervision of Competent Persons as defined in the JORC Code. The amounts presented are based on the mineral resources and ore reserves determined under the JORC Code. There are numerous uncertainties inherent in estimating mineral resources and ore reserves and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the ore reserves being restated. Such changes in the ore reserves could impact on depreciation and amortisation rates, asset carrying values, deferred stripping costs and provisions for decommissioning and restoration. (iv) Impairment of capitalised exploration and evaluation expenditure The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether the Group decides to exploit the related lease itself or, if not, whether it successfully recovers the related exploration and evaluation asset through sale. Factors which could impact the future recoverability include the level of mineral resources and ore reserves, future technological changes which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices. To the extent that capitalised exploration and evaluation expenditure is determined not to be recoverable in the future, this will reduce profits and net assets in the period in which this determination is made. In addition, exploration and evaluation expenditure is capitalised if activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable ore reserves. To the extent that it is determined in the future that this capitalised expenditure should be written off, this will reduce profits and net assets in the period in which this determination is made. (v) Impairment of capitalised mine development expenditure The future recoverability of capitalised mine development expenditure is dependent on a number of factors, including the level of mineral resources and ore reserves, future technological changes which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices. To the extent that capitalised mine development expenditure is determined not to be recoverable in the future, this will reduce profits and net assets in the period in which this determination is made. Capitalised mine development expenditure is assessed for recoverability along with property, plant and equipment as described below. 58 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 (vi) Impairment of property, plant and equipment The carrying value of property, plant and equipment is reviewed for impairment if there is any indication that the carrying amount may not be recoverable. Where a review for impairment is conducted, the recoverable amount is assessed by reference to the higher of ‘value in use’ (being the net present value of expected future cash flows of the relevant cash generating unit) and ‘fair value less costs to sell’. In determining value in use, future cash flow forecasts for each cash generating unit (i.e. each mine) are prepared utilising management’s latest estimates of mine life, mineral resource and ore reserve recovery, operating and capital costs, royalties and taxation, and other relevant cash inflows and outflows. Cash flow scenarios for a range of commodity prices and foreign exchange rates are assessed using internal and external market forecasts, and the present value of the forecast cash flows is determined utilising estimates of the Company’s weighted average cost of capital. The Group’s cash flows are most sensitive to movements in iron ore prices, the discount rate and key operating costs. In particular, the forecast cash flows of the Koolan Island operation are most sensitive to variations in these key factors while a mine waste stripping program is completed over the next few years. Variations to the expected future cash flows, and the timing thereof, could result in significant changes to any impairment assessment or losses recognised, if any, which could in turn impact future financial results. (vii) Deferred waste The Group has adopted a policy of deferring waste development costs and amortising them in accordance with the accounting policies set out in Notes 1(e) and 1(k). Significant judgement is required in determining the capitalisation ratio for each mine. Factors that are considered include: • • • • • • • Any proposed changes in the design of the mine; Estimates of the quantities of ore reserves and mineral resources for which there is a high degree of confidence of economic extraction; Identifiable components of orebody; Future production levels; Impacts of regulatory obligations and taxation legislation; Future commodity prices; and Future cash costs of production. (viii) Recoverability of potential deferred tax assets The Group recognises deferred tax assets in respect of tax losses to the extent that the future utilisation of these losses is considered probable. Assessing the future utilisation of these losses requires the Group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws. To the extent that future cash flows and taxable income differ significantly from estimates, this could result in significant changes to the deferred tax assets recognised, which would in turn impact future financial results. (ix) Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted and applying an estimated probability that they will vest. The accounting estimates and assumptions relating to share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity. Mount Gibson Iron Limited 2013 Annual Report 59 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 Notes 2013 $’000 2. reVeNUe AND expeNses [a] Revenue Sale of ore Realised gain on foreign exchange hedges Other revenue Interest income [b] Other income Realised gain on foreign exchange Other income [c] Finance costs Finance charges on banking facilities Finance charges payable under finance leases Interest accretion on rehabilitation provision [d] Cost of sales Mining costs Mining depreciation costs Mining waste costs deferred Amortisation of mining waste costs deferred Amortisation of mine properties Preproduction expenditure Crushing costs Depreciation – crushing Transport costs Depreciation – transport Port costs Depreciation – port Royalties Net ore inventory movement 12 12 12 [e] Administration expenses include: Depreciation Share-based payments expense 21[a] Net loss on disposal of plant and equipment Net unrealised foreign exchange loss 843,811 9,062 852,873 11,951 11,951 1 161 162 2,406 2,869 5,275 2,038 7,313 319,823 28,935 (100,904) 97,544 26,806 - 34,230 7,112 104,810 7,622 27,680 26,390 64,832 53,411 698,291 514 285 38 735 Restated 2012 $’000 637,011 11,453 648,464 20,425 20,425 - 163 163 2,301 4,010 6,311 987 7,298 397,594 28,622 (209,578) 53,268 22,995 (1,208) 28,091 6,063 57,071 4,318 16,027 4,456 46,959 (41,152) 413,526 370 (116) 494 129 [f] Cost of sales and administration expenses above include: Salaries, wages expense and other employee benefits Operating lease rental – minimum lease payments 104,535 41,053 88,859 36,430 60 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 3. tAxAtioN Major components of tax (benefit)/expense for the years ended 30 June 2013 and 2012 are: Income Statement Current tax Current income tax charge Deferred tax Relating to origination and reversal of temporary differences: Income tax Minerals resource rent tax Tax (benefit)/expense reported in Income Statement Statement of changes in equity Current income tax Current income tax charge Deferred income tax Capital raising costs Remeasurement of foreign exchange contracts Deferred income tax (benefit)/liability reported in equity Reconciliation of tax expense A reconciliation of tax expense applicable to accounting profit before tax at the statutory income tax rate to tax expense at the Group’s effective tax rate for the years ended 30 June 2013 and 2012 is as follows: Accounting profit before tax • At the statutory income tax rate of 30% (2012: 30%) • Expenditure not allowed for income tax purposes • Other Minerals resource rent tax benefit Tax (benefit)/expense Effective tax rate Tax (benefit)/expense reported in Income Statement 2013 $’000 Restated 2012 $’000 72,073 20,718 (36,514) (64,461) (28,902) 44,776 (2,889) 62,605 - - (1,382) (1,382) 128,440 38,532 101 (3,074) (64,461) (28,902) (23.0)% (28,902) - 94 (61) 33 224,621 67,386 (123) (1,769) (2,889) 62,605 28.0% 62,605 Mount Gibson Iron Limited 2013 Annual Report 61 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 3. tAxAtioN (coNtiNUeD) recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Consolidated Accrued liabilities Capital raising costs Deferred income Foreign exchange contracts Interest receivable Inventory Lease liability Minerals resource rent tax Prepaid expenditure Fixed assets, mine properties and exploration expenditure Provisions Borrowing cost Share-based payment Tax losses Tax (assets) liabilities Set off of tax Assets Liabilities Net 2013 $’000 Restated 2012 $’000 2013 $’000 Restated 2012 $’000 2013 $’000 Restated 2012 $’000 (2,201) 342 - (1,602) - - (885) (1,145) (412) - (15) - (974) (890) (67,350) (2,889) - - - - (27,437) (26,610) (732) - - - - (3,401) - - - - 740 3,898 - - 48 - - 43,877 - 699 - - - (2,201) 342 - (1,602) 740 3,898 (885) (1,145) (412) 43,877 (15) 699 (974) (890) (67,350) (2,889) 101 48 101 145,386 144,219 145,386 144,219 - - - - - - 4 - (27,437) (26,610) (732) - - - 4 (3,401) (99,865) (36,336) 150,072 188,900 50,207 152,564 32,515 33,447 (32,515) (33,447) - - Net tax (assets)/liabilities (67,350) (2,889) 117,557 155,453 50,207 152,564 Movement in temporary differences during the financial year ended 30 June 2013 Accrued liabilities Capital raising costs Deferred income Foreign exchange contracts Interest receivable Inventory Lease liability Minerals resource rent tax Prepaid expenditure Fixed assets, mine properties and exploration expenditure Provisions Borrowing cost Share-based payment Tax losses Restated balance 1 July 2012 $’000 Recognised in income $’000 Recognised in equity $’000 Balance 30 June 2013 $’000 (1,145) (412) 43,877 (15) 699 (974) (890) (2,889) 101 144,219 (26,610) - 4 (3,401) 152,564 (1,056) 754 (43,877) (205) 41 4,872 5 (64,461) (53) 1,167 (827) (732) (4) 3,401 - - - (1,382) - - - - - - - - - - (2,201) 342 - (1,602) 740 3,898 (885) (67,350) 48 145,386 (27,437) (732) - - (100,975) (1,382) 50,207 62 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 Restated balance 1 July 2011 $’000 Recognised in income $’000 Recognised in equity $’000 Balance 30 June 2012 $’000 Movement in temporary differences during the financial year ended 30 June 2012 Accrued liabilities Capital raising costs Deferred income Foreign exchange contracts Interest receivable Inventory Lease liability Minerals resource rent tax Prepaid expenditure Fixed assets, mine properties and exploration expenditure Provisions Share-based payment Tax losses (1,255) (912) 44,246 2,518 1,278 3,482 (1,559) - 27 73,590 (7,373) - (3,401) 110,641 110 406 (369) (2,472) (579) (4,456) 669 (2,889) 74 70,629 (19,237) 4 - - 94 - (61) - - - - - - - - - 41,890 33 2013 $’000 (1,145) (412) 43,877 (15) 699 (974) (890) (2,889) 101 144,219 (26,610) 4 (3,401) 152,564 2012 $’000 Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Minerals resource rent tax – mine properties (net of income tax) [1] 217,784 292,659 Provision for write down of investments Tax losses - 558 965 44 218,342 293,668 [1] Deferred tax assets relating to minerals resource rent tax have not been recognised on the basis that it is not probable they will be utilised in the future and therefore they are considered not to be recoverable. Mount Gibson Iron Limited 2013 Annual Report 63 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 4. cAsH AND cAsH eQUiVALeNts [a] Reconciliation of cash For the purposes of the cash flow statement, cash and cash equivalents comprise the following at 30 June: Cash at bank and in hand Short-term deposits Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. [b] Reconciliation of the net profit after tax to the net cash flows from operations Net profit after tax Adjustments for: Depreciation of non-current assets Amortisation of deferred waste Amortisation of other mine properties Net loss on disposal of property, plant and equipment Net mark-to-market differences on derivatives Interest received Exploration expenses written off Share-based payments Interest accretion on rehabilitation provision Stock obsolescence Borrowing costs Unrealised loss on foreign exchange Capitalised expenses Changes in assets and liabilities (Increase) in trade and other receivables (Increase)/decrease in inventory (Increase)/decrease in prepayments and deposits (Increase) in deferred tax assets (Increase) in capitalised deferred waste Increase/(decrease) in trade and other payables Increase/(decrease) in current income tax liabilities Increase in deferred tax liabilities Increase in restructure provision Increase in road sealing provision Increase in employee benefits Net cash flow from operating activities [c] Non-cash financing activities 2013 $’000 Restated 2012 $’000 47,018 15,000 62,018 40,678 - 40,678 157,342 162,016 70,573 97,544 26,806 38 - 43,829 53,268 22,995 494 (4,747) (11,951) (20,425) 144 285 2,038 1,699 1,797 735 (2,116) (23,509) 56,294 452 (64,461) (100,904) (16,794) 16,570 (35,102) 1,279 200 693 179,652 47 (116) 987 - 1,738 - - (1,589) (49,608) (24) (2,889) (209,578) 24,873 (13,353) 41,892 4,158 333 1,868 56,169 During the financial year, the Group acquired property, plant and equipment with an aggregate fair value of $2,531,193 (2012: $27,714,098) by means of finance leases and hire purchase agreements. During the financial year, the Group disposed of items of property, plant and equipment with an aggregate fair value of $nil (2012: $345,350) which were financed by means of finance leases. 