Mount Gibson Iron Limited
Annual Report 2015

Plain-text annual report

2015AnnualReport 2015 2015 Mount Gibson Iron Limited is an established Australian producer and exporter of iron ore. The Company was incorporated in 1996 and was listed on the Australian Securities Exchange in 2002. Head-quartered in Perth, Mount Gibson owns the Extension Hill mine in the Mount Gibson Range south east of Geraldton, and the Koolan Island mine off the Kimberley coast in the remote north-west of the State. The Company seeks to provide sustainable, long-term returns to shareholders by optimising its existing operations and growing long-term profitability through the discovery, development, participation in and acquisition of mineral resources. Our MGX Values provide us with a behavioural guide on how to sustainably deliver shareholder value. It includes always putting the health and safety of our people first, working together with the communities in which we operate, and undertaking our activities in an environmentally responsible and sustainable manner. MGX Values 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 approachable and open to other points of view 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 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 2MOUNT GIBSON IRON LIMITED 2015 Annual ReportContents 2014/15 Performance Summary Chairman’s Report Chief Executive Officer’s Report Health and Safety Operational Review Environment and Community Affairs Resources and Reserves Statement Financial Report Corporate Governance Additional ASX Information Corporate Directory 3 4 5 6 7 10 11 13 95 96 99 2014/15 Performance Summary (cid:63)Lost Time Injury Frequency Rate of Zero, compared with 3.43 in previous year (cid:63)Total ore sales of 5.8 million tonnes (cid:63)Total ore sales revenue of A$325 million (cid:63)Total Cost of Goods Sold reduced 17% to A$62/wmt FOB, including non-cash costs, royalties and before impairments (cid:63)Year-end cash and term deposits of A$334 million (A$0.30/share) (cid:63)Reported net loss after tax of A$911.4 million after non-cash impairments of A$945.2 million and non-cash tax benefit of A$99.9 million (cid:63)Successfully closed and rehabilitated Tallering Peak mine (cid:63)Underlying gross loss from continuing operations of A$13.9 million (cid:63)Net assets of A$306 million (cid:63)Negligible debt, A$2.7 million in equipment leases MOUNT GIBSON IRON LIMITED 2015 Annual Report3Lorem ipsum dolor sit amet, consectetur sollicitudin non condimentum eu, porta in non vehicula sagittis, leo velit vestibulum adipiscing elit. Sed condimentum, enim non purus. Use this space to highlight features in copy lacus, eu lacinia enim leo vitae nisi. Cras sodales leo in ante convallis laoreet. Mauris ornare metus arcu. Donec risus mi, sollicitudin non condimentum eu, porta in purus. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed condimentum, enim non vehicula sagittis, leo velit vestibulum lacus, eu lacinia enim leo vitae nisi. Cras sodales leo in ante convallis laoreet. Mauris ornare metus arcu. Donec risus mi, sollicitudin non condimentum eu, porta in purus. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed condimentum, enim non vehicula sagittis, leo velit vestibulum lacus, eu lacinia enim leo vitae nisi. Cras sodales leo in ante convallis laoreet. Mauris ornare metus arcu. Donec risus mi, sollicitudin non condimentum eu, porta in purus. SUBHEAD STYLE ONE Subhead Two Style Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed condimentum, enim non vehicula sagittis, leo velit vestibulum lacus, eu lacinia enim leo vitae nisi. Cras sodales leo in ante convallis laoreet. Mauris ornare metus arcu. Donec risus mi, sollicitudin non condimentum eu, porta in purus. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed condimentum, enim non vehicula sagittis, leo velit vestibulum lacus, eu lacinia enim leo vitae nisi. Cras sodales leo in ante convallis laoreet. Mauris ornare metus Subhead Style Two arcu. Donec risus mi, sollicitudin non Pellentesque habitant morbi tristique condimentum eu, porta in purus. senectus et netus et malesuada fames ac Pellentesque habitant morbi tristique turpis egestas. senectus et netus et malesuada fames ac Lorem ipsum dolor sit amet, consectetur turpis egestas. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed condimentum, enim non vehicula sagittis, leo velit vestibulum lacus, eu lacinia enim leo vitae nisi. Cras sodales leo in ante convallis laoreet. Mauris ornare metus arcu. Donec risus adipiscing elit. Sed condimentum, enim non vehicula sagittis, leo velit vestibulum lacus, eu lacinia enim leo vitae nisi. Cras sodales leo in ante convallis laoreet. Mauris ornare metus arcu. Donec risus mi, sollicitudin non condimentum eu, porta in purus. mi, sollicitudin non condimentum eu, Pellentesque habitant morbi tristique porta in purus. senectus et netus et malesuada fames ac turpis egestas. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed condimentum, enim vehicula sagittis, leo velit vestibulum lacus, eu lacinia enim leo vitae nisi. Cras sodales leo in ante convallis laoreet. Mauris ornare metus arcu. Donec risus mi, sollicitudin non condimentum eu, porta in purus. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed condimentum, enim non vehicula sagittis, leo velit vestibulum lacus, eu lacinia enim leo vitae nisi. Cras sodales leo in ante convallis laoreet. Mauris ornare metus arcu. Donec risus mi, sollicitudin non condimentum eu, porta in purus. SUBHEAD STYLE ONE Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed condimentum, enim non vehicula sagittis, leo velit vestibulum lacus, eu lacinia enim leo vitae nisi. Cras sodales leo in ante convallis laoreet. Mauris ornare metus arcu. Donec risus mi, sollicitudin non condimentum eu, porta in purus. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed condimentum, enim non vehicula sagittis, leo velit vestibulum lacus, eu lacinia enim leo vitae nisi. Cras sodales leo in ante convallis laoreet. Mauris ornare metus arcu. Donec risus mi, sollicitudin non condimentum eu, porta in purus. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed condimentum, enim non vehicula sagittis, leo velit vestibulum lacus, eu lacinia enim leo vitae nisi. Cras sodales leo in ante convallis laoreet. Mauris ornare metus arcu. Donec risus mi, 100 100 By focusing on these priorities, we are confident that Mount Gibson will be able to navigate the uncertain market conditions and capitalise on our financial strength to deliver strong long term returns for our shareholders. It is important to remember that, despite the disappointing results of the last year, Mount Gibson remains in a strong position relative to many miners with substantial cash reserves and minimal debt. In the circumstances, the Board sensibly determined it would be inappropriate to declare a dividend for the 2014/15 year. However, we remain proud of our record of returning capital to shareholders when appropriate and will continue to consider the payment of dividends based on our financial performance every six months. In summary, I would like to thank my fellow Directors and the employees of Mount Gibson for their tireless contributions and dedication in difficult circumstances. I look forward to reporting a more successful year in 2016. Lee Seng Hui Chairman Chairman’s Report Without question, the 2014/15 year was one of the most challenging in Mount Gibson Iron's history. The Board has determined the following key business objectives in the 2016 financial year: (cid:159) Cost reductions – continue to drive for sustainable cost improvements across the existing business through further supplier cost reductions and productivity gains. The Company faced a convergence of extreme events, notably the significant and sustained decline in iron ore prices and the failure of the Main Pit seawall at Koolan Island part-way through a substantial investment program to (cid:159)Extension Hill – operate the mine at increase the mine's production capacity an increased output rate and progress and operating efficiency. development of the nearby Iron Hill Mineral Resource to extend the operational life of the Extension Hill mine beyond the current end of the reserve life in late 2016. These events were clearly reflected in our poor financial results for the year: a statutory net loss after tax of A$911.4 million, after total non-cash impairments of A$945.2 million and a non-cash tax (cid:159)Koolan Island – complete mining of benefit of A$99.9 million. Our substantial remnant ore in the Acacia East satellite cash reserves also declined materially, pit in the first half of 2015-16 and from A$520 million in June 2014 to A$334 thereafter place the site on care and million at the end of June 2015. maintenance, and undertake the detailed work required to investigate the redevelopment potential of the Koolan Island Main Pit orebody. The Board undertook a thorough review of the existing business and worked closely with management to realign the business with the evolving conditions. This (cid:159)Koolan Island seawall insurance approach fundamentally reduced costs, reshaped the business consistent with its changed circumstances and re-positioned the Company to move forward in a low iron ore price environment. claim – progress and finalise the insurance claim relating to property damage and business interruption. (cid:159) The Board's overarching strategic objective continues to be the creation of long term value through investment in exploration, development, and efficient operational extraction of mineral resources. Koolan Island Logistic Base (KILB) – progress the business case for a logistics services base to support oil and gas activity in the Browse Basin with end-users and formalise the commercial arrangements with Qube Holdings Limited while ensuring the capability for future re-start of mining operations. Looking to the year ahead, the Board has determined a very specific plan to position (cid:159)Treasury returns – increase the yield the business for a return to profitability and to establish a platform to deliver long term value for all our shareholders. on the Company’s cash reserves. (cid:159) Growth projects – continue the search for attractive business development opportunities in the resources sector. The Board's corporate objective for 2016 financial year is to grow the Company's cash reserves and continue to pursue an appropriate balance between the retention and utilisation of cash for value-accretive investments. MOUNT GIBSON IRON LIMITED 2015 Annual Report 4MOUNT GIBSON IRON LIMITED 2015 Annual Report Mid West Highlights 20% LOREM IPSUM DOLOR SIT AMET, CONSECTETUR ADIPISCING ELIT. SED CONDIMENTUM, ENIM 2013 2014 2015 0.0 0.0 0.0 Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Use this space to highlight features in copy Chief Executive Officer's Report As the Chairman has stated, the 2014/15 year was an extremely challenging and disappointing one for Mount Gibson Iron. The safety of our people remains our absolute priority, so it is of great credit to our workforce that in this extremely challenging period, Mount Gibson recorded a significantly improved safety performance. The Total Recordable Injury Frequency Rate (TRIFR) declined by almost 30% to 9.4, and our Lost Time Injury Frequency Rate (LTIFR) declined to zero, compared with 3.43 in the previous year, with improvements recorded at all sites. We will continue to strive for further improvement. Significantly, the Company’s incident management procedures and diligent response to the seawall failure ensured that all personnel remained safe, and minimised any environmental risk posed by the event. The Company worked closely with the relevant regulatory agencies to implement appropriate monitoring and reporting procedures, which have to date identified no significant marine impacts from the seawall failure. While this safety result was very satisfying the financial performance of the company suffered due to the combined impacts of a 40% decline in iron ore prices, volatile market conditions and the unforeseen failure of the Main Pit seawall at the Koolan Island mine in late 2014. These events combined to have a devastating impact on the cashflow generating capacity of the business, and resulted in very substantial losses. However, the responses initiated by the Company were critical in preserving capital and returning the business to a more stable footing in the second half of the year with a significantly lower cost base. Consistent with the reduced operational requirements of the business following the failure of the seawall at Koolan Island and the final closure of Tallering Peak mine in September 2014, the Company’s total headcount was reduced by approximately 68% by the end of June. This reduction was a difficult but necessary action which contributed to a 50% reduction in corporate costs during the year. Total Cost of Goods Sold was also reduced by 17% to A$62 per wet metric tonne Free on Board (FOB), including non-cash costs, royalties and before impairments. Site cash costs at the Extension Hill mine, now the Company’s primary operating asset, were reduced by 15% to A$44/wmt FOB in the June quarter, including royalties and sustaining capital but excluding corporate cost allocations. Extension Hill remained cashflow positive in every quarter. The short campaign of low-cost remnant mining at the Acacia East satellite pit at Koolan Island, which is scheduled for completion in late 2015, also helped Mount Gibson increase its cash reserves by A$10 million in the final quarter of 2014/15 – the quarter in which iron ore prices were at their lowest for the financial year. On the back of the efficiency measures implemented by the Company, the Company is confidently targeting a further reduction in total group production costs for the 2015-16 year and position Mount Gibson to generate positive cashflow in the absence of any further significant and sustained deterioration in market conditions. Importantly, we are also now looking to the future with renewed optimism. Koolan Island remains a high quality asset that offers significant long term optionality value. To that end, we are continuing our technical assessment of potential options to reinstate the Koolan Island seawall and ultimately resume production if a safe and viable solution is identified and market conditions are favourable. In the Mid West, we have confirmed a substantial hematite Mineral Resource at Iron Hill, adjacent to the Extension Hill mine, for which we are progressing permitting in order to secure mining approvals by the time the existing Extension Hill pit is complete in 2016-17. We also increased total Mineral Resource at the Shine Iron Ore Project, which has enhanced its future potential when market conditions ultimately improve. Separately, the Company is working on an innovative proposal to potentially establish an aviation logistics base at Koolan Island to support oil and gas activity in the offshore Browse. Our strong balance sheet and cash reserves give us the flexibility to progress these opportunities as well as to grow and diversify our business through quality resources development opportunities outside of iron ore. I would like to take this opportunity to thank the Chairman and the Board for their support, guidance and counsel as we navigated these very trying times. Their support while constructive was also challenging and through this combination I am certain we achieved the best possible overall outcome. Finally, I must thank all of Mount Gibson’s hard working employees and contractors for their efforts and commitment in these difficult times. They have, with their combined efforts, delivered on some key improvements. I am proud of what the team has achieved and look forward to their ongoing efforts to deliver a continuously improving performance for shareholders in the year ahead. Jim Beyer Chief Executive Officer MOUNT GIBSON IRON LIMITED 2015 Annual Report MOUNT GIBSON IRON LIMITED 2015 Annual Report5 Health and Safety Mount Gibson’s ongoing commitment to maintaining a safe work environment and taking responsibility for the safety of ourselves and our colleagues remains a primary focus, with the Company committed to achieving continuous improvement in every facet of its safety performance. The Company achieved a Lost Time Injury Frequency Rate (LTIFR) of 0.0 for 2014/15, a very significant improvement compared with an LTIFR of 3.43 recorded in the previous year. The Total Recordable Injury Frequency Rate (TRIFR) was 29.4% lower at 9.4, compared with 13.31 in 2013/14. Significant improvements were recorded at each of the Company’s operating sites. A further reflection of our safety management is evident in the Koolan seawall failure where although a catastrophic failure occurred - at no time were personnel harmed or put at risk. This was a direct result of the safety protocols enacted by the Company. Environmental monitoring and assessment has been conducted since the event and no significant marine impacts from the seawall failure have been identified to date. For details of the Company’s safety performance, including statistics for each site, please refer to Mount Gibson Iron’s 2015 Sustainability Report, published on the Mount Gibson website. 20 15 10 5 0 15.01 13.31 TRIFR 9.40 2012/13 2013/14 2014/15 6 5 4 3 2 1 0 LTIFR 5.57 3.43 2012/13 2013/14 2014/15 0.00 6MOUNT GIBSON IRON LIMITED 2015 Annual ReportOperational Review During 2014/15, Mount Gibson achieved total ore sales of 5.8 million tonnes, representing a 40% decrease from the previous year. This decline reflected the final closure of Tallering Peak after ten years continuous operation in September 2014 and the suspension of large scale production at Koolan Island following the failure of the Main Pit sea wall in November 2014. KOOLAN ISLAND Koolan Island is located approximately 140km north of Derby, in the Kimberley region of Western Australia. Ore shipments from Koolan Island for the year totalled 2.1 million wmt, including the final shipments of Rizhao Special Product totalling 287,000 wmt. Following an initial slump in the Main Pit seawall on 24 October 2014, and before remediation efforts could be completed, a major failure of the seawall occurred on 26 November 2014. The Main Pit was inundated with sea water as a result of this breach of the seawall. All non- essential activities on the island were suspended following the seawall failure in order to reduce expenditure and preserve capital while detailed identification and assessment of potential redevelopment options could be undertaken. A key requirement of the Company's prior business strategy to expand Koolan Island to a rate of 4Mtpa was to increase waste stripping along with a mining fleet replacement programme. This cash expenditure programme saw A$83 million invested in planned capitalised waste stripping, A$45 million invested in mining fleet and mine development, and a further A$3 million on footwall ground stabilisation in the Main Pit. All this expenditure was incurred prior to the seawall failure event in late October 2014. The failure of the seawall necessitated significant one-off restructuring and mitigation costs. The resulting suspension of ore sales from November 2014 meant Koolan Island incurred almost a full quarter of costs with limited ore sales. The suspension of major operations also resulted in significant costs, including approximately A$26 million to clear the majority of Koolan Island's outstanding trade creditors and suppliers. In the March 2015 quarter, a short term mining campaign commenced in the Acacia East satellite pit to recover approximately 400,000 wmt of low-cost remnant material. Subsequent to the end of the financial year, Mount Gibson announced a further campaign of remnant mining to recover approximately 700,000 wmt of additional remnant material at Acacia East. Mining is expected to conclude in the first half of 2015-16, after which Koolan Island will be placed on care and maintenance. Further technical work to aid evaluation of potential options for the future reconstruction of the Main Pit seawall is planned in 2016. A key focus of management during the second half of 2014/15 was the Company's insurance claim relating to the seawall failure. Constructive discussions with the Company's insurers progressed during the period, and included a conditional confirmation that the Company's existing policies would respond, subject to the insurers' further reviews. The majority of insurers agreed to make an initial early-stage progress payment on account of approximately A$1.85 million, which was received in July 2015. However, the insurers have reserved their rights with respect to making a final determination. MOUNT GIBSON IRON LIMITED 2015 Annual Report7 Extension Hill performed strongly during the year Total ore sales increased by 12%. Total material movement increased by 40%. Sales of lump ore totalled 1.9 million wmt. Sales of fines ore totalled 1.5 million tonnes. EXTENSION HILL The Extension Hill mine is located in the Mount Gibson Ranges, 85km east of Perenjori and 260km east south east of Geraldton in the Mid-West region of Western Australia. The Extension Hill mine performed strongly in 2014/15, reflecting steady operations and opportunistic mine-gate sales that allowed utilisation of available third party rail capacity in excess of the Company's allocated train paths from the Perenjori rail siding. Total ore sales increased 12% to a record 3.4 million wmt, including 204,000 wmt of mine gate sales, while total material movement increased by 40% to 6.4 million wmt. Sales of lump ore totalled 1.9 million wmt, while sales of fines ore totalled 1.5 million tonnes. Reflecting the Company's focus on cost reduction and improved operating efficiencies, site cash costs, (including royalties and capital but excluding corporate cost allocations) were reduced by approximately 15% during the year to average A$44/wmt FOB in the June quarter 2015. The site generated positive pre-tax cashflow of A$34.9 million for the year. The Company intends to ramp up production at Extension Hill to between 3.5Mtpa and 4.0Mtpa in 2015-16 in order to pursue cost reductions through economies of scale and to bring forward operating cashflows. Accordingly, Mount Gibson expects all-in site cash costs of the Extension Hill operation to be in line with the strong June quarter performance. Advancing development of the Iron Hill deposit, immediately to the south of Extension Hill, is a key priority in the coming year with a view to extending the life of Extension Hill operation when reserves in the current pit are exhausted in late 2016. More information is detailed in the Exploration and Development section of this report. TALLERING PEAK Following the completion of mining in the June 2014 quarter, Tallering Peak completed five shipments totalling 292,000 wmt during the first half of the 2014/15 financial year. Sales comprised two cargoes of lump ore totalling 116,000 wmt, two cargoes of remnant medium grade fines ore totalling 118,000 wmt and one cargo of remnant low grade fines ore totalling 58,000 wmt. The site closed in late 2014, with activity during the year limited to final rehabilitation works. 