MOUNT GIBSON IRON LIMITED 2017 Annual Report3 4MOUNT GIBSON IRON LIMITED 2017 Annual Report MOUNT GIBSON IRON LIMITED 2017 Annual Report5 6MOUNT GIBSON IRON LIMITED 2017 Annual Report MOUNT GIBSON IRON LIMITED 2017 Annual Report7 8MOUNT GIBSON IRON LIMITED 2017 Annual Report MOUNT GIBSON IRON LIMITED 2017 Annual Report9 Resources and Reserves
Total Mineral Resources and Ore Reserves by Project as at 30 June 2017
Koolan Island
Mineral Resources, above 50% Fe
Measured
Indicated
Inferred
Total at 30 June 2017
Total at 30 June 2016
Ore Reserves, above 50% Fe
Proved
Probable
Total at 30 June 2017
Total at 30 June 2016
Extension Hill
Mineral Resources, above 50% Fe
Measured
Indicated
Inferred
Total at 30 June 2017
Total at 30 June 2016
Ore Reserves, above 50% Fe
Proved
Probable
Total at 30 June 2017
Total at 30 June 2016
Iron Hill
Mineral Resources, above 50% Fe
Measured
Indicated
Inferred
Total at 30 June 2017
Total at 30 June 2016
Tallering Peak
Mineral Resources, above 50% Fe
Measured
Indicated
Inferred
Total at 30 June 2017
Total at 30 June 2016
Shine
Tonnes
millions
7.69
41.93
10.89
60.51
60.51
0.04
12.77
12.82
Nil
1.27
0.31
0.20
1.79
2.64
Nil
Nil
Nil
1.15
Nil
1.23
6.84
8.07
8.80
0.41
1.03
0.20
1.65
1.65
Fe
%
59.1
64.4
60.2
63.0
63.0
63.49
66.03
66.02
Nil
55.32
57.29
56.61
55.81
56.80
Nil
Nil
Nil
58.0
Nil
60.56
57.87
58.28
58.3
58.9
58.1
54.7
57.9
57.9
SiO
2
%
13.53
6.36
12.48
8.38
8.38
6.68
3.70
3.71
Nil
9.16
10.42
10.49
9.53
8.59
Nil
Nil
Nil
7.21
Nil
8.64
8.72
8.71
8.60
6.26
11.70
17.89
11.10
11.10
Al O
3
2
%
1.16
0.76
0.79
0.82
0.82
1.31
0.92
0.93
Nil
2.76
1.62
1.66
2.44
2.25
Nil
Nil
Nil
2.09
Nil
0.94
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
0.015
0.014
0.009
0.009
Nil
0.077
0.076
0.055
0.074
0.078
Nil
Nil
Nil
0.088
Nil
0.050
0.071
0.068
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 2017
15.89
Total at 30 June 2016
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
10MOUNT GIBSON IRON LIMITED 2017 Annual Report MOUNT GIBSON IRON LIMITED 2017 Annual Report11 12MOUNT GIBSON IRON LIMITED 2017 Annual Report Directors’ Report
Your Directors submit their report for the year ended 30 June 2017 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
Asiasec Properties Limited, and a Non-Executive Director of APAC Resources Limited, one of Mount Gibson’s substantial shareholders.
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 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, and an executive director of BeijingWest Industries International Limited, all of which are
companies listed on the Hong Kong Stock Exchange.
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 and a Non-Executive Director of Lithium Power International Limited.
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.
MOUNT GIBSON IRON LIMITED 2017 Annual Report13
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.
Kin Chan
Independent Non-Executive Director
Mr Chan was appointed a director on 22 September 2016. Mr Chan has more than 25 years’ experience in international capital
markets, investment banking, corporate advisory and major transactions, particularly in Asia. He is the founding shareholder of
successful Hong Kong-based investment institution Argyle Street Management Limited (Argyle), and has been the Chief Investment
Officer since inception in 2002. Mr Chan is also the Chairman of TIH Limited and Non-Independent Non-Executive Director of OUE
Limited, both listed in Singapore. Through Argyle, Mr Chan has invested in mines in Asia and Australia and most recently has had a
central role in the acquisition and planned recapitalisation of PT Berau Coal, a major Indonesian mining interest. Prior to founding
Argyle, Mr Chan was Chief Executive and Managing Director of Lazard Asia Limited from 2000 to 2001 and managed the firm’s
advisory business in Asia outside of Japan. Prior to joining Lazard, Mr Chan was an Executive Director at Goldman, Sachs & Co. where
he worked in Hong Kong, New York and Singapore from 1992 to 1999. Mr Chan holds an A.B. degree from Princeton University and
an MBA degree from the Wharton School of the University of Pennsylvania where he was a Palmer Scholar.
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
20 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.
14MOUNT GIBSON IRON LIMITED 2017 Annual Report
CORPORATE INFORMATION
Corporate Structure
Mount Gibson is a company limited by shares that is incorporated and domiciled in Australia. It is the ultimate parent entity and has
prepared a consolidated financial report incorporating the entities that it controlled during the financial year. The structure of the
Group as at 30 June 2017 was as follows:
Nature of Operations and Principal Activities
The principal activities of the entities within the Group during the year were:
mining of hematite iron ore at the Extension Hill and Iron Hill mine sites in the Mid-West region of Western Australia and
haulage of the ore via road and rail for sale from the Geraldton Port;
construction of the seawall in Koolan Island; 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 168 employees (excluding contractors) as at 30 June 2017 (2016: 126 employees).
OPERATING AND FINANCIAL REVIEW
Introduction
The Board presents the 2016/17 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 2016/17 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 2017 and has been prepared in accordance
with Regulatory Guidance 247 published by the Australian Securities and Investments Commission (“ASIC”).
MOUNT GIBSON IRON LIMITED 2017 Annual Report15
Overview of the 2016/17 Financial Year
The Group’s financial performance for the year ended 30 June 2017 reflected a solid operating performance by the Company’s
continuing Mid-West operations during a period of volatile iron ore pricing and significant operational transformation.
Pricing was particularly volatile over the 12 month period. At the beginning of the financial year, the Platts Index for delivery of 62%
Fe iron ore fines to northern China was approximately US$55 per dry metric tonne (“dmt”) and, after a period of relative stability,
rose strongly between November 2016 and February 2017 at which time it peaked at just over US$90/dmt. The price subsequently
declined sharply over the ensuing four months, hitting a low of US$54/dmt in mid-June 2017 to average US$70/dmt for the 12 month
period. More significantly, the price differential between the benchmark Platts 62% Fe and 58% Fe indices widened significantly over
the course of the year. After peaking at US$62/dmt in November 2016, the Platts 58% Fe index price dipped below US$32/dmt in
June 2017, having a significant adverse impact on sales revenue from the Company’s Mid-West operations.
Group ore sales totalled 3.2 million wet metric tonnes (“Mwmt”) for the 12 month period reflecting the completion of mining in the
Extension Hill pit in late 2016, after which all sales were sourced from remaining standard grade and low grade stockpiles at Extension
Hill prior to the commencement of sales from the nearby Iron Hill deposit in June 2017. Sales were also augmented by the sale of
remnant low grade stockpiled material at the closed Tallering Peak mine site.
Total sales revenue for the year was $173,128,000 comprising $162,043,000 from continuing operations at Extension Hill, and
$11,085,000 from the discontinued Tallering Peak operation. Mount Gibson achieved an average realised price for standard iron ore
fines product from Extension Hill of approximately US$44/dmt Free on Board (“FOB”), after grade and provisional pricing adjustments
and penalties for impurities, compared with an average of US$34/dmt in the 2015/16 financial year. The weighted average realised
price received for all products sold, on a wet tonnes basis, was $55/wmt FOB in 2016/17 compared with $48/wmt FOB in the prior
financial year.
Cash reserves, including term deposits and tradeable investments, increased by $46,692,000 over the year, including receipt of the
$34,558,000 balance of the property damage component of the Koolan Island insurance claim agreed in the prior financial year, to a
total of $446,779,000 as at 30 June 2017. This does not include the $64,288,000 cash proceeds from the settlement of the business
interruption component of the insurance claim which was reached and paid subsequent to the end of the financial year in July 2017.
Operating Results for the Financial Year
The summarised operating results for the Group for the year ended 30 June 2017 are tabulated below:
Year ended: 30 June 2017* 30 June 2016* 30 June 2015*
30 June 2014
30 June 2013
Net profit/(loss) before tax
Taxation benefit/(expense)
Net profit/(loss) after tax
$’000
$’000
$’000
24,841
1,481
26,322
85,536
(1,008,505)
163,698
128,440
761
97,083
(67,345)
28,902
86,297
(911,422)
96,353
157,342
Earnings/(loss) per share
cents/share
2.41
7.91
(83.56)
8.84
14.45
* The figures for net profit/(loss) before tax and taxation benefit/(expense) for the years ended 30 June 2017, 2016 and 2015 are shown inclusive
of discontinued operations. Refer the attached financial statements for further details.
Consolidated quarterly operating and sales statistics for the 2016/17 financial year are tabulated below:
Consolidated Group
Mining & Crushing
Total waste mined
Total ore mined#
Total ore crushed
Shipping/Sales
Standard DSO Lump
Standard DSO Fines
Low Grade DSO
Total
Ave. Platts 62% Fe
CFR northern China price
MGX Free on Board (FOB) average
realised fines price^
kwmt = thousand wet metric tonnes
US$/dmt = USD per dry metric tonne
Unit
kwmt
kwmt
kwmt
kwmt
kwmt
kwmt
kwmt
US$/dmt
US$/dmt
Sept
Quarter
2016
Dec
Quarter
2016
Mar
Quarter
2017
Jun
Quarter
2017
2016/17
2015/16
328
862
773
417
294
175
887
59
37
28
207
728
362
295
239
896
71
49
6
49
915
180
176
425
782
86
46
295
782
876
300
-
303
603
63
-*
658
1,899
3,292
1,259
766
1,142
3,167
70
44
5,295
5,976
5,180
2,770
2,076
125
4,971
51
34
*
#
No fines material was sold during the June 2017 quarter.
Includes low-grade ore at Extension Hill with grading 50-55% Fe that is considered to be saleable. This material is being stockpiled for future sale
but continues to be treated as waste for accounting purposes.
^ Reflects the realised fines price for standard DSO fines ore only, after adjustments for shipping freight, grade, provisional invoicing adjustments
and penalties for impurities. Contract pricing in the year was based on a mix of lagging-monthly and month-of-shipment averages.
Minor discrepancies may appear due to rounding.
16MOUNT GIBSON IRON LIMITED 2017 Annual Report
Extension Hill/Iron Hill
The Extension Hill mine and adjacent Iron Hill Deposit are 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.
After five years of continuous production, mining was finally completed in the Extension Hill pit during November 2016. Material
mined in the latter stages of the Extension Hill open pit was stockpiled for sale while the Company worked to secure final approvals to
develop the nearby Iron Hill Deposit, located 3km south of the Extension Hill pit. The sales of stockpiled Extension Hill ore were
augmented in the 2016/17 year by sales from existing low grade stockpiles.
In December 2016, the planned development of the Iron Hill deposit was approved by Western Australia’s Environment Minister, and
the Company received the final required regulatory approvals in February 2017, following which a development decision was made.
Life-of-mine sales from Iron Hill are anticipated to total 5.5 to 6.0 million tonnes through to the expected end of production in late
2018, at an average site cash cost of $46-$48/wmt. Iron Hill has a Total Mineral Resource of 8.8Mt @ 58.3% Fe (refer ASX release
dated 31 August 2016).
Iron Hill’s proximity to Extension Hill enabled the Company to utilise the existing Extension Hill workforce of approximately 160 staff
and contractors, and existing camp, processing and transport infrastructure, with minimal capital expenditure. Mining commenced at
Iron Hill in March 2017, and the first ore sales occurred in June 2017.
Combined ore sales from the Extension Hill/Iron Hill operations, exported through Geraldton Port, totalled 2,751,000 wmt in the
2016/17 year. Sales comprised 1,259,000 wmt of lump ore (including 118,000 wmt from Iron Hill), 766,000 wmt of fines ore and
726,000 wmt of low grade lump material from existing stockpiles at Extension Hill.
At the end of June 2017, approximately 78,000 wmt of crushed high grade product was stockpiled at the mine. Stockpiles of
uncrushed high grade Iron Hill material totalled 205,000 wmt and stockpiles of both crushed and uncrushed lower grade material
totalled 2.9 Mwmt grading 50-55% Fe. Crushed ore stockpiles at the Perenjori rail siding totalled approximately 214,000 wmt of high
grade ore and 197,000 wmt of low grade lump products.
The Extension Hill operation was strongly cashflow positive over the year, despite the volatility of iron ore pricing and widening
differential between the Platts 58% Fe and Platts 62% Fe pricing indices, reflecting the Company’s ongoing focus on cost control and
operational efficiency.
Prior to commencing the Iron Hill development, in December 2016 Mount Gibson entered into three 12 month offtake agreements
with customers for Iron Hill which each represented approximately 25% of planned available production in the first year of the
operation. In late June and early July 2017 Mount Gibson terminated two of these offtake agreements after the relevant customers
failed to comply with a fundamental term of their respective agreements. The Company has reserved its rights to pursue the former
offtake customers for any losses resulting from the termination of these agreements. Mount Gibson has commenced selling this
material to alternative customers, and expects to be able to continue doing so as product becomes available.