64 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 5. terM Deposits Current Receivables – term deposits Term deposits are made for varying periods of between three and 12 months depending on the term cash requirements of the Group, and earn interest at market term deposit rates. 6. trADe AND otHer receiVABLes Current Trade debtors Sundry debtors Other receivables Notes 2013 $’000 2012 $’000 314,000 314,000 252,000 252,000 [a][i] [a][ii] 37,705 6,490 3,106 47,301 13,432 5,384 4,976 23,792 [a] Terms and conditions Terms and conditions relating to the above financial instruments: [i] [ii] Details of terms and conditions of trade debtors and credit sales are set out in note 1(h). Sundry debtors are non-interest bearing and have repayment terms between 30 and 90 days. [b] Impaired or past due financial assets An allowance for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. At 30 June 2013, trade debtors of nil (2012: $ $nil) in the Group were impaired. At 30 June 2013, trade debtors of $5,166,585 (2012: $4,585,321) in the Group were past due but not impaired. These relate to a number of customers for whom there is no recent history of default or other indicators of impairment. At 13 August 2013 $4,170,000 of this amount remains outstanding. With respect to trade debtors that are neither impaired nor past due, there are no indications as of the reporting date that the relevant debtors will not meet their payment obligations. Movements in the allowance for impairment of trade debtors were as follows: Balance at the beginning of the year Charge for the year Amounts written off Balance at the end of the year The ageing of trade debtors past due but not impaired is as follows: Less than 30 days overdue Between 30 and 60 days overdue Between 60 and 90 days overdue Greater than 90 days overdue Trade debtors not impaired and not past due 2013 $’000 2012 $’000 - - - - 109 - 999 4,058 5,166 32,539 37,705 - - - - - 509 1,819 2,257 4,585 8,847 13,432 Mount Gibson Iron Limited 2013 Annual Report 65 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 7. iNVeNtories Consumables – at cost Provision for stock obsolescence Ore – at cost Provision for low grade ore 8. DeriVAtiVe FiNANciAL Assets Current Foreign currency forward contracts and options 30[b][i] Notes 2013 $’000 28,736 (1,893) 147,443 (22,313) 151,973 2013 $’000 Restated 2012 $’000 31,620 (194) 203,657 (25,117) 209,966 2012 $’000 - - 5,584 5,584 Percentage of equity interest held by the group 9. iNterest iN sUBsiDiAries Name Mount Gibson Mining Limited Geraldton Bulk Handling Pty Ltd Aztec Resources Limited • Koolan Iron Ore Pty Ltd • Koolan Shipping Pty Ltd • Brockman Minerals Pty Ltd Country of incorporation 2013 % Australia Australia Australia Australia Australia Australia 100 100 100 100 100 100 2012 % 100 100 100 100 100 100 entities subject to class order relief Pursuant to Class Order 98/1418, relief has been granted to Mount Gibson Mining Limited, Aztec Resources Limited and Koolan Iron Ore Pty Ltd from the Corporations Act 2001 requirements for the preparation, audit and lodgement of their financial reports. As a condition of the Class Order, Mount Gibson Iron Limited, Mount Gibson Mining Limited, Aztec Resources Limited and Koolan Iron Ore Pty Ltd (“Closed Group”) entered into a Deed of Cross Guarantee on 1 May 2009. The effect of this deed is that Mount Gibson Iron Limited has guaranteed to pay any deficiency in the event of winding up of these controlled entities or if they do not meet their obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The controlled entities have also given a similar guarantee in the event that Mount Gibson Iron Limited is wound up or if it does not meet its obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The Consolidated Income Statement and Balance Sheet of the Closed Group are set out below: 66 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 Consolidated Income Statement of the Closed Group Continuing operations Sale of goods Other revenue Total revenue Cost of sales Gross profit Other income Administration expenses Exploration expenses Profit from continuing operations before tax and finance costs Finance costs Profit from continuing operations before tax Tax benefit/(expense) Net profit after tax attributable to members of the Closed Group 2013 $’000 852,873 11,945 864,818 (653,668) 211,150 160 (30,795) (144) 180,371 (7,366) 173,005 10,625 183,630 Restated 2012 $’000 648,464 20,412 668,876 (400,817) 268,059 163 (23,550) (53) 244,619 (7,298) 237,321 (63,282) 174,039 Mount Gibson Iron Limited 2013 Annual Report 67 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 9. iNterest iN sUBsiDiAries (coNtiNUeD) Consolidated Balance Sheet of the Closed Group 2013 $’000 Restated 2012 Restated 1 July 2011 $’000 59,004 314,000 43,081 151,973 2,706 - 40,028 252,000 22,869 209,962 3,155 5,584 116,082 270,000 21,365 160,358 3,183 386 570,764 533,598 571,374 121,275 195,066 861 661,213 61,201 1,039,616 100,732 216,640 344 673,059 2,889 993,664 32,561 244,280 309 457,318 - 734,468 1,610,380 1,527,262 1,305,842 99,990 19,188 4,607 26,010 12,220 162,015 78,598 9,204 110,372 198,174 360,189 117,468 21,702 393 9,440 10,454 159,457 78,063 25,322 151,228 254,613 414,070 96,492 28,607 63 22,793 4,256 152,211 24,217 16,461 112,287 152,965 305,176 1,250,191 1,113,192 1,000,666 568,328 669,120 12,743 564,710 529,016 19,466 561,585 419,843 19,238 1,250,191 1,113,192 1,000,666 Assets Current assets Cash and cash equivalents Term deposits Trade and other receivables Inventories Prepayments Derivative financial assets Total current assets Non-current assets Other receivables Property, plant and equipment Deferred acquisition, exploration and evaluation costs Mine properties Deferred tax assets Total non-current assets Total assets LiABiLities Current liabilities Trade and other payables Interest-bearing loans and borrowings Derivative financial liabilities Income tax payable Provisions Total current liabilities Non-current liabilities Provisions Interest-bearing loans and borrowings Deferred tax liabilities Total non-current liabilities Total liabilities Net assets eQUitY Issued capital Retained earnings Reserves Total equity 68 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 10. propertY, pLANt AND eQUipMeNt Freehold land – at cost Plant and equipment – at cost Accumulated depreciation Plant and equipment under lease – at cost Accumulated depreciation Buildings – at cost Accumulated depreciation Buildings under lease – at cost Accumulated depreciation Capital works in progress – at cost Total property, plant and equipment At cost Total accumulated depreciation [a] Assets pledged as security The value of assets pledged as security are: Freehold land Plant and equipment Plant and equipment under lease Buildings Buildings under lease Capital works in progress 2013 $’000 2012 $’000 654 240,306 (112,316) 127,990 101,208 (69,763) 31,445 118,112 (49,660) 68,452 522 (512) 10 654 220,706 (81,162) 139,544 98,710 (52,076) 46,634 115,207 (30,722) 84,485 522 (476) 46 19,373 12,018 480,175 (232,251) 247,924 447,817 (164,436) 283,381 654 127,990 31,445 68,452 10 19,373 247,924 654 139,544 46,634 84,485 46 12,018 283,381 Mount Gibson Iron Limited 2013 Annual Report 69 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 10. propertY, pLANt AND eQUipMeNt (coNtiNUeD) [b] Reconciliations Reconciliations of the carrying amounts of property, plant and equipment at the beginning and end of the current and previous financial year: Plant and equipment Carrying amount at the beginning of the year Additions Transfers Disposals Depreciation expense Carrying amount at the end of the year Plant and equipment under lease Carrying amount at the beginning of the year Additions Transfers Disposals Depreciation expense Carrying amount at the end of the year Buildings Carrying amount at the beginning of the year Additions Transfers Disposals Depreciation expense Carrying amount at the end of the year Buildings under lease Carrying amount at the beginning of the year Depreciation expense Carrying amount at the end of the year Capital works in progress Carrying amount at the beginning of the year Additions Transfers Transfers to mine properties Carrying amount at the end of the year 2013 $’000 2012 $’000 139,544 18,391 3,951 (52) (33,844) 127,990 46,634 2,533 - - (17,722) 31,445 84,485 2,802 136 - (18,971) 68,452 46 (36) 10 12,018 21,970 (4,087) (10,528) 19,373 91,911 32,043 32,339 (1,530) (15,219) 139,544 52,276 27,714 (11,847) (277) (21,232) 46,634 36,830 15,471 39,534 - (7,350) 84,485 72 (26) 46 64,975 30,206 (60,026) (23,137) 12,018 70 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 11. DeFerreD AcQUisitioN, expLorAtioN AND eVALUAtioN costs Deferred acquisition, exploration and evaluation costs carried forward in respect of mining areas of interest: Extension Hill Koolan Island Fields Find Other Reconciliation Carrying amount at beginning of the year Additions Transferred to mine properties Exploration expenditure written off Carrying amount at the end of the year 12. MiNe properties Mine development expenditure Accumulated amortisation 2013 $’000 2012 $’000 68 160 584 49 861 344 1,640 (979) (144) 861 62 282 - - 344 309 1,125 (1,043) (47) 344 2013 $’000 Restated 2012 Restated 1 July 2011 $’000 1,318,075 (656,862) 661,213 1,205,572 (532,513) 673,059 913,658 (456,249) 457,409 Reconciliation Carrying amount at beginning of the year Additions Transferred from deferred acquisition, exploration, evaluation and development costs Transferred from capital works in progress Deferred waste capitalised during the year Amortisation expensed – deferred waste Amortisation expensed – other Derecognise opening deferred stripping balance 2[d] 2[d] 2[d] 1(e) 673,059 93 979 10,528 100,904 (97,544) (26,806) - 457,409 58,155 1,043 23,137 209,578 (53,268) (22,995) - Carrying amount at the end of the year 661,213 673,059 The security pledged for financing facilities includes mining mortgages over the mining tenements and contractual rights to mine hermatite deposits owned by the Group. Refer Note 14. 13. trADe AND otHer pAYABLes Current Trade creditors Accruals and other payables Notes 2013 $’000 2012 $’000 [a] [a] 33,720 72,016 105,736 32,867 89,663 122,530 [a] Current trade creditors and other payables are non-interest bearing and are normally settled on 30 day terms. Mount Gibson Iron Limited 2013 Annual Report 71 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 14. iNterest-BeAriNG LoANs AND BorroWiNGs Notes 2013 $’000 2012 $’000 Current Lease liability Hire purchase facility Non-Current Lease liability Hire purchase facility Financing facilities available At reporting date, the following financing facilities had been negotiated and were available: Total facilities: • Finance leases • Hire purchase facility • Contingent instrument facility • Corporate debt Facilities used at reporting date: • Finance leases • Hire purchase facility • Contingent instrument facility • Corporate debt Facilities unused at reporting date: • Finance leases • Hire purchase facility • Contingent instrument facility • Corporate debt [a] [b] [a] [b] [a] [b] [c] [c] 1,197 17,991 19,188 - 9,204 9,204 1,197 27,195 65,000 - 93,392 1,197 27,195 58,625 - 87,017 - - 6,375 - 6,375 1,769 19,933 21,702 1,197 24,125 25,322 2,966 44,058 65,000 50,000 162,024 2,966 44,058 57,743 - 104,767 - - 7,257 50,000 57,257 Terms and conditions relating to the above financial facilities: [a] Finance lease facility Finance leases are repayable monthly with final instalments due in May 2014. Interest is charged at an average rate of 8.29% pa. The facilities are secured by first mortgages over the leased assets. [b] Hire purchase facility Hire purchase arrangements have been entered into by Koolan Iron Ore Pty Ltd and Mount Gibson Mining Ltd via master lease agreements with Komatsu Corporate Finance Pty Limited and National Australia Bank Limited. Hire purchase amounts are repayable monthly with final instalments due in August 2016. Interest is charged at an average rate of 7.58% pa. The facilities