Mount Gibson Iron Limited
Annual Report 2016

Plain-text annual report

www.mtgibsoniron.com.au M O U N T G I B S O N I R O N L I M I T E D 2 0 1 6 A N N U A L R E P O R T 201620162016AnnualReport 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. Headquartered 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 Corporate Directory All information correct as at 30 June 2016 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 9 November 2016 at City West Function Centre, 45 Plaistowe Mews, West Perth WA Easy Access to Information See our website at www.mtgibsoniron.com.au for all Company announcements, including quarterly reports and financial results. Shareholders or interested parties may also register to receive emailed updates shortly after the company makes any regular or major announcement. MOUNT GIBSON IRON LIMITED 2016 Annual Report 99 2Contents 2015/16 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 Directors’ Report Corporate Governance Additional ASX Information Corporate Directory 3 4 5 6 7 10 11 13 14 93 94 99 2015/16 Performance Summary (cid:63)Lost Time Injury Frequency Rate of Zero for second consecutive year (cid:63)Total ore sales revenue of $240 million on ore sales of 5.0 million tonnes (cid:63)Underlying $19.4 million gross profit*, comprising an underlying $13.4 million gross profit from continuing operations and $6.0 million profit from the discontinued Tallering Peak operation (cid:63)Reported statutory net profit after tax of A$86.3 million (cid:63)Year-end cash, term deposits and liquid investments of $400 million (cid:63)Total Cost of Goods Sold reduced 29% to $44/wmt FOB, including non-cash costs, royalties and before impairments (cid:63)$86 million settlement agreed for property damage component of insurance claim for failure of Main Pit seawall at Koolan Island (cid:63)Successfully completed satellite mining on Koolan Island and transitioned site to care and maintenance (cid:63)Positive conditional EPA recommendation for Iron Hill Project (cid:63)Net assets of $392 million and negligible debt *The underlying basis is an unaudited non-IFRS measure that in the opinion of the Directors provides useful information to assess the Company’s financial performance. 2 MOUNT GIBSON IRON LIMITED 2016 Annual Report 3In the circumstances and the potential capital demands of our business, the Board determined it would be prudent not to declare a dividend for the 2015/16 year. However, we 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 over the year. I look forward to reporting an even more successful year in 2017. Lee Seng Hui Chairman Chairman’s Report It is with great pleasure that I present to you Mount Gibson Iron’s 2016 Annual Report. It was highly satisfying to return to profitability in 2015/16, recording a statutory net profit after tax of $86.3 million in a year that was again characterised by extremely challenging market conditions. Iron ore prices remained volatile, declining to ten-year lows during December 2015 and averaging 29% less over the twelve month period compared with the prior year. Looking to the year ahead, the Board has determined the following key business objectives for the 2016/17 financial year: (cid:159) Extension Hill – finalise necessary regulatory government approvals for the development of the Iron Hill deposit to extend production beyond the current end of the reserve life. (cid:159) (cid:159)Koolan Island – maintain the site on care and maintenance, and undertake the detailed work required to assess the Our strong financial result reflected the viability of reinstating the Main Pit Company’s continued diligent focus on cost seawall and recommencing production. reduction and financial discipline. This (cid:159)Koolan Island seawall insurance approach was fundamental to achieving an underlying gross profit of $19.4 million, comprising an underlying gross profit from continuing operations of $13.4 million and a $6.0 million gross profit from the discontinued Tallering Peak operation. claim – progress and finalise the business interruption component of the claim. Cost reductions – continue to drive for sustainable cost improvements across the existing business. Treasury returns – maintain the increased yield on the Group’s cash reserves. Our headline result was also buoyed by the successful $86 million cash settlement of the property damage component of our insurance claim for the failure of the Main Pit seawall at Koolan Island in late 2014. By (cid:159)Growth projects – continuation of the the end of the financial year, we had received $50 million of the settlement proceeds, while the remainder was received in July. I note that this successful settlement is completely independent of the business interruption component of our claim, which is ongoing. search for business development opportunities in the resources sector. By focusing on these priorities, we are confident that Mount Gibson can continue to navigate the uncertain market conditions and capitalise on our financial strength to deliver strong long term returns for our shareholders. (cid:159) Consequently, our cash and liquid investments rose strongly over the year to $400 million at the end of June, a very significant increase of $66 million compared with our cash position at the end of the prior financial year. This performance positions Mount Gibson extremely well to deliver on the Board’s overarching strategic objective of creating long term value through investment in exploration, development, and efficient operational extraction of mineral resources. Given our financial strength we are looking to the future with renewed optimism and confidence, particularly as we work to bring Iron Hill into production, finalise our assessment of the potential to restart operations at Koolan Island, and consider external investment opportunities in the broader resources sector. 4Chief Executive Officer's Report As the Chairman has stated, Mount Gibson’s performance in 2015/16 year was very satisfying in the face of significantly lower iron ore prices and extremely challenging market conditions. The safety of our people remains our absolute priority, so it is of great credit to our workforce that in this challenging period Mount Gibson again reported improved safety performance. The Total Recordable Injury Frequency Rate (TRIFR) declined by 27.7% to 6.8, and our Lost Time Injury Frequency Rate (LTIFR) was zero for a second consecutive year. Significantly, at the end of June 2016, the Extension Hill site passed 1000 days without an LTI. This is a tremendous achievement of which everyone at Mount Gibson can be proud and which sets a great example for the entire business to follow. Of course, safety performance can never be taken for granted and we will always strive for further improvement. Our financial and operating performance was also very satisfying given the challenging market conditions, as was the successful $86 million settlement of the property damage component of the Koolan Island insurance claim, which has further bolstered our very strong financial position. Our ongoing focus on business efficiency was reflected in a 29% reduction in our Total Cost of Goods Sold to $44 per wet metric tonne Free on Board (FOB), including non-cash costs, royalties and before impairments, compared with $62/wmt in the prior year. All-in group cash costs, which include all operating, capital, royalties and head office costs, were reduced by 26% to $46/wmt FOB. Both Extension Hill and Koolan Island, where the Acacia East satellite pit was completed in the March 2016 quarter, contributed to the positive cashflow from operations of $5.7 million achieved in the year. Site cash costs, which are before corporate cost allocations, averaged just $44/wmt at Extension Hill and $37/wmt at Koolan Island. Our operational agility also enabled the Company to take advantage of improved prices in the June quarter to monetise remnant low grade material at the closed Tallering Peak site. and production scheduling to achieve a material reduction in the average strip ratio and also a marked increase in product grade. Mount Gibson expects to conclude this detailed evaluation work in the March 2017 quarter. Our healthy balance sheet and substantial 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 ongoing support, guidance and counsel as we navigate these uncertain times. Their input is greatly valued and is certainly of assistance as we seek to achieve the best possible outcome for our shareholders. Finally, I must thank all of Mount Gibson’s hard working employees and contractors for their efforts and commitment. 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 On the back of the efficiency measures implemented by the Company, we are confident of maintaining competitive group production costs in the 2016-17 year, based on sales from our Mid West business alone. Importantly, we are also now looking to the future with renewed optimism and confidence, underpinned by our robust balance sheet and proven ability to deliver strong performance in challenging conditions. In the Mid West, we significantly progressed permitting for the Iron Hill deposit, located 3km south of the current Extension Hill open pit, in order to extend production beyond the current end of the reserve life. Mining in the current Extension Hill pit is scheduled to conclude by early in the December quarter of 2016, while sales will continue into early 2017. Significantly, in July 2016 the Office of the Environmental Protection Authority of Western Australia released a positive conditional recommendation for Iron Hill. The timing of a final determination by the WA Government remains subject to the outcome of appeals lodged during the public comment period, and other necessary regulatory requirements, however progress to date remains consistent with the Company’s timing objectives for the project. Meanwhile at Koolan Island, which remains a high quality asset that offers significant long term value, we are extremely encouraged by the progress of our evaluation of the potential to reinstate the Main Pit seawall and restart production. To that end, we committed to invest $1.5 million to undertake detailed design for the seawall, and mine design 5Health and Safety A further reflection of our safety management is evident in the outstanding achievement of 1000 consecutive days without a LTI at Extension Hill, a mark achieved on 30 June 2016. For details of the Company’s safety performance, including statistics for each site, please refer to Mount Gibson Iron’s 2016 Sustainability Report, published on the Mount Gibson website. 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 2015/16, the second consecutive year without a LTI. The Total Recordable Injury Frequency Rate (TRIFR) also declined very strongly, falling by 27.7% to 6.8, compared with 9.4 in 2014/15 and 13.31 in 2013/14. TRIFR 15.01 13.31 9.40 6.80 FY2013 FY2014 FY2015 FY2016 16 14 12 10 8 6 4 2 0 6 5 4 3 2 1 0 LTIFR 5.57 3.43 FY2013 FY2014 FY2015 FY2016 0.00 0.00 9.40 6.80 FY2013 FY2014 FY2015 FY2016 TRIFR 15.01 13.31 LTIFR 5.57 3.43 16 14 12 10 8 6 4 2 0 6 5 4 3 2 1 0 FY2013 FY2014 FY2015 FY2016 0.00 0.00 6The settlement is independent of any decision the Group may take to rebuild the Main Pit seawall and is also separate to the ongoing discussions between Mount Gibson and its insurers in relation to the 12 month business interruption component of the insurance claim. The full value of the business interruption claim is yet to be quantified by the insurers and will be assessed subject to any relevant policy and limitations. These discussions remain in progress and it is premature to comment as to the likely outcome of this component of the claim. Operational Review During 2015/16, Mount Gibson achieved total ore sales of 5.0 million wmt, representing a 14% decrease from the previous year. This decline reflected the transition of Koolan Island to care and maintenance following completion of production and sales from the Acacia East satellite pit in the March quarter of 2016. Based on preliminary work to date and taking into account recent mining history at Koolan Island, Mount Gibson considers it would need to have confidence that the project could achieve the following key technical and operating parameters: (cid:159)Main Pit seawall reinstated in a safe and economically feasible manner; KOOLAN ISLAND Koolan Island is located approximately 140km north of Derby, in the Kimberley (cid:159)sufficient Ore Reserves to support region of Western Australia. total redevelopment capital and restart costs of less than $90 million; (cid:159) production of at least 15 million tonnes of hematite over a period of 3–4 years, grading above 62% Fe; Ore shipments from Koolan Island for the year totalled 1.5 million wmt, with all production and sales from the Acacia East (cid:159)an average life of mine strip ratio less satellite pit, which were concluded in the March quarter of 2016. The site was then transitioned to care and maintenance. This compares with sales of 2.1 million wmt in the prior year, when ore was also sourced from the Main Pit prior to the failure of the seawall in late 2014. (cid:159)total material movement costs of less than $7/tonne moved. than 3:1; and Average all-in site cash costs at Koolan Island for the full year, inclusive of the care and maintenance costs incurred in the final quarter, were $37/wmt FOB, slightly below the Company's public guidance reflecting solid operational performance on site. All activity is now focused primarily on the ongoing evaluation of the potential to reinstate the Main Pit seawall and recommence production. Geotechnical drilling at the Main Pit seawall to provide technical data for the evaluation of potential rebuild options was completed in January 2016. Mount Gibson has now committed $1.5 million to undertake detailed design for the seawall, and mine design and production scheduling to achieve a material reduction in the average strip ratio and also a marked increase in product grade. Mount Gibson expects to conclude this detailed evaluation work in the March 2017 quarter. The Company has yet to establish whether it can reasonably achieve these key parameters but, based on historical mining performance, believes it is sensible to continue with its assessment of this potential opportunity. However, until such time as Mount Gibson has completed the detailed engineering design and capital estimates for reconstruction of the Main Pit seawall, and obtained confirmation that all other potential requirements for development can be met, it is not possible to state that a viable redevelopment plan is achievable. A key focus of management during 2015/16 was the Company's insurance claim relating to the seawall failure. Constructive discussions with the Company's insurers resulted in the successful settlement in June 2016 of the property damage component of the claim for $86 million, inclusive of an initial progress payment of $1.85 million received in July 2015. All funds from the settlement were received by early July 2016. 7Operational Review Continued for iron ore prices on the basis of what is in the best interests of the Company and all shareholders. This includes closely monitoring the viability of continuing operations at Extension Hill with regard to mine cashflows as well as to historical fixed infrastructure and transport obligations that would become payable on early closure. These obligations, which reduce with cumulative sales tonnage, totalled approximately $15 million at 30 June 2016. TALLERING PEAK The Tallering Peak mine site closed in late 2014, with activity since then primarily related to final rehabilitation works. However, in the June quarter of 2016, Mount Gibson also monetised some remnant material remaining at the mine site. These opportunistic sales, totalling 125,000 wmt of low grade lump material, generated a modest cash margin and assisted with environmental rehabilitation at the Tallering Peak mine site. Final site rehabilitation and environmental monitoring activities remain ongoing. 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 again performed strongly in 2015/16, recording ore sales of 3.4 Mwmt and achieving an average all-in site cash cost of $46/wmt for the year, in line with guidance. As previously indicated, Mount Gibson expects to complete mining operations in the current Extension Hill pit early in the December quarter of 2016, with sales from the current pit expected to conclude in early 2017 by which time the Company plans to have secured approvals for development of the adjacent Iron Hill deposit, located 3km south of the Extension Hill Main Pit. In the event that a gap between ore sales from the Extension Hill pit and Iron Hill appears likely, Mount Gibson will evaluate the financial merits of selling ore from existing low grade stockpiles, totalling approximately 3.5 Mwmt of material grading 50-55% Fe, until Iron Hill material is available. Mount Gibson continually reviews its activities in the context of prevailing market conditions and the future outlook 8Exploration and Development Assuming development of Iron Hill proceeds as planned, one-off development capital costs of approximately $2-3 million are anticipated for construction of a haul road and mine pre-stripping. Operational costs and product grades at Iron Hill are expected to be consistent with current operations at Extension Hill. Shine Iron Ore Project Development of the Shine Iron Ore Project, 85km north of Extension Hill, was deferred in August 2014 in light of prevailing market conditions. However, the project remains a potentially viable development opportunity when iron ore market conditions improve. Total Mineral Resources at Shine are estimated at 15.9 Million tonnes grading 58.1% Fe as at 30 June 2016. 