Production and shipping statistics for Extension Hill for the 2016/17 financial year are tabulated below:
Extension Hill
Production Summary
Unit
Sept
Quarter
2016
’000
Dec
Quarter
2016
’000
Mar
Quarter
2017
’000
Jun
Quarter
2017
’000
Year
2016/17
’000
Year
2015/16
’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
Low Grade Lump
wmt
wmt
wmt
wmt
wmt
wmt
wmt
wmt
wmt
wmt
wmt
wmt
wmt
328
669
192
862
452
321
773
399
348
747
416
309
725
417
294
-
711
28
171
36
207
438
290
728
440
265
705
441
235
676
362
295
118
775
6
28
21
49
558
357
915
607
8
615
521
176
697
180
176
305
662
295
640
142
782
530
346
876
535
201
736
561
81
642
300
-
303
603
658
1,973
(67)
1,508
391
1,899
1,978
1,313
3,292
1,981
822
2,803
1,939
801
2,740
1,259
766
726
2,751
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
(61)
(46)
(59)
(14)
(18)
(15)
(10)
(45)
(24)
(2)
(41)
(18)
(36)
(46)
-
(19)
* 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.
MOUNT GIBSON IRON LIMITED 2017 Annual Report17
Koolan Island
The Koolan Island mine was placed on care and maintenance in the June 2016 quarter pending completion of the Company’s
evaluation of the potential to reinstate the Main Pit seawall and resume high grade ore production.
Evaluation and planning work was successfully completed in April 2017. A decision to proceed was announced on 27 April 2017,
following confirmation of a safe and viable seawall design and construction method, re-establishment of Ore Reserves, attractive
viable capital and operating cost estimates, and receipt of necessary regulatory approvals (refer ASX release dated 27 April 2017).
As reported, seawall reconstruction and pit dewatering costs are estimated at $97,000,000, including $10,000,000 in contingencies,
with estimated peak cash draw prior to cashflow of $145,000,000. Ore Reserves totalling 12.8Mt grading 66.0% Fe were
re-established for Main Pit, giving an initial mine life of 3.5 years. A potential Stage Two pit extension is under evaluation to convert
an additional 7Mt of Mineral Resources at the eastern end of Main Pit to Ore Reserves.
Life of mine all-in cash costs are projected at $53/wmt FOB, including development capex and final closure costs, resulting in an
estimated breakeven Platts 62% Fe price of US$46/dmt including capital and closure costs.
First ore sales are targeted for early 2019, with project payback estimated at 28 months after the commencement of sales.
Cash expenditure on the Koolan Island restart project totalled approximately $5,000,000 in the June 2017 quarter, related primarily to
equipment purchases, labour and equipment mobilisation, and waste rock placement. Preferred suppliers were identified for key
contracts, including for seepage barrier construction, geotechnical drilling, cement supply, and specialist instrumentation supply and
installation.
Material site works started in mid-June 2017 with the commencement of truck and barge dumping of waste rock to reinstate the
starter embankment for the seawall. By end of June 2017, approximately 100,000 cubic metres of waste rock had been placed.
The Koolan Island labour force increased to 64 personnel by end of June 2017, representing the bulk of the anticipated workforce
required during the construction phase.
No production or shipping occurred at Koolan Island for the 2016/17 financial year.
Tallering Peak
In the 2016/17 financial year, Mount Gibson monetised some remnant low grade stockpiled material remaining at the mine site.
These opportunistic sales, totalling 417,000 wmt of low grade lump and fines 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 2016/17 financial year are tabulated below:
Tallering Peak
Production Summary
Unit
Sept
Quarter
2016
’000
Dec
Quarter
2016
’000
Mar
Quarter
2017
’000
Jun
Quarter
2017
’000
Year
2016/17
’000
Year
2015/16
’000
%
Incr/
(Decr)
Transported to Geraldton Port
- Lump
- Fines
Shipping
- Low Grade DSO Lump
- Low Grade DSO Fines
wmt
wmt
wmt
wmt
19
141
160
58
117
175
-
159
159
-
122
122
-
59
59
-
120
120
-
-
-
-
-
-
19
359
378
58
359
417
159
-
159
125
-
125
(88)
-
138
(54)
-
234
Minor discrepancies may appear due to rounding.
EXPLORATION AND DEVELOPMENT
Shine Project
The Total Mineral Resources at the Shine Project, located 85km north of Extension Hill, comprise 15.9 Mt @ 58.1% Fe (refer ASX
release dated 31 August 2016). The Shine 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 $446,779,000 at 30 June 2017, an increase of
$46,692,000 from the balance of $400,087,000 as at 30 June 2016. The increase reflected business cashflow generated during the
financial year and receipt of the $34,558,000 balance of the property damage component of the Koolan Island insurance claim agreed
in the prior financial year.
As at the balance date, the Company’s current assets totalled $479,337,000 and its current liabilities totalled $38,094,000. 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.
18MOUNT GIBSON IRON LIMITED 2017 Annual Report
Derivatives
As at 30 June 2017, the Group held foreign exchange collar option contracts covering the conversion of US$12,000,000 into Australian
dollars over the period July 2017 to September 2017 with a cap price of A$1.00/US$0.7550 and floor price of A$1.00/US$0.7205.
These collar contracts had a marked-to-market value at balance date of $341,000.
Mount Gibson also took advantage of higher iron ore prices earlier in the financial year to enter into forward sales contracts covering
360,000 tonnes of anticipated iron ore sales in the June half of 2017. The contracts were settled during the period with the final
contract at the end of June 2017 having a cash settlement value of $1,104,000 which was received in July 2017.
Koolan Island Seawall Insurance Claim
Following the $86,000,000 cash settlement of the property damage component of the Company’s insurance claim reached with the
insurers in June 2016, discussions continued during 2016/17 between Mount Gibson and its insurers in relation to the separate
business interruption component of the claim. Subsequent to the end of the financial year in July 2017, the Company announced it
had reached final agreement with 14 insurers, representing 92.5% of the Company’s insurance cover for business interruption
suffered as a result of the seawall failure, for a cash settlement of the claim for $64,288,000.
Proceeds of the settlement have since been received, further strengthening the Company’s cash position as it continues to evaluate
resource investment opportunities and progresses activities to recommence production from the Main Pit at Koolan Island.
Negotiations will continue separately with one further insurer representing the remaining 7.5% of the Company’s business interruption
coverage.
The business interruption settlement takes total cash proceeds received from Mount Gibson’s insurance claim relating to the seawall
failure to just over $150,000,000.
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 2017/18 financial year:
• Extension Hill/Iron Hill – continue to mine the Iron Hill deposit while optimising production rates and controlling costs, to
extend the life of the Extension Hill operation and prepare the site for its ultimate closure in the following year.
• Koolan Island – successfully rebuild the Main Pit seawall, dewater the pit and prepare the site for commencement of commercial
production, with initial ore sales anticipated in early 2019.
• 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
As previously reported, during the 2016/17 year the Group secured the final outstanding approvals for development of the Iron Hill
deposit and commenced initial ore sales. Life-of-mine sales from Iron Hill are anticipated to total 5.5-6.0Mwmt through to the
expected end of production in late 2018, at an average site cash cost of $46-48/wmt sold.
Iron Hill sales will be augmented by sales from existing Extension Hill low grade stockpiles when suitable prices can be attained.
Koolan Island Outlook
Activity at Koolan Island is now focused on the rebuild of the Main Pit seawall and the recommencement of commercial production,
with first ore sales targeted for early 2019. As reported, seawall reconstruction and pit dewatering costs are estimated at
$97,000,000, with estimated peak cash draw prior to cashflow of $145,000,000. Ore Reserves totalling 12.8Mt grading 66.0% Fe
were re-established for Main Pit (refer ASX release dated 27 April 2017), giving an initial mine life of 3.5 years. A potential Stage Two
pit extension is under evaluation to convert an additional 7Mt of Mineral Resources at the eastern end of Main Pit to Ore Reserves.
Life of mine all-in cash costs are projected at $53/wmt FOB, including development capex and final closure costs, resulting in an
estimated breakeven Platts 62% Fe price of US$46/dmt including capital and closure costs.
Group Sales Guidance and Cash Costs Guidance
Mount Gibson expects its annual sales for the 2017/18 financial year to be between 3.5 and 3.8 Mwmt of iron ore at an average all-in
group cash cost of $47-52/wmt. All-in group cash costs are reported FOB and include cash operating expenditure, royalties,
sustaining capital expenditure and corporate costs, and exclude project capital expenditure.
MOUNT GIBSON IRON LIMITED 2017 Annual Report19
SIGNIFICANT EVENTS AFTER BALANCE DATE
On 7 July 2017, the Company announced it had reached final agreement with 14 insurers, representing 92.5% of the Company’s
underwriting cover for business interruption in relation to the Company’s insurance claim for the late 2014 seawall failure at Koolan
Island. No amount has been recognised in the year ended 30 June 2017. Proceeds of the cash settlement amounting to $64,288,000
have since been received. Negotiations will continue separately with one further insurer representing the remaining 7.5% of the
Company’s business interruption coverage.
On 15 August 2017, the Company declared a final dividend on ordinary shares in respect of the 2016/17 financial year of $0.02 per
share fully franked. The total amount of the dividend is $21,931,000. The dividend has not been provided for in the 30 June 2017
financial statements.
Apart from the above, as at the date of this report there are no significant events after balance date of the Company or of the Group
that require adjustment of or disclosure in this report.
DIVIDENDS
There were no dividends paid during the financial year ended 30 June 2017. A final dividend of 2.0 cents per share fully franked has
been declared for the year ended 30 June 2017. Refer “Significant Events After Balance Date” above.
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, PERFORMANCE RIGHTS AND RESTRICTED SHARES
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 533,625 Performance Rights vested and exercised during the year. In addition, 177,875 Performance Rights were
forfeited during the financial year. There are no Performance Rights on issue as at balance date and as at the date of this Report.
There were 4,749,456 restricted shares issued during the year under the Company’s Loan Share Plan, and these shares remain on
issue at balance date and as at the date of this report.
Refer to the Remuneration Report for further details of options, Performance Rights and restricted shares 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(i)
A Jones
Li Shaofeng
R Barwick
S Bird
P Dougas
K Chan(ii)
A Ferguson (Alternate for Mr Lee)
Ordinary Shares
Options over Shares
Performance Rights
over Shares
-
300,000
-
-
20,000
284,944
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(i) 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 3.19A.2, 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.
(ii) For the purposes of Corporations Act Regulation 2M.3.03(1)-Item 18, Mr Chan does not have a disclosable shareholding. However, we note that for purposes of
ASX Listing Rule 3.19A.1, Mr Chan has previously declared an indirect “relevant interest” in 54,718,470 ordinary shares in the Company through his association
with investment fund manager Argyle Street Management Limited, a substantial shareholder of the Company – refer ASX announcement dated 23 September
2016.
20MOUNT GIBSON IRON LIMITED 2017 Annual Report
DIRECTORS’ MEETINGS
The number of meetings of Directors (including meetings of Committees of Directors) held during the year and the number of
meetings attended by each Director 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
K Chan
A Ferguson (Alt. for Mr Lee)
11
9
11
8
11
11
11
9
1
4
4
4
-
1
4
2
1
-
ENVIRONMENTAL REGULATION AND PERFORMANCE
4
3
4
-
4
-
1
1
-
6
-
1
-
6
6
6
1
-
4
2
3
-
4
4
4
2
-
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 29 which forms part of this Report.
NON-AUDIT SERVICES
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 $3,605 for the provision of non-audit service in relations to a Traditional Owner
royalty audit during the financial year ended 30 June 2017.
MOUNT GIBSON IRON LIMITED 2017 Annual Report21
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 $632,125 were
paid/payable in the 2016/17 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
2016/17 financial year.
22MOUNT GIBSON IRON LIMITED 2017 Annual Report
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.
The Board exercised its discretion to make an award for the 2016/17 financial year based on the achievement of a number of
milestones including receipt of all regulatory approvals for, and commencement of mining operations within, the Iron Hill deposit,
completion of the feasibility study for reinstatement of the Koolan Island Main Pit seawall and commencement of site activities,
advancement of the Koolan Island seawall insurance claim and, subsequent to year end, settlement of the business interruption
component thereof, continued cost control within the business and evaluation of a number of business development opportunities.
Accordingly, for the 2017 financial year, a total STI cash incentive of $862,796 was awarded to Key Management Personnel,
representing 100% of the total STI cash incentives available to each of Messrs Beyer, Kerr, de Kruijff and Stokes. The amount of the
STI is included in the Company’s financials for the year and was paid after year-end.
Long-term Incentives (“LTI”)
The Company previously 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 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. LTI awards are issued and tested for vesting against the Company's Total Shareholder Return relative to a comparator
group of iron ore companies over a 2-3 year period. The comparator group of companies comprised 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 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 the 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.
On 1 July 2016, 533,625 Performance Rights issued under the PRP in the 2013/14 financial year vested into ordinary shares in
accordance with their terms, reflecting 75% of the Performance Rights that were available to vest at that time. The remaining
177,875 Performance Rights, representing 25% of those issued in the 2013/14 financial year, did not vest and were cancelled. No
new Performance Rights were issued under the PRP in the 2016/17 financial year as the Board decided to establish a new LTI plan.
This new LTI plan, known as the Loan Share Plan (“LSP”), was established in August 2016. Under the LSP, ordinary shares in the
Company may be issued to eligible participants, with vesting of the shares being subject to the satisfaction of stipulated performance
conditions. The shares are issued at their market value with the recipient required to pay this market value in order to take up the
share offer. The Company or any of its subsidiaries will provide a loan to fund the acquisition price. The loan is interest-free and is
secured against the shares in the form of a holding lock preventing all dealing in the shares. The loan is limited recourse such that if
the shares do not ultimately vest and are therefore forfeited, this is treated as full repayment of the loan balance. While the loan
balance remains outstanding, any dividends paid on the shares will be automatically applied towards repayment of the loan. In
making the loan in respect of the newly issued shares, there is no cash cost to the Company as the shares are newly issued.