are secured by a first mortgage over the assets the subject of the hire purchase agreements and a guarantee from the Company. This facility is drawn and repayable in A$. [c] Corporate debt and contingent instrument facility On 9 May 2011, the Company entered into a facility agreement for a $115,000,000 finance facility which expires on 30 June 2014 consisting of: • Senior debt facility of $50,000,000 repayable as follows: - $25,000,000 on 31 December 2013; and - $25,000,000 on 30 June 2014. • Contingent instrument facility of $65,000,000 (including guarantees and performance bonds). On 22 April 2013, the Company cancelled the undrawn senior debt facility of $50,000,000. The security pledge for the contingent instrument facility is a fixed and floating charge over all the assets and undertakings of Mount Gibson Iron Limited, Mount Gibson Mining Limited, Geraldton Bulk Handling Limited, Koolan Iron Ore Pty Ltd and Aztec Resources Limited together with mining mortgages over the mining tenements owned by Mount Gibson Mining Limited and Koolan Iron Ore Pty Ltd and the contractual rights of Mount Gibson Mining Limited to mine hematite iron ore at Extension Hill. 72 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 15. DeriVAtiVe FiNANciAL LiABiLities Current Foreign currency forward contracts Notes 30[b][i] 16. proVisioNs Current Employee benefits Road resealing Restructure Non-Current Employee benefits Decommissioning rehabilitation Movement in provisions: Road resealing Carrying amount at beginning of the year Provision for period Amounts utilised during the period Carrying amount at end of the year This provision relates to the forecast cost of roadworks associated with the Tallering Peak mine site. The payments to the shires are made annually. Restructure Carrying amount at beginning of the year Provision for period Amounts utilised during the period Carrying amount at end of the year This provision relates to the forecast costs associated with release of personnel on closure of Tallering Peak, which is expected to occur in June 2014. Decommissioning rehabilitation Carrying amount at beginning of the year Provision for period Amounts utilised during the period Interest accretion on rehabilitation provision Carrying amount at end of the year This provision represents the present value of decommissioning and rehabilitation costs on closure of the Tallering Peak, Koolan Island and Extension Hill mines. The timing of decommissioning and rehabilitation expenditure is dependent on the life of the mines, which may vary in future. Tallering Peak Koolan Island Extension Hill 2013 $’000 2012 $’000 4,607 4,607 6,314 633 5,437 12,384 1,057 77,580 78,637 433 400 (200) 633 4,158 2,674 (1,395) 5,437 77,432 - (1,890) 2,038 77,580 8,584 61,313 7,683 77,580 393 393 6,012 433 4,158 10,603 666 77,432 78,098 100 333 - 433 - 4,158 - 4,158 23,666 52,779 - 987 77,432 10,406 59,569 7,457 77,432 Mount Gibson Iron Limited 2013 Annual Report 73 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 17. issUeD cApitAL [a] Ordinary shares Issued and fully paid 2013 $’000 2012 $’000 568,328 564,710 2013 2012 Number of shares $’000 Number of shares $’000 [b] Movement in ordinary shares on issue Beginning of the financial year 1,085,728,430 564,710 1,082,570,693 561,585 Exercise of performance rights Shares issued under dividend reinvestment plan Shares issued – other Deferred income tax on capital raising cost - 4,855,802 - - - 3,523 - 95 294,906 2,717,071 145,760 - - 3,020 199 (94) End of the financial year 1,090,584,232 568,328 1,085,728,430 564,710 [c] Terms and conditions of contributed equity Ordinary shares have the right to receive dividends as declared, and in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. Effective from 1 July 1998, the Corporations legislation abolished the concept of authorised capital and par values. Accordingly, the Company does not have authorised capital nor a par value in respect of its issued shares. [d] Share options As at 30 June 2013, there were no options on issue (2012: 2,000,000) – see Note 21(b). Share options carry no right to dividends and no voting rights. [e] Performance rights As at 30 June 2013, there were 904,908 performance rights on issue (2012: 271,318) – see Note 21(c). [f] Capital management The primary objective of the Group’s capital management is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and maintain an optimal capital structure to reduce the cost of capital. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares or other securities. No changes were made in the objectives, policy or processes for managing capital during the years ended 30 June 2013 and 30 June 2012. 74 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 18. reserVes Option premium reserve Net unrealised gains/(losses) reserve Other reserves [a] Option premium reserve The option premium reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. Balance at the beginning of the year Share-based payments Balance at the end of the year [b] Net unrealised gains/(losses) reserve This reserve records movement for available-for-sale financial assets to fair value and gains and losses on hedging instruments determined to be effective cash flow hedges. Balance at the beginning of the year Net gains/(losses) on cash flow hedges Deferred income tax on cash flow hedges Balance at the end of the year [c] Other reserves This reserve is used to record the gain or loss arising from the sale or acquisition of non-controlling interests to or from third party investors. Balance at the beginning of the year Movement during the period Balance at the end of the year 19. retAiNeD eArNiNGs Balance at the beginning of the year Dividends paid during the period Net profit attributable to members of the Company Balance at the end of the year Notes [a] [b] [c] Notes 23(a) 2013 $’000 19,160 (3,225) (3,192) 12,743 18,875 285 19,160 3,783 (9,798) 2,790 (3,225) (3,192) - (3,192) 2013 $’000 487,162 (43,526) 157,342 600,978 2012 $’000 18,875 3,783 (3,192) 19,466 18,991 (116) 18,875 3,439 283 61 3,783 (3,192) - (3,192) Restated 2012 $’000 390,103 (64,957) 162,016 487,162 Mount Gibson Iron Limited 2013 Annual Report 75 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 Notes 2013 $’000 2012 $’000 20. expeNDitUre coMMitMeNts [a] Exploration expenditure commitments Minimum obligations not provided for in the financial report and are payable: • Not later than one year • Later than one year but not later than five years • Later than five years [b] Operating lease commitments Minimum lease payments • Not later than one year • Later than one year but not later than five years • Later than five years [i] [ii] [c] Finance lease and hire purchase commitments [iii] Minimum lease payments • Not later than one year • Later than one year but not later than five years Total minimum lease payments Future finance charges 14 14 [iv] Total lease liability accrued for: Current Finance leases and hire purchase facility Non-current Finance leases and hire purchase facility [d] Property, plant and equipment commitments Commitments contracted for at balance date but not recognised as liabilities • Not later than one year • Later than one year but not later than five years [e] Contractual commitments Commitments for the payment of other mining and transport contracts: • Not later than one year • Later than one year but not later than five years 890 2,588 2,658 6,136 17,305 8,258 1,055 26,618 20,571 9,643 30,214 (1,822) 28,392 545 1,978 2,653 5,176 19,761 15,564 - 35,325 24,451 26,984 51,435 (4,411) 47,024 19,188 21,702 9,204 28,392 25,322 47,024 244 - 244 3,323 - 3,323 71,299 98,854 170,153 69,998 105,555 175,553 [i] In order to maintain current rights to explore and mine the tenements at Tallering Peak, Koolan Island and Extension Hill, the Group is required to perform minimum exploration work to meet the expenditure requirements specified by the Department of Mines and Petroleum. [ii] Operating leases relates to leases for office space with an initial term of six years and leases for machinery which have an average term of 1.8 years. [iii] Finance leases and hire purchase arrangements have an average term of 3.5 years with, in certain cases, the option to purchase the asset at the completion of the lease term for a pre-agreed amount. The average discount rates implicit in the finance leases and hire purchase arrangements are 8.29% pa and 7.58% pa respectively (2012: 8.94% pa and 7.48% pa respectively). Lease liabilities are secured by a charge over the leased assets. [iv] The Group has contractual commitments to purchase property, plant and equipment relating principally to the construction of buildings at Koolan. [v] Amounts disclosed as contractual commitments relate to contracts in respect of mining and transport that are not recognised as liabilities. 76 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 21. sHAre-BAseD pAYMeNt pLANs Notes 2013 $’000 Restated 2012 $’000 (a) Recognised share-based payment (income)/expense (Income)/expense arising from equity-settled share-based payment transactions 2[e] 285 (116) The share-based payment plans are described below. There have been no cancellations or modifications to any of the plans during 2013 and 2012. (b) Employee share scheme An employee share scheme has been established where the Company may, at the discretion of the Board, grant options over the ordinary shares of the Company. The options, issued for nil consideration, are granted in accordance with performance guidelines established by the Directors of the Company. All Directors, officers and employees are eligible for this scheme. No options were issued during the year ended 30 June 2013. As at balance date the following options over unissued shares were on issue: Exercise price Vesting date / exercise period 110 cents Vested 24 Oct 2010 – exercise on or before 23 Oct 2012 2013 Number - - 2012 Number 2,000,000 2,000,000 The remaining contractual life for the options on issue as at 30 June 2012 is less than one year. Information with respect to the number of options granted and issued under the employee share scheme is as follows: 2013 2012 Weighted average exercise price (cents) Number of options Weighted average exercise price (cents) 110.0 - (110.0) - - - 2,000,000 110.0 - - - 2,000,000 2,000,000 - - - 110.0 110.0 Number of options 2,000,000 - (2,000,000) - - - Balance at beginning of year - granted - forfeited - exercised Balance at year end Exercisable at year end (c) Performance rights plan The Company has established the Mount Gibson Iron Limited Performance Rights Plan. Rights are granted at no cost to the executives and convert into ordinary shares on completion by the executive of three years’ continuous service, subject to satisfaction of specified performance hurdles related to the Company’s Total Shareholder Return (“TSR”) measured against a comparator group of companies over the same period. The Board is currently undertaking a review of the hurdles within the performance rights plan and may consider modification of the hurdles in future periods. The vesting scale is as follows: Percentile rank achieved Proportion of target award vesting >76th percentile 100% > 51st percentile and ≤76th percentile Pro rata allocation 51st percentile <51st percentile 50% 0% The following table lists the inputs to the model used for the performance rights plan: Accounting grant date Share price at accounting grant date Risk free interest rate Volatility factor 2013 2013 2012 19-Sep-2012 01-Jul-2012 30-Jun-2012 $0.90 2.55% 51% $0.92 2.35% 51% $1.03 2.67% 51% Mount Gibson Iron Limited 2013 Annual Report 77 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 21. sHAre-BAseD pAYMeNt pLANs (coNtiNUeD) Information with respect to the number of performance rights granted and issued is as follows: Balance at beginning of year - granted - vested - lapsed/forfeited Balance at year end Exercisable at year end 22. eArNiNGs per sHAre 2013 Number of performance rights 2012 Number of performance rights 271,318 633,590 - - 904,908 - 1,102,599 271,318 (294,906) (807,693) 271,318 - Basic earnings per share is calculated by dividing net profit for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts is calculated by dividing the net profit attributable to ordinary equity holders of the Company 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 the conversion of all the dilutive potential ordinary shares into ordinary shares. 