8MOUNT GIBSON IRON LIMITED 2015 Annual ReportExploration and Development Mineral Resources and Ore Reserves Subsequent to year-end, Mount Gibson released its annual statement of Mineral Resources and Ore Reserves as at 30 June 2015. Total Group Mineral Resources were estimated at 94.9 million tonnes grading 61.2% Fe, and total Group Ore Reserves were estimated at 7.1 million tonnes grading 58.4% Fe. All Mineral Resources and Ore Reserves are considered as direct shipping grade (DSO) with no beneficiation or enrichment process required. The majority of the Company’s Ore Reserves relate to the Extension Hill Operation. Extension Hill South Project The Extension Hill South Project, on granted Mining Leases immediately adjacent to the Extension Hill mine, was the primary focus of Mount Gibson’s exploration activity in 2014/15. Following substantial reverse circulation and diamond drilling at the Iron Hill and Gibson Hill Prospects in the prior year, work in the 2015 financial year focussed on progressing approvals and evaluating data for preparation of a Mineral Resource estimate. Subsequent to the end of the reporting period, Mount Gibson reported total Mineral Resources of 8.8 Million tonnes grading 58.3% Fe for the Iron Hill Deposit as at 30 June 2015. In late December 2014, the Office of Environmental Protection Authority of Western Australia set a Public Environmental Review (PER) level of assessment for future mining at Iron Hill. Progressing permitting for Iron Hill is a key priority for the Company in 2015-16, in order to extend the life of the Extension Hill mine when mining in the existing pit is completed in late 2016. Shine Iron Ore Project Development of the Shine Iron Ore Project, 85km north of Extension Hill, acquired in early 2014, was deferred in August 2014 in light of prevailing market conditions. However, Shine remains a valuable asset that provides the Company with substantial optionality to establish production within a relatively short start-up time frame, when market conditions improve. Total Mineral Resources at Shine were increased to 15.9 Million tonnes grading 58.1% Fe as at 30 June 2015. Koolan Island Logistics Base In May 2015, Mount Gibson announced an agreement with specialist logistics provider Qube Holdings Limited that provides a framework to progress the potential establishment of a logistical services base for the offshore oil and gas industry at Koolan Island, in collaboration with the Dambimangari Traditional Owners. The Koolan Island Logistics Base (KILB) proposal remains at an early stage but envisages staged development of helicopter refuelling and maintenance facilities, air search and rescue facilities, an all weather runway suitable for large- scale passenger jet aircraft, accommodation facilities and a marine terminal servicing the Browse Basin. Development of the KILB would not restrict the potential to repair the Main Pit seawall and resume iron ore production at Koolan Island should a technically and economically robust solution be identified. Furthermore, Mount Gibson considers that the KILB development would provide operating cost benefits to future mining operations on the island. MOUNT GIBSON IRON LIMITED 2015 Annual Report9Environment and Community Investing in the creativity, education and health of our local communities is an important component of Mount Gibson’s community engagement program. In line with our commitments the company invested heavily in these areas and in the last 12 months and provided A$490,400 in direct contributions to community organisations and projects. This compares with an equivalent investment of A$629,117 in the prior year, with the change reflecting reduced commitments in the Mid West following the closure of the Tallering Peak mine. For details of the Company’s community investment activities and engagement with communities and stakeholders, including information relating to each site, please refer to Mount Gibson Iron's 2015 Sustainability Report, published on the Mount Gibson website. The Company’s comprehensive emergency response and incident Sustainability refers to the conditions under which humans and nature can coexist in a productive manner and permit the environmental, social and economic requirements of present and future generations. The key elements of health and safety, environment and community affairs form the basis for Mount Gibson's drive towards management procedures were critical in mitigating the potential risks associated sustainable outcomes. with the failure of the Main Pit seawall at Koolan Island in late 2014. The Company worked closely with relevant regulatory agencies, led by the WA Department of Mines and Petroleum (DMP), which co- ordinated the regulatory assessment process. Ongoing environmental monitoring and assessment since the event has to date identified no significant marine impacts from the seawall failure. Importantly, no Mount Gibson personnel were harmed or put at risk as a result of the safety protocols enacted by the Company. The social perspective has also had significant focus over the 2014/15 year. This includes always putting the health, safety and wellbeing of our people first. ENVIRONMENT Mount Gibson has placed significant emphasis on environmental management at its operations over the past year. From an environmental perspective, Mount Gibson has focused strongly on continuous improvement and innovation, always performing in an environmentally responsible manner and ensuring a high standard of environmental management at all of its locations. Environmental reporting is a significant element of environmental management with many regulatory organisations requiring quarterly or annual reports. These include the federal Department of the Environment, the state Environmental Protection Authority, the Department of Environmental Regulation and the Department of Mines and Petroleum. A key reporting obligation is the National Energy and Greenhouse Reporting Scheme which provides data on greenhouse gas emissions and energy production. The latest report for Mount Gibson shows a significant decrease in both greenhouse gas emissions of 43% and energy consumption of 44% respectively, which is in line with the Company’s reduced production in 2014/15. For details of the Company’s environmental performance, including information relating to each site, please refer to Mount Gibson Iron’s 2015 Sustainability Report, published on the Mount Gibson website. COMMUNITY AFFAIRS Mount Gibson values its relationship with key stakeholders and works to ensure a clear mutual understanding of its impacts from current and future operations. To do this, the company has an ongoing program of stakeholder consultation working together with the general communities in which we operate with an additional emphasis on the recognition of the traditional owners at our locations and areas of special heritage and cultural significance. Mount Gibson’s stakeholders include our customers, shareholders, employees, suppliers, landowners, traditional owners, regulators, local governments, interest groups and the broader community. The level of consultation is dependent on the interest noted by stakeholders and the proximity of a site to closure. 10MOUNT GIBSON IRON LIMITED 2015 Annual ReportResources and Reserves Total Mineral Resources and Ore Reserves by Project as at 30 June 2015 Koolan Island Mineral Resources, above 50% Fe Measured Indicated Inferred Total at 30 June 2015 Total at 30 June 2014 Ore Reserves, above 50% Fe Proved Probable Total at 30 June 2015 Total at 30 June 2014 Extension Hill Mineral Resources, above 50% Fe Measured Indicated Inferred Total at 30 June 2015 Total at 30 June 2014 Ore Reserves, above 50% Fe Proved Probable Total at 30 June 2015 Total at 30 June 2014 Tallering Peak Mineral Resources, above 50% Fe Measured Indicated Inferred Total at 30 June 2015 Total at 30 June 2014 Shine Tonnes millions 8.14 42.60 10.89 61.62 62.7 0.38 0.49 0.87 28.2 6.28 1.96 7.54 15.77 11.2 5.88 0.31 6.19 10.5 0.41 1.03 0.20 1.65 1.65 Fe % 59.1 64.3 60.2 62.9 62.9 59.1 60.6 60.0 63.9 58.2 59.8 57.8 58.2 58.4 58.2 57.3 58.2 58.3 58.9 58.1 54.7 57.9 57.9 SiO 2 % 13.55 6.42 12.48 8.43 8.44 14.86 12.05 13.27 7.16 6.47 8.73 8.70 7.81 6.77 6.55 10.92 6.77 6.90 6.26 11.70 17.89 11.10 11.10 Al O 3 2 % 1.11 0.76 0.79 0.81 0.80 0.28 0.58 0.45 0.72 2.25 1.13 1.74 1.87 2.02 2.22 1.26 2.17 2.02 3.50 1.66 1.93 2.15 2.15 P % 0.017 0.014 0.015 0.014 0.01 0.009 0.011 0.010 0.01 0.077 0.053 0.069 0.070 0.07 0.077 0.071 0.076 0.07 0.082 0.066 0.056 0.069 0.07 Mineral Resources, above 50% Fe Measured Indicated Inferred Total at 30 June 2015 Total at 30 June 2014, above 55% Fe Ore Reserves, above 50% Fe Nil Proved Nil Probable Nil Total at 30 June 2015 5.60 Total at 30 June 2014, above 55% Fe Discrepancies may appear due to rounding. Mineral Resources are reported inclusive of Ore Reserves. All tonnages have been estimated as dry tonnages. 5.73 6.57 3.59 15.89 7.76 9.04 10.01 9.61 9.57 8.69 58.9 58.0 56.8 58.1 59.0 1.81 1.35 1.18 1.48 1.85 Nil Nil Nil 2.00 Nil Nil Nil 8.12 Nil Nil Nil 59.3 0.076 0.070 0.063 0.071 0.08 Nil Nil Nil 0.08 Total Group Mineral Resources and Ore Reserves at 30 June (above 50% Fe) Tonnes millions Fe % Si0 2 % Al 0 2 3 % P % 94.93 Total Mineral Resources at 30 June 2015 7.06 Total Ore Reserves at 30 June 2015 83.3 Total Mineral Resources at 30 June 2014 Total Ore Reserves at 30 June 2014 44.3 Discrepancies may appear due to rounding. Mineral Resources are reported inclusive of Ore Reserves. All tonnages have been estimated as dry tonnages. 8.57 7.57 8.29 7.22 1.12 1.96 1.09 1.20 61.2 58.4 61.8 62.0 0.034 0.068 0.03 0.03 Attributions overleaf MOUNT GIBSON IRON LIMITED 2015 Annual Report11Material Change A significant change in the annual reporting period has been the removal of most of the Ore Reserves from the Koolan Island Operation to 0.9Mt @ 60% Fe (30 June 2014: 28.2Mt @ 63.9% Fe) due to the inundation of the Main Pit in late 2014 with the failure of a seawall. At Koolan Island, a reduced Ore Reserve has been retained at the Acacia East deposit, where mining continues, while the Ore Reserve for Barramundi West has been removed. An optimisation review of the Shine Iron Ore project has determined that at current and predicted near term Iron Ore pricing, mining is not currently considered economically feasible. Consequently, the Ore Reserve for the Shine Iron Ore Project, previously reported as 5.6Mt @ 59.3% Fe, has been removed for the 30 June 2015 reporting. Mineral Resources and Ore Reserves Governance The Mineral Resources and Ore Reserves as at 30 June 2015 are reported in accordance with JORC (2012) guidelines and ASX listing rules. Further information supporting the Mineral Resource and Ore Reserve position is available in Mount Gibson Iron’s ASX announcement dated 17 August 2015 entitled ‘Mineral Resources and Ore Reserves Statement as at 30 June 2015’. The Mineral Resources estimates follow standard industry methodology using geological interpretation and assay results from samples won through drilling. Ore Reserves estimates use the Mineral Resources and apply modifying factors in line with standard company practices suitable to the industry. The Mineral Resources and Ore Reserves estimates are completed or overseen by suitably qualified Mount Gibson Iron personnel, with competent persons completing the estimates. A review of the estimates and the estimation process for the Mineral Resources and Ore Reserves respectively is conducted by an employee or consultant who also has sufficient experience to qualify as a Competent Person. The Mineral Resources and Ore Reserves statement included in the Annual Report is reviewed and approved by a suitably qualified Mount Gibson Iron Competent Person prior to its announcement. Competent Persons and Responsibilities Mount Gibson Iron Exploration Results: The information in this report that relates to Exploration Results including sampling techniques and data management is based on information compiled by Gregory Hudson, a Competent Person who is a member of the Australian Institute of Geoscientists. Mr Hudson was a full-time employee of, and is a consultant to, Mount Gibson Iron Limited, and he has sufficient experience relevant to the style of mineralisation and type of deposits under consideration and to the activity being undertaken, to qualify as a Competent Person as defined in the December 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Mr Hudson consents to the inclusion in this report of the matters based on his information in the form and context in which it appears. Mount Gibson Iron Mineral Resources for the Shine, Extension Hill (excluding Iron Hill), all Tallering Peak deposits and all Koolan Island deposits other than the Main Deposit: The information in this report relating to Mineral Resources for the Shine, Extension Hill (excluding Iron Hill), and Tallering Peak deposits as well as the Acacia East, Mullet Acacia, Barramundi West, Eastern Barramundi and Mangrove Mineral Resources at Koolan Island, is based on information compiled by Elizabeth Haren, a Competent Person who is a member and Chartered Professional of the Australasian Institute of Mining and Metallurgy. Ms Haren was a full-time employee of, and is a consultant to, Mount Gibson Iron Limited. Ms 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’. Ms Haren consents to the inclusion in this report of the matters based on her information in the form and context in which it appears. The Mineral Resource estimates comply with recommendations in the Australasian Code for Reporting of Mineral Resources and Ore Reserves (2012) by the Joint Ore Reserves Committee (JORC). Therefore they are suitable for public reporting. Mount Gibson Iron Mineral Resources for the Koolan Island Main deposit and the Iron Hill deposit at Extension Hill South: The information in this report relating to the Mineral Resources of Main Deposit at Koolan Island and the Iron Hill deposit at Extension Hill South is based on information compiled by Jani Kalla, a Competent Person who is a member and Chartered Professional of the Australasian Institute of Mining and Metallurgy. Jani Kalla was a full-time employee of Mount Gibson Iron Limited and is now a full time employee of First Quantum Minerals Limited. Mr Kalla has sufficient experience that is relevant to the style of mineralisation and type of deposits 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’. Mr Kalla consents to the inclusion in this report of the matters based on his information in the form and context in which it appears. The Mineral Resource estimates comply with recommendations in the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (2012) by the Joint Ore Reserves Committee (JORC). Therefore they are suitable for public reporting. Koolan Island, Extension Hill and Shine Ore Reserves: The information in this report relating to Ore Reserves at Koolan Island, Extension Hill and Shine is based on information compiled by Paul Salmon, a Competent Person who is a member and a Chartered Professional of the Australasian Institute of Mining and Metallurgy. Mr Salmon is a full-time employee of Mount Gibson Iron Limited. Mr Salmon 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’. Mr Salmon consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. The Ore Reserve estimates comply with recommendations in the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (2012) by the Joint Ore Reserves Committee (JORC). Therefore they are suitable for public reporting. 12MOUNT GIBSON IRON LIMITED 2015 Annual ReportFinancial Report MOUNT GIBSON IRON LIMITED AND CONTROLLED ENTITIES ABN 87 008 670 817 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2015 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 Audit Report 14 35 36 37 38 39 40 41 92 93 MOUNT GIBSON IRON LIMITED 2015 Annual Report13Directors’ Report Your Directors submit their report for the year ended 30 June 2015 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 Lee Seng Hui LLB (Hons) Chairman, Non-Executive Director Mr Lee was appointed as a Non-Executive Director on 29 January 2010, Non-Executive Deputy Chairman on 14 December 2012, and Chairman on 18 February 2014. 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 and Allied Properties (H.K.) Limited both of which are 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 APAC Resources Limited, one of Mount Gibson’s substantial shareholders. Mr Lee was previously a Non-Executive Director of Tanami Gold NL. Alan Jones CA Independent Non-Executive Director Mr Jones was appointed as an Independent Non-Executive Director on 28 July 2006 and is the current Chairman of the Nomination, Remuneration and Governance Committee. 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 (H.K.) Limited and Air Change International Limited. Li Shao Feng 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 an executive director and the managing director of Shougang Concord International Enterprises Company Limited, the chairman of each of Shougang Fushan Resources Group Limited, a substantial shareholder of Mount Gibson, Shougang Concord Century Holdings Limited, Shougang Concord Grand (Group) Limited and Global Digital Creations Holdings Limited, and an executive director of BeijingWest Industries International Limited, all of which are companies listed on the Hong Kong Stock Exchange. He is also a non-executive director of China Dynamics (Holdings) Limited (formerly known as Sinocop Resources (Holdings) Limited), a Hong Kong listed company. Russell Barwick Dip.Min.Eng., FAICD, FAusIMM Independent Non-Executive Director Mr Barwick was appointed as an Independent Non-Executive Director on 16 November 2011 and is Chairman of the Operational, Risk and Sustainability Committee. 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 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. Simon Bird B.Acc.Science (Hons) FCPA, FAICD Lead Independent Non-Executive Director Mr Bird was appointed as an Independent Non-Executive Director on 23 February 2012. Mr Bird is the Lead Independent Director and Chairman of the Audit and Financial Risk Management Committee. Mr Bird has 30 years of international corporate experience, including holding the positions of General Manager Finance at Stockland Limited, Chief Financial Officer of GrainCorp Limited, and Wizard Mortgage Corporation. He was also Chief Executive Officer of ASX-listed King Island Scheelite Limited and a former Director of CPA Australia Limited. Mr Bird is currently a Director of ASX-listed companies Pacific American Coal Limited, Rawson Resources Limited and Sovereign Gold Company Limited. 14MOUNT GIBSON IRON LIMITED 2015 Annual Report 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 and is Chairman of the Contracts Committee. 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 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 following 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 over 20 Asian locations including 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. He is currently Chairman of the Global Carbon Capture and Storage Institute, Non-Executive Director of Epworth Healthcare and Non-Executive Director of Calibre Group Limited. Andrew Ferguson Alternate Director to Lee Seng Hui Mr Ferguson was appointed Alternate Director to Lee Seng Hui on 24 September 2012. 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 1990’s. 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 & General Counsel Mr Stokes was appointed Company Secretary and General Counsel on 2 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 18 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. 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 2015 was as follows: MOUNT GIBSON IRON LIMITED ABN: 87 008 670 817 100% 100% 100% MOUNT GIBSON MINING LIMITED AZTEC RESOURCES LIMITED GERALDTON BULK HANDLING PTY LTD ABN: 32 074 575 885 ABN: 45 078 548 562 ABN: 45 100 105 388 100% 100% 100% BROCKMAN MINERALS PTY LTD KOOLAN IRON ORE PTY LTD KOOLAN SHIPPING PTY LTD ABN: 75 094 634 401 ABN: 87 099 455 277 ACN: 110 647 848 MOUNT GIBSON IRON LIMITED 2015 Annual Report15 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 Extension Hill mine site 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 213 employees (excluding contractors) as at 30 June 2015 (2014: 668 employees). OPERATING AND FINANCIAL REVIEW Introduction The Board presents the 2014/15 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 2014/15 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 2015 and has been prepared in accordance with Regulatory Guidance 247 published by the Australian Securities and Investments Commission (“ASIC”). Overview of the 2014/15 Financial Year The Group’s financial performance for the year ended 30 June 2015 was severely impacted by a steady and significant decline in the iron price and by the unexpected failure of the Koolan Island Main Pit seawall in the December 2014 quarter. At the beginning of the financial year, the iron ore price was US$95 per dry metric tonne (“dmt”) for the 62% Fe fines Platts Index and by the end of the financial year this had fallen to US$59/dmt, a reduction of 40%. The price touched a low of US$47/dmt in April 2015. The lower prices had a devastating effect on the cash flow generating capacity of the Group’s business and, when combined with the Koolan Main Pit seawall failure, the Company experienced extremely difficult operating conditions and consequently suffered a material reduction in its cash reserves. Group ore sales totalled 5.8 million wet metric tonnes (“wmt”) during the financial year, a decrease of 40% from the record sales volume achieved in the preceding year. Total sales revenue, including Tallering Peak (discontinued operation), declined 63% to $324,631,000, while year-end cash reserves, including term deposits, decreased by $185,768,000 to $334,003,000 at 30 June 2015. The Company’s Extension Hill operation achieved record sales for the year totalling 3.4 million wmt, an increase of 12% over the previous year. Mining at the Tallering Peak mine was completed at the end of the previous financial year following ten years of successful operation, with the final ore sales completed in the December 2014 quarter. Sales from Koolan Island, while running at an annualised rate of 3.7 million wmt per year in the September 2014 quarter, reduced significantly following the Main Pit seawall failure and the retreat of mining to only the Acacia East satellite pit. Mount Gibson achieved an average realised price for standard Direct Shipping Ore (“DSO”) fines for the year of US$54/dmt Free On Board (“FOB”), after penalties and provisional pricing adjustments. This compared with an average of US$95/dmt in 2013/14. Through the year, substantial reductions were achieved in both operating and head office costs. These reductions were obtained through productivity improvements, supplier cost savings and workforce reductions. The Company’s total workforce reduced by approximately 68% since June 2014, from 668 employees to 213 at 30 June 2015. Strong cost reduction efforts have resulted in the Company’s average cost of goods sold (including non-cash costs but before impairments) reducing by 19% from $80/wmt FOB in 2013/14 to $65/wmt FOB in 2014/15. This ongoing cost reduction focus is central to Mount Gibson’s approach to maximising cash flow and profitability in a volatile commodities market. 