MOUNT GIBSON IRON LIMITED 2017 Annual Report23
On 24 August 2016 the Company issued a total of 4,749,456 shares to Messrs Beyer, Kerr and Stokes under the LSP, representing
their full entitlement for LTI awards equating to one third of their base salaries (including superannuation). In accordance with the
terms of the LSP, the shares were issued at a market price of $0.316 per share with the participants responsible for associated limited
recourse loans totalling $1,500,828. In order for the shares to vest, the participants must remain continuously employed by the
Group to at least the end of the financial year and the Company’s share price, as measured by a rolling five day volume weighted
average price of the Company’s shares traded on the ASX, must on 1 July 2017 or at any time in the following four year period be
above a 10% premium to the issue price of the shares. The award has been accounted for as an in-substance option award, with the
fair value at grant date assessed at $0.104 per share.
The Company has a policy restricting executives from entering into arrangements to protect the value of unvested LTI entitlements
under equity-based remuneration plans.
Employment Contracts
As at the date of this report, the Group had entered into employment contracts with the following executives:
Jim Beyer
The key terms of his contract include:
Commenced 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.
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.
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.
24MOUNT GIBSON IRON LIMITED 2017 Annual Report
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
K Chan
A Ferguson
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Lead Non-Executive Director
Non-Executive Director
Non-Executive Director (from 22 September 2016)
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
Remuneration of Key Management Personnel for the year ended 30 June 2017
Short Term
Post
Employment
Long Term
Share
Based
Payment
Salary &
Fees
$
Non
Monetary(a)
$
Cash
Incentives(b)
$
Accrued
Annual
Leave(c)
$
Super-
annuation
$
Long
Service
Leave(d)
$
Restricted
Shares(e)
$
30 June 2017
Directors
Lee Seng Hui
A Jones
Li Shaofeng
R Barwick
S Bird
P Dougas
K Chan
A Ferguson (Alt)
102,854
105,479
-
105,479
112,329
101,875
57,534
-
Sub-total
585,550
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Other KMP
J Beyer
P Kerr
D Stokes
S de Kruijff
Sub-total
Totals
627,776
424,500
320,645
371,245
15,618
11,219
9,401
8,507
338,350
227,250
175,322
121,874
1,744,166
44,745
862,796
2,329,716
44,745
862,796
28,444
9,552
-
1,423
39,419
39,419
Total
$
112,625
115,500
-
115,500
123,000
102,500
63,000
-
632,125
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,282
225,564 1,304,958
5,099
4,230
2,045
151,498
859,118
116,881
656,479
-
540,094
31,656
493,943 3,360,649
31,656
493,943 3,992,774
9,771
10,021
-
10,021
10,671
625
5,466
-
46,575
48,924
30,000
30,000
35,000
143,924
190,499
%
Perform-
ance
Related
-
-
-
-
-
-
-
-
43
44
45
23
(a) Non-Monetary include the value (where applicable) of benefits such as group life insurance that are available to all employees of Mount Gibson and car parking,
and are inclusive of Fringe Benefits Tax where applicable.
(b) Cash incentives represent short term incentives awarded during the year and was paid after year-end.
(c) Annual leave has been separately categorised and is measured on an accrual basis and reflects the movement in the accrual over the twelve-month period. Any
reduction in accrued leave reflects more leave taken or cashed out than that which accrued in the period.
(d) Represents the accrual for long service leave over the twelve-month period.
(e) The fair values of the restricted shares were calculated as at the grant date and represent the accounting expense incurred by the Company for the stated
financial period, reflecting the terms of the particular Performance Rights or restricted shares. The amount included as remuneration is not related to or
indicative of the benefit (if any) that individual executives may in fact receive.
Options granted as part of remuneration for the year ended 30 June 2017
There were no options granted to Directors and Executives during the year ended 30 June 2017 and there are no options outstanding
as at 30 June 2017.
Shares granted as part of remuneration for the year ended 30 June 2017
On 24 August 2016, a total of 4,749,456 restricted shares were granted under the LSP. The award has been accounted for as an
in-substance option award with the fair value assessed at grant date as $0.104 per LSP share. Refer the section above titled “Long
Term Incentives” for details of the shares issued under the LSP.
MOUNT GIBSON IRON LIMITED 2017 Annual Report25
Grant
Date
24-Aug-16
24-Aug-16
24-Aug-16
LSP
Shares
Granted
(#)
2,168,889
1,456,716
1,123,851
4,749,456
Fair Value
at Grant
Date1
($/LSP
share)
Value of
LSP
Shares
Granted
($)
Vesting
Date &
Condit-
ions
LSP Loan
($)
$0.104
$0.104
$0.104
$225,564
$151,498
$116,881
$685,369
$460,322
$355,137
Note 2
Note 2
Note 2
$493,943 $1,500,828
LSP
Shares
Vested
in Year
(#)
Value of
LSP Shares
Vested in
Year3
($)
-
-
-
-
-
-
-
-
Expiry
Date
1-Jul-21
1-Jul-21
1-Jul-21
J Beyer
P Kerr
D Stokes
Total
1. Determined at the time of grant per AASB 2, refer note 24(d) in the financial statements.
2. In order for the LSP shares to vest, participants must remain continuously employed by the Group to at least the end of the financial year and the Company’s
share price, as measured by a rolling 5-day volume weighted average price of the Company’s shares traded on the ASX, must on 1 July 2017 or at any time
prior to expiry, be above a 10% premium to the issue price of the LSP shares.
3. Determined at the time of exercise at the intrinsic value of the LSP share.
During the year ended 30 June 2017, there were no alterations to the terms and conditions of LSP shares after their grant date.
Performance Rights granted as part of remuneration for the year ended 30 June 2017
There were no performance rights granted as part of remuneration during the year ended 30 June 2017.
Performance Rights vested
The following Performance Rights vested during the financial year:
J Beyer
P Kerr
D Stokes
30 June 2017
30 June 2016
258,075
161,625
113,925
243,450
121,340
109,560
A total of 533,625 Performance Rights vested and were exercised during the financial year ended 30 June 2017 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).
J Beyer
J Beyer
P Kerr
P Kerr
D Stokes
D Stokes
Year
Granted
2012/13
2013/14
2012/13
2013/14
2012/13
2013/14
Vested
%
100
75
100
75
100
75
Forfeited/
Lapsed
%
-
25
-
25
-
25
Financial Years Performance
Rights May Vest
-
-
-
-
-
-
Performance Rights holdings by Key Management Personnel as at 30 June 2017
Balance
30 June 2016
Granted as
Remuneration
Exercised
during the year
Lapsed/
forfeited
during the year
Balance
30 June 2017
Directors
Lee Seng Hui
A Jones
Li Shaofeng
R Barwick
S Bird
P Dougas
K Chan
A Ferguson (Alt. for Mr Lee)
Other KMP
J Beyer
P Kerr
D Stokes
S de Kruijff
Total
-
-
-
-
-
-
-
-
344,100
215,500
151,900
-
711,500
At 30 June 2017, there were no Performance Rights on issue.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(258,075)
(161,625)
(113,925)
-
(86,025)
(53,875)
(37,975)
-
-
(533,625)
(177,875)
-
-
-
-
-
-
-
-
-
-
-
-
-
26MOUNT GIBSON IRON LIMITED 2017 Annual Report
Shares issued on exercise of Options and Performance Rights for the year ended 30 June 2017
There were no shares issued on the exercise of options during the year ended 30 June 2017 (2016: nil).
There were 533,625 shares issued on the exercise of 533,625 Performance Rights on 1 July 2016 in accordance with their terms.
Shareholdings of Key Management Personnel as at 30 June 2017
Directors
Lee Seng Hui(i)
A Jones
Li Shaofeng
R Barwick
S Bird
P Dougas
K Chan(ii)
A Ferguson (Alt. for Mr Lee)
Other KMP
J Beyer
P Kerr
D Stokes
S de Kruijff
Total
Balance
1 July 2016
Ord
Granted as
Remuneration
Ord^
Exercise of
Performance
Rights
Ord
Net Change
Other
Ord
Balance
30 June 2017
Ord
-
300,000
-
-
20,000
284,944
-
-
484,104
121,340
109,560
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,168,889
1,456,716
1,123,851
-
258,075
161,625
113,925
-
1,319,948
4,749,456
533,625
-
-
-
-
-
-
-
-
-
-
-
-
-
-
300,000
-
-
20,000
284,944
-
-
2,911,068
1,739,681
1,347,336
-
6,603,029
^ Restricted ordinary shares granted during the year under the Company’s LSP. Refer the section above titled “Long Term Incentives” for details of the shares
issued under the LSP.
(i) 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 3.19A.2, 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.
(ii) For the purposes of Corporations Act Regulation 2M.3.03(1)-Item 18, Mr Chan does not have a disclosable shareholding. However, we note that for purposes of
ASX Listing Rule 3.19A.1, Mr Chan has previously declared an indirect “relevant interest” in 54,718,470 ordinary shares in the Company through his association
with investment fund manager Argyle Street Management Limited, a substantial shareholder of the Company – refer ASX announcement dated 23 September
2016.
Remuneration of Key Management Personnel for the year ended 30 June 2016
Short Term
Post
Employment
Long
Term
Share Based
Payment(c)
Termination
Payment
Salary &
Fees
$
Non
Monetary
$
Cash
Incentives(a)
$
Accrued
Annual
Leave(b)
$
Super-
annuation
$
Long
Service
Leave
$
Options and
Performance
Rights
$
85,617
80,937
-
80,937
87,786
69,064
-
-
-
-
-
9,102
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
508,372
363,333
317,173
371,245
24,561
24,087
11,989
13,155
144,779
136,971
138,869
40,000^
39,897
15,763
6,080
-
8,134
7,689
-
7,689
8,340
6,561
-
38,413
48,295
33,253
30,120
35,245
-
-
-
-
-
-
-
-
8,859
2,684
1,918
1,474
1,560,123
73,792
460,619
61,740
146,913
14,935
1,964,464
82,894
460,619
61,740
185,326
14,935
-
-
-
-
-
-
-
-
31,026
19,430
13,696
-
64,152
64,152
30 June 2016
Directors
Lee Seng Hui
A Jones
Li Shaofeng
R Barwick
S Bird
P Dougas
A Ferguson (Alt)
Other KMP
J Beyer
P Kerr
D Stokes
S de Kruijff
Sub-total
Totals
Sub-total
404,341
9,102
%
Perform-
ance
Related
-
-
-
-
-
-
-
22
26
29
9
Total
$
93,751
88,626
-
88,626
105,228
75,625
-
451,856
805,789
595,521
519,845
461,119
2,382,274
2,834,130
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(a) 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.
(b) Annual leave has been separately categorised and is measured on an accrual basis and reflects the movement in the accrual over the twelve-month period. Any
reduction in accrued leave reflects more leave taken or cashed out than that which accrued in the period.
(c) 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.
MOUNT GIBSON IRON LIMITED 2017 Annual Report27
Loans to Key Management Personnel
There were no loans to key management personnel during the year ended 30 June 2016. Limited recourse loans totalling $1,500,828
were made to Key Management Personnel during the year ended 30 June 2017 under the terms of the Company’s LSP.
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 2017 and 30 June
2016.
Company Performance
The table below shows the performance of the Group over the last 5 years:
30 June 2017
30 June 2016
30 June 2015
30 June 2014
30 June 2013
Net profit/(loss) after tax
$’000
Earnings/(loss) per share $/share
Closing share price
$
26,322
0.0241
0.33
86,297
0.0791
0.26
(911,422)
(0.8356)
0.20
96,353
0.0884
0.69
157,342
0.1445
0.47
End of remuneration report.
Signed in accordance with a resolution of the Directors.
LEE SENG HUI
Chairman
Sydney, 15 August 2017
Competent Persons Statement:
Mineral Resources:
The information in this report relating to Mineral Resources for the Iron Hill 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 and a member
of the Australian Institute of Geoscientists. Ms Haren was previously a full-time employee of, and is now a consultant to, Mount Gibson Iron
Limited, and has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity
being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves’. Ms Haren consents to the inclusion in this report of the matters based on her information in the
form and context in which it appears.
Ore Reserves:
The information in this report relating to Ore Reserves at Koolan Island is based on information compiled by Brett Morey, a Competent Person
who is a member of the Australasian Institute of Mining and Metallurgy. Mr Morey is a full-time employee of Mount Gibson Iron Limited and
has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being
undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves’. Mr Morey consents to the inclusion in the report of the matters based on his information in the form
and context in which it appears.