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 2016. Total Group Mineral Resources were estimated at 89.5 million tonnes of iron ore at an average grade of 61.4% Fe. Total Group Ore Reserves were estimated at 1.2 million tonnes grading 58.0% Fe. All Mineral Resources and Ore Reserves are considered as direct shipping grade (DSO) with no beneficiation or enrichment process required. All of the Company's Ore Reserves relate to the Extension Hill Operation. Iron Hill Deposit The Iron Hill Deposit, on granted Mining Leases immediately adjacent to the Extension Hill mine, was a primary focus of activity in 2015/16, following estimation of total Mineral Resources at Iron Hill of 8.8 Million tonnes grading 58.3% Fe late in the previous financial year. In late December 2014, the Office of Environmental Protection Authority of Western Australia (OEPA) set a Public Environmental Review (PER) level of assessment for future mining at Iron Hill. The PER was submitted in November 2015, and released for public comment in January 2016. Encouragingly, in July 2016 the OEPA released a positive conditional recommendation for Iron Hill, though the timing of a final determination by the WA Environment Minister remains subject to the outcome of any appeals lodged during the public comment period. The Company also continues to progress other necessary regulatory requirements for Iron Hill. 9Environment and Community 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 Company 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 2015/16 year. This includes always putting the health, safety and wellbeing of our people first. 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 $434,630 in direct contributions to community organisations and projects. This compares with an equivalent investment of $490,400 in the prior year. For details of Mount Gibson Iron's community investment activities and engagement with communities and stakeholders, including information relating to each site, please refer to Mount Gibson Iron's 2016 Sustainability Report, published on the Mount Gibson website. 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 greenhouse gas emissions and energy consumption of approximately 30% in 2015/16, reflecting reduced activity, and the cessation of operations at Koolan Island. For details of the Company's environmental performance, including information relating to each site, please refer to Mount Gibson Iron's 2016 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. 10Resources and Reserves Total Mineral Resources and Ore Reserves by Project as at 30 June 2016 Koolan Island Mineral Resources, above 50% Fe Measured Indicated Inferred Total at 30 June 2016 Total at 30 June 2015 Ore Reserves, above 50% Fe Proved Probable Total at 30 June 2016 Total at 30 June 2015 Extension Hill Mineral Resources, above 50% Fe Measured Indicated Inferred Total at 30 June 2016 Total at 30 June 2015 Ore Reserves, above 50% Fe Proved Probable Total at 30 June 2016 Total at 30 June 2015 Iron Hill Mineral Resources, above 50% Fe Measured Indicated Inferred Total at 30 June 2016 Total at 30 June 2015 Tallering Peak Mineral Resources, above 50% Fe Measured Indicated Inferred Total at 30 June 2016 Total at 30 June 2015 Shine Tonnes millions 7.69 41.93 10.89 60.51 61.62 Nil Nil Nil 0.87 2.10 0.34 0.20 2.64 6.97 1.10 0.05 1.15 6.19 0.00 1.47 7.33 8.80 8.80 0.41 1.03 0.20 1.65 1.65 Fe % 59.1 64.4 60.2 63.0 62.9 Nil Nil Nil 60.0 56.73 57.32 56.61 56.80 58.1 58.0 56.8 58.0 58.2 0.0 60.5 57.9 58.3 58.3 58.9 58.1 54.7 57.9 57.9 SiO 2 % 13.53 6.36 12.48 8.38 8.43 Nil Nil Nil 13.27 8.13 10.31 10.49 8.59 6.82 7.09 9.87 7.21 6.77 0.00 8.35 8.65 8.60 8.60 6.26 11.70 17.89 11.10 11.10 Al O 3 2 % 1.16 0.76 0.79 0.82 0.81 Nil Nil Nil 0.45 2.41 1.60 1.66 2.25 2.18 2.10 1.91 2.09 2.17 0.00 1.02 1.74 1.62 1.62 3.50 1.66 1.93 2.15 2.15 P % 0.018 0.014 0.015 0.015 0.014 Nil Nil Nil 0.010 0.077 0.072 0.055 0.076 0.076 0.088 0.087 0.088 0.076 0.000 0.047 0.069 0.065 0.065 0.082 0.066 0.056 0.069 0.069 Mineral Resources, above 50% Fe 5.73 Measured 6.57 Indicated 3.59 Inferred 15.89 Total at 30 June 2016 Total at 30 June 2015 15.89 Discrepancies may appear due to rounding. Mineral Resources are reported inclusive of Ore Reserves. All tonnages have been estimated as dry tonnages. 9.04 10.01 9.61 9.57 9.57 58.9 58.0 56.8 58.1 58.1 1.81 1.35 1.18 1.48 1.48 0.076 0.070 0.063 0.071 0.071 Attributions overleaf 11Total Group Mineral Resources and Ore Reserves at 30 June 2016 (above 50% Fe) Tonnes millions Fe % Si0 2 % Al 0 2 3 % P % 89.5 Total Mineral Resources at 30 June 2016 1.2 Total Ore Reserves at 30 June 2016 94.9 Total Mineral Resources at 30 June 2015 Total Ore Reserves at 30 June 2015 7.1 Discrepancies may appear due to rounding. Mineral Resources are reported inclusive of Ore Reserves. All tonnages have been estimated as dry tonnages. 8.67 7.21 8.57 7.57 61.4 58.0 61.2 58.4 1.08 2.09 1.12 1.96 0.032 0.088 0.034 0.068 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 Brett Morey, a Competent Person who is a member of the Australian Institute of Mining and Metallurgy. Brett Morey is a full-time employee of 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”. Brett Morey 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: The information in this report relating to Mineral Resources for the Koolan Island, Extension Hill (including Iron Hill), and Tallering Peak and Shine deposits 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. Elizabeth Haren was a full-time employee of, and is a consultant to, Mount Gibson Iron Limited. Elizabeth Haren has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Elizabeth Haren consents to the inclusion in 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 Ore Reserves: The information in this report relating to Ore Reserves at Extension Hill 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. Paul 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’. Paul 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. The detailed Annual Statement of Mineral Resources and Ore Reserves is available via Mount Gibson Iron's website. 12Financial Report MOUNT GIBSON IRON LIMITED AND CONTROLLED ENTITIES ABN 87 008 670 817 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 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 32 33 34 35 36 37 38 90 91 13Directors’ Report Your Directors submit their report for the year ended 30 June 2016 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 Shaofeng B.Automation Non-Executive Director Mr Li was appointed as a Non-Executive Director on 23 February 2012. Mr Li has extensive experience in the management of and investments in various listed companies, sino-foreign joint ventures and steel industry entities. He holds a bachelor degree in Automation from University of Science and Technology Beijing. He is the vice chairman and managing director of Shougang Holding (Hong Kong) Limited. Mr Li is 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 43 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 Chief Financial Officer of Wizard Mortgage Corporation. He was also Chief Executive Officer of ASX-listed King Island Scheelite Limited, a former Managing Director of Sovereign Gold Limited, a former Chairman of Rawson Resources Limited and a former Director of CPA Australia Limited. Mr Bird is currently a director of ASX-listed company Pacific American Coal Limited. 14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. 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 a former Non-Executive Director of Beacon Foundation and 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 15 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 a former 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 19 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 2016 was as follows: 15 Nature of Operations and Principal Activities The principal activities of the entities within the Group during the year were:    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 126 employees (excluding contractors) as at 30 June 2016 (2015: 213 employees). OPERATING AND FINANCIAL REVIEW Introduction The Board presents the 2015/16 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 2015/16 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 2016 and has been prepared in accordance with Regulatory Guidance 247 published by the Australian Securities and Investments Commission (“ASIC”). Overview of the 2015/16 Financial Year Although the Group’s financial performance for the year ended 30 June 2016 was adversely impacted by weaker iron ore prices compared with the previous year, the Company’s management and operating teams continued to implement their planned strategies at both the Extension Hill and Koolan Island mine sites to achieve strong sales and further unit cost reductions over the year. In addition, the Company successfully settled the property damage component of its insurance claim arising from the late-2014 failure of the Koolan Island Main Pit seawall. As a result, the Company ended the year in a very robust financial position. At the beginning of the year the Platts Index for delivery of 62% Fe iron ore fines to northern China was US$59 per dry metric tonne (“dmt”) and, following steady weakness to a low of US$38.50/dmt late in the first half and a very brief recovery to US$70/dmt in April, finished the year at US$55/dmt. The average price for the year was US$51/dmt. Compounding these weaker iron ore prices was an exchange rate which averaged the year at A$1.00/US$0.728 but was materially higher in the final quarter of the year, averaging A$1.00/US$0.745. Group ore sales totalled 5.0 million wet metric tonnes (“Mwmt”) for the year reflecting a steady operational performance at Extension Hill and the Acacia East satellite pit at Koolan Island, as well as sales of low grade remnant material from the closed Tallering Peak mine site late in the year. The Extension Hill operation performed well and, as planned, the Koolan Island operation was placed onto care and maintenance upon completion of the final shipments of mined material from the Acacia East satellite pit in April 2016. Work at Koolan Island is now focused upon the evaluation of the potential to reinstate the seawall and recommence production. Total sales revenue in the 2015/16 financial year was $240,534,000 comprising $235,188,000 from continuing operations at Extension Hill and Koolan Island, and $5,346,000 from the discontinued Tallering Peak operation. Mount Gibson achieved an average realised price for standard iron ore fines product for the year of US$34/dmt Free On Board (“FOB”) after grade and provisional pricing adjustments and penalties for impurities. This price, which excludes sales of medium grade material from the Acacia East satellite pit on Koolan Island, compares with an average of US$54/dmt achieved in the previous 2014/15 financial year. The weighted average realised price received for all products sold, on a wet tonnes basis, was $48/wmt FOB, compared with $56/wmt in the previous year. Cost reduction initiatives resulted in the Company’s average cost of goods sold for its continuing operations (including non-cash costs but before impairments and impairment write-backs) reducing significantly from $62/wmt FOB in the 2014/15 financial year to $44/wmt FOB in the 2015/16 financial year. Cashflow from operations for the year totalled positive $5,653,000 being a significant improvement on the previous financial year’s operational cashflow of negative $91,099,000 which reflected the severe adverse impacts of the Koolan Island Main Pit seawall failure in late 2014. Towards the end of the 2015/16 financial year, the Company also reported the successful settlement of the property damage component of the Koolan Island seawall insurance claim for $86,000,000. This amount included the interim payment of $1,850,000 made by the Company’s insurers in mid-2015 and, by 30 June 2016, the Company had received $49,592,000 of the balance. The remainder of the settlement amount was fully received from the Company’s insurers in July 2016. The Group’s total cash reserves, including term deposits and tradeable investments, as well as the insurance settlement proceeds received by year-end, totalled $400,087,000 as at 30 June 2016, an increase of $66,084,000 over the balance of $334,003,000 as at 30 June 2015. 16Operating Results for the Financial Year The summarised operating results for the Group for the year ended 30 June 2016 are tabulated below: Year ended: 30 June 2016* 30 June 2015* 30 June 2014 30 June 2013 30 June 2012** Net profit/(loss) before tax Taxation benefit/(expense) Net profit/(loss) after tax $’000 $’000 $’000 85,536 (1,008,505) 163,698 128,440 224,621 761 97,083 86,297 (911,422) (67,345) 96,353 8.84 28,902 157,342 14.45 (62,605) 162,016 14.96 Earnings/(loss) per share cents/share 7.91 (83.56) * The figures for net profit/(loss) before tax and taxation benefit/(expense) for the years ended 30 June 2016 and 2015 are shown inclusive of discontinued operations. Refer the attached financial statements for further details. ** Restated to reflect adjustments made on the adoption of AASB Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine. Consolidated quarterly operating and sales statistics for the 2015/16 financial year are tabulated below: Unit kwmt kwmt kwmt kwmt kwmt kwmt kwmt kwmt Consolidated Group Mining & Crushing Total waste mined Total ore mined# Total ore crushed Shipping/Sales* Standard DSO Lump Standard DSO Fines Low Grade DSO RSP Total Ave. Platts 62% Fe CFR northern China price MGX Free on Board (FOB) average realised fines price^ kwmt = thousand wet metric tonnes US$/dmt = USD per dry metric tonne Sept Quarter 2015 Dec Quarter 2015 Mar Quarter 2016 Jun Quarter 2016 2015/16 2014/15 1,763 1,510 1,294 2,362 1,882 1,540 549 513 - - 962 558 - - 684 1,583 1,384 781 765 - - 1,061 1,520 1,547 486 1,001 962 478 240 125 - 843 56 37 5,295 5,976 5,180 2,770 2,076 125 - 4,971 51 34 16,630 5,876 5,394 2,708 2,783 58 287 5,836 72 54 US$/dmt US$/dmt 55 40 47 35 48 27 # 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. * Includes mine gate sales totalling 72kwmt of DSO lump and 34kwmt of DSO fines in 2014/15, and no mine gate sales in 2015/16. ^ 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. 17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 continued to perform well in 2015/16, with shipments through Geraldton Port totalling 3,382,000 wmt, comprising 1,963,000 wmt of lump product and 1,419,000 wmt of fines product. The mine was cashflow positive for the year, reflecting the ongoing focus on cost reduction and efficiency improvements, and the strong contribution from lump sales. However, cash margins were generally under pressure throughout the year due to weaker iron ore prices. All-in site cash costs1 averaged $46/wmt sold FOB for the year. With the sustained weakness in iron ore prices, the Company implemented a number of operational changes at Extension Hill identified through the ongoing business efficiency programme to reduce gross expenditure and preserve value in the prevailing low price environment. As part of this programme, the Company standardised two-and-one rosters across all of its Mid-West roles. Regretfully, this resulted in reductions in total full time positions across the mine, the Perenjori rail siding and the Company’s loading facilities at Geraldton Port. As at 30 June 2016, approximately 239,000 wmt of crushed finished product was stockpiled at the mine. Uncrushed product stockpiled at the mine totalled approximately 187,000 wmt. Mine-site stockpiles of uncrushed lower grade material totalled 3.5 Mwmt. Crushed ore stockpiles at the Perenjori rail siding totalled approximately 394,000 wmt. Production and shipping statistics for Extension Hill for the 2015/16 financial year are tabulated below: Extension Hill Production Summary Unit Sept Quarter 2015 ’000 Dec Quarter 2015 ’000 Mar Quarter 2016 ’000 Jun Quarter 2016 ’000 Year 2015/16 ’000 Year 2014/15 ’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 539 487 461 486 1,973 2,202 (10) 969 206 1,175 619 420 1,039 600 422 1,022 520 320 840 474 292 766 - - - 474 292 766 1,034 182 1,216 590 436 1,026 589 430 1,019 572 442 1,014 590 412 1,002 - - - 590 412 1,002 1,013 189 1,203 847 153 1,001 518 350 868 504 359 863 439 343 782 421 475 896 - - - 421 475 896 575 387 962 514 287 801 454 255 709 478 240 718 - - - 478 240 718 3,864 731 4,595 2,303 1,592 3,895 2,207 1,498 3,705 1,985 1,360 3,345 1,963 1,419 3,382 - - - 3,369 864 4,233 15 (16) 9 2,054 1,458 3,512 2,007 1,579 3,586 1,809 1,420 3,229 1,823 1,381 3,204 12 9 11 10 (5) 3 10 (4) 4 8 3 6 72 132 204 (100) (100) (100) 1,963 1,419 3,382 1,895 1,513 3,408 4 (6) (1) * Low grade ore is material grading 50-55% Fe considered to be potentially 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. 1 All-in site cash costs are reported FOB and include royalties and capex but are before corporate cost allocations. Cash cost figures are unaudited. 