16MOUNT GIBSON IRON LIMITED 2015 Annual Report Operating Results for the Financial Year The summarised operating results for the Group for the year ended 30 June 2015 are tabulated below. These reflect significant impairment expenses totalling $945,214,000 as a result of depressed iron ore prices and the failure of the Koolan Island Main Pit seawall in the period. Year ended: 30 June 2015* 30 June 2014* 30 June 2013 Restated** 30 June 2012 30 June 2011 Net profit/(loss) before tax Taxation benefit/(expense) Net profit/(loss) after tax $’000 $’000 $’000 Earnings/(loss) per share cents/share (1,008,505) 163,698 128,440 224,621 342,888 97,083 (911,422) (83.56) (67,345) 96,353 8.84 28,902 157,342 14.45 (62,605) (103,388) 162,016 239,500 14.96 22.14 * The figures for net profit/(loss) before tax and taxation benefit/(expense) for the years ended 30 June 2014 and 2015 are shown inclusive of discontinued operations. Refer the attached financial statements for further details. ** Restated to reflect adjustments made on the adoption of AASB Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine. In accordance with the transitional provisions of the Interpretation, amounts in prior years were not restated. Consolidated quarterly operating and sales statistics for the 2014/15 financial year are tabulated below: Consolidated Group Unit Sept Quarter 2014 Dec Quarter 2014 Mar Quarter 2015 Jun Quarter 2015 2014/15 2013/14 Mining & Crushing Total waste mined Total ore mined# Total ore crushed Shipping/Sales* Standard DSO Lump** Standard DSO Fines Low Grade DSO** RSP Total Ave. Platts 62% Fe CFR northern China price MGX Free on Board (FOB) average realised fines price^ kwmt = thousand wet metric tonnes kwmt kwmt kwmt kwmt kwmt kwmt kwmt kwmt US$/dmt US$/dmt 9,016 1,920 1,862 643 1,074 - 146 1,863 90 65 5,761 1,299 1,040 586 450 58 142 1,267 1,381 1,106 573 500 - - 587 1,276 1,386 906 758 - - 1,236 1,073 1,664 74 60 62 47 58 38 16,630 5,876 5,394 2,708 2,783 58 287 5,836 72 54 30,863 7,927 8,996 3,567 3,992 1,377 768 9,703 123 95 * Includes mine gate sales totalling 72kwmt of DSO lump and 34kwmt of DSO fines in the September 2014 quarter, 46kmwt of DSO fines in the March 2015 quarter, and 52kwmt of DSO fines in the June 2015 quarter. ** DSO Lump Sales were previously reported inclusive of lower grade lump ore sales from Tallering Peak. DSO sales are now reported as Standard Lump, Standard Fines and Low Grade DSO. # Includes low-grade ore at Extension Hill with grading 50-55% Fe that is considered to be saleable. This material is being stockpiled for future sale but continues to be treated as waste for accounting purposes. ^ Reflects the realised fines price for standard DSO fines ore only, after adjustments for shipping freight, grade, provisional invoicing adjustments and penalties for impurities. Contract pricing in the year was based on a mix of lagging-monthly and month-of-shipment averages. Mine gate sales, when they occur, are priced on a Free on Train basis, reflecting market prices less the cost of rail, port and shipping. Minor discrepancies may appear due to rounding. MOUNT GIBSON IRON LIMITED 2015 Annual Report17 Koolan Island Ore shipments from Koolan Island for the year ended 30 June 2015 totalled 2.1 million wmt, including the final shipments of Rizhao Special Product (“RSP”) totalling 287,000 wmt. As reported during the period, following an initial slump in the Main Pit seawall on 24 October 2014, and before remediation efforts could be completed, a major failure of the seawall occurred on 26 November 2014. The Main Pit was inundated with sea water as a result of this breach of the seawall. All non-essential activities on the island were suspended following the seawall failure in order to reduce expenditure and preserve capital while detailed identification and assessment of potential redevelopment options are undertaken. Force majeure notices were issued to major offtake customers and suppliers. Importantly, no Mount Gibson personnel were harmed or put at risk as a result of the safety protocols enacted by the Company. Environmental monitoring and assessment has been conducted since the event and no significant marine impacts from the seawall failure have been identified to date. At the start of the financial year, the Group pursued the planned expansion of the Koolan Island operation to a production rate of 4 million wmt per year. A key requirement of this expansion was to increase the waste stripping along with a mining fleet replacement program. This expenditure program saw $83 million invested in planned capitalised waste stripping, $45 million invested in mining fleet and mine development, and a further $3 million on footwall ground stabilisation in the Main Pit. All this expenditure was incurred prior to the seawall failure. The failure of the seawall also necessitated significant one-off restructuring and mitigation costs. The resulting suspension of ore sales from November 2014 meant Koolan Island incurred almost a full quarter of costs with limited ore sales. The subsequent requirement to put the mine site to care and maintenance status, while options for its long term future are assessed, also resulted in significant costs, including approximately $26 million to clear the majority of Koolan Island’s outstanding trade creditors and suppliers. Site operations recommenced in the March 2015 quarter with mining focused on the Acacia East satellite pit. All sales made in the second half of the year were from the Acacia East pit which was of lower iron grade and quality than the Main Pit ore. As at 30 June 2015, crushed DSO stockpiles at Koolan Island totalled approximately 89,000 wmt. Koolan Island Production Summary Unit Sept Quarter 2014 ’000 Dec Quarter 2014 ’000 Mar Quarter 2015 ’000 Jun Quarter 2015 ’000 Year 2014/15 ’000 Year 2013/14 ’000 % Incr/ (Decr) Mining Waste mined Ore mined Crushing Lump Fines RSP* Shipping Lump** Fines** RSP* wmt wmt wmt wmt wmt wmt wmt wmt 8,409 668 5,171 425 152 313 443 908 210 568 146 923 48 249 - 297 42 147 142 331 783 406 176 97 - 273 149 148 - 297 66 144 245 158 - 403 296 288 - 585 14,428 1,643 25,181 2,848 621 817 443 1,882 697 1,152 287 2,136 792 1,716 1,238 3,746 661 2,274 768 3,702 (43) (42) (22) (52) (64) (50) 5 (49) (63) (42) * Rizhao Special Product (“RSP”). ** Mining at Koolan Island in the March and June 2015 quarters was only from Acacia East satellite pit with lump material grading ~58% Fe and fines material grading ~57% Fe. Minor discrepancies may appear due to rounding. In accordance with the Company’s stated accounting policy, deferred waste expenditure for the period was 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. This deferred expenditure has been fully impaired as at 30 June 2015. Koolan Island Waste mined Waste mined Ore mined Ore mined Deferred waste capitalised Amortisation of deferred waste Year ended 30 June 2015 Year ended 30 June 2014 5.44 14.43 0.46 1.64 92.68 20.12 9.49 25.18 0.74 2.85 151.03 76.02 mill bcm mill wmt mill bcm mill wmt $ mill $ mill 18MOUNT GIBSON IRON LIMITED 2015 Annual Report Extension Hill The Extension Hill mine is located in the Mount Gibson Ranges, 85km east of Perenjori and 260km east south east of Geraldton in the Mid-West region of Western Australia. Ore is mined, crushed and screened on-site, transported by sealed road 85km to Perenjori, where it is loaded onto rail wagons and railed 240km to the Geraldton Port. Mining commenced at Extension Hill in the 2011/12 financial year. The Extension Hill mine performed strongly in 2014/15, reflecting steady operations and opportunistic mine-gate sales that allowed utilisation of available third party rail capacity in excess of the Company’s allocated train paths from the Perenjori rail siding. Total ore sales increased 12% to a record 3.4 million wmt, including 204,000 wmt of mine gate sales, while total material movement increased by 40% to 6.4 million wmt. Sales of lump ore totalled 1.9 million wmt, while sales of fines ore totalled 1.5 million tonnes. 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 shipments from the Geraldton Port. As at 30 June 2015, approximately 47,000 wmt of crushed standard product were stockpiled at the mine. Uncrushed standard product stockpiled at the mine totalled approximately 48,000 wmt. Mine-site stockpiles of uncrushed lower grade material totaled 3.0 million wmt. Crushed standard product stockpiled at the Perenjori rail siding totalled approximately 120,000 wmt. Extension Hill Production Summary Unit Sept Quarter 2014 ’000 Dec Quarter 2014 ’000 Mar Quarter 2015 ’000 Jun Quarter 2015 ’000 Year 2014/15 ’000 Year 2013/14 ’000 % Incr/ (Decr) Mining Waste mined* Standard Ore mined Low Grade Ore mined* Total Ore Mined Crushing Lump Fines Transported to Perenjori Railhead Lump Fines Transported to Geraldton Port Lump (Rail) Fines (Rail) Shipping Lump Fines Mine Gate Sales Lump Fines Total Sales Lump Fines wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt 607 973 279 1,252 562 392 954 531 456 987 359 375 734 245 354 599 72 34 106 317 388 705 590 619 255 874 437 306 743 430 331 761 406 305 711 544 303 847 - - - 544 303 847 485 817 158 975 479 354 833 465 365 830 481 328 809 424 306 730 - 46 46 424 352 776 521 2,202 1,673 960 172 1,132 576 406 982 581 427 1,008 563 412 975 610 418 1,028 - 52 52 610 470 1,080 3,369 864 4,233 2,054 1,458 3,512 2,007 1,579 3,586 1,809 1,420 3,229 1,823 1,381 3,204 72 132 204 1,895 1,513 3,408 2,248 669 2,917 1,573 1,162 2,735 1,635 1,104 2,739 1,643 1,094 2,737 1,680 1,063 2,743 239 59 298 1,919 1,122 3,041 32 50 29 45 31 25 28 23 43 31 10 30 18 9 30 17 (70) 124 (32) (1) 35 12 * Waste mined was previously reported inclusive of low grade ore, which is now reported separately as Low Grade ore mined. Low grade ore is material grading 50-55% Fe considered to be saleable. This material is being stockpiled for future sale but continues to be treated as waste for accounting purposes. Minor discrepancies may appear due to rounding. MOUNT GIBSON IRON LIMITED 2015 Annual Report19 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 mill bcm mill wmt mill bcm mill wmt $ mill $ mill Tallering Peak Year ended 30 June 2015 Year ended 30 June 2014 1.17 3.07 1.08 3.37 - - 0.92 2.34 0.78 2.25 - - Following the completion of mining in the June 2014 quarter, Tallering Peak completed five shipments totalling 292,000 wmt during the first half of 2014/15 financial year. Sales comprised two cargoes of lump ore totalling 116,000 wmt, two cargoes of remnant medium grade fines ore totalling 118,000 wmt and one cargo of remnant low grade fines ore totalling 58,000 wmt. Tallering Peak Production Summary Unit Sept Quarter 2014 ’000 Dec Quarter 2014 ’000 Mar Quarter 2015 ’000 Jun Quarter 2015 ’000 Year 2014/15 ’000 Year 2013/14 ’000 % Incr/ (Decr) Mining - Waste mined - Ore mined Crushing - Lump - Fines Transported to Mullewa Railhead - Lump - Fines Transported to Geraldton Port - Lump - Fines Shipping - Standard DSO Lump - Standard DSO Fines - Low Grade DSO wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt - - - - - 7 9 16 43 176 219 116 118 - 234 - - - - - - - - - 17 17 - - 58 58 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7 9 16 43 193 236 116 118 58 292 4,009 2,162 (100) (100) 1,437 1,079 2,516 (100) (100) (100) 1,376 841 2,217 2,187 622 2,809 986 597 1,377 2,960 (99) (99) (99) (98) (69) (92) (88) (80) (96) (90) Minor discrepancies may appear due to rounding. In accordance with the Company’s stated accounting policy, deferred waste expenditure for the period was capitalised in the Group’s balance sheet and 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 mill bcm mill wmt mill bcm mill wmt $ mill $ mill Year ended 30 June 2015 Year ended 30 June 2014 - - - - - - 1.36 4.01 0.55 2.16 1.10 13.67 Closure and rehabilitation activities continued throughout the year, with the last remaining equipment removed from site in the June 2015 quarter. Final rehabilitation works in 2015/16 are expected to relate to road repairs, minor earthworks and site monitoring. 20MOUNT GIBSON IRON LIMITED 2015 Annual Report EXPLORATION AND DEVELOPMENT Mineral Resources and Ore Reserves Subsequent to year-end, Mount Gibson released its annual statement of Mineral Resources and Ore Reserves as at 30 June 2015. Total Group Mineral Resources were estimated at 94.9 million tonnes grading 61.2% Fe, and total Group Ore Reserves were estimated at 7.1 million tonnes grading 58.4% Fe. Mount Gibson has 12 iron ore Mineral Resources across four project locations and two Ore Reserves. All Mineral Resources and Ore Reserves are considered as direct shipping grade (DSO) with no beneficiation or enrichment process required. The majority of the Company’s Ore Reserves relate to the Extension Hill Operation. Extension Hill South Mount Gibson completed a programme of reverse circulation drilling, comprising 63 holes for 3,072 metres, at the Iron Hill and Gibson Hill Prospects at Extension Hill South. This program of infill and extensional drilling was a follow up to RC drilling conducted at Iron Hill in December 2013 and a four hole diamond core programme drilled in August 2014. In late December 2014, the Office of Environmental Protection Authority of Western Australia set a Public Environmental Review (PER) level of assessment for future mining at Iron Hill. Work in the second half of the financial year was focussed on progressing approvals and evaluating data for preparation of an initial Mineral Resource estimate. CORPORATE Minerals Resource Rent Tax (“MRRT”) During the year, the Australian Senate repealed the MRRT, effective 1 October 2014. Consequently, as previously disclosed, Mount Gibson recorded a non-cash write-off of approximately $46 million in its financial results for the year ended 30 June 2015. This amount represents the remaining balance of the MRRT deferred tax asset which was previously required to be recorded in accordance with applicable accounting standards to reflect the technical tax value of the Company’s MRRT starting base allowances. This is a non-cash technical accounting adjustment that has no impact on the Company’s underlying business or cashflows. Mount Gibson has not paid any MRRT. Koolan Island insurance Mount Gibson’s investigation into the cause of the Koolan Island seawall failure continued and the majority of the work has now been completed. At this stage, the investigation has identified the following technical factors as potentially relevant to the incident: • • • the sensitivity and structure of the natural marine sediments that formed the base of the seawall; the extent that water pressure within the marine sediments had dissipated effectively; and the impact of planned excavation on the landward side of the seawall. As indicated previously, Mount Gibson has insurance policies for a variety of circumstances, including property damage and business interruption. Constructive discussions with the Company’s insurers progressed during the June quarter. This included a conditional confirmation that the Company’s existing policies would respond, subject to the insurers’ further reviews. The insurers’ own separate investigation, which has been running parallel to Mount Gibson’s, is well advanced. The majority of insurers have indicated they are prepared to make an initial early-stage progress payment on account of approximately $2 million. However, the insurers have reserved their rights with respect to making a final determination. The full value of the business interruption and property damage claims are also yet to be quantified by the insurers and will be assessed subject to any relevant policy and limitations. Mount Gibson remains in discussions with the insurers in respect of those matters. Corporate office restructuring Consistent with Mount Gibson’s ongoing focus on cost reduction and business efficiency, corporate costs and staffing levels have been progressively reducing to match changing operational support requirements following the seawall failure and ramp-down at Koolan Island. Corporate cash expenditure, including centralised site-support services, exploration and business development, has reduced by more than 50% from approximately $2.5 million per month at the start of the financial year to $1.2 million per month at the end of the year (before one-off charges, including redundancies). Costs are anticipated to reduce further in 2015/16 to a targeted level of less than $1 million per month. This reduction includes significant cost reductions relating to the Board and executive management. In early 2014, the Board size was reduced from eight to six and in February 2015 annual fees paid to each director were reduced by an average of 25%. In addition, the total number of senior roles in the company’s Executive Committee was reduced from seven to four. The annualised base remuneration of the Chief Executive Officer and the Chief Financial Officer has also been reduced by an average of approximately 30%, and both the short and long term incentive bonus schemes have been suspended at the Board’s discretion. Financial Position At 30 June 2015, the Group’s cash and term deposit balances totalled $334,003,000, a decrease of $185,768,000 from 30 June 2014 of $519,771,000. The decrease was due to the payment of $43,632,000 in cash dividends, $52,145,000 for fixed assets, $7,317,000 in the repayment of lease liabilities and other borrowings, the mining of waste material at the Koolan Island mine, and the impacts of the failure of the Koolan Island Main Pit seawall. As at the balance date, the Company’s current assets totalled $373,739,000 and its current liabilities totalled $66,085,000. As at the date of this report, the Group has sufficient funds as well as access to further equity and debt funding to operate the Koolan Island and Extension Hill mines, and to advance its exploration and growth objectives. MOUNT GIBSON IRON LIMITED 2015 Annual Report21 Impairment As disclosed in the Company’s financials for the year ended 30 June 2015, a significant impairment expense has been recorded as a result of the impact of substantially lower iron ore prices and the failure of the Main Pit seawall at the Company’s Koolan Island operation. The Group has recorded a total impairment expense of $945,214,000 before tax comprising impairments of iron ore inventories (by $9,526,000), consumables inventories (by $339,000), mine properties (by $712,917,000), deferred acquisition, exploration and evaluation assets (by $19,219,000) and property, plant and equipment (by $203,213,000). Foreign Exchange Hedging As at 30 June 2015, the Company did not hold any forward foreign exchange contracts. During the year, the Company satisfied in full all of its forward foreign exchange contracts with US$ revenues from ore sales. Koolan Island Logistics Base In May 2015, Mount Gibson announced an agreement with specialist logistics provider Qube Holdings Limited (“Qube”) that provides a framework to progress the potential establishment of a logistical services base for the offshore oil and gas industry at Koolan Island, in collaboration with the Dambimangari Traditional Owners. The Koolan Island Logistics Base (“KILB”) proposal remains at an early stage but envisages staged development of helicopter refuelling and maintenance facilities, air search and rescue facilities, an all-weather runway suitable for large-scale passenger jet aircraft, accommodation facilities and a marine terminal servicing the Browse Basin. Development of the KILB would not restrict the potential to repair the Main Pit seawall and resume iron ore production at Koolan Island should a technically and economically robust solution be identified. Furthermore, Mount Gibson considers that the KILB development would provide operating cost benefits to future mining operations on the island. 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. Following recent iron ore price falls and the failure of the Koolan Island Main Pit seawall, Mount Gibson management continues to focus on productivity gains and supplier arrangements in order to reduce costs and to drive cashflows to ensure the Company can perform well in volatile commodity and foreign exchange markets. 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. The Board has undertaken a thorough review of the existing business in light of the significant events of 2014/15 and the uncertain iron ore market outlook. The Board’s strategic objective continues to be the creation of long term value for shareholders through investment in exploration, development, and efficient operational extraction of mineral resources. The Board’s 2015/16 corporate objective is to grow the Company’s cash reserves and continue to pursue an appropriate balance between the retention and utilisation of cash for value-accretive investments. The Board has determined the following key business objectives for the coming financial year: • • • • • • • Extension Hill - operate the mine at an increased output rate and pursue necessary regulatory government approvals for the development of the Extension Hill South project area to extend the operational life of the Extension Hill mine beyond the current end of the reserve life in late 2016. Koolan Island – recommence mining of remnant ore in the Acacia East satellite pit in the first half of FY2016 and thereafter place the site on care and maintenance, and undertake the detailed work required to investigate the redevelopment potential of the Koolan Island Main Pit orebody. Koolan Island seawall insurance claim - progress and finalise the insurance claim. Koolan Island Logistic Base – progress the business case with end-users and formalise the commercial arrangements with partner Qube Holdings Limited while ensuring the capability for future re-start of mining operations. Cost reductions - continue to drive for sustainable cost improvements across the existing business through further supplier cost reductions and productivity gains. Treasury returns - increase the yield on the Group’s cash reserves. Growth projects - continuation of the search for business development opportunities in the resources sector. Extension Hill Outlook The Company intends to ramp up production from the current rate of approximately 3.0Mtpa to between 3.5Mtpa and 4.0Mtpa. The purpose of the ramp up is to pursue cost reductions through economies of scale and to bring forward operating cashflows. Accordingly, Mount Gibson expects all-in site cash costs of the Extension Hill operation to be in line with the strong June 2015 quarter performance. The volatility in iron ore prices necessitates ongoing assessment of possible early closure of the Extension Hill mine in the event that price conditions deteriorate to the point that the business faces being in a cash-loss making position for a sustained period. This assessment considers the trade-off between the possible ongoing cash loss of continuing to operate against the option of closing immediately which results in the triggering of early contract termination obligations. At 30 June 2015, these early closure obligations were estimated to total approximately $45 million and related mostly to fixed infrastructure and transport commitments. These obligations reduce with cumulative sales tonnage over the scheduled life of the Extension Hill mine. 22MOUNT GIBSON IRON LIMITED 2015 Annual Report Koolan Island Outlook Pit optimisation work completed at the end of the financial year has enabled the Company to proceed with a second stage mining campaign at the Acacia East satellite pit to recover a further 0.7Mt of ore. The mining sequence requires two months of up-front waste stripping prior to ore sales occurring, with the sales and cash generation biased to the December 2015 quarter. All mining and sales will be completed by the end of December 2015. The all-in cash cost of the Acacia East material, before royalties, is expected to be between A$38-40/wmt which, at prevailing iron ore prices will generate a modest cash margin. This decision will continue to be reviewed in light of prevailing iron ore prices. Once this mining program is completed, the island will be placed on care and maintenance pending commencement of the KILB activities. The technical evaluation and assessment of the likely timing and cost of options to rebuild the Main Pit seawall and resume production progressed. Technical information generated by the insurance investigation and assessment process continues to provide data that is critical for determining whether a viable reconstruction option can be identified. Separately, mine optimisation work has identified options to redesign the Main Pit mine plan and potentially significantly reduce future waste stripping ratios, offset by a reduction in the likely volume of recoverable material. This work has been very encouraging, however technical complexity and the uncertain outlook for iron ore prices continues to make any immediate decision on reconstruction of the seawall and resumption of Main Pit production challenging. Additional technical field work is required in order to determine the viability of seawall options and to establish a clear understanding of the resulting risk and cost profile. The program of work includes detailed bathymetric surveying and additional geotechnical drilling in and around the area in which the failure occurred. At the earliest, this work would commence in early 2016 after the upcoming cyclone season. Group Sales Guidance and Cash Costs Profile Based on forecast production for 2015/16 of 4.0-4.5 Mwmt, Mount Gibson expects its all-in group cash costs, inclusive of all site operating and capital costs, royalties, closure and head office costs, to be in the range of $50-54/wmt, equivalent to US$37-40/wmt at an exchange rate of A$1.00/US$0.74. SIGNIFICANT EVENTS AFTER BALANCE DATE 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. DIVIDENDS During the financial year, a final dividend of 4 cents per share fully franked in respect of the 2013/14 financial year was paid by way of $43,632,203 in cash (2014: $21,811,685). With the payment of this final dividend for the 2013/14 financial year, Mount Gibson has now paid $173.9 million in dividends since its maiden dividend in September 2011. A final dividend for the 2014/15 financial year has not been declared given the presently depressed iron ore price environment and the recent failure of the Main Pit seawall at the Group’s Koolan Island operation. INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND AUDITORS 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 agreed to indemnify its auditors, Ernst & Young, to the fullest extent possible as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. 