28MOUNT GIBSON IRON LIMITED 2017 Annual Report
Auditor's Independence Declaration
GB:EH:MGI:230
MOUNT GIBSON IRON LIMITED 2017 Annual Report29 Consolidated Income Statement
For the year ended 30 June 2017
CONTINUING OPERATIONS
Sale of goods
Interest revenue
TOTAL REVENUE
Cost of sales
Impairment write-back/(loss) on ore inventories
GROSS PROFIT
Other income
Impairment reversal/(impairment) of consumables inventories
Impairment of mine properties
Impairment of property, plant and equipment
Impairment reversal/(impairment) of deferred acquisition, exploration and evaluation
Exploration expenses
Net unrealised fair value gain/(loss)
Administration and other expenses
PROFIT FROM CONTINUING OPERATIONS BEFORE TAX AND FINANCE COSTS
Finance costs
PROFIT FROM CONTINUING OPERATIONS BEFORE TAX
Tax benefit
Notes
3[a]
2017
$’000
2016
$’000
162,043
12,113
235,188
9,667
174,156
244,855
4[a]
10[iii]
(134,545)
(213,681)
(3,153)
3,442
36,458
34,616
3[b]
10
16
16
14
14
4[c]
4[d]
4[b]
5
5,866
2,479
-
-
2,507
(90)
(137)
91,848
(8,142)
(2,135)
(12,377)
(3,037)
(77)
512
(21,831)
(19,903)
25,252
(1,134)
24,118
1,481
81,305
(1,760)
79,545
761
PROFIT AFTER TAX FROM CONTINUING OPERATIONS
25,599
80,306
DISCONTINUED OPERATIONS
Profit after tax for the year from discontinued operations
31[a]
723
5,991
PROFIT AFTER TAX ATTRIBUTABLE TO MEMBERS OF THE COMPANY
26,322
86,297
Earnings per share (cents per share)
basic earnings per share
diluted earnings per share
Earnings per share (cents per share) for continuing operations
basic earnings per share
diluted earnings per share
25
25
25
25
2.41
2.40
2.34
2.34
7.91
7.91
7.36
7.36
30MOUNT GIBSON IRON LIMITED 2017 Annual Report
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2017
PROFIT FOR THE PERIOD AFTER TAX
OTHER COMPREHENSIVE INCOME
Items that may be subsequently reclassified to profit or loss
Change in fair value of cash flow hedges
Reclassification adjustments for gain/(loss) on cash flow hedges transferred to
the Income Statement
Deferred income tax on cash flow hedges
OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX
2017
$’000
2016
$’000
26,322
86,297
341
(109)
-
232
(231)
231
-
-
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
26,554
86,297
MOUNT GIBSON IRON LIMITED 2017 Annual Report31
Consolidated Balance Sheet
As at 30 June 2017
Notes
2017
$’000
2016
$’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
Mine properties
Total Non-Current Assets
TOTAL ASSETS
LIABILITIES
Current Liabilities
Trade and other payables
Interest-bearing loans and borrowings
Employee benefits
Provisions
Total Current Liabilities
Non-Current Liabilities
Employee benefits
Provisions
Total Non-Current Liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Accumulated losses
Reserves
TOTAL EQUITY
6
7
8
9
10
11
13
15
17
18
19
19
20
22
21
48,756
365,500
32,523
9,528
20,736
1,953
341
-
43,316
337,000
19,771
41,546
20,017
1,887
231
50
479,337
463,818
5,919
10,891
16,810
8,744
-
8,744
496,147
472,562
31,477
-
2,966
3,651
38,094
334
38,736
39,070
77,164
36,229
421
2,708
3,083
42,441
191
37,995
38,186
80,627
418,983
391,935
568,328
568,328
(1,131,178)
(1,157,500)
981,833
418,983
981,107
391,935
32MOUNT GIBSON IRON LIMITED 2017 Annual Report
Consolidated Cash Flow Statement
For the year ended 30 June 2017
Notes
2017
$’000
2016
$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest paid
Income tax refund received
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
6[b]
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Payment for term deposits and subordinated notes
Proceeds from sale of financial assets held for trading
Payment for financial assets held for trading
Proceeds from sale of exploration and evaluation assets
Payment for deferred exploration and evaluation expenditure
Payment for mine properties
Proceeds from seawall property insurance
167,906
245,957
(163,866)
(240,670)
(191)
1,532
5,381
11,484
2,586
(3,863)
(28,500)
10,344
(22,863)
-
(663)
(2,126)
34,558
(345)
711
5,653
9,834
4,530
(2,643)
(94,000)
-
(19,467)
650
(840)
-
51,142
NET CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES
957
(50,794)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of lease liabilities
Proceeds from/(repayment of) insurance premium funding facility
Payment of borrowing costs
-
(421)
(303)
(2,162)
317
(306)
NET CASH FLOWS (USED IN) FINANCING ACTIVITIES
(724)
(2,151)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
Net foreign exchange difference
Cash and cash equivalents at beginning of year
5,614
(174)
43,316
(47,292)
(395)
91,003
CASH AND CASH EQUIVALENTS AT END OF YEAR
6[a]
48,756
43,316
MOUNT GIBSON IRON LIMITED 2017 Annual Report33
Consolidated Statement of Changes in Equity
For the year ended 30 June 2017
Attributable to Equity Holders of the Parent
Total Equity
Issued Capital
Accumulated Losses
Share Based
Payments
Reserve
Net Unrealised
Gains / (Losses)
Reserve
Dividend
Distribution
Reserve
$’000
$’000
$’000
$’000
$’000
Other
Reserves
$’000
At 1 July 2015
Profit for the period
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Share-based payments
At 30 June 2016
At 1 July 2016
Profit for the period
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Share-based payments
At 30 June 2017
568,328
(1,243,797)
19,973
-
-
-
-
86,297
-
86,297
-
568,328
(1,157,500)
-
-
-
64
20,037
568,328
(1,157,500)
20,037
-
-
-
26,322
-
26,322
-
568,328
(1,131,178)
-
-
-
494
20,531
-
-
-
-
-
-
-
-
232
232
-
232
$’000
305,574
86,297
-
86,297
64
964,262
(3,192)
-
-
-
-
-
-
-
-
964,262
(3,192)
391,935
964,262
(3,192)
391,935
-
-
-
-
-
-
-
-
26,322
232
26,554
494
964,262
(3,192)
418,983
34MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report
For the year ended 30 June 2017
1. Introduction
(a) Corporate information
The consolidated financial statements of the Group, comprising the Company and the entities that it controlled during the year
ended 30 June 2017, were authorised for issue in accordance with a resolution of the Directors on 15 August 2017.
The Company is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian
Securities Exchange.
The nature of operations and principal activities of the Group are the mining of hematite iron ore deposits at Koolan Island and
Extension Hill, the exploration and development of hematite deposits in Western Australia and elsewhere, treasury management
and the pursuit of mineral resources acquisitions and investments.
The address of the registered office is Level 1, 2 Kings Park Road, West Perth, Western Australia, 6005, Australia.
(b) Basis of preparation
The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the
Corporations Act 2001, applicable Australian Accounting Standards and other authoritative pronouncements of the Australian
Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except for derivative financial
instruments and financial assets held for trading that have been measured at fair value.
The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless
otherwise stated, under the option available to the Company under Australian Securities and Investment Commission (“ASIC”)
(Rounding in Financial/Directors’ Report) 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.
MOUNT GIBSON IRON LIMITED 2017 Annual Report35
Notes to the Consolidated Financial Report (continued)
2. Other Significant Accounting Policies
(a) 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.
(b) 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.
(c) 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.
(d) 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.
36MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
3. Revenue and Other Income
[a] Revenue
Sale of ore – continuing operations
Realised gain 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
Insurance proceeds – other
Other income
Notes
2017
$’000
2016
$’000
161,882
161
162,043
-
2,201
246
-
-
9
3,410
5,866
234,806
382
235,188
603
3,486
23
25
86,000
117
1,594
91,848
[i]
[i]
In the 2015/16 financial year, the Company reached 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
cash settlement amount comprised $300,000 received in the 2014/15 year, $51,142,000 received in the 2015/16 year and the
remaining balance of A$34,558,000 received in the 2016/17 year.
Subsequent to 30 June 2017, the Company reached final agreement with 14 insurers, representing 92.5% of the Company’s
underwriting cover for the business interruption component of the insurance claim. Proceeds of the cash settlement amounting
to $64,288,000 were received and recognised after balance date. Negotiations will continue separately with one further insurer
representing the remaining 7.5% of the Company’s business interruption coverage.
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.
4. Expenses
[a] Cost of sales – continuing operations
Mining and site administration costs
Depreciation – mining and site administration
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
Notes
2017
$’000
2016
$’000
15
31,702
3,780
402
4,135
762
70,952
399
15,215
97
12,078
(2,571)
(2,406)
134,545
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
MOUNT GIBSON IRON LIMITED 2017 Annual Report37
Notes to the Consolidated Financial Report (continued)
Notes
2017
$’000
2016
$’000
4. Expenses (Continued)
[b] Finance costs
Finance charges on banking facilities
Finance charges payable under finance leases
Non-cash interest accretion on rehabilitation provision
[c] Net unrealised fair value gain/(loss)
Foreign exchange derivatives marked-to-market gain/(loss)
Financial assets held for trading marked-to-market gain/(loss)
[d] Administration and other expenses include:
Depreciation
Share-based payments expense
Impairment of debtors
Net realised loss on foreign exchange transactions
Net unrealised loss on foreign exchange balances
Koolan seawall insurance claim and related site works expenses
Insurance premiums (net of refunds)
Business development expenses
Koolan restart feasibility study
495
-
495
639
1,134
(123)
(14)
(137)
593
494
3,142
39
174
502
26
2,281
2,124
661
82
743
1,017
1,760
231
281
512
700
64
1,278
-
395
1,300
1,666
1,852
-
24
[e] Cost of sales and Administration and other expenses above include:
Salaries, wages expense and other employee benefits
Operating lease rental – minimum lease payments
23,549
1,667
29,789
1,476
Recognition and measurement
Employee benefits expense
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 high
quality corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.
The policy relating to share-based payments is set out in note 24.
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 13 and 15 for details on depreciation and amortisation.
Impairment
Impairment expenses are recognised to the extent that the carrying amounts of assets exceed their recoverable amounts. Refer to note 16 for
further details on impairment.
38MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
5. Taxation
Major components of tax benefit for the years ended 30 June 2017 and 2016 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
Tax benefit reported in Income Statement
Tax benefit relating to continuing operations
Tax benefit 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
A reconciliation of tax benefit applicable to accounting profit before tax at the
statutory income tax rate to tax expense at the Group’s effective tax rate for the
years ended 30 June 2017 and 2016 is as follows:
Accounting profit before tax
At the statutory income tax rate of 30% (2016: 30%)
Expenditure not allowed for income tax purposes
Recognition of previously unrecognised deferred tax assets
Adjustments in respect of current income tax of previous year
Adjustments in respect of deferred tax
Other
Tax benefit
Effective tax rate
Tax benefit reported in Income Statement
2017
$’000
2016
$’000
-
(1,481)
-
-
(1,481)
(1,481)
-
(1,481)
-
(761)
-
-
(761)
(761)
-
(761)
-
-
-
-
24,841
7,452
266
(8,548)
(654)
-
3
(1,481)
(6.0%)
(1,481)
85,536
25,661
214
(36,016)
-
7,601
1,779
(761)
(0.9%)
(761)
MOUNT GIBSON IRON LIMITED 2017 Annual Report39
Notes to the Consolidated Financial Report (continued)
5. 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
Donations
Foreign exchange contracts
Inventory
Prepaid expenditure
Fixed assets, mine properties and
exploration expenditure
Provisions
Borrowing cost
Research and development carried forward
tax offset
Tax losses
Tax (assets)/liabilities
Derecognition of deferred tax asset
Net tax (assets)/liabilities
Assets
Liabilities
Net
2017
$’000
(1,743)
(1,015)
-
(1)
(10)
(89)
(1,211)
-
2016
$’000
(547)
(294)
(445)
-
-
(49)
(2,745)
-
(23,545)
(35,793)
(15,416)
(298)
(1,063)
(69,818)
(114,209)
114,209
-
(16,429)
(510)
-
(66,698)
(123,510)
123,510
-
2017
$’000
2016
$’000
-
-
-
-
-
-
-
53
-
-
-
-
-
53
(53)
-
-
-
-
783
-
-
-
23
-
-
-
-
-
806
(806)
-
2017
$’000
(1,743)
(1,015)
-
(1)
(10)
(89)
(1,211)
53
2016
$’000
(547)
(294)
(445)
783
-
(49)
(2,745)
23
(23,545)
(35,793)
(15,416)
(298)
(1,063)
(69,818)
(114,156)
114,156
-
(16,429)
(510)
-
(66,698)
(122,704)
122,704
-
Balance
1 July 2016
$’000
Recognised
in Income
$’000
Recognised
in Equity
$’000
Balance
30 June 2017
$’000
Movement in temporary differences during the
financial year ended 30 June 2017
Accrued liabilities
Capital raising costs
Deferred expense
Deferred income
Donations
Foreign exchange contracts
Inventory
Prepaid expenditure
Fixed assets, mine properties and exploration
expenditure
Provisions
Borrowing cost
Research and development carried forward tax offset
Tax losses
Derecognition of deferred tax asset
(547)
(294)
(445)
783
-
(49)
(2,745)
23
(35,793)
(16,429)
(510)
-
(66,698)
122,704
-
(1,196)
(721)
445
(784)
(10)
(40)
1,534
30
12,248
1,013
212
(1,063)
(3,120)
(8,548)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,743)
(1,015)
-
(1)
(10)
(89)
(1,211)
53
(23,545)
(15,416)
(298)
(1,063)
(69,818)
114,156
-
40MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
5. Taxation (Continued)
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
-
2017
$’000
2016
$’000
44,338
69,818
114,156
56,006
66,698
122,704
Unrecognised deferred tax assets (calculated at 30%)
Deferred tax assets have not been recognised in respect of the following items:
Temporary differences
Tax losses
MOUNT GIBSON IRON LIMITED 2017 Annual Report41
Notes to the Consolidated Financial Report (continued)
5. 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.
42MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
6. 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
2017
$’000
2016
$’000
33,756
15,000
48,756
43,316
-
43,316
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 short-term deposit rates.
Recognition and measurement
Cash and short-term deposits in the balance sheet comprise cash at bank and on 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, if any.
[b] Reconciliation of the net profit after tax to the net cash flows from operations
Net profit after tax
Adjustments to reconcile profit after tax to net cash flows:
26,322
86,297
Depreciation of non-current assets
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
Net ore inventory movement
Impairment of debtors
Impairment/(write-back) and obsolescence of consumables inventories
Impairment of ore inventories
Impairment of mine properties
Impairment of property, plant and equipment
Impairment/(write-back) of deferred acquisition, exploration and evaluation
Unrealised loss on foreign exchange balances
Unrealised marked-to-market (gain)/loss on foreign exchange derivatives
Unrealised marked-to-market (gain)/loss 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:
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventory
Decrease in prepayments and deposits
(Increase)/decrease in income tax receivable
(Decrease) in trade and other payables
Increase/(decrease) in employee benefits
(Decrease) in provisions
Net Cash Flow from Operating Activities
5,674
402
(2,201)
(12,113)
90
494
304
2,240
3,142
(2,479)
(225)
-
-
(2,507)
174
123
14
(246)
-
-
(5,053)
(255)
492
50
(8,185)
401
(1,277)
5,381
11,971
1,070
(3,486)
(9,667)
77
64
398
1,005
1,278
8,122
(10,258)
2,135
12,377
3,037
395
(231)
(281)
(23)
(86,000)
(730)
7,087
2,193
1,417
(50)
(13,135)
(1,267)
(8,142)
5,653
[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 2017 (2016: nil). The Group disposed of items of property, plant and equipment with an aggregate fair value of $nil
(2016: $99,120) which were originally financed by means of hire purchase agreements.