18Koolan Island Ore shipments from Koolan Island during the year totalled 1,465,000 wmt, with all ore sourced from the Acacia East satellite pit. This compares to the previous 2014/15 financial year where ore was also sourced from the Main Pit prior to the failure of the Main Pit seawall in late 2014 and shipments totalled 2,136,000 wmt. Mining within the Acacia East satellite pit and ore sales were completed as planned during the March 2016 quarter. Koolan Island transitioned to care and maintenance status in the June 2016 quarter. The average all-in site cash costs2 at Koolan Island for the full year, inclusive of the care and maintenance costs incurred in the final quarter, were $37/wmt FOB, slightly below the Company’s public guidance reflecting solid operational performance on site. Production and shipping statistics for Koolan Island for the 2015/16 financial year are tabulated below: Koolan Island Production Summary Unit Sept Quarter 2015 ’000 Dec Quarter 2015 ’000 Mar Quarter 2016 ’000 Jun Quarter 2016 ’000 Year 2015/16 ’000 Year 2014/15 ’000 % Incr/ (Decr) Mining Waste mined Ore mined Crushing Lump Fines Rizhao Special Product (RSP) Shipping Lump Fines RSP wmt wmt wmt wmt wmt wmt wmt wmt 1,225 335 1,874 666 181 75 - 256 74 221 - 295 341 173 - 514 372 146 - 518 223 380 334 183 - 517 361 290 - 651 - - - - - - - - - - 3,322 1,381 14,428 1,643 (77) (16) 855 431 - 1,286 807 658 - 1,465 621 817 443 1,882 697 1,152 287 2,136 38 (47) (100) (32) 16 (43) (100) (31) Minor discrepancies may appear due to rounding. Tallering Peak Rehabilitation activities continued throughout the year, significantly reducing the provision for rehabilitation. Final site rehabilitation and environmental monitoring activities remain ongoing. In the final quarter of the 2015/16 financial year, Mount Gibson monetised some remnant material remaining at the mine site. These opportunistic sales, totalling 125,000 wmt of low grade lump material, generated a modest cash margin and assisted with environmental rehabilitation at the Tallering Peak mine site. Production and shipping statistics for Tallering Peak in the 2015/16 financial year are tabulated below: Tallering Peak Production Summary Unit Sept Quarter 2015 ’000 Dec Quarter 2015 ’000 Mar Quarter 2016 ’000 Jun Quarter 2016 ’000 Year 2015/16 ’000 Year 2014/15 ’000 % Incr/ (Decr) Transported to Mullewa Railhead - Lump - Fines Transported to Geraldton Port - Lump - Fines Shipping - Standard DSO Lump - Standard DSO Fines - Low Grade DSO Lump - Low Grade DSO Fines wmt wmt wmt wmt wmt wmt wmt wmt Minor discrepancies may appear due to rounding. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 159 - 159 - - 125 - 125 - - - 159 - 159 - - 125 - 125 7 9 16 43 193 236 116 118 - 58 292 (100) (100) (100) 270 (100) (33) (100) (100) 100 (100) (57) 2 All-in site cash costs are reported FOB and include royalties and capex but are before corporate cost allocations. Cash cost figures are unaudited. 19EXPLORATION AND DEVELOPMENT Iron Hill (Extension Hill South) In November 2015, the Public Environmental Review for the Iron Hill Deposit at Extension Hill South, immediately adjacent to the Company’s operating Extension Hill mine, was released for public comment. A total of 11 submissions were received by the Office of the Environmental Protection Authority (“OEPA”) of Western Australia. Subsequent to the end of the year, the OEPA released a positive conditional recommendation for Iron Hill, with a period for public comment due to close in August 2016. The timing of a final determination remains subject to the outcome of any appeals lodged during the public comment period. Mount Gibson also continues to progress other necessary regulatory requirements for Iron Hill. Shine Project In August 2015 Mount Gibson released an updated mineral resource estimate for the Shine Project, located 85km north of Extension Hill, following resource modelling work undertaken in mid-2015. The project remains a potentially viable development opportunity when iron ore market conditions improve. CORPORATE Financial Position The Group’s cash, term deposit and tradeable investments balances totalled $400,087,000 at 30 June 2016, an increase of $66,084,000 from the balance of $334,003,000 as at 30 June 2015. As at the balance date, the Company’s current assets totalled $463,818,000 and its current liabilities totalled $42,441,000. As at the date of this report, the Group has sufficient funds in addition to access to further equity and debt funding to maintain its existing operations and to advance its exploration and growth objectives. Impairment As a result of the continued weakness in iron ore prices in the first half of the 2015/16 financial year, the Group recorded an impairment expense in its December 2015 half-year financial statements of $23,613,000. After adjustments to the recorded impairment expense in the second half of the year, including the write-back of previously-impaired iron ore inventories, the Group recorded a total impairment expense for the 2015/16 financial year of $15,413,000 before tax. This amount comprises impairments of consumables inventories (by $8,122,000 including obsolescence adjustments for continuing and discontinued operations), mine properties (by $2,135,000), deferred acquisition, exploration and evaluation assets (by $3,037,000) and property, plant and equipment (by $12,377,000), net of the write-back of previously-impaired iron ore inventories which were sold or contracted for future sale during the year (by $3,442,000 for continuing operations and by $6,816,000 for discontinued operations). Foreign Exchange Hedging As at 30 June 2016, the Group held foreign exchange collar option contracts covering the conversion of US$15,000,000 of anticipated future US dollar denominated revenues into Australian dollars over the five month period to 28 November 2016, with a cap price of A$1.00/US$0.750 and floor price of A$1.00/US$0.685. As at 30 June 2016, the marked-to-market unrealised gain on the total outstanding US dollar foreign exchange hedge book of US$15,000,000 was A$231,000. Koolan Island Seawall Insurance Claim During the year, Mount Gibson’s investigation into the cause of the late-2014 failure of the Koolan Island Main Pit seawall 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. Mount Gibson maintains insurance policies for a variety of circumstances, including property damage and business interruption cover. Discussions with the Group’s insurers in relation to the seawall failure commenced in December 2014 and, following an extensive claims preparation and negotiation process, final agreement was reached in June 2016 for a cash settlement of $86,000,000 for the property damage component of the claim. The settlement amount included the $1,850,000 interim payment received in mid-2015. By 30 June 2016, Mount Gibson had received $49,592,000 of the balance, with the remainder received in full shortly after year end. Mount Gibson retains substantial carry-forward tax losses and other available tax deductions, and therefore does not expect any tax outflow on the settlement proceeds. The settlement is independent of any decision the Group may take to rebuild the Main Pit seawall and is also separate to the ongoing discussions between Mount Gibson and its insurers in relation to the 12 month business interruption component of the insurance claim. The full value of the business interruption claim is yet to be quantified by the insurers and will be assessed subject to any relevant policy and limitations. 20Koolan Island Logistics Base In May 2015, Mount Gibson announced an agreement with specialist logistics provider Qube Holdings Limited of a framework to progress the potential establishment of the Koolan Island Logistics Base (“KILB”) for the nearby offshore oil and gas industry, in collaboration with the Dambimangari Traditional Owners. The KILB proposal remains at an early conceptual stage and, during the 2015/16 financial year, significant falls in global oil and gas prices resulted in delays to the expected plans for assessment of the KILB opportunity, with activities currently suspended. 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 grow its profile as a successful and profitable supplier of raw materials. Key influences on the success of Mount Gibson are not only iron ore prices and foreign exchange rates 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’s corporate objective is to grow the Company’s cash reserves and continue to pursue an appropriate balance between the retention and utilisation of cash reserves for value-accretive investments. The Board has determined the following key business objectives for the 2016/17 financial year: • Extension Hill - pursue necessary regulatory government approvals for the development of the Iron Hill deposit to extend the operational life of the Extension Hill operation beyond the current end of the reserve life, currently expected in the first half of 2017. • Koolan Island – maintain the site on care and maintenance, and undertake the detailed work required to assess the viability of reinstating the Main Pit seawall and recommencing production. • Koolan Island seawall insurance claim - progress and finalise the business interruption component of the claim. • Cost reductions - continue to drive for sustainable cost improvements across the existing business. • Treasury returns – maintain the increased 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 continues to implement operational changes at Extension Hill to reduce gross expenditure and allow potential to flex short term production while limiting the impact on unit costs. Guidance for all-in site cash costs3 remains at $44-46/wmt for the 2016/17 financial year. As previously indicated, Mount Gibson expects to complete mining operations in the current Extension Hill pit early in the December quarter of 2016, with sales from the current pit expected to conclude in early 2017 by which time the Company plans to have secured approvals for development of the adjacent Iron Hill deposit, located 3km south of the Extension Hill Main Pit. In the event that a gap between ore sales from the Extension Hill pit and Iron Hill appears likely, Mount Gibson will evaluate the financial merits of selling ore from existing low grade stockpiles until Iron Hill material is available. Mount Gibson continually reviews its activities in the context of prevailing market conditions and the future outlook for iron ore prices on the basis of what is in the best interests of the Company and all shareholders. This includes closely monitoring the viability of continuing operations at Extension Hill with regard to mine cashflows as well as to historical fixed infrastructure and transport obligations that would become payable on early closure. These obligations, which reduce with cumulative sales tonnage, totalled approximately $15 million at 30 June 2016. Koolan Island Outlook Following completion of shipments from the Acacia East satellite pit in the second half of the year, Koolan Island transitioned to care and maintenance status. Activity at Koolan Island is now focused primarily on the ongoing evaluation of the potential to reinstate the Main Pit seawall and recommence production. Geotechnical drilling at the Main Pit seawall to provide technical data for the evaluation of potential rebuild options was completed in January 2016. Mount Gibson has now committed $1.5 million to undertake detailed design for the seawall, and mine design and production scheduling to achieve a material reduction in the average strip ratio and also a marked increase in product grade. Mount Gibson expects to conclude this detailed evaluation work in the March 20-17 quarter. Group Sales Guidance and Cash Costs Guidance Mount Gibson expects its annual sales for the 2016/17 financial year to be between 2.8 and 3.1 million wmt of iron ore at an average all-in group cash cost4 of $48-52/wmt FOB, equivalent to US$36-39/wmt at an exchange rate of A$1.00/US$0.75. 3 4 All-in site cash costs are reported FOB and include royalties and capex but are before corporate cost allocations. All-in group cash costs are reported FOB and include cash operating expenditure, royalties, capital expenditure and corporate costs. 21SIGNIFICANT EVENTS AFTER BALANCE DATE A total of 533,625 Performance Rights vested and were exercised after the end of the financial year ended 30 June 2016 in accordance with their terms. Except for the above, as at the date of this report there are no significant events after balance date of the Company or of the Group that require adjustment of or disclosure in this report. DIVIDENDS There were no dividends paid during the financial year ended 30 June 2016. A final dividend for the 2015/16 financial year has not been declared given the presently depressed iron ore price environment and the Group’s continued search for business acquisition opportunities. 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 contracts. 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 AND PERFORMANCE RIGHTS There were no options exercised or forfeited during the financial year or prior to the date of this Report. There are no options over ordinary shares in the Company on issue as at balance date and as at the date of this Report. There were 474,350 Performance Rights vested and exercised during the financial year, with 711,500 Performance Rights remaining on issue as at balance date. Following the vesting and exercise of 533,625 Performance Rights immediately after balance date, there were 177,875 Performance Rights on issue as at the date of this Report. Refer to the Remuneration Report for further details of options and Performance Rights outstanding. DIRECTORS’ INTERESTS IN THE SHARES, OPTIONS AND PERFORMANCE RIGHTS 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 Shaofeng R Barwick S Bird P Dougas A Ferguson Ordinary Shares Options over Shares Performance Rights over Shares - 300,000 - - 20,000 284,944 - - - - - - - - - - - - - - - * For the purposes of Corporations Act Regulation 2M.3.03(1)-Item 18, Mr Lee does not have a disclosable shareholding. However, we note that for purposes of ASX Listing Rule 3.19A2A, Mr Lee has previously declared an indirect “relevant interest” in 323,780,748 ordinary shares in the Company through his association with Allied Group Limited, a substantial shareholder of the Company – refer ASX announcement dated 27 June 2016. 22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 Shaofeng R Barwick S Bird P Dougas A Ferguson 9 7 9 8 9 9 8 1 4 3 4 - - 4 - - 4 3 4 - 4 - - - 4 - - - 4 4 4 - - - - - - - - - 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, Environmental Protection Authority and, where applicable, Department of Parks and Wildlife and the Department of Health. In addition, plans associated with specific species have been approved by the Federal Department of the Environment. The Environmental Protection Authority has also granted approval for the sites’ management systems and plans. In addition, the Department of Environmental Regulation has granted approval of works to allow construction and operation of “prescribed” facilities and the Department of Mines and Petroleum has granted approval for Mining Proposals at each of the mine sites. The Group holds various environmental licences and authorities, issued under both State and Federal law, to regulate its mining and exploration activities in Australia. These licences include conditions and regulations in relation to specifying limits on activities in 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, permits and approvals. The Group continues to report under the National Greenhouse and Energy Reporting (NGER) Act 2009. Diesel combustion is the largest source of greenhouse gas emissions. PROCEEDINGS ON BEHALF OF THE COMPANY There are no proceedings on behalf of the Company under section 237 of the Corporations Act 2001 in the financial year or at the date of this report. ROUNDING Amounts in this report and the accompanying financial report have been rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC Corporations (Rounding in Financial/Directors’ Report) Instrument 2016/191. The Company is an entity to which the instrument 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 20 which forms part of this Report. 23NON-AUDIT SERVICES The following non-audit services were provided by the Company’s auditor, EY, during the financial year ended 30 June 2016. 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 2016 $ 3,600 24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 Chairman of the Board. The NRGC of the Board of Directors of the Company is responsible for determining and reviewing remuneration arrangements for the Board and Key Management Personnel. The NRGC assesses the appropriateness of the nature and amount of remuneration of Key Management Personnel on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality, high performing Board and executive team. Remuneration Policy The Remuneration Policy of the Group has been put in place to ensure that:    remuneration policies and systems support the Company’s wider objectives and strategies; Directors’ and senior executives’ remuneration is aligned to the long-term interests of shareholders within an appropriate control framework; and there is a clear relationship between the executives’ performance and remuneration. Remuneration Structure In accordance with best practice corporate governance, the structure of Non-Executive Director and senior executive management remuneration is separate. Non-Executive Director Remuneration Objective The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. Structure The Constitution and the ASX Listing Rules specify that the aggregate remuneration of Non-Executive Directors shall be determined from time to time by a general meeting of shareholders. An amount not exceeding the amount determined is then divided between the Non-Executive Directors as agreed. The latest determination was at the Annual General Meeting held on 16 November 2011 when Shareholders approved an aggregate remuneration of $1,250,000 per year. Total Non-Executive Director fees of $451,856 were paid in the 2015/16 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. 