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. MOUNT GIBSON IRON LIMITED 2015 Annual Report23 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: Lee Seng Hui A Jones Li Shao Feng R Barwick S Bird P Dougas A Ferguson Ordinary Shares Options over Shares Performance Rights over Shares - 100,000 - - 20,000 284,944 - - - - - - - - - - - - - - - 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 were as follows: Directors’ Meetings Audit and Risk Management Committee Meetings Nomination, Remuneration and Governance Committee Operational Risk and Sustainability Committee Contracts Committee Number of Meetings Held Lee Seng Hui A Jones Li Shao Feng R Barwick S Bird P Dougas A Ferguson 9 9 9 8 9 9 9 - 4 4 4 - - 4 - - 4 4 4 - 3 - - - 4 - - - 3 4 4 - 2 - 2 - 1 2 2 - ENVIRONMENTAL REGULATION AND PERFORMANCE The Group has developed Environmental Management Plans for its various operating and development sites. 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 & 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 licenses and authorities, issued under both State and Federal law, to regulate its mining and exploration activities in Australia. These licenses 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. 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. 24MOUNT GIBSON IRON LIMITED 2015 Annual Report 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 35 which forms part of this Report. NON-AUDIT SERVICES The following non-audit services were provided by the Company’s auditor, EY, during the financial year ended 30 June 2015. 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 2015 $ 3,600 MOUNT GIBSON IRON LIMITED 2015 Annual Report25 REMUNERATION REPORT (AUDITED) This Remuneration 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 two independent Non-Executive Directors, being Messrs Jones (Chairman) and Barwick, and one non-independent Non-Executive Director, being Mr Lee. 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. The Board agreed to salary cuts of 25% for Directors during the 2015 financial year. In addition, prior to this, Mr Li Shao Feng elected to waive his Director fees entirely and Mr Lee Seng Hui elected to receive Chairman fees at a level substantially less than previously payable for that particular role. 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. Total Non-Executive Director fees of $549,047 were paid in the 2014/15 financial 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. 26MOUNT GIBSON IRON LIMITED 2015 Annual 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. 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. No remuneration consultants were appointed for this purpose during the 2015 financial year given a decision was made by the Board and recommended by management that there be no salary increases or awards of long-term incentives or short-term incentives bonuses. 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. 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 improved 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. MOUNT GIBSON IRON LIMITED 2015 Annual Report27 Group and individual performance measures are weighted and specify performance required to meet or exceed expectations. The Group performance measures for the 2014/15 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. 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 after the reporting date. For the 2015 financial year, no STI cash incentive was awarded to Key Management Personnel in line with the Company’s cost reduction strategy. Long-term Incentive (“LTI”) for 2015 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 approximately three years’ continuous service, subject to satisfaction of specified performance hurdles, unless such conditions are waived by the Board exercising its discretion. 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 a 2-3 year 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 employment contracts for the Chief Executive Officer, Mr Beyer, the Company Secretary & General Counsel, Mr Stokes, and the Chief Financial Officer, Mr Kerr, 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. At 30 June 2015, in line with the Company’s cost reduction strategy, no performance rights were issued by the Company to senior executives in respect of the 2014/15 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. 28MOUNT GIBSON IRON LIMITED 2015 Annual Report 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 as Chief Operating Officer on 2 November 2011 and was appointed as Chief Executive Officer on 14 May 2012, with no set term; Annual Salary Package increase by minimum of CPI from 1 July every year, subject to the agreed suspension outlined below; 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. During the 2015 financial year, Mr Beyer agreed to a reduction in his base salary from $764,400 to $500,000 for a 12 month period to 1 March 2016 subject to further review and mutual agreement. During this time the mandatory CPI adjustment has also been suspended. The Board has agreed to pay a conditional deferred bonus to Mr Beyer as part of the restructuring arrangement to compensate for the reduced remuneration and loss of leave entitlements during this period. The timing of payment of the deferred bonus is at the Board’s discretion. However, in the event that Mr Beyer and the Company are unable to reach agreement on his revised salary at 1 March 2016, Mr Beyer may elect to take a redundancy, in which case he would become entitled to the deferred bonus. Similarly, if the Company elects to terminate Mr Beyer’s contract during this period, and the deferred bonus has not yet been paid, the deferred bonus will be automatically payable in addition to the existing termination rights payable to Mr Beyer under his executive contract. As at 30 June 2015, the conditional accrued deferred bonus totalled $123,221. 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, subject to the agreed suspension outlined below; 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. During the 2015 financial year, Mr Kerr agreed to a reduction in his base salary from $474,116 to $365,000 for a 12 month period to 1 March 2016 subject to further review and mutual agreement. During this time the mandatory CPI adjustment has also been suspended. The Board has agreed to pay a conditional deferred bonus to Mr Kerr as part of the restructuring arrangement to compensate for the reduced remuneration and loss of leave entitlements during this period. The timing of payment of the deferred bonus is at the Board’s discretion. However, in the event that Mr Kerr and the Company are unable to reach agreement on his revised salary at 1 March 2016, Mr Kerr may elect to take a redundancy, in which case he would become entitled to the deferred bonus. Similarly, if the Company elects to terminate Mr Kerr’s contract during this period, and the deferred bonus has not yet been paid, the deferred bonus will be automatically payable in addition to the existing termination rights payable to Mr Kerr under his executive contract. As at 30 June 2015, the conditional accrued deferred bonus totalled $43,029. 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, such increase agreed to be suspended for the 2015/16 financial 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. Andrew Thomson (position made redundant as at 30 June 2015) 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. MOUNT GIBSON IRON LIMITED 2015 Annual Report29 Details of directors and key management personnel disclosed in this report [i] Directors Lee Seng Hui A Jones Li Shao Feng R Barwick S Bird P Dougas A Ferguson Chairman Non-Executive Director Non-Executive Director Non-Executive Director Lead Non-Executive Director Non-Executive Director Alternate Director to Mr Lee [ii] Key Management Personnel J Beyer P Kerr A Thomson D Stokes Chief Executive Officer Chief Financial Officer Chief Operating Officer until 30 June 2015 Company Secretary and General Counsel Remuneration of Key Management Personnel for the year ended 30 June 2015 Short Term Post Employment Long Term Share Based Payment* Termination Payment Salary & Fees $ Non Monetary $ Conditional Deferred Bonus** $ Super- annuation $ Retirement Benefits $ Long Service Leave $ Options and Performance Rights $ 30 June 2015 Directors Lee Seng Hui A Jones Li Shao Feng R Barwick S Bird P Dougas A Ferguson 89,540 103,387 - 103,387 111,758 93,341 - Sub-total 501,413 - - - - - - - - - - - - - - - - Other KMP J Beyer P Kerr 662,475 12,207 123,221 407,683 10,997 43,029 A Thomson 495,934 11,840 D Stokes 324,583 9,050 - - Sub-total 1,890,675 44,094 166,250 123,727 Totals 2,392,088 44,094 166,250 171,361 8,506 9,822 - 9,822 10,617 8,867 - 47,634 36,560 30,061 34,516 22,590 - - - - - - - - - - - - - - - - - - - - - - 1,316 990 1,667 1,250 5,223 5,223 - - - - - - - - 158,562 58,610 21,782 47,257 $ - - - - - - - - - - % Perform- ance Related Total $ 98,046 - 113,209 - 113,209 122,375 102,208 - 549,047 994,341 551,370 - - - - - - - 28 18 2 12 471,229 1,036,968 - 404,730 286,211 471,229 2,987,409 286,211 471,229 3,536,456 * Share based payments represent the accounting expense incurred by the Company for the stated financial period, reflecting the terms of the particular options or performance rights. ** Mr Beyer and Mr Kerr are in certain circumstances entitled to a deferred bonus. Refer “Employment Contracts” above. Options granted as part of remuneration for the year ended 30 June 2015 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 2015 and there are no options outstanding as at 30 June 2015. 30MOUNT GIBSON IRON LIMITED 2015 Annual Report Performance Rights granted as part of remuneration for the year ended 30 June 2015 There were no performance rights granted as part of remuneration during the year ended 30 June 2015. Performance Rights vested There were no performance rights vested during the financial year ended 30 June 2015. J Beyer Performance Rights benefits 30 June 2015 30 June 2014 - 220,853 For each grant of performance rights, the percentage of the available grant 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 two to three years, providing the vesting conditions are met (refer above). J Beyer J Beyer J Beyer P Kerr P Kerr A Thomson A Thomson D Stokes D Stokes Year Granted 2012 2013 2014 2013 2014 2013 2014 2013 2014 Vested % 81 - - - - - - - - Forfeited/ Lapsed % Financial Years Performance Rights May Vest 19 - - - - 100 100 - - - 2016 2017 2016 2017 - - 2016 2017 Performance Rights holdings by Key Management Personnel as at 30 June 2015 30 June 2015 Directors Lee Seng Hui A Jones Li Shao Feng R Barwick S Bird P Dougas A Ferguson Other KMP J Beyer P Kerr A Thomson D Stokes Total Balance 1 July 2014 Granted as Remuneration Exercised during the year Lapsed/ forfeited during the year Balance 30 June 2015 - - - - - - - 858,868 336,840 375,520 261,460 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (220,853) - - - (50,465) - (375,520) - 587,550 336,840 - 261,460 1,832,688 - (220,853) (425,985) 1,185,850 No performance rights had vested and were exercisable at 30 June 2015. Shares issued on exercise of options and rights for the year ended 30 June 2015 There were no shares issued on exercise of options and rights by the Directors and Executives during the year ended 30 June 2015 (2014: nil). There were 220,853 shares issued on the exercise of 220,853 performance rights on 9 July 2014 for nil consideration. These performance rights had vested to Mr Beyer in the previous year. MOUNT GIBSON IRON LIMITED 2015 Annual Report31 Shareholdings of Key Management Personnel as at 30 June 2015 30 June 2015 Directors Lee Seng Hui A Jones Li Shao Feng R Barwick S Bird P Dougas A Ferguson Other KMP J Beyer P Kerr A Thomson D Stokes Total Balance 1 July 2014 Ord Granted as Remuneration Ord Exercise of Performance Rights Ord Net Change Other Ord Balance 30 June 2015 Ord - 100,000 - - 20,000 103,866 - 19,801 - - - 243,667 - - - - - - - - - - - - - - - - - - - *220,853 - - - 220,853 - - - - - 181,078 - - - - - - 100,000 - - 20,000 284,944 - 240,654 - - - 181,078 645,598 * A total of 220,853 ordinary shares were issued to Mr Beyer on 9 July 2014 in relation to the equivalent number of performance rights vested in the year ended 30 June 2014. Remuneration of Key Management Personnel for the year ended 30 June 2014 Short Term Post Employment Long Term Share Based Payment* Termination Payment Salary & Fees $ Non Monetary $ Cash Incentives $ Super- annuation $ Retirement Benefits $ Long Service Leave $ Options and Performance Rights $ 30 June 2014 Directors Lee Seng Hui A Jones Li Shao Feng R Barwick S Bird P Dougas G Hill** Chen Z*** 103,128 111,060 58,696 110,298 116,400 101,144 140,275 65,561 - - - - - - - - - - - - - - - - - - Sub-total 806,562 Other KMP J Beyer P Kerr 710,000 7,922 294,000 439,285 3,828 195,630 A Thomson 490,000 6,209 193,125 D Stokes 299,278 3,900 137,896 Sub-total 1,938,563 21,859 820,651 96,205 Totals 2,745,125 21,859 820,651 170,811 9,539 10,273 5,429 10,203 10,767 9,356 12,975 6,064 74,606 25,000 21,023 25,000 25,182 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,831 363,051 462 517 359 3,169 3,169 47,257 58,610 65,141 534,059 534,059 % Perform- ance Related Total $ 112,667 - - - - - - - - 47 34 33 38 121,333 64,125 120,501 127,167 110,500 153,250 71,625 881,168 1,401,804 707,485 773,461 531,756 3,414,506 4,295,674 $ - - - - - - - - - - - - - - - * Share based payments represent the accounting expense incurred by the Company for the stated financial period, reflecting the terms of the particular options or performance rights. ** Chairman until 18 February 2014 and Non-Executive Director until 29 April 2014. *** Non-Executive Director until 29 April 2014. Options granted as part of remuneration for the year ended 30 June 2014 There were no options granted to Directors and Executives during the year ended 30 June 2014 and there are no options outstanding at 30 June 2014. 32MOUNT GIBSON IRON LIMITED 2015 Annual Report Performance Rights granted as part of remuneration for the year ended 30 June 2014 Grant Date for Accounting Purposes 01-Jul-13 01-Jul-13 J Beyer P Kerr A Thomson 01-Jul-13 D Stokes 01-Jul-13 Total Number Granted Value of Performance Rights Granted During the Year $ % of Remuneration 344,100 215,500 241,100 151,900 952,600 92,907 58,185 65,097 41,013 257,202 7 8 8 8 The estimated maximum and minimum possible total value of these performance rights is $257,202 and $nil respectively. Performance Rights granted above as part of remuneration are valued using the Monte Carlo methodology which considers the incorporation of the market-based hurdles. The value per performance right at grant date was calculated using the following assumptions: Effective grant date for accounting purposes 01-Jul-13 Share price on effective grant date Risk free interest rate Volatility factor Value of Performance Right on effective grant date $0.46 2.90% 50% $0.27 The vesting of these Performance Rights is subject to a relative TSR hurdle to be measured on 1 July 2016 and re-measured on 31 December 2016. Mount Gibson’s TSR performance is ranked relative to a comparator group consisting of resource companies listed on ASX. The comparator group comprises various iron ore producers listed on the Australian Securities Exchange, as follows: Atlas Iron Limited, Gindalbie Metals Limited, Rio Tinto Limited, BC Iron Limited, Fortescue Metals Group Limited, Grange Resources Limited, Arrium Limited and Western Desert Resources Limited. 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% Loans to Key Management Personnel There were no loans to key management personnel during the years ended 30 June 2015 and 30 June 2014. Other Transactions and Balances with Key Management Personnel There were no other transactions and balances with key management personnel during the years ended 30 June 2015 and 30 June 2014. Company Performance The table below shows the performance of the Group over the last 5 years: 30 June 2015 30 June 2014 30 June 2013 Restated* 30 June 2012 30 June 2011 Net profit/(loss) after tax $’000 (911,422) Earnings/(loss) per share $/share (0.8356) Closing share price $ 0.20 96,353 0.0884 0.69 157,342 0.1445 0.47 162,016 0.1496 0.86 239,500 0.2214 1.84 * Restated to reflect adjustments made on the adoption of AASB Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine. In accordance with the transitional provisions of the Interpretation, amounts in prior years were not restated. End of remuneration report. Signed in accordance with a resolution of the Directors. SIMON BIRD Lead Independent Non-Executive Director Sydney, 18 August 2015 MOUNT GIBSON IRON LIMITED 2015 Annual Report33 Competent Persons Attribution: Exploration Targets and Exploration Results The information in this report that relates to Exploration Targets and Exploration Results are based on information compiled by Gregory Hudson, who is a member of the Australian Institute of Geoscientists. Mr Hudson is a consultant to Mount Gibson Iron Limited, and 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. Mr Hudson consents to the inclusion in this report of the matters based on his information in the form and context in which it appears. Mineral Resources for the Shine, Extension Hill (excluding Iron Hill), all Tallering Peak deposits and all Koolan Island deposits other than the Main Deposit: The information in this report relating to Mineral Resources for the Shine, Extension Hill (excluding Iron Hill), and Tallering Peak deposits as well as the Acacia East, Mullet Acacia, Barramundi West, Eastern Barramundi and Mangrove Mineral Resources at Koolan Island, is based on information compiled by Elizabeth Haren, a Competent Person who is a member and Chartered Professional of the Australasian Institute of Mining and Metallurgy. Ms Haren was a full-time employee of, and is a consultant to, Mount Gibson Iron Limited. Ms 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’. Ms Haren consents to the inclusion in this report of the matters based on her information in the form and context in which it appears. The Mineral Resource estimates comply with recommendations in the Australasian Code for Reporting of Mineral Resources and Ore Reserves (2012) by the Joint Ore Reserves Committee (JORC). Therefore they are suitable for public reporting. Mineral Resources for the Koolan Island Main deposit and the Iron Hill deposit at Extension Hill South: The information in this report relating to the Mineral Resources of Main Deposit at Koolan Island and the Iron Hill deposit at Extension Hill South is based on information compiled by Jani Kalla, a Competent Person who is a member and Chartered Professional of the Australasian Institute of Mining and Metallurgy. Mr Kalla was a full-time employee of Mount Gibson Iron Limited and is now a full time employee of First Quantum Minerals Limited. Mr Kalla has sufficient experience that is relevant to the style of mineralisation and type of deposits 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’. Mr Kalla consents to the inclusion in this report of the matters based on his information in the form and context in which it appears. The Mineral Resource estimates comply with recommendations in the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (2012) by the Joint Ore Reserves Committee (JORC). Therefore they are suitable for public reporting. Koolan Island, Extension Hill and Shine Ore Reserves: The information in this report relating to Ore Reserves at Koolan Island, Extension Hill and Shine is based on information compiled by Paul Salmon, a Competent Person who is a member and a Chartered Professional of the Australasian Institute of Mining and Metallurgy. Mr Salmon is a full-time employee of Mount Gibson Iron Limited. Paul Salmon 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’. Mr Salmon consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. The Ore Reserve estimates comply with recommendations in the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (2012) by the Joint Ore Reserves Committee (JORC). Therefore they are suitable for public reporting. 