www.mtgibsoniron.com.au M O U N T G I B S O N I R O N L I M I T E D 2 0 2 0 A N N U A L R E P O R T 2020 Annual Report Mount Gibson Iron Limited is an established Australian producer and exporter of iron ore. The Company was incorporated in 1996 and was listed on the Australian Securities Exchange in 2002. The Company was readmitted to the Standard & Poor’s ASX-300 Index in March 2019. The Company seeks to provide sustainable, long-term returns to shareholders by optimising its existing operations and growing long-term profitability through the discovery, development, participation in and acquisition of mineral resources. Headquartered in Perth, Mount Gibson owns the Extension Hill operation in the Mount Gibson Range south east of Geraldton, and the Koolan Island mine off the Kimberley coast in the remote north-west of the State. Our MGX Values provide us with a behavioural guide on how to sustainably deliver shareholder value. It includes always putting the health and safety of our people first, working together with the communities in which we operate, and undertaking our activities in an environmentally responsible and sustainable manner. MGX Values COURAGE INTEGRITY SAFETY AGILITY RESPECT Taking and giving feedback Do what you say you will do Genuine care for self and others Make timely decisions Be approachable and open to other points of view Be prepared to admit being wrong Do the right thing, even when no one is looking Constant concern (hazard identification) Be dynamic and embrace change Treat others as you would expect to be treated Challenge the norm constructively “walk the talk” Actively intervene to improve Grab the opportunity Encourage and develop people Make the hard calls Corporate Directory All information correct as at 30 June 2020 Board of Directors Auditors Lee Seng Hui Chairman, Non-Executive Director Alan Jones Non-Executive Director Ding Rucai Non-Executive Director Russell Barwick Non-Executive Director Paul Dougas Non-Executive Director Simon Bird Non-Executive Director Company Secretary David Stokes Registered Office Level 1, 2 Kings Park Road West Perth 6005, Western Australia Telephone: +61 8 9426 7500 Facsimile: +61 8 9485 2305 Email: Website: www.mtgibsoniron.com.au admin@mtgibsoniron.com.au Solicitors Herbert Smith Freehills Level 36, QV1 Building 250 St George’s Terrace Perth 6000, Western Australia Ernst & Young Ernst & Young Building 11 Mounts Bay Road Perth 6000, Western Australia Bankers HSBC Bank Australia Ltd 188-190 St George’s Terrace Perth 6000, Western Australia Stock Exchange Listing The company’s shares are listed on the Australian Securities Exchange. ASX Code: MGX Share Registry Computershare Investor Services Pty Ltd Level 11, 172 St George’s Terrace Perth 6000, Western Australia Telephone: 1300 787 272 Facsimile: +61 8 9323 2033 Annual General Meeting of Shareholders Due to COVID-19 travel restrictions, Mount Gibson will hold an online virtual AGM at 3:00pm AEST (12:00 noon WA time) on Wednesday 11 November 2020. Shareholders will not be able to attend in person at the AGM. Information explaining how shareholders may access, vote and ask questions within the online meeting room is provided in the Company’s Notice of AGM released to the ASX in October 2020. Easy Access to Information See our website at www.mtgibsoniron.com.au for regular quarterly reports and financial results. Additionally, shareholders or interested parties can register to receive emailed updates shortly after the company makes any regular or major announcement. 2 MOUNT GIBSON IRON LIMITED 2020 Annual Report MOUNT GIBSON IRON LIMITED 2020 Annual Report 99 Contents 2019/20 Performance Summary Chairman’s Report Chief Executive Officer’s Report Health & Safety Operational Review Environment and Community Affairs Resources and Reserves Statement Financial Report Directors’ Report Corporate Governance Additional ASX Information Corporate Directory 3 4 5 6 7 8 9 11 12 91 92 95 2019/20 Performance Summary = = = = = = = = Lost Time Injury Frequency Rate (LTIFR) of 4.7 incidents per million manhours and a Total Recordable Injury Frequency Rate (TRIFR) of 14.9. Total sales revenue of $415.0 million Free on Board from ore sales of 4.9 million tonnes. Profit before tax from continuing operations of $121.1 million, and net profit after tax of $84.2 million. Year-end cash, term deposits and liquid investments of $423.2 million. Fully franked final dividend of 3.0 cents per share. Net assets of $670.7 million at 30 June 2020. Positive first full year of production since restart of high-grade Koolan Island mine. Mid-West business life further extended through ongoing sales of stockpiled remnant low-grade material. MOUNT GIBSON IRON LIMITED 2020 Annual Report3 Chairman’s Report Looking ahead, the Board has determined the following key business objectives for the 2020/21 financial year: Ÿ Koolan Island – commission the new airstrip and substantially complete the elevated waste stripping phase of the life- of-mine plan in order to maximise sales and cashflow over the remainder of the mine life as the waste/ore stripping ratio and costs decline and ore shipments increase. Ÿ Extension Hill – extend the current program of Extension Hill low-grade sales should favourable market prices continue and transition the site to final closure. Ÿ Shine – complete development planning and, subject to a favourable assessment o u t c o m e , b r i n g t h e p r o j e c t i n t o production. Ÿ Cost reductions – continue to drive for sustainable cost improvements across all business units. Ÿ T r e a s u r y r e t u r n s – m a i n t a i n a n appropriate yield on the Group’s cash and investment reserves while preserving capital for future deployment. Ÿ Growth projects – continue the search for acquisition opportunities in the resources sector. By focusing on these priorities, we are confident that Mount Gibson can continue to navigate changing market conditions and capitalise on its sound financial base to deliver attractive long term returns for shareholders. In summary, I would like to thank my fellow Directors and the employees of Mount Gibson for their efforts over the year. I look forward to reporting another successful year ahead. Lee Seng Hui Chairman I am pleased to present Mount Gibson Iron’s 2020 Annual Report. The Company delivered a strong performance for the 2019/20 financial year, despite significant operational and external challenges, most notably disruption associated with adverse weather events in the Kimberley and the unprecedented travel and operating restrictions implemented in response to the Coronavirus (COVID-19) global pandemic. Profit from continuing operations before tax rose to $121.1 million, compared with $70.3 million in the previous year. Net profit after tax totalled $84.2 million compared with $133.4 million in the prior year in which the Company benefited from the accounting recognition of $62.9 million in deferred tax assets. Ore sales revenue increased to $415.0 million Free on Board (“FOB”) from the sale of 4.9 million wet metric tonnes of ore from the Company’s Koolan Island and Extension Hill operations in the Kimberley and Mid-West regions of Western Australia respectively. The Company’s cash and liquid investments increased by $38.7 million over the year to $423.2 million at 30 June 2020, reflecting the operating site performances and strong iron ore prices, and payment of the final dividend for the prior financial year. Operational milestones included a positive first full year of high-grade ore production from the restarted Koolan Island mine, substantial completion of construction of a new airstrip at Koolan Island, the successful extension of low grade sales from the Mid West operations, and development planning for the Shine Iron Ore Project. The emergence of the COVID-19 pandemic in early 2020 had many unforeseen impacts on our business and our workforce. Effectively managing these impacts was pivotal to the Company’s performance, and I commend Mount Gibson’s employees and contractors for their commitment and resilience during this time. In light of this performance, the Board was pleased to declare a fully franked final dividend of 3.0 cents per share for the year. On payment, Mount Gibson will have distributed approximately $309 million in fully franked dividends since late 2011, whilst retaining substantial capital for reinvestment in our existing business and new resources investment opportunities. 4MOUNT GIBSON IRON LIMITED 2020 Annual Report Chief Executive Officer’s Report The performance of our current businesses continues to underpin our strategy to utilise our cash reserves and strong balance sheet to grow and diversify through quality resource development opportunities. We enter the new financial year in strong shape and with confidence of continuing to deliver value for shareholders. I would like to take this opportunity to thank the Chairman and the Board for their ongoing support, guidance and counsel. Their input is greatly valued. Finally, I thank all Mount Gibson’s hard working personnel – including employees and contractors - for their efforts and commitment over the last year. As a continuing successful mid-tier mining producer, we are proud of what the “MGX Team” has achieved and look forward to the year ahead. Peter Kerr Chief Executive Officer In the 2019/20 financial year Mount Gibson successfully completed the first full year of production at the restarted Koolan Island operation and also extended the life of the Mid West operations through the sale of remnant stockpiled low grade material into a robust iron ore market. Total ore sales of 4.9 million wet metric tonnes (“Mwmt”) represented a 56% increase on the prior year. Sales comprised 2.3 Mwmt of high- grade ore from Koolan Island and 2.6 Mwmt of remnant low grade material stockpiled at Extension Hill in the Mid West, more than double the initial Mid West target of 1.0 Mwmt. The greater contribution of high grade sales from Koolan Island, and the benefit of higher realised prices for all products, underpinned operating cashflow of $160.1 million before mine development expenditure ($64.3 million), plant and equipment purchases ($26.3 million), lease repayments and other financing activities ($8.6 million), the 2019 cash dividend payment ($26.4 million) and interest income ($8.0 million). This financial performance was commendable given the significant impacts of extreme Kimberley wet season weather and the operating challenges posed by the COVID-19 pandemic in the second half of the year. Group cash costs averaged $72/wmt of ore sold Free on Board (“FOB”), excluding $14 million spent in the year on construction of the new Koolan Island airstrip, compared with $53/wmt FOB in the prior year when most sales came from the final months of ore production from the low-cost Iron Hill deposit in the Mid West. Group cash costs were consistent with our original plan for the year, notwithstanding that we withdrew guidance in late March 2020 amid the COVID-19 uncertainty. The COVID-19 pandemic required significant and evolving responses by government and industry to slow the transmission rate of the virus. Accordingly, a range of measures were i m p l e m e n t e d a c r o s s M o u n t G i b s o n ’s operations consistent with advice from state and federal health authorities. These were particularly stringent for the Koolan Island operation due to additional biosecurity requirements in the Kimberley region from late March to early June 2020. Resulting measures included pre-travel screening and declarations for all site personnel, social distancing on site and during travel, enhanced cleaning and personal hygiene protocols, extended rosters to minimise travel, support for the relocation of interstate personnel to WA, and replacement of commercial flights for Koolan Island personnel with dedicated jet charter services. Non- essential work was deferred and a freeze placed on interstate recruitment. The manner in which Mount Gibson’s personnel responded to these challenges was of great credit to them and to the Company. The subsequent staged relaxation of travel and social restrictions allowed a return to normal rosters from June. However, various general protocols have been maintained to reduce the risk of virus arrival and transmission, and Mount Gibson remains ready to respond promptly in the event of any required reinstatement of government restrictions. The safety of our personnel remains our priority and we are seeking substantial improvement in the coming year. Reflective of the increased activity levels and personnel at Koolan Island, the Company recorded a higher Lost Time Injury Frequency Rate (“LTIFR”) of 4.7 incidents per million manhours and a higher Total Recordable Injury Frequency Rate (“TRIFR”) of 14.9 incidents per million manhours in the 12 months to the end of June 2020. This safety focus is vital at all times, but in particular as activity increases over the coming 12-18 months while we complete the necessary phase of elevated stripping in Main Pit at Koolan Island. Our substantial investment in waste stripping at Koolan Island has always been a key part of the mine plan to facilitate maximum production, sales and cashflow over the remainder of the operation’s life. Operating efficiency will also be enhanced by our investments in the site’s new airstrip and upgraded crushing capacity. Meanwhile, continued low grade sales from the Mid-West will complement our advanced assessment of the Shine Iron Ore Project as a further potential extension of our operational presence in the region. MOUNT GIBSON IRON LIMITED 2020 Annual Report5 Health and Safety Mount Gibson is committed to maintaining a safe work environment and safety-oriented culture in which all personnel consider both their own wellbeing and that of their c o l l e a g u e s . A c h i e v i n g c o n t i n u o u s improvement in every facet of safety performance remains a primary focus of the Company. Performance during the 2019/20 year was therefore disappointing, with an increased ra t e o f i n j u r i e s b e i n g re c o rd e d a f t e r consistent improvement over recent years. The Company is targeting a significant improvement in the year ahead. All injuries are considered to be unacceptable and preventable. TRIFR The rolling 12 month Total Recordable Injury Frequency Rate (“TRIFR”) rose from 3.7 incidents per one million manhours to 14.9 at 30 June 2020. Similarly, the Lost Time Injury Frequency Rate (“LTIFR”) rose from 0.9 incidents per one million manhours to 4.7 at year-end. Seven Lost Time Injuries (“LTIs”) were recorded during the year, compared with one in the previous year. Six of these were recorded at Koolan Island, with the remaining one recorded at the Extension Hill mine site. The Company’s port operations at Geraldton Port were again LTI-free and have remained so for more than ten years. Subsequent to the end of the reporting period, in September 2020, the Company’s Geraldton port operations passed 4,000 consecutive LTI-free days, and extremely positive milestone. O v e r a l l s a f e t y p e r f o r m a n c e , a t a l l workplaces, is subject to ongoing assessment by executive and site management. This has r e s u l t e d i n t h e i m p l e m e n t a t i o n o f a s u b s t a n t i a l p r o g ra m o f i m p r o v e m e n t initiatives, including a comprehensive safety audit, safety culture survey, and increased focus on hazard observations and task- specific safety protocols. The Company is actively working to achieve substantial and continuing improvement in the coming year. For details of Mount Gibson’s safety performance, including statistics for each site, please refer to Mount Gibson’s 2020 Sustainability Report, published on the Mount Gibson website. 15 10 5 0 6 4 2 0 FY2013 FY2014 FY2015 FY2016 FY2016 FY2017 FY2018 FY2019 FY2020 LTIFR FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 1.80 *LTIFR and TRIFR each represent incidents per million manhours 6MOUNT GIBSON IRON LIMITED 2020 Annual Report Operational Review During the 2019/20 financial year, Mount Gibson achieved total ore sales of 4.9 Mwmt, representing a 56% increase from the previous year. This result reflected the first full year of high grade ore production from the restarted Koolan Island mine as well as the extension of sales of low grade remnant material stockpiled at Extension Hill. A more detailed summary of the year’s operations is contained in the Directors’ Report. Koolan Island Koolan Island is located approximately 140km north of Derby, in the Kimberley region of Western Australia. Development activities necessary for the restart of the Koolan Island operation commenced in May 2017 and the first shipment since the restart was made in April 2019. The primary focus of activity in the 2019/20 financial year was on continuing the operational ramp-up. Total material movement (ore and waste moved) for the year was 15.2 million tonnes with ore sales totalling 2.3 Mwmt. The average grade of ore shipped was 65.6% Fe, making Koolan Island the highest grade direct shipping iron ore operation in Australia. Geotechnical works on the island-side Main Pit footwall (including depressurisation drilling, cable bolting, shotcreting and installation of s a f e t y m e s h ) c o n t i n u e d t o p l a n . Instrumentation continues to demonstrate that the seawall, which incorporates the installed impermeable seepage barrier and has been under full tidal loads since late 2018, is safe and performing to design expectations. Ore production and waste mining progressively improved over the first half of the year as measures were implemented to improve groundwater management, mining conditions and productivity. Mining was adversely impacted by cyclonic wet-season rainfall in the March quarter and unseasonal heavy rain in May, as well as the presence of remnant sediments which substantially slowed mining in the western end of the Main Pit until late June. Operating efficiency was also adversely impacted by the necessary imposition of the previously noted COVID-19 restrictions. These factors contributed to the Company withdrawing its sales and cost guidance in March, at the time the Federal Government imposed a biosecurity protection designation over the Kimberley region of northern Western Australia. Mining and production performance improved substantially in the June quarter despite the heavy rainfall in May and has continued to improve into the new financial year. Given the accelerated waste stripping rate, wet weather impacts and COVID-19 restrictions, the average cash cost of sales at Koolan Island was $99/wmt FOB for the year. Cash costs included capitalised waste investment of $41.2 million but exclude $14 million of project capital spent on construction of a new 2.1km long airstrip in the centre of the island. Work on the airstrip commenced in early 2020 with an expected cost of $20 million, and the facility is expected to deliver significant safety, efficiency and cost reduction benefits to the Koolan Island operation by enabling direct jet flights from Perth. The COVID-19 pandemic has further demonstrated the value of this development. First flights are targeted for October 2020. The focus of activity in the 2020/21 financial year will be on increased mining movements to substantially complete the planned open pit waste stripping phase over the next 12-18 months, in order to enable significantly increased ore shipment levels from the following financial year consistent with the life of mine plan. Mid West Operations 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. The Mid-West Operations delivered a solid financial and operating performance during the year. After final high grade sales from the Iron Hill deposit at Extension Hill were completed in the prior financial year, renewed market interest in lower grade material enabled Mount Gibson to commence shipments of historically uneconomic stockpiled low-grade material (grading 51-54% Fe) from the Extension Hill site in June 2019. After initially targeting sales of approximately 1.0 Mwmt of remnant low grade material in the year, continued customer demand resulted in total sales for the year of 2.6 Mwmt. Sales comprised 1.4 Mwmt of lump material and 1.2 Mwmt of fines at an average site cash cost of $41/wmt FOB, in line with plan. Sales are anticipated to continue towards the end of calendar 2020 based on remaining available low grade material. Sales are generally conducted on a fixed price basis and while cashflow from the program is modest, these sales also assist in final site rehabilitation works. Extension Hill Rail Refund/Credit Mount Gibson has an entitlement to receive a partial refund of historical rail access charges from the Mid West rail leaseholder, Arc Infrastructure, based upon the usage by certain third parties of segments of the Perenjori to Geraldton railway network. This entitlement commenced upon termination of the Company’s then-existing rail agreements in early 2019, and is calculated at various volume- related rates and capped at a total of approximately $35 million (subject to indexation) and a time limit expiring in 2031. The first payment was received in September 2019 and the entitlement is currently accruing at a rate of approximately $2 million per quarter, with payments due every six months. The total amount received during the year was $8.3 million. Shine Iron Ore Project Development of the Shine iron ore project, located approximately 85km north of the Extension Hill mine site, was previously deferred in late 2014 amid deteriorating market conditions. The project now represents a potential near-term production opportunity with minimal start-up capital requirements. Development planning is consequently progressing rapidly given positive prevailing market conditions and outlook. State environmental