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 2015/16 financial year. 25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”) Senior executives may receive variable remuneration in the form of STI of up to 30-50% of their annual salary package. STI payments are linked to defined performance measures and provide rewards for completing actions and objectives that are expected to materially improve Company performance. The total potential STI available for award is ultimately at the Board’s discretion and 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 typically 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. On an annual basis, the performance of each senior executive is reviewed immediately prior to or just after the reporting date. The NRGC then determines the amount of STI to be allocated to each executive. Payments are made in cash after the reporting date. Following its decision not to award an STI for the previous financial year, the Board exercised its discretion to make an award for the 2015/16 financial year based on the continuing improved operational performance and positive outcome of the Company’s $86 million settlement of the property damage component of the Koolan Island seawall insurance claim. Accordingly, a total STI cash incentive of $626,869 was awarded to Key Management Personnel for the 2015/16 financial year, representing 80% of the total STI cash incentive available to each of Messrs Beyer, Kerr and Stokes, and 33% of the operational bonus available to Mr de Kruijff. The respective balances of 20% and 67% for these individuals were forfeited. The amount of the STI is included in the Company’s financials for the year and was payable after year end. Long-term Incentive (“LTI”) for 2016 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 iron ore companies over a 2-3 year period. The comparator group of companies comprises Rio Tinto Limited, Fortescue Metals Group Limited, Grange Resources Limited, Arrium Limited, Atlas Iron Limited, BC Iron Limited, Gindalbie Metals Limited and Western Desert Resources Limited. 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 and subject to Board discretion, 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. In line with the Company’s cost reduction strategy, no Performance Rights were issued by the Company to senior executives in respect of the 2015/16 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. 26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; 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 previous financial year, Mr Beyer agreed to a significant reduction in his annual base salary (including superannuation) from $764,400 to $500,000 for the 12 month period to 1 March 2016. During this time the mandatory CPI adjustment was also waived. The Board also 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, with the timing of payment of the deferred bonus at the Board’s discretion. Following review by the Board, agreement was reached with Mr Beyer for the waiver of this conditional deferred bonus and for his annual salary (including superannuation) to be increased from $500,000 to $670,000 with effect from 1 March 2016, and subject to future CPI adjustment. Peter Kerr The key terms of his contract include:       Commenced 19 September 2012 with no set term; Annual Salary Package increase by minimum of CPI from 1 July every year; STI Bonus of up to one half of Annual Salary Package; LTI Bonus of up to one third of Annual Salary Package; and If the Company wishes to terminate the contract other than if Mr Kerr is guilty of any grave misconduct, serious or persistent breach of the terms of the contract or wilful neglect in the discharge of his duties, the Company is obliged to pay out 12 months Annual Salary Package plus any other accrued entitlements and bonuses. If Mr Kerr wishes to terminate the contract, he must provide six months’ notice. During the previous financial year, Mr Kerr agreed to a significant reduction in his annual base salary (including superannuation) from $474,116 to $365,000 for the 12 month period to 1 March 2016. During this time the mandatory CPI adjustment was also waived. The Board also 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, with the timing of payment of the deferred bonus at the Board’s discretion. Following review by the Board, agreement was reached with Mr Kerr for the waiver of this conditional deferred bonus and for his annual salary (including superannuation) to be increased from $365,000 to $450,000 with effect from 1 March 2016, and subject to future CPI adjustment. David Stokes The key terms of his contract include:      Commenced 2 April 2012 with no set term; Annual Salary Package increase by minimum of CPI from 1 July every year; STI Bonus of up to one half of Annual Salary Package; LTI Bonus of up to one third of Annual Salary Package; and If the Company wishes to terminate the contract other than if Mr Stokes is guilty of any grave misconduct, serious or persistent breach of the terms of the contract or wilful neglect in the discharge of his duties, the Company is obliged to pay out 12 months Annual Salary Package plus any other accrued entitlements and bonuses. If Mr Stokes wishes to terminate the contract, he must provide six months’ notice. Scott de Kruijff The key terms of his contract include:     Commenced as General Manager Koolan Island on 17 September 2013 and subsequently appointed as General Manager – Operations on 1 July 2015 with no set term; Annual Salary review subject to performance; Operational incentive of up to 30% of Annual Salary Package; Employee can terminate upon one month’s notice and the Company upon six weeks’ notice, or immediately for any serious misconduct. 27Details of directors and key management personnel disclosed in this report [i] Directors Lee Seng Hui A Jones Li Shaofeng 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 D Stokes S de Kruijff Chief Executive Officer Chief Financial Officer Company Secretary and General Counsel General Manager - Operations (from 1 July 2015) Remuneration of Key Management Personnel for the year ended 30 June 2016 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 2016 Directors Lee Seng Hui A Jones Li Shaofeng R Barwick S Bird P Dougas A Ferguson 85,617 80,937 - 80,937 - - - - 87,786 9,102 69,064 - - - - - - - - - - - 8,134 7,689 - 7,689 8,340 6,561 - 38,413 Sub-total 404,341 9,102 Other KMP J Beyer P Kerr 548,269 24,561 144,779 48,295 379,096 24,087 136,971 33,253 D Stokes 323,253 11,989 138,869 S de Kruijff 371,245 13,155 40,000^ 30,120 35,245 Sub-total 1,621,863 73,792 460,619 146,913 Totals 2,026,204 82,894 460,619 185,326 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 8,859 2,684 1,918 1,474 14,935 14,935 31,026 19,430 13,696 - 64,152 64,152 % Perform- ance Related Total $ 93,751 - - - - - - - 22 26 29 9 88,626 - 88,626 105,228 75,625 - 451,856 805,789 595,521 519,845 461,119 2,382,274 2,834,130 $ - - - - - - - - - - - - - - * Cash incentives for Messrs Beyer and Kerr are shown net of the reversal of the Conditional Deferred Bonuses disclosed for the prior year ended 30 June 2015. These Conditional Deferred Bonuses were not paid by the Company. The gross STI cash incentives for the year ended 30 June 2016 were $268,000 for Mr Beyer and $180,000 for Mr Kerr. ** 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. ^ Deferred cash incentive related to the Group’s Koolan Island main pit seawall insurance claim. Options granted as part of remuneration for the year ended 30 June 2016 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 2016 and there are no options outstanding as at 30 June 2016. 28Performance Rights granted as part of remuneration for the year ended 30 June 2016 There were no performance rights granted as part of remuneration during the year ended 30 June 2016. Performance Rights vested The following Performance Rights vested during the financial year: J Beyer P Kerr D Stokes 30 June 2016 30 June 2015 243,450 121,340 109,560 - - - A total of 474,350 Performance Rights vested and were exercised during the 2015/16 financial year upon the Board exercising its discretion under the Company’s Performance Rights Plan. A total of 533,625 Performance Rights vested to Messrs Beyer (258,075 Performance Rights), Kerr (161,625 Performance Rights) and Stokes (113,925 Performance Rights) and were exercised after the end of the financial year ended 30 June 2016 in accordance with their terms. In accordance with the PRP, no amounts were paid, or remain unpaid, on the exercise of these Performance Rights. Performance Rights benefits 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). Year Granted 2012/13 2013/14 2012/13 2013/14 2012/13 2013/14 Vested % Forfeited/ Lapsed % Financial Years Performance Rights May Vest 100 - 100 - 100 - - - - - - - - 2016/17 - 2016/17 - 2016/17 J Beyer J Beyer P Kerr P Kerr D Stokes D Stokes Performance Rights holdings by Key Management Personnel as at 30 June 2016 30 June 2016 Directors Lee Seng Hui A Jones Li Shaofeng R Barwick S Bird P Dougas A Ferguson Other KMP J Beyer P Kerr D Stokes S de Kruijff Total Balance 1 July 2015 Granted as Remuneration Exercised during the year Lapsed/ forfeited during the year Balance 30 June 2016 - - - - - - - 587,550 336,840 261,460 - - - - - - - - - - - - - - - - - - (243,450) (121,340) (109,560) - 1,185,850 - (474,350) - - - - - - - - - - - - - - - - - - - 344,100 215,500 151,900 - 711,500 At 30 June 2016, there were 711,500 Performance Rights on issue, of which 533,625 Performance Rights vested on 1 July 2016 in accordance with their terms. Shares issued on exercise of Options and Performance Rights for the year ended 30 June 2016 There were no shares issued on the exercise of options during the year ended 30 June 2016 (2015: nil). There were 474,350 shares issued on the exercise of 474,350 Performance Rights on 4 January 2016. There were 533,625 shares issued on the exercise of 533,625 Performance Rights on 1 July 2016 in accordance with their terms. 29Shareholdings of Key Management Personnel as at 30 June 2016 30 June 2016 Directors Lee Seng Hui* A Jones Li Shaofeng R Barwick S Bird P Dougas A Ferguson Other KMP J Beyer P Kerr D Stokes S de Kruijff Total Balance 1 July 2015 Ord Granted as Remuneration Ord Exercise of Performance Rights Ord Net Change Other Ord Balance 30 June 2016 Ord - 100,000 - - 20,000 284,944 - 240,654 - - - 645,598 - - - - - - - - - - - - - - - - - - - 243,450 121,340 109,560 - - 200,000 - - - - - - - - - - 300,000 - - 20,000 284,944 - 484,104 121,340 109,560 - 474,350 200,000 1,319,948 * For the purposes of Corporations Act Regulation 2M.3.03(1)-Item 18, Mr Lee does not have a disclosable shareholding. However, we note that for purposes of ASX Listing Rule 3.19A2A, Mr Lee has previously declared an indirect “relevant interest” in 323,780,748 ordinary shares in the Company through his association with Allied Group Limited, a substantial shareholder of the Company – refer ASX announcement dated 27 June 2016. 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 89,540 A Jones 103,387 Li Shaofeng R Barwick S Bird P Dougas A Ferguson - 103,387 111,758 93,341 - Sub-total 501,413 - - - - - - - - - - - - - - - - 8,506 9,822 - 9,822 10,617 8,867 - 47,634 Other KMP J Beyer P Kerr 662,475 12,207 123,221 36,560 407,683 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 30,061 34,516 22,590 - - - - - - - - - - - - - - - - - - - - - - 1,316 990 1,667 1,250 5,223 5,223 - - - - - - - - 158,562 58,610 $ - - - - - - - - - - % Perform- ance Related Total $ 98,046 - 113,209 - 113,209 122,375 102,208 - 549,047 994,341 551,370 - - - - - - 28 18 2 12 21,782 471,229 1,036,968 47,257 - 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 were in certain circumstances entitled to a deferred bonus. Refer “Employment Contracts” above. Loans to Key Management Personnel There were no loans to key management personnel during the years ended 30 June 2016 and 30 June 2015. 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 2016 and 30 June 2015. 30Company Pe erformance The table bel low shows the p performance of the Group over r the last 5 year s: 30 June 2016 30 June 20 015 30 Ju ne 2014 30 June 2013 3 Net profit/(lo oss) after tax $’000 Earnings/(los ss) per share $/share Closing share e price $ 86,297 0.0791 0.26 2) (911,422 ) (0.8356 0.20 6,353 96 0. 0884 0.69 0 157,342 0.1445 0.47 Restated 30 June 20 d* 012 162,016 0.1496 0.86 * Restated to reflect adjustme ents made on the e adoption of AA ASB Interpretation n 20 Stripping Co osts in the Produ uction Phase of a a Surface Mine. End of remun neration report. Signed in acc cordance with a resolution of th he Directors. LEE SENG H Chairman HUI Sydney, 16 A August 2016 31 Auditor's Independence Declaration A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation GB:EH:MGI:218 POSITIONAL ONLY 32Consolidated Income Statement For the year ended 30 June 2016 CONTINUING OPERATIONS Sale of goods Interest revenue TOTAL REVENUE Cost of sales Impairment write-back/(loss) on 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 Net unrealised marked-to-market gain/(loss) Administration expenses Notes 2[a] 3[b] 9[iii] 2[b] 9[i] 9[ii] 15 15 13 13 3[c] 3[d] 2016 $’000 2015 $’000 235,188 9,667 315,644 12,209 244,855 327,853 (213,681) (341,742) 3,442 (3,442) 34,616 (17,331) 91,848 (31) (8,111) (2,135) 7,874 (9,048) (339) (712,917) (12,377) (203,213) (3,037) (77) 512 (19,219) (1,014) - (19,903) (31,279) PROFIT/(LOSS) FROM CONTINUING OPERATIONS BEFORE TAX AND FINANCE COSTS 81,305 (986,486) Finance costs 3[a] (1,760) (2,929) PROFIT/(LOSS) FROM CONTINUING OPERATIONS BEFORE TAX 79,545 (989,415) Tax benefit/(expense) 4 761 99,908 PROFIT/(LOSS) AFTER TAX FROM CONTINUING OPERATIONS 80,306 (889,507) DISCONTINUED OPERATIONS Profit/(loss) after tax for the year from discontinued operations 30[a] 5,991 (21,915) PROFIT/(LOSS) AFTER TAX ATTRIBUTABLE TO MEMBERS OF THE COMPANY 86,297 (911,422) 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 24 24 24 24 7.91 7.91 7.36 7.36 (83.56) (83.56) (81.55) (81.55) 33 Consolidated Statement of Comprehensive Income For the year ended 30 June 2016 2016 $’000 2015 $’000 PROFIT/(LOSS) FOR THE PERIOD AFTER TAX 86,297 (911,422) 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 gain/(loss) on cash flow hedges transferred to the Income Statement Deferred income tax on cash flow hedges OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR, NET OF TAX (231) 231 - - 5,334 (7,729) 719 (1,676) TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR 86,297 (913,098) 34 Consolidated Balance Sheet As at 30 June 2016 Notes 2016 $’000 2015 $’000 ASSETS Current Assets Cash and cash equivalents Term deposits and subordinated notes Financial assets held for trading 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 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 Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Accumulated losses Reserves TOTAL EQUITY 5 6 7 8 9 10 12 13 14 16 17 18 18 17 19 21 20 43,316 337,000 19,771 41,546 20,017 1,887 231 50 91,003 243,000 - 15,354 21,078 3,304 - - 463,818 373,739 8,744 - - 8,744 472,562 36,229 421 5,791 42,441 38,186 - 38,186 80,627 391,935 31,494 2,924 3,205 37,623 411,362 49,664 2,619 13,802 66,085 39,584 119 39,703 105,788 305,574 568,328 568,328 (1,157,500) (1,243,797) 981,107 391,935 981,043 305,574 35Consolidated Cash Flow Statement For the year ended 30 June 2016 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest paid Income tax refund received Notes 2016 $’000 2015 $’000 245,957 356,090 (240,670) (454,467) (345) 711 (680) 7,958 NET CASH FLOWS PROVIDED BY/(USED IN) OPERATING ACTIVITIES 5[b] 5,653 (91,099) 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 and subordinated notes Payment for financial assets held for trading Payment for acquisition costs for exploration and evaluation assets Proceeds from sale of exploration and evaluation assets Payment for deferred exploration and evaluation expenditure Payment for mine properties Proceeds from seawall property insurance 9,834 4,530 (2,643) (94,000) (19,467) - 650 (840) - 51,142 13,409 2,686 (52,145) 206,300 - (521) - (5,407) (338) 300 NET CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES (50,794) 164,284 CASH FLOWS FROM FINANCING ACTIVITIES Repayment of lease liabilities Proceeds from/(repayment of) insurance premium funding facility Payment of borrowing costs Dividends paid (2,162) 317 (306) - (6,660) (657) (705) (43,632) NET CASH FLOWS (USED IN) FINANCING ACTIVITIES (2,151) (51,654) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Net foreign exchange difference Cash and cash equivalents at beginning of year (47,292) (395) 91,003 21,531 (999) 70,471 CASH AND CASH EQUIVALENTS AT END OF YEAR 5[a] 43,316 91,003 36Consolidated Statement of Changes in Equity For the year ended 30 June 2016 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 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 At 1 July 2015 Profit for the period Other comprehensive profit Total comprehensive loss for the year Transactions with owners in their capacity as owners - Dividends paid Share-based payments Transfer of profits At 30 June 2016 Issued Capital $’000 568,328 - - - - - - 675,519 (911,422) - (911,422) (43,632) - (964,262) 19,687 - - - - 286 - 568,328 (1,243,797) 19,973 568,328 (1,243,797) 19,973 - - - - - - 86,297 - 86,297 - - - - - - - 64 - 568,328 (1,157,500) 20,037 1,676 - (1,676) (1,676) - - - - - - - - - - - - - - - - - - 964,262 964,262 (3,192) 1,262,018 - - - - - - (911,422) (1,676) (913,098) (43,632) 286 - (3,192) 305,574 964,262 (3,192) - - - - - - - - - - - - 305,574 86,297 - 86,297 - 64 - 964,262 (3,192) 391,935 37Notes to the Consolidated Financial Report For the year ended 30 June 2016 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 2016, were authorised for issue in accordance with a resolution of the Directors on 16 August 2016. 