34MOUNT GIBSON IRON LIMITED 2015 Annual Report    Auditor's Independence Declaration MOUNT GIBSON IRON LIMITED 2015 Annual Report35Consolidated Income Statement For the year ended 30 June 2015 CONTINUING OPERATIONS Sale of goods Other revenue TOTAL REVENUE Cost of sales Impairment of ore inventories GROSS PROFIT/(LOSS) Other income Consumables stock obsolescence Impairment of consumables inventories Impairment of mine properties Impairment of property, plant and equipment Impairment of deferred acquisition, exploration and evaluation Exploration expenses Administration expenses Re-presented [1] 2015 $’000 2014 $’000 315,644 12,209 660,161 15,549 327,853 675,710 (341,742) (502,737) (3,442) - (17,331) 172,973 7,874 (9,048) (339) (712,917) (203,213) (19,219) (1,014) (31,279) 8,180 - - - - - (116) (27,958) Notes 2[a] 2[a] 3[b] 8[iii] 2[b] 8[i] 8[ii] 14 14 12 3[c] PROFIT/(LOSS) FROM CONTINUING OPERATIONS BEFORE TAX AND FINANCE COSTS (986,486) 153,079 Finance costs 3[a] (2,929) (5,627) PROFIT/(LOSS) FROM CONTINUING OPERATIONS BEFORE TAX (989,415) 147,452 Tax benefit/(expense) 4 99,908 (57,280) PROFIT/(LOSS) AFTER TAX FROM CONTINUING OPERATIONS (889,507) 90,172 DISCONTINUED OPERATIONS Profit/(loss) after tax for the year from discontinued operations 29[a] (21,915) 6,181 PROFIT/(LOSS) AFTER TAX ATTRIBUTABLE TO MEMBERS OF THE COMPANY (911,422) 96,353 Earnings/(loss) per share (cents per share)   basic earnings/(loss) per share diluted earnings/(loss) per share Earnings/(loss) per share (cents per share) for continuing operations   basic earnings/(loss) per share diluted earnings/(loss) per share 23 23 23 23 (83.56) (83.56) (81.55) (81.55) 8.84 8.83 8.27 8.27 [1] In accordance with applicable accounting standards, certain numbers shown here do not correspond to the 30 June 2014 financial statements as they reflect adjustments made in respect of discontinued operations, as detailed in note 29. 36MOUNT GIBSON IRON LIMITED 2015 Annual Report Consolidated Statement of Comprehensive Income For the year ended 30 June 2015 2015 $’000 2014 $’000 PROFIT/(LOSS) FOR THE PERIOD AFTER TAX (911,422) 96,353 OTHER COMPREHENSIVE INCOME/(LOSS) 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 transferred to the Income Statement Deferred income tax on cash flow hedges 5,334 (7,729) 6,837 165 719 (2,101) OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR, NET OF TAX (1,676) 4,901 TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR (913,098) 101,254 MOUNT GIBSON IRON LIMITED 2015 Annual Report37 Consolidated Balance Sheet As at 30 June 2015 Notes 2015 $’000 2014 $’000 ASSETS Current Assets Cash and cash equivalents Term deposits Trade and other receivables Inventories Prepayments Derivative financial assets Income tax receivable 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 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 / (accumulated losses) Reserves TOTAL EQUITY 5 6 7 8 9 11 12 13 4 15 16 17 17 16 4 18 20 19 91,003 243,000 15,354 21,078 3,304 - - 70,471 449,300 53,004 67,573 3,468 2,395 9,661 373,739 655,872 31,494 2,924 3,205 - 223,186 21,863 655,731 45,999 37,623 946,779 411,362 1,602,651 49,664 2,619 13,802 66,085 39,584 119 - 39,703 105,788 305,574 568,328 (1,243,797) 981,043 305,574 125,201 7,294 15,270 147,765 45,202 2,162 145,504 192,868 340,633 1,262,018 568,328 675,519 18,171 1,262,018 38MOUNT GIBSON IRON LIMITED 2015 Annual Report Consolidated Cash Flow Statement For the year ended 30 June 2015 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest paid Income tax received/(paid) Notes 2015 $’000 2014 $’000 356,090 902,056 (454,167) (606,234) (680) 7,958 (2,040) (55,819) NET CASH FLOWS PROVIDED BY/(USED IN) OPERATING ACTIVITIES 5[b] (90,799) 237,963 CASH FLOWS FROM INVESTING ACTIVITIES Interest received Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Proceeds from/(payment for) term deposits Payment for acquisition costs for exploration and evaluation assets Payment for deferred exploration and evaluation expenditure Payment for mine properties 13,409 2,686 (52,145) 206,300 (521) (5,407) (338) 14,597 1,098 (49,119) (135,300) (12,000) (4,484) (80) NET CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES 163,984 (185,288) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of lease liabilities Repayment of borrowings Payment of borrowing costs Dividends paid (6,660) (657) (705) (43,632) (19,120) (485) (1,584) (21,812) NET CASH FLOWS (USED IN) FINANCING ACTIVITIES (51,654) (43,001) NET INCREASE IN CASH AND CASH EQUIVALENTS Net foreign exchange difference Cash and cash equivalents at beginning of year 21,531 (999) 70,471 9,674 (1,221) 62,018 CASH AND CASH EQUIVALENTS AT END OF YEAR 5[a] 91,003 70,471 MOUNT GIBSON IRON LIMITED 2015 Annual Report39 Consolidated Statement of Changes in Equity For the year ended 30 June 2015 Issued Capital $’000 568,328 - - - - - 568,328 568,328 - - - - - - Attributable to Equity Holders of the Parent Total Equity Retained Earnings/ (Accumulated Losses) $’000 Share Based Payments Reserve $’000 Net Unrealised Gains / (Losses) Reserve $’000 Dividend Distribution Reserve $’000 Other Reserves $’000 $’000 19,160 (3,225) 600,978 96,353 - 96,353 (21,812) - 675,519 675,519 (911,422) - (911,422) (43,632) - (964,262) - - - - 527 19,687 19,687 - - - - 286 - - 4,901 4,901 - - 1,676 1,676 - (1,676) (1,676) - - - - - - - - - - - - - - - - - 964,262 964,262 (3,192) 1,182,049 - - - - - 96,353 4,901 101,254 (21,812) 527 (3,192) 1,262,018 (3,192) - - - - - - 1,262,018 (911,422) (1,676) (913,098) (43,632) 286 - (3,192) 305,574 568,328 (1,243,797) 19,973 At 1 July 2013 Profit for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners - Dividends paid Share-based payments At 30 June 2014 At 1 July 2014 Loss for the period Other comprehensive loss Total comprehensive loss for the year Transactions with owners in their capacity as owners - Dividends paid Share-based payments Transfer of prior year profits At 30 June 2015 40MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report For the year ended 30 June 2015 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 2015, were authorised for issue in accordance with a resolution of the Directors on 18 August 2015. 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 Koolan Island and Extension Hill, the exploration and development of hematite deposits in Western Australia and elsewhere, treasury management and the pursuit of mineral resources investments. 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. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. 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. MOUNT GIBSON IRON LIMITED 2015 Annual Report41 Notes to the Consolidated Financial Report (continued) From 1 July 2014 the Group has adopted all new and amended accounting standards mandatory for annual periods beginning on or after 1 July 2014 including: Reference Title Application date of standard Application date for Group AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities 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. AASB 2013-3 Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets AASB 2013-3 amends the disclosure requirements in AASB 136 Impairment of Assets. The amendments include the requirement to disclose additional information about the fair value measurement when the recoverable amount of impaired assets is based on fair value less costs of disposal. 1 January 2014 1 July 2014 AASB 2013-4 Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accounting [AASB 139] 1 January 2014 1 July 2014 AASB 2013-4 amends AASB 139 to permit the continuation of hedge accounting in specified circumstances where a derivative, which has been designated as a hedging instrument, is novated from one counterparty to a central counterparty as a consequence of laws or regulations. AASB 1031 Materiality The revised AASB 1031 is an interim standard that cross-references to other Standards and the Framework (issued December 2013) that contain guidance on materiality. AASB 1031 will be withdrawn when references to AASB 1031 in all Standards and Interpretations have been removed. AASB 2014-1 Part C issued in June 2014 makes amendments to eight Australian Accounting Standards to delete their references to AASB 1031. The amendments are effective from 1 July 2014. AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments The Standard contains three main parts and makes amendments to a number Standards and Interpretations. 1 January 2014 1 July 2014 AASB 2014-1 Part A -Annual Improvements 2011–2013 Cycle Part A of AASB 2013-9 makes consequential amendments arising from the issuance of AASB CF 2013-1. 30 June 2014 30 June 2014 Part B makes amendments to particular Australian Accounting Standards to delete references to AASB 1031 and also makes minor editorial amendments to various other standards. 1 July 2014 1 July 2014 Annual Improvements to IFRSs 2011–2013 Cycle addresses the following items: 1 July 2014 1 July 2014 ► AASB13 - Clarifies that the portfolio exception in paragraph 52 of AASB 13 applies to all contracts within the scope of AASB 139 or AASB 9, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in AASB 132. AASB 140 - Clarifies that judgment is needed to determine whether an acquisition of investment property is solely the acquisition of an investment property or whether it is the acquisition of a group of assets or a business combination in the scope of AASB 3 that includes an investment property. That judgment is based on guidance in AASB 3. 42MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) Reference Title AASB 2014-1 Part A -Annual Improvements 2010–2012 Cycle AASB 2014-1 Part A: This standard sets out amendments to Australian Accounting Standards arising from the issuance by the International Accounting Standards Board (IASB) of International Financial Reporting Standards (IFRSs) Annual Improvements to IFRSs 2010–2012 Cycle and Annual Improvements to IFRSs 2011–2013 Cycle. Application date of standard Application date for Group 1 July 2014 1 July 2014 Annual Improvements to IFRSs 2010–2012 Cycle addresses the following items: ► AASB 2 - Clarifies the definition of 'vesting conditions' and 'market condition' and introduces the definition of 'performance condition' and 'service condition'. ► AASB 3 - Clarifies the classification requirements for contingent consideration in a business combination by removing all references to AASB 137. ► AASB 8 - Requires entities to disclose factors used to identify the entity's reportable segments when operating segments have been aggregated. An entity is also required to provide a reconciliation of total reportable segments' asset to the entity's total assets. ► AASB 116 & AASB 138 - Clarifies that the determination of accumulated depreciation does not depend on the selection of the valuation technique and that it is calculated as the difference between the gross and net carrying amounts. AASB 124 - Defines a management entity providing KMP services as a related party of the reporting entity. The amendments added an exemption from the detailed disclosure requirements in paragraph 17 of AASB 124 for KMP services provided by a management entity. Payments made to a management entity in respect of KMP services should be separately disclosed. Amendments to Australian Accounting Standards - Part B Defined Benefit Plans: Employee Contributions (Amendments to AASB 119) Amendments to AASB 1053 – Transition to and between Tiers, and related Tier 2 Disclosure Requirements [AASB 1053] AASB 2014-Part B makes amendments in relation to the requirements for contributions from employees or third parties that are set out in the formal terms of the benefit plan and linked to service. 1 July 2014 1 July 2014 The amendments clarify that if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service cost in the period in which the related service is rendered, instead of attributing the contributions to the periods of service. The Standard makes amendments to AASB 1053 Application of Tiers of Australian Accounting Standards to: 1 July 2014 1 July 2014  clarify that AASB 1053 relates only to general purpose financial statements;  make AASB 1053 consistent with the availability of the AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors option in AASB 1 First-time Adoption of Australian Accounting Standards;  clarify certain circumstances in which an entity applying Tier 2 reporting requirements can apply the AASB 108 option in AASB 1; permit an entity applying Tier 2 reporting requirements for the first time to do so directly using the requirements in AASB 108 (rather that applying AASB 1) when, and only when, the entity had not applied, or only selectively applied, applicable recognition and measurement requirements in its most recent previous annual special purpose financial statements; and  specify certain disclosure requirements when an entity resumes the application of Tier 2 reporting requirements. The main impact of the adoption of new standards and interpretations effective 1 July 2014 was disclosure changes. Changes to accounting policies due to adoption of these standards and interpretations are not considered significant for the Group. MOUNT GIBSON IRON LIMITED 2015 Annual Report43 Notes to the Consolidated Financial Report (continued) Other Australian Accounting Standards and Interpretations relevant to the Group 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 2015 are outlined in the table below: Reference Title Summary AASB 2014-4 Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to AASB 116 and AASB 138) AASB 15 Revenue from Contracts with Customers AASB 2014-9 Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements AASB 116 and AASB 138 both establish the principle for the basis of depreciation and amortisation as being the expected pattern of consumption of the future economic benefits of an asset. The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The amendment also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which replaces IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations (IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue—Barter Transactions Involving Advertising Services). The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: (a) Step 1: Identify the contract(s) with a customer (b) Step 2: Identify the performance obligations in the contract (c) Step 3: Determine the transaction price (d) Step 4: Allocate the transaction price to the performance obligations in the contract (e) Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation Early application of this standard is permitted. AASB 2014-5 incorporates the consequential amendments to a number Australian Accounting Standards (including Interpretations) arising from the issuance of AASB 15. AASB 2014-9 amends AASB 127 Separate Financial Statements, and consequentially amends AASB 1 First-time Adoption of Australian Accounting Standards and AASB 128 Investments in Associates and Joint Ventures, to allow entities to use the equity method of accounting for investments in subsidiaries, joint ventures and associates in their separate financial statements. AASB 2014-9 also makes editorial corrections to AASB 127. AASB 2014-9 applies to annual reporting periods beginning on or after 1 January 2016. Early adoption permitted. Application date of standard Application date for Group 1 January 2016 1 July 2016 1 January 2017 1 July 2017 1 January 2016 1 July 2016 44MOUNT GIBSON IRON LIMITED 2015 Annual Report Application date of standard Application date for Group 1 January 2018 1 July 2018 Notes to the Consolidated Financial Report (continued) Reference Title Summary AASB 9 Financial Instruments AASB 9 (December 2014) is a new Principal standard which replaces AASB 139. This new Principal version supersedes AASB 9 issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially- reformed approach to hedge accounting. AASB 9 is effective for annual periods beginning on or after 1 January 2018. However, the Standard is available for early application. The own credit changes can be early applied in isolation without otherwise changing the accounting for financial instruments. The final version of AASB 9 introduces a new expected-loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses on a more timely basis. Amendments to AASB 9 (December 2009 & 2010 editions and AASB 2013-9) issued in December 2013 included the new hedge accounting requirements, including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and disclosures. AASB 9 includes requirements for a simpler approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below. a. b. c. 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. Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in 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. Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. reduces a measurement or 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 AASB 9 also removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value. This change in accounting means that gains caused by the deterioration of an entity’s own credit risk on such liabilities are no longer recognised in profit or loss. 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, AASB 2010-10 and AASB 2014-1 – Part E. AASB 2014-7 incorporates the consequential amendments arising from the issuance of AASB 9 in Dec 2014. AASB 2014-8 limits the application of the existing versions of AASB 9 (AASB 9 (December 2009) and AASB 9 (December 2010)) from 1 February 2015 and applies to annual reporting periods beginning on after 1 January 2015. MOUNT GIBSON IRON LIMITED 2015 Annual Report45 Notes to the Consolidated Financial Report (continued) Reference Title Summary AASB 2014- 10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012–2014 Cycle Application date of standard Application date for Group 1 January 2016 1 July 2016 AASB 2014-10 amends AASB 10 Consolidated Financial Statements and AASB 128 to address an inconsistency between the requirements in AASB 10 and those in AASB 128 (August 2011), in dealing with the sale or contribution of assets between an investor and its associate or joint require: (a) a full gain or loss to be recognised when a transaction involves a business (whether it is housed in a subsidiary or not); and (b) a partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. amendments venture. The AASB 2014-10 also makes an editorial correction to AASB 10. AASB 2014-10 applies to annual reporting periods beginning on or after 1 January 2016. Early adoption permitted. The subjects of the principal amendments to the Standards are set out below: 1 January 2016 1 July 2016 AASB 5 Non-current Assets Held Operations: for Sale and Discontinued • Changes in methods of disposal – where an entity reclassifies an asset (or disposal group) directly from being held for distribution to being held for sale (or vice versa), an entity shall not follow the guidance in paragraphs 27–29 to account for this change. AASB 7 Financial Instruments: Disclosures: to decide whether a servicing contract • Servicing contracts - clarifies how an entity should apply the guidance in paragraph 42C of AASB 7 to a servicing contract is ‘continuing involvement’ for the purposes of applying the disclosure requirements in paragraphs 42E–42H of AASB 7. • Applicability of the amendments to AASB 7 to condensed interim financial statements - clarify that the additional disclosure required by the amendments to AASB 7 Disclosure–Offsetting Financial Assets and Financial Liabilities is not specifically required for all interim periods. However, the additional disclosure is required to be given in condensed interim financial statements that are prepared in accordance with AASB 134 Interim Financial Reporting when its inclusion would be required by the requirements of AASB 134. AASB 119 Employee Benefits: • Discount rate: regional market issue - clarifies that the high quality corporate bonds used to estimate the discount rate for post-employment benefit obligations should be denominated in the same currency as the liability. Further it clarifies that the depth of the market for high quality corporate bonds should be assessed at the currency level. AASB 134 Interim Financial Reporting: • Disclosure of information ‘elsewhere in the interim financial report’ -amends AASB 134 to clarify the meaning of disclosure of information ‘elsewhere in the interim financial report’ and to require the inclusion of a cross-reference from the interim financial statements to the location of this information. 46MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 The Standard makes amendments to AASB 101 Presentation of Financial Statements arising from the IASB’s Disclosure Initiative project. The amendments are designed to further encourage companies to apply professional judgment in determining what information to disclose in the financial statements. For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. The amendments also clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures. 1 January 2016 1 July 2016 AASB 2015-3 AASB 2015-5 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality Amendments to Australian Accounting Standards – Investment Entities: Applying the Consolidation Exception The Standard completes the AASB’s project to remove Australian guidance on materiality from Australian Accounting Standards. 1 July 2015 1 July 2015 This makes amendments to AASB 10, AASB 12 Disclosure of Interests in Other Entities and AASB 128 arising from the IASB’s narrow scope amendments associated with Investment Entities. 1 July 2015 1 July 2015 The Group has yet to fully assess the impact of these new and amended Accounting Standards and Interpretations. (e) Foreign currency 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. (f) 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. (g) Other accounting policies Other significant accounting policies that summarise the measurement basis used and are relevant to an understanding of the financial statements are provided throughout the notes to the financial statements. (h) Key accounting judgements, estimates and assumptions In the process of applying the Group’s accounting policies, management has made a number of judgements and applied estimates of future events. Significant judgements and estimates which are material to the financial statements are provided throughout the notes to the financial statements. Other significant accounting judgements, estimates and assumptions not provided in the notes to the financial statements are as follows: 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. MOUNT GIBSON IRON LIMITED 2015 Annual Report47 Notes to the Consolidated Financial Report (continued) Re-presented 2015 $’000 2014 $’000 Notes 2. Revenue and Other Income [a] Revenue Sale of ore Realised gain/(loss) on foreign exchange hedges Other revenue Interest income [b] Other income Net realised gain on foreign exchange transactions Net gain on disposal of property, plant and equipment Other income [i] 323,422 (7,778) 315,644 12,209 12,209 4 1,167 6,703 7,874 659,655 506 660,161 15,549 15,549 - 46 8,134 8,180 [i] Mount Gibson received an interim distribution of $8.050 million during the year ended 30 June 2014 and a final distribution of $4.379 million in March 2015 from the liquidators of Pioneer Iron & Steel Group Company Limited, a former customer. Recognition and measurement 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 The Group generates a significant proportion of revenue from the sale of iron ore. 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. 