904,908 performance rights on issue have not been included in the calculation of diluted earnings per share as the performance hurdles are yet to be met and the performance rights have not vested. The following reflects the income and share data used in the calculations of basic and diluted earnings per share: Profits used in calculating basic and diluted earnings per share 157,342 162,016 2013 $’000 Restated 2012 $’000 Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilution - Share options Weighted average number of ordinary shares used in calculating diluted earnings per share Earnings per share (cents per share): Basic earnings per share Diluted earnings per share Number of shares Number of shares 1,088,961,197 1,083,055,540 - 341,357 1,088,961,197 1,083,396,897 14.45 14.45 14.96 14.95 Conversions, calls, subscriptions or issues after 30 June 2013 No options were outstanding at 30 June 2013. Since the end of the financial year, no shares have been issued upon vesting of performance rights granted by the Company. There have been no other conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the balance date and before the completion of this report. 78 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 23. DiViDeNDs pAiD AND proposeD Declared and paid during the year: (a) Dividends on ordinary shares: Maiden final fully franked dividend for 2011: 4.0 cents per share Maiden interim fully franked dividend for 2012: 2.0 cents per share Final fully franked dividend for 2012: 2.0 cents per share Interim fully franked dividend for 2013: 2.0 cents per share (b) Dividends not recognised at the end of the reporting period: On 22 August 2013, the Company declared a final dividend on ordinary shares in respect of the 2012/13 financial year of $0.02 per share fully franked. The total amount of the dividend is $21,812,000. The dividend has not been provided for in the 30 June 2013 financial statements. (c) Franked dividends: The amount of franking credits available for the subsequent financial year are: 2013 $’000 2012 $’000 - - 21,714 21,812 43,526 43,303 21,654 - - 64,957 Franking account balance as at the end of the financial year at 30% 41,670 6,232 Franking credits that will arise from the payment of income tax payable as at the end of the financial year The amount of franking credits available for future reporting periods: Impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the period 7,396 49,066 (9,348) 39,718 12,503 18,735 (9,306) 9,429 Tax rates The tax rate at which paid dividends have been franked is 30%. 24. coNtiNGeNt LiABiLities 1. 2. 3. 4. The Group has a performance bond facility drawn to a total of $58,625,000 (2012: $57,743,000). The performance bonds secure the Group’s obligations relating to environmental matters and historical rail upgrades. A dispute has arisen between Mount Gibson Mining Limited and a construction contractor. The contractor is seeking that Mount Gibson Mining Limited pay an additional sum of $6,550,000 in connection with historical works. Mount Gibson Mining Limited disputes that the additional sum is payable. The parties have commenced arbitration to resolve the matter. A dispute has arisen between Mount Gibson Iron Limited and a third party regarding payment of an advisory fee in connection with the Company’s takeover of Aztec Resources Limited in the 2006/07 financial year. The parties are involved in litigation before the New South Wales Supreme Court in an attempt to resolve the matter. The third party claim is valued at approximately $10,000,000. The Company disputes the validity of the claim and believes it will be successful in defending the claim. A dispute has arisen between Mount Gibson Iron Limited and a third party regarding the amount of royalty payable in connection with the Company’s mining operations at Extension Hill. The Company is in disagreement as to the amount of the royalty payable. The disputed portion of the third party claim is dependent upon future iron ore prices and could be valued at approximately $2,500,000 per year over the life of the mine. 5. Certain claims arising with customers, employees, consultants, and contractors have been made by or against certain controlled entities in the ordinary course of business, some of which involve litigation or arbitration. The Directors do not consider the outcome of any of these claims will have a material adverse impact on the financial position of the consolidated entity. Mount Gibson Iron Limited 2013 Annual Report 79 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 25. KeY MANAGeMeNt persoNNeL DiscLosUres [a] Compensation of Key Management Personnel Short-term Post employment Long-term Share-based payment Termination payment [b] Option holdings of Key Management Personnel 2013 $ 3,592,171 182,865 1,917 277,592 - 2012 $ 3,414,904 170,353 256 (115,988) 773,023 4,054,545 4,242,548 Balance at beginning of period 1 July 2012 Granted as remun- eration Options exercised Net change Balance at end of period 30 June 2013 Vested at 30 June 2013 Not Total exercisable Exercisable - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 30 June 2013 Directors G Hill Lee SH A Jones Chen Z Li S R Barwick S Bird P Dougas A Ferguson Other KMP J Beyer P Kerr K Bozanic A Thomson K Faulkner D Stokes Total 80 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 Balance at beginning of period 1 July 2011 Granted as remun- eration Options exercised Net change Balance at end of period 30 June 2012 Vested at 30 June 2012 Not Total exercisable Exercisable - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 30 June 2012 Directors G Hill A Jones Chen Z Li S Lee SH R Barwick S Bird P Dougas C Readhead I Macliver Cao Z L Tonkin Other KMP J Beyer A Rule D Berg D Stokes K Faulkner Total [c] Shareholdings of Key Management Personnel 30 June 2013 Directors G Hill Lee SH A Jones Chen Z Li S R Barwick S Bird P Dougas A Ferguson Other KMP J Beyer P Kerr K Bozanic A Thomson K Faulkner D Stokes Total Balance 1 July 2012 Ord Granted as remuneration Ord On exercise of performance rights Ord Net change other Ord Balance 30 June 2013 Ord 70,000 - - - - - 20,000 100,000 - - - - - - - 190,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 100,000 - - - - 103,866 - 70,000 - 100,000 - - - 20,000 203,866 - 19,801 19,801 - - - - - - - - - - 223,667 413,667 Mount Gibson Iron Limited 2013 Annual Report 81 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 25. KeY MANAGeMeNt persoNNeL DiscLosUres (coNtiNUeD) [c] Shareholdings of Key Management Personnel (continued) 30 June 2012 Directors G Hill A Jones Chen Z Lee SH Li S R Barwick S Bird P Dougas C Readhead I Macliver Cao Z L Tonkin Other KMP J Beyer A Rule D Berg D Stokes K Faulkner Total Balance 1 July 2011 Ord Granted as remuneration Ord On exercise of performance rights Ord Net change other Ord Balance 30 June 2012 Ord - - - - - - - 20,000[1] 567,500 1,000,000 - - - - - - - 1,587,500 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 211,778 83,128 - - 70,000 70,000 - - - - - 20,000 80,000 (567,500)[2] (1,000,000)[3] - - - - (83,128)[4] - - - - - - - 20,000 100,000 - - - - - 211,778 - - - 294,906 (1,480,628) 401,778 [1] Initial interest on appointment as at 16 November 2011 [2] Final interest on resignation as at 14 December 2011 [3] Final interest on resignation as at 16 November 2011 [4] Final interest on resignation as at 30 April 2012 All equity transactions with Key Management Personnel other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the entity would have adopted if dealing at arm’s length. 82 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 [d] Performance rights holdings by Key Management Personnel 30 June 2013 Directors G Hill Lee SH A Jones Chen Z Li S R Barwick S Bird P Dougas A Ferguson Other KMP J Beyer P Kerr K Bozanic A Thomson K Faulkner D Stokes Total 30 June 2012 Directors G Hill A Jones Chen Z Lee SH Li S R Barwick S Bird P Dougas C Readhead I Macliver Cao Z L Tonkin Other KMP J Beyer A Rule D Berg D Stokes K Faulkner Total Balance 1 July 2012 Granted as remuneration Vested during year Lapsed/ forfeited during year Balance 30 June 2013 - - - - - - - - - 271,318 - - - - - 271,318 - - - - - - - - - 243,450 121,340 - 134,420 - 109,560 608,770 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 514,768 121,340 - 134,420 - 109,560 880,088 Balance 1 July 2011 Granted as remuneration Vested during year Lapsed/ forfeited during year Balance 30 June 2012 - - - - - - - - - - - 535,985 - - - - - - - - - - - - - 271,318 - - - - - - - - - - - - - - - - - - - - - - - - (535,985) - - - - - - - - - - - - - 271,318 382,846 183,768 - - - - - - (211,778) (83,128) - - (171,068) (100,640) - - - - - - 1,102,599 271,318 (294,906) (807,693) 271,318 [e] Loans to specified Key Management Personnel There were no loans to Key Management Personnel during the year. [f] Other transactions and balances with Key Management Personnel There were no other transactions and balances with Key Management Personnel during the year. Mount Gibson Iron Limited 2013 Annual Report 83 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 26. reLAteD pArtY DiscLosUre Ultimate parent Mount Gibson Iron Limited is the ultimate Australian parent company. Director-related entity transactions Sales During all or part of the year Mr Li and Mr Chen were directors of Shougang Concord (SCIT) and Mr Lee, Mr Curry and Mr Ferguson were directors of APAC. The following sale agreements are in place with director-related entities: • • • • The sale of 80% of iron ore from Tallering Peak’s production over the life of mine after 0.65 million (+/-10%) wet metric tonnes (“WMT”) per year is provided to other customers to SCIT. The sale of 20% of iron ore from Tallering Peak’s production over the life of mine after 0.65 million (+/-10%) WMT per year is provided to other customers to APAC. The sale of 80% of iron ore from Koolan Island’s available mined production over the life of mine to SCIT. The sale of 20% of iron ore from Koolan Island’s available mined production over the life of mine to APAC. Pursuant to these sales agreements, during the financial year, the Group: • • Sold 1,180,188 WMT (2012: 1,203,488 WMT) of iron ore to APAC; and Sold 3,360,446 WMT (2012: 2,883,959 WMT) of iron ore to SCIT. Amounts recognised at the reporting date in relation to director-related entity transactions: Assets and liabilities Current assets Trade receivables – APAC Trade receivables – SCIT Total trade receivables Total assets Current liabilities Trade payables – APAC Trade payables – SCIT Total trade payables Total liabilities Revenues and Expenses Sale of goods – APAC Sale of goods – SCIT Total sale of goods 2013 $’000 2,019 4,267 6,286 6,286 (1) (11) (12) (12) 2012 $’000 426 8,133 8,559 8,559 - 2 2 2 104,721 361,204 465,925 116,331 387,059 503,390 Apart from the above, there are no director-related entity transactions other than those specified in Note 25. 27. AUDitor’s reMUNerAtioN Amounts received or due and receivable by EY for: • An audit or review of the financial report of the entity and any other entity in the consolidated entity • Other services in relation to the entity and any other entity in the consolidated entity 2013 $ 2012 $ 254,395 231,885 13,285 267,680 - 231,885 84 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 28. seGMeNt iNForMAtioN The Group has identified its operating segments based on the internal reports that are reviewed and used by the Chief Executive Officer and the executive management team in assessing performance and in determining the allocation of resources. All operating segments have been aggregated to form one reportable segment representing the entity as a whole. The reportable segments are based on aggregated operating segments determined by the similarity of economic characteristics and the segments are similar in each of the following respects: [i] [ii] the nature of the product mined and sold, being hematite iron ore; the nature of the production process which involves mining and crushing of iron ore; [iii] the similarity of customers across the segments; and [iv] the similarities of the shipping method used to distribute the iron ore to market. The accounting policies applied for internal reporting purposes are consistent with those applied in the preparation of the financial statements. During the year ended 30 June 2013, revenue received from the sale of iron ore was comprised of the following buyers who each on a proportionate basis equated to greater than 10% of total sales for the period: Customer # 1 # 2 # 3 # 4 Other 2013 $’000 351,127 136,398 113,087 107,248 135,951 843,811 During the year ended 30 June 2012, revenue received from the sale of iron ore was comprised of the following buyers who each on a proportionate basis equated to greater than 10% of total sales for the period: Customer # 1 # 2 # 3 # 4 Other 2012 $’000 387,059 116,331 59,140 47,209 27,272 637,011 Revenue from external customers by geographical location is based on location of the customer. In the 2012 financial year, all iron ore was shipped to China. In the 2013 financial year, approximately 2% of the iron ore sales were sold on a mine gate basis to a local buyer, with the vast majority of the balance shipped to China. All segment assets are located within Australia. 