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 and financial assets held for trading 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”) Instrument 2016/191. The Company is an entity to which the instrument 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. 38Notes to the Consolidated Financial Report (continued) From 1 July 2015 the Group has adopted all new and amended accounting standards mandatory for annual periods beginning on or after 1 July 2015 including: Reference Title Application date of standard Application date for Group AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments 1 January 2015 1 July 2015 The Standard contains three main parts and makes amendments to a number of Standards and Interpretations. Part A of AASB 2013-9 makes consequential amendments arising from the issuance of AASB CF 2013-1. 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. AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality. The Standard completes the AASB’s project to remove Australian guidance on materiality from Australian Accounting Standards. 1 July 2015 1 July 2015 Changes to accounting policies due to adoption of these standards and interpretations are not considered significant for the Group. 39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 2016 are outlined in the table below: Application date of standard Application date for Group 1 January 2018 1 July 2018 Reference Title Summary AASB 9 Financial Instruments AASB 9 (December 2014) is a new standard which replaces AASB 139. This new 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 adoption. The entity’s own credit changes can be early adopted in isolation without otherwise changing the accounting for financial instruments. Classification and measurement AASB 9 includes requirements for a simpler approach for classification and measurement of financial assets compared with the requirements of AASB 139. There are also some changes made in relation to financial liabilities. The main changes are described below. Financial assets 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; and (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. significantly Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or 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 Financial liabilities Changes introduced by AASB 9 in respect of financial liabilities are limited to the measurement of liabilities designated at fair value through profit or loss (FVPL) using the fair value option. 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 or losses attributable to changes in the entity’s own credit risk would be recognised in OCI. These amounts recognised in OCI are not recycled to profit or loss if the liability is ever repurchased at a discount. 40Notes to the Consolidated Financial Report (continued) Reference Title Summary Application date of standard Application date for Group Impairment 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. Hedge accounting 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. 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. AASB 2014-3 amends AASB 11 Joint Arrangements to provide guidance on the accounting for acquisitions of interests in joint in which the activity constitutes a business. The operations amendments require: 1 January 2016 1 July 2016 (a) (b) the acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in AASB 3 Business Combinations, to apply all of the principles on business combinations accounting in AASB 3 and other Australian Accounting Standards except for those principles that conflict with the guidance in AASB 11; and the acquirer to disclose the information required by AASB 3 and other Australian Accounting business combinations. Standards for This Standard also makes an editorial correction to AASB 11. AASB 116 Property Plant and Equipment and AASB 138 Intangible Assets 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. 1 January 2016 1 July 2016 AASB 2014-3 Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations [AASB 1 & AASB 11] AASB 2014-4 Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to AASB 116 and AASB 138) 41Notes to the Consolidated Financial Report (continued) Application date of standard Application date for Group 1 January 2018 1 July 2018 1 January 2018 1 July 2018 Reference Title Summary AASB 15 Revenue from Contracts with Customers AASB 2014- 10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture related AASB 15 Revenue from Contracts with Customers replaces the existing revenue recognition standards AASB 111 Construction Contracts, AASB 118 Revenue and Interpretations (Interpretation 13 Customer Loyalty Programmes, Interpretation 15 Agreements for the Construction of Real Estate, Interpretation 18 Transfers of Assets from Customers, Interpretation 131 Revenue— Barter Transactions Involving Advertising Services and Interpretation 1042 Subscriber Acquisition Costs the Telecommunications Industry). AASB 15 incorporates the requirements of IFRS 15 Revenue from Contracts with Customers issued by the International Accounting Standards Board (IASB) and developed jointly with the US Financial Accounting Standards Board (FASB). in AASB 15 specifies the accounting treatment for revenue arising from contracts with customers (except for contracts within the scope of other accounting standards such as leases or financial instruments). The core principle of AASB 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) (e) Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation. AASB 2015-8 amended the AASB 15 effective date so it is now effective for annual reporting periods commencing on or after 1 January 2018. Early application 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 2016-3 Amendments to Australian Accounting Standards – Clarifications to AASB 15 amends AASB 15 to clarify the requirements on identifying performance obligations, principal versus agent considerations and the timing of recognising revenue from granting a licence and provides further practical expedients on transition to AASB 15. 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 venture. The amendments require: (a) (b) A full gain or loss to be recognised when a transaction involves a business (whether it is housed in a subsidiary or not); and 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. AASB 2014-10 also makes an editorial correction to AASB 10. AASB 2015-10 defers the mandatory effective date (application date) of AASB 2014-10 so that the amendments are required to be applied for annual reporting periods beginning on or after 1 January 2018 instead of 1 January 2016. 42Notes to the Consolidated Financial Report (continued) Reference Title Summary Application date of standard Application date for Group AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012–2014 Cycle AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 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 for Sale and Discontinued Operations: • 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 visa versa), an entity shall not follow the guidance in paragraphs 27–29 to account for this change. AASB 7 Financial Instruments: Disclosures: • • Servicing contracts - clarifies how an entity should apply the guidance in paragraph 42C of AASB 7 to a servicing contract to decide whether 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 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. for all 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. 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 43Notes to the Consolidated Financial Report (continued) Application date of standard Application date for Group 1 January 2019 1 July 2019 Reference Title Summary AASB 16 Leases The key features of AASB 16 are as follows: Lessee accounting • • • Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee measures right-of-use assets similarly to other non- financial assets and lease liabilities similarly to other financial liabilities. Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. • AASB 16 contains disclosure requirements for lessees. Lessor accounting • • AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk. AASB 16 supersedes: (a) AASB 117 Leases; (b) Interpretation 4 Determining whether an Arrangement contains a Lease; (c) SIC-15 Operating Leases—Incentives; and (d) SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16. 2016-1 2016-2 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112] This Standard amends AASB 112 Income Taxes (July 2004) and AASB 112 Income Taxes (August 2015) to clarify the requirements on recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value. 1 January 2017 1 July 2017 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107 This Standard amends AASB 107 Statement of Cash Flows (August 2015) to require entities preparing financial statements in accordance with Tier 1 reporting requirements to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. 1 January 2017 1 July 2017 44Notes to the Consolidated Financial Report (continued) Reference Title Summary IFRS 2 (Amendments) Classification and Measurement of Share-based Payment Transactions [Amendments to IFRS 2] This standard amends to IFRS 2 Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for: ► ► ► The effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments Share-based payment transactions with a net settlement feature for withholding tax obligations A modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled Application date of standard Application date for Group 1 January 2018 1 July 2018 A number of new accounting standards have been issued but were not effective as at 30 June 2016. The Group has elected not to early adopt any of these new standards or amendments in these financial statements. In view of the current state of operations, the Group has yet to fully assess the impact these accounting standards and amendments will have on the financial statements, when applied in future periods. While in early stages of assessment, the adoption of AASB 16 Leases in financial year 2020 is not expected to have a significant impact on the Group’s balance sheet and income statement, given the low value of the Group’s lease arrangements. (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. 45Notes to the Consolidated Financial Report (continued) Notes 2016 $’000 2015 $’000 2. Revenue and Other Income [a] Revenue Sale of ore Realised gain/(loss) on foreign exchange hedges [b] Other income Net realised gain on foreign exchange transactions Net gain on disposal of property, plant and equipment Net gain on sale of financial assets held for trading Arbitration settlement income Insurance proceeds – seawall property damage [i] Insurance proceeds - other Other income 234,806 382 235,188 603 3,486 23 25 86,000 117 1,594 91,848 323,422 (7,778) 315,644 4 1,167 - - - - 6,703 7,874 [i] During the year, Mount Gibson reached final agreement with its insurers for a cash settlement of $86,000,000 for the property damage component of its insurance claim relating to the failure of the Koolan Island Main Pit seawall in late 2014. The settlement amount comprises the $1,850,000 interim payment received in mid-2015 (of which $300,000 was received in the prior financial year and $1,550,000 was received in the current year), the A$49,592,000 received in cash in the current year and the remaining balance of A$34,558,000 recorded as a receivable as at 30 June 2016. The settlement is independent of any decision the Group may take to rebuild the Main Pit seawall and is also separate to the ongoing discussions between Mount Gibson and its insurers in relation to the 12 month business interruption component of the insurance claim. The full value of the business interruption claim is yet to be quantified by the insurers and will be assessed subject to any relevant policy and limitations. 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 2016 $’000 2015 $’000 661 82 743 1,017 1,760 1,347 340 1,687 1,242 2,929 46Notes to the Consolidated Financial Report (continued) Notes 2016 $’000 2015 $’000 3. Expenses (Continued) [b] Cost of Sales Mining and site administration costs Depreciation – mining and site 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 Rehabilitation revised estimate adjustments [c] Net Unrealised Marked-to-Market Gain/(Loss) Foreign exchange derivatives marked-to-market gain Financial assets held for trading marked-to-market gain [d] Administration Expenses include: Depreciation Share-based payments expense Impairment of debtors Net unrealised loss on foreign exchange balances Seawall insurance claim and related site works expenses Insurance premiums Business development expense [e] 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 14 14 14 23 8 69,834 6,545 - - 1,070 11,174 1,212 90,686 1,410 17,697 2,055 18,520 (4,377) (2,145) 213,681 231 281 512 700 64 1,278 395 1,300 1,666 1,852 184,295 19,221 (92,683) 20,117 14,208 25,908 4,212 88,848 6,326 21,810 5,638 29,760 14,289 (207) 341,742 - - - 735 286 964 999 2,970 1,211 - 29,789 1,476 73,383 11,950 The Group’s accounting policy for liabilities associated with employee benefits is set out in note 18. The policy relating to share-based payments is set out in note 23. 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 12 and 14 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 15 for further details on impairment. 47Notes to the Consolidated Financial Report (continued) 4. Taxation Major components of tax (benefit)/expense for the years ended 30 June 2016 and 2015 are: Income Statement Current tax Current income tax charge Refund in respect of previous return 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 2016 $’000 2015 $’000 - (761) - - - - - 1,703 (144,785) 45,999 Tax (benefit)/expense reported in Income Statement (761) (97,083) 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 2016 and 2015 is as follows: Accounting profit/(loss) before tax        At the statutory income tax rate of 30% (2015: 30%) Expenditure not allowed for income tax purposes Unrecognised deferred tax assets Recognition of previously unrecognised deferred tax assets Adjustments in respect of current income tax of previous year Adjustments in respect of deferred tax Other Minerals resource rent tax expense Tax (benefit)/expense Effective tax rate Tax (benefit)/expense reported in Income Statement (761) - (761) (99,908) 2,825 (97,083) - - (719) (719) 85,536 25,661 214 - (36,016) - 7,601 1,779 - (761) (0.9%) (761) (1,008,505) (302,551) 160 158,720 - 1,703 - (1,114) 45,999 (97,083) 9.6% (97,083) 48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: CONSOLIDATED Accrued liabilities Capital raising costs Deferred expense Deferred income Foreign exchange contracts Inventory Prepaid expenditure Fixed assets, mine properties and exploration expenditure Provisions Borrowing cost Tax losses Tax (assets)/liabilities Set off of tax Assets Liabilities Net 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 (547) (294) (445) - (49) (7,299) (4) - - (300) (2,745) (2,891) - - (35,793) (70,748) (16,429) (19,215) (510) (797) (66,698) (58,065) (123,510) (159,319) - - - - - 783 - - 23 - - - - 806 - - - - 592 - - 7 - - - - (547) (294) (445) 783 (49) (7,299) (4) - 592 (300) (2,745) (2,891) 23 7 (35,793) (70,748) (16,429) (19,215) (510) (797) (66,698) (58,065) 599 (122,704) (158,720) - - - Derecognition of deferred tax asset 123,510 159,319 (806) (599) 122,704 158,720 Net tax (assets)/liabilities - - - - - - Movement in temporary differences during the financial year ended 30 June 2016 Accrued liabilities Capital raising costs Deferred expense Deferred income Foreign exchange contracts Inventory Prepaid expenditure Fixed assets, mine properties and exploration expenditure Provisions Borrowing cost Tax losses Derecognition of deferred tax asset Balance 1 July 2015 $’000 Recognised in Income $’000 Recognised in Equity $’000 Balance 30 June 2016 $’000 (7,299) (4) - 592 (300) (2,891) 7 (70,748) (19,215) (797) (58,065) 158,720 - 6,752 (290) (445) 191 251 146 16 34,955 2,786 287 (8,633) (36,016) - - - - - - - - - - - - - - (547) (294) (445) 783 (49) (2,745) 23 (35,793) (16,429) (510) (66,698) 122,704 - 49Notes to the Consolidated Financial Report (continued) 4. Taxation (Continued) 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 - Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Non-current assets Tax losses 2016 $’000 2015 $’000 56,006 66,698 122,704 100,655 58,065 158,720 50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. Tax consolidation Mount Gibson and its wholly-owned Australian controlled entities have formed an income tax consolidated group under the Tax Consolidation Regime. Using the Group allocation approach, each entity in the group recognises its own current and deferred tax liabilities, except for any deferred tax liabilities resulting from unused tax losses and tax credits, which are immediately assumed by the parent entity in addition to its own current and deferred tax amounts. The current tax liability of each group entity is then subsequently assumed by the parent entity. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Details of the tax funding agreement are disclosed below. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. Members of the tax consolidated group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote. The head entity and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112 Income Taxes. The nature of the tax funding agreement is discussed further below. In addition to its own current and deferred tax amounts, the head entity also recognises current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Members of the tax consolidated group have entered into a tax funding agreement. Under the funding agreement, the funding of tax within the Group is based on accounting profit. The tax funding agreement requires payments to/from the head entity to be recognised via an inter-entity receivable (payable) which is at call. To the extent that there is a difference between the amount charged under the tax funding agreement and the allocation under the accounting policy, the head entity accounts for these as equity transactions with the subsidiaries. The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. 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. 51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 on hand Short-term deposits 2016 $’000 2015 $’000 43,316 - 46,003 45,000 43,316 91,003 Cash at bank earns interest at floating 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 86,297 (911,422) 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 Borrowing costs Consumables stock obsolescence Net ore inventory movement Impairment of debtors Impairment of consumables inventories Impairment of ore inventories Impairment of mine properties Impairment of property, plant and equipment Impairment of deferred acquisition, exploration and evaluation Unrealised loss on foreign exchange balances Unrealised marked-to-market gain on foreign exchange derivatives Unrealised marked-to-market gain on financial assets held for trading Realised gain on sale of financial assets held for trading Proceeds from seawall property insurance Capitalised expenses Changes in assets and liabilities Decrease in trade and other receivables Decrease in inventory (Increase)/decrease in prepayments and deposits (Increase) in income tax receivable Decrease in deferred tax assets (Increase) in capitalised deferred waste Increase/(decrease) in trade and other payables Increase/(decrease) in current income tax liabilities 11,971 - 1,070 (3,486) (9,667) 77 64 398 11 1,005 1,278 8,111 (10,258) 2,135 12,377 3,037 395 (231) (281) (23) (86,000) (730) 7,087 2,193 1,417 (50) - - (13,135) - 36,866 20,117 14,208 (1,167) (12,209) 1,014 286 1,009 6,464 24,349 964 339 9,526 712,917 203,213 19,219 999 - - - - 1,457 36,685 5,816 163 - 45,999 (92,683) (75,835) 9,661 52Notes to the Consolidated Financial Report (continued) 5. Cash and Cash Equivalents (Continued) Changes in assets and liabilities (continued) Increase/(decrease) in deferred tax liabilities Increase/(decrease) in restructure provision Increase in road sealing provision Increase/(decrease) in employee benefits Increase/(decrease) in decommissioning provision Increase in other provisions Net Cash Flow from/(used in) Operating Activities 2016 $’000 2015 $’000 - (144,786) (3,520) (233) (1,267) (4,209) (180) 5,653 (1,990) 1,278 (5,161) 1,242 363 (91,099) [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 2016 (2015: nil). The Group disposed of items of property, plant and equipment with an aggregate fair value of $99,120 (2015: $42,932) which were originally financed by means of hire purchase agreements. 6. Term Deposits and Subordinated Notes Current Term deposits Subordinated notes 2016 $’000 2015 $’000 250,000 87,000 210,000 33,000 337,000 243,000 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. These instruments are held in order to supplement the Group’s treasury returns, and the Group intends and is able to realise these instruments as and when the Group’s cash needs require. Term deposits and subordinated notes are with various financial institutions with credit ratings from BBB+ to AA- (S&P) to minimise the risk of default of counterparties. Recognition and measurement Term deposits are classified as receivables and are recorded at amortised cost using the effective interest method less impairment, with revenue recognised on an effective yield basis. 7. Financial Assets Held for Trading Current Tradeable corporate bonds 2016 $’000 2015 $’000 19,771 19,771 - - Financial assets held for trading comprise corporate bonds which are traded in active markets. The portfolio of bond investments is managed by a professional funds management entity. Mount Gibson is able to vary or terminate the portfolio management mandate at any time, with applicable notice periods. Recognition and measurement Financial assets held for trading are acquired principally for the purpose of selling or repurchasing in the short term. These are managed as part of a portfolio of identified financial instruments and are measured at fair value through profit or loss. Gains or losses from the sale of the financial assets are recognised in the income statement. Interest earned at market bond rates is recognised in the income statement on an effective yield basis. 53Notes to the Consolidated Financial Report (continued) 8. Trade and Other Receivables Current Trade debtors Allowance for impairment Sundry debtors Other receivables Notes 2016 $’000 2015 $’000 [a][i] [b] [a][ii],[c] 5,404 (2,242) 3,162 37,120 1,264 11,366 (964) 10,402 2,990 1,962 41,546 15,354 [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 2016, trade debtors of $2,242,000 (2015: $964,000) in the Group were impaired. At 30 June 2016, trade debtors of $52,000 (2015: $402,000) 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 16 August 2016, $32,000 of this amount remains outstanding. With respect to trade debtors that are neither impaired nor past due, there are no indications as at the reporting date that the relevant debtors will not meet their payment obligations. [c] Insurance receivable As noted in note 2[b][i], the Company recognised a receivable as at 30 June 2016 of $34,558,000 in relation to outstanding settlement amounts for the Koolan seawall property insurance claim settled with the Company’s insurers during the period. 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 2016 $’000 - 28 23 1 52 3,110 3,162 2015 $’000 - 398 3 1 402 10,000 10,402 Trade receivables are recognised and carried at amortised cost less any allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An allowance for impairment of trade receivables is made when there is objective evidence that the Group will not be able to collect the debts. Indicators of impairment would include financial difficulties of the debtor, likelihood of the debtor’s insolvency and default in payment. Any impairment is recognised in the income statement. The vast majority of sales revenue is invoiced and received in US dollars (US$). The balance is invoiced and received in A$. Generally, on presentation of shiploading documents and the 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. 54Notes to the Consolidated Financial Report (continued) 9. Inventories Consumables – at cost Allowance for stock obsolescence Allowance for impairment of consumables inventories Ore – at cost Allowance for impairment of ore inventories Notes 2016 $’000 2015 $’000 [i] [ii] [iii] 19,445 (8,546) (8,424) 2,475 27,992 (10,450) 17,542 22,828 (9,702) (339) 12,787 28,999 (20,708) 8,291 20,017 21,078 [i] During the year, the Group raised an allowance for stock obsolescence of $31,000 (2015: $9,048,000) for consumables inventories that are considered slow moving and obsolete at Koolan Island and Extension Hill. Obsolete consumables inventories totalling $1,187,000 were written off during the year. [ii] Consumables inventories held at Koolan Island and Extension Hill which are not considered obsolete have been assessed and written down to their recoverable values. 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, relating primarily to the Company’s Koolan Island site (now on care and maintenance), was $8,111,000 (2015: $339,000). [iii] At 30 June 2016, 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 impairment write-backs/(loss) on ore inventories were recorded during the financial period: Tallering Peak Extension Hill Koolan Island Total write-backs / (loss) on impairment Recognition and measurement Inventories are valued at the lower of cost and net realisable value. 2016 $’000 6,816 - 3,442 10,258 2015 $’000 (6,084) - (3,442) (9,526) 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. Key estimate 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 2016 $’000 2015 $’000 10. Derivative Financial Assets Current Foreign currency forward contracts and options 33[b][i] Refer note 33 for details on derivative financial instruments. 231 231 - - 55Notes to the Consolidated Financial Report (continued) 11. 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 Shipping Pty Ltd Brockman Minerals Pty Ltd Koolan Iron Ore Pty Ltd  KIO SPV Pty Ltd Entities subject to Class Order relief Australia Australia Australia Australia Australia Australia Australia 2016 % 100 100 100 100 100 100 100 2015 % 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 Interest 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 Net unrealised marked-to-market gain/(loss) Exploration expenses Administration expenses LOSS FROM CONTINUING OPERATIONS BEFORE TAX AND FINANCE COSTS Finance costs LOSS FROM CONTINUING OPERATIONS BEFORE TAX Tax benefit/(expense) LOSS) AFTER TAX FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS Profit/(loss) after tax for the year from discontinued operations LOSS AFTER TAX ATTRIBUTABLE TO MEMBERS OF THE COMPANY 2016 $’000 2015 $’000 235,188 9,667 244,855 (195,448) 3,442 52,849 91,783 (31) (7,719) (2,135) (7,955) (3,037) (150,808) 512 (77) (19,906) (46,524) (1,760) (48,284) (5,496) (53,780) 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) - (1,014) (30,979) (1,073,391) (2,929) (1,076,320) 91,583 (984,737) 5,991 (21,915) (47,789) (1,006,652) 56Notes to the Consolidated Financial Report (continued) Consolidated Balance Sheet of the Closed Group ASSETS CURRENT ASSETS Cash and cash equivalents Term deposits Financial assets held for trading 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 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 Other payables Provisions Interest-bearing loans and borrowings TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Accumulated losses Reserves TOTAL EQUITY 2016 $’000 2015 $’000 42,419 337,000 19,771 41,176 19,940 1,742 231 50 89,878 243,000 - 14,972 20,616 3,190 - - 462,329 371,656 - 8,595 - - 8,595 470, 924 31,062 421 5,629 37,112 3,701 38,176 - 41,877 78,989 391,935 3,865 24,889 2,924 3,205 34,883 406,539 45,087 2,619 13,561 61,267 - 39,579 119 39,698 100,965 305,574 568,328 568,328 (1,157,500) (1,243,797) 981,107 391,935 981,043 305,574 57Notes to the Consolidated Financial Report (continued) 12. Property, Plant and Equipment Land Plant and equipment Plant and equipment under lease Buildings Capital works in progress Total 2016 2015 $’000 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 Cost 654 654 293,444 308,894 57,050 73,657 138,708 138,047 2,166 2,420 492,022 523,672 Accumulated depreciation and impairment (549) (519) (284,934) (285,054) (57,022) (72,586) (138,607) (132,681) (2,166) (1,338) (483,278) (492,178) Net carrying amount 105 135 8,510 23,840 28 1,071 101 5,366 - 1,082 8,744 31,494 Reconciliation Carrying amount at the beginning of the year 135 654 23,840 119,398 1,071 12,953 5,366 75,462 - - - - - - - - - - 515 757 45,132 11,455 (883) (1,249) (9,583) (23,927) - (22) - - (99) (567) - - (205) (42) 386 60 - 2,683 798 - (6,773) (1,821) (6,166) - - - 1,082 1,679 14,719 31,494 223,186 4,125 2,580 51,940 (817) (12,048) - - - - - - - - (982) (1,291) (11,971) (36,866) - (22) Additions Transfers Disposals Depreciation expense Depreciation capitalised Impairment loss (30) (519) (6,136) (126,947) (377) (4,862) (3,890) (67,411) (1,944) (3,474) (12,377) (203,213) Transfers to mine properties - - - - Carrying amount at the end of the year 105 135 8,510 23,840 - 28 - - - 1,071 101 5,366 Assets pledged as security 105 135 8,510 23,840 28 1,071 101 5,366 Refer note 17 for details of security arrangements. - - - (2,240) - (2,240) 1,082 8,744 31,494 1,082 8,744 31,494 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 and Extension Hill operations written down to their fair values less costs to sell. The fair values of the property, plant and equipment have been assessed on a standalone basis 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 sites and the estimated removal, demobilisation and selling costs. 58Notes to the Consolidated Financial Report (continued) 12. 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 Leasehold improvements Impairment 5 - 20 years 4 - 5 years 3 - 5 years Shorter of lease term or useful life of 5 – 10 years 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 15 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 judgement, 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, 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 units 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. 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. 59 Notes to the Consolidated Financial Report (continued) 13. Deferred Acquisition, Exploration and Evaluation Costs Deferred acquisition, exploration and evaluation – at cost Allowance for impairment Reconciliation Carrying amount at beginning of the year Additions Write-back of accrued acquisition costs Impairment loss Disposals Exploration expenditure written off Carrying amount at the end of the year Notes 2016 $’000 2015 $’000 20,669 (20,669) 22,143 (19,219) - 2,924 2,924 840 - 21,863 4,294 (3,000) (3,037) (19,219) (650) (77) - - (1,014) 2,924 [i] [ii] [i] The Group reviews the carrying value of its assets at each balance date. During the year, impairment losses totalling $3,037,000 were recognised in relation to the Shine Project ($29,000), the Fields Find Project ($42,000) and the Iron Hill Project ($2,966,000). An assessment of the Shine Project indicated that the carrying amount of the asset was unlikely to be recovered from its development or sale at current iron ore prices and exchange rates. Accordingly, the carrying amount for the Shine Project was fully impaired as at 30 June 2016. The Group’s deferred acquisition, exploration and evaluation costs for the Iron Hill Project were assessed at 30 June 2016. The Company continues to evaluate possible mine plans for the Iron Hill Project and, at balance date, had concluded that the potential future economics of the Project would likely be similar to those of the Extension Hill Main Pit given Iron Hill’s similar mineralisation and, other than the need for a new 3km haul road, planned usage of the same processing and transport infrastructure. Given that the carrying value of the Extension Hill operation is being impaired (refer notes 14 and 15), the Company has determined that the existing Iron Hill carrying value is not recoverable at current iron ore prices and exchange rates, either through its development or sale, and therefore should be fully impaired. Accordingly, the carrying amount for the Iron Hill Project of $2,966,000 was fully impaired as at 30 June 2016. [ii] During the year, the Group sold the Fields Find Project to a third party for $650,000. The carrying value of the Fields Find Project was impaired to $650,000 at the time of sale, resulting in no gain or loss recognised on the sale of this asset for the year ended 30 June 2016. 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. 60Notes to the Consolidated Financial Report (continued) 14. Mine Properties Mine development expenditure Accumulated amortisation and impairment 2016 $’000 2015 $’000 1,537,337 1,537,337 (1,537,337) (1,534,132) - 3,205 Reconciliation Deferred waste Carrying amount at the beginning of the period Deferred waste capitalised Amortisation expensed Impairment loss (note 15) Carrying amount at the end of the period Other mine properties Carrying amount at the beginning of the period Additions Mine rehabilitation – revised estimate adjustment Transferred from capital works in progress Amortisation expensed Impairment loss (note 15) Carrying amount at the end of the period Total mine properties Koolan Island Tallering Peak Extension Hill Total 2016 2015 2016 2015 2016 2015 2016 2015 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 - - - - - - - - - - - - - 354,204 92,683 (20,117) (426,770) - 276,877 - 181 2,240 (8,392) (270,906) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 354,204 92,683 (20,117) (426,770) - 3,205 24,650 3,205 301,527 - - - - (388) - - - - - (207) 2,240 (1,070) (5,816) (1,070) (14,208) (2,135) (15,241) (2,135) (286,147) - - 3,205 3,205 - - 3,205 3,205 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 17). 61 Notes to the Consolidated Financial Report (continued) 14. 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 15 for further details on impairment. Key judgement and estimate 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. 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. 