MOUNT GIBSON IRON LIMITED 2017 Annual Report43
Notes to the Consolidated Financial Report (continued)
7. Term Deposits and Subordinated Notes
Current
Term deposits – receivables
Subordinated notes at fair value – available for sale investment
Notes
2017
$’000
2016
$’000
[i]
[ii]
268,500
97,000
365,500
250,000
87,000
337,000
[i] 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.
[ii] 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 and subordinated notes 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.
8. Financial Assets Held for Trading
Current
Tradeable corporate bonds at fair value
Share investments at fair value
2017
$’000
2016
$’000
31,217
1,306
32,523
19,771
-
19,771
Financial assets held for trading comprise corporate bonds and equity securities which are traded in active markets. The portfolio of
bond investments is managed by a professional funds management entity, and 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 the income statement. 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.
9. Trade and Other Receivables
Current
Trade debtors
Allowance for impairment
Sundry debtors
Other receivables
Notes
[a][i]
[b]
[a][ii]
2017
$’000
2016
$’000
9,176
(5,384)
3,792
4,486
1,250
9,528
5,404
(2,242)
3,162
37,120
1,264
41,546
[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.
44MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
9. Trade and Other Receivables (Continued)
[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. The
table below reconciles the allowance for impairment loss for the years ended 30 June 2017 and 2016.
Balance at the beginning of the year
Impairment loss
Balance at the end of the year
2017
$’000
2,242
3,142
5,384
2016
$’000
964
1,278
2,242
At 30 June 2017, trade debtors of $789,000 (2016: $52,000) 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 15 August 2017, $347,000 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.
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
2017
$’000
-
413
245
131
789
3,003
3,792
2016
$’000
-
28
23
1
52
3,110
3,162
Trade receivables are recognised and carried at amortised cost less any allowance for impairment.
Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible
are written off when identified. An allowance for impairment of trade receivables is made when there is objective evidence that the Group will
not be able to collect the debts. Indicators of impairment would include financial difficulties of the debtor, likelihood of the debtor’s insolvency
and default in payment. Any impairment is recognised in the income statement.
The vast majority of sales revenue is invoiced and received in US dollars (US$). The balance is invoiced and received in Australian dollars (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 adjustments for final pricing and other 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.
MOUNT GIBSON IRON LIMITED 2017 Annual Report45
Notes to the Consolidated Financial Report (continued)
10. Inventories
Consumables – at cost
Allowance for obsolescence and impairment of consumables inventories
Ore – at cost
Allowance for impairment of ore inventories
At net realisable value
Notes
[i],[ii]
[iii]
2017
$’000
2016
$’000
12,813
(7,604)
5,209
18,680
(3,153)
15,527
20,736
19,445
(16,970)
2,475
27,992
(10,450)
17,542
20,017
[i]
During the year, the Group wrote back $2,613,000 of previously recorded stock obsolescence allowance to the income statement.
This relates primarily to consumables inventories that are now considered not obsolete as a result of the Koolan Island restart
project. Additionally, obsolete consumables inventories totalling $5,618,000 which had been fully provided for in prior periods, were
written off against the associated provision.
[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. A net impairment loss of $134,000 was recognised during the year (2016:
$8,111,000). Additionally, consumables inventories totalling $1,269,000 which had been impaired in prior periods, were written off
against the associated provision.
[iii] At 30 June 2017, 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 – discontinued operation
Extension Hill
Koolan Island
Total write-backs on impairment
Recognition and measurement
Inventories are valued at the lower of cost and net realisable value.
2017
$’000
3,378
(3,153)
-
225
2016
$’000
6,816
-
3,442
10,258
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 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.
11. Derivative Financial Assets
Current
Foreign currency option contracts
Refer note 34 for details on derivative financial instruments.
Notes
2017
$’000
2016
$’000
34[b][i]
341
341
231
231
46MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
12. Interest in Subsidiaries
Name
Country of
Incorporation
Percentage of Equity Interest Held by the
Group
Mount Gibson Mining Limited
Geraldton Bulk Handling Pty Ltd
Gibson Minerals Ltd (incorporated 18 November 2016)
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
Australia
2017
%
100
100
100
100
100
100
100
100
2016
%
100
100
-
100
100
100
100
100
Pursuant to ASIC Instrument 2016/785, 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
Impairment reversal/(impairment) of consumables inventories
Impairment of mine properties
Impairment of property, plant and equipment
Impairment reversal/(impairment) of deferred acquisition, exploration and evaluation
Impairment of non-current other receivables
Net unrealised marked-to-market gain/(loss)
Exploration expenses
Administration and other expenses
PROFIT/(LOSS) FROM CONTINUING OPERATIONS BEFORE TAX AND FINANCE COSTS
Finance costs
PROFIT/(LOSS) FROM CONTINUING OPERATIONS BEFORE TAX
Tax expense
PROFIT/(LOSS) AFTER TAX FROM CONTINUING OPERATIONS
2017
$’000
2016
$’000
162,043
12,113
174,156
(119,042)
(3,153)
51,961
5,760
2,497
-
-
2,507
(12,204)
(296)
(90)
(21,824)
28,311
(1,134)
27,177
(1,578)
25,599
235,188
9,667
244,855
(195,448)
3,442
52,849
91,783
(7,750)
(2,135)
(7,955)
(3,037)
(150,808)
512
(77)
(19,906)
(46,524)
(1,760)
(48,284)
(5,496)
(53,780)
DISCONTINUED OPERATIONS
Profit after tax for the year from discontinued operations
PROFIT/(LOSS) AFTER TAX ATTRIBUTABLE TO MEMBERS OF THE COMPANY
723
26,322
5,991
(47,789)
MOUNT GIBSON IRON LIMITED 2017 Annual Report47
Notes to the Consolidated Financial Report (continued)
Consolidated Balance Sheet of the Closed Group
Notes
2017
$’000
2016
$’000
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
Property, plant and equipment
Mine properties
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Interest-bearing loans and borrowings
Employee benefits
Provisions
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Other payables
Employee benefits
Provisions
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Accumulated losses
Reserves
TOTAL EQUITY
48,612
365,500
31,217
9,380
20,592
1,815
341
-
477,457
5,679
10,891
16,570
494,027
29,532
-
2,778
3,651
35,961
38
309
38,736
39,083
75,044
418,983
42,419
337,000
19,771
41,176
19,940
1,742
231
50
462,329
8,595
-
8,595
470, 924
31,062
421
2,546
3,083
37,112
3,701
181
37,995
41,877
78,989
391,935
[i]
568,328
(1,131,178)
981,833
418,983
568,328
(1,157,500)
981,107
391,935
[i] Accumulated losses
Balance at the beginning of the year
Net profit/(loss) attributable to members of the closed group
Balance at the end of the year
(1,157,500)
26,322
(1,131,178)
(1,109,711)
(47,789)
(1,157,500)
48MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
13. Property, Plant and Equipment
Land
Plant and equipment
Plant and equipment
under lease
Buildings
Capital works in
progress
Total
2017
2016
$’000
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
Gross carrying amount at cost
Accumulated depreciation and impairment
Net carrying amount
Reconciliation
Carrying amount at the beginning of the year
Additions
Transfers
Disposals
Depreciation expense – continuing operations
Depreciation expense – discontinued operations
Depreciation capitalised
Impairment loss
649
(549)
100
105
-
-
(5)
-
-
-
-
Carrying amount at the end of the year
100
654
273,180
293,444
24,427
57,050
139,926
138,708
(549)
(268,387)
(284,934)
(24,419)
(57,022)
(139,027)
(138,607)
105
4,793
8,510
8
28
899
101
135
-
-
-
-
-
-
(30)
105
8,510
2,523
-
(372)
(5,205)
(43)
(620)
-
4,793
23,840
515
757
(883)
(9,534)
(49)
-
(6,136)
8,510
1,071
-
-
(99)
(567)
-
-
(377)
28
101
1,213
-
-
5,366
386
60
-
(409)
(1,821)
-
(6)
-
899
-
-
(3,890)
101
28
-
-
-
(17)
-
(3)
-
8
8
119
-
119
-
119
-
-
-
-
-
-
119
2,166
438,301
492,022
(2,166)
(432,382)
(483,278)
-
5,919
8,744
1,082
1,679
(817)
-
-
-
-
8,744
3,855
-
(377)
31,494
2,580
-
(982)
(5,631)
(11,922)
(43)
(629)
(49)
-
(1,944)
-
(12,377)
-
-
5,919
8,744
5,919
8,744
Assets pledged as security
100
105
4,793
8,510
Refer note 16 for details of impairment and note 18 for details of security arrangements.
28
899
101
119
MOUNT GIBSON IRON LIMITED 2017 Annual Report49
Notes to the Consolidated Financial Report (continued)
13. 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 and 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 16 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. Refer note 16 for further details on impairment.
50MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
14. 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
Transferred to mine properties
Net impairment reversal/(loss)
Disposals
Exploration expenditure written off
Carrying amount at the end of the year
Notes
2017
$’000
2016
$’000
18,162
(18,162)
-
-
1,010
(3,427)
2,507
-
(90)
-
20,669
(20,669)
-
2,924
840
-
(3,037)
(650)
(77)
-
15
[i]
[i] On 9 February 2017, the Company announced it had received final statutory approvals for development of the Iron Hill deposit and,
subsequently, commenced mining operations. Accordingly, the carrying amount for the Iron Hill Project of $2,966,000 which was
fully impaired at 30 June 2016 was written back during the year ended 30 June 2017.
Also during the year, additional transaction and other holding costs totalling $459,000 were incurred on the Shine Project. 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 and accordingly, the carrying amount for the Shine Project was fully impaired
as at 30 June 2017.
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.
MOUNT GIBSON IRON LIMITED 2017 Annual Report51
Notes to the Consolidated Financial Report (continued)
15. Mine Properties
Gross carrying amount at cost
Accumulated amortisation and impairment
Reconciliation
Deferred waste
Carrying amount at the beginning of the period
Deferred waste capitalised
Amortisation expensed
Impairment loss (note 16)
Carrying amount at the end of the period
Other mine properties
Carrying amount at the beginning of the period
Additions
4,988
Mine rehabilitation – revised estimate
adjustment
Transferred from deferred acquisition,
exploration and evaluation costs (note 14)
Amortisation expensed
Impairment loss (note 16)
Carrying amount at the end of the period
Net carrying amount
-
-
-
-
4,988
4,988
2017
$’000
2016
$’000
1,548,630
(1,537,739)
10,891
1,537,337
(1,537,337)
-
Koolan Island
Extension Hill
Total
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
411
2,467
3,427
(402)
-
5,903
5,903
-
-
-
-
-
3,205
-
-
-
(1,070)
(2,135)
-
-
-
-
-
-
-
-
5,399
2,467
3,427
(402)
-
10,891
10,891
-
-
-
-
-
3,205
-
-
-
(1,070)
(2,135)
-
-
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 18).
52MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
15. 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 16 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.
MOUNT GIBSON IRON LIMITED 2017 Annual Report53
Notes to the Consolidated Financial Report (continued)
16. 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 2017, the following material events occurred which were considered potential indicators of impairment or reversals thereof:
as at 30 June 2017, the market capitalisation of the Group was below the book value of its equity;
the benchmark price of iron ore (in CFR terms for delivery in northern China) commenced the year at US$55 per dry metric tonne
(dmt) and, after being stable for much of the first half of the year, increased to above US$90/dmt early in the second half before
falling substantially to under US$55/dmt and finishing the year at US$63/dmt;
the Group ceased mining in the Extension Hill open pit and restricted activities to the processing and sale of low grade stockpiled
material while awaiting the receipt of statutory approvals for commencement of mining in the Iron Hill open pit, with these
approvals received in the second half of the year; and
the Group in April 2017 made a decision to rebuild the Koolan Island main pit seawall and recommence operations in due course.
Accordingly, the Group has performed an impairment assessment of both the Koolan Island and Extension Hill CGUs. As both of these
CGUs have previously been fully impaired, the assessment focused on the potential for any reversal of impairment recorded in prior
periods. Based on this assessment:
(i)
$2,966,000 representing the carrying amount of the previously impaired Iron Hill project which forms part of the Extension Hill CGU
was reversed (note 14). No amounts previously impaired relating to the Extension Hill CGU are available for reversal.
(ii) No impairment expenses or reversals have been recognised during the reporting period for the Koolan Island CGU.