approval was successfully renewed in the June 2020 quarter, and the various other regulatory approvals required for development are being progressed. Mount Gibson is reassessing previously reported capital expenditure and operating cost estimates in light of optimised open pit mine planning and available logistics/transport options. Mount Gibson expects to complete its assessment and consider a development decision during the September 2020 quarter. MOUNT GIBSON IRON LIMITED 2020 Annual Report7 Environment and Community The key elements of health and safety, environment and community affairs form the basis for Mount Gibson’s drive towards sustainable outcomes. Sustainability refers to the conditions under which human beings and nature can coexist in a productive manner and permit the e n v i r o n m e n t a l , s o c i a l a n d e c o n o m i c requirements of present and future generations. The social perspective also remained a significant focus over the 2019/20 year. This includes always putting the health, safety and wellbeing of our people first. Environment Mount Gibson has always placed significant e m p h a s i s o n d e t a i l e d a n d t h o r o u g h environmental management at its operations. We have focused strongly on continuous improvement and innovation, always performing in an environmentally responsible manner and ensuring a high standard of environmental management at all operating locations. Environmental reporting is a significant element of environmental management with many regulatory organisations requiring quarterly or annual reports. These include the federal Department of Agriculture, Water and t h e E n v i r o n m e n t , t h e E n v i r o n m e n t a l Protection Authority of Western Australia, the Department of Water & Environmental Regulation and the Department of Mines, Industry Regulation and Safety. A key reporting obligation is the National Energy and Greenhouse Reporting Scheme which provides data on greenhouse gas emissions and energy production. Diesel combustion is the group’s single largest source of greenhouse gas emissions. The latest report reflects the transition to production and resulting ramp-up of mining activity at Koolan Island, and ramp-down of in-pit mining activity at the Company’s Mid West operations. The Group holds numerous environmental licences and authorities, issued under both state and federal law, to regulate its mining and exploration activities in Australia. In the prior financial year, the Company received a Notice of Non-Compliance from DWER relating to marine factors at Koolan Island during the Main Pit seawall development and dewatering phases. The Company responded to DWER providing additional information and DWER has since acknowledged resolution of the notified matters by virtue of the Company’s follow-up actions and those now being implemented. For details of Mount Gibson’s environmental performance, including information relating to each site, please refer to Mount Gibson’s 2020 Sustainability Report, published on the Mount Gibson website. Community Affairs Mount Gibson values its relationships with key stakeholders and works to ensure a clear mutual understanding of the impacts of its current and future operations. To do this, Mount Gibson has an active program of stakeholder consultation with the general communities in which it operates, and with an additional emphasis on the recognition of the Traditional Owners, including areas of special heritage and cultural significance. Mount Gibson's stakeholders include our customers, shareholders, employees, suppliers, landowners, Traditional Owners, regulators, local governments, interest groups and the broader community. The level of consultation is dependent on the interest noted by stakeholders and the particular site involved. Investing in the creativity, education and health of our local communities is an important component of Mount Gibson's community engagement program. In line with our commitments, the Company invested heavily in these areas in the 2019/20 financial year, including through contributions to community organisations, sponsorships, educational scholarships and direct support for community events and initiatives. Mount Gibson also provided additional dedicated funding support to select community organisations providing critical medical, counselling and nutritional support services during the COVID-19 pandemic. For details of Mount Gibson’s community investment activities and engagement with communities and stakeholders, including total expenditure and information relating to each site, please refer to Mount Gibson’s 2020 Sustainability Report, published on the Mount Gibson website. 8MOUNT GIBSON IRON LIMITED 2020 Annual Report Resources and Reserves Total Mineral Resources and Ore Reserves by Project as at 30 June 2020 Koolan Island Mineral Resources, above 50% Fe Measured Indicated Inferred Total at 30 June 2020 Total at 30 June 2019 Ore Reserves, above 50% Fe Proved Probable Total at 30 June 2020 Total at 30 June 2019 Extension Hill Mineral Resources, above 50% Fe Measured Indicated Inferred Total at 30 June 2020 Total at 30 June 2019 Iron Hill Mineral Resources, above 50% Fe Measured Indicated Inferred Total at 30 June 2020 Total at 30 June 2019 Tallering Peak Mineral Resources, above 50% Fe Total at 30 June 2020 Total at 30 June 2019 Shine Mineral Resources, above 50% Fe Measured Indicated Inferred Total at 30 June 2020 Total at 30 June 2019 Tonnes millions 3.39 34.8 9.86 48.0 51.2 0.2 18.5 18.7 20.3 1.3 0.3 0.2 1.8 1.8 2.65 1.07 3.72 3.72 Fe % 60.3 64.9 60.5 63.7 63.9 58.5 65.3 65.2 65.5 55.3 57.3 56.6 55.8 55.8 55.0 55.0 55.0 55.0 2 SiO % 13.2 5.76 12.3 7.63 7.33 15.61 4.86 4.96 4.56 9.16 10.42 10.49 9.53 9.53 13.94 9.86 12.76 12.76 3 Al O 2 % 0.30 0.65 0.59 0.61 0.62 0.45 0.88 0.88 0.88 2.76 1.62 1.66 2.44 2.44 1.74 2.61 1.99 1.99 P % 0.007 0.013 0.013 0.013 0.013 0.006 0.013 0.013 0.012 0.077 0.076 0.055 0.074 0.074 0.074 0.081 0.076 0.076 - 1.65 - 57.9 - 11.10 - 2.15 - 0.069 5.7 6.6 3.6 15.9 15.9 58.9 58.0 56.8 58.1 58.1 9.04 10.01 9.61 9.57 9.57 1.81 1.35 1.18 1.48 1.48 0.076 0.070 0.063 0.071 0.071 Discrepancies may appear due to rounding. Mineral Resources are reported inclusive of Ore Reserves. All tonnages have been estimated as dry tonnages. MOUNT GIBSON IRON LIMITED 2020 Annual Report9 Resources and Reserves Continued Total Group Mineral Resources and Ore Reserves as at 30 June 2019 (above 50% Fe) Total Mineral Resources at 30 June 2020 Total Ore Reserves at 30 June 2020 Total Mineral Resources at 30 June 2019 Total Ore Reserves at 30 June 2019 Tonnes millions 69.4 18.7 74.2 20.3 Fe % 61.7 65.2 61.8 65.5 2 SiO % 8.40 4.96 8.25 4.56 3 Al O 2 % 0.93 0.88 0.95 0.88 P % 0.031 0.013 0.031 0.012 Discrepancies may appear due to rounding. Mineral Resources are reported inclusive of Ore Reserves. All tonnages have been estimated as dry tonnages. Material Change There were no material changes in the annual reporting period other than depletion by mining at Koolan Island and the removal of remnant resources at the closed Tallering Peak mine site. Competent Persons and Responsibilities Mineral Resources: The information in this report relating to Mineral Resources 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 member of the Australian Institute of Geoscientists. Ms Haren was a full-time employee of, and is a consultant to, Mount Gibson Iron Limited. Ms Haren has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’, and 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 member of the Australasian Institute of Mining and Metallurgy. Mr Morey is a full-time employee of Mount Gibson Iron Limited. Mr Morey 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’, and 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. For more information, refer to Mount Gibson’s Annual Statement of Mineral Resources and Ore Reserves at 30 June 2020 on the Mount Gibson website. 10MOUNT GIBSON IRON LIMITED 2020 Annual Report Financial Report MOUNT GIBSON IRON LIMITED AND CONTROLLED ENTITIES ABN 87 008 670 817 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 Directors’ Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Report Introduction Term Deposits and Subordinated Notes Financial Assets Held for Trading 1. 2. Other Significant Accounting Policies 3. Revenue and Other Income 4. Expenses 5. Taxation 6. Cash and Cash Equivalents 7. 8. 9. Trade and Other Receivables 10. Inventories 11. Derivative Financial Assets 12. Interests in Subsidiaries 13. Property, Plant and Equipment 14. Right-of-use Assets 15. Deferred Acquisition, Exploration and Evaluation Costs 16. Mine Properties 17. Impairment of Non-Current Assets 18. Trade and Other Payables 19. Interest-Bearing Loans and Borrowings 20. Derivative Financial Liabilities 21. Provisions 22. Issued Capital 23. Reserves 24. Accumulated Losses 25. Expenditure Commitments 26. Share-Based Payment Plans 27. Earnings Per Share 28. Dividends Paid and Proposed 29. Contingent Liabilities 30. Key Management Personnel 31. Related Party Transactions 32. Auditor’s Remuneration 33. Discontinued Operations 34. Segment Information 35. Events After the Balance Sheet Date 36. Financial Instruments 37. Parent Entity Information 38. New and Amended Accounting Standards and Interpretations Directors’ Declaration Independent Audit Report 12 29 30 31 32 33 34 34 35 36 38 40 44 45 45 45 46 47 47 49 51 51 52 54 55 55 56 57 59 60 61 61 62 64 65 65 65 66 66 67 68 71 71 79 81 85 86 MOUNT GIBSON IRON LIMITED 2020 Annual Report11 Directors’ Report Your Directors submit their report for the year ended 30 June 2020 for Mount Gibson Iron Limited (Company or Mount Gibson) and the consolidated group 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 which is listed on the Hong Kong Stock Exchange. He is also the Chairman and a Non-Executive Director of Tian An China Investments Company Limited, and a Non-Executive Director of APAC Resources Limited, one of Mount Gibson’s substantial shareholders. Mr Lee was previously the Chairman and a Non-Executive Director of Asiasec Properties Limited. Mr Lee has not served as a director of any other ASX or Hong Kong listed companies during the past three years. 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. Ding Rucai Non-Executive Director (appointed 12 December 2019) Mr Ding was appointed as a Non-Executive Director on 12 December 2019. Mr Ding is the Chairman and executive director of Shougang Fushan Resources Group Ltd, Mount Gibson's second largest shareholder, and a director of Shougang Holding (Hong Kong) Limited. A senior engineer with a doctoral degree in ferrous metallurgy from the University of Science and Technology Beijing, Mr Ding has more than 30 years’ experience in the steel and coal resources industry, having held a variety of senior management and executive roles since joining the Shougang Group Co., Ltd. in 1989. 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 45 years of technical, operational, managerial and corporate experience in international mining companies covering various commodities. He has worked for Bougainville Copper Limited (CRA), Pancontinental Mining Ltd (Jabiluka Uranium) and CSR Limited (coal). He has spent 16 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. His extensive geographic and corporate mining experience ranges from: Latin America, North America, Europe, Africa and Asia Pacific. He is currently the Chairman of ASX-listed Red Metal Ltd, a non-executive director of ASX-listed Regis Resources Ltd and of ASX-listed Lithium Power International and its unlisted associate Minera Salar Blanco S.A. (Chile). Simon Bird B.Acc.Science (Hons) CA, 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 over 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 ASX-listed Sovereign Gold Limited, a former Chairman of ASX-listed Rawson Resources Limited and a former Director of CPA Australia Limited. Mr Bird is currently Chairman of ASX-listed Tubi Group and a Director of ASX-listed Pacific American Holdings Limited. 12MOUNT GIBSON IRON LIMITED 2020 Annual Report Paul Dougas B.Eng (Chem), M.Eng.Science, FAICD, CEng., Hon Fellow Engineers Australia, FATSE 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 a Non-Executive Director of Epworth Healthcare and is a former Chairman of the Global Carbon Capture and Storage Institute, and Norman, Disney & Young and a former Non-Executive Director of Beacon Foundation and Calibre Group Limited. Professor Dougas is also a Professorial Fellow in the School of Engineering at Melbourne University and a staff member. 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 over 20 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. Li Shaofeng B.Automation Non-Executive Director (resigned 12 December 2019) Mr Li was appointed as a Non-Executive Director on 23 February 2012 and subsequently resigned as a director on 12 December 2019. Mr Li holds a Bachelor's degree in Automated Chemistry of University of Science and Technology Beijing. Mr Li joined Shougang Group in 1989 and during his time with the Shougang Group held a number of senior positions including as nominee Director on a number of listed companies. Mr Li has extensive experience in management of listed companies, investments, marketing and capital operation. Mr Li served as director of Hong Kong main Board listed companies from 2000 to 2019 in a difference of positions including Shougcheng Holdings Limited (previously know as “Shougang Concord International Enterprisers Limited), Shougang Fushan Resources Group Co., Ltd., Shougang Concord Century Holdings Limited, Shougang Concord Grand (Group) Limited, Beijing West Industries International Limited, Global Digital Creative (Holdings) Co., Ltd., CWT International Limited (previously known as “HNA Holding Group Co. Limited) and China Dynamics (Holdings) Co., Ltd. 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, commercial 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. MOUNT GIBSON IRON LIMITED 2020 Annual Report13 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 2020 was as follows: Nature of Operations and Principal Activities The principal activities of the entities within the Group during the year were: processing of hematite iron ore at the Extension Hill mine site in the Mid-West region of Western Australia, and haulage of the ore via road and rail for export from the Geraldton Port; mining and direct shipment of hematite iron ore at the Koolan Island mine site in the Kimberley region of Western Australia; treasury management; and the pursuit of mineral resources acquisitions and investments. Employees The Group employed 307 employees (excluding contractors) as at 30 June 2020 (2019: 297 employees). OPERATING AND FINANCIAL REVIEW Introduction The Board presents the 2019/20 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 2019/20 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 2020 and has been prepared in accordance with Regulatory Guidance 247 published by the Australian Securities and Investments Commission (ASIC). 14MOUNT GIBSON IRON LIMITED 2020 Annual Report Overview of the 2019/20 Financial Year The Company delivered a solid financial performance for the year ended 30 June 2020 notwithstanding significant operational and external challenges, notably disruption associated with adverse weather events in the Kimberley and the impact of travel and operating restrictions implemented in response to the Coronavirus (COVID-19) global pandemic from March 2020 onwards. The business focus for the year was the ramp-up of waste movement and ore production from Main Pit at Koolan Island, where sales recommenced in late April 2019, continuing the successful program to monetise stockpiles of remnant low grade material from the Extension Hill and Iron Hill deposits in the Mid-West, and continued management of the Group’s treasury reserves. The Group recorded a net profit before tax from continuing operations of $121,078,000 and a net profit after tax of $84,198,000. The Company’s performance was assisted by continued strong iron ore prices over the year. At the beginning of the financial year, the Platts Index for delivery of 62% Fe iron ore fines to northern China was approximately US$121 per dry metric tonne (dmt), reflecting the continued impacts of supply disruption in Brazil. After briefly dipping below US$79/dmt in late 2019, the price mostly traded between US$80-90/dmt before rising further from May 2020 to end the year at US$101/dmt, an average of US$93/dmt for the year. Demand and pricing for most other ores also remained strong. The price of 65% Fe grade ore averaged US$105/dmt for the year, reflecting an average grade-adjusted premium to the Platts 62% Fe Index of 7%, while ores grading 58% Fe averaged US$75/dmt, reflecting an average discount of 13%. The Company also benefited from a generally lower Australian dollar, which averaged A$1.00/US$0.66 over the year (from US$0.715 the prior year), after dipping below US$0.56 in March 2020 at the height of the COVID-19 pandemic in Australia. Group ore sales for the year increased 56% to 4.9 million wet metric tonnes (Mwmt). Sales revenue totalled $444,029,000 including shipping freight services and provisional pricing adjustments, and $413,867,000 on a Free on Board (FOB) basis (excluding shipping freight services), before $1,136,000 of realised foreign exchange hedging and commodity forward contract net gains reflecting movement in iron ore prices. Mount Gibson achieved an average realised price for all products sold in the year (including realised foreign exchange hedging and commodity forward contract net gains) of $84/wmt Free on Board (FOB), net of shipping freight, compared with $73/wmt FOB in 2018/19. This reflected the significantly greater percentage of sales of high grade fines ore from Koolan Island. Sales from Koolan Island realised an average price of US$87/dmt FOB for the year. All sales from the Mid-West comprised stockpiled low grade material from Extension Hill, which was sold on a fixed price basis and realised an average of US$27/dmt FOB for fines and US$36/dmt FOB for lump. The total cost of sales for the year was $328,637,000 including royalties and shipping freight costs. On an FOB basis, excluding shipping freight, the total cost of sales was $298,475,000 which equated to $60/wmt sold, compared with $50/wmt sold in the prior financial year. This increase primarily reflected higher costs at Koolan Island due to elevated waste stripping requirements during the first two years of mining, as well as additional costs associated with disruption from wet weather and the impact of COVID-19 restrictions. From early March 2020, the COVID-19 global pandemic necessitated significant and evolving responses by industry and government to slow the transmission rate of the virus, including restrictions on the movement of people into and within Australia, and strict social distancing requirements. These measures were particularly stringent for the Koolan Island operation which was subject to travel restrictions imposed by the Western Australian Government and Federal Government, due to biosecurity regulation in the Kimberley region, from late March to early June 2020. Measures introduced included pre-travel screening and declarations, social distancing during travel and on site, enhanced cleaning and personal hygiene measures, extended rosters to minimise travel, support for the relocation of interstate personnel to WA, and replacement of commercial flights for Koolan Island personnel with dedicated jet charter services. Non-essential work was deferred and a freeze placed on interstate recruitment. The subsequent staged relaxation of travel and social restrictions allowed a return to normal FIFO rosters (notably 2 weeks on/1 week off) from June. However, various general protocols have been maintained to reduce the risk of virus transmission, including pre-travel screening measures, dedicated charter flights for Koolan Island FIFO personnel and enhanced cleaning and hygiene measures on site. Mount Gibson remains ready to respond promptly in the event of any required reinstatement of government restrictions, given that appropriate protocols are in place and have been previously implemented and, in addition, direct charter flights to Koolan Island are anticipated to be operating from October 2020. Total cash reserves, comprising cash and cash equivalents, term deposits and subordinated notes, and financial assets held for trading, increased by $38,694,000 over the year to a total of $423,225,000 as at 30 June 2020. Operating Results for the Financial Year The summarised operating results for the Group for the year ended 30 June 2020 are tabulated below: Year ended: 30 June 2020 30 June 2019 30 June 2018 30 June 2017 30 June 2016 Net profit before tax* $’000 120,717 Taxation (expense)/benefit* $’000 (36,519) 70,462 62,907 99,129 - Net profit after tax $’000 84,198 133,369 99,129 Earnings per share cents/share 7.35 11.98 9.08 * Inclusive of discontinued operations. Refer the attached financial statements for further details. 