62Notes to the Consolidated Financial Report (continued) 15. Impairment of Assets The Group reviews the carrying value of the assets of each Cash Generating Unit (“CGU”) at each balance date. During the year ended 30 June 2016, the following material events occurred which were considered indicators of impairment:   the benchmark price of iron ore, being the Company’s sole product, remained at depressed levels; and as at 30 June 2016, the market capitalisation of the Group was below the book value of its equity. In respect of the Koolan Island CGU, a recoverable amount of nil was previously determined at 30 June 2015 and an impairment expense of $844,430,000 recognised in the 2014/15 financial year. The Group has not identified any indicators of impairment reversal in respect of the Koolan Island CGU as at 30 June 2016. Accordingly, the Group has performed an impairment assessment on the Extension Hill CGU which comprises assets used in the mining, crushing, transport and sale of iron ore. Based on this assessment, along with the fair value less cost to dispose (“FVLCD”) assessment of property, plant and equipment at both CGUs (refer note 12), the following impairment amounts have been recognised in the financial report: Koolan Island Extension Hill Total loss on impairment of non-current assets 2016 $’000 2,893 11,619 14,512 2015 $’000 844,430 71,700 916,130 The above impairment values have been allocated proportionately to each CGU’s non-current assets as follows: Koolan Island Extension Hill Total Deferred waste Other mine properties Total mine properties 2016 $’000 - - - 2015 $’000 426,770 270,906 697,676 Property, plant and equipment 2,893 146,754 2016 $’000 - 2,135 2,135 9,484 2015 $’000 - 15,241 15,241 56,459 2016 $’000 - 2,135 2,135 12,377 2015 $’000 426,770 286,147 712,917 203,213 Total impairment of non-current assets 2,893 844,430 11,619 71,700 14,512 916,130 The Group assessed the recoverable amount of the Extension Hill CGU as at 30 June 2016 which is considered to be the higher of the FVLCD and Value-In-Use (“VIU”). Extension Hill The Group has used the VIU method for the Extension Hill CGU where VIU is assessed as the present value of the future cash flows expected to be derived from the operation. The following key assumptions were used in determining the VIU for the Extension Hill CGU:  Cashflow forecasts were made based on recent actual performance, budgets and anticipated revenues and estimated operating and capital costs over the relatively short remaining life of the mine;  Discount rate of 12% (nominal, before and after tax);   Revenue and cost inflation estimates of 2.0% 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$0.73, with sensitivities undertaken for a range of these inputs. As at 30 June 2016, the recoverable amount of the Extension Hill CGU calculated on this basis is nil. The cashflow estimates for the Extension Hill CGU are most sensitive to changes in iron ore prices and the A$/US$ foreign exchange rate. It is estimated that changes in these key assumptions would impact recoverable amounts as 30 June 2016 as follows:   An increase in the benchmark 62% Fe fines CFR iron ore price by 10% to US$60.50/dmt would increase the recoverable amount by approximately $16 million; and A reduction in the A$/US$ exchange rate by 10% to A$1.00/US$0.657 would increase the recoverable amount by approximately $14 million. Koolan Island The Koolan Island CGU had a recoverable amount of nil as at 30 June 2015 and an impairment expense of $844,430,000 was recognised in the 2014/15 financial year. As noted above, there have been no indicators of impairment reversal as at 30 June 2016 and as such an impairment assessment has not been performed. Refer to note 12 for details regarding the FVLCD of the Group’s property, plant and equipment. 63Notes to the Consolidated Financial Report (continued) 15. 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. In allocating an impairment loss, the carrying amount of an individual asset is not taken below the highest of: (a) (b) Its fair value less costs of disposal (if measurable); and Its value-in-use (if determinable). 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. 64Notes to the Consolidated Financial Report (continued) 16. Trade and Other Payables Current Trade creditors Accruals and other payables Notes 2016 $’000 2015 $’000 [a] [a] 13,734 22,495 17,967 31,697 36,229 49,664 [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 2016 $’000 2015 $’000 17. Interest-Bearing Loans and Borrowings Current Hire purchase facility Insurance premium funding facility Non-Current Hire purchase facility Financing facilities available [a] [b] [a] At reporting date, the following financing facilities had been negotiated and were available: [a] [b] [c] Total facilities:    Hire purchase facility Insurance premium funding facility Performance bonding facility Facilities used at reporting date:    Hire purchase facility Insurance premium funding facility Performance bonding facility Facilities unused at reporting date:    Hire purchase facility Insurance premium funding facility Performance bonding facility - 421 421 - - - 421 55,000 55,421 - 421 25,829 26,250 - - 29,171 29,171 2,044 575 2,619 119 119 2,163 575 65,000 67,738 2,163 575 41,788 44,526 - - 23,212 23,212 65Notes to the Consolidated Financial Report (continued) 17. 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 the Group via Master Lease agreements with Komatsu Corporate Finance Pty Limited and National Australia Bank Limited. At 30 June 2016, all of the hire purchase liabilities have been repaid. [b] Insurance Premium Funding Facility Insurance premium arrangements have been entered into by the Group to fund its annual insurance premiums. Interest is charged at 1.86% pa. The loan is repayable monthly with the final instalment due in July 2016. [c] 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 $55.0 million and was drawn to $25.9 million as at 30 June 2016, 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. 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. 66Notes to the Consolidated Financial Report (continued) 18. 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 [i] [ii] [iii] [iii] 2016 $’000 2015 $’000 2,708 1,878 - 1,100 105 3,995 2,111 3,520 4,008 168 5,791 13,802 191 37,917 78 171 39,218 195 38,186 39,584 2,111 96 (329) 1,878 833 1,278 - 2,111 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 3,520 - (3,520) - 5,510 5,272 (7,262) 3,520 This provision relates to the forecast costs associated with release of personnel on the wind down and/or closure of mining sites. [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 43,226 (4,563) (663) 1,017 39,017 44,802 (1,707) (1,111) 1,242 43,226 This provision represents the present value of decommissioning and rehabilitation costs for the Tallering Peak, Koolan Island and Extension Hill sites. The cost estimates forming the basis of the provisions were prepared as at the balance date by independent consultants Preston Consulting Pty Ltd which specialise in mine closure planning and mine rehabilitation cost estimates. 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 the future. Tallering Peak Koolan Island Extension Hill 1,100 29,115 8,802 39,017 4,008 31,670 7,548 43,226 67Notes to the Consolidated Financial Report (continued) 18. 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 estimate : 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. 68Notes to the Consolidated Financial Report (continued) 19. Issued Capital [a] Ordinary shares Issued and fully paid 2016 $’000 2015 $’000 568,328 568,328 2016 Number of Shares $’000 2015 Number of Shares $’000 [b] Movement in ordinary shares on issue Beginning of the financial year 1,090,805,085 568,328 1,090,584,232 568,328 Exercise of Performance Rights [i] 474,350 - 220,853 - End of the financial year 1,091,279,435 568,328 1,090,805,085 568,328 [i] On 4 January 2016, 474,350 shares were issued as a result of the vesting and exercise of the equivalent number of Performance Rights. [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 2016, there were no options on issue (2015: nil) – see note 23(b). Share options carry no right to dividends and no voting rights. [e] Performance rights During the year ended 30 June 2016, no Performance Rights were issued. A total of 474,350 Performance Rights vested during the year upon the Board exercising it discretion under the Company’s Performance Rights Plan and, accordingly, 474,350 ordinary shares were issued on 4 January 2016. As at 30 June 2016, there were 711,500 Performance Rights on issue (2015: 1,185,850) – see note 23(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 2016 and 30 June 2015. 69Notes to the Consolidated Financial Report (continued) 20. Reserves Share based payments reserve Net unrealised gains reserve Dividend distribution reserve Other reserves Notes 2016 $’000 2015 $’000 [a] [b] [c] [d] 20,037 - 964,262 (3,192) 19,973 - 964,262 (3,192) 981,107 981,043 [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. 19,973 64 20,037 19,687 286 19,973 - - - - 1,676 (2,395) 719 - Balance at the beginning of the year Transferred from retained earnings Balance at the end of the year [d] Other reserves 21 964,262 - 964,262 - 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 21. 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 (3,192) (3,192) - - (3,192) (3,192) 25[a] 20[c] (1,243,797) - - 86,297 675,519 (43,632) (964,262) (911,422) (1,157,500) (1,243,797) 70Notes to the Consolidated Financial Report (continued) Notes 2016 $’000 2015 $’000 22. 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] 17 17 [iv] [v] 886 1,423 1,042 3,351 1,814 1,982 - 3,796 - - - - - - - - 264 - 264 1,351 3,320 1,780 6,451 1,334 3,052 - 4,386 2,129 120 2,249 (86) 2,163 2,044 119 2,163 198 - 198 24,764 - 24,764 61,047 2,689 63,736 71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 5 years and leases for machinery which have an average term of 5 years. [iii] During the year ended 30 June 2016, the Group paid out all of its hire purchase liabilities. [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 2016, these early termination obligations were estimated to total approximately $15,000,000 (2015: $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 2016 $’000 2015 $’000 23. Share-Based Payment Plans (a) Recognised share-based payment expense Expense arising from equity-settled share-based payment transactions 3[d] 64 286 The share-based payment plans are described below. There have been no cancellations of any of the plans during 2016 and 2015. (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 years ended 30 June 2015 or 2016. As at balance date, no options over unissued shares were on issue. (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% Information with respect to the number of performance rights granted and issued is as follows: 2016 2015 No. of Performance Rights No. of Performance Rights Balance at beginning of year 1,185,850 1,832,688 - granted - exercised - lapsed/forfeited Balance at year end - (474,350) - - (220,853) (425,985) 711,500 1,185,850 At 30 June 2016, there were 711,500 Performance Rights on issue, of which 533,625 Performance Rights vested on 1 July 2016 in accordance with the terms of the vesting conditions. 72Notes to the Consolidated Financial Report (continued) 23. Share-Based Payment Plans (Continued) Recognition and measurement Share-based payment transactions The Group provides benefits to employees (including directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (“equity-settled transactions”). Options There is currently a Directors, Officers, Employees and Other Permitted Persons option plan. The cost of these options is measured by reference to their fair value at the date at which they are granted. The fair value is determined by using a binomial model. In valuing these options, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company. 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 increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the Directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options and Performance Rights is reflected as additional share dilution in the computation of earnings per share. 73Notes to the Consolidated Financial Report (continued) 24. 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: Profit/(loss) used in calculating basic and diluted earnings/(loss) per share: Continuing operations Discontinued operations Profit/(loss) attributable to ordinary equity holders of the Company 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 2016 $’000 2015 $’000 80,306 5,991 (889,507) (21,915) 86,297 (911,422) Number of Shares Number of Shares 1,091,037,076 1,090,805,085 533,625 - 1,091,570,701 1,090,805,085 7.91 7.91 (83.56) (83.56) Conversions, calls, subscriptions or issues after 30 June 2016 No options were outstanding at 30 June 2016. On 1 July 2016, 533,625 ordinary shares were issued upon vesting and exercising of the equivalent number of Performance Rights in accordance with the terms of the vesting conditions. 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. A total of 177,875 performance rights on issue as at 30 June 2016 were not included in the calculation of diluted earnings per share as they have not met the vesting test as at the date 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. 74Notes to the Consolidated Financial Report (continued) 25. Dividends Paid and Proposed Declared and paid during the year: [a] Dividends on ordinary shares: Final fully franked dividend for 2014: 4.0 cents per share [b] Dividends not recognised at the end of the reporting period: A final dividend for the 2015/16 financial year has not been declared. [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%. 26. Contingent Liabilities 2016 $’000 2015 $’000 - - 43,632 43,632 60,774 61,485 - - 60,774 61,485 - - 60,774 61,485 1. 2. The Group has a Performance Bonding facility drawn to a total of $25,829,000 as at balance date (2015: $41,788,000). The performance bonds secure the Group’s obligations relating primarily to environmental matters and historical infrastructure upgrades. 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. 75Notes to the Consolidated Financial Report (continued) 27. Key Management Personnel [a] Compensation of Key Management Personnel Short-term Post employment Long-term Share-based payment Termination payment 2016 $ 2015 $ 2,569,717 2,602,432 185,326 14,935 64,152 - 171,361 5,223 286,211 471,229 2,834,130 3,536,456 [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. 28. 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 were in place with director-related entities during the period:    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 of the life of mine. One ad hoc spot sale of iron ore from Extension Hill. Pursuant to these sales agreements, during the financial year, the Group:   Sold 290,196 WMT (2015: 394,327 WMT) of iron ore to APAC; and Sold 1,234,131 WMT (2015: 1,364,123 WMT) of iron ore to SCIT. 76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 Net Sales Revenue Net sales revenue – APAC Net sales revenue – SCIT Total Net Sales Revenue 2016 $’000 2015 $’000 819 - 819 819 - - - - 14,281 48,559 62,840 - 2,105 2,105 2,105 129 - 129 129 25,921 66,857 92,778 Apart from the above, there are no director-related entity transactions other than those specified in note 27. 2016 $ 2015 $ 29. 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 202,395 222,480  Other services in relation to the entity and any other entity in the consolidated entity 3,600 3,600 205,995 226,080 77Notes to the Consolidated Financial Report (continued) 30. Discontinued Operations The Tallering Peak operation is reported as a discontinued operation in this financial report. Mining was completed in June 2014 however sale of the remnant low grade ore is ongoing. 2016 $’000 2015 $’000 [a] Profit/(loss) from discontinued operations The financial results of Tallering Peak operation for the year are presented below: Revenue Cost of sales Impairment write-back/(loss) on ore inventories Gross profit/(loss) Impairment/obsolescence write-back/(loss) on consumables inventories 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 5,346 (6,191) 6,816 5,971 20 5,991 - 5,991 - 5,991 0.55 0.55 8,987 (21,113) (6,084) (18,210) (878) (19,088) (2) (19,090) (2,825) (21,915) (2.01) (2.01) 1,568 (18,196) - - - (231) 1,568 (18,427) 78Notes to the Consolidated Financial Report (continued) 31. 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. 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 with the final shipment in March 2016, thereafter the site has been 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 2016, 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 Other 2016 $’000 85,757 48,613 33,845 66,591 234,806 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 Other 2015 $’000 102,471 65,966 64,174 90,811 323,422 Revenue from external customers by geographical location is based on location of the customer. All iron ore has been shipped to China during the year ended 30 June 2016. In the 2015 financial year, approximately 2% of the iron ore sales revenue was sold on a mine gate sale basis to a local buyer, with the vast majority of the balance shipped to China. All segment assets are located within Australia. 79Notes to the Consolidated Financial Report (continued) 31. Segment Information (Continued) Extension Hill Koolan Island Unallocated* Consolidated Segment revenue Revenue from sale of iron ore Interest revenue Segment revenue Segment result Earnings/(loss) before impairment, interest, tax, depreciation and amortisation Impairment losses Earnings/(loss) before interest, tax, depreciation and amortisation Depreciation and amortisation Segment result Finance costs Profit/(loss) before tax and discontinued operations Items included in segment result: Impairment of consumables inventories Impairment (write-backs)/loss on ore inventories Impairment of property, plant and equipment Impairment of mine development Impairment of exploration and evaluation expenditure 2016 $’000 2015 $’000 175,214 204,307 - - 2016 $’000 59,974 - 175,214 204,307 59,974 111,337 111,337 - - 9,667 9,667 - 12,209 235,188 9,667 315,644 12,209 12,209 244,855 327,853 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 25,558 (13,443) 12,115 (7,068) 5,047 1,824 - 9,484 2,135 - 13,443 32,306 (71,700) (39,394) (22,921) 8,210 (5,738) 2,472 (5,224) 535 (848,211) (847,676) (46,801) 82,747 (3,037) 79,710 (700) (9,740) 116,515 23,101 (19,219) (22,218) (939,130) (28,959) 94,297 (916,029) (735) (12,992) (70,457) (62,315) (2,752) (894,477) 79,010 (29,694) 81,305 (986,486) (1,760) (2,929) 79,545 (989,415) - - 56,459 15,241 - 71,700 6,287 (3,442) 2,893 - - 339 3,442 146,754 697,676 - 5,738 848,211 - - - - - - - - 3,037 3,037 19,219 19,219 8,111 (3,442) 12,377 2,135 3,037 22,218 339 3,442 203,213 712,917 19,219 939,130 * ‘Unallocated’ includes interest revenue ($9,667,000), Koolan seawall property damage insurance settlement ($86,000,000) and corporate expenses such as head office salaries and wages. 