3. Expenses [a] Finance costs Finance charges on banking facilities Finance charges payable under finance leases Non-cash interest accretion on rehabilitation provision Re-presented 2015 $’000 2014 $’000 1,347 340 1,687 1,242 2,929 1,902 1,308 3,210 2,417 5,627 48MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 3. Expenses (Continued) [b] Cost of Sales Mining and administration costs Depreciation – mining and administration Mining waste costs deferred Amortisation of mining waste costs deferred Amortisation of mine properties Crushing costs Depreciation – crushing Transport costs Depreciation – transport Port costs Depreciation – port Royalties Net ore inventory movement [c] Administration Expenses include: Depreciation Share-based payments expense Impairment of debtors Net unrealised loss on foreign exchange balances Net realised loss on foreign exchange transactions [d] Cost of Sales and Administration expenses above include: Salaries, wages expense and other employee benefits Operating lease rental – minimum lease payments Recognition and measurement Employee benefits expense Re-presented 2015 $’000 2014 $’000 Notes 13 13 13 22 184,088 19,221 (92,683) 20,117 14,208 25,908 4,212 88,848 6,326 21,810 5,638 29,760 14,289 275,678 29,477 (151,028) 76,017 37,768 33,727 6,320 77,512 6,579 19,636 11,400 56,061 23,590 341,742 502,737 735 286 964 999 - 545 527 - 1,221 4 73,383 11,950 87,213 24,178 The Group’s accounting policy for liabilities associated with employee benefits is set out in note 17. The policy relating to share-based payments is set out in note 22. Superannuation Contributions made by the Group to employee superannuation funds, which are defined contribution plans, are charged as an expense when incurred. 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. 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. Depreciation and amortisation Refer to notes 11 and 13 for details on depreciation and amortisation. Impairment Impairment expenses are recognised to the extent that the carrying amount of assets exceed their recoverable amount. Refer to note 14 for further details on impairment. MOUNT GIBSON IRON LIMITED 2015 Annual Report49 Notes to the Consolidated Financial Report (continued) 4. Taxation Major components of tax (benefit)/expense for the years ended 30 June 2015 and 2014 are: Income Statement Current tax Current income tax charge Adjustments in respect of current income tax of previous year Deferred tax Relating to origination and reversal of temporary differences: Income tax Minerals resource rent tax Tax (benefit)/expense reported in Income Statement Tax (benefit)/expense relating to continuing operations Tax (benefit)/expense relating to discontinued operations Statement of Changes in Equity Deferred income tax Remeasurement of foreign exchange contracts Deferred income tax (benefit)/liability reported in equity Reconciliation of tax (benefit)/expense A reconciliation of tax (benefit)/expense applicable to accounting profit/(loss) before tax at the statutory income tax rate to tax expense at the Group’s effective tax rate for the years ended 30 June 2015 and 2014 is as follows: Accounting profit/(loss) before tax      At the statutory income tax rate of 30% (2014: 30%) Expenditure not allowed for income tax purposes Unrecognised deferred tax assets Adjustments in respect of current income tax of previous year Other Minerals resource rent tax expense Tax (benefit)/expense Effective tax rate Tax (benefit)/expense reported in Income Statement 2015 $’000 2014 $’000 - 1,703 23,530 (4,764) (144,785) 45,999 27,228 21,351 (97,083) 67,345 (99,908) 2,825 (97,083) 57,280 10,065 67,345 (719) (719) 719 719 (1,008,505) (302,551) 160 158,720 1,703 (1,114) 45,999 (97,083) 9.6% (97,083) 163,698 49,109 572 - (4,764) 1,077 21,351 67,345 41.1% 67,345 50MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 4. Taxation (Continued) Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 CONSOLIDATED Accrued liabilities Capital raising costs Deferred income Foreign exchange contracts Inventory Minerals resource rent tax Prepaid expenditure Fixed assets, mine properties and exploration expenditure Provisions Borrowing cost Tax losses Tax (assets)/liabilities Set off of tax (7,299) (1,100) (4) - (300) (2,891) - - (70,748) (17) - - - (45,999) - - (19,215) (20,070) (797) (838) (58,065) - - - - - 592 1,270 (7,299) (1,100) (4) 592 (300) (2,891) (17) 1,270 353 254 - 7 (45,999) 192 353 254 - 192 165,460 (70,748) 165,460 - - - (19,215) (20,070) (797) (58,065) (838) - - - - 7 - - - - (159,319) (68,024) 599 167,529 (158,720) 99,505 - 22,025 - (22,025) - - - Derecognition of deferred tax asset 159,319 - (599) - 158,720 Net tax (assets)/liabilities - (45,999) - 145,504 - 99,505 Movement in temporary differences during the financial year ended 30 June 2015 Accrued liabilities Capital raising costs Deferred income Foreign exchange contracts Inventory Minerals resource rent tax Prepaid expenditure Fixed assets, mine properties and exploration expenditure Provisions Borrowing cost Tax losses Derecognition of deferred tax asset Balance 1 July 2014 $’000 Recognised in Income $’000 Recognised in Equity $’000 Balance 30 June 2015 $’000 (1,100) (6,199) (17) 1,270 353 254 (45,999) 192 165,460 (20,070) (838) - - 13 (678) 66 (3,145) 45,999 (185) (236,208) 855 41 (58,065) 158,720 - - - (719) - - - - - - - - 99,505 (98,786) (719) (7,299) (4) 592 (300) (2,891) - 7 (70,748) (19,215) (797) (58,065) 158,720 - MOUNT GIBSON IRON LIMITED 2015 Annual Report51 Notes to the Consolidated Financial Report (continued) 4. Taxation (Continued) Movement in temporary differences during the financial year ended 30 June 2014 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 Balance 1 July 2013 $’000 Recognised in Income $’000 Recognised in Equity $’000 Balance 30 June 2014 $’000 (2,201) 342 - (1,602) 740 3,898 (885) (67,350) 48 145,386 (27,437) (732) 50,207 1,101 (359) 1,270 1,236 (740) (3,644) 885 21,351 144 20,074 7,367 (106) 48,579 - - - 719 - - - - - - - - 719 2015 $’000 (1,100) (17) 1,270 353 - 254 - (45,999) 192 165,460 (20,070) (838) 99,505 2014 $’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] - 419,504 Non-current assets Tax losses 100,655 58,065 158,720 - - 419,504 [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. 52MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 4. Taxation (Continued) Recognition and measurement 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 previously 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. On 1 October 2014, the Australian Senate repealed the MRRT. Consequently, the Group wrote off to the income statement all of the deferred income tax assets relating to MRRT. Key estimate: 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. MOUNT GIBSON IRON LIMITED 2015 Annual Report53 Notes to the Consolidated Financial Report (continued) 5. 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 2015 $’000 2014 $’000 46,003 45,000 55,471 15,000 91,003 70,471 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. Recognition and measurement Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity period 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. [b] Reconciliation of the net profit/(loss) after tax to the net cash flows from operations Net profit/(loss) after tax (911,422) 96,353 Adjustments for: Depreciation of non-current assets Amortisation of deferred waste Amortisation of other mine properties Net (gain) on disposal of property, plant and equipment Interest received Exploration expenses written off Share based payments Interest accretion on rehabilitation provision Borrowing costs Impairment of debtors Impairment of mine properties Impairment of property, plant and equipment Impairment of deferred acquisition, exploration and evaluation Unrealised loss on foreign exchange Capitalised expenses Changes in assets and liabilities (Increase)/decrease in trade and other receivables Decrease in inventory (Increase)/decrease in prepayments and deposits Decrease in deferred tax assets (Increase) in capitalised deferred waste Increase/(decrease) in trade and other payables Increase/(decrease) in current income tax liabilities Increase/(decrease) in deferred tax liabilities Increase/(decrease) in restructure provision Increase in road sealing provision Increase/(decrease) in employee benefits Increase in other provision 36,866 20,117 14,208 (1,167) (12,209) 1,014 286 1,242 1,009 964 712,917 203,213 19,219 999 1,457 36,686 46,495 163 45,999 (92,683) (75,537) 9,661 (144,786) (1,990) 1,278 (5,161) 363 67,311 89,690 40,338 (46) (15,549) 116 527 2,417 1,241 - - - - 1,221 (4,710) (5,703) 84,400 (736) 21,351 (152,127) 19,465 (35,671) 25,846 73 200 1,956 - Net Cash Flow from/(used in) Operating Activities (90,799) 237,963 54MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) [c] Non-cash financing activities The Group did not acquire property, plant and equipment by means of finance leases or hire purchase agreements during the financial year ended 30 June 2015 (2014: nil). The Group disposed of items of property, plant and equipment with an aggregate fair value of $42,932 (2014: $1,029,696) which were financed by means of hire purchase agreements. 6. Term Deposits Current Receivables – term deposits Receivables – subordinated notes 2015 $’000 2014 $’000 210,000 33,000 434,300 15,000 243,000 449,300 Term deposits are made for varying periods of between three and twelve months depending on the term cash requirements of the Group, and earn interest at market term deposit rates. Subordinated notes comprise tradeable floating interest rate instruments with maturities of up to ten years. Recognition and measurement Commercial bills and subordinated notes 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 term deposits. Term deposits are recorded at amortised cost using the effective interest method less impairment, with revenue recognised on an effective yield basis. 7. Trade and Other Receivables Current Trade debtors Allowance for impairment Sundry debtors Other receivables Notes 2015 $’000 2014 $’000 [a][i] [b] [a][ii] 11,366 (964) 10,402 2,990 1,962 41,802 - 41,802 5,819 5,383 15,354 53,004 [a] Terms and conditions Terms and conditions relating to the above financial instruments: [i] Details of terms and conditions of trade debtors and credit sales are set out in the “recognition and measurement” note below. [ii] 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 2015, trade debtors of $964,000 (2014: $nil) in the Group were impaired. At 30 June 2015, trade debtors of $402,000 (2014: $800,176) 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 18 August 2015, $4,000 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. MOUNT GIBSON IRON LIMITED 2015 Annual Report55 Notes to the Consolidated Financial Report (continued) 7. Trade and Other Receivables (Continued) 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 Recognition and measurement Trade receivables 2015 $’000 2014 $’000 - 398 3 1 402 10,000 10,402 - (597) (63) 1,460 800 41,002 41,802 Trade receivables are recognised and carried at amortised cost less any allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An allowance for impairment of trade receivables is made when there is objective evidence that the Group will not be able to collect the debts. Indicators of impairment would include financial difficulties of the debtor, likelihood of the debtor’s insolvency and default in payment. Any impairment is recognised in the income statement. The vast majority of sales revenue is invoiced and received in US dollars (US$). 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. Other receivables 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. 56MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 8. Inventories Consumables – at cost Allowance for stock obsolescence Allowance for impairment of consumables inventories Ore – at cost Allowance for impairment of ore inventories Notes 2015 $’000 2014 $’000 [i] [ii] [iii] 22,828 (9,702) (339) 12,787 28,999 (20,708) 8,291 28,645 (3,237) - 25,408 55,705 (13,540) 42,165 21,078 67,573 [i] During the year, the Group raised an allowance for stock obsolescence of $9,048,000 (2014: $1,400,000) for consumables inventory that is considered slow moving and obsolete at Koolan Island. [ii] Consumables inventory held at Koolan Island which is not considered obsolete but as a result of reduced mining activity may not be used and may potentially be sold has been assessed and written down to its recoverable value. In determining the recoverable value, factors such as current market pricing from suppliers, current location and condition have been considered. The impairment realised for the year was $339,000 (2014: $nil). [iii] At 30 June 2015, the Group assessed the carrying values of ore inventories stockpiled at each of the three mine sites. Assumptions used in the assessment include prevailing and anticipated iron ore prices and exchange rates, ore specifications, estimated costs to make the ore inventories available for sale, and associated sales and shipping freight costs. Based on these assumptions, the following impairments on ore inventories were recognised during the financial period: Tallering Peak Extension Hill Koolan Island Total loss on impairment 2015 $’000 6,084 - 3,442 9,526 2014 $’000 - - - - Recognition and measurement 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. Inventories are written down below cost to net realisable value if considered damaged, have become wholly or partially obsolete, or if their selling prices have declined. A new assessment is made of net realisable value in each subsequent period. Notes 2015 $’000 2014 $’000 9. Derivative Financial Assets Current Foreign currency forward contracts 32[b][i] Refer note 32 for details on derivative financial instruments. - - 2,395 2,395 MOUNT GIBSON IRON LIMITED 2015 Annual Report57 Notes to the Consolidated Financial Report (continued) 10. Interest in Subsidiaries Name Country of Incorporation Percentage of Equity Interest Held by the Group 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 Entities subject to Class Order relief Australia Australia Australia Australia Australia Australia 2015 % 100 100 100 100 100 100 2014 % 100 100 100 100 100 100 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 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: Consolidated Income Statement of the Closed Group CONTINUING OPERATIONS Sale of goods Other revenue TOTAL REVENUE Cost of sales Impairment of ore inventories GROSS PROFIT Other income Stock obsolescence Impairment of consumables inventories Impairment of mine properties Impairment of property, plant and equipment Impairment of deferred acquisition, exploration and evaluation Impairment of non-current other receivables Administration expenses Exploration expenses PROFIT/(LOSS) FROM CONTINUING OPERATIONS BEFORE TAX AND FINANCE COSTS Finance costs PROFIT/(LOSS) FROM CONTINUING OPERATIONS BEFORE TAX Tax benefit/(expense) PROFIT/(LOSS) AFTER TAX FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS Re-presented 2015 $’000 2014 $’000 315,644 12,209 327,853 (319,109) (3,442) 5,302 7,536 (9,048) (339) (712,917) (178,544) (19,219) (134,169) (30,979) (1,014) (1,073,391) (2,929) (1,076,320) 91,583 (984,737) 660,161 15,547 675,708 (465,454) - 210,254 8,180 - - - - - - (27,952) (116) 190,366 (5,627) 184,739 (68,879) 115,860 Profit/(loss) after tax for the year from discontinued operations PROFIT/(LOSS) AFTER TAX ATTRIBUTABLE TO MEMBERS OF THE COMPANY (21,915) (1,006,652) 6,181 122,041 58MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) Consolidated Balance Sheet of the Closed Group ASSETS CURRENT ASSETS Cash and cash equivalents Term deposits Trade and other receivables Inventories Prepayments Derivative financial assets Income tax receivable 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 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 / (accumulated losses) Reserves TOTAL EQUITY 2015 $’000 2014 $’000 89,878 243,000 14,972 20,616 3,190 - - 67,369 449,300 51,948 67,123 3,350 2,395 9,661 371,656 651,146 3,865 24,889 2,924 3,205 - 34,883 406,539 45,087 2,619 13,561 61,267 39,579 119 - 39,698 100,965 305,574 568,328 (1,243,797) 981,043 305,574 130,757 187,522 21,863 655,731 37,557 1,033,430 1,684,576 120,226 7,294 15,030 142,550 45,197 2,162 137,420 184,779 327,329 1,357,247 568,328 770,748 18,171 1,357,247 MOUNT GIBSON IRON LIMITED 2015 Annual Report59 Notes to the Consolidated Financial Report (continued) 11. Property, Plant and Equipment Land Plant and equipment Plant and equipment under lease Buildings Capital works in progress Total 2015 2014 $’000 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Cost Accumulated depreciation and impairment Net carrying amount 654 (519) 135 654 308,894 265,791 73,657 94,615 138,047 141,364 2,420 14,719 523,672 517,143 - (285,054) (146,393) (72,586) (81,662) (132,681) (65,902) (1,338) - (492,178) (293,957) 654 23,840 119,398 1,071 12,953 5,366 75,462 1,082 14,719 31,494 223,186 Reconciliation Carrying amount at the beginning of the year 654 654 119,398 127,990 12,953 31,445 75,462 14,719 19,373 223,186 247,924 Additions Transfers Disposals Depreciation expense Depreciation capitalised Impairment loss Transfers to mine properties - - - - - (519) - - - - - - - - 45,132 11,455 (1,249) 25,658 (56) (22) - (205) (42) - - (1,030) 2,683 798 - (23,927) (34,172) (6,773) (17,462) (6,166) (15,677) (22) (126,947) - - - - - (4,862) - - - - - (67,411) - - - - 68,462 22,524 - 153 (12,048) 4,125 - - - (3,474) 936 (97) 51,940 49,118 - - - - - - (1,291) (1,052) (36,866) (67,311) (22) (203,213) - - (2,240) (5,493) (2,240) (5,493) Carrying amount at the end of the year 135 654 23,840 119,398 1,071 12,953 5,366 75,462 1,082 14,719 31,494 223,186 Assets pledged as security 135 654 23,840 119,398 1,071 12,953 5,366 75,462 1,082 14,719 31,494 223,186 Refer note 16 for details of security arrangements Property, plant and equipment has been assessed for impairment at balance date, with the carrying values of property, plant and equipment associated with the Koolan Island operation written down to their fair values less costs to sell. These fair values have been assessed by reference to market prices for similar assets and to the Group’s recent experiences with asset sales (Level 3 on the fair value hierarchy). The write-downs reflect the current depressed market for plant and equipment sales, the isolation of the site and the estimated removal, demobilisation and selling costs. 60MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 11. Property, Plant and Equipment (Continued) Recognition and measurement Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation and amortisation 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 5 - 20 years 4 - 5 years 3 - 5 years Leasehold improvements Shorter of lease term or useful life of 5 – 10 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. Refer note 14 for further details on impairment. 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. Key estimates and assumptions: units of production method of depreciation and amortisation The Group applies the units of production method of depreciation and amortisation 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, mineral resources and production capacity include the Group’s history of converting mineral resources to ore reserves and the relevant timeframes, 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 may be 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. MOUNT GIBSON IRON LIMITED 2015 Annual Report61 Notes to the Consolidated Financial Report (continued) Notes 2015 $’000 2014 $’000 12. Deferred Acquisition, Exploration and Evaluation Costs Deferred acquisition, exploration and evaluation – at cost Allowance for impairment [i] Reconciliation Carrying amount at beginning of the year Additions Write back of accrued acquisition costs Impairment loss Exploration expenditure written off Carrying amount at the end of the year 22,143 (19,219) 21,863 - 2,924 21,863 21,863 4,294 (3,000) (19,219) (1,014) 2,924 861 21,118 - - (116) 21,863 [i] The Group reviews the carrying value of its assets at each balance date. During the year, as set out in note 14, a number of material events occurred which, for the purposes of the Company’s deferred acquisition, exploration and evaluation costs for the Shine Project, indicated that the carrying amount of the asset was unlikely to be recovered from its development or sale. Accordingly, the carrying amount for the Shine Project of $17,674,000 was assessed on the basis of its fair value less costs to sell by reference to forecast future cashflows (Level 3 on the Fair Value hierarchy), and fully impaired as at 30 June 2015. The following assumptions were used in assessing the impairment for the Shine Project carrying value:  Cashflow forecasts were based on the latest internal estimates for the life of mine;  Discount rate of 21.4% (nominal, before tax) and 15.0% (nominal, after tax);  Revenue and cost inflation estimates of 2.5% per year; and  Base case iron ore price forecast for the 62% Fe benchmark fines CFR price (northern China) of US$55/dmt at an exchange rate of A$1.00/US$0.72, with sensitivities undertaken for a range of these inputs. It is estimated that changes in key assumptions would impact recoverable amounts at 30 June 2015 as follows:  An increase in the benchmark 62% Fe fines CFR iron ore price by 10% to US$60/dmt would not impact the impairment.  A reduction in the A$/US$ exchange rate by 10% to A$1.00/US$0.65 would not impact the impairment. The Group’s deferred acquisition, exploration and evaluation costs for the Fields Find Project with a carrying amount of $2,196,000 was assessed based on fair value less costs to sell by reference to a recent offer (Level 3 on the Fair Value hierarchy), and was impaired to $650,000 as at 30 June 2015. Recognition and measurement 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. Key estimates and assumptions : 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. 62MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 13. Mine Properties Mine development expenditure Accumulated amortisation and impairment 2015 $’000 2014 $’000 1,537,337 (1,534,132) 1,442,621 (786,890) 3,205 655,731 Reconciliation Deferred waste Koolan Island Tallering Peak Extension Hill Total 2015 2014 2015 2014 2015 2014 2015 2014 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Carrying amount at the beginning of the period 354,204 279,193 Deferred waste capitalised 92,683 151,028 Amortisation expensed (20,117) (76,017) Impairment loss (note 14) (426,770) - Carrying amount at the end of the period - 354,204 Other mine properties Carrying amount at the beginning of the period Additions Mine rehabilitation – revised estimate adjustment Transferred from capital works in progress 276,877 336,715 - - 181 (32,853) 2,240 5,493 Amortisation expensed (8,392) (32,478) Impairment loss (note 14) (270,906) - Carrying amount at the end of the period - 276,877 Total mine properties - 631,081 - - - - - - - - - - - - - 12,574 1,099 (13,673) - - - - - - - - - - - - 354,204 291,767 92,683 152,127 (20,117) (89,690) (426,770) - - 354,204 2,559 24,650 30,172 301,527 369,446 11 - - - 11 - - (388) (232) (207) (33,085) - - 2,240 5,493 (2,570) (5,816) (5,290) (14,208) (40,338) - - - (15,241) - (286,147) - 3,205 24,650 3,205 301,527 3,205 24,650 3,205 655,731 The security pledged for financing facilities includes mining mortgages over the mining tenements and contractual rights to mine hematite deposits owned by the Group. Refer note 16. MOUNT GIBSON IRON LIMITED 2015 Annual Report63 Notes to the Consolidated Financial Report (continued) 13. Mine Properties (Continued) Recognition and measurement 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 or relevant component thereof 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 within mine properties. 