24,841 1,481 26,322 2.41 85,536 761 86,297 7.91 MOUNT GIBSON IRON LIMITED 2020 Annual Report15 Consolidated quarterly operating and sales statistics for the 2019/20 financial year are tabulated below: Consolidated Group Mining & Crushing Total waste mined Total ore mined# Total ore crushed Shipping/Sales Standard DSO Lump Standard DSO Fines Low Grade Lump Low Grade Fines Total Ave. Platts 62% Fe CFR northern China price MGX Free on Board (FOB) average realised fines price – Koolan* MGX Free on Board (FOB) average realised lump price – Mid-West^ MGX Free on Board (FOB) average realised fines price – Mid-West^ kwmt = thousand wet metric tonnes US$/dmt = USD per dry metric tonne Sept Quarter 2019 Dec Quarter 2019 Mar Quarter 2020 Jun Quarter 2020 2019/20 2018/19 3,113 3,053 12,426 10,438 Unit kwmt kwmt kwmt kwmt kwmt kwmt kwmt kwmt 2,985 651 1,543 - 664 473 238 3,276 763 1,416 - 733 478 172 545 916 - 439 233 354 805 821 - 516 232 410 1,375 1,382 1,026 1,158 US$/dmt 102 US$/dmt US$/dmt US$/dmt 95 35 29 89 73 35 26 89 86 37 27 93 97 40 28 2,765 4,696 - 2,352 1,417 1,174 4,942 93 87 36 27 2,443 2,904 1,336 1,597 120 118 3,170 80 106 61 37 # The 2018/19 comparative includes 176,000 wmt of low-grade ore at Extension Hill grading 50-55% Fe that was stockpiled for future sale and treated as waste for accounting purposes. ^ Reflects the realised price after shipping freight and specification adjustments and penalties. * Reflects the realised fines price for Koolan comprising a mix of month of shipping (M), M+1 and M+2 averages, referencing the Platts 65% Fe Index. Realised prices are shown after shipping freight, provisional pricing adjustments and specification adjustments/penalties. Minor discrepancies may appear due to rounding. Koolan Island The Koolan Island mine is located in the Buccaneer Archipelago, approximately 140km north of Derby, in the Kimberley region of Western Australia. The primary focus of activity in the 2019/20 financial year was continuing the operational ramp-up after the commencement of ore sales in late April 2019 following rebuild of the Main Pit seawall. The mine generated earnings before interest and tax of $102,398,000 in the financial year reflecting the first full year of ore production and sales, and continued strong pricing and demand for Koolan Island’s high grade iron ore products. Geotechnical works on the island-side Main Pit footwall (including depressurisation drilling, cable bolting, shotcreting and installation of safety mesh) continued to proceed to plan. Seawall (hanging wall) instrumentation continues to demonstrate that the new seawall, which incorporates the installed impermeable seepage barrier and has been under full tidal loads since late 2018, is safe and performing to design expectations. Ore production and waste mining progressively improved over the first half of the year as measures were implemented to improve groundwater management, mining conditions and productivity. Mining was adversely impacted by cyclonic wet-season rainfall in the March 2020 quarter and unseasonal heavy rain in May, as well as the presence of substantial remnant sediments which slowed mining in the western end of Main Pit until late June 2020. Operating efficiency was also adversely impacted by the previously noted COVID-19 restrictions. These factors contributed to the Company withdrawing sales and cost guidance in late March 2020. Positively, mining and production performance improved substantially in the June quarter, despite the heavy rainfall in May, with total material movement increasing by 5%, ore production increasing 48% and ore sales increasing 17% compared with the March quarter. Total material movement for the year was 15.2 million tonnes with ore production totalling 2.8 Mwmt and ore sales totalling 2.4 Mwmt for the year. The average grade of ore shipped in the year was 65.6% Fe. As previously indicated, the planned elevated stripping phase of the mine, during which waste movement and operating costs are at their highest and ore production is most variable, is scheduled to be completed over the next 12-18 months. Thereafter, sales will rise and cash costs will decline in step with the significantly reduced waste to ore stripping ratio. Reflective of the stripping schedule, wet weather impacts and COVID-19 restrictions, the average cash cost of sales was $99/wmt FOB for the year. Cash costs include capitalised waste investment of $41.2 million but exclude $14 million expended on construction of a new 2.1km long airstrip in the centre of the island. Work on the airstrip commenced in early 2020 with an expected cost of $20 million, and the facility is expected to deliver significant safety, efficiency and cost reduction benefits to the Koolan Island operation by enabling direct jet flights from Perth. The COVID-19 pandemic has further demonstrated the value of this development. Foundation earthworks, pavement sealing and line-marking works were completed by year-end, with remaining ancillary works and certification anticipated to be completed in the September 2020 quarter. First flights are anticipated in October 2020. 16MOUNT GIBSON IRON LIMITED 2020 Annual Report Production and shipping statistics for Koolan Island for the 2019/20 financial year are tabulated below: Koolan Island Production Summary Unit Sept Quarter 2019 ’000 Dec Quarter 2019 ’000 Mar Quarter 2020 ’000 Jun Quarter 2020 ’000 Year 2019/20 ’000 Year 2018/19 ’000 % Incr/ (Decr Mining Waste mined Standard Ore mined Crushing Lump Fines Shipping Lump Fines wmt wmt 2,985 651 3,276 763 3,113 545 3,053 805 12,426 2,765 10,185 552 22 400 wmt wmt wmt wmt 190 472 661 - 664 664 199 523 722 - 733 733 113 319 432 - 439 439 145 412 556 - 516 516 646 1,725 2,371 - 2,352 2,352 134 297 431 - 370 370 384 482 451 - 536 536 Minor discrepancies may appear due to rounding. Mid-West Operations - 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. The Mid-West Operations delivered a strong financial and operating performance during the year and generated earnings before interest and tax of $23,343,000. Final DSO sales from the Iron Hill deposit at Extension Hill were completed in February 2019 but renewed market interest in lower grade material enabled Mount Gibson to commence shipments of historically uneconomic stockpiled low grade material (51-54% Fe) from the Extension Hill mine site in June 2019. Sales are conducted on a fixed price basis and cashflow from the program is modest. However, these sales assist in final site rehabilitation works. After initially targeting sales of approximately 1.0 Mwmt of low grade remnant material, continued customer demand enabled the successful extension of the program resulting in total sales for the year of 2.6 Mwmt comprising 1.4 Mwmt of lump and 1.2 Mwmt of fines at an average site cash cost of $41/wmt FOB. Sales are now anticipated to continue towards the end of calendar 2020 based on available low grade stockpiles. Total low-grade sales since commencement of the program have now exceeded 2.8 Mwmt. Production and shipping statistics for Extension Hill for the 2019/20 financial year are tabulated below: Extension Hill Production Summary Unit Sept Quarter 2019 ’000 Dec Quarter 2019 ’000 Mar Quarter 2020 ’000 Jun Quarter 2020 ’000 Year 2019/20 ’000 Year 2018/19 ’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 Low Grade Fines wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt wmt - - - - 564 318 882 516 201 717 488 201 689 - - 473 238 711 - - - - 428 266 694 470 271 741 427 212 639 - - 478 172 649 - - - - 304 180 484 183 353 536 228 387 615 - - 233 354 587 - - - - 160 105 265 318 367 685 285 348 633 - - 232 410 643 - - - - 252 (100) 1,716 176 1,892 (100) (100) (100) 1,456 869 2,325 1,487 1,192 2,679 1,428 1,148 2,576 - - 1,417 1,174 2,590 1,357 1,116 2,474 1,264 1,211 2,475 1,329 1,286 2,615 1,336 1,227 120 118 2,800 7 (22) (6) 18 (2) 8 7 (11) (1) (100) (100) 1,084 899 (8) * This low grade (50-55% Fe) material mined in 2018/19 was stockpiled for future sale and treated as waste for accounting purposes. Minor discrepancies may appear due to rounding. MOUNT GIBSON IRON LIMITED 2020 Annual Report17 Shine Iron Ore Project Development of the Shine iron ore project, located approximately 85km north of the Extension Hill mine site, was deferred amid deteriorating market conditions in late 2014. Given the current iron ore price environment, the project now represents a potential near-term production opportunity with minimal start-up capital requirements. Planning work for development of the project is underway and the Company expects to complete its assessment and consider a development decision during the September 2020 quarter. The project is well advanced with regard to permitting and approvals. During the June 2020 quarter, the WA Government renewed the State environmental approval for Shine, thereby extending the time in which development can commence to June 2023. Mount Gibson is reassessing previously reported capital expenditure and operating cost estimates in light of optimised open pit mine planning and available logistics/transport options. Financial Position The Group’s cash and cash equivalents, term deposits and subordinated notes and financial assets held for trading totalled $423,225,000 at 30 June 2020, an increase of $38,694,000 from the balance at 30 June 2019 of $384,531,000. The key components of the increase included operating cashflows (including head office administration, capital expenditure and working capital movements) of $121,321,000, interest received of $8,038,000, Koolan Island mine development expenditure of $64,285,000 and payment of the $26,380,000 cash component of a fully franked dividend to shareholders for the 2018/19 financial year. As at the balance date, the Company’s current assets totalled $486,726,000 and its current liabilities totalled $81,102,000. Accordingly, 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 growth objectives. Derivatives As at 30 June 2020, the Group held foreign exchange collar option contracts covering the conversion of US$11,000,000 into Australian dollars over the period July to October 2020 with an average cap price of A$1.00/US$0.6727 and an average floor price of A$1.00/US$0.6107. These collar contracts had a marked-to-market unrealised net gain at balance date of A$557,000. During the year ended 30 June 2020, the Group delivered into US dollar foreign exchange forward contracts totalling US$9,000,000 at a weighted average exchange rate of A$1.00/US$0.6685. Extension Hill Rail Refund/Credit Following achievement of a contractual rail volume threshold at Extension Hill during the 2017/18 financial year, the Group has an entitlement to receive a partial refund of historical rail access charges from the Mid-West rail leaseholder, Arc Infrastructure, based upon the future usage by certain third parties of specific segments of the Perenjori to Geraldton railway line. This entitlement commenced upon termination of the Group’s then existing rail agreements in early 2019, and is calculated at various volume-related rates, and capped at a total of approximately $35 million (subject to indexation) and a time limit expiring in 2031. Receipt of this potential future refund is not certain and is fully dependent on the volumes railed by third parties on the specified rail segments. The entitlement is currently accruing as a receivable at a rate of approximately $2.0 million per quarter, with payments due every six months. The total amount received during the year was $8,347,000. Settlement of Arbitration Dispute In April 2020, settlement was achieved following an arbitration process in relation to a historic contractual dispute with a former offtake customer resulting in receipt of $8,542,000. Director and Executive Management Appointments In October 2019, Mount Gibson announced the appointment of Mr Mark Mitchell as the Company’s Chief Operating Officer, following the retirement of long-serving senior operational executive Mr Scott de Kruijff from the role. In December 2019, the Company announced the appointment of Mr Ding Rucai as a Non-Executive Director of Mount Gibson as the new representative of Shougang Fushan Resources Group Limited, the Company’s second largest 14.1% shareholder. Mr Ding succeeded Mr Li Shaofeng, who stepped down from the Board after almost 8 years’ service as a Non-Executive Director of the Company to pursue other personal business interests. 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 operational performance, 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. 18MOUNT GIBSON IRON LIMITED 2020 Annual Report 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 2020/21 financial year: • Koolan Island – commission the new airstrip and substantially complete the elevated stripping phase of the life-of-mine plan in order to maximise sales and cashflow over the remainder of the mine life as the waste/ore stripping ratio and costs decline and ore shipments increase. • Extension Hill – extend the current program of Extension Hill low-grade sales should favourable market prices continue and transition the site to final closure. Shine - complete development planning and, subject to a favourable assessment outcome, bring the project into production. Cost reductions - continue to drive for sustainable cost improvements across all business units. • Treasury returns – maintain an appropriate yield on the Group’s cash and investment reserves while preserving capital for future deployment. • Growth projects - continue the search for acquisition opportunities in the resources sector. At Koolan Island, the focus is on increased mining movements to substantially complete the planned open pit waste stripping phase over the next 12-18 months, to enable significantly increased ore shipment levels from next financial year onwards. Total mining volumes in 2020/21 are targeted to increase by approximately 50% (with a waste to ore strip ratio of ~9.4x) compared with the 2019/20 year, and unit mining and administration costs, including all logistics and sustaining capital expenditure, are targeted to reduce to around $9 per tonne of material (ore or waste) moved. Reported cash costs per tonne of ore sold will necessarily remain at elevated levels over the year due to the elevated strip ratio and the lower ore production during this waste stripping phase. Ore sales will vary from quarter to quarter, with the site targeting 2-3 shipments per month. Shipments are weighted towards the second half of the financial year, with sales for the December 2020 quarter expected to be lowest as the waste movement cycle reaches its peak. Koolan Island is expected to contribute 1.8-2.1 Mwmt of high grade iron ore fines sales in the year, with site operating cash costs expected to average $60-65/wmt FOB before advanced waste stripping investment of approximately $100 million and other Koolan capital improvement projects of approximately $20 million. These projects include an upgrade of the existing crushing plant to modernise aged components and ensure it will be capable of processing the significantly increased ore throughout expected to occur from next financial year onwards. In accordance with the Koolan life-of-mine plan, Mount Gibson originally anticipated that the waste stripping investment in the next year would not result in a positive cashflow for the 2020/21 financial year. However, net cashflow from Koolan this year will likely be modestly positive at prevailing iron ore prices. Following this investment, the operation will see substantial increases in production, sales and cashflow generation from next financial year onwards, in line with the life-of-mine plan. The Mid-West operations are expected to contribute 1.0-1.2 Mwmt at an average all-in cash cost of $40-45/wmt FOB, comprising the sale of remnant low grade material from the Extension Hill site. Any sales contribution from Shine will depend on a favourable development decision and the timing of commencement. On a Group basis over the full year, Mount Gibson expects total sales of 2.8-3.3 Mwmt at a group cash cost of $60-65/wmt FOB before the previously mentioned waste stripping investment and improvement projects at Koolan Island. Group guidance will be updated in due course for the Shine project, as appropriate. DIVIDENDS During the year, a final dividend of $0.04 per share fully franked ($45,203,000) in respect of the 2018/19 financial year was distributed by way of $26,380,000 in cash and the issue of 27,607,012 new shares under the Company’s Dividend Reinvestment Plan. The Company has declared a final dividend on ordinary shares in respect of the 2019/20 financial year of $0.03 per share fully franked, payable either in cash or in shares to eligible shareholders as part of the Company’s Dividend Reinvestment Plan. The total amount of the dividend is $34,807,000. The dividend has not been provided for in the 30 June 2020 financial statements. SIGNIFICANT EVENTS AFTER BALANCE DATE Other than the final dividend declared by the Company as noted above, as at the date of this report there are no significant events after balance date of the Company or of the Group that require adjustment of or disclosure in this report. INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND AUDITORS The Company has, during current or previous financial periods, entered into deeds of access and indemnity with its 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, EY, 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 EY during or since the financial year. MOUNT GIBSON IRON LIMITED 2020 Annual Report19 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 no Performance Rights vested and exercised during the year. There are no Performance Rights on issue as at balance date and as at the date of this Report. On 3 July 2019, the Company issued 1,705,800 restricted shares as part of its Executive Loan Share Plan and subsequently, 440,500 of these restricted shares were forfeited upon the resignation of Mr Scott de Kruijff on 30 November 2019. There were 5,769,595 restricted shares on issue at balance date and, following an issue made after balance date, there are 8,755,955 restricted shares on issue under the Executive Loan Share Plan as at the date of this report. Refer to the Remuneration Report for further details of 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: SH Lee(i) A Jones R Barwick S Bird P Dougas R Ding A Ferguson (Alternate for Mr Lee) Ordinary Shares Options over Shares Performance Rights over Shares - 300,000 - 47,919 732,389 - - - - - - - - - - - - - - - - (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 406,860,492 ordinary shares in the Company through his association with Allied Group Limited, a substantial shareholder of the Company – refer ASX announcement dated 9 July 2020. 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 SH Lee A Jones R Barwick S Bird P Dougas R Ding* Li Shaofeng** A Ferguson (Alt. for Mr Lee) 5 5 5 5 5 5 3 1 1 4 3 4 - 4 - - - - * Mr Ding was appointed on 12 December 2019. ** Mr Li resigned on 12 December 2019. ENVIRONMENTAL REGULATION AND PERFORMANCE 4 2 4 4 - - - - - 4 - - 4 3 4 - - - 1 - 1 1 1 1 - - - The Group has developed Environmental Management Plans for its various operating and development sites. The Environmental Management Plans have been approved where applicable by various Western Australian Government agencies including the Department of Mines, Industry Regulation and Safety (DMIRS), the Department of Water & Environmental Regulation (DWER), the Department of Biodiversity Conservation and Attractions and the Department of Health. In addition, plans associated with specific species have been approved by the Federal Department of the Environment. DWER has granted approval and licensing of works to allow construction and operation of facilities on “prescribed” premises and DMIRS has granted approval for Mining Proposals at each of the mines. The Group holds various environmental licences and authorities, issued under both State and Federal laws, to regulate its mining and exploration activities in Australia. Along with Regulations, these licences include conditions in relation to specifying limits on emissions into the environment, rehabilitation of areas disturbed during the course of mining and exploration activities, tenement conditions associated with exploration and mining, and the storage of hazardous substances. The Group reports against these licence conditions regularly. 20MOUNT GIBSON IRON LIMITED 2020 Annual Report In June 2019, the Company received a Notice of Non-Compliance from DWER relating to marine factors at Koolan Island during the Main Pit seawall development and dewatering phases. The Company responded to DWER providing additional information and DWER has recently acknowledged resolution of the notified matters by virtue of the Company’s follow-up actions and those that the Company is now implementing. The Group continues to report under the National Greenhouse and Energy Reporting (NGER) Act 2009. Diesel combustion is the Group’s single 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 18 which forms part of this Report. AUDIT PARTNER ROTATION On 13 November 2018, the Board granted approval pursuant to section 324DAC of the Corporations Act 2001 (Cth), for Mr Gavin Buckingham of Ernst & Young to play a significant role in the audit of the Company for an additional two financial years through to the financial year ending 30 June 2021. The Board considered the matters set out in section 324DAB(3) of the Act and is satisfied that the approval: [i] is consistent with maintaining the quality of the audit provided to the Company; and [ii] would not give rise to a conflict of interest situation. Reasons supporting this decision include: o o o the benefits associated with the continued retention of knowledge regarding key audit matters; the Board being satisfied with the quality of Ernst & Young and Mr Buckingham’s work as auditor; and the Company’s ongoing governance processes to ensure the independence of the auditor is maintained. NON-AUDIT SERVICES The Directors are satisfied that the provision of non-audit services (where provided) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. There were no non-audit services provided by Ernst & Young during the financial year ended 30 June 2020. MOUNT GIBSON IRON LIMITED 2020 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 $505,125 were paid in the 2019/20 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 comprises 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 contributing towards key Company objectives; 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 2019/20 financial year. 22MOUNT GIBSON IRON LIMITED 2020 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 50% of their annual salary package. STI payments are based on the Board’s assessment of the executive’s performance towards achieving key Company objectives over the relevant period. The focus for the 2019/20 financial year was on the Company's operational safety performance and on achieving the annual budget outcomes related to production, shipments, costs and key projects. These parameters were chosen as they reflected the Company’s and senior executives’ key objectives for the year. The total potential STI available for award is ultimately at the Board’s discretion. 