29. eVeNts AFter tHe BALANce sHeet DAte On 22 August 2013, the Company declared a final dividend on ordinary shares in respect of the 2012/13 financial year of $0.02 per share fully franked. The total amount of the dividend is $21,812,000. The dividend has not been provided for in the 30 June 2013 financial statements. Subsequent to the end of the period, the Board approved the award of certain amounts under the Company’s short-term and long-term incentive plans to members of executive management team. These amounts have been included in the financial statements and Directors’ report for the year. As at the date of this report there are no significant events after balance date of the Company or of the Group that require adjustment of or disclosure in this report. Mount Gibson Iron Limited 2013 Annual Report 85 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 30. FiNANciAL iNstrUMeNts [a] Financial risk management objectives The Group’s principal financial instruments, other than derivatives, comprise bank loans, finance leases and hire purchase contracts, cash and short-term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations. The Group also enters into derivatives transactions, principally forward currency contracts, and from time to time also enters into foreign currency collar options and interest rate swaps. The purpose is to manage the currency and interest rate risks arising from the Group’s operations and its sources of finance. The main risks arising from the Group’s financial instruments are foreign currency risk, interest rate risk, credit risk, commodity price risk and liquidity risk. The Board reviews and agrees management’s recommended policies for managing each of these risks, as summarised below. [b] Foreign currency risk The Group is exposed to the risk of adverse movement in the A$ compared to the US$ as its iron ore sales receipts are denominated in US$. The Group uses derivative financial instruments to manage specifically identified foreign currency exposures by hedging a proportion of forecast US$ sales transactions in accordance with its risk management policy. The primary objective of using derivative financial instruments is to reduce the volatility of earnings and cash flows attributable to changes in the A$/US$ exchange rate and to protect against adverse movements in this rate. The Group recognises derivative financial instruments at fair value at the date the derivative contract is entered into. The Group applies hedge accounting to forward foreign currency contracts that meet the criteria of cash flow hedges. During the period from 1 July 2012 to 30 June 2013, the Group delivered into US dollar foreign exchange forward contracts totalling US$309,999,994 at a weighted average exchange rate of A$1.00/US$1.0064. At 30 June 2013, the notional amount of the foreign exchange hedge book totalling US$55,000,000 is made up as follows: • Forward contracts totalling US$55,000,000 due in the 12 months ending 30 June 2014 and with a weighted average contract rate of A$1.00/US$0.9860. As at 30 June 2013, the mark-to-market loss on the total outstanding US dollar foreign exchange hedge book of US$55,000,000 was A$4,606,687. It is the Group’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximise hedge effectiveness. The Group uses the following derivative instruments to manage foreign currency risk: Instrument Type of Hedging Objective Forward exchange contracts Cash flow hedge To hedge sales receipts against cash flow volatility arising from the fluctuation of A$/US$ exchange rate. [i] Foreign exchange contracts – cash flow hedges The Group has entered into forward exchange contracts at the reporting date designed as a hedge of anticipated future receipts that will be denominated in US$. At balance date, the following foreign exchange contracts were outstanding: 2013 2012 Average contract rate A$/US$ US$ $’000 Contract value A$ $’000 Fair value A$ $’000 Average contract rate A$/US$ US$ $’000 Contract value A$ $’000 Fair value A$ $’000 Forward exchange contracts - within one year Total 0.9860 0.9860 55,000 55,000 55,781 55,781 (4,607) 0.9900 200,000 202,012 (4,607) 0.9900 200,000 202,012 5,191 5,191 86 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 Current assets (note 8) Current liabilities (note 15) Total forward exchange contracts Movement in forward exchange contract cash flow hedge reserve: Opening balance Change in fair value of cash flow hedges net of tax Transferred from/(to) revenue in Income Statement net of tax Closing balance Cash flow hedge ineffectiveness recognised immediately in profit and loss [ii] Foreign currency sensitivity 2013 $’000 - (4,607) (4,607) 5,191 (18,860) 9,062 (4,607) - 2012 $’000 5,584 (393) 5,191 323 (6,585) 11,453 5,191 - The following table details the effect on profit after tax and other comprehensive income after tax of a 10% change in the A$ against the US$ from the spot rates at 30 June 2013 and 30 June 2012 due to changes in the fair value of monetary assets and liabilities. 10% appreciation in the A$ spot rate with all other variables held constant 10% depreciation in the A$ spot rate with all other variables held constant Net profit Other comprehensive income 2012 $’000 2013 $’000 2012 $’000 (749) 915 601 23,007 (7,907) (19,461) 2013 $’000 (2,268) 2,772 The sensitivity analysis of the Group’s exposure to the foreign currency risk at balance date has been determined based on the change in value due to foreign exchange movement based on exposures at Balance Sheet date. A positive number indicates an increase in profit and other comprehensive income. At balance date, the Group’s exposure to foreign currency risks on financial assets and financial liabilities, excluding derivatives, are as follows: Financial assets Cash Trade receivables Financial liabilities Trade payables Net exposure (included within Note 4) (included within Note 6) (included within Note 13) Consolidated 2013 $’000 6,536 29,146 (43) 35,639 2012 $’000 1,149 10,755 (136) 11,768 Mount Gibson Iron Limited 2013 Annual Report 87 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 30. FiNANciAL iNstrUMeNts (coNtiNUeD) [c] Interest rate risk The Group’s exposure to market interest rates relates primarily to the Group’s long-term debt obligations and cash equivalents. The Group’s policy is to manage its interest costs using a mix of fixed and variable rate debt. The Group regularly analyses its interest income rate exposure. Within this analysis, consideration is given to potential renewals of existing positions and alternative financing. At balance date, the Group’s exposure to interest rate risks on financial assets and financial liabilities are as follows: Fixed interest rate maturing in: Floating interest rate 1 year or less Over 1 to 5 years Non-interest bearing Total carrying amount per Balance Sheet Weighted average interest 2013 $’000 2012 $’000 2013 $’000 2012 $’000 2013 $’000 2012 $’000 2013 $’000 2012 $’000 2013 $’000 2012 $’000 2013 % 2012 % Consolidated i) Financial assets Cash 47,014 40,673 - Short-term deposits Term deposits Trade and other receivables Derivatives Total financial assets ii) Financial liabilities Trade and other payables Derivatives Lease liabilities Hire purchase Total financial liabilities - - - 15,000 - 314,000 252,000 - - - - - - - - - - 47,014 40,673 329,000 252,000 - - - - 1,197 1,769 - - - - - - - - - - - - - - - - - - - - - - - - - 4 - - 5 - 47,018 40,678 15,000 - - 314,000 252,000 1.12 3.78 4.00 2.82 - 5.65 47,301 23,792 47,301 23,792 - 5,584 - 5,584 47,305 29,381 423,319 322,054 - 105,736 122,530 105,736 122,530 - 4,607 393 4,607 393 - - - - - - - - 17,991 19,933 9,204 24,125 1,197 - - - - 1,197 2,966 27,195 44,058 8.29 7.58 8.94 7.48 19,188 21,702 9,204 25,322 110,343 122,923 138,735 169,947 [i] Interest rate sensitivity The following table details the effect on profit and other comprehensive income after tax of a 1% change in interest rates at 30 June 2013 and 30 June 2012. • 1% increase in interest rate with all other variables held constant • 1% decrease in interest rate with all other variables held constant Net profit Other comprehensive income 2013 $’000 2,303 (2,303) 2012 $’000 1,764 (1,764) 2013 $’000 2012 $’000 - - - - The sensitivity analysis of the Group’s exposure to Australian variable interest rates at balance date has been determined based on exposures at Balance Sheet date. A positive number indicates an increase in profit and equity. [d] Credit risk The Group’s maximum exposures to credit risk at balance date in relation to each class of recognised financial assets, other than derivatives, is the carrying amount of those assets as indicated in the Balance Sheet. In relation to derivative financial instruments, whether recognised or unrecognised, credit risk arises from the potential failure of counterparties to meet their obligations under the contract or arrangement. The Group’s maximum credit risk exposure in relation to forward exchange contracts is the full amount of the foreign currency it will be required to pay or purchase when settling the forward exchange contract, should the counterparty not pay the currency it is committed to deliver to the Group. The Group minimises concentrations of credit risk in relation to trade receivables by undertaking transactions with a number of customers and by the use of advance payments and letters of credit which guarantee at least 90% of receivable amount at the time of sale. 88 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 Credit risk from balances with banks and financial institutions is managed in accordance with a Board approved policy. Investments of surplus funds are made only with approved counterparties with an acceptable Standard & Poors short-term credit rating and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Board on an annual basis, and may be updated throughout the year. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty failure. No material exposure is presently considered to exist by virtue of the possible non performance of the counterparties to financial instruments. There are no significant concentrations of credit risk within the Group. [e] Commodity price risk The Group’s operations are exposed to commodity price risk as the Group sells iron ore to its customers. The Group’s sales revenue is derived under long-term sales contracts for the life of mine at each of its operations. The pricing mechanism in these contracts reflects a market based clearing index. The pricing mechanism adopts the Platts Iron Ore Index Price (“Platts Index”) which is published daily for iron ore “fines” with Fe content ranging from 52% to 65% and is quoted on a US$ per dry metric tonne “Cost and Freight” North China basis. The price to be paid by Mount Gibson’s customers is based on the applicable Platts Index for the type and quality of ore delivered and reflects the average Platts Index for the preceding or the actual calendar month of the iron ore shipment. The average monthly Platts Index is converted to an “Free On Board” price per dry metric tonne by deducting the calculated shipping freight costs utilising corresponding shipping average monthly indices for Panamax vessels from the ports of Geraldton and Koolan Island to Qingdao in China. “Lump” iron ore receives a premium to the published Platts Index “fines” price and is determined every one to six months depending on the relevant sales contract. Revenue on sales is recognised based on provisional priced sales and is subject to final adjustments between 30 to 120 days after shipment and delivery. There are limited available financial instruments available to hedge the iron ore price and the Group has yet to enter into such arrangements. [f] Liquidity risk The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of its cash reserves, finance leases and hire purchase contracts. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching maturity profiles of financial assets and liabilities. The Group’s capital risk management objectives are to safeguard the business as a going concern, to maximise returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure in order to reduce the cost of capital (being equity and debt). Mount Gibson does not have a target debt/equity ratio but has a policy of maintaining a flexible financing structure so as to be able to take advantage of new investment opportunities that may arise. At 30 June 2013, the Group had unutilised standby credit facilities totalling $6,375,000 (2012: $57,257,000). Refer Note 14. The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period from the Balance Sheet date to the contractual maturity date. As the amounts disclosed in the table are the contractual undiscounted cash flows, these balances will not necessarily agree with the amounts disclosed in the Balance Sheet. 