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 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 orebody component. 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). 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 the mining of mineral resources 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. Impairment expenses are recognised to the extent that the carrying amount of the mine properties asset exceeds its estimated recoverable amount. Refer to note 14 for further details on impairment. Key judgement: deferred waste Significant judgement is required in determining the waste capitalisation ratio for each component of the 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. 64MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 14. Impairment of Assets The Group reviews the carrying value of its assets at each balance date. During the year ended 30 June 2015, the following material events occurred which were considered indicators of impairment:    the benchmark price of iron ore, being the Company’s sole product, decreased significantly from US$93 per dry metric tonne (dmt) as at 30 June 2014 to US$59.50/dmt as at 30 June 2015, a reduction of 36%, and has declined further since period end; the Company’s Koolan Island operation suffered a major failure of the Main Pit seawall resulting in the pit being inundated with seawater from the adjacent channel, and the cessation of mining activities in the pit. Assessment of potential engineering solutions is underway, and discussions with the Group’s insurers are continuing; and as at 30 June 2015, the market capitalisation of the Group was below the book value of its equity. Koolan Island and Extension Hill Cash Generating Units (“CGU”) comprise assets used in the mining, crushing and sale of iron ore. Accordingly, the Group has performed an impairment assessment on both the Koolan Island and Extension Hill CGU. Based on this assessment, the following impairment amounts have been recognised in the financial report for each CGU: Koolan Island Extension Hill Total loss on impairment of non-current assets 2015 $’000 844,430 71,700 916,130 2014 $’000 - - - The above impairment values have been allocated proportionately to each CGU’s non-current assets as follows: Deferred waste Other mine properties Total mine properties Property, plant and equipment Total impairment of non-current assets Koolan Island Extension Hill Total 2015 $’000 426,770 270,906 697,676 146,754 844,430 2014 $’000 - - - - 2015 $’000 - 15,241 15,241 56,459 71,700 2014 $’000 - - - - 2015 $’000 426,770 286,147 712,917 203,213 916,130 2014 $’000 - - - - The Group assessed the recoverable amount of each CGU as at 30 June 2015 which is considered to be the higher of the fair value less cost to sell and Value-In-Use (“VIU”). The Group has used the VIU method where VIU is assessed as the present value of future cash flows expected to be derived from the relevant CGU under review. The following assumptions were used in determining the VIU for each CGU:     Cashflow forecasts for the life of each CGU were made based on recent actual performance, budgets and anticipated revenues and estimated operating and capital costs over the relevant life of mine. For Koolan Island, the VIU is assessed based on anticipated mining in the Acacia East satellite pit, to be completed in the 2015/16 financial year; Discount rate for Extension Hill and Koolan Island of 12% (nominal, before and after tax); Revenue and cost inflation estimates of 2.5% per year; and Base case iron ore price forecast for the 62% Fe benchmark fines CFR price (northern China) of US$55/dmt at an exchange rate of A$1.00/US$0.72, with sensitivities undertaken for a range of these inputs. The cashflow estimates for the Koolan Island and Extension Hill CGUs are most sensitive to changes in iron ore prices and the A$/US$ foreign exchange rate. It is estimated that changes in key assumptions would impact recoverable amounts as 30 June 2015 as follows:   An increase in the benchmark 62% Fe fines CFR iron ore price by 10% to US$60/dmt would not impact the impairment for Koolan Island and would reduce the impairment for Extension Hill by approximately $26 million. A reduction in the A$/US$ exchange rate by 10% to A$1.00/US$0.65 would not impact the impairment for Koolan Island and would reduce the impairment for Extension Hill by approximately $24 million. As at 30 June 2015, the recoverable amount of the Koolan Island CGU is nil and Extension Hill CGU is $23,000,000. Refer to note 11 for fair value less costs to sell of property, plant and equipment at Koolan Island. MOUNT GIBSON IRON LIMITED 2015 Annual Report65 Notes to the Consolidated Financial Report (continued) 14. Impairment of Assets (Continued) Recognition and measurement 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 where 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. Key judgement and estimates 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. The Group regularly reviews the carrying values of its mine development assets in the context of internal and external consensus forecasts for commodity prices and foreign exchange rates, with the application of appropriate discount rates for the assets concerned. 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. 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 development 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 a discount rate based on industry 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. 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. 66MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 15. Trade and Other Payables Current Trade creditors Accruals and other payables Notes 2015 $’000 2014 $’000 [a] [a] 17,967 31,697 46,356 78,845 49,664 125,201 [a] Current trade creditors and other payables are non-interest bearing and are normally settled on 30 day terms. Recognition and measurement 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. Notes 2015 $’000 2014 $’000 16. Interest-Bearing Loans and Borrowings Current Hire purchase facility Non-Current Hire purchase facility [a] [a] Financing facilities available At reporting date, the following financing facilities had been negotiated and were available: [a] [b] Total facilities:   Hire purchase facility Performance bonding facility Facilities used at reporting date:   Hire purchase facility Performance bonding facility Facilities unused at reporting date:   Hire purchase facility Performance bonding facility 2,619 2,619 119 119 2,738 65,000 67,738 2,738 41,788 44,526 - 23,212 23,212 7,294 7,294 2,162 2,162 9,456 65,000 74,456 9,456 57,221 66,677 - 7,779 7,779 MOUNT GIBSON IRON LIMITED 2015 Annual Report67 Notes to the Consolidated Financial Report (continued) 16. Interest-Bearing Loans and Borrowings (Continued) Terms and conditions relating to the above financial facilities: [a] Hire Purchase Facility Hire purchase arrangements have been entered into by Koolan Iron Ore Pty Ltd and Mount Gibson Mining Ltd via Master Lease agreements with Komatsu Corporate Finance Pty Limited and National Australia Bank Limited. Hire purchase amounts are repayable monthly with final instalments due in August 2016. Interest is charged at an average rate of 7.66% pa. The facilities are secured by a first mortgage over the assets the subject of the hire purchase agreements and a guarantee from the Company. This facility is drawn and repayable in A$. [b] Performance Bonding Facility In May 2011, the Company entered into a Facility Agreement comprising a Corporate Loan facility and a Performance Bonding facility. The undrawn Corporate Loan facility was cancelled in full in April 2013. The Performance Bonding facility, which totals $65.0 million and was drawn to $41.8 million as at 30 June 2015, expires on 30 June 2017 unless extended prior to this date. The security pledge for the Performance Bonding 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 Pty Ltd, 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. Subsequent to the end of the financial period, the Group and the Performance Bond Facility provider agreed to a reduction in the amount of the facility from $65.0 million to $55.0 million and terms allowing the Group, at its option, to provide revolving cash collateral in exchange for significantly reduced facility fees. Recognition and measurement 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. 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. 68MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 17. Provisions Current Employee benefits Road resealing Restructure Decommissioning rehabilitation Other Non-Current Employee benefits Decommissioning rehabilitation Other Movement in provisions: [i] 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 and Extension Hill mine sites. Payments to the relevant local government authorities are made annually. [ii] 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 the wind down of Koolan Island operations and Head Office, which is expected to occur by 30 June 2016. [iii] Decommissioning Rehabilitation Carrying amount at beginning of the year Revised estimate adjustment 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 and on the timing of the rehabilitation requirements, which may vary in future. Tallering Peak (2015: current; 2014: non-current) Koolan Island Extension Hill 2015 $’000 2014 $’000 3,995 2,111 3,520 4,008 168 8,927 833 5,510 - - 13,802 15,270 171 39,218 195 400 44,802 - 39,584 45,202 [i] [ii] [iii] [iii] 833 1,278 - 2,111 5,510 5,272 (7,262) 3,520 44,802 (1,707) (1,111) 1,242 43,226 4,008 31,670 7,548 43,226 633 400 (200) 833 5,437 693 (620) 5,510 77,580 (33,085) (2,110) 2,417 44,802 6,472 30,640 7,690 44,802 MOUNT GIBSON IRON LIMITED 2015 Annual Report69 Notes to the Consolidated Financial Report (continued) 17. Provisions (Continued) Recognition and measurement Employee benefits Wages, salaries, sick leave and other employee benefits Liabilities for wages and salaries, including non-monetary benefits and other employee benefits expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees' services up to the reporting date. 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. Annual leave and long service leave The Group expects its annual leave benefits to be settled wholly within 12 months of each reporting date. They are measured at the amount expected to be paid when the liabilities are settled. The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of future payments to be made 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 corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. 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. Restructuring provision Restructuring provisions are recognised by the Group only when a detailed formal plan identifies the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs, and an appropriate timeline, and the employees affected have been notified of the plan’s main features. Other 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. Key judgement : mine rehabilitation provision The Group assesses its mine rehabilitation provision annually in accordance with the accounting policy stated above. 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 anticipated rehabilitation activities and costs, 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. 70MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 18. Issued Capital [a] Ordinary shares Issued and fully paid 2015 $’000 2014 $’000 568,328 568,328 2015 Number of Shares $’000 2014 Number of Shares $’000 [b] Movement in ordinary shares on issue Beginning of the financial year Exercise of performance rights Deferred income tax on capital raising cost 1,090,584,232 568,328 1,090,584,232 568,328 [i] 220,853 - - - - - - - End of the financial year 1,090,805,085 568,328 1,090,584,232 568,328 [i] On 9 July 2014, 220,853 shares were issued as a result of the vesting of the equivalent number of performance rights for the year ended 30 June 2014. [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 2015, there were no options on issue (2014: nil) – see note 22(b). Share options carry no right to dividends and no voting rights. [e] Performance rights As at 30 June 2015, there were 1,185,850 performance rights on issue (2014: 1,832,688) – see note 22(c). [f] Capital management The primary objectives of the Group’s capital management program are to safeguard the Group’s ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders, and to 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 2015 and 30 June 2014. MOUNT GIBSON IRON LIMITED 2015 Annual Report71 Notes to the Consolidated Financial Report (continued) 19. Reserves Share based payments reserve Net unrealised gains reserve Dividend distribution reserve Other reserves Notes 2015 $’000 2014 $’000 [a] [b] [c] [d] 19,973 - 964,262 (3,192) 981,043 19,687 1,676 - (3,192) 18,171 [a] Share based payments reserve This 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 reserve This reserve records movement for available-for-sale financial assets to fair value and gains and losses on hedging instruments classified as 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] Dividend distribution reserve This reserve is used to record profits from prior income years for the purpose of future dividend distribution by the Company. 19,687 286 19,973 19,160 527 19,687 1,676 (2,395) 719 - (3,225) 7,002 (2,101) 1,676 Balance at the beginning of the year Transferred from retained earnings Balance at the end of the year [d] Other reserves 20 - 964,262 964,262 - - - 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 (3,192) (3,192) - - (3,192) (3,192) 20. Retained Earnings / (Accumulated Losses) Balance at the beginning of the year Dividends paid during the period Transferred to reserve Net profit/(loss) attributable to members of the Company Balance at the end of the year 24(a) 19[c] 675,519 (43,632) (964,262) (911,422) 600,978 (21,812) - 96,353 (1,243,797) 675,519 72MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) Notes 2015 $’000 2014 $’000 21. 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 [c] Hire Purchase Commitments 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 Total hire purchase liability accrued for: Current Hire purchase facility Non-Current 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 [i] [ii] [iii] 16 16 [iv] [v] 1,351 3,320 1,780 6,451 1,334 3,052 - 4,386 2,706 120 2,826 (88) 2,738 1,159 3,121 2,221 6,501 6,562 3,026 - 9,588 7,637 2,249 9,886 (430) 9,456 2,619 7,294 119 2,738 2,162 9,456 198 - 198 6,504 - 6,504 61,047 2,689 63,736 57,268 41,443 98,711 MOUNT GIBSON IRON LIMITED 2015 Annual Report73 Notes to the Consolidated Financial Report (continued) [i] In order to maintain current rights to explore and mine the tenements at its various mines and projects, 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 relate to leases for office space with an initial term of 6 years and leases for machinery which have an average term of 5 years. [iii] Hire purchase liabilities have an average term of 4.7 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 rate implicit in the hire purchase arrangements is 7.66% pa (2014: 7.43% pa). Hire purchase liabilities are secured by a charge over the relevant assets. [iv] The Group has contractual commitments to purchase property, plant and equipment at Koolan Island and Extension Hill. [v] Amounts disclosed as contractual commitments relate primarily to contracts in respect of mining and transport that are not recognised as liabilities. The Group has various supplier agreements in place for its Extension Hill operation, some of which contain financial obligations for the Group upon early termination thereof. As at 30 June 2015, these early termination obligations were estimated to total approximately $45,000,000 related mostly to infrastructure access and ore transport. These obligations reduce progressively with cumulative transport tonnages over the life of the Extension Hill operation. Notes 2015 $’000 2014 $’000 22. Share-Based Payment Plans (a) Recognised share-based payment expense Expense arising from equity-settled share-based payment transactions 3[c] 286 527 The share-based payment plans are described below. There have been no cancellations of any of the plans during 2015 and 2014. (b) Employee option scheme An employee option 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 2015. As at balance date, no options over unissued shares were on issue. Information with respect to the number of options granted and issued under the employee share scheme is as follows: 2015 2014 No. of Options Weighted average exercise price (cents) No. of Options Weighted average exercise price (cents) - - - - - - - - - - - - - - - - - - - - - - - - Balance at beginning of year - granted - forfeited - exercised Balance at year end Exercisable at year end (c) Performance Rights Plan The Company has established a Performance Rights Plan. Rights are granted at no cost to recipients and convert (vest) into ordinary shares on completion by the recipient of minimum periods of continuous service and the satisfaction of specified performance hurdles related to the Company's Total Shareholder Return ("TSR") measured against a comparator group of companies over specified periods. The vesting scale applicable to the Company’s TSR performance 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% 74MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 22. 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 - exercised - lapsed/forfeited Balance at year end 2015 2014 No. of Performance Rights No. of Performance Rights 1,832,688 - (220,853) (425,985) 904,908 952,600 - (24,820) 1,185,850 1,832,688 The following table lists the inputs used for valuation of the performance rights issued under the Performance Rights Plan: Accounting grant date Share price at accounting grant date Risk free interest rate Volatility factor Value of Performance Right on effective grant date Recognition and measurement Share-based payment transactions 2015 - - - - - 2014 01-Jul-13 $0.46 2.90% 50% $0.27 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. 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 either a Black-Scholes or Monte Carlo option valuation model. The cost of equity-settled transactions is recognised, together with a corresponding in crease 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 and performance rights is reflected as additional share dilution in the computation of earnings per share. MOUNT GIBSON IRON LIMITED 2015 Annual Report75 Notes to the Consolidated Financial Report (continued) 23. Earnings Per Share 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. The following reflects the income and share data used in the calculations of basic and diluted earnings per share: 2015 $’000 2014 $’000 Profit/(loss) used in calculating basic and diluted earnings/(loss) per share (1,008,505) 96,353 Weighted average number of ordinary shares used earnings/(loss) per share Effect of dilution in calculating basic - Performance rights Weighted average number of ordinary shares used in calculating diluted earnings/(loss) per share Earnings/(loss) per Share (cents per share): Basic earnings/(loss) per share Diluted earnings/(loss) per share Number of Shares Number of Shares 1,090,805,085 1,090,584,232 - 220,853 1,090,805,085 1,090,805,085 (83.56) (83.56) 8.84 8.83 Conversions, calls, subscriptions or issues after 30 June 2015 No options were outstanding at 30 June 2015. 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. Recognition and measurement 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. 76MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 24. Dividends Paid and Proposed Declared and paid during the year: (a) Dividends on ordinary shares: Final fully franked dividend for 2013: 2.0 cents per share Final fully franked dividend for 2014: 4.0 cents per share 2015 $’000 2014 $’000 - 43,632 43,632 21,812 - 21,812 (b) Dividends not recognised at the end of the reporting period: A final dividend for the 2014/15 financial year has not been declared given the presently depressed iron ore price environment and the recent failure of the Main Pit seawall at the Group’s Koolan Island operation. (c) Franked dividends: The amount of franking credits available for the subsequent financial year are: Franking account balance as at the end of the financial year at 30% 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 Tax rates The tax rate at which paid dividends have been franked is 30%. 25. Contingent Liabilities 2015 $’000 2014 $’000 61,485 - 88,142 15,488 61,485 103,630 - (18,700) 61,485 84,930 1. The Group has a Performance Bonding facility drawn to a total of $41,788,000 (2014: $57,221,000). The performance bonds secure the Group’s obligations relating primarily to environmental matters and historical infrastructure upgrades. 2. 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 2015 Annual Report77 Notes to the Consolidated Financial Report (continued) 26. Key Management Personnel [a] Compensation of Key Management Personnel Short-term Post employment Long-term Share-based payment Termination payment 2015 $ 2014 $ 2,602,432 3,587,635 171,361 5,223 286,211 471,229 170,811 3,169 534,059 - 3,536,456 4,295,674 [b] Loans to Specified Key Management Personnel There were no loans to key management personnel during the year. [c] Other Transactions and Balances with Key Management Personnel There were no other transactions and balances with key management personnel during the year. 27. Related Party Transactions 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 was a director of Shougang Concord International Trading Pty Ltd (SCIT), and Mr Lee and Mr Ferguson were directors of APAC Resources Limited (APAC). The following sale agreements are in place with director-related entities:     The sale to SCIT 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. The sale to a subsidiary of APAC 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. The sale to SCIT of 80% of iron ore from Koolan Island’s available mined production over the life of mine. The sale to a subsidiary of APAC of 20% of iron ore from Koolan Island’s available mined production over the life of mine. Pursuant to these sales agreements, during the financial year, the Group:   Sold 394,327 WMT (2014: 1,024,088 WMT) of iron ore to APAC; and Sold 1,364,123 WMT (2014: 4,205,210 WMT) of iron ore to SCIT. 78MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 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 2015 $’000 2014 $’000 - 2,105 2,105 2,105 129 - 129 129 6,562 16,609 23,171 23,171 - - - - 25,921 66,857 92,778 87,683 418,482 506,165 Apart from the above, there are no director-related entity transactions other than those specified in note 26. 2015 $ 2014 $ 28. 