80 Notes to the Consolidated Financial Report (continued) 31. Segment Information (Continued) Segment assets Current financial assets Other current assets Property, plant and equipment Deferred acquisition, exploration and evaluation Mine properties Total assets Segment liabilities Financial liabilities Other liabilities Total liabilities Extension Hill Koolan Island Unallocated Consolidated 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 5,838 17,747 1,752 - - 12,424 9,500 7,897 2,274 3,205 4,932 1,839 5,912 - - 6,331 12,452 15,306 - - 431,094 330,602 2,368 1,080 - - 2,430 8,291 650 - 441,864 21,954 8,744 - - 349,357 24,382 31,494 2,924 3,205 25,337 35,300 12,683 34,089 434, 542 341,973 472,562 411,362 23,958 11,179 32,362 9,916 1,652 29,397 35,137 42,278 31,049 11,641 35,777 47,418 11,040 3,401 14,441 8,399 7,693 36,650 43,977 52,402 53,386 16,092 80,627 105,788 Net assets/(liabilities) (9,800) (6,978) (18,366) (13,329) 420,101 325,881 391,935 305,574 Capital expenditure 2,126 2,983 409 47,914 45 6,330 2,580 57,227 81Notes to the Consolidated Financial Report (continued) 32. 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. 33. 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, and financial assets held for trading. 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 and in accordance with the Company’s Financial Risk Management Policy. [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 and collar option contracts that meet the criteria of cash flow hedges. During the year ended 30 June 2016, there were no US dollar foreign exchange forward contract deliveries. At 30 June 2016, the notional amount of the foreign exchange hedge book totalling US$15,000,000 is made up exclusively of collar option contracts with maturity dates due in the 5 months ended 28 November 2016 and with a cap price of A$1.00/US$0.7500 and a floor price of A$1.00/US$0.6850. As at 30 June 2016, the marked-to-market unrealised gain on the total outstanding US dollar foreign exchange hedge book of US$15,000,000 was A$231,000. It is the Group’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximise hedge effectiveness. The Group uses the following derivative instruments to manage foreign currency risk from time to time as business needs and conditions dictate: Instrument Type of Hedging Objective Forward exchange contracts Cash flow hedge Collar options Cash flow hedge To hedge sales receipts against cash flow volatility arising from the fluctuation of the A$/US$ exchange rate. To hedge sales receipts against cash flow volatility arising from the fluctuation of the A$/US$ exchange rate by limiting exposure to exchange rates within a certain range of acceptable rates. 82Notes to the Consolidated Financial Report (continued) 33. 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: 2016 2015 Average Contract Rate A$/US$ Contract Amount US$ $’000 Contract Amount A$ $’000 Fair Value A$ $’000 Average Contract Rate A$/US$ Contract Amount US$ $’000 Contract Amount A$ $’000 Fair Value A$ $’000 Collar Option Contracts - within one year 0.75 15,000 20,000 231 call strike price 0.750 put strike price 0.685 Total 0.75 15,000 20,000 231 - - - - - - As balance date, the following foreign exchange contracts were recognised on the balance sheet and income statement: Current assets Total collar option 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 10 2016 $’000 231 231 - (231) 231 - - 231 - - 2015 $’000 - - 2,395 5,334 (7,778) 49 - - The following table details the effect on profit and other comprehensive income after tax of a 10% change in the A$ against the US$ from the spot rates at 30 June 2016 and 30 June 2015 due to changes in the fair value of monetary assets and liabilities. Net Profit Other Comprehensive Income 2016 $’000 2015 $’000 2016 $’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 (580) (781) 710 955 - - - - 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. 83Notes to the Consolidated Financial Report (continued) 33. 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 8) Financial Liabilities Trade payables Net exposure [c] Interest rate risk (included within note 16) 2016 $’000 7,164 2,862 (901) 9,125 2015 $’000 3,919 9,193 (841) 12,271 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 (as appropriate). 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: 84Notes to the Consolidated Financial Report (continued) 33. Financial Instruments (Continued) 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 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 % 2015 % Subordinated notes – available-for-sale 87,000 33,000 CONSOLIDATED i) Financial assets Cash Short-term deposits (< 3 months maturity) Term deposits - receivables Financial assets held for trading Trade and other receivables Derivative financial assets Total financial assets ii) Financial liabilities Trade and other payables Hire purchase liabilities Insurance premium funding Total financial liabilities 43,315 46,001 - - - - - - - 45,000 250,000 210,000 - - - - - - - 19,771 - - - - - - 130,315 79,001 269,771 255,000 - - - - - - - - - - 421 421 - 2,044 575 2,619 - - - - - - - - - - - - - - - - - - - - - 119 - 119 1 - - - - 2 - - - - 41,546 231 15,354 - 43,316 - 46,003 45,000 250,000 210,000 87,000 19,771 41,546 231 33,000 - 15,354 - 41,778 15,356 441,864 349,357 36,229 49,664 36,229 - - - - 421 49,664 2,163 575 1.86 36,229 49,664 36,650 52,402 0.78 - 2.94 3.74 4.78 - - - - 2.07 2.59 3.14 3.83 - - - - 7.66 1.69 85Notes to the Consolidated Financial Report (continued) 33. Financial Instruments (Continued) [i] Interest rate sensitivity The following table details the effect on profit and other comprehensive income after tax of a 0.25% change in interest rates at 30 June 2016 and 1.0% change in interest rate at 30 June 2015.     1% increase in interest rate with all other variables held constant 0.25% increase in interest rate with all other variables held constant 1% decrease in interest rate with all other variables held constant 0.25% decrease in interest rate with all other variables held constant Net Profit Other Comprehensive Income 2016 $’000 - 624 - (624) 2015 $’000 2,016 - (2,016) - 2016 $’000 2015 $’000 - - - - - - - - The sensitivity analysis of the Group’s exposure to Australian variable interest rates at balance date has been determined based on exposures at balance sheet date. A positive number indicates an increase in profit and equity. [d] Credit risk The Group’s maximum exposures to credit risk at balance date in relation to each class of recognised financial assets, other than derivatives, is the carrying amount of those assets as indicated in the balance sheet. In relation to derivative financial instruments, whether recognised or unrecognised, credit risk arises from the potential failure of counterparties to meet their obligations under the contract or arrangement. The Group’s maximum credit risk exposure in relation to forward exchange contracts is the full amount of the foreign currency it will be required to pay or purchase when settling the forward exchange contract, should the counterparty not pay the currency it is committed to deliver to the Group. The Group minimises concentrations of credit risk in relation to trade receivables by undertaking transactions with a number of customers and by the use of advance payments and letters of credit which effectively protect at least 90% of the estimated 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 3 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. 86Notes to the Consolidated Financial Report (continued) 33. 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 2016, the Group had unutilised performance bonding facilities totalling $29,171,000 (2015: $23,212,000). Refer note 17. Tabulated below is an analysis of the Group’s financial liabilities according to relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. As the amounts disclosed in the table are the contractual undiscounted cash flows, these balances will not necessarily agree with the amounts disclosed in the balance sheet. 30 June 2016 30 June 2015 Less than 6 months $’000 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 Financial Liabilities Trade and other payables 36,229 Hire purchase liabilities Insurance premium funding Derivatives – inflow Derivatives - outflow - 423 (20,231) 20,000 36,421 - - - - - - - - - - - - - - - - - - 36,229 - 423 (20,231) 20,000 49,664 1,234 577 - - - 895 - - - - 120 - - - 36,421 51,475 895 120 - - - - - - Total $’000 49,664 2,249 577 - - 52,490 [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 quoted notes and bonds (classified as either financial assets held for trading or available-for-sale) are determined using Level 1 method based on market price quotations at the reporting date. 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. 87Notes to the Consolidated Financial Report (continued) 33. Financial Instruments (Continued) The carrying amounts and fair values of the financial assets and financial liabilities for the Group as at 30 June 2016 are shown below. 2016 2015 Carrying Amount $’000 Fair Value $’000 Carrying Amount $’000 Fair Value $’000 Financial assets - current Cash Short-term deposits Term deposits – receivables Subordinated notes – available-for-sale Financial assets held for trading Trade debtors Other receivables Derivatives Financial liabilities – current Trade and other payables Hire purchase liabilities Insurance premium funding Financial liabilities – non current Hire purchase liabilities Net financial assets Recognition and measurement Derivative financial instruments and hedging 43,316 - 250,000 87,000 19,771 3,162 38,384 231 441,864 36,229 - 421 36,650 43,316 - 250,000 87,000 19,771 3,162 38,384 231 441,864 36,229 - 421 36,650 46,003 45,000 210,000 33,000 - 10,402 4,952 - 349,357 49,664 2,044 575 52,283 46,003 45,000 210,000 33,000 - 10,402 4,952 - 349,357 49,664 2,044 575 52,283 - - 405,214 - - 405,214 119 119 296,955 119 119 296,955 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 and collar 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. 88Notes to the Consolidated Financial Report (continued) 34. Parent Entity Information [a] Information relating to Mount Gibson Iron Limited: Current assets Total assets Current liabilities Total liabilities Issued capital Accumulated losses Dividend distribution reserve Share based payments reserve Total Shareholder’s Equity 2016 $’000 2015 $’000 47,701 759,577 464 367,642 568,328 (590,736) 394,306 20,037 391,935 423 606,434 306 300,860 568,328 (282,727) - 19,973 305,574 Net profit/(loss) after tax of the parent entity Total comprehensive profit/(loss) of the parent entity 86,296 86,296 (109,432) (109,432) [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 11 and 17. The parent entity has further provided bank guarantees in respect of obligations to various authorities. Refer to note 17. [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 26. 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 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. 89Director rs’ Declar ration In accordanc ce with a resolut tion of the direc ctors of Mount G Gibson Iron Lim ited, I state tha t: 1. In the opinion of th he Directors: a. b. c. the financial the Group ar statements, no e in accordance tes and the add e with the Corpo ditional disclosu orations Act 200 res included in 01, including: the Directors Re Report designate f ed as audited of i) ii) giving the y g a true and fai ear ended on th r view of the fin hat date; and nancial position of the Group a as at 30 June 20 016 and of its p r performance for comp plying with Acco unting Standard ds and the Corp porations Regula d ations 2001; and the financial s statements and notes also comp ply with Internat tional Reporting Standards as di isclosed in Note 1; and there are rea payable. asonable ground ds to believe tha at the Group wi ll be able to pay y its debts as an nd when they b d become due and 2. Th 295 is declaration ha 5A of the Corpo as been made af orations Act 2001 fter receiving th 1 for the financia e declarations re al year ended 30 equired to be m 0 June 2016. ade to the Direc ctors in accorda n nce with section Signed in acc cordance with a resolution of the e directors. LEE SENG H Chairman HUI Sydney, 16 A August 2016 90Independent Audit Report POSITIONAL ONLY A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation GB:EH:MGI:217 91POSITIONAL ONLY A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation GB:EH:MGI:217 92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 recently released 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 2016. The Corporate Governance Statement has been approved by the Board. 93Additional ASX Information The information is current as at 5 September 2016. (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 1,873 3,964 2,027 3,350 383 11,597 2,635 988,875 11,547,489 16,188,948 104,512,388 963,324,816 1,096,562,516 1,995,625 0.09 1.05 1.48 9.53 87.85 100.00 0.182% (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 ZERO NOMINEES PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED BNP PARIBAS NOMS PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED SUN HUNG KAI INVESTMENT SERVICES LTD 10. DEBORTOLI WINES PTY LIMITED 11. NATIONAL NOMINEES LIMITED 12. MR ALESSANDRO LUIGI PICCININI 13. DEBORTOLI WINES PTY LTD (SUPERANNUATION) PTY LTD 5,328,171 14. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 3 15. TRUE PLUS LIMITED 16. JB LEMAR PTY LTD 17. RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED 18. INKESE PTY LTD 19. ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD 20. DYNAMIC SUPPLIES INVESTMENTS PTY LTD Top 20 holders Total Remaining Holders Balance Total Issued Ordinary Shares 4,853,425 4,700,000 4,550,000 4,540,654 4,000,000 3,787,636 3,635,733 838,699,800 257,862,716 1,096,562,516 Number of Shares % of Shares Held 159,166,874 151,523,460 114,144,204 82,900,000 63,134,745 49,219,978 48,889,705 43,217,127 40,053,818 34,246,165 8,808,105 8,000,000 14.52 13.82 10.41 7.56 5.76 4.49 4.46 3.94 3.65 3.12 0.80 0.73 0.49 0.44 0.43 0.41 0.41 0.36 0.35 0.33 76.48 23.52 100.00 94(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. 2. 3. APAC Resources Limited and its subsidiaries Allied Group Limited and its subsidiaries Shougang Corporation and Shougang Concord International Enterprises Company Limited and each of their controlled entities 323,780,748 323,780,748 154,166,874 4. Shougang Fushan Resources Group Limited, True Plus Limited and its subsidiaries 154,166,874 29.53% 29.53% 14.06% 14.06% Number of Shares % of Current Issued Shares Note: Substantial shareholdings 1 and 2, and also separately 3 and 4, are not cumulative and arise through common shareholdings. (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 Extension Hill Extension Hill Extension Hill Jasper Hill Koolan Island Koolan Island Koolan Island Koolan Island Koolan Island Koolan South Piawaning Piawaning Piawaning Piawaning Wellstead Silver Hills 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 Tenement Status Percentage Held L70/133 G70/232 G70/238 E59/1355-I M04/416-I M04/417-I E04/1266-I L04/29 L04/68 E04/1407-I E70/3059-I E70/4509-I E70/4510-I E70/4511-I E70/4424-I E70/4670-I M70/1062-I M70/896-I E70/3732 L70/60 L70/69 L70/73 L70/74 G70/192 G70/201 G70/202 G70/203 G70/204 G70/205 Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Pending 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% 100% 100% 95(e) Schedule of interests in mining tenements (continued) 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 Fields Find 2 Fields Find 2 Fields Find 2 Fields Find 2 Fields Find 2 Fields Find 2 Fields Find 2 Fields Find 2 Fields Find 2 Fields Find 2 Fields Find 2 Fields Find 2 Fields Find 2 Fields Find 2 Fields Find 2 Fields Find 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 E59/1268-I E59/1938-I E59/1939-I E59/1940-I E59/1984-I E59/1996-I E59/1997-I E59/2064-I E59/2065-I E59/2066-I E59/2067-I M59/63-I P59/1991-I P59/1997-I P59/1998-I P59/2035-I Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Tenements are held by another party. MGX has rights to Hematite, Goethite and Limonite. Tenements are held by another party. MGX has rights to Iron on a portion of these tenements. 1 2 96Notes 97Notes 98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. Headquartered 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 Corporate Directory All information correct as at 30 June 2016 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 9 November 2016 at City West Function Centre, 45 Plaistowe Mews, West Perth WA Easy Access to Information See our website at www.mtgibsoniron.com.au for all Company announcements, including quarterly reports and financial results. Shareholders or interested parties may also register to receive emailed updates shortly after the company makes any regular or major announcement. MOUNT GIBSON IRON LIMITED 2016 Annual Report 2 99MOUNT GIBSON IRON LIMITED 2016 Annual Reportwww.mtgibsoniron.com.au M O U N T G I B S O N I R O N L I M I T E D 2 0 1 6 A N N U A L R E P O R T 201620162016AnnualReport 

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