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 with approval from the Board. Payments are made in cash after the reporting date. The Board assessed the Company’s and senior executives’ performances based on the actual results achieved to the end of May 2020 and forecasts for the month of June 2020. The Board also exercised its discretion taking into account the individual efforts of senior executives over the period. For the 2019/20 year, the Company exceeded the budget targets within its Mid-West business but did not achieve its targets for the Koolan Island operation. In particular, total material movement, shipments and unit costs at Koolan Island were unfavourable relative to budget. This reflected certain items within the control of senior executives as well as items outside their control, including extensive unseasonal rainfalls and significant disruption resulting from operational and logistical challenges for the workforce and mining operations arising from the COVID-19 virus pandemic. Construction of the new airstrip at Koolan Island proceeded well, in line with forecast costs and timing, and is expected to be operational from October 2020. For the 2019/20 financial year, a total STI cash incentive of $450,100 was awarded to Key Management Personnel, representing 50% of the total STI cash incentives available to Mr Kerr, Mr Mitchell, Mr Stokes and Ms Dobson. 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 a 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 last grant of performance rights under the PRP was made in the 2015/16 financial year. There were no performance rights on issue at the start of the 2019/20 financial year, and no grants of new performance rights under the PRP were made during the year. A 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, net of the tax on the dividends, 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 3 July 2019, the Company issued a total of 1,705,800 shares to Mr Kerr, Mr Stokes, Mr de Kruijff and Ms Dobson under the LSP, representing 100% of their 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 $1.03 per share. In order for the shares to vest, the participants must remain continuously employed by the Group to at least the end of the 2019/20 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 2020 or at any time during the following four year period be above a 10% premium to the issue price of the shares. The award was accounted for as an in-substance option award, with the fair value at grant date assessed at $0.348 per share. These performance conditions were selected in order to maximise shareholder returns. None of these shares vested after balance date in July 2020 as 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 on 3 July 2020, was below a 10% premium to the issue price of the shares. On 30 November 2019, 440,500 shares under the LSP were forfeited upon the resignation of Mr de Kruijff. The Company has a policy restricting executives from entering into arrangements to protect the value of unvested LTI entitlements under equity-based remuneration plans. MOUNT GIBSON IRON LIMITED 2020 Annual Report23 Employment Contracts As at the date of this report, the Group had entered into employment contracts with the following executives: Peter Kerr The key terms of his contract include: Commenced as Chief Financial Officer on 19 September 2012 and subsequently appointed as Chief Executive Officer 1 October 2018 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. Gillian Dobson The key terms of her contract include: Commenced as Group Commercial Manager on 23 April 2013 and subsequently appointed as Chief Financial Officer on 1 October 2018 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 Ms Dobson 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 six months Annual Salary Package plus any other accrued entitlements and bonuses. If Ms Dobson wishes to terminate the contract, she must provide three months’ notice. Mark Mitchell The key terms of his contract include: Commenced as Chief Operating Officer on 28 October 2019 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 Mitchell 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 six months Annual Salary Package plus any other accrued entitlements and bonuses. If Mr Mitchell wishes to terminate the contract, he must provide three months’ notice. Details of directors and key management personnel disclosed in this report [i] Directors SH Lee A Jones Chairman Non-Executive Director R Barwick Non-Executive Director S Bird Lead Non-Executive Director P Dougas Non-Executive Director R Ding Non-Executive Director (appointed 12 December 2019) Li Shaofeng Non-Executive Director (resigned 12 December 2019) A Ferguson Alternate Director to Mr Lee [ii] Key Management Personnel P Kerr D Stokes G Dobson M Mitchell Chief Executive Officer Company Secretary and General Counsel Chief Financial Officer Chief Operating Officer (appointed 28 October 2019) S de Kruijff Chief Operating Officer (resigned 30 November 2019) 24MOUNT GIBSON IRON LIMITED 2020 Annual Report 30 June 2020 Directors SH Lee A Jones R Barwick S Bird P Dougas R Ding Li Shaofeng A Ferguson (Alt) Salary & Fees $ 95,548 92,694 92,694 99,543 88,500 - - - Sub-total 468,979 Non Monetary (a) $ - - - - - - - - - Remuneration of Key Management Personnel for the year ended 30 June 2020 Short Term Post Employment Cash Incentives $ Accrued Annual Leave(c) $ Super- annuation $ Share Based Payment Loan Share Plan(e) $ Termination Payment $ Long Term Long Service Leave(d) $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6,327 - 9,077 8,806 8,806 9,457 - - - - 36,146 25,000 31,343 25,000 27,536 16,808 - - - - - - - - - Total $ 104,625 101,500 101,500 109,000 88,500 - - - 505,125 991,648 597,888 617,576 452,854 - - - - - - - - - - - - - % Perform- ance Related(f) - - - - - - - - 36 35 34 26 - 50,188 256,862 50,188 2,916,828 50,188 3,421,953 Other KMP P Kerr D Stokes G Dobson M Mitchell S de Kruijff Sub-total Totals 583,870 329,927 340,321 289,854 176,926 16,719 152,200 13,023 11,982 90,300 91,300 2,176 116,300 16,845 12,940 - - 13,098 7,848 28,530 143 - 200,761 119,120 120,443 - - 1,720,898 56,840 450,100 23,172 125,687 49,619 440,324 2,189,877 56,840 450,100 23,172 161,833 49,619 440,324 (a) Non-Monetary items include the value (where applicable) of benefits such as group life insurance cover 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 the cash value of the executives’ short-term incentive awards for the 2019/20 year. Refer to “Short-term Incentives” section above. (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 awards under the Loan Share Plan (restricted shares), which are inclusive of an assumed dividend yield, 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 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 (refer the Long-term Incentives (LTI) section of this report). (f) Performance related remuneration reflects the proportion of the total remuneration relating to cash incentives (STI) and share based payments (LTI). Options There were no options granted to Directors or Executives during the year ended 30 June 2020 and there were no options outstanding as at 30 June 2020. There were no shares issued on the exercise of options during the year ended 30 June 2020 (2019: nil). MOUNT GIBSON IRON LIMITED 2020 Annual Report25 Shares On 3 July 2019, a total of 1,705,800 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 $0.348 per LSP share. On 30 November 2019, 440,500 shares under the LSP were forfeited upon the resignation of Mr Scott de Kruijff. Refer section above titled “Long-term Incentives” for details of the shares issued under the LSP. Grant Date 3-Jul-19 3-Jul-19 3-Jul-19 3-Jul-19 LSP Shares Granted (#) 576,900 342,300 346,100 440,500 1,705,800 P Kerr D Stokes G Dobson S de Kruijff Total Fair Value at Grant Date1 ($/LSP share) Value of LSP Shares Granted ($) Exercise Price ($) Vesting Date & Condit- ions Expiry Date LSP Shares Vested in Year (#) Value of LSP Shares Vested in Year3 ($) $0.348 $0.348 $0.348 $0.348 $200,761 $119,120 $120,443 -4 $440,324 $1.03 $1.03 $1.03 -4 Note 2 Note 2 Note 2 Note 2 1-Jul-24 1-Jul-24 1-Jul-24 1-Jul-24 721,762 556,835 - 645,131 1,923,728 $303,346 $234,030 - $271,139 $808,515 1. Determined at the time of grant per AASB 2, refer note 26(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 3 July 2020 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. 4. LSP shares forfeited upon the resignation of Mr de Kruijff on 30 November 2019. During the year ended 30 June 2020, there were no alterations to the terms and conditions of LSP shares after their grant date. Performance Rights There were no performance rights granted as part of remuneration, or vested and exercised, during the year ended 30 June 2020. At 30 June 2020, there were no Performance Rights on issue. There were no shares issued on the exercise of Performance Rights during the year ended 30 June 2020 (2019: nil). Shareholdings of Key Management Personnel as at 30 June 2020 Directors SH Lee(i) A Jones R Barwick S Bird P Dougas R Ding Li Shaofeng A Ferguson (Alt. for Mr Lee) Other KMP(ii) P Kerr D Stokes G Dobson M Mitchell S de Kruijff Total Balance 1 July 2019 Ord Granted as Remuneration Ord Forfeited Ord Net Change Other Ord Balance 30 June 2020 Ord - 300,000 - 45,239 702,605 - - - 2,461,443 1,904,171 - - 645,131 - - - - - - - - - - - - - - - - 576,900 342,300 346,100 - 440,500 - - - - (440,500) - - - 2,680 29,784 - - - - - - - - - 300,000 - 47,919 732,389 - - - 3,038,343 2,246,471 346,100 - 645,131 6,058,589 1,705,800 (440,500) 32,464 7,356,353 (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 406,860,492 ordinary shares in the Company through his association with Allied Group Limited, a substantial shareholder of the Company – refer ASX announcement dated 9 July 2020. (ii) The closing balance at 30 June 2020 for Other KMP includes 5,769,595 LSP shares (in-substance options) held by Messrs. Kerr (2,755,378 LSP shares), Stokes (2,022,986 LSP shares) and de Kruijff (645,131 LSP shares), and Ms Dobson (346,100 LSP shares), of which 4,504,295 LSP shares held by Messrs. Kerr (2,178,478 LSP shares), Stokes (1,680,686 LSP shares) and de Kruijff (645,131 LSP shares) had vested as at balance date. The balance of the LSP shares have not vested after balance date. 26MOUNT GIBSON IRON LIMITED 2020 Annual Report Remuneration of Key Management Personnel for the year ended 30 June 2019 Short Term Post Employment Long Term Share Based Payment Salary & Fees $ Non Monetary (a) $ Cash Incentives $ Accrued Annual Leave(c) $ Super- annuation $ Long Service Leave(d) $ Loan Share Plan(e) $ 30 June 2019 Directors SH Lee A Jones Li Shaofeng R Barwick S Bird P Dougas A Ferguson (Alt) 95,548 94,521 - 94,521 101,370 90,500 - Sub-total 476,460 - - - - - - - - - - - - - - - - Other KMP P Kerr D Stokes S de Kruijff G Dobson J Beyer(f) 541,793 326,337 408,958 306,574 417,688 15,624 13,351 14,568 11,109 17,650 390,090(b) 257,999(b) 317,350(b) 144,500 - Sub-total 2,001,350 72,302 1,109,939 Totals 2,477,810 72,302 1,109,939 - - - - - - - - 12,657 - - 9,493 - 22,150 22,150 9,077 8,979 - 8,979 9,630 - - 36,665 25,000 31,002 38,851 29,125 39,680 Total $ 104,625 103,500 - 103,500 111,000 90,500 - 513,125 - - - - - - - - - - - - - - - - % Perform- ance Related - - - - - - - 44 47 47 28 - 50,953 27,700 15,727 14,500 - 114,760 88,537 102,576 - - 1,150,877 744,926 898,030 515,301 475,018 163,658 200,323 108,880 108,880 305,873 305,873 3,784,152 4,297,277 (g) Non-Monetary items include the value (where applicable) of benefits such as group life insurance cover that are available to all employees of Mount Gibson and car parking, and are inclusive of Fringe Benefits Tax where applicable. (h) Cash incentives represent the cash value of the executives’ short-term incentive awards for the 2018/19 year of $712,300 and also include the deferred short term incentive award from the prior 2017/18 financial year of $397,639 (P Kerr $149,190, D Stokes $115,099, S de Kruijff $133,350). Refer to “Short-term Incentives” section above. (i) 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. (j) Represents the accrual for long service leave over the twelve-month period. (k) The fair values of the awards under the Loan Share Plan (restricted shares), which are inclusive of an assumed dividend yield, 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 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. (l) Mr Jim Beyer resigned effective 30 September 2018. 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 2020 and 30 June 2019. Company Performance The table below shows the performance of the Group over the last 5 years: 30 June 2020 30 June 2019 30 June 2018 30 June 2017 30 June 2016 Net profit after tax Earnings per share Closing share price $’000 $/share $ 84,198 0.0735 0.61 133,369 0.1198 1.02 99,129 0.0908 0.43 26,322 0.0241 0.33 86,297 0.0791 0.26 End of remuneration report. Signed in accordance with a resolution of the Directors. LEE SENG HUI Chairman Date: 18 August 2020 MOUNT GIBSON IRON LIMITED 2020 Annual Report27 28MOUNT GIBSON IRON LIMITED 2020 Annual Report Consolidated Income Statement For the year ended 30 June 2020 CONTINUING OPERATIONS Revenue Interest revenue TOTAL REVENUE Cost of sales GROSS PROFIT Other income Administration and other expenses PROFIT FROM CONTINUING OPERATIONS BEFORE TAX AND FINANCE COSTS Finance costs PROFIT FROM CONTINUING OPERATIONS BEFORE TAX Tax (expense)/benefit Notes 2020 $’000 2019 $’000 3[a] 3[b] 445,165 7,132 278,364 11,115 452,297 289,479 4[a] (328,637) (204,286) 123,660 85,193 3[c] 4[c] 17,738 (18,818) 122,580 4[b] (1,502) 121,078 (36,627) 5 4,656 (18,068) 71,781 (1,496) 70,285 62,960 PROFIT AFTER TAX FROM CONTINUING OPERATIONS 84,451 133,245 DISCONTINUED OPERATIONS Profit/(loss) after tax for the year from discontinued operations 33[a] (253) 124 PROFIT AFTER TAX ATTRIBUTABLE TO MEMBERS OF THE COMPANY 84,198 133,369 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 27 27 27 27 7.35 7.34 7.38 7.36 11.98 11.95 11.97 11.94 MOUNT GIBSON IRON LIMITED 2020 Annual Report29 Consolidated Statement of Comprehensive Income For the year ended 30 June 2020 PROFIT FOR THE PERIOD AFTER TAX OTHER COMPREHENSIVE INCOME/(LOSS) Items that may be subsequently reclassified to profit or loss Change in fair value of cash flow hedges Reclassification adjustments for loss on cash flow hedges transferred to the Income Statement Change in fair value of debt instruments classified as financial assets at fair value through other comprehensive income Deferred income tax on cash flow hedges OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR, NET OF TAX 2020 $’000 2019 $’000 84,198 133,369 (400) 800 (525) (220) (345) (179) 358 (122) - 57 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 83,853 133,426 30MOUNT GIBSON IRON LIMITED 2020 Annual Report Consolidated Balance Sheet As at 30 June 2020 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 Total Current Assets Non-Current Assets Property, plant and equipment Right-of-use assets Deferred acquisition, exploration and evaluation costs Mine properties Prepayments Deferred tax assets Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Employee benefits Interest-bearing loans and borrowings Derivative financial liabilities Provisions Total Current Liabilities Non-Current Liabilities Employee benefits Interest-bearing loans and borrowings Provisions Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Accumulated losses Reserves TOTAL EQUITY Notes 2020 $’000 2019 $’000 6 7 8 9 10 11 13 14 15 16 5 18 19 20 21 19 21 22 24 23 111,661 275,157 36,407 19,236 39,800 3,908 557 48,850 297,482 38,199 34,640 24,289 4,198 36 486,726 447,694 44,593 12,017 3 233,785 1,488 26,165 318,051 804,777 60,915 4,826 6,846 - 8,515 21,717 - - 194,994 1,929 62,907 281,547 729,241 55,194 3,495 1,753 6,042 6,659 81,102 73,143 228 5,382 47,340 52,950 134,052 670,725 602,030 (914,167) 982,862 670,725 283 - 43,003 43,286 116,429 612,812 583,395 (953,350) 982,767 612,812 MOUNT GIBSON IRON LIMITED 2020 Annual Report31 Consolidated Cash Flow Statement For the year ended 30 June 2020 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Proceeds from rail credit Proceeds from arbitration settlement Payments to suppliers and employees Interest paid Notes 2020 $’000 2019 $’000 454,141 253,860 8,347 8,542 - - (310,197) (194,052) (746) (424) NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 6[b] 160,087 59,384 CASH FLOWS FROM INVESTING ACTIVITIES Interest received Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Proceeds from term deposits Proceeds from sale of subordinated notes Payment for subordinated notes Proceeds from sale of financial assets held for trading Payment for financial assets held for trading Payment for deferred exploration and evaluation expenditure Payment for mine development NET CASH FLOWS (USED IN) INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of ordinary shares Proceeds from / (repayment of) insurance premium funding facility Payment of lease liabilities Payment of borrowing costs Dividends paid NET CASH FLOWS (USED IN) FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS Net foreign exchange difference Cash and cash equivalents at beginning of year 8,038 170 11,628 327 (26,279) (18,540) 26,000 10,000 (14,200) 9,553 (11,074) (69) 70,400 35,000 (25,974) 16,140 (20,256) (223) (64,285) (109,184) (62,146) (40,682) - (1,753) (6,612) (218) 603 1,753 - (163) (26,380) (18,347) (34,963) (16,154) 62,978 (167) 48,850 2,548 (245) 46,547 CASH AND CASH EQUIVALENTS AT END OF YEAR 6[a] 111,661 48,850 32MOUNT GIBSON IRON LIMITED 2020 Annual Report 0 0 0 $ ’ 7 5 , 4 2 8 6 9 4 , 9 6 3 3 3 1 , 6 2 4 3 3 1 3 0 6 6 0 3 6 7 1 4 6 4 4 1 , ) 7 8 9 2 3 ( , y uit q al E t o T 2 1 8 2 1 6 , ) 2 9 1 , 3 ( , 2 6 2 4 6 9 0 6 8 ) 5 4 3 ( 8 9 1 4 8 , 3 5 8 3 8 , ) 3 0 2 5 4 ( , 8 8 1 0 4 4 5 3 6 8 1 , 5 2 7 0 7 6 , - - - - - - - - - - - - - - , 2 1 8 2 1 6 ) 2 9 1 , 3 ( , 2 6 2 4 6 9 - 0 6 8 ) 5 4 3 ( ) 5 4 3 ( - - - - ) 2 9 1 , 3 ( , 2 6 2 4 6 9 5 1 5 - - - - - - - - - - - - - - - - ) 2 9 1 , 3 ( , 2 6 2 4 6 9 - 7 5 7 5 3 0 8 - - - - - 1 3 5 , 0 2 ) 8 0 9 , 3 5 0 , 1 ( , 8 2 3 8 6 5 - - - - - - - 6 0 3 7 3 8 , 0 2 - - - - 9 6 3 , 3 3 1 , 9 6 3 3 3 1 6 7 1 ) 7 8 9 , 2 3 ( , ) 0 5 3 3 5 9 ( - - - - - - 3 0 6 4 6 4 , 4 1 , 5 9 3 3 8 5 7 3 8 , 0 2 , ) 0 5 3 3 5 9 ( , 5 9 3 3 8 5 - - - - - - 0 4 4 7 7 2 , 1 2 - 8 9 1 , 4 8 8 9 1 4 8 , ) 3 0 2 , 5 4 ( - - 8 8 1 , ) 7 6 1 4 1 9 ( - - - - - - 5 3 6 , 8 1 , 0 3 0 2 0 6 s r e n w o s a y t i c a p a c r i e h t n i s r e n w o h t i w s n o i t c a s n a r T r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i e v i s n e h e r p m o c r e h t O d o i r e p e h t r o f t i f o r P 8 1 0 2 y l u J 1 t A i d a p s d n e d v D i i s e r a h s d e d n u f - n a o l i t s n a g a f f o d e t t e n s d n e d v d i i x a t r e t f A s r e n w o s a y t i c a p a c r i e h t n i s r e n w o h t i w s n o i t c a s n a r T r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i e v i s n e h e r p m o c r e h t O d o i r e p e h t r o f t i f o r P 9 1 0 2 y l u J 1 t A P S L r e d n u d e t s e v s e r a h s f o e s i c r e x E P R D r e d n u d e u s s i s e r a h S s t n e m y a p d e s a b - e r a h S 9 1 0 2 e n u J 0 3 t A i d a p s d n e d v D i i s e r a h s d e d n u f - n a o l i t s n a g a f f o d e t t e n s d n e d v d i i x a t r e t f A P R D r e d n u d e u s s i s e r a h S s t n e m y a p d e s a b - e r a h S 0 2 0 2 e n u J 0 3 t A t n e r a e P h f t s o r e old y H uit q o E ble t a t u rib t t A 0 0 0 $ ’ y t i u q E s e v r e s e R 0 0 0 $ ’ e v r e s e R d n e d i v i D n o i t u b i r t s i D 0 0 0 $ ’ e v r e s e R d e s i l a e r n U t e N ) s e s s o L ( / s n i a G 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ e v r e s e R s t n e m y a P d e s a B e r a h S s e s s o L d e t a l u m u c c A l a t i p a C d e u s s I y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C 0 2 0 2 e n u J 0 3 d e d n e r a e y e h t r o F MOUNT GIBSON IRON LIMITED 2020 Annual Report33 Notes to the Consolidated Financial Report For the year ended 30 June 2020 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 2020, were authorised for issue in accordance with a resolution of the Directors on 18 August 2020. 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 and export of hematite iron ore from the Mid-West region of Western Australia and Koolan Island in the Kimberley region of Western Australia, 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 complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except for derivative financial instruments and certain financial assets that have been measured at fair value. The Group has adopted all Accounting Standards and Interpretations mandatory to annual periods beginning on or before 1 July 2019. Adoption of these standards and interpretations did not have a material effect on the financial position or performance of the Group at the date of initial application other than the adoption of AASB 16 Leases (see note 38). The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 30 June 2019, except for the adoption of new standards and interpretations as of 1 July 2019. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated, under the option available to the Company under Australian Securities and Investment Commission (ASIC) (Rounding in Financial/Directors’ Report) Instrument 2016/191. The Company is an entity to which the instrument applies. For the purposes of preparing the consolidated financial statements, the Company is a for-profit entity. (c) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its controlled entities. The financial statements of controlled entities are prepared for the same reporting period as the Company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Controlled entities are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is loss of control of a controlled entity, the consolidated financial statements include the results for the part of the reporting period during which the Company has control. 34MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 2. Other Significant Accounting Policies (a) Foreign currency The functional currency of the Company and its controlled entities is Australian dollars (A$). 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 Goods and Services Tax (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 which (or and) 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 depreciation and amortisation rates, asset carrying values, deferred stripping costs and provisions for decommissioning and restoration. MOUNT GIBSON IRON LIMITED 2020 Annual Report35 Notes to the Consolidated Financial Report (continued) Notes 2020 $’000 2019 $’000 3. Revenue and Other Income [a] Revenue Revenue from contracts with customers – sale of iron ore Revenue from contracts with customers – freight/shipping services Other revenue: Quotation period price adjustments – relating to prior year shipments Quotation period price adjustments – relating to current year shipments Realised gain/(loss) on foreign exchange and commodity forward sales contracts [b] Interest revenue Interest revenue – calculated using the effective interest method Interest revenue - other [c] Other income Net realised gain on foreign exchange transactions Net gain on disposal of property, plant and equipment Net realised gain on financial assets held for trading Insurance proceeds – other Rail credit income Arbitration settlement income Other income [i] [ii] 425,396 30,162 455,558 (4,773) (6,756) 1,136 445,165 3,662 3,470 7,132 - 20 3 835 8,276 8,542 62 17,738 213,396 45,621 259,017 - 26,427 (7,080) 278,364 6,541 4,574 11,115 1,286 251 147 21 2,458 - 493 4,656 [i] The Group has an entitlement to receive a partial refund of historical rail access charges from the Mid-West rail leaseholder, Arc Infrastructure, based upon the future usage by certain third parties of specific segments of the Perenjori to Geraldton railway line. This entitlement commenced upon termination of the Group’s then existing rail agreements in early 2019, and is calculated at various volume-related rates, and capped at a total of approximately $35 million (subject to indexation) and a time limit expiring in 2031. Receipt of this potential future refund is not certain and is fully dependent on the volumes railed by third parties on the specified rail segments. [ii] In April 2020, settlement was achieved following an arbitration process in relation to a historic contractual dispute with a former offtake customer resulting in receipt of $8,542,000. Recognition and measurement Revenue from contracts with customers The Group adopted AASB 15 using the modified retrospective method of adoption with an initial application date of 1 July 2018. The Group generates a significant proportion of revenue from the sale of iron ore. In some instances, the Group provides freight/shipping services. Revenue from contracts with customers is recognised when control of the goods or services is transferred to the customer and at the amount that reflects the consideration which the Group expects to receive in exchange for those goods or services. The Group has generally concluded that it is the principal in its revenue contracts because it typically controls the goods or services before transferring them to the customer. Iron ore sales Each iron ore shipment is governed by a sales contract with the customer, including spot sales agreements and long-term offtake agreements. For the Group’s iron ore sales not sold under Cost and Freight (CFR) Incoterms, the performance obligation is the delivery of the iron ore. A proportion of the Group’s iron ore sales are sold under CFR Incoterms, whereby the Group is also responsible for providing freight/shipping services. In these situations, the freight/shipping service represents a separate performance obligation. Revenue from iron ore sales is recognised when control of the iron ore passes to the customer, which generally occurs at a point in time when the iron ore is physically transferred onto a vessel. This is the point where title passes to the customer together with significant risks and rewards of ownership. A proportion of the Group’s sales are provisionally priced, where the final price is referenced to a future market-based (Platts) index price. Adjustment to the sales price occurs based on movements in the index price up to the end of the quotational period (QP). These are referred to as provisional pricing arrangements and are such that the selling price for the iron ore is determined on a specified future date after shipment to the customer. Adjustments to the sales price therefore occur up until the end of the QP. The period between provisional pricing and the end of the QP is generally between two and three months. Revenue is measured at the amount to which the Group expects to be entitled at the end of the QP, being the estimated forward price at the date the revenue is recognised. For those arrangements subject to CFR shipping terms, a portion of the transaction price is allocated to the separate freight/shipping services provided. For provisional pricing arrangements, any future changes that occur over the QP are embedded within trade receivables. Given the exposure to the commodity price, these provisionally priced trade receivables are measured at fair value through profit or loss (see note 9). Subsequent changes in the fair value of provisionally priced trade receivables are recognised in revenue but are presented separately to revenue from contracts with customers. Changes in fair value over the term of the provisionally priced trade receivable are estimated by reference to movements in the index price as well as taking into account relevant other fair value consideration including interest rate and credit risk adjustments. 36MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) Freight/shipping services For CFR arrangements, the Group is responsible for providing freight/shipping services (as principal) after the date that the Group transfers control of the iron ore to its customers. The Group, therefore, has a separate performance obligation for freight/shipping services which is provided solely to facilitate the sale of the commodities it produces. The transaction price (as determined above) is allocated to the iron ore and freight/shipping services using the relative stand-alone selling price method. Under these arrangements, revenue is recognised over time using an output basis to measure progress towards complete satisfaction of the service as this best represents the Group’s performance. This is on the basis that the customer simultaneously receives and consumes the benefits provided by the Group as the services are being provided. The costs associated with the freight/shipping services are also recognised over the same time period as shipping occurs. Interest Revenue 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. Key estimates and judgments For the Group’s CFR customers, the Group is responsible for providing freight/shipping services. While the Group does not actually provide nor operate the vessels, the Group has determined that it is principal in these arrangements because it has concluded it controls the specified services before they are provided to the customer. The terms of the Group’s contract with the service provider gives the Group the ability to direct the service provider to provide the specified services on the Group’s behalf. The Group has also concluded that revenue for freight/shipping services is to be recognised over time because the customer simultaneously receives and consumes the benefits provided by the Group. The fact that another entity would not need to re-perform the freight/shipping services that the Group has provided to date demonstrates that the customer simultaneously receives and consumes the benefits of the Group’s performance as it is performed. The Group determined that the output method is the best method for measuring progress of the freight/shipping services because there is a direct relationship between the Group’s effort and the transfer of service to the customer. The Group recognises revenue on the basis of the time elapsed relative to the total expected time to complete the service. MOUNT GIBSON IRON LIMITED 2020 Annual Report37 Notes to the Consolidated Financial Report (continued) Notes 2020 $’000 2019 $’000 4. Expenses [a] Cost of sales – continuing operations Mining and site administration costs Depreciation of property, plant and equipment – mining and site administration Depreciation of right-of-use assets – mining and site administration Capitalised deferred stripping costs (Koolan Island) Amortisation of capitalised deferred stripping costs Amortisation of mine properties Pre-production expenditure capitalised Crushing costs Depreciation of property, plant and equipment – crushing Depreciation of right-of-use assets - crushing Transport costs Depreciation of property, plant and equipment – transport Port costs Depreciation of property, plant and equipment – port Royalties Net ore inventory movement Reversal of write down to net realisable value on ore inventories Rehabilitation revised estimate adjustments Cost of sales – Free on Board (FOB) basis 16 16 16 10[i] 21 Shipping freight Cost of sales – Cost and Freight (CFR) basis [b] Finance costs Finance charges on banking facilities Finance charges on lease liabilities Non-cash interest accretion on rehabilitation provision 21 [c] Administration and other expenses include: Depreciation of property, plant and equipment Depreciation of right-of-use assets Share-based payments expense Koolan Island seawall insurance claim and related site work expenses Insurance premiums (net of refunds) Business development expenses Reversal of expected credit loss on debtors Reversal of write down to net realisable value on consumables inventories Impairment of deferred acquisition, exploration and evaluation Exploration expenses Net realised loss on foreign exchange transactions Net unrealised loss on foreign exchange balances Unrealised marked-to-market gain on foreign exchange derivatives Unrealised marked-to-market loss on commodity forward derivatives Unrealised marked-to-market loss on financial assets held for trading [d] Cost of sales and Administration and other expenses above include: 26(a) 15 15 Salaries, wages expense and other employee benefits Operating lease rental – minimum lease payments Lease expense – short-term Lease expense – low value assets Lease expense – variable 172,532 5,320 5,908 (44,564) 12,150 19,073 - 21,754 1,125 330 59,194 - 20,987 26 35,416 (10,123) (570) (83) 298,475 30,162 328,637 464 514 978 524 1,502 124 585 440 1,224 1,091 6 (28) (962) - 69 2,028 167 (123) - 3,315 52,238 - 9,474 212 1,533 123,868 2,973 - (65,615) 1,039 4,287 (11,155) 11,876 293 - 54,922 767 13,818 259 18,764 4,330 (140) (1,621) 158,665 45,621 204,286 569 - 569 927 1,496 178 - 306 477 1,364 26 - (2,100) 3 220 - 244 (180) 6,039 21 46,543 4,913 - - - 38MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 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. Redundancy Provision is made for redundancy payments where positions have been identified as excess to requirements, the Group has communicated a detailed and formal plan and a reliable estimate of the amount payable can be determined. Refer to note 21 for further details on redundancy (restructure) provision. Annual leave and long service leave The Group expects its annual leave benefits to be settled wholly within 12 months of each reporting date. The obligation is 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. Share-Based Payment Plans The policy relating to share-based payments is set out in note 26. 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 for borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset which are capitalised as part of the cost of that asset. Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases of plant, machinery and equipment (leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of plant and equipment that are considered of low value. Lease payments on short-term lease and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. Depreciation and amortisation Refer to notes 13 and 16 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 17 for further details on impairment. MOUNT GIBSON IRON LIMITED 2020 Annual Report39 Notes to the Consolidated Financial Report (continued) 5. Taxation Major components of tax expense/(benefit) for the years ended 30 June 2020 and 2019 are: Income Statement Current tax Current income tax charge Refund in respect of previous return Deferred tax Relating to origination and reversal of temporary differences: Income tax benefit recognised from previously unrecognised tax losses and deductible temporary differences Deferred tax relating to movement in temporary differences Tax expense/(benefit) reported in Income Statement Tax expense/(benefit) relating to continuing operations Tax expense/(benefit) relating to discontinued operations Statement of Changes in Equity Deferred income tax Remeasurement of foreign exchange contracts Deferred income tax (benefit)/expense reported in equity Reconciliation of tax expense/(benefit) A reconciliation of tax expense/(benefit) applicable to accounting profit before tax at the statutory income tax rate to tax expense/(benefit) at the Group’s effective tax rate for the years ended 30 June 2020 and 2019 is as follows: Accounting profit before tax At the statutory income tax rate of 30% (2019: 30%) Expenditure not allowed for income tax purposes Recognition of previously unrecognised deferred tax assets Other Tax expense/(benefit) reported in Income Statement 2020 $’000 2019 $’000 (3) - - - - (84,407) 36,522 36,519 36,627 (108) 36,519 21,447 (62,960) (63,013) 53 (62,960) 220 220 53 53 120,717 36,215 307 - (3) 36,519 70,462 21,138 308 (84,407) 54 (62,907) 40MOUNT GIBSON IRON LIMITED 2020 Annual Report 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 2020 $’000 (3,024) (199) (878) - (5) - - - 2019 $’000 (5,268) (417) - - (13) (1,831) - - 2020 $’000 2019 $’000 - - - - - 207 1,785 71 - - - 117 - - 754 82 2020 $’000 (3,024) (199) (878) - (5) 207 1,785 71 - - 27,860 6,899 27,860 2019 $’000 (5,268) (417) - 117 (13) (1,831) 754 82 6,899 (15,787) (116) (13,059) (119) (1,063) (1,063) (35,016) (56,088) - (56,088) (48,989) (70,759) - (70,759) - - - - 29,923 - 29,923 - - - (15,787) (116) (13,059) (119) (1,063) (1,063) - 7,852 - 7,852 (35,016) (26,165) - (26,165) (48,989) (62,907) - (62,907) Balance 1 July 2019 $’000 Recognised in Income $’000 Recognised in Equity $’000 Balance 30 June 2020 $’000 Movement in temporary differences during the financial year ended 30 June 2020 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 (5,268) (417) - 117 (13) (1,831) 754 82 6,899 (13,059) (119) (1,063) (48,989) (62,907) 2,244 218 (878) (117) 8 1,818 1,031 (11) 20,961 (2,728) 3 - 13,973 36,522 - - - - - 220 - - - - - - - 220 (3,024) (199) (878) - (5) 207 1,785 71 27,860 (15,787) (116) (1,063) (35,016) (26,165) MOUNT GIBSON IRON LIMITED 2020 Annual Report41 Notes to the Consolidated Financial Report (continued) 5. Taxation (Continued) Movement in temporary differences during the financial year ended 30 June 2019 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 (Recognition)/derecognition of deferred tax asset Balance 1 July 2018 $’000 Recognised in Income $’000 Recognised in Equity $’000 Balance 30 June 2019 $’000 (3,158) (645) (949) 123 (22) (45) (230) 63 (16,593) (16,198) (194) (1,063) (45,496) 84,407 - (2,110) 228 949 (6) 9 (1,839) 984 19 23,492 3,139 75 - (3,493) (84,407) (62,960) - - - - - 53 - - - - - - - - 53 (5,268) (417) - 117 (13) (1,831) 754 82 6,899 (13,059) (119) (1,063) (48,989) - (62,907) 2020 $’000 2019 $’000 - - - - - - Unrecognised deferred tax assets (calculated at 30%) Deferred tax assets have not been recognised in respect of the following items: Temporary differences Tax losses 42MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 5. Taxation (Continued) Recognition and measurement Income Tax Deferred income tax is provided for using the full liability balance sheet approach. 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. MOUNT GIBSON IRON LIMITED 2020 Annual Report43 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 2020 $’000 2019 $’000 111,661 111,661 48,850 48,850 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: 84,198 133,369 Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortisation of capitalised deferred stripping costs Amortisation of other mine properties Net (gain) on disposal of property, plant and equipment Interest revenue Exploration expenses written off Share based payments Borrowing costs Interest accretion on rehabilitation provision Net ore inventory movement Rehabilitation provision revised estimate adjustment Impairment (write-back) of debtors Impairment (write-back) of consumables inventories Impairment (write-back) of ore inventories Impairment of deferred acquisition, exploration and evaluation Unrealised loss on foreign exchange balances Unrealised marked-to-market (gain)/loss on foreign exchange and commodity forward derivatives Unrealised marked-to-market loss on financial assets held for trading Realised (gain) on sale of financial assets held for trading Changes in assets and liabilities: (Increase)/decrease in trade and other receivables (Increase) in inventory (Increase)/decrease in prepayments (Increase)/decrease in deferred tax assets Increase in trade and other payables Increase/(decrease) in employee benefits (Decrease) in provision for restructure (Decrease) in other provisions Net Cash Flow from Operating Activities [c] Non-cash financing activities There were no non-cash financing activities during the year ended 30 June 2020 (2019: nil). 6,596 6,823 12,150 19,073 (20) (7,132) 69 440 218 524 (10,123) (83) (28) (962) (570) - 167 (6,162) 3,315 (3) 14,519 (3,856) 733 36,522 3,290 1,275 (5) (881) 160,087 4,480 - 1,039 4,287 (251) (11,115) 220 306 144 927 4,330 - - (2,100) (140) 3 244 5,859 21 (147) (27,310) (3,058) (4,455) (62,907) 21,979 (47) (3,033) (3,261) 59,384 44MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) Notes 2020 $’000 2019 $’000 7. Term Deposits and Subordinated Notes Current Term deposits – financial assets at amortised cost Subordinated notes – financial assets at fair value through other comprehensive income (OCI) [i] [ii] 182,600 92,557 208,600 88,882 275,157 297,482 [i] Term deposits are made for varying periods of between three and twelve months depending on the cash requirements of the Group and earn interest at market term deposit rates. Term deposits are held with various financial institutions with short term credit ratings of A-2 or better (Standard & Poors). As these instruments have maturity dates of less than twelve months, the Group has assessed the credit risk on these financial assets using life-time expected credit losses. In this regard, the Group has concluded that the probability of default on the term deposits is relatively low. Accordingly, no impairment allowance has been recognised for expected credit losses on the term deposits. [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. Subordinated notes are held with various financial institutions with short-term and long-term credit ratings of A or better (Standard & Poors). The Group has assessed the credit risk on these financial assets and determined that the credit risk exposure has not increased significantly since initial recognition. In determining the expected credit loss for the next twelve months, the Group considers the probability of default to be relatively low. Accordingly, no impairment allowance has been recognised for expected credit losses on these notes. Recognition and measurement See note 36 for the accounting policy for financial assets classified as financial assets at amortised cost and financial assets at fair value through OCI. 8. Financial Assets Held for Trading Current Tradeable corporate bonds at fair value through profit or loss Quoted share investments at fair value through profit or loss 2020 $’000 2019 $’000 33,291 3,116 36,407 33,055 5,144 38,199 Financial assets held for trading comprise corporate bonds and equity securities which are traded in active markets. These financial assets are acquired principally for the purpose of selling or repurchasing in the short term. The portfolio of tradeable corporate bonds 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 See note 36 for the accounting policy for financial assets classified as financial assets at fair value through profit and loss. 9. Trade and Other Receivables Current Trade debtors – at amortised cost Expected credit loss Trade debtors – at fair value through profit or loss Sundry debtors Other receivables Notes [a][i] [b] [a][i] [a][ii] 2020 $’000 2019 $’000 160 (42) 118 12,001 4,780 2,337 155 (70) 85 26,983 5,387 2,185 19,236 34,640 MOUNT GIBSON IRON LIMITED 2020 Annual Report45 Notes to the Consolidated Financial Report (continued) [a] Terms and conditions Terms and conditions relating to the above financial instruments: [i] Generally, on presentation of ship loading documents and the provisional invoice, the customer settles 95% of the provisional sales invoice value within 10 days and the remaining 5% is settled within 30 days of presentation of the final invoice. The vast majority of sales are invoiced and received in US dollars (US$). The balance of other trade debtors is invoiced and received in Australian dollars (A$). [ii] Sundry debtors are non-interest bearing and have repayment terms between 30 and 90 days. There is an insignificant probability of default as sundry debtors are short term, have no history of default and customers have passed the Group’s internal credit assessment. Recognition and measurement See note 36 for the accounting policy for financial assets. 