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 222,480 247,200  Other services in relation to the entity and any other entity in the consolidated entity 3,600 4,000 226,080 251,200 MOUNT GIBSON IRON LIMITED 2015 Annual Report79 Notes to the Consolidated Financial Report (continued) 29. Discontinued Operations The Tallering Peak operation is reported as a discontinued operation in this financial report. Mining was completed in June 2014 with the final ore shipment sold in December 2014. [a] Profit/(loss) from discontinued operations The financial results of Tallering Peak operation for the year are presented below: 2015 $’000 2014 $’000 Revenue Cost of sales Impairment of ore inventories Gross profit/(loss) Other expenses Profit/(loss) before tax and finance costs from discontinued operations Finance costs Profit/(loss) before tax from discontinued operations Income tax benefit/(expense) Net profit/(loss) after tax from discontinued operations Earnings/(loss) per share (cents per share):  basic earnings/(loss) per share  diluted earnings/(loss) per share [b] Cash flow from discontinued operations The net cash flows incurred by Tallering Peak operation are as follows: Operating Investing Financing Net cash inflow/(outflow) from discontinued operations 8,987 (21,113) (6,084) (18,210) (878) (19,088) (2) (19,090) (2,825) (21,915) (2.01) (2.01) 237,808 (221,491) - 16,317 - 16,317 (71) 16,246 (10,065) 6,181 0.57 0.57 (18,196) - (231) (18,427) 95,167 (1,074) (3,283) 90,810 80MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 30. 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. Previously, management had determined that all operating segments qualified to be aggregated to form one reportable segment on the basis that they had similar economic characteristics. In the current year, due to the change in economic characteristics at Koolan Island arising from the Main Pit seawall failure, the change in focus to remnant mining in the Acacia East satellite pit and the planned placement onto care and maintenance, and pursuit of the seawall insurance claim, management has determined that the operating segments do not meet the criteria for aggregation. 2014 comparative information has been re-presented in line with this change. For management purposes, the Group has organised its operating segments into two reportable segments as follows:  Extension Hill segment – this segment includes the mining, crushing, transportation and sale of iron ore.  Koolan Island segment – this segment includes the mining, crushing and sale of iron ore. Activities are presently expected to be completed by December 2015, following which the site will be placed on care and maintenance. Operating results for each reportable segment are reviewed separately by management for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. The accounting policies applied for internal reporting purposes are consistent with those applied in the preparation of the financial statements. There have been no inter-segment transactions. Items that are managed on a Group basis and are not allocated to segments as they are not considered part of core operations of any segment are as follows: Finance costs and revenue Interest revenue Foreign exchange gains / (losses)     Corporate costs Operating results for discontinued operations have been excluded from the segment results below. During the year ended 30 June 2015, revenue received from the sale of iron ore comprised purchases by 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 2015 $’000 102,471 65,966 64,174 26,517 64,294 323,422 During the year ended 30 June 2014, revenue received from the sale of iron ore comprised purchases by 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 2014 $’000 268,289 155,456 107,985 56,158 71,767 659,655 Revenue from external customers by geographical location is based on location of the customer. In the year ended 30 June 2015, approximately 2% (2014: 2%) of the iron ore sales revenue was 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. MOUNT GIBSON IRON LIMITED 2015 Annual Report81 Notes to the Consolidated Financial Report (continued) 30. Segment Information (Continued) Segment revenue Revenue from sale of iron ore Other revenue Segment revenue Segment result Earnings/(loss) before impairment, interest, tax, depreciation and amortisation Extension Hill Koolan Island Other* Consolidated 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 204,307 307,727 111,337 352,434 - - - - 204,307 307,727 111,337 352,434 - 12,209 12,209 - 15,549 315,644 12,209 660,161 15,549 15,549 327,853 675,710 32,306 130,143 535 193,258 (9,740) (2,215) 23,101 321,186 Impairment losses (71,700) - (848,211) - (19,219) - (939,130) - Earnings/(loss) before interest, tax, depreciation and amortisation (39,394) 130,143 (847,676) 193,258 (28,959) (2,215) (916,029) 321,186 Depreciation and amortisation (22,921) (28,139) (46,801) (139,423) (735) (545) (70,457) (168,107) Segment result Finance costs Profit/(loss) before tax and discontinued operations Items included in segment result: Impairment of consumables inventories Impairment of ore inventories Impairment of property, plant and equipment Impairment of mine development Impairment of exploration and evaluation expenditure (62,315) 102,004 (894,477) 53,835 (29,694) (2,760) (986,486) 153,079 (2,929) (5,627) (989,415) 147,452 - - 56,459 15,241 - 71,700 - - - - - - 339 3,442 146,754 697,676 - 848,211 - - - - - - - - - - 19,219 19,219 - - - - - - 339 3,442 203,213 712,917 19,219 939,130 - - - - - - * ‘Other’ includes interest revenue and corporate expenses such as head office salaries and wages. 82MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 30. Segment Information (Continued) Segment assets Current financial assets Other current assets Property, plant and equipment Deferred acquisition, exploration and evaluation Mine properties Tax assets Total assets Segment liabilities Financial liabilities Tax liabilities Other liabilities Total liabilities Extension Hill Koolan Island Other Consolidated 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 12,424 9,500 7,897 2,274 3,205 - 27,811 10,221 48,242 1,194 24,650 19,389 6,331 12,452 15,306 - - - 22,954 39,390 135,453 308 631,081 108,363 330,602 534,066 349,357 2,430 8,291 650 - - 21,430 39,491 20,361 - (81,753) 24,382 31,494 2,924 3,205 - 584,831 71,041 223,186 21,863 655,731 45,999 35,300 131,507 34,089 937,549 341,973 533,595 411,362 1,602,651 32,362 - 9,916 38,454 568 9,897 11,641 - 35,777 64,458 194,669 34,521 8,399 31,745 52,402 - (49,733) - 7,693 16,054 53,386 134,657 145,504 60,472 42,278 48,919 47,418 293,648 16,092 (1,934) 105,788 340,633 Net assets/(liabilities) (6,978) 82,588 (13,329) 643,901 325,881 535,529 305,574 1,262,018 Capital expenditure 2,983 5,815 47,914 40,793 6,330 2,510 57,227 49,118 MOUNT GIBSON IRON LIMITED 2015 Annual Report83 Notes to the Consolidated Financial Report (continued) 31. Events After the Balance Sheet Date 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. 32. Financial Instruments [a] Financial risk management objectives The Group’s principal financial instruments, other than derivatives, comprise bank and equipment finance arrangements, 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 predominantly denominated in US$. The Group has used derivative financial instruments to manage specifically identified foreign currency exposures by hedging a proportion of forecast US$ 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 cashflows 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 year ended 30 June 2015, the Group delivered into US dollar foreign exchange forward contracts totalling US$155,000,000 at a weighted average exchange rate of A$1.00/US$0.9035. At 30 June 2015, the notional amount of the foreign exchange hedge book was $nil. The Group will consider entering into new foreign exchange hedging contracts as the business need arises. It is the Group’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximise hedge effectiveness. The Group uses the following derivative instruments to manage foreign currency risk from time to time as business needs and conditions dictate: Instrument Type of Hedging Objective Forward exchange contracts Cash flow hedge To hedge sales receipts against cash flow volatility arising from the fluctuation of the A$/US$ exchange rate. 84MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 32. Financial Instruments (Continued) [i] Foreign exchange contracts – cash flow hedges At balance date, the following foreign exchange contracts designed as a hedge of anticipated future receipts that will be denominated in US$ were outstanding: 2015 2014 Average Contract Rate A$/US$ Contract Value A$ $’000 Fair Value A$ $’000 Average Contract Rate A$/US$ Contract Value A$ $’000 Fair Value A$ $’000 US$ $’000 US$ $’000 Forward Exchange Contracts - within one year Total - - - - - - - - 0.9118 81,000 88,839 2,395 0.9118 81,000 88,839 2,395 Current assets 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 - Continuing operations - Discontinued operations Closing balance Cash flow hedge ineffectiveness recognised immediately in profit and loss [ii] Foreign currency sensitivity Notes 9 2015 $’000 - - 2014 $’000 2,395 2,395 2,395 5,334 (4,607) 6,837 2[a] (7,778) 49 - - 506 (341) 2,395 - The following table details the effect on profit and other comprehensive income after tax of a 10% change in the A$ against the US$ from the spot rates at 30 June 2015 and 30 June 2014 due to changes in the fair value of monetary assets and liabilities. Net Profit Other Comprehensive Income 2015 $’000 2014 $’000 2015 $’000 10% appreciation in the A$ spot rate with all other variables held constant 10% depreciation in the A$ spot rate with all other variables held constant (781) (2,559) 955 3,128 - - 2014 $’000 7,148 (5,010) 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. MOUNT GIBSON IRON LIMITED 2015 Annual Report85 Notes to the Consolidated Financial Report (continued) 32. Financial Instruments (Continued) 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 (included within note 5) Trade receivables (included within note 7) Financial Liabilities Trade payables Net exposure [c] Interest rate risk (included within note 15) 2015 $’000 3,919 9,193 (841) 12,271 2014 $’000 2,227 38,009 (22) 40,214 The Group’s exposure to market interest rates relates primarily to the Group’s equipment financing obligations, cash and cash equivalents and term deposits. 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 arrangements. At balance date, the Group’s exposure to interest rate risks on financial assets and financial liabilities was as follows: 86MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 32. Financial Instruments (Continued) CONSOLIDATED i) Financial assets Cash Floating interest rate 1 year or less Over 1 to 5 years Non-interest bearing Fixed interest rate maturing in: Total carrying amount per balance sheet Weighted Average Interest 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 % 2014 % 46,001 55,466 - - Short-term deposits (< 3 months maturity) - - 45,000 15,000 Term deposits (> 3 months maturity) 33,000 15,000 210,000 434,300 Trade and other receivables Derivative financial assets Total financial assets ii) Financial liabilities Trade and other payables Hire purchase liabilities Total financial liabilities - - - - - - - - 79,001 70,466 255,000 449,300 - - - - - - - 2,619 2,619 - 7,294 7,294 - - - - - - - - - - - - - - 119 119 2,162 2,162 2 - - 5 - - 46,003 45,000 55,471 15,000 243,000 449,300 15,354 - 53,004 2,395 15,354 - 53,004 2,395 15,356 55,404 349,357 575,170 2.07 2.59 3.23 - - 49,664 125,201 49,664 125,201 - - - 2,738 9,456 7.66 49,664 125,201 52,402 134,657 1.58 3.50 3.57 - - - 7.43 MOUNT GIBSON IRON LIMITED 2015 Annual Report87 Notes to the Consolidated Financial Report (continued) 32. Financial Instruments (Continued) [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 2015 and 30 June 2014. Net Profit Other Comprehensive Income 2015 $’000 2014 $’000 2015 $’000 2014 $’000   1% increase in interest rate with all other variables held constant 1% decrease in interest rate with all other variables held constant 2,016 3,250 (2,016) (3,250) - - - - 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 effectively protect at least 90% of receivable amount at the time of sale. 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 majority of 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 a “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 China. “Lump” iron ore receives a premium to the published Platts Index “fines” price and is determined every 1 to 6 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. 88MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 32. Financial Instruments (Continued) [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 and equipment financing arrangements. 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 provide appropriate 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 2015, the Group had unutilised performance bonding facilities totalling $23,212,000 (2014: $7,779,000). Refer note 16. 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. Less than 6 months $’000 49,664 1,811 - - Financial Liabilities Trade and other payables Hire purchase liabilities Derivatives – Gross Inflow Derivatives – Gross Outflow 30 June 2015 30 June 2014 6 to 12 months $’000 1 to 5 years $’000 Over 5 years $’000 Less than 6 months $’000 Total $’000 6 to 12 months $’000 1 to 5 years $’000 Over 5 years $’000 Total $’000 - 895 - - - 120 - - - - - - - 49,664 125,201 - - 2,826 5,556 2,082 2,248 - - (91,252) 88,857 - - - - 52,490 128,362 2,082 2,248 - - - - - 125,201 9,886 (91,252) 88,857 132,692 51,475 895 120 [g] Fair value of financial assets and financial liabilities All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 – quoted market prices in an active market (that are unadjusted) for identical assets or liabilities Level 2 – valuation techniques (for which the lowest level of input that is significant to the fair value measurement is directly or indirectly observable) Level 3 – valuation techniques (for which the lowest level of input that is significant to the fair value measurement is unobservable) The fair values of derivative financial instruments are determined using the Level 2 method requiring fair value to be calculated using short and long term 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. The fair values of cash, short-term deposits, trade and other receivables, trade and other payables and other interest-bearing borrowings approximate their carrying values, as a result of their short maturity or because they carry floating rates of interest. MOUNT GIBSON IRON LIMITED 2015 Annual Report89 Notes to the Consolidated Financial Report (continued) 32. Financial Instruments (Continued) The carrying amounts and fair values of the financial assets and financial liabilities for the Group as at 30 June 2015 are shown below. 2015 2014 Carrying Amount $’000 Fair Value $’000 Carrying Amount $’000 Fair Value $’000 Financial assets - current Cash Short-term deposits Term deposits Trade debtors Other receivables Derivatives Financial liabilities – current Trade and other payables Hire purchase liabilities Financial liabilities – non current Hire purchase liabilities Net financial assets 46,003 45,000 243,000 10,402 4,952 - 349,357 49,664 2,619 52,283 119 119 296,955 46,003 45,000 243,000 10,402 4,952 - 349,357 49,664 2,619 52,283 119 119 296,955 55,471 15,000 449,300 41,802 11,202 2,395 575,170 125,201 7,294 132,495 2,162 2,162 440,513 55,471 15,000 449,300 41,802 11,202 2,395 575,170 125,201 7,294 132,495 2,162 2,162 440,513 Recognition and measurement 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. All hedges are currently classified as cash flow hedges. 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. Effectiveness is tested at inception of each hedge and monthly thereafter until the hedge expires. The cumulative dollar offset method is applied in the measurement of effectiveness. The cumulative approach involves comparing the cumulative change (to date from inception of the hedge) in the hedging instrument’s fair values to the cumulative change in the hedged item’s (or USD cash flow) attributable to the risk being hedged. Effectiveness of the forward exchange contracts is monitored by comparing the forward net present value of the underlying cash flows to the forward net present value of the fair value associated with the hedging instrument. Prospective and retrospective testing is undertaken by the Group’s treasury advisors. 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. 90MOUNT GIBSON IRON LIMITED 2015 Annual Report Notes to the Consolidated Financial Report (continued) 33. 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 Shareholder’s Equity Net loss after tax of the parent entity Total comprehensive loss of the parent entity 2015 $’000 2014 $’000 423 606,434 306 300,860 568,328 (282,727) 19,973 305,574 (109,432) (109,432) 10,388 672,723 444 246,320 568,328 (161,612) 19,687 426,403 (2,132) (2,132) [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 notes 10 and 16. The parent entity has further provided bank guarantees in respect of obligations to various authorities. Refer to note 16. [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 25. 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. [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 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 2015 Annual Report91 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 2015 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 2015. Signed in accordance with a resolution of the directors. SIMON BIRD Lead Independent Non-Executive Director Sydney, 18 August 2015 92MOUNT GIBSON IRON LIMITED 2015 Annual Report Independent Audit Report MOUNT GIBSON IRON LIMITED 2015 Annual Report9394MOUNT GIBSON IRON LIMITED 2015 Annual Report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 had reference to the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations 3rd Edition (“ASX Recommendations”) during the reporting period. The Company believes that its practices are substantially consistent with the ASX Recommendations and will continue to adapt its governance practices to be consistent with them 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 in its Corporate Governance Statement available online at www.mtgibsoniron.com.au. The practices reflect the Company's existing corporate governance policies and is current as at 30 September 2015. The Corporate Governance Statement has been approved by the Board. MOUNT GIBSON IRON LIMITED 2015 Annual Report95Additional ASX Information The following information is current as at 3 September 2015. (a) Distribution of equity securities The number of Shareholders, by size of holding, in each class of Share, are as follows: 1,000 5,000 10,000 100,000 - - - - - 1 1,001 5,001 10,001 100,001 TOTAL The number of Shareholders holding less than a marketable parcel of Shares are: Number of holders Number of Shares % of Issued Capital Ordinary Shares 1,964 4,351 2,270 3,651 424 12,660 4,524 1,051,127 12,761,573 18,129,387 113,789,186 945,073,812 1,090,805,085 6,228,000 0.10% 1.17% 1.66% 10.43% 86.64% 100.00 0.57% (b) Equity security holders The names of the twenty largest holders of quoted Shares are: 1. 2. 3. 4. 5. 6. 7. 8. 9. TRUE PLUS LIMITED SUN HUNG KAI INVESTMENT SERVICES LIMITED CITICORP NOMINEES PTY LIMITED APAC RESOURCES INVESTMENTS LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED ZERO NOMINEES PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED SUN HUNG KAI INVESTMENT SERVICES LTD DEBORTOLI WINES PTY LIMITED 10. NATIONAL NOMINEES LIMITED 11. BNP PARIBAS NOMS PTY LTD 12. CS FOURTH NOMINEES PTY LTD 13. DEBORTOLI WINES PTY LTD (SUPERANNUATION) PTY LTD 5,328,171 14. MR ALESSANDRO LUIGI PICCININI 15. TRUE PLUS LIMITED 16. ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD (CUSTODIAN) 17. MR MENG LUO & MRS LAN LIU 18. JB LEMAR PTY LTD 19. UBS NOMINEES PTY LTD 20. DYNAMIC SUPPLIES INVESTMENTS PTY LTD Top 20 holders Total Remaining Holders Balance Total Issued Ordinary Shares 5,000,000 4,700,000 4,631,443 4,620,000 4,550,000 4,163,202 3,635,733 822,420,548 268,384,537 1,090,805,085 Number of Shares % of Shares Held 159,166,874 151,523,460 116,085,006 82,900,000 56,111,645 52,513,000 48,458,308 40,053,818 34,246,165 20,073,833 18,590,767 6,069,123 14.59 13.89 10.64 7.60 5.14 4.81 4.44 3.67 3.14 1.84 1.70 0.56 0.49 0.46 0.43 0.42 0.42 0.42 0.38 0.33 75.40 24.60 100.00 96MOUNT GIBSON IRON LIMITED 2015 Annual Report (c) Substantial Shareholders The names of Substantial Shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: 1. APAC Resources Limited and its subsidiaries 2. Ms Shirley Chong Suk Un Number of Shares 279,877,774 290,218,342 % of Current Issued Shares 25.66% 26.61% Note: Substantial shareholdings 1 and 2 are not cumulative and arise through common shareholdings. 3. Shougang Corporation and Shougang Concord International Enterprises Company Limited and each of their controlled entities 154,166,874 14.14% 4. Shougang Fushan Resources Group Limited, True Plus Limited and its subsidiaries 154,166,874 14.14% Note: Substantial shareholdings 3 and 4 are not cumulative and arise through common shareholdings. 5. Argyle Street Management Limited 54,540,256 5.00% (d) Voting rights All ordinary Shares carry one vote per Share without restriction. No voting rights attach to options. (e) Schedule of interests in mining tenements Location Tenements Held by MGX Brockman Extension Hill Extension Hill Extension Hill Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Fields Find Jasper Hill Koolan Island Koolan Island Koolan Island Koolan Island Koolan Island Koolan South Tenement Status Percentage Held E80/3087-I L70/133 G70/232 G70/238 E59/1938-I E59/1939-I E59/1940-I E59/1984 E59/1268-I M59/63-I P59/1997-I P59/1998-I P59/1991 P59/2035 E59/1996 E59/1997 E59/2064 E59/2065 E59/2066 E59/2067 E59/1355-I M04/416-I M04/417-I E04/1266-I L04/29 L04/68 E04/1407-I Live Live Live Live Live Live Live Live Live Live Live Live Pending Live Live Live Live Live Live Live Live Live Live Live Live Live Live 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 2015 Annual Report97 (e) Schedule of interests in mining tenements (continued) Location Tenements Held by MGX Tenement Status Percentage Held Piawaning Piawaning Piawaning Piawaning 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 Wellstead Yalgoo E70/3059-I E70/4509-I E70/4510-I E70/4511-I M70/1062-I M70/1063-I M70/1064-I M70/896-I E70/3732 L70/60 L70/69 L70/73 L70/74 G70/192 G70/193 G70/201 G70/202 G70/203 G70/204 G70/205 E70/4424 E59/2072 Live Live Live Live Live Live Live Live Pending Live Live Live Live Live Live Live Live Live Live Live Live Pending 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Location MGX Has Interests In Tenement Status Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Shine 2 Shine 2 Shine 2 M59/339-I M59/338-I M59/454-I M59/455-I M59/550-I M59/526-I M59/609-I L59/63 G59/30 G59/31 G59/45 G59/33 G59/34 G59/35 G59/36 G59/41 M59/406-I M59/421-I M59/731-I Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live 1 Tenements are held by another party. MGX has rights to Hematite, Goethite and Limonite. 2 Tenements are held by another party. MGX has rights to Iron on a portion of these tenements. 98MOUNT GIBSON IRON LIMITED 2015 Annual Report Corporate Directory Board of Directors Bankers Lee Seng Hui Chairman, Non-Executive Director Alan Jones 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:admin@mtgibsoniron.com.au Website:www.mtgibsoniron.com.au Solicitors Herbert Smith Freehills Level 36, QV1 Building 250 St George’s Terrace Perth 6000, Western Australia Auditors Ernst & Young Ernst & Young Building 11 Mounts Bay Road Perth 6000, Western Australia HSBC Bank Australia Ltd 188-190 St George’s 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 George’s 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 11 November 2015 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. MOUNT GIBSON IRON LIMITED 2015 Annual Report99www.mtgibsoniron.com.au 

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