30 June 2013 30 June 2012 Less than 6 months $’000 6 to 12 months $’000 1 to 5 years $’000 Over 5 years $’000 Total $’000 Less than 6 months $’000 6 to 12 months $’000 1 to 5 years $’000 Over 5 years $’000 Total $’000 Financial liabilities Trade and other payables 105,736 Lease liabilities Hire purchases - 931 - - 338 11,336 7,964 9,643 Derivatives – gross inflow (51,200) Derivatives – gross outflow 55,807 - - - - 122,017 8,895 9,643 [g] Fair value of financial assets and financial liabilities - - - - - - 105,736 122,530 - - 1,269 741 1,203 1,269 28,943 11,604 10,903 25,714 (51,200) (185,662) (21,671) 55,807 181,368 20,775 - - 140,555 130,581 11,210 26,983 - - - - - - 122,530 3,213 48,221 (207,333) 202,143 168,774 The carrying amounts and fair values of the financial assets and financial liabilities for the Group are shown below. The fair value representing the marked to market value of a financial asset or a financial liability is the amount at which the asset could be exchanged or liability settled in a current transaction between willing parties after allowing for transaction costs. The fair values of cash, short-term deposits, trade and other receivables, trade and other payables and other short-term borrowings approximate their carrying values, as a result of their short maturity or because they carry floating rates of interest. The fair values of derivative financial instruments are determined using the Level 2 method requiring fair value to be calculated using observable market inputs. The Group’s fair values under the Level 2 method are sourced from an independent valuation by the Group’s treasury advisors. The valuation techniques use prevailing market inputs sourced from Reuters/Bloomberg to determine an appropriate mid price valuation. Mount Gibson Iron Limited 2013 Annual Report 89 Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 30. FiNANciAL iNstrUMeNts (coNtiNUeD) [g] Fair value of financial assets and financial liabilities (continued) Financial assets - current Cash Short-term deposits Term deposits Trade debtors Other receivables Derivatives Financial liabilities – current Trade and other payables Lease and hire purchase liabilities Derivatives Financial liabilities – non current Lease and hire purchase liabilities 2013 2012 Carrying amount $’000 Fair value $’000 Carrying amount $’000 Fair value $’000 47,018 15,000 314,000 37,705 9,596 - 47,018 15,000 314,000 37,705 9,596 - 40,678 - 252,000 13,432 10,360 5,584 40,678 - 252,000 13,432 10,360 5,584 423,319 423,319 322,054 322,054 105,736 19,188 4,607 129,531 9,204 9,204 105,736 19,188 4,607 129,531 9,204 9,204 122,530 21,702 393 144,625 25,322 25,322 122,530 21,702 393 144,625 25,322 25,322 Net financial assets 284,584 284,584 152,107 152,107 31. pAreNt eNtitY iNForMAtioN [a] Information relating to Mount Gibson Iron Limited: Current assets Total assets Current liabilities Total liabilities Issued capital Accumulated losses Share-based payments reserve Total shareholders’ equity Net profit/(loss) after tax of the parent entity Total comprehensive income/(loss) of the parent entity 2013 $’000 2012 $’000 454 659,811 26,466 209,990 568,328 (137,667) 19,160 449,821 24,404 24,404 846 670,726 10,215 205,593 564,805 (118,546) 18,874 465,133 (46,429) (46,429) [b] Details of any guarantees entered into by the parent entity There are cross guarantees given by Mount Gibson Iron Limited in relation to the debts of its subsidiaries as described in Note 9. The parent entity has further provided bank guarantees in respect of obligations to various authorities. Refer to Note 14. [c] Details of any contingent liabilities of the parent entity The parent entity had contingent liabilities as at reporting date as set out in Note 24. For information about guarantees given by the parent entity, refer [b] above. Mount Gibson Iron Limited guarantees the performance of Mount Gibson Mining Limited’s obligations to Aurizon entities under the Transport Access Agreement made on 26 June 2008 as amended and restated on 30 June 2009. In accordance with this agreement, Mount Gibson Mining Limited agrees to reimburse Aurizon for track access charges properly due and payable to Brookfield, the rail infrastructure owner. 90 Mount Gibson Iron Limited 2013 Annual Report Notes to tHe coNsoLiDAteD FiNANciAL report for the year ended 30 June 2013 [d] Details of any contractual commitments by the parent entity for the acquisition of property, plant and equipment There are no contractual commitments by the parent entity for the acquisition of property, plant and equipment as at reporting date. [e] Tax consolidation The Company and its 100% owned controlled entities have formed a tax consolidated group. Members of the Group entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned controlled entities. The agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At balance date, the possibility of default is remote. The head entity of the tax consolidated group is Mount Gibson Iron Limited. Mount Gibson Iron Limited 2013 Annual Report 91 Directors’ DecLArAtioN Directors’ Declaration In accordance with a resolution of the Directors of Mount Gibson Iron Limited, I state that: 1. In the opinion of the Directors: a. the financial statements, notes and the additional disclosures included in the Directors’ Report designated as audited of the Group are in accordance with the Corporations Act 2001, including: i) giving a true and fair view of the financial position of the Group as at 30 June 2013 and of its performance for the year ended on that date; and ii) complying with Accounting Standards and the Corporations Regulations 2001; and b. c. the financial statements and notes also comply with International Reporting Standards as disclosed in Note 1; and there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2013. Signed in accordance with a resolution of the Directors. G HILL Chairman Perth, 22 August 2013 92 Mount Gibson Iron Limited 2013 Annual Report iNDepeNDeNt AUDitor’s report Mount Gibson Iron Limited 2013 Annual Report 93 iNDepeNDeNt AUDitor’s report 94 Mount Gibson Iron Limited 2013 Annual Report corporAte GoVerNANce stAteMeNt tHe BoArD AND corporAte GoVerNANce The Company’s Board is committed to protecting and enhancing shareholder value and conducting the Company’s business ethically and in accordance with high standards of corporate governance. In determining those standards the Company has reference to ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (2nd edition with 2010 amendments – “ASX Recommendations”). The Company believes that its practices are consistent with the ASX Recommendations. The Board undertook a complete review of the Company’s corporate governance policies during the year ended 30 June 2012. Since then the Company continues to review and improve its governance practices consistent with the ASX Recommendations and make changes as appropriate, having regard to the nature and scale of the Company’s business. A description of the Company’s main corporate governance practices is set out below. These practices reflect the Company’s existing corporate governance policies. Copies of the relevant policies are available in the corporate governance section of the Company’s website at www.mtgibsoniron.com.au. tHe roLe oF tHe BoArD AND tHe BoArD cHArter The Board operates in accordance with the broad principles set out in the Company’s Board Charter, a copy of which is available from the Company’s website. The Board is responsible for guiding and monitoring the performance of the Company on behalf of shareholders, to whom they are accountable. Day to day management of the Company’s affairs and the implementation of corporate strategies and policy initiatives are delegated by the Board to the Chief Executive Officer and the senior executives as set out in the Board Charter. The Board Charter sets out the powers and responsibilities of the Board, including: • • • • • charting the direction of the Company, formulating and adopting policies, strategies and financial objectives, and ensuring appropriate resources are available to management; monitoring the implementation of policies and strategies, and achievement of those financial objectives and performance against the strategic plan and budgets; and monitoring compliance with control and accountability systems, regulatory requirements and ethical standards; ensuring the preparation of accurate financial reports and statements; and encouraging a culture that promotes ethical and responsible decision-making, compliance with legal responsibilities and transparency through effective and timely disclosure. Specific powers reserved to the Board in the Board Charter include: • • • • • appointing, removing and monitoring the performance of the Chief Executive Officer and Company Secretary, determining their terms and conditions of employment and ratifying other key executive appointments and planning for executive succession; reviewing and approving systems of risk management and internal control and compliance, codes of conduct and legal compliance; reviewing and approving financial and other reporting; reviewing and approving major capital expenditure, capital management and acquisitions and divestitures; and approving the issue of any shares, options or other securities in the Company. A statement on Board and management functions, which sets out those matters reserved to the Board and the roles and responsibilities of senior management, is available on the Company’s website. cHieF execUtiVe oFFicer The Chief Executive Officer is responsible for running the affairs of the Company under delegated authority from the Board and implementing the policies and strategy set by the Board. In carrying out his responsibilities, the Chief Executive Officer must: • • • • report directly to the Board; provide prompt and full information to the Board regarding the conduct of the business of the Company; comply with the reasonable directions of the Board; and have regard to the requirements of the ASX Listing Rules and expectations of stakeholders and the wider investment community. coNFLict oF iNterest poLicY The Board has adopted a Conflict of Interest Policy which establishes a protocol under which each Director is required to disclose certain interests and advise the Board in circumstances where a potential conflict of interest may arise. The Conflict of Interest Policy also sets out the procedures to be followed where the Chairman determines that a Director’s interest in a matter may result in a conflict of interest occurring. The Board has established a Contracts Committee to handle negotiations and disputes between the Company and its major shareholders regarding contractual matters such as offtake arrangements. Mount Gibson Iron Limited 2013 Annual Report 95 corporAte GoVerNANce stAteMeNt BoArD coMpositioN As at the date of this report the Company has eight Directors. All are Non-Executive Directors, including the Chairman. Board composition, size and structure will be reviewed annually to ensure that the Non-Executive Directors between them bring the range of skills, knowledge and experience necessary to direct the Company. The skills, knowledge and experience which the Board considers to be particularly relevant include qualifications and experience in the areas of mining, engineering and project management, accounting and finance, commodities, mergers and acquisitions. The Board is not considering the appointment of additional Directors at this time and considers that its current membership has an appropriate mix of the requisite skills, knowledge, experience and independence for current business needs. The Board, with the assistance of the Nomination, Remuneration and Governance Committee (“NRGC”), regularly reviews its membership to ensure that it has the appropriate mix of skills and experience required to meet the needs of the Company. When a Board position becomes vacant or additional Directors are required, external professional advisers are engaged to assist with identifying potential candidates and to ensure that a diverse range of candidates is considered. All Directors, excluding the Managing Director (if any), are required to retire and may stand for re-election by shareholders, at the third Annual General Meeting (AGM) following their election or most recent re-election. Details of skills, experience and relevant expertise for each Director in office as at the date of the Annual Report, and the period for which each Director has held office, are set out on page 22. Director iNDepeNDeNce The ASX Recommendations define an independent director as a non-executive director who is not a member of management and who is free of any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with – the independent exercise of their judgement. The Board determines the independence of Directors. As announced in November 2011, the Company received an expression of concern from the Foreign