10. Inventories Consumables – at cost Write down to net realisable value (NRV) Ore – at cost Write down to NRV Total inventories Notes 2020 $’000 2019 $’000 20,748 (4,478) 16,270 23,530 - 23,530 39,800 16,891 (5,439) 11,452 13,407 (570) 12,837 24,289 [i] [i] At 30 June 2020, the Group assessed the carrying values of ore inventories stockpiled at the Extension Hill and Koolan Island 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. Reversals of write down were recorded for ore inventories that were previously written down and sold during the period. Based on these assumptions, the following reversals of write down on ore inventories were recorded during the financial period: Extension Hill Koolan Island Total reversal of write down to NRV 2020 $’000 570 - 570 2019 $’000 140 - 140 Recognition and measurement Inventories are carried at the lower of cost and net realisable value. For iron ore, 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. 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. Consumables relating to plant and equipment are recognised as inventory. Consumable stocks are carried at cost less accumulated impairment. Key estimate Consumables are written down to net realisable value if considered damaged or, have become wholly or partially obsolete. A new assessment is made of the write down in each subsequent period. 46MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 11. Derivative Financial Assets Current Foreign currency option contracts Refer note 36 for details on derivative financial instruments. 12. Interests in Subsidiaries Name Mount Gibson Mining Limited Geraldton Bulk Handling Pty Ltd Gibson Minerals Ltd Aztec Resources Limited Koolan Shipping Pty Ltd Brockman Minerals Pty Ltd Koolan Iron Ore Pty Ltd KIO SPV Pty Ltd Notes 2020 $’000 2019 $’000 36[b][i] 557 557 36 36 Country of Incorporation Percentage of Equity Interest Held by the Group 2020 % 100 100 100 100 100 100 100 100 2019 % 100 100 100 100 100 100 100 100 Australia Australia Australia Australia Australia Australia Australia Australia Entities subject to Class Order relief 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 2008. 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 Revenue Interest revenue TOTAL REVENUE Cost of sales GROSS PROFIT Other income Impairment of non-current other receivables Administration and other expenses PROFIT FROM CONTINUING OPERATIONS BEFORE TAX AND FINANCE COSTS Finance costs PROFIT FROM CONTINUING OPERATIONS BEFORE TAX Tax benefit/(expense) PROFIT AFTER TAX FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS Profit/(loss) after tax for the year from discontinued operations PROFIT AFTER TAX ATTRIBUTABLE TO MEMBERS OF THE COMPANY 2020 $’000 2019 $’000 445,165 7,132 452,297 (318,131) 134,166 17,738 (9,267) (16,097) 126,540 (1,502) 125,038 (40,587) 84,451 278,364 11,115 289,479 (192,978) 96,501 4,654 (364) (17,532) 83,259 (1,496) 81,763 51,482 133,245 (253) 84,198 124 133,369 MOUNT GIBSON IRON LIMITED 2020 Annual Report47 Notes to the Consolidated Financial Report (continued) Consolidated Balance Sheet of the Closed Group Notes 2020 $’000 2019 $’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 TOTAL CURRENT ASSETS NON-CURRENT ASSETS Other receivables Property, plant and equipment Right-of-use assets Deferred acquisition, exploration and evaluation costs Mine properties Prepayments Deferred tax assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Employee benefits Interest-bearing loans and borrowings Derivative financial liabilities Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Employee benefits Interest-bearing loans and borrowings Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Accumulated losses Reserves TOTAL EQUITY 111,468 275,157 33,291 19,090 39,710 3,708 557 482,981 7,153 44,593 12,017 3 233,785 1,488 19,926 318,965 801,946 58,500 4,632 6,846 - 8,325 78,303 196 5,382 47,340 52,918 131,221 670,725 602,030 (914,167) 982,862 670,725 48,654 297,482 33,055 34,568 24,016 4,048 36 441,859 9,813 21,717 - - 194,994 1,929 57,420 285,873 727,732 54,030 3,347 1,753 6,042 6,487 71,659 258 - 43,003 43,261 114,920 612,812 583,395 (953,350) 982,767 612,812 [i] [i] Accumulated losses Balance at the beginning of the year Net profit attributable to members of the closed group Dividends paid Balance at the end of the year (953,350) 84,198 (45,015) (914,167) (1,053,908) 133,369 (32,811) (953,350) 48MOUNT GIBSON IRON LIMITED 2020 Annual Report 7 1 7 , 1 2 3 9 5 , 4 4 6 0 2 , 2 2 9 9 , 2 1 2 2 5 , 1 9 0 0 , 4 9 8 8 , 7 1 2 9 4 , 7 2 0 0 1 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 0 5 5 , 4 5 4 ) 3 3 8 , 2 3 4 ( 7 1 7 1 2 , 0 2 2 , 3 8 4 ) 7 2 6 , 8 3 4 ( 3 9 5 4 4 , - ) 7 7 ( 4 3 7 , 7 0 4 5 , 8 1 ) 0 7 4 , 4 ( - ) 0 1 ( 7 1 7 1 2 , - 7 1 7 , 1 2 8 2 4 , 0 3 ) 9 4 1 ( ) 5 9 5 , 6 ( ) 1 ( ) 7 0 8 ( 3 9 5 4 4 , 9 1 0 2 0 0 0 $ ’ - 6 0 2 , 2 6 0 2 2 , 6 7 7 2 0 2 , 2 ) 2 7 7 ( - - - - 6 0 2 2 , 0 2 0 2 0 0 0 $ ’ - 2 9 9 , 2 1 - - - 6 0 2 , 2 8 7 9 , 2 1 ) 5 8 3 , 1 ( ) 7 0 8 ( 2 9 9 2 1 , 2 9 9 2 1 , 2 2 5 1 , 9 0 0 4 , 9 8 8 7 1 , 8 6 4 , 1 4 1 ) 6 4 9 , 9 3 1 ( 2 6 4 , 4 4 1 7 2 2 , 0 1 3 ) 3 5 4 , 0 4 1 ( ) 8 3 3 , 2 9 2 ( 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 4 5 0 4 4 4 5 1 , 1 - ) 1 2 6 ( - - 2 2 5 , 1 8 7 6 , 2 6 1 3 - ) 7 0 5 ( - - 2 3 3 ) 7 7 ( 9 0 3 , 6 4 8 1 , 5 1 ) 9 4 8 , 3 ( - ) 0 1 ( 2 2 5 1 , 9 0 0 4 , 9 8 8 7 1 , 2 9 4 7 2 , 0 0 1 7 1 1 , 5 2 3 ) 5 2 6 , 7 9 2 ( 2 9 4 7 2 , 9 8 8 , 7 1 2 7 7 , 4 1 9 6 0 , 1 ) 9 4 1 ( ) 8 8 0 , 6 ( - ) 1 ( - - - - - - 9 1 0 2 0 0 0 $ ’ 9 4 6 0 0 1 ) 9 4 5 ( 0 2 0 2 0 0 0 $ ’ 9 4 6 0 0 1 ) 9 4 5 ( t n e m r i a p m i d n a i n o i t a c e r p e d l d e t a u m u c c A t s o c t a t n u o m a i g n y r r a c s s o r G t n u o m a g n i y r r a c t e N 0 0 1 0 0 1 r a e y e h t f o i g n n n g e b i - - - - - - 0 0 1 0 0 1 s n o i t a r e p o d e u n i t n o c s i d s n o i t a r e p o i g n u n i t n o c – – e s n e p x e i n o i t a c e r p e D e s n e p x e i n o i t a c e r p e D r a e y e h t f o d n e e h t t a t n u o m a g n i y r r a C n o i s i v o r p g n i l a e s e r d a o r o t d e r r e f s n a r T . s t n e m e g n a r r a y t i r u c e s f o s l i a t e d r o f 9 1 e t o n r e f e R y t i r u c e s s a d e g d e p l s t e s s A e h t t a t n u o m a i g n y r r a C n o i t a i l i c n o c e R s n o i t i d d A s r e f s n a r T s l a s o p s i D l a t o T s s e r g o r P n i s k r o W l a t i p a C s g n d i l i u B i t n e m p u q E d n a t n a l P d n a L i t n e m p u q E d n a t n a l P , y t r e p o r P . 3 1 ) d e u n i t n o c ( t r o p e R i l a i c n a n F d e t a d i l o s n o C e h t o t s e t o N MOUNT GIBSON IRON LIMITED 2020 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 depreciated over its expected economic life on a units- of-production method, with due regard given to the life of the related area of interest. Leased plant and equipment directly engaged in mining operations is written down to its residual value over the lesser of the lease term and its 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. Individual assets in the cash-generating units are not written down below their recoverable amount. Refer note 17 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 either the ‘value-in-use’ (being the net present value of expected future cash flows of the relevant cash generating unit) or ‘fair value less cost of disposal’. 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 17 for further details on impairment. 50MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 14. Right-of-use Assets Leased Property Gross carrying amount at cost Accumulated depreciation and impairment Net carrying amount Reconciliation Carrying amount at the beginning of the year Recognised at 1 July 2019 on adoption of AASB 16 Depreciation Carrying amount at the end of the year Recognition and measurement 2020 $’000 1,755 (585) 1,170 - 1,755 (585) 1,170 Leased Plant and Equipment 2020 $’000 2019 $’000 Total 2020 $’000 2019 $’000 2019 $’000 - - - - - - - 17,085 (6,238) 10,847 - 17,085 (6,238) 10,847 - - - - - - - 18,840 (6,823) 12,017 - 18,840 (6,823) 12,017 - - - - - - - The Group adopted AASB 16 using the modified retrospective method of adoption with an initial application date of 1 July 2019 and has not restated comparative information. The group recognises right-of-use assets at the commencement date of the lease (ie. the date the underlying asset is available for use). Right-of- use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the lease asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment. 15. 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 Net impairment reversal/(expense) Exploration expenditure written off Carrying amount at the end of the year Recognition and measurement Acquisition costs Notes 2020 $’000 2019 $’000 18,106 (18,103) 3 - 72 - (69) 3 18,103 (18,103) - - 223 (3) (220) - 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. MOUNT GIBSON IRON LIMITED 2020 Annual Report51 Notes to the Consolidated Financial Report (continued) 16. Mine Properties Mine properties - at cost Accumulated amortisation and impairment 2020 $’000 2019 $’000 1,431,540 (1,197,755) 1,361,526 (1,166,532) 233,785 194,994 Koolan Island Extension Hill Total Reconciliation Deferred stripping costs Carrying amount at the beginning of the period Capitalised deferred stripping costs 2020 $’000 64,576 44,564 2019 $’000 - 65,615 Amortisation expensed (12,150) (1,039) Carrying amount at the end of the period 96,990 64,576 Other mine properties Carrying amount at the beginning of the period Additions Mine rehabilitation – revised estimate adjustment 130,418 18,812 85,529 38,799 6,638 8,125 Amortisation expensed (19,073) (2,035) Carrying amount at the end of the period 136,795 130,418 Total mine properties 233,785 194,994 2020 $’000 2019 $’000 2020 $’000 2019 $’000 - 65,615 (1,039) 64,576 44,564 (12,150) 96,990 64,576 - - - - - - - - - - - - - - - - 2,252 130,418 18,812 87,781 38,799 6,638 8,125 (2,252) (19,073) (4,287) - - 136,795 130,418 233,785 194,994 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 19). 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). 52MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 16. Mine Properties (Continued) 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 17 for further details on impairment. Key judgement and estimate Determining the beginning of production Judgement is required to determine when capitalisation of development costs ceases and amortisation of mine assets commences upon the start of commercial production. This is based on the specific circumstances of the project, and considers when the specific asset is substantially complete and becomes ‘available for use’ as intended by management which includes consideration of the following factors: completion of reasonable testing of the mine plant and equipment; mineral recoveries, availability and throughput levels at or near expected levels; the ability to produce iron ore in saleable form (where more than an insignificant amount is produced); and the achievement of continuous production. Stripping activity assets Judgment is required to identify a suitable production measure to be used to allocate production stripping costs between inventory and any stripping activity asset(s) for each orebody component. The Group considers that the ratios of the expected volume of waste to be stripped for an expected volume of ore to be mined for a specific component of orebody, to be the most suitable production measure. In identifying and defining the orebody components, judgment is required to determine the expected volumes of waste to be stripped and ore to be mined in each of these components. These assessments are based on the information available in the mine plan which will vary between mines for various reasons, including, the geological characteristics of the orebody, the geographical location and/or financial considerations. Stripping ratio Significant judgment 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; and future cash cost 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 and exchange rates. 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. Refer note 17 for further details on impairment. MOUNT GIBSON IRON LIMITED 2020 Annual Report53 Notes to the Consolidated Financial Report (continued) 17. Impairment of Non-Current Assets The Group reviews the carrying value of the assets of each Cash Generating Unit (CGU) at each balance date for indicators of potential impairment or reversal thereof. Where such indicators exist, the Company utilises the approaches under applicable accounting pronouncements for assessment of any impairment expenses or reversals. As at 30 June 2020, there were no indicators of impairment or impairment reversal present. No impairment expenses or impairment reversals thereof have been recognised during the period (2019: nil). 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 its individual recoverable amount. 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 and amortisation, 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 or amortisation charges are 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. 54MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 18. Trade and Other Payables Current Trade creditors Accruals and other payables Notes 2020 $’000 2019 $’000 [i] [i] 25,523 35,392 60,915 20,463 34,731 55,194 [i] Current trade creditors and other payables are non-interest bearing and are normally settled on 30 day terms. Recognition and measurement All financial liabilities are recognised initially as fair value and, in the case of payables, net of directly attributable transaction costs. Trade payables, accruals 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. 19. Interest-Bearing Loans and Borrowings Current Insurance premium funding facility Lease liabilities Non-Current Lease liabilities [i] Lease liabilities Minimum lease payments for right-of-use assets: Not later than one year Later than one year but not later than five years Total minimum lease payments Future finance charges Notes [a] [i],[b] [i],[b] 2020 $’000 2019 $’000 - 6,846 6,846 5,382 5,382 7,142 5,457 12,599 (371) 12,228 1,753 - 1,753 - - - - - - - The following off-balance sheet financing facility had been negotiated and was available at the reporting date: Performance bonding facility Used at reporting date Unused at reporting date Terms and conditions relating to the above financing facilities: [a] Insurance premium funding facility [c] 6,587 13,413 20,000 7,087 12,913 20,000 During the year ended 30 June 2020, there were no insurance premium arrangements entered into by the Group. [b] Lease facility The Group adopted AASB 16 on 1 July 2019. Refer to note 38 for lease transition disclosures. The Group has lease liabilities for right-of-use assets which are repayable monthly with final instalments due in June 2022. Interest is applied at a weighted average incremental borrowing rate of 3.25%. [c] Performance bonding facility In May 2011, the Company entered into a Facility Agreement comprising a Corporate Loan facility and a Performance Bonding facility. The undrawn Corporate Loan facility was cancelled in April 2013. The Performance Bonding facility was reduced in size from $55,000,000 to $20,000,000 in June 2017 and extended to 30 June 2021. As at balance date, bonds and guarantees totalling $6,587,000 were drawn under the Performance Bonding 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. MOUNT GIBSON IRON LIMITED 2020 Annual Report55 Notes to the Consolidated Financial Report (continued) Recognition and measurement The Group adopted AASB 16 using the modified retrospective method of adoption with an initial application date of 1 July 2019 and has not restated comparative information. Leases The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identifiable asset for a period of time in exchange for consideration. Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. Other loans and borrowings All other 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. 20. Derivative Financial Liabilities Current Foreign currency option contracts Iron ore swap contracts Notes 36[b][i] 36[e] 2020 $’000 2019 $’000 - - - 3 6,039 6,042 56MOUNT GIBSON IRON LIMITED 2020 Annual Report 9 1 0 2 0 0 0 $ ’ 9 5 6 , 6 3 0 0 , 3 4 2 6 6 9 4 , - 5 0 9 , 6 4 ) 5 8 1 , 4 ( 7 2 9 ) 1 2 6 , 1 ( ) 9 8 4 ( 5 2 1 , 8 l a t o T i g n n o i s s i m m o c e D n o i t a t i l i b a h e R 0 2 0 2 0 0 0 $ ’ 5 1 5 , 8 0 4 3 , 7 4 9 1 0 2 0 0 0 $ ’ 3 3 9 , 4 3 0 0 , 3 4 0 2 0 2 0 0 0 $ ’ 4 9 4 , 7 0 4 3 , 7 4 5 5 8 5 5 , 6 3 9 7 4 , 4 3 8 4 5 , 0 4 5 2 6 6 , 9 4 ) 6 2 4 , 1 ( - 4 2 5 ) 3 8 ( 8 3 6 , 6 6 4 3 , 1 4 6 3 9 , 7 4 - 7 2 9 ) 0 3 7 ( ) 1 1 1 ( 5 2 1 , 8 ) 1 2 6 , 1 ( - ) 1 8 1 ( - 4 2 5 ) 3 8 ( 8 3 6 , 6 9 1 0 2 0 0 0 $ ’ - 6 2 5 6 2 5 - 9 5 5 , 3 ) 3 3 0 , 3 ( - - - - 0 2 0 2 0 0 0 $ ’ - 1 2 5 1 2 5 6 2 5 0 4 ) 5 4 ( - - - - 2 6 6 9 4 , 5 5 8 5 5 , 6 3 9 7 4 , 4 3 8 4 5 , 6 2 5 1 2 5 9 1 0 2 0 0 0 $ ’ - 0 0 2 , 1 0 0 2 , 1 - - 0 0 0 , 2 - ) 2 2 4 ( - ) 8 7 3 ( 0 0 2 1 , 0 2 0 2 0 0 0 $ ’ - 0 0 5 0 0 5 0 0 5 0 0 2 , 1 ) 0 0 2 , 1 ( - - - - 0 0 5 e r u t c u r t s e R g n i l a e s e R d a o R r a e y e h t f o i g n n n g e b i s n o i s i v o r P . 1 2 e h t t a t n u o m a i g n y r r a C d o i r e p r o f n o i s i v o r P n o i t a i l i c n o c e R t n e r r u C - n o N t n e r r u C d e s n e p x e - n o i s i v o r p n o i t a t i l i b a h e r n o n o i t e r c c a t s e r e t n I s n o i t a r e p o d e u n i t n o c s i d – t n e m t s u j d a e t a m i t s e d e s i v e R s n o i t a r e p o i g n u n i t n o c – t n e m t s u j d a e t a m i t s e d e s i v e R t e s s a s e i t r e p o r p i e n m – t n e m t s u j d a e t a m i t s e d e s i v e R r a e y e h t f o d n e e h t t a t n u o m a g n i y r r a C d o i r e p e h t g n i r u d d e s i l i t u s t n u o m A d n a d e v o r p p a n e e b s a h n a p l l a m r o f d e l i a t e d a e r e h w e t i s e n m i l l i H n o i s n e t x E e h t f o e r u s o c l r o / d n a n w o d i d n w e h t n o l e n n o s r e p f o e s a e e r l h t i w d e t a c o s s a i s t s o c t s a c e r o f e h t o t s e t a e r l n o i s i v o r p s i h T . e c r o f k r o w e t i s e n m i t n a v e e r l e h t o t i d e t a c n u m m o c e r u t c u r t s e R . e t i s e n m i l l i H n o i s n e t x E e h t h t i w d e t a c o s s a i s k r o w d a o r f o t s o c t s a c e r o f e h t o t s e t a e r l n o i s i v o r p s i h T g n i l a e s e r d a o R e h t f o s i s a b e h t i g n m r o f s e t a m i t s e t s o c e h T . s e t i s l l i H n o i s n e t x E d n a d n a l s I l n a o o K , k a e P g n i r e l l a T e h t r o f s t s o c n o i t a t i l i b a h e r d n a i g n n o i s s i m m o c e d f o e u a v l t n e s e r p e h t s t n e s e r p e r n o i s i v o r p s i h T n o i t a t i l i i b a h e r g n n o i s s i m m o c e D i g n n o i s s i m m o c e d f o g n m i i t e h T . s e t a m i t s e t s o c n o i t a t i l i b a h e r i e n m d n a i g n n n a p l e r u s o c l i e n m n i g n i s i l i a c e p s s t n a t l u s n o c t n e d n e p e d n i y b r a e y l i a c n a n i f e h t f o d n e e h t t a s a d e r a p e r p e r e w s n o i s i v o r p f o l k u b e h t , s e t a m i t s e t n e r r u c n o d e s a B . e r u t u f e h t n i y r a v y a m h c h w i , s t n e m e r i u q e r n o i t a t i l i b a h e r e h t f o g n m i i t e h t n o d n a i s e n m e h t f o e f i l e h t n o t n e d n e p e d s i e r u t i d n e p x e n o i t a t i l i b a h e r d n a . e t a d l e c n a a b m o r f s r a e y 6 - 4 n e e w t e b d n a l s I l n a o o K t a d n a , s r a e y 3 - 1 t x e n e h t i n h t i w l l i H n o i s n e t x E d n a k a e P g n i r e l l a T t a r u c c o o t d e t c e p x e s i n o i t a t i l i b a h e r i g n n o i s s i m m o c e d n o e r u t i d n e p x e ) d e u n i t n o c ( t r o p e R i l a i c n a n F d e t a d i l o s n o C e h t o t s e t o N MOUNT GIBSON IRON LIMITED 2020 Annual Report57 Notes to the Consolidated Financial Report (continued) 21. Provisions (Continued) The following table summarises the decommissioning rehabilitation provision by mine site: Tallering Peak Koolan Island Extension Hill Recognition and measurement Rehabilitation costs 2020 $’000 2019 $’000 617 44,420 9,797 54,834 730 37,353 9,853 47,936 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 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 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 factors that will affect the ultimate liability payable to rehabilitate the mine site. These 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 differences will impact the mine rehabilitation provision in the period in which they change or become known. 58MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 22. Issued Capital [a] Ordinary shares Issued and fully paid 2020 $’000 2019 $’000 602,030 583,395 Notes 2020 Number of Shares $’000 2019 Number of Shares $’000 [b] Movement in ordinary shares on issue Balance at the beginning of the financial year Shares issued under Dividend Reinvestment Plan Shares fully paid under LSP Restricted shares – reserved for Loan Share Plan: Balance at the beginning of the financial year Shares issued under LSP Shares forfeited under LSP Conversion of fully paid shares under LSP [f] 1,123,865,435 27,607,012 - 1,151,472,447 583,395 18,635 - 602,030 1,091,813,060 29,883,486 2,168,889 1,123,865,435 568,328 14,464 603 583,395 4,504,295 1,705,800 (440,500) - 5,769,595 - - - - - 4,749,456 2,998,351 (1,074,623) (2,168,889) 4,504,295 - - - - - Balance at the end of the financial year 1,157,242,042 602,030 1,128,369,730 583,395 Treasury shares: Balance at the beginning of the financial year Shares forfeited under LSP, not reallotted [f] - 440,500 440,500 - - - - - - - - - [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 2020, there were no options on issue (2019: nil). Share options carry no right to dividends and no voting rights. [e] Performance rights During the year ended 30 June 2020, no Performance Rights were issued. No Performance Rights vested during the year (2019: nil). As at 30 June 2020, there were no Performance Rights on issue (2019: nil) – see note 26(c). [f] Loan Share Plan (in-substance options) During the year ended 30 June 2020, 1,705,800 shares under the LSP were issued. 1,923,728 shares under the LSP vested during the year (2019: nil). A total of 440,500 shares under the LSP were forfeited upon the resignation of Mr de Kruijff on 30 November 2019. These shares were recorded as treasury shares as at 30 June 2020. [g] 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, buy back shares or issue new shares or other securities. No changes were made in the objectives, policy or processes for managing capital during the year ended 30 June 2020. MOUNT GIBSON IRON LIMITED 2020 Annual Report59 Notes to the Consolidated Financial Report (continued) 23. Reserves Share based payments reserve Net unrealised gains reserve Dividend distribution reserve Equity reserves Notes 2020 $’000 2019 $’000 [a] [b] [c] [d] 21,277 515 964,262 (3,192) 20,837 860 964,262 (3,192) 982,862 982,767 [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 financial assets classified as fair value through other comprehensive income and gains and losses on hedging instruments classified as effective cash flow hedges. Balance at the beginning of the year Change in fair value of cash flow hedges Loss on cash flow hedges transferred to the Income Statement Change in fair value of available for sale financial assets 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 Dividends paid during the period Balance at the end of the year [d] Equity reserves 20,837 440 21,277 20,531 306 20,837 860 (400) 800 (525) (220) 515 803 (179) 358 (122) - 860 964,262 - 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) 60MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) Notes 2020 $’000 2019 $’000 24. 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 25. 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 [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 [e] Short-term lease commitments Commitments for the payment of short-term leases: Not later than one year [i] [ii] [iii] [iv] (953,350) (45,015) 84,198 (1,053,908) (32,811) 133,369 (914,167) (953,350) 446 1,182 1,542 3,170 2,399 - 2,399 470 1,292 1,721 3,483 2,857 - 2,857 12,578 270 12,848 13,274 3,750 17,024 101 101 - - [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, Industry Regulation and Safety. [ii] The Group has contractual commitments to purchase property, plant and equipment at Koolan Island and Extension Hill. [iii] 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 termination. [iv] Leases of plant and equipment with lease terms of 12 months or less. MOUNT GIBSON IRON LIMITED 2020 Annual Report61 Notes to the Consolidated Financial Report (continued) Notes 2020 $’000 2019 $’000 26. Share-Based Payment Plans (a) Recognised share-based payment expense Expense arising from equity-settled share-based payment transactions 4[c] 440 306 The share-based payment plans are described below. There have been no cancellations of any of the plans during 2020 or 2019. (b) Employee Option Scheme An Employee Option Scheme has been established where the Company may, at the discretion of the Board, grant options over the ordinary shares of the Company. The options, issued for nil consideration, are granted in accordance with performance guidelines established by the Directors of the Company. All Directors, officers and employees are eligible for this scheme. No options were issued during the year ended 30 June 2020. 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, including those related to the Company's Total Shareholder Return measured against a comparator group of companies over specified periods. There were no Performance Rights issued during the year and there were no Performance Rights on issue as at 30 June 2020. (d) Loan Share Plan The Company previously established a Loan Share Plan (LSP) under which ordinary shares in the Company may be issued to eligible participants, with vesting of the shares being subject to the satisfaction of stipulated market 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, net of the tax on the dividends, 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 3 July 2019, the Company issued 1,705,800 shares under the LSP. In accordance with the terms of the LSP, the shares were issued with an index share price of $1.03 per share and pursuant to the vesting conditions, these shares do not vest unless a share price target of a 10% premium to the index price is met between 1 July 2020 and 1 July 2024 and the participants remain continuously employed by the Group. The award was accounted for as an in-substance option award and the fair value at grant date assessed at $0.348 per LSP 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 would be satisfied, with the resultant values discounted back to the grant date. The underlying share price and the exercise price was $1.03 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 0.99% 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. A total of 440,500 previously issued shares under the LSP were forfeited upon the resignation of Mr de Kruijff on 30 November 2019. The following table shows the number and weighted average exercise prices (WAEP) of, and movements in, LSP shares during the year: Balance at beginning of the year granted during the year - exercised during the year - - forfeited during the year Balance at end of the year 2020 Number of LSP Shares 4,504,295 1,705,800 - (440,500) 5,769,595 WAEP1 $0.34 $1.03 - $1.03 $0.46 2019 Number of LSP Shares 4,749,456 2,998,351 (2,168,889) 2 (1,074,623) 4,504,295 WAEP1 $0.28 $0.44 $0.28 $0.44 $0.34 1 Weighted average exercise price at balance date after dividend adjustments. 2 The weighted average share price at the date of exercise of these LSP shares was $1.19. 62MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 26. 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. This plan is accounted for as an in-substance option award. 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, both 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, Performance Rights and LSP shares is reflected as additional share dilution in the computation of earnings per share. MOUNT GIBSON IRON LIMITED 2020 Annual Report63 Notes to the Consolidated Financial Report (continued) 27. Earnings Per Share Basic earnings per share are 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 are calculated by dividing the net profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The following reflects the income and share data used in the calculations of basic and diluted earnings per share: Profit/(loss) used in calculating basic and diluted earnings 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 - 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 2020 $’000 84,451 (253) 84,198 2019 $’000 133,245 124 133,369 Number of Shares 1,145,072,362 Number of Shares 1,113,380,526 2,349,915 1,147,422,277 2,319,616 1,115,700,142 7.35 7.34 11.98 11.95 Conversions, calls, subscriptions or issues after 30 June 2020 Immediately after year end, on 1 July 2020, an issue of 2,986,400 restricted shares was made under the LSP. In accordance with the terms of the LSP, the shares were issued at an index share price of $0.617 per share. In order for the shares to vest, the participants must remain continuously employed with the Group until at least 1 July 2021 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 2021 or at any time in the following four year period be above a 10% premium to the index price of the shares. No shares have vested after balance date in July 2020. Other than as described above, 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 2020. 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 are calculated as net profit attributable to members of the company, adjusted for: i) ii) 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 iii) 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 2020 Annual Report Notes to the Consolidated Financial Report (continued) 2020 $’000 2019 $’000 28. Dividends Paid and Proposed Declared and paid during the year: [a] Dividends on ordinary shares: During the year ended 30 June 2020, a final dividend of $0.04 per share fully franked ($45,203,000) in respect of the 2018/19 financial year was distributed by way of $26,380,000 in cash and the issue of 27,607,012 new shares under the Company’s Dividend Reinvestment Plan. [b] Dividends not recognised at the end of the reporting period: On 18 August 2020, the Company declared a final dividend on ordinary shares in respect of the 2019/20 financial year of $0.03 per share fully franked, payable either in cash or in shares to eligible shareholders as part of the Company’s Dividend Reinvestment Plan. The total amount of the dividend is $34,807,000. The dividend has not been provided for in the 30 June 2020 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%. 29. Contingent Liabilities 16,333 35,706 - - 16,333 35,706 (14,917) (19,373) 1,416 16,333 1. 2. The Group has a Performance Bonding facility drawn to a total of $6,587,000 as at balance date (2019: $7,087,000). The performance bonds secure the Group’s obligations relating primarily to environmental matters and infrastructure assets. 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. 30. Key Management Personnel [a] Compensation of Key Management Personnel Short-term Post employment Long-term Share-based payment Termination [b] Other Transactions and Balances with Key Management Personnel There were no other transactions and balances with key management personnel during the year. 2020 $ 2,719,989 161,833 49,619 440,324 50,188 3,421,953 2019 $ 3,682,201 200,323 108,880 305,873 - 4,297,277 MOUNT GIBSON IRON LIMITED 2020 Annual Report65 Notes to the Consolidated Financial Report (continued) 31. 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 Lee and Mr Ferguson were directors of APAC Resources Limited (APAC) which has a 35.15% beneficial shareholding in Mount Gibson Iron Ltd, Mr Li was a director of Shougang Concord International Trading Pty Ltd (SCIT), and Mr Ding was a director of Shougang Fushan Resources Group Limited (Shougang Fushan) which has a 14.1% beneficial shareholding in Mount Gibson Iron Ltd. The following sale agreements were in place with director-related entities during the period: The sale to a subsidiary of APAC of 20% of iron ore from Koolan Island’s available mined production over the life of mine. The sale to SCIT of 80% of iron ore from Koolan Island’s available mined production over the life of mine, which resulted in the sale of two shipments of iron ore from Koolan Island prior to the novation of this offtake agreement (refer footnote below). Pursuant to these sales agreements, during the financial year, the Group: Sold 488,987 wmt (2019: 264,712 wmt) of iron ore to APAC; and Sold 146,900 wmt (2019: 2,073,265 WMT) of iron ore to SCIT. Amounts recognised at the reporting date in relation to director-related entity transactions: Assets and Liabilities Current Assets Receivables – APAC Receivables – SCIT Total trade receivables Total Assets Current Liabilities Payables – APAC Payables – SCIT Total trade payables Total Liabilities Sales Revenue Sales revenue – APAC Sales revenue – SCIT* Total Sales Revenue (before shipping freight) 2020 $’000 1,325 - 1,325 1,325 - - - - 2019 $’000 11,877 6,997 18,874 18,874 - - - - 61,511 12,568 74,079 43,066 176,344 219,410 * On 31 May 2019 Shougang Concord International Enterprise Company Limited and its wholly-owned subsidiary SCIT novated their respective interests as guarantor and buyer under the sales agreement for 80% of iron ore from Koolan Island’s available mined production over the life of mine to HKSE-listed entity Newton Resources Ltd and its subsidiary Ace Profit Investment Limited (Ace), subject to transitional arrangements which were satisfied on 23 July 2019. Ace is not considered to be a related party and only those sales to SCIT during the transition period are included above. Apart from the above, there are no director-related entity transactions other than those specified in note 30. 2020 $ 2019 $ 32. Auditor’s Remuneration Amounts received or due and receivable by EY for: Fees for auditing the statutory financial report of the parent covering the group and auditing the statutory financial reports of any controlled entities 204,175 196,414 Other services in relation to the entity and any other entity in the consolidated entity 3,744 3,640 207,919 200,054 66MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 33. Discontinued Operations The Tallering Peak operation was first reported as a discontinued operation in the financial report for the year ended 30 June 2015. Mining was completed in June 2014 and the final shipment of remnant low grade ore occurred in March 2017. Ongoing costs relate to rehabilitation and minor holding activities. 2020 $’000 2019 $’000 [a] Profit/(loss) from discontinued operations The financial results of Tallering Peak operation for the year are presented below: Revised estimate adjustment – road resealing and rehabilitation provisions Other expenses Profit/(loss) before tax and finance costs from discontinued operations Finance costs Profit/(loss) before tax from discontinued operations Tax benefit/(expense) Net profit/(loss) after tax from discontinued operations Earnings/(loss) per share (cents per share): basic earnings/(loss) per share diluted earnings/(loss) per share [b] Cash flow from discontinued operations The net cash flows incurred by the Tallering Peak operation are as follows: Operating Investing Financing Net cash outflow from discontinued operations - (361) (361) - (361) 108 (253) (0.03) (0.03) 489 (312) 177 - 177 (53) 124 0.01 0.01 (828) (2,514) - - - - (828) (2,514) MOUNT GIBSON IRON LIMITED 2020 Annual Report67 Notes to the Consolidated Financial Report (continued) 34. 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 crushing, transportation and sale of iron ore from the Extension Hill and Iron Hill iron ore deposits. Koolan Island segment – this segment includes the mining, crushing and sale of iron ore from the Koolan Island iron ore operation. 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. Except as noted below, the accounting policies applied for internal reporting purposes are consistent with those applied in the preparation of the financial statements. For the purposes of segment reporting, revenue is disclosed net of shipping freight costs, on a Free on Board (FOB) basis and includes quotation period price adjustments and realised gains and losses on foreign exchange and commodity forward sale contracts. 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) Unrealised gains/(losses) on derivatives Corporate costs Operating results for discontinued operations (Tallering Peak) have been excluded from the segment results below, and are set out in note 33. During the year ended 30 June 2020, revenue received from the sale of iron ore comprised purchases by the following (unnamed) buyers who each on a proportionate basis equated to greater than 10% of total sales for the period: Customer # 1 # 2 # 3 # 4 Other 2020 $’000 219,716 104,597 61,511 45,157 14,184 445,165 During the year ended 30 June 2019, revenue received from the sale of iron ore comprised purchases by the following (unnamed) buyers who each on a proportionate basis equated to greater than 10% of total sales for the period: Customer # 1 # 2 # 3 Other 2019 $’000 191,620 50,855 28,840 7,049 278,364 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 2020. All segment assets are located within Australia. 68MOUNT GIBSON IRON LIMITED 2020 Annual Report 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 3 4 7 , 2 3 2 3 0 0 , 5 1 4 - 5 1 1 , 1 1 2 3 1 , 7 5 1 1 , 1 1 * * 8 5 8 3 4 2 , * * 5 3 1 2 2 4 , 5 1 1 1 1 , 7 3 2 , 2 0 4 3 , 9 7 7 7 5 , 1 8 ) 6 9 7 , 9 ( 1 8 7 1 7 , ) 6 9 4 , 1 ( 5 8 2 0 7 , 3 ) 0 4 1 ( ) 0 0 1 , 2 ( 2 3 5 , 1 9 8 6 , 5 6 1 1 2 2 , 7 6 1 ) 1 4 6 , 4 4 ( 0 8 5 2 2 1 , ) 2 0 5 , 1 ( 8 7 0 1 2 1 , - ) 2 6 9 ( ) 0 7 5 ( ) 7 3 2 , 2 ( ) 2 3 5 , 1 ( ) 3 ( ) 1 3 2 , 7 ( ) 8 7 1 ( ) 4 3 2 , 7 ( ) 2 1 4 7 ( , . s e g a w d n a s e i r a a s l e c i f f o d a e h s a h c u s s e s n e p x e e t a r o p r o c d n a ) l i n $ : 9 1 0 2 ( 0 0 0 , 2 4 5 , 8 $ f o e m o c n i t n e m e l t t e s n o i t a r t i b r a , ) 0 0 0 , 5 1 1 , 1 1 $ : 9 1 0 2 ( 0 0 0 , 2 3 1 , 7 $ f o e u n e v e r t s e r e t n i s e d u c n l i ’ d e t a c o l l a n U ‘ . s e t a m i t s e t s o c d e s i v e r o t e u d ) 0 0 0 , 1 2 6 , 1 $ : 9 1 0 2 ( 0 0 0 , 8 0 5 $ f o n o i t a t i l i b a h e r r o f n o i s i v o r p n i n o i t c u d e r s e d u c n I l ^ * . d e d d a s i ) 0 0 0 , 1 2 6 , 5 4 $ : 9 1 0 2 ( 0 0 0 , 2 6 1 , 0 3 $ f o t h g e r f i i g n p p h s i , e u n e v e r y r o t u t a t s o t e u n e v e r t n e m g e s e l i c n o c e r o T * * - - 3 3 - - - - - - - - ) 3 1 3 , 1 ( ) 8 4 0 , 1 ( ) 3 1 3 , 1 ( ) 8 4 0 , 1 ( - ) 7 8 7 ( ) 0 4 1 ( ) 7 2 9 ( - 6 8 ) 0 7 5 ( ) 4 8 4 ( s e i r o t n e v n i l s e b a m u s n o c f o ) s k c a b - e t i r w ( / s s o l t n e m r i a p m I s e i r o t n e v n i e r o n o ) s k c a b - e t i r w ( t n e m r i a p m I e r u t i d n e p x e n o i t a u a v e l d n a n o i t a r o p x e l f o s s o l t n e m r i a p m I : t l u s e r t n e m g e s n i d e d u c n l i s m e t I 0 2 0 2 0 0 0 $ ’ - 2 3 1 , 7 2 3 1 7 , - ) 2 5 4 , 2 ( ) 9 0 7 ( ) 2 5 4 , 2 ( ) 1 6 1 3 ( , 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 4 6 9 , 2 5 7 9 0 , 5 9 2 9 7 7 , 9 7 1 6 0 9 , 9 1 1 - - - - 4 6 9 2 5 , , 7 9 0 5 9 2 9 7 7 9 7 1 , , 6 0 9 9 1 1 n o ) s e s s o l ( / s n a g i d e s i l a e r d n a t h g e r f i i g n p p h s i f o t e n , e r o n o r i f o l e a s m o r f e u n e v e R e u n e v e r t n e m g e S t h g i e r f g n p p h s i i f o t e n , e u n e v e r t n e m g e S e u n e v e r t s e r e t n I s e v i t a v i r e d t l u s e r t n e m g e S 3 1 3 , 1 0 5 3 , 2 2 3 6 6 , 3 2 ) 1 7 2 , 5 ( 2 9 3 8 1 , 8 4 0 , 1 2 4 1 , 5 4 1 0 9 1 , 6 4 1 ) 2 9 7 , 3 4 ( 8 9 3 2 0 1 , ^ 1 2 2 , 4 6 ^ 9 9 9 , 2 2 n o i t a s i t r o m a d n a i n o i t a c e r p e d , x a t , t s e r e t n i , t n e m r i a p m i e r o f e b ) s s o l ( / s g n n r a E i 7 2 9 8 4 1 , 5 6 ) 7 4 3 , 4 ( 1 0 8 0 6 , 4 8 4 ) 0 4 1 ( 3 8 4 , 3 2 3 4 3 3 2 , n o i t a s i t r o m a d n a i n o i t a c e r p e d , x a t , t s e r e t n i e r o f e b ) s s o l ( / s g n n r a E i l a s r e v e r / ) s s o l ( t n e m r i a p m I s n o i t a r e p o d e u n i t n o c s i d d n a x a t e r o f e b t i f o r P n o i t a s i t r o m a d n a i n o i t a c e r p e D t l u s e r t n e m g e S s t s o c e c n a n F i d e t a d i l o s n o C * d e t a c o l l a n U d n a l s I n a l o o K l l i H n o i s n e t x E ) d e u n i t n o C ( n o i t a m r o f n I t n e m g e S . 4 3 ) d e u n i t n o c ( t r o p e R i l a i c n a n F d e t a d i l o s n o C e h t o t s e t o N MOUNT GIBSON IRON LIMITED 2020 Annual Report69 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ d e t a d i l o s n o C * d e t a c o l l a n U d n a l s I n a l o o K l l i H n o i s n e t x E ) d e u n i t n o c ( t r o p e R 8 1 0 , 3 4 4 7 8 5 , 4 6 3 3 3 5 , 7 6 3 7 8 4 , 8 2 7 1 7 , 1 2 7 0 2 , 9 1 4 - 9 2 9 , 1 7 0 9 , 2 6 4 9 9 , 4 9 1 8 0 7 , 3 4 3 9 5 , 4 4 7 1 0 , 2 1 1 9 4 , 1 5 6 1 , 6 2 5 8 7 , 3 3 2 - - - 4 0 3 1 8 2 , 1 - 3 9 2 2 6 6 2 , 1 0 7 1 , 1 7 0 9 , 2 6 5 6 1 , 6 2 - - 4 2 7 , 5 3 1 6 1 , 3 2 6 3 4 , 0 2 9 2 9 , 1 4 9 9 , 4 9 1 - 3 3 5 , 8 5 6 6 6 , 7 3 7 7 1 , 4 4 7 4 8 , 0 1 8 8 4 , 1 5 8 7 , 3 3 2 - - - - 7 7 9 5 4 0 , 4 6 9 8 , 8 1 - - - - 7 8 1 6 7 7 , 4 2 5 9 , 6 1 , 1 4 2 9 2 7 , 7 7 7 4 0 8 , 9 7 0 9 2 4 , 6 6 3 6 9 3 4 4 2 6 7 2 , 6 9 4 6 8 3 , 8 1 9 3 2 , 5 1 9 1 2 , 9 8 9 , 2 6 0 4 4 , 3 5 9 2 4 6 1 1 , 2 1 8 2 1 6 , 3 4 1 , 3 7 9 0 9 , 0 6 2 5 0 4 3 1 , 5 2 7 0 7 6 , 7 8 7 , 1 6 8 1 , 4 1 3 7 9 5 1 , , 6 0 1 3 1 4 2 8 3 , 3 6 5 8 , 1 8 3 2 5 , , 8 2 1 1 9 3 3 3 6 , 2 3 8 1 7 , 9 3 1 5 3 2 7 , 3 9 8 3 0 2 , 6 3 7 , 1 5 1 3 8 , 7 4 7 6 5 9 9 , 9 2 9 6 8 2 , 0 7 1 , 6 1 5 3 9 , 1 1 5 0 1 8 2 , ) 7 8 1 4 ( , 5 2 0 , 8 1 2 2 2 , 1 1 7 4 2 9 2 , ) 2 3 3 7 ( , i l a i c n a n F d e t a d i l o s n o C e h t o t s e t o N ) d e u n i t n o C ( n o i t a m r o f n I t n e m g e S . 