Details of the impairments/(write-backs) recognised are tabulated below:
Koolan Island
Extension Hill
Total impairment loss/(write-back) of non-current assets
2017
$’000
-
(2,966)
(2,966)
2016
$’000
2,893
14,585
17,478
The above impairment values have been allocated proportionately to each CGU’s non-current assets as follows:
Koolan Island
Extension Hill
Total
Deferred acquisition, exploration and
evaluation costs (Iron Hill)
Other mine properties
Property, plant and equipment
Total impairment/(write-back) of
non-current assets
-
-
-
-
2017
$’000
2016
$’000
2017
$’000
-
(2,966)
-
2,893
-
-
2016
$’000
2,966
2,135
9,484
2017
$’000
(2,966)
-
-
2016
$’000
2,966
2,135
12,377
2,893
(2,966)
14,585
(2,966)
17,478
The Group assessed the recoverable amount of the Extension Hill and Koolan Island CGUs as at 30 June 2017 using the Fair Value Less
Costs to Dispose (“FVLCD”) approach. The FVLCD is assessed as the present value of the future cash flows expected to be derived from
the operation, utilising the following key assumptions for each CGU:
Cashflow forecasts were made based on recent actual performance, budgets and anticipated revenues and estimated operating and
capital costs over the remaining life of the mine;
Discount rate of 12% (nominal, before and after tax);
Market consensus iron ore price forecasts for the 62% Fe benchmark fines CFR prices (northern China), expressed in real 2017 terms,
of US$55/dmt in the first year, approximately US$45/dmt in the following three years, and US$49/dmt thereafter, at an exchange rate
of A$1.00/US$0.75, with sensitivities undertaken for a range of these inputs; and
Revenue and cost inflation estimates of 2.0% per year.
54MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
16. 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.
17. Trade and Other Payables
Current
Trade creditors
Accruals and other payables
Notes
2017
$’000
2016
$’000
[i]
[i]
10,102
21,375
31,477
13,734
22,495
36,229
[i] 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.
MOUNT GIBSON IRON LIMITED 2017 Annual Report55
Notes to the Consolidated Financial Report (continued)
18. Interest-Bearing Loans and Borrowings
Current
Insurance premium funding facility
Financing facilities available
Notes
[a]
2017
$’000
2016
$’000
-
-
421
421
At reporting date, the following financing facilities had been negotiated and were available:
Total facilities:
Insurance premium funding facility
Performance bonding facility
Facilities used at reporting date:
Insurance premium funding facility
Performance bonding facility
Facilities unused at reporting date:
Insurance premium funding facility
Performance bonding facility
[a]
[b]
-
20,000
20,000
-
11,608
11,608
-
8,392
8,392
421
55,000
55,421
421
25,829
26,250
-
29,171
29,171
Terms and conditions relating to the above financial facilities:
[a]
Insurance Premium Funding Facility
Insurance premium arrangements were entered into by the Group in the 2015/16 reporting period to fund its annual insurance
premiums. Interest was charged at 1.86% pa. The final instalment of the loan was fully paid in July 2016. The Company did not
renew the funding facility in the 2016/17 reporting period and accordingly there is no liability as at balance date.
[b] Performance Bonding Facility
In May 2011, the Company entered into a Facility Agreement comprising a Corporate Loan facility and a Performance Bonding
facility. The undrawn Corporate Loan facility was cancelled in April 2013. The Performance Bonding facility was reduced in size
from $55.0 million to $20.0 million in June 2017 and extended to 30 June 2021. As at balance date, bonds and guarantees
totalling $11.6 million were drawn under the Performance Bond Facility.
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.
56MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
19. Provisions
Current
Non-Current
Reconciliation
Carrying amount at the beginning of the year
Provision for period
Amounts utilised during the period
Unused amounts reversed
Interest accretion on rehabilitation provision - expensed
Interest accretion on rehabilitation provision - capitalised
Revised estimate adjustment – continuing operations
Revised estimate adjustment – discontinued operations
Revised estimate adjustment – mine properties asset
Road Resealing
Restructure
2017
2016
2017
2016
$’000
$’000
$’000
$’000
Decommissioning
Rehabilitation
Other Provisions
Total
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2,536
1,878
-
-
2,536
1,878
1,878
1,112
(454)
2,111
96
(329)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,115
1,100
38,736
37,917
39,851
39,017
3,520
39,017
43,226
-
-
-
(3,520)
(257)
(663)
-
-
-
-
-
-
-
-
639
120
-
1,017
-
(2,406)
(2,145)
271
(2,418)
2,467
-
39,851
39,017
-
-
-
183
-
(87)
(96)
-
-
-
-
-
-
105
78
3,651
3,083
38,736
37,995
183
42,387
41,078
363
-
(80)
-
-
-
41,078
49,220
1,112
(798)
(96)
639
120
96
(4,592)
-
1,017
-
(100)
(2,406)
(2,245)
-
-
271
(2,418)
2,467
-
183
42,387
41,078
Carrying amount at the end of the year
2,536
1,878
Road resealing
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.
Restructure
This provision relates to the forecast costs associated with release of personnel on the wind down and/or closure of mining sites where a detailed formal plan has been approved and communicated
to the relevant mine site workforce.
Decommissioning rehabilitation
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 specialising 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. Based on current estimates, the bulk of
expenditure on decommissioning rehabilitation is expected to occur at Tallering Peak and Extension Hill within the next 1-3 years, and at Koolan Island between 5-7 years from balance date.
MOUNT GIBSON IRON LIMITED 2017 Annual Report57
Notes to the Consolidated Financial Report (continued)
19. Provisions (Continued)
The following table summarises the decommissioning rehabilitation provision by mine site:
Tallering Peak
Koolan Island
Extension Hill
Recognition and measurement
Rehabilitation costs
2017
$’000
2016
$’000
1,115
27,331
11,405
39,851
1,100
29,115
8,802
39,017
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.
58MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
20. Issued Capital
[a] Ordinary shares
Issued and fully paid
[b] Movement in ordinary shares on issue
Beginning of the financial year
Exercise of Performance Rights
Restricted shares – executive loan share plan issues
End of the financial year
[i]
[ii]
2017
$’000
2016
$’000
568,328
568,328
2017
Number of
Shares
1,091,279,435
533,625
1,091,813,060
4,749,456
1,096,562,516
$’000
568,328
-
568,328
-
568,328
2016
Number of
Shares
1,090,805,085
474,350
1,091,279,435
-
1,091,279,435
$’000
568,328
-
568,328
-
568,328
[i] On 1 July 2016, 533,625 shares were issued as a result of the vesting and exercise of the equivalent number of Performance
Rights.
[ii] On 24 August 2016, 4,749,456 shares were issued under the Company’s Loan Share Plan. These have been accounted for as an
in-substance option award. Refer note 24(d) for further details.
[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 2017, there were no options on issue (2016: nil) – see note 24(b).
Share options carry no right to dividends and no voting rights.
[e] Performance rights
During the year ended 30 June 2017, no Performance Rights were issued.
A total of 533,625 Performance Rights vested during the year and accordingly, 533,625 ordinary shares were issued on 1 July 2016.
As at 30 June 2017, there were no Performance Rights on issue (2016: 711,500) – see note 24(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 2017 and 30 June
2016.
MOUNT GIBSON IRON LIMITED 2017 Annual Report59
Notes to the Consolidated Financial Report (continued)
21. Reserves
Share based payments reserve
Net unrealised gains reserve
Dividend distribution reserve
Other reserves
Notes
2017
$’000
2016
$’000
[a]
[b]
[c]
[d]
20,531
232
964,262
(3,192)
20,037
-
964,262
(3,192)
981,833
981,107
[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 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.
Balance at the beginning of the year
Movement during the period
Balance at the end of the year
[d] Other reserves
20,037
494
20,531
19,973
64
20,037
-
232
-
232
-
-
-
-
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
(3,192)
-
(3,192)
(3,192)
-
(3,192)
22. Accumulated Losses
Balance at the beginning of the year
Dividends paid during the period
Net profit attributable to members of the Company
Balance at the end of the year
26[a]
(1,157,500)
-
26,322
(1,243,797)
-
86,297
(1,131,178)
(1,157,500)
60MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
Notes
2017
$’000
2016
$’000
23. 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] 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
[d] 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]
[iv]
520
1,011
863
2,394
1,817
3,125
946
5,888
1,326
-
1,326
8,282
600
8,882
886
1,423
1,042
3,351
1,814
1,982
-
3,796
264
-
264
24,764
-
24,764
[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 and land lease with an initial term of 5 years, and leases for equipment which
have an average term of 1.5 years.
[iii] The Group has contractual commitments to purchase property, plant and equipment at Koolan Island and Extension Hill.
[iv] Amounts disclosed as contractual commitments relate primarily to supplier arrangements at the Group’s Extension Hill and Koolan
Island sites where financial obligations, including minimum notice periods, apply in the case of early termination. In previous
years, the Group has also had early termination commitments in relation to its Extension Hill transport arrangements, and these
commitments were removed in the current reporting period when certain pre-defined cumulative transport volume thresholds were
reached.
MOUNT GIBSON IRON LIMITED 2017 Annual Report61
Notes to the Consolidated Financial Report (continued)
Notes
2017
$’000
2016
$’000
24. Share-Based Payment Plans
(a) Recognised share-based payment expense
Expense arising from equity-settled share-based payment transactions
4[d]
494
64
The share-based payment plans are described below. There have been no cancellations of any of the plans during 2017 and 2016.
(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 2017 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
> 51st percentile and ≤76th percentile
51st percentile
<51st percentile
100%
Pro rata allocation
50%
0%
Information with respect to the number of performance rights granted and issued is as follows:
Balance at beginning of year
- granted
- exercised
- lapsed/forfeited
Balance at year end
2017
2016
No. of Performance
Rights
No. of Performance
Rights
711,500
-
(533,625)
(177,875)
-
1,185,850
-
(474,350)
-
711,500
A total of 533,625 Performance Rights vested on 1 July 2016 in accordance with the terms of the vesting conditions. At 30 June 2017,
there were no Performance Rights on issue.
(d) Loan Share Plan
The Company established a Loan Share Plan (“LSP”) during the reporting period. Under the LSP, ordinary shares in the Company may
be issued to eligible participants, with vesting of the shares being subject to the satisfaction of stipulated performance conditions. The
shares are issued at their market value with the recipient required to pay this market value in order to take up the share offer. The
Company or any of its subsidiaries will provide a loan to fund the acquisition price. The loan is interest-free and is secured against the
shares in the form of a holding lock preventing all dealing in the shares. The loan is limited recourse such that if the shares do not
ultimately vest and are therefore forfeited, this is treated as full repayment of the loan balance. While the loan balance remains
outstanding, any dividends paid on the shares will be automatically applied towards repayment of the loan. In making the loan in
respect of the newly issued shares, there is no cash cost to the Company as the shares are newly issued.
On 24 August 2016 the Company issued 4,749,456 shares under the LSP. In accordance with the terms of the LSP, the shares were
issued at a market price of $0.316 per share with the participants responsible for associated limited recourse loans totalling $1,500,828.
In order for the shares to vest, the participants must remain continuously employed by the Group to at least the end of the financial
year and the Company’s share price, as measured by a rolling five day volume weighted average price of the Company’s shares traded
on the ASX, must on 1 July 2017 or at any time in the following four year period be above a 10% premium to the issue price of the
shares. The award has been accounted for as an in-substance option award, with the fair value at grant date assessed at $0.104 per
share. In calculating this fair value, a Monte Carlo simulation model was utilised over several thousand simulations to predict the share
price at each vesting test date and whether the 10% hurdle was satisfied, with the resultant values discounted back to the grant date.
The underlying share price and the exercise price were assumed at $0.31 per share, the period to exercise was assumed as three years
(being half way between the first possible vesting date and the expiry of the LSP shares), the risk free rate was 1.40% based on
Australian Government bond yields with three year lives, the estimated volatility was 50% based on historical share price analysis, and
the dividend yield was assumed as nil.
62MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
24. 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 any options issued under this plan is measured by reference to their fair value at the date at which they are granted. The fair value
is typically determined by using a binomial model. 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 Performance Rights issued under the PRP is measured by reference to their 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.
Loan share plan
There is a Mount Gibson Iron Limited Loan Share Plan (“LSP”). The LSP 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 share rights is measured by reference to the fair value at the date at which they are granted. The fair value is measured by
reference to the quoted market price on the Australian Stock Exchange and using a Monte Carlo simulation model.
Equity-Settled Transactions Generally
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.
MOUNT GIBSON IRON LIMITED 2017 Annual Report63
Notes to the Consolidated Financial Report (continued)
25. 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 used in calculating basic and diluted earnings per share:
Continuing operations
Discontinued operations
Profit attributable to ordinary equity holders of the Company
Weighted average number of ordinary shares used in calculating basic earnings
per share
Effect of dilution
- Performance rights
- Restricted shares (in-substance options)
Weighted average number of ordinary shares used in calculating diluted earnings
per share
Earnings per Share (cents per share):
Basic earnings per share
Diluted earnings per share
2017
$’000
25,599
723
26,322
2016
$’000
80,306
5,991
86,297
Number of
Shares
Number of
Shares
1,091,813,060
1,091,037,076
-
4,037,038
533,625
-
1,095,850,098
1,091,570,701
2.41
2.40
7.91
7.91
Conversions, calls, subscriptions or issues after 30 June 2017
There have been no issues of shares or exercises, conversions or realisations of options, performance rights or restricted LSP shares under
any of the Company’s share-based payment plans since 30 June 2017.
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.
64MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
2017
$’000
2016
$’000
26. Dividends Paid and Proposed
Declared and paid during the year:
[a] Dividends on ordinary shares:
No dividends were declared and paid during the reporting period.
[b] Dividends not recognised at the end of the reporting period:
On 15 August 2017, the Company declared a final dividend on ordinary shares in respect of the 2016/17 financial year of $0.02 per share
fully franked. The total amount of the dividend is $21,931,000. The dividend has not been provided for in the 30 June 2017 financial
statements.
[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%.
27. Contingent Liabilities
59,243
60,774
-
-
59,243
60,774
-
-
59,243
60,774
1. The Group has a Performance Bonding facility drawn to a total of $11,608,000 as at balance date (2016: $25,829,000). The
performance bonds secure the Group’s obligations relating primarily to environmental matters and infrastructure assets.