Investment Review Board (“FIRB”) about whether the Board had a majority of independent directors as required by Recommendation 2.1 of the ASX Recommendations. In response, the Company worked with its legal and financial advisers (and remained in close communication with the FIRB) in order to address this issue. This work included completing a process of Board renewal which saw the appointment of three new independent Directors. The Board has now determined that five of the eight directors currently in office (Messrs Hill, Jones, Dougas, Barwick and Bird) are independent. In July 2012 FIRB informed the Company that on the basis of steps taken and information provided by the Company, it was satisfied that the structure of the Company’s Board was now consistent with Principle 2 of the ASX Recommendations insofar as it relates to the independence of directors. In determining “independence” the Board assesses independence with reference to whether a Director is non-executive, is not a member of management, and is free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgement. In making this assessment the Board considers all relevant facts and circumstances. As directed by the ASX Recommendations, the Board in assessing independence considers whether a Director: • • • • • is a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company; is employed, or has previously been employed in an executive capacity by the Company or another group member, and there has not been a period of at least three years between ceasing such employment and serving on the Board; has within the last three years been a principal of a material professional adviser or a material consultant to the Company or another group member, or an employee materially associated with the service provided; is a material supplier or customer of the Company or other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; has a material contractual relationship with the Company or another group member other than as a Director. Having reference to the above factors, the Board has determined that the following Directors are not classified as independent: • • • Mr Lee is a Non-Executive Director of APAC Resources Limited, which is a substantial shareholder and holds a controlling interests in a major offtake customer of the Group. Mr Lee is also an Executive Director of Allied Group Limited and Allied Properties (H.K.) Limited, both of which are deemed to be substantial shareholders of the Company. Mr Li Shao Feng is Chairman of Shougang Fushan Resources Group Limited, which is also a substantial shareholder and holds a controlling interest in a major offtake customer of the Group. Mr Chen is Vice Chairman and Managing Director of Shougang Fushan Resources Group Limited. Directors’ Access to iNDepeNDeNt ADVice The Company recognises that, from time to time, a Director may need to obtain independent expert advice in order to discharge that Director’s duties. Any reasonable expenses incurred in obtaining that advice will be met by the Company, provided advance approval is obtained in accordance with the Board Charter. This approval is not to be unreasonably withheld. 96 Mount Gibson Iron Limited 2013 Annual Report corporAte GoVerNANce stAteMeNt BoArD MeetiNGs The Board meets at least six times each year, and full Board meetings are usually held every two months. Meetings are convened outside the scheduled dates to consider issues of importance that arise from time to time. Board members are encouraged to visit the Group’s operations at least once per year. The Board has sought to reduce the frequency of Board meetings to six times a year to take into account the increased number of Committee meetings now being held. Directors’ attendance at Board and Committee meetings is detailed on page 31. BoArD coMMittees The Board has established an Audit and Financial Risk Management Committee, a Nomination, Remuneration and Governance Committee, a Contracts Committee, and an Operational Risk and Sustainability Committee. Audit and Financial Risk Committee (“AFRC”) The AFRC is currently comprised of Simon Bird, Alan Jones, and Geoff Hill. Mr Bird is currently the Chair of the AFRC. The AFRC has a formal charter and usually meets four times during a financial year. A copy of the Charter is located on the Company’s website. Committee members’ attendance at AFRC meetings is detailed on page 31. The AFRC’s overall role is to assist the Board in fulfilling its responsibilities for the Company’s financial reporting and audit, internal control and financial risks. During the 2012 financial year the Board strengthened the audit and risk management framework by introducing an internal audit function. In addition, as part of that governance review, the Board established the Operational Risk and Sustainability Committee (“ORSC”) to enhance the oversight of operational risk issues, leaving the AFRC to focus primarily on financial risks. The AFRC’s specific responsibilities now include: • Assist the Board to meet its oversight responsibilities in relation to: (i) (ii) the Company’s financial reporting obligations; compliance with legal and regulatory requirements in relation to financial matters, including accounting standards; (iii) financial internal control structure; (iv) financial risk management procedures; and (v) the internal and external audit functions. • • • • • Oversee the Company’s relationship with the external auditors and the external audit function generally. Oversee the Company’s relationship with the internal auditors and the internal audit function generally. Oversee the preparation of the financial statements and reports to ensure that they are fair and accurate and comply with the requirements of the Corporations Act and the applicable accounting standards. Monitor the Company’s financial controls and systems to ensure that they are in place and operating effectively. Manage the Company’s processes of identifying and managing financial risk and review the Company’s effectiveness in doing so. The Chief Executive Officer, Chief Financial Officer, internal and external auditors normally attend AFRC meetings however there are occasions where there are meetings just between the auditors and Committee members. Information on the procedures for selection and appointment of the internal and external auditor, and for the rotation of external audit engagement partners, is set out in the Company’s policy on external audit. Copies of these policies, together with a summary of the Company’s risk policy are located on the Company’s website. Nomination, Remuneration and Governance Committee (“NRGC”) The NRGC is currently comprised of Geoff Hill, Alan Jones, and Russell Barwick. Mr Hill is currently the Chair of this Committee. The NRGC has a formal charter and normally meets at least four times during a financial year. A copy of the Charter is located on the Company’s website. Committee members’ attendance at NRGC meetings is detailed on page 31. The NRGC’s specific responsibilities include: • • • • • • reviewing and recommending to the Board the size and composition of the Board; recommending prospective candidates for appointment to the Board; recommending and assisting in the implementation of the process for Board and Director evaluation; making recommendations to the Board on remuneration of Directors and senior executives; ensuring the performance of the Chief Executive Officer is reviewed by the Chairman as provided in the remuneration policy; and review and implementation of corporate governance policies. Details of the structure of Directors’ and senior executives’ remuneration are set out in the Directors’ Report. Mount Gibson Iron Limited 2013 Annual Report 97 corporAte GoVerNANce stAteMeNt Operational Risk and Sustainability Committee (“ORSC”) The ORSC was established during the 2012 financial year as part of the Company’s governance review and in particular to enhance the risk management process for the Company in respect of operational matters. The ORSC is currently comprised of Russell Barwick, Paul Dougas, and Chen Zhouping. Mr Barwick is currently the Chair of this Committee. The ORSC has a formal charter and normally meets at least four times during a financial year. A copy of the Charter is located on the Company’s website. Committee members’ attendance at ORSC meetings is detailed on page 31. The ORSC’s specific responsibilities include: • • • assisting the Board to monitor and understand the Company’s business and operations so as to assess if operating risks and sustainability actions are being managed; monitoring operational risks and sustainable performance associated with occupational health and safety, environment, development, community and stakeholder relationships, human resources management and optimisation, legal and regulatory compliance, geological resources and reserves, mining, geotechnical, transport and infrastructure, marketing and business risk; and reviewing and reporting to the Board as to whether the risk management program is operating effectively, including identification of risk, management of risks, remedial actions for areas of weakness, and auditing processes. As noted above, a summary of the Company’s risk policy is located on the Company’s website. Contracts Committee (“CC”) The CC was established during the 2012 financial year as part of the Company’s governance review to provide an independent Committee to oversee management’s interaction with substantial shareholders regarding areas of major contractual negotiation and disputes. The Committee is comprised of independent Directors including Paul Dougas, Alan Jones, Russell Barwick, and Simon Bird. Mr Dougas is currently the Chair of this Committee. The CC has a formal charter and normally meets at least two times during a financial year. A copy of the Charter is located on the Company’s website. Committee members’ attendance at CC meetings is detailed on page 31. The CC’s specific responsibilities include: • • • overseeing the work of management in managing and resolving issues and disputes arising as between the Company and substantial shareholders; engaging with substantial shareholders to ensure there is a common understanding of the relationship and business dealings; and handling all matters in a balanced and sensitive manner with proper regard to the overall best interests of the Company and all shareholders. corporAte reportiNG The Chief Executive Officer and Chief Financial Officer have made the following certifications to the Board with respect to the 2013 accounts: • • that the financial statements and notes give a true and fair view of the financial position and performance of the Company and Group and comply with the Corporations Act 2001 and relevant accounting standards; and that the above statement is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. secUrities DeALiNG poLicY The Company has a policy imposing restraints on Directors and Key Management Personnel dealing in the Company’s securities. The policy is aimed at minimising the risk of Directors and Key Management Personnel contravening insider trading laws, ensuring the Company is able to meet its reporting obligations under the ASX Listing Rules and increasing transparency with respect to trading in the Company’s securities by Directors and Key Management Personnel. A copy of this policy is located on the Company’s website. Under the policy, Key Management Personnel must not at any time engage in short-term trading in securities of the Company. Furthermore, executives are prohibited from entering into arrangements to protect the value of unvested entitlements under equity- based remuneration plans. FiNANciAL reportiNG Consistent with ASX Governance Principle 4.1, the Company’s financial report preparation and approval process for the financial year ended 30 June 2013 involved both the Chief Executive Officer and the Chief Financial Officer providing detailed representations to the Board covering: • • • • compliance with the Company’s accounting policies and relevant accounting standards; the accuracy of the financial statements and that they provide a true and fair view; integrity and objectivity of the financial statements; and effectiveness of the system of risk management and internal control. 