4 3 t n e m p u q e i d n a t n a p l , y t r e p o r P s t e s s a l i a c n a n i f t n e r r u C s t e s s a t n e r r u c r e h t O s t e s s a t n e m g e S s t e s s a t n e r r u c - n o n r e h t O s t e s s a x a t d e r r e f e D s t e s s a l a t o T s t e s s a e s u - f o - t h g R i s e i t r e p o r p e n M i s e i t i l i b a i l t n e m g e S ) s e i t i l i b a i l ( / s t e s s a t e N s e i t i l i b a i l l a t o T s e i t i l i b a i l r e h t O s e i t i l i b a i l l i a c n a n F i . ) 0 0 0 , 9 9 1 , 8 3 $ : 9 1 0 2 ( 0 0 0 , 7 0 4 , 6 3 $ f o g n d a r t i l r o f d e h s t e s s a l i a c n a n i f d n a ) 0 0 0 , 2 8 8 , 8 8 $ : 9 1 0 2 ( 0 0 0 , 7 5 5 , 2 9 $ f o s e t o n d e t a n d r o b u s i , ) 0 0 0 , 0 0 6 , 8 0 2 $ : 9 1 0 2 ( 0 0 0 , 0 0 6 , 2 8 1 $ f o s t i s o p e d m r e t e d u c n l i s t e s s a l i a c n a n i f t n e r r u c ’ d e t a c o l l a n U ‘ * 70MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 35. Events After the Balance Sheet Date On 18 August 2020, the Company declared a final dividend on ordinary shares in respect of the 2019/20 financial year of $0.03 per share fully franked, payable either in cash or in shares to eligible shareholders as part of the Company’s Dividend Reinvestment Plan. The total amount of the dividend is $34,807,000. The dividend has not been provided for in the 30 June 2020 financial statements. Apart from the above, as at the date of this report there are no significant events after balance date of the Company or of the Group that require adjustment of or disclosure in this report. 36. Financial Instruments [a] Financial risk management objectives The Group’s principal financial instruments, other than derivatives, comprise bank, cash and short-term deposits, financial assets held for trading, trade and other receivables, trade and other payables, and lease liabilities. The main purpose of these financial instruments is to manage short term cash flows for the Group’s operations. The Group has various other financial instruments such as trade receivables and trade creditors, which arise directly from its operations. The Group also enters into derivatives transactions, principally forward currency contracts, and from time to time also enters into foreign currency collar options and iron ore swaps. The purpose is to manage the currency and commodity price risks arising from the Group’s operations. The main risks arising from the Group’s financial instruments are foreign currency risk, interest rate risk, credit risk, commodity price risk and liquidity risk. The Board reviews and agrees management’s recommended policies for managing each of these risks, as summarised below and in accordance with the Company’s Financial Risk Management Policy. [b] Foreign currency risk The Group is exposed to the risk of adverse movement in the A$ 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 2020, the Group delivered into US dollar foreign exchange forward contracts totaling US$9,000,000 at a weighted average exchange rate of A$1.00/US$0.6685. At 30 June 2020, the notional amount of the foreign exchange hedge book totalling US$11,000,000 is made up exclusively of collar option contracts with maturity dates in the 4 months ended 28 October 2020 and with an average cap price of A$1.00/US$0.6727 and an average floor price of A$1.00/US$0.6107. As at 30 June 2020, the marked-to-market unrealised gain on the total outstanding US dollar foreign exchange hedge book of US$11,000,000 was $557,000. It is the Group’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximise hedge effectiveness. The Group uses the following derivative instruments to manage foreign currency risk from time to time as business needs and conditions dictate: Instrument Type of Hedging Objective Forward exchange contracts Cash flow hedge Collar options Cash flow hedge To hedge sales receipts against cash flow volatility arising from the fluctuation of the A$/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 2020 Annual Report71 Notes to the Consolidated Financial Report (continued) 36. 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: 2020 2019 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 - put strike price Within one year: - call strike price - put strike price Within one year: - call strike price - put strike price Total 0.6900 0.6358 0.6550 0.5950 0.6700 0.6033 3,000 4,348 50 2,500 3,338 (3) 2,000 3,053 157 0.7490 0.6800 0.7190 0.6700 9,000 12,517 36 6,000 8,955 350 - - - - - 11,000 16,356 557 11,500 15,855 33 As balance date, the following foreign exchange contracts were recognised on the balance sheet and income statement: Current assets Current liabilities Total collar option contracts [ii] Foreign currency sensitivity Notes 11 20 2020 $’000 557 - 557 2019 $’000 36 (3) 33 The following table details the effect on profit and other comprehensive income after tax of a 10% change in the A$ against the US$ from the spot rates at 30 June 2020 and 30 June 2019. Sensitivity to a 10% change in A$ against US$ at balance date Net Profit Other Comprehensive Income 2020 $’000 2019 $’000 2020 $’000 2019 $’000 10% appreciation in the A$ spot rate with all other variables held constant 10% depreciation in the A$ spot rate with all other variables held constant (4,178) (2,886) 1,302 690 5,107 3,528 (172) (762) 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 2020 Annual Report Notes to the Consolidated Financial Report (continued) 36. Financial Instruments (Continued) At balance date, the Group’s exposure to foreign currency risks on financial assets and financial liabilities, excluding derivatives, which are primarily denominated in US dollars, are as follows: Financial Assets Cash (included within note 6) Trade and other receivables (included within note 9) Financial Liabilities Trade and other payables (included within note 18) Net exposure 2020 $’000 56,058 12,001 (2,398) 65,661 2019 $’000 21,095 26,983 (2,719) 45,359 The net exposure in US dollars at balance date is U$45,319,000 (2019: U$31,841,000). [c] Interest rate risk The Group’s exposure to market interest rates relates primarily to the Group’s cash and cash equivalents, term deposits and subordinated notes, trade debtors, financial assets at fair value through profit or loss 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 2020 Annual Report73 % 9 1 0 2 % 0 2 0 2 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ e g a r e v A d e t h g i e W t s e r e t n I t n u o m a g n i y r r a c l a t o T t e e h s e c n a l a b r e p g n i r a e b t s e r e t n i - n o N s r a e y 5 o t 1 r e v O s s e l r o r a e y 1 e t a r t s e r e t n i g n i t a o l F : n i g n i r u t a m e t a r t s e r e t n i d e x i F ) d e u n i t n o c ( t r o p e R i l a i c n a n F d e t a d i l o s n o C e h t o t s e t o N ) d e u n i t n o C ( s t n e m u r t s n I l a i c n a n i F . 6 3 2 4 . 0 8 4 . 2 4 3 . 3 0 8 . 3 - - - 9 4 . 0 8 2 . 1 5 3 . 2 8 1 . 3 - - - 4 7 . 3 - 5 2 . 3 - 0 5 8 , 8 4 , 0 0 6 8 0 2 6 3 2 8 8 8 8 , 9 9 1 8 3 , 0 4 6 4 3 , , 1 6 6 1 1 1 , 0 0 6 2 8 1 7 5 5 7 5 5 2 9 , 7 0 4 6 3 , 6 3 2 9 1 , 1 - - * 6 3 4 4 1 , 5 * 0 4 6 , 4 3 , 7 0 2 9 1 4 , 8 1 0 3 4 4 1 2 8 , 9 3 1 - - 6 1 1 , 3 * 6 3 2 , 9 1 * 7 5 5 0 1 9 2 2 , 3 5 7 1 , 2 4 0 6 , 4 9 1 5 5 , 9 8 9 2 6 , - 5 1 9 0 6 , 8 2 2 2 1 , 3 4 1 3 7 , 4 9 1 , 5 5 5 1 9 , 0 6 - 2 4 0 , 6 6 3 2 1 6 , - - 5 1 9 0 6 , - - - - - - - - - - - - - - - - - - - - 2 8 3 , 5 2 8 3 5 , - - - - 5 5 0 , 3 3 1 9 2 , 3 3 - - - - - - 0 0 6 , 8 0 2 0 0 6 , 2 8 1 - - - - 2 8 8 , 8 8 7 5 5 , 2 9 - - 9 4 8 , 8 4 0 6 6 , 1 1 1 , 5 5 6 1 4 2 , 1 9 8 5 1 2 , 1 3 7 7 3 1 , 7 1 2 4 0 2 s t e s s a l a i c n a n i f l a t o T - - 3 5 7 , 1 - - 6 4 8 , 6 3 5 7 1 , 6 4 8 6 , - - - - - - - - i s g n w o r r o b d n a s n a o l g n i r a e b - t s e r e t n I s bilitie cial lia n a Fin ) i i l s e b a y a p r e h t o d n a e d a r T s e i t i l i b a i l l i a c n a n i f e v i t a v i r e D s e i t i l i b a i l l a i c n a n i f l a t o T . e u a v l r i a f t a d e i r r a c e r a y e h t s a k s i r e t a r t s e r e t n i o t p u o r G e h t e s o p x e s t e s s a l i a c n a n i f e s e h T * i g n d a r t r o f l d e h s t e s s a l i a c n a n F i l s e b a v e c e r i r e h t o d n a e d a r T D E T A D I L O S N O C s t e s s cial a n a Fin ) i s e t o n i d e t a n d r o b u S s t i s o p e d m r e T h s a C s t e s s a l i a c n a n i f e v i t a v i r e D 74MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 36. 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. Sensitivity of a 0.25% change in interest rates 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 2020 $’000 614 (614) 2019 $’000 622 (622) 2020 $’000 2019 $’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 and collar exchange contracts is the full amount of the foreign currency it will be required to pay or purchase when settling the forward or collar exchange contract, should the counterparty not pay the currency it is committed to deliver to the Group. The majority of the Group’s customers are located in China. 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 95% 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 & Poor’s credit rating and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Board on an ongoing 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. The Group enters into provisionally priced ore sales contracts, for which price finalisation is referenced to relevant market indices at specified future dates. The Group’s exposure at balance date to the impact of movements in the iron ore price upon provisionally invoiced sales volumes is set out below: Sensitivity at Balance Date Ore Sales Revenue: - 10% increase in iron ore prices - 10% decrease in iron ore prices 2020 $’000 4,311 (4,311) 2019 $’000 2,395 (2,395) The sensitivities have been determined as the dollar impact of a 10% increase and decrease in benchmark iron ore prices on trade receivables subject to provisional pricing at each reporting date, while holding all other variables, including foreign exchange rates, constant. The relationship between iron ore prices and exchange rates is complex, and movements in exchange rates can impact commodity prices. The above sensitivities should therefore be used with caution. MOUNT GIBSON IRON LIMITED 2020 Annual Report75 Notes to the Consolidated Financial Report (continued) 36. Financial Instruments (Continued) During the period, the Group had forward sales agreements covering three shipments totalling 210,000 tonnes of iron ore, with maturity dates spread over the period July 2019 to September 2019. The contracts were stated in US$ per dry metric tonne (DMT) 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$86 and US$90 per DMT. Movements in the market value of the forward sale contracts are taken to the income statement. At balance date, the following iron ore forward sales contracts that have not been designated as hedges were outstanding: 2020 2019 Tonnes Average Price per Tonne US$ Fair Value US$ $’000 Fair Value A$ $’000 Tonnes Average Price per Tonne US$ Fair Value US$ $’000 Fair Value A$ $’000 - - - - - - - - 210,000 210,000 88 88 (4,239) (4,239) (6,039) (6,039) Maturing within: - 1 to 3 months Total [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. 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 2020, the Group had unutilised performance bonding facilities totalling $13,413,000 (2019: $12,913,000). Refer note 19. Tabulated below is an analysis of the Group’s financial liabilities according to relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. As the amounts disclosed in the table are the contractual undiscounted cash flows, these balances will not necessarily agree with the amounts disclosed in the balance sheet. 30 June 2020 30 June 2019 Less than 6 months $’000 6 to 12 months $’000 1 to 5 years $’000 Over 5 years $’000 Total $’000 Less than 6 months $’000 6 to 12 months $’000 1 to 5 years $’000 Over 5 years $’000 Financial Liabilities Trade and other payables Interest-bearing loans and borrowings Derivatives 60,915 - - 3,571 3,571 5,457 - - - 64,486 3,571 5,457 - - - - 60,915 55,194 12,599 - 1,764 6,042 73,514 63,000 - - - - - - - - - - - - Total $’000 55,194 1,764 6,042 63,000 76MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 36. Financial Instruments (Continued) [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 sourced from an independent valuation by the Group’s treasury advisors using the valuation techniques with prevailing short and long term observable market inputs sourced from Reuters/Bloomberg to determine an appropriate mid-price valuation (level 2). The fair values of quoted notes and bonds (classified as either financial assets held for trading or at fair value through other comprehensive income) are determined based on market price quotations at the reporting date (level 1). The fair values of trade receivables classified as financial assets at fair value through profit and loss are determined using a discounted cash flow model incorporating market observable inputs sourced from Platts index pricing (level 2). This model also incorporates interest rate and credit risk adjustments. The fair values of cash, short-term deposits, 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. The carrying amounts and fair values of the financial assets and financial liabilities for the Group as at 30 June 2020 and 30 June 2019 are shown below. Notes 6 7 7 8 9 11 18 19 20 2020 Carrying Amount $’000 Fair Value $’000 2019 Carrying Amount $’000 Fair Value $’000 111,661 182,600 92,557 36,407 19,236 557 443,018 60,915 12,228 - 73,143 369,875 111,661 182,600 92,557 36,407 19,236 557 443,018 60,915 12,228 - 73,143 369,875 48,850 208,600 88,882 38,199 34,640 36 419,207 55,194 1,753 6,042 62,989 356,218 48,850 208,600 88,882 38,199 34,640 36 419,207 55,194 1,753 6,042 62,989 356,218 Financial assets – current Cash Term deposits Subordinated notes Financial assets held for trading Trade debtors and other receivables Derivatives Financial liabilities – current Trade and other payables Interest-bearing loans and borrowings Derivatives Net financial assets Recognition and measurement Initial recognition and measurement Financial assets are classified, at initial recognition, and subsequently measured at amortised cost, fair value through other comprehensive income (OCI), or fair value through profit or loss. The classification of financial assets at initial recognition that are debt instruments depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group 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. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient for contracts that have a maturity of one year or less, are measured at the transaction price determined under the revenue accounting policy (see note 3). In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest’ (SPPI) on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset. MOUNT GIBSON IRON LIMITED 2020 Annual Report77 Notes to the Consolidated Financial Report (continued) Subsequent measurement For purposes of subsequent measurement, financial assets are classified in four categories: Financial assets at amortised cost (debt instruments) Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) Financial assets at fair value through profit or loss Financial assets at amortised cost (debt instruments) The Group measures financial assets at amortised cost if both of the following conditions are met: The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Interest received is recognised as part of finance income in the statement of profit or loss and other comprehensive income. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group’s financial assets at amortised cost include trade receivables (not subject to provisional pricing), other receivables and term deposits (see notes 7 and 9). Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading (see note 8), financial assets designated upon initial recognition at fair value through profit or loss or financial assets mandatorily required to be measured at fair value, i.e., where they fail the SPPI test. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that do not pass the SPPI test are required to be classified and measured at fair value through profit or loss, irrespective of the business model. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in profit or loss. As the Group applies the SPPI test to determine the classification of financial assets, the requirements relating to the separation of embedded derivatives is no longer needed for financial assets. An embedded derivative will often make a financial asset fail the SPPI test thereby requiring the instrument to be measured at fair value through profit or loss in its entirety. This is applicable to the Group’s trade receivables subject to provisional pricing (see note 9). These receivables relate to sales contracts where the selling price is determined after delivery to the customer, based on an index price at the end of the relevant quotational period stipulated in the contract. This exposure to the market-based index price causes such trade receivables to fail the SPPI test. As a result, these receivables are measured at fair value through profit or loss from the date of recognition of the corresponding sale, with subsequent movements being recognised in other revenue (see note 3) Financial assets at fair value through OCI The Group measures debt instruments at fair value though OCI if both of the following conditions are met: - The financial asset is held with a business model with both the objective of both holding to collect contractual cash flows and selling; and The contractual terms meet the SPPI test. For debt instruments at fair value through OCI, interest income and impairment losses are recognised in profit and loss and computed in the same manner as for financial assets carried at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit and loss. The Group’s debt instruments at fair value through OCI includes the subordinated notes (see note 7) Impairment of financial assets The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original EIR. ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (lifetime ECL). For trade receivables (not subject to provisional pricing) and other receivables due in less than 12 months, the Group applies the simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead, recognises a loss allowance based on the financial asset’s lifetime ECL at each reporting date. The Group has established a provision matrix for trade receivables that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. For any other financial assets carried at amortised cost (which are due in more than 12 months), the ECL is based on the 12-month ECL when there has not been a significant increase in credit risk since origination. The 12-month ECL is the proportion of lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after the reporting date. When there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECL. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment including forward-looking information. The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows and usually occurs when past due for more than one year and not subject to enforcement activity. 78MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) Derivative financial instruments and hedging 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. 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. 37. 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 2020 $’000 2019 $’000 11,926 11,013 1,158,381 1,077,940 230 487,656 602,030 3,067 270 465,128 583,395 1,750 (349,955) (387,476) 394,306 21,277 670,725 82,724 82,724 394,306 20,837 612,812 133,177 133,177 MOUNT GIBSON IRON LIMITED 2020 Annual Report79 Notes to the Consolidated Financial Report (continued) [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 19. The parent entity has further provided bank guarantees in respect of obligations to various authorities. Refer to note 19. [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 29. 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. In accordance with this agreement, Mount Gibson Mining Limited agrees to pay Aurizon for rail haulage services and also reimburse Aurizon for the track access charges Aurizon pays 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. 80MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) 38. New and Amended Accounting Standards and Interpretations A. New and amended Accounting Standards and Interpretations adopted from 1 July 2019 Since 1 July 2019, the Group has adopted all Accounting Standards and Interpretations mandatory to annual periods beginning on or before 1 July 2019. Adoption of these standards and interpretations did not have a material effect on the financial position or performance of the Group. (a) Nature of the effect of adoption of AASB 16 The Group applies, for the first time, AASB 16. The Group applied the modified retrospective transition method to adopt AASB 16 and thus prior comparatives were not restated. Under this method, the cumulative effect of initially applying the standard is recognised directly as an adjustment to equity at the date of initial application. The Group elected to use the recognition exemptions for lease contracts that have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’), and lease contracts for which the underlying asset is of low value (‘low-value assets’) (ie. below US$5,000). The Group has lease contracts for various items of plant, machinery and other equipment. Prior to the adoption of AASB 16, the Group classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. A lease was classified as a finance lease if it transferred substantially all of the risks and rewards incidental to ownership of the leased asset to the Group; otherwise it was classified as an operating lease. Prior to the date of initial application of AAB 16, the Group did not have any finance leases recognised. All leases for plant