2. Certain claims arising with customers, employees, consultants, and contractors have been made by or against certain controlled
entities in the ordinary course of business, some of which involve litigation or arbitration. The Directors do not consider the
outcome of any of these claims will have a material adverse impact on the financial position of the consolidated entity.
MOUNT GIBSON IRON LIMITED 2017 Annual Report65
Notes to the Consolidated Financial Report (continued)
28. Key Management Personnel
[a] Compensation of Key Management Personnel
Short-term
Post employment
Long-term
Share-based payment
Termination payment
2017
$
3,276,676
190,499
31,656
493,943
-
3,992,774
2016
$
2,569,717
185,326
14,935
64,152
-
2,834,130
[b] Loans to Specified Key Management Personnel
Limited recourse loans totalling $1,500,828 were made to key management personnel during the reporting period under the terms of the
Company’s Loan Share Plan (“LSP”). The issue of shares under the LSP and the associated limited recourse loans are accounted for as an
in-substance option award. Refer to note 24 for details of the LSP and shares issues made thereunder during the reporting period.
[c] Other Transactions and Balances with Key Management Personnel
There were no other transactions and balances with key management personnel during the year.
29. 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.
Three ad hoc spot sales of iron ore from Extension Hill.
Pursuant to these sales agreements, during the financial year, the Group:
Sold 182,167 WMT (2016: 290,196 WMT) of iron ore to APAC; and
Sold nil WMT (2016: 1,234,131 WMT) of iron ore to SCIT.
66MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
Amounts recognised at the reporting date in relation to director-related entity transactions:
Assets and Liabilities
Current Assets
Trade receivables – APAC
Trade receivables – SCIT
Total trade receivables
Total Assets
Current Liabilities
Trade payables – APAC
Trade payables – SCIT
Total trade payables
Total Liabilities
Net Sales Revenue
Net sales revenue – APAC
Net sales revenue – SCIT
Total Net Sales Revenue
Apart from the above, there are no director-related entity transactions other than those specified in note 28.
2017
$’000
2016
$’000
2,566
-
2,566
2,566
-
-
-
-
819
-
819
819
-
-
-
-
8,901
-
8,901
14,281
48,559
62,840
2017
$
2016
$
30. 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
192,095
202,395
Other services in relation to the entity and any other entity in the consolidated entity
3,605
3,600
195,700
205,995
MOUNT GIBSON IRON LIMITED 2017 Annual Report67
Notes to the Consolidated Financial Report (continued)
31. Discontinued Operations
The Tallering Peak operation is reported as a discontinued operation in this financial report. Mining was completed in June 2014 and
the final shipment of remnant low grade ore occurred in March 2017.
2017
$’000
2016
$’000
[a] Profit from discontinued operations
The financial results of Tallering Peak operation for the year are presented below:
Revenue
Cost of sales
Impairment write-back on ore inventories
Gross profit
Impairment/obsolescence write-back on consumables inventories
Profit before tax and finance costs from discontinued operations
Finance costs
Profit before tax from discontinued operations
Income tax benefit/(expense)
Net profit after tax from discontinued operations
Earnings per share (cents per share):
basic earnings per share
diluted earnings 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 from discontinued operations
11,085
(13,740)
3,378
723
-
723
-
723
-
723
0.07
0.07
5,346
(6,191)
6,816
5,971
20
5,991
-
5,991
-
5,991
0.55
0.55
2,399
1,568
-
-
-
-
2,399
1,568
68MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
32. 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 from the Extension Hill and
Iron Hill iron ore deposits.
Koolan Island segment – this segment was on care and maintenance until the end of April 2017, at which time the Group
commenced the Koolan Island restart project.
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 revenues.
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 on investments
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 2017, 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
Other
2017
$’000
53,669
38,672
69,541
161,882
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
Revenue from external customers by geographical location is based on the port of delivery. All iron ore has been shipped to China
during the year ended 30 June 2017.
All segment assets are located within Australia.
MOUNT GIBSON IRON LIMITED 2017 Annual Report69
Notes to the Consolidated Financial Report (continued)
32. 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 (loss)/reversal
Earnings/(loss) before interest, tax, depreciation and amortisation
Depreciation and amortisation
Segment result
Finance costs
Profit before tax and discontinued operations
Items included in segment result:
Impairment/(write-backs) of consumables inventories
Impairment (write-backs)/loss on ore inventories
Impairment of property, plant and equipment
Impairment of mine development
Impairment/(write-backs) of exploration and evaluation expenditure
2017
$’000
2016
$’000
2017
$’000
162,043
175,214
-
-
162,043
175,214
36,092
32
36,124
(2,373)
33,751
25,558
(16,409)
9,149
(7,068)
2,081
-
-
-
(3,154)
2,260
(894)
(3,067)
(3,961)
2016
$’000
59,974
-
59,974
8,210
(5,738)
2,472
(5,224)
2017
$’000
-
12,113
12,113
(3,486)
(459)
(3,945)
(593)
2016
$’000
-
9,667
9,667
82,747
(71)
82,676
(700)
(2,752)
(4,538)
81,976
(219)
3,153
-
-
(2,966)
(32)
1,824
-
9,484
2,135
2,966
(2,260)
-
-
-
-
6,287
(3,442)
2,893
-
-
16,409
(2,260)
5,738
-
-
-
-
459
459
-
-
-
-
71
71
* ‘Unallocated’ includes interest revenue ($12,113,000) and corporate expenses such as head office salaries and wages.
Segment assets
Current financial assets
Other current assets
Property, plant and equipment
Mine properties
Total assets
Segment liabilities
Financial liabilities
Other liabilities
Total liabilities
9,504
17,289
2,637
5,903
5,838
17,747
1,752
-
2,152
4,249
2,580
4,988
4,932
1,839
5,912
-
444,992
431,094
1,151
702
-
2,368
1,080
-
35,333
25,337
13,969
12,683
446,845
434, 542
496,147
472,562
19,136
13,944
33,080
23,958
11,179
35,137
4,184
27,762
31,946
1,652
29,397
31,049
8,157
3,981
12,138
11,040
3,401
14,441
31,477
45,687
77,164
36,650
43,977
80,627
Net assets/(liabilities)
2,253
(9,800)
(17,977)
(18,366)
434,707
420,101
418,983
391,935
2017
$’000
162,043
12,113
174,156
29,452
1,833
31,285
(6,033)
25,252
(1,134)
24,118
(2,479)
3,153
-
-
(2,507)
(1,833)
456,648
22,689
5,919
10,891
2016
$’000
235,188
9,667
244,855
116,515
(22,218)
94,297
(12,992)
81,305
(1,760)
79,545
8,111
(3,442)
12,377
2,135
3,037
22,218
441,864
21,954
8,744
-
70MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
33. Events After the Balance Sheet Date
Following the end of the reporting period, on 7 July 2017 the Company announced that it had reached final agreement with 14 insurers,
representing 92.5% of the Company’s insurance cover for business interruption suffered from the late 2014 failure of the Koolan Island
seawall, for a cash settlement of the claim for $64,288,000. Proceeds of the settlement have been received and recognised after balance
date. Negotiations will continue separately with one insurer representing the remaining 7.5% of the Company’s business interruption
coverage.
On 15 August 2017, the Company declared a final dividend on ordinary shares in respect of the 2016/17 financial year of $0.02 per share
fully franked. The total amount of the dividend is $21,931,000. The dividend has not been provided for in the 30 June 2017 financial
statements.
Apart from the above, as at the date of this report there are no significant events after balance date of the Company or of the Group that
require adjustment of or disclosure in this report.
34. Financial Instruments
[a] Financial risk management objectives
The Group’s principal financial instruments, other than derivatives, comprise bank and equipment finance arrangements, cash and short-
term deposits, and financial assets held for trading.
The main purpose of these financial instruments is to raise finance for the Group’s operations.
The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations.
The Group also enters into derivatives transactions, principally forward currency contracts, and from time to time also enters into foreign
currency collar options and interest rate swaps. The purpose is to manage the currency and interest rate risks arising from the Group’s
operations and its sources of finance.
The main risks arising from the Group’s financial instruments are foreign currency risk, interest rate risk, credit risk, commodity price risk
and liquidity risk. The Board reviews and agrees management’s recommended policies for managing each of these risks, as summarised
below and in accordance with the Company’s Financial Risk Management Policy.
[b] Foreign currency risk
The Group is exposed to the risk of adverse movement in the A$ 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 2017, there were no US dollar foreign exchange forward contract deliveries.
At 30 June 2017, the notional amount of the foreign exchange hedge book totalling US$12,000,000 is made up exclusively of collar option
contracts with maturity dates due in the 3 months ended 27 September 2017 and with a cap price of A$1.00/US$0.7550 and a floor price
of A$1.00/US$0.7205.
As at 30 June 2017, the marked-to-market unrealised gain on the total outstanding US dollar foreign exchange hedge book of
US$12,000,000 was A$341,000.
It is the Group’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximise hedge
effectiveness.
The Group uses the following derivative instruments to manage foreign currency risk from time to time as business needs and conditions
dictate:
Instrument
Type of Hedging
Objective
Forward exchange contracts
Cash flow hedge
Collar options
Cash flow hedge
To hedge sales receipts against cash flow volatility arising from the
fluctuation of the A$/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.
MOUNT GIBSON IRON LIMITED 2017 Annual Report71
Notes to the Consolidated Financial Report (continued)
34. 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:
2017
2016
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
call strike price 0.7500
put strike price 0.6850
- within one year
call strike price 0.7550
put strike price 0.7205
Total
0.7500
15,000
20,000
231
0.7550
12,000
15,894
341
-
-
-
-
0.7550
12,000
15,894
341
0.7500
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 foreign 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
11
2017
$’000
341
341
-
341
(109)
-
232
(123)
2016
$’000
231
231
-
(231)
231
-
-
231
The following table details the effect on profit and other comprehensive income after tax of a 10% change in the A$ against the US$ from
the spot rates at 30 June 2017 and 30 June 2016 due to changes in the fair value of monetary assets and liabilities.
Net Profit
Other Comprehensive Income
2017
$’000
2016
$’000
2017
$’000
2016
$’000
10% appreciation in the A$ spot rate with all other
variables held constant
10% depreciation in the A$ spot rate with all other
variables held constant
(767)
(580)
1,167
938
710
(526)
-
-
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.
72MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
34. 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 6)
Trade receivables
(included within note 9)
Financial Liabilities
Trade payables
Net exposure
[c] Interest rate risk
(included within note 17)
2017
$’000
6,729
6,440
(1,116)
12,053
2016
$’000
7,164
2,862
(901)
9,125
The Group’s exposure to market interest rates relates primarily to the Group’s cash and cash equivalents, term deposits and subordinated
notes, and financial assets held for trading (tradeable corporate bonds).
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:
MOUNT GIBSON IRON LIMITED 2017 Annual Report73
Notes to the Consolidated Financial Report (continued)
34. 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
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
%
2016
%
CONSOLIDATED
i) Financial assets
Cash
Short-term deposits (< 3 months maturity)
Term deposits – receivables
33,755
43,315
-
-
-
-
-
15,000
-
-
268,500
250,000
Subordinated notes – available-for-sale
97,000
87,000
-
-
Financial assets held for trading
Trade and other receivables
Derivative financial assets
Total financial assets
ii) Financial liabilities
Trade and other payables
Insurance premium funding
Total financial liabilities
-
-
-
-
-
-
31,217
19,771
-
-
-
-
130,755
130,315
314,717
269,771
-
-
-
-
-
-
-
-
-
-
421
421
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
-
-
-
1,306
9,528
341
1
-
-
-
-
41,546
231
33,756
15,000
43,316
-
268,500
250,000
97,000
32,523
9,528
341
87,000
19,771
41,546
231
11,176
41,778
456,648
441,864
31,477
36,229
31,477
36,229
-
-
-
421
31,477
36,229
31,477
36,650
0.47
2.23
2.62
3.14
4.17
-
-
-
-
0.78
-
2.94
3.74
4.78
-
-
-
1.86
74MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
34. 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, in
absolute terms.
0.25% increase 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
2017
$’000
721
(721)
2016
$’000
624
(624)
2017
$’000
2016
$’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 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 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. “Lump” iron ore typically receives a premium to the published Platts Index “fines” price.
During the period, the Group entered into forward sales agreements covering six shipments each of 60,000 tonnes of iron ore, with
maturity dates spread over the period January to June 2017. The contracts were stated in US$ per dry metric tonne and were cash
settled against the average daily CFR benchmark price for 62% Fe fines ores for delivery to northern China. The average price of the
forward contracts at each maturity date was between US$70 and US$76 per tonne. Movements in the market value of the forward
sale contracts are taken to the income statement. There were no outstanding iron ore forward contracts as at 30 June 2017, however
a receivable of $1,104,000 was recorded at balance date in relation to the contract that matured in June 2017 which will be cash
settled in July 2017.
MOUNT GIBSON IRON LIMITED 2017 Annual Report75
Notes to the Consolidated Financial Report (continued)
34. 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 2017, the Group had unutilised performance bonding facilities totalling $8,392,000 (2016: $29,171,000). Refer note 18.
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.
Financial Liabilities
Trade and other payables
Insurance premium funding
Derivatives – inflow
Derivatives – outflow
Less
than 6
months
$’000
31,477
-
(16,235)
15,894
31,136
30 June 2017
30 June 2016
6 to 12
months
$’000
1 to 5
years
$’000
Over 5
years
$’000
Total
$’000
Less
than 6
months
$’000
6 to 12
months
$’000
1 to 5
years
$’000
Over 5
years
$’000
Total
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31,477
36,229
-
423
(16,235)
(20,231)
15,894
20,000
31,136
36,421
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
36,229
423
(20,231)
20,000
36,421
[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.
76MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
34. Financial Instruments (Continued)
The carrying amounts and fair values of the financial assets and financial liabilities for the Group as at 30 June 2017 are shown below.
2017
2016
Carrying Amount
$’000
Fair Value
$’000
Carrying Amount
$’000
Fair Value
$’000
33,756
15,000
268,500
97,000
32,523
9,528
341
456,648
31,477
-
31,477
425,171
33,756
15,000
268,500
97,000
32,523
9,528
341
456,648
31,477
-
31,477
425,171
43,316
-
250,000
87,000
19,771
41,546
231
441,864
36,229
421
36,650
405,214
43,316
-
250,000
87,000
19,771
41,546
231
441,864
36,229
421
36,650
405,214
Financial assets – current
Cash
Short-term deposits
Term deposits – receivables
Subordinated notes – available-for-sale
Financial assets held for trading
Trade debtors and other receivables
Derivatives
Financial liabilities – current
Trade and other payables
Insurance premium funding
Net financial assets
Recognition and measurement
Derivative financial instruments and hedging
The Group uses foreign currency to hedge its risks associated with foreign currency and commodity price 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 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.
MOUNT GIBSON IRON LIMITED 2017 Annual Report77
Notes to the Consolidated Financial Report (continued)
35. Parent Entity Information
[a]
Information relating to Mount Gibson Iron Limited:
Current assets
Total assets
Current liabilities
Total liabilities
Issued capital
Issued capital – restricted shares under Loan Share Plan
Accumulated losses
Dividend distribution reserve
Share based payments reserve
Total Shareholder’s Equity
Net profit after tax of the parent entity
Total comprehensive profit of the parent entity
2017
$’000
2016
$’000
17,134
799,833
2,095
380,850
568,328
1,501
47,701
759,577
464
367,642
568,328
-
(565,683)
(590,736)
394,306
20,531
418,983
25,053
25,053
394,306
20,037
391,935
86,296
86,296
[b]
Details of any guarantees entered into by the parent entity
There are cross guarantees given by Mount Gibson Iron Limited in relation to the debts of its subsidiaries as described in note 12 and
note 18.
The parent entity has further provided bank guarantees in respect of obligations to various authorities. Refer to note 18.
[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 27. 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.
78MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
36. New Accounting Standards
The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Board.
From 1 July 2016 the Group has adopted all new and amended accounting standards mandatory for annual periods beginning on or
after 1 July 2016 including:
Reference
Title
Summary
AASB 2015-1 Amendments to
The amendments clarify certain requirements in:
Australian
Accounting
Standards –
Annual
Improvements to
Australian
Accounting
Standards 2012-
2014 Cycle
► AASB 5 Non-current Assets Held for Sale and Discontinued
Operations – Changes in methods of disposal
► AASB 7 Financial Instruments: Disclosures - servicing contracts;
applicability of the amendments to AASB 7 to condensed interim
financial statements
► AASB 119 Employee Benefits - regional market issue regarding
discount rate
► AASB 134 Interim Financial Reporting - disclosure of information
‘elsewhere in the interim financial report’
AASB 2015-2 Amendments to
Australian
Accounting
Standards –
Disclosure
Initiative:
Amendments to
AASB 101
This Standard amends AASB 101 Presentation of Financial Statements
to clarify existing presentation and disclosure requirements and to
ensure entities are able to use judgement when applying the Standard
in determining what information to disclose, where and in what order
information is presented in their 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.
Application
date of
standard
Application
date for
Group
1 January
2016
1 July 2016
1 July 2016
1 July 2016
Changes to accounting policies due to adoption of these standards and interpretations are not considered significant for the Group.
MOUNT GIBSON IRON LIMITED 2017 Annual Report79
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 2017 are outlined in the table below:
Reference
Title
Summary
Application
date of
standard
Application
date for
Group
AASB 2016-1
AASB 2016-2
AASB 2016-5
Amendments to
Australian Accounting
Standards –
Recognition of
Deferred Tax Assets
for Unrealised Losses
Amendments to
Australian Accounting
Standards –
Disclosure Initiative:
Amendments to
AASB 107
Amendments to
Australian Accounting
Standards –
Classification and
Measurement of
Share-based
Payment
Transactions
This Standard amends AASB 112 Income Taxes to clarify the
accounting for deferred tax assets for unrealised losses on debt
instruments measured at fair value.
1 January
2017
1 July 2017
1 January
2017
1 July 2017
1 January
2018
1 July 2018
The amendments to AASB 107 Statement of Cash Flows are part of
the IASB’s Disclosure Initiative and help users of financial
statements better understand changes in an entity’s debt. The
amendments require entities to provide disclosures about changes
in their liabilities arising from financing activities, including both
changes arising from cash flows and non-cash changes (such as
foreign exchange gains or losses).
This standard amends to AASB 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
AASB 2017-1
Amendments to
Australian Accounting
Standards –
Transfers of
Investments
Property, Annual
Improvements 2014-
2016 Cycle and
Other Amendments
The amendments clarify certain requirements in:
► AASB 1 First-time Adoption of Australian Accounting Standards
– deletion of exemptions for first-time adopters and addition of
an exemption arising from AASB Interpretation 22 Foreign
Currency Transactions and Advance Consideration
► AASB 12 Disclosure of Interests in Other Entities – clarification
of scope
► AASB 128 Investments in Associates and Joint Ventures –
measuring an associate or joint venture at fair value AASB 140
Investment Property – change in use.
1 January
2018
1 July 2018
AASB 2017-2
AASB 2014-
10
Amendments to
Australian Accounting
Standards – Further
Annual
Improvements 2014-
2016 Cycle
Amendments to
Australian Accounting
Standards – Sale or
Contribution of
Assets between an
Investor and its
Associate or Joint
Venture
This Standard clarifies the scope of AASB 12 Disclosure of Interests
in Other Entities by specifying that the disclosure requirements
apply to an entity’s interests in other entities that are classified as
held for sale or discontinued operations in accordance with AASB 5
Non-current Assets Held for Sale and Discontinued Operations.
1 January
2017
1 July 2017
The amendments clarify that a full gain or loss is recognised when a
transfer to an associate or joint venture involves a business as
defined in AASB 3 Business Combinations. Any gain or loss resulting
from the sale or contribution of assets that does not constitute a
business, however, is recognised only to the extent of unrelated
investors’ interests in the associate or joint venture.
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.
1 January
2018
1 July 2018
80MOUNT GIBSON IRON LIMITED 2017 Annual Report
Notes to the Consolidated Financial Report (continued)
Reference
Title
Summary
Application
date of
standard
Application
date for
Group
AASB 15
Revenue from
Contracts with
Customers
AASB 15 replaces all existing revenue requirements in Australian
Accounting Standards (AASB 111 Construction Contracts, AASB 118
1 January
2018
1 July 2018
Revenue, AASB Interpretation 13 Customer Loyalty Programmes,
AASB Interpretation 15 Agreements for the Construction of Real
Estate, AASB Interpretation 18 Transfers of Assets from Customers
and AASB Interpretation 131 Revenue – Barter Transactions
Involving Advertising Services) and applies to all revenue arising
from contracts with customers, unless the contracts are in the
scope of other standards, such as AASB 117 (or AASB 16 Leases,
once applied).
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 an entity expects
to be entitled in exchange for those goods or services. An entity
recognises revenue in accordance with the core principle by
applying the following steps:
(a)
(b)
Step 1: Identify the contract(s) with a customer.
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 9
Financial Instruments
AASB 9 replaces AASB 139 Financial Instruments: Recognition and
Measurement.
1 January
2018
1 July 2018
Except for certain trade receivables, an entity initially measures a
financial asset at its fair value plus, in the case of a financial asset
not at fair value through profit or loss, transaction costs.
Debt instruments are subsequently measured at fair value through
profit or loss (FVTPL), amortised cost, or fair value through other
comprehensive income (FVOCI), on the basis of their contractual
cash flows and the business model under which the debt
instruments are held.
There is a fair value option (FVO) that allows financial assets on
initial recognition to be designated as FVTPL if that eliminates or
significantly reduces an accounting mismatch.
Equity instruments are generally measured at FVTPL. However,
entities have an irrevocable option on an instrument-by-instrument
basis to present changes in the fair value of non-trading
instruments
income (OCI) without
subsequent reclassification to profit or loss.
in other comprehensive
For financial liabilities designated as FVTPL using the FVO, the
amount of change in the fair value of such financial liabilities that is
attributable to changes in credit risk must be presented in OCI. The
remainder of the change in fair value is presented in profit or loss,
unless presentation in OCI of the fair value change in respect of the
liability’s credit risk would create or enlarge an accounting mismatch
in profit or loss.
All other AASB 139 classification and measurement requirements for
financial liabilities have been carried forward into AASB 9, including
the embedded derivative separation rules and the criteria for using
the FVO.
The incurred credit loss model in AASB 139 has been replaced with
an expected credit loss model in AASB 9.
The requirements for hedge accounting have been amended to
more closely align hedge accounting with risk management,
establish a more principle-based approach to hedge accounting and
address inconsistencies in the hedge accounting model in AASB 139.
MOUNT GIBSON IRON LIMITED 2017 Annual Report81
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
AASB 16 requires lessees to account for all leases under a single on
balance sheet model in a similar way to finance leases under AASB
117 Leases. The standard includes two recognition exemptions for
lessees – leases of ’low-value’ assets (e.g., personal computers) and
short-term leases (i.e., leases with a lease term of 12 months or
less). At the commencement date of a lease, a lessee will recognise
a liability to make lease payments (i.e., the lease liability) and an
asset representing the right to use the underlying asset during the
lease term (i.e., the right-of-use asset).
Lessees will be required to separately recognise the interest
expense on the lease liability and the depreciation expense on the
right-of-use asset.
Lessees will be required to remeasure the lease liability upon the
occurrence of certain events (e.g., a change in the lease term, a
change in future lease payments resulting from a change in an
index or rate used to determine those payments). The lessee will
generally recognise the amount of the remeasurement of the lease
liability as an adjustment to the right-of-use asset.
is substantially unchanged
Lessor accounting
today’s
accounting under AASB 117. Lessors will continue to classify all
leases using the same classification principle as in AASB 117 and
distinguish between two types of leases: operating and finance
leases.
from
AASB Int 22
Foreign Currency
Transactions and
Advance
Consideration
The Interpretation clarifies that in determining the spot exchange
rate to use on initial recognition of the related asset, expense or
income (or part of it) on the derecognition of a non-monetary asset
or non-monetary liability relating to advance consideration, the date
of the transaction is the date on which an entity initially recognises
the non-monetary asset or non-monetary liability arising from the
advance consideration. If there are multiple payments or receipts in
advance, then the entity must determine a date of the transactions
for each payment or receipt of advance consideration.
1 January
2018
1 July 2018
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 full impact of the below accounting standards, when applied in
future periods:
AASB 15 Revenue from Contracts with Customers changes the timing (and in some case, the quantum) of revenue recognised
from customers. The standard does not apply mandatorily before 1 January 2018.
The Group has made a preliminary assessment of the potential impacts of AASB 15 as at the reporting date and formed an
initial view that the new standard may operate to require the deferral of the recognition of revenues apportioned to the
remaining sea voyages of “in transit” vessels to their destination ports where iron ore cargoes are discharged and “cost and
freight” (CFR) sales revenues fully earned. Based on the limited number of vessels expected to be in transit at any reporting
date, the new standard is considered unlikely to have a material impact on the Group’s financial results when it is first adopted
for the year ending 30 June 2019.
AASB 16 Leases eliminates the distinction between operating and finance leases, and brings all leases (other than short term
leases) onto the balance sheet. The standard does not apply mandatorily before 1 January 2019. While in early stages of
assessment, the Group has yet to fully assess the impact on the Group’s financial results when it is first adopted for the year
ending 30 June 2020.
82MOUNT GIBSON IRON LIMITED 2017 Annual Report
Directors’ Declaration
In accordance with a resolution of the directors of Mount Gibson Iron Limited, I state that:
1.
In the opinion of the Directors:
a.
the financial statements, notes and the additional disclosures included in the Directors Report designated as audited of
the Group are in accordance with the Corporations Act 2001, including:
i)
giving a true and fair view of the financial position of the Group as at 30 June 2017 and of its performance for
the year ended on that date; and
ii)
complying with Accounting Standards and the Corporations Regulations 2001; and
b.
c.
the financial statements and notes also comply with International Reporting Standards as disclosed in Note 1; and
there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and
payable.
2.
This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section
295A of the Corporations Act 2001 for the financial year ended 30 June 2017.
Signed in accordance with a resolution of the directors.
LEE SENG HUI
Chairman
Sydney, 15 August 2017
MOUNT GIBSON IRON LIMITED 2017 Annual Report83
Independent Audit Report
GB:ET:MOUNTGIBSON:195
84MOUNT GIBSON IRON LIMITED 2017 Annual Report GB:EH:MGI:229
MOUNT GIBSON IRON LIMITED 2017 Annual Report85 GB:EH:MGI:229
86MOUNT GIBSON IRON LIMITED 2017 Annual Report GB:EH:MGI:229
MOUNT GIBSON IRON LIMITED 2017 Annual Report87 GB:EH:MGI:229
88MOUNT GIBSON IRON LIMITED 2017 Annual Report GB:EH:MGI:229
MOUNT GIBSON IRON LIMITED 2017 Annual Report89 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.
90MOUNT GIBSON IRON LIMITED 2017 Annual Report MOUNT GIBSON IRON LIMITED 2017 Annual Report91 92MOUNT GIBSON IRON LIMITED 2017 Annual Report MOUNT GIBSON IRON LIMITED 2017 Annual Report93 94MOUNT GIBSON IRON LIMITED 2017 Annual Report MOUNT GIBSON IRON LIMITED 2017 Annual Report95 96MOUNT GIBSON IRON LIMITED 2017 Annual Report MOUNT GIBSON IRON LIMITED 2017 Annual Report97 98MOUNT GIBSON IRON LIMITED 2017 Annual Report