98 Mount Gibson Iron Limited 2013 Annual Report corporAte GoVerNANce stAteMeNt iNDeMNities The Company has entered into deeds of access, indemnity and insurance with each Director. These deeds provide: • • • rights of access to Company documentation; rights of indemnification against liability arising from conduct of the Company’s and Group’s business; and commitments that the Company will provide Directors’ and officers’ liability insurance coverage, subject in all cases to limitations imposed by law. Directors’ AND seNior execUtiVes’ perForMANce eVALUAtioN AND reMUNerAtioN During the reporting period the Board commenced a formal process for evaluating the performance of the Board, its Committees and individual Directors. The performance evaluation process was substantially completed in September 2013. The process for review involved Board members responding to a series of questions and those answers being compiled into a report so as to identify areas of strength and weakness with the objective of improving the overall performance of the team. The evaluation process involved questions directed at both individual and team performance. The NRGC annually evaluates the performance of senior executives against both financial and non-financial, corporate and individual performance measures. For the reporting period, the NRGC undertook a review of the Chief Executive Officer and all the senior executives against these performance measures. The review was completed in September 2013. Further information about the performance measures are detailed in the remuneration report on pages 32-38. The Company’s policy and procedure for selection and appointment of new Directors and its Remuneration Policy are available on its website. coNtiNUoUs DiscLosUre AND sHAreHoLDer coMMUNicAtioNs The Company has established a continuous disclosure policy, identifying the procedure for executives in identifying material price sensitive information and reporting that information to the Company Secretary for review. The Company Secretary has primary responsibility for ensuring that ASX disclosure requirements are met. The Company has also adopted a policy for shareholder communications in order to promote effective communication with shareholders and encouraging participation at the Company’s annual general meeting. Copies of each of these policies are located on the Company’s website. Shareholders may elect to receive company reports by mail or e-mail. risK MANAGeMeNt The Company recognises that there are multiple risks inherent in everything it does, including financial, operational, safety, legal and compliance, geotechnical, and environmental risks, including loss of opportunities, all of which may impact the success of the business. The Company is committed to developing and maintaining a risk management system that effectively identifies and controls all areas of substantial risk to the business. The Company is committed to ensuring risk management is integrated across the business. The key elements of the Company’s risk management policy include: • • • • • • identifying and ranking key business risks based on approved risk ranking criteria; developing policies and procedures to identify, manage, control and report key risks; provide for remedial action and auditing process; having adequate crisis management and business continuity plans; insurance programs to transfer residual risk; and reporting to the Board of high level risks. The Board has delegated responsibility to the AFRC (financial risks) and OSRC (operational and other risks) to review and report to the Board that: • • • • the Company’s ongoing risk management program has effectively identified all areas of material business risk during the financial year; adequate policies and procedures have been designed and implemented to manage identified risks; a regular program of audits is undertaken to test the adequacy of and compliance with prescribed policies; and proper remedial action is undertaken to redress areas of weakness. Mount Gibson Iron Limited 2013 Annual Report 99 corporAte GoVerNANce stAteMeNt risK MANAGeMeNt (coNtiNUeD) The Company has in place specific policies and programs addressing certain strategic, financial, operational and compliance risks. Comprehensive reports addressing each of these areas are provided regularly to management and the Board. Controls are in place to ensure that the Company’s risks are managed effectively and the integrity of its financial reporting is preserved, including: • • • • • an annual budgeting process with at least monthly reporting against performance targets; Board approved delegated authority limits that set out authority levels for expenditure and commitments for different levels of management within the Company; a financial risk management policy, which establishes a risk management framework and procedures for the effective management of the Company’s financial risks, including management of investment of surplus cash and foreign currency; a capital approval process that controls the authorisation of capital expenditure and investments; and a crisis and emergency management system designed to address emergencies at any of the Company’s operating sites. The Board has received an assurance from the Chief Executive Officer and the Chief Financial Officer that the declaration provided under s295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. A summary of the risk policy is on the Company website. AUDitors The external auditor attends the annual general meeting and is available to answer shareholder questions about the conduct of the audit, the preparation and content of the auditor’s report and the independence of the auditor in relation to the conduct of the audit. Shareholders also have a right to submit written questions to the external auditor (via the Company) in advance of the annual general meeting, in relation to the contents of the audit report or the conduct of the audit for the relevant year. etHicAL stANDArDs AND coNDUct The Company has an Employee Code of Conduct providing a framework of principles for conducting business and dealing with stakeholders. Employees are required to perform and act with integrity, fairness and in accordance with the law and to avoid real or apparent conflicts of interest. In addition, the Company has also established a Board Code of Conduct for Directors, which establishes guidelines for their conduct in carrying out their duties. Copies of both Codes of Conduct are located on the Company’s website. DiVersitY The Company wishes to be recognised as an organisation that welcomes diversity and is committed to equality at all levels. The Company established a diversity policy during the reporting period and this is now published on the Company’s website. The Board also set measurable objectives for achieving gender diversity during the period in accordance with the diversity policy and these are provided in the table below, together with performance. The percentage of women employees in the whole organisation is 16%. There are no female members presently on the Board. Gender diversity targets – measurable objectives Measurable objective Target FY2013 Female employees in Mt Gibson Female employees in executive and senior management roles Female members on the Board 20% 10% 1 Actual 16% 21% 0% Comments Below target. In line with the mining industry female participation rate of 17% as reported by the Workplace Gender Equality Agency Exceed. Revised target for FY2014 increased to 20%. Below. No plans to increase the number of Board members at the present time. 100 Mount Gibson Iron Limited 2013 Annual Report Asx ADDitioNAL iNForMAtioN The following information is required in order to complete the back end of the annual report entitled “ASX and Additional Information”. The information is current as at 16 September 2013. (a) Distribution of equity securities The number of shareholders, by size of holding, in each class of share, are as follows: 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - 999,999,999 Total Number of holders Number of shares % of issued capital Ordinary shares 2,187 5,388 3,001 3,954 298 1,228,052 15,905,942 23,758,301 113,915,902 935,776,035 14,828 1,090,584,232 0.11 1.46 2.18 10.45 85.81 100.00 The number of shareholders holding less than a marketable parcel of shares are: 1,208 337,730 0.039% (b) Equity security holders The names of the 20 largest holders of quoted shares are: Ordinary shares Number of shares % of shares held True Plus Limited Sun Hung Kai Investment Services Limited HSBC Custody Nominees (Australia) Limited APAC Resources Investments Limited J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited National Nominees Limited Sun Hung Kai Investment Services Ltd JP Morgan Nominees Australia Limited Debortoli Wines Pty Limited Sun Hung Kai Investment Services Ltd Zero Nominees Pty Ltd BNP Paribas Noms Pty Ltd HSBC Custody Nominees (Australia) Limited True Plus Limited QIC Limited HSBC Custody Nominees (Australia) Limited - A/C 3 Mr Desmond George Samuel Anderson AMP Life Limited Mr Michael David Jefferys Top 20 holders Total remaining holders balance Total issued ordinary shares 159,166,874 151,523,460 87,801,971 82,900,000 77,428,861 58,139,388 57,200,186 55,203,818 34,583,967 30,046,165 19,713,660 7,700,000 7,317,664 4,895,528 4,700,000 4,572,044 3,468,721 3,050,000 2,466,900 2,033,000 853,912,207 236,672,025 1,090,585,232 14.59 13.89 8.05 7.60 7.10 5.33 5.24 5.06 3.17 2.76 1.81 0.71 0.67 0.45 0.43 0.42 0.32 0.28 0.23 0.19 78.30 21.70 100.00 Mount Gibson Iron Limited 2013 Annual Report 101 Asx ADDitioNAL iNForMAtioN (c) Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: Number of shares % of current issued shares 1. APAC Resources Limited and its subsidiaries 2. COL Capital Limited, its subsidiaries and Ms Shirley Chong Suk Un Note: Substantial shareholdings 1 and 2 are not cumulative and arise through common shareholdings. 279,877,774 282,992,277 3. Shougang Corporation and Shougang Concord International 154,166,874 Enterprises Company Limited and each of their controlled entities 4. Shougang Fushan Resources Group Limited, True Plus Limited and its 154,166,874 subsidiaries Note: Substantial shareholdings 3 and 4 are not cumulative and arise through common shareholdings. 25.66% 25.95% 14.14% 14.14% (d) Voting rights All ordinary shares carry one vote per share without restriction. No voting rights attach to options. 102 Mount Gibson Iron Limited 2013 Annual Report Asx ADDitioNAL iNForMAtioN (e) Schedule of interests in mining tenements Location Koolan Island Koolan South Koolan Island Koolan Island Koolan Island Extension Hill Extension Hill Extension Hill Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Piawaning Piawaning Piawaning Piawaning Jasper Hill Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Wellstead Tenement E04/1266-I E04/1407-I L04/29 M04/416 - I M04/417 - I G70/232 G70/238 L70/133 G70/192 G70/193 G70/201 G70/202 G70/203 G70/204 G70/205 L70/60 L70/69 L70/73 L70/74 M70/896 - I M70/1062 - I M70/1063 - I M70/1064 - I E70/3732 E70/3059 - I E70/4509 E70/4510 E70/4511 E59/1355-I E59/1268-I M59/63 E59/1938 E59/1939 E59/1940 E59/1984 P59/1991 P59/1996 P59/1997 P59/1998 E70/4424 Status Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Pending Live Pending Pending Pending Live Live Live Pending Pending Pending Pending Pending Pending Pending Pending Pending Percentage held 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Mount Gibson Iron Limited 2013 Annual Report 103 This page has been left blank intentionally 104 Mount Gibson Iron Limited 2013 Annual Report corPorAtE DirEctorY Board of directors solicitors Geoffrey Hill Chairman, Non-Executive Director Lee Seng Hui Deputy Chairman, Non-Executive Director Alan Jones Non-Executive Director Chen Zhouping Non-Executive Director Li Shaofeng Non-Executive Director Russell Barwick Non-Executive Director Paul Dougas Non-Executive Director Simon Bird Non-Executive Director company secretary David Stokes Registered office Level 1, 2 Kings Park Road West Perth 6005, Western Australia Telephone: +61 8 9426 7500 Facsimile: +61 8 9485 2305 Email: Website: www.mtgibsoniron.com.au admin@mtgibsoniron.com.au Herbert Smith Freehills Level 36, QV1 Building 250 St Georges Terrace Perth 6000, Western Australia Auditors Ernst & Young Ernst & Young Building 11 Mounts Bay Road Perth 6000, Western Australia Bankers HSBC Bank Australia Ltd 188-190 St Georges Terrace Perth 6000, Western Australia stock exchange listing The company’s shares are listed on the Australian Securities Exchange. ASX Code: MGX share registry Computershare Investor Services Pty Ltd Level 2, Reserve Bank Building 45 St Georges Terrace Perth 6000, Western Australia Telephone: +61 8 9323 2000 Facsimile: +61 8 9323 2033 Annual general Meeting of shareholders Scheduled to be held at 10:00am on Wednesday 13 November at City West Function Centre, 45 Plaistowe Mews, West Perth WA. Easy access to information See our website at www.mtgibsoniron.com.au for regular quarterly reports and financial results. Additionally, shareholders or interested parties can register to receive emailed updates shortly after the Company makes any regular or major announcement. i a l a r t s u a t n e M e g a n a M n o h p y r g y b D e c u D o r p D n a D e n g s e D i M o u n t G i b s o n i r o n L i M i t E D 2 0 1 3 A N N U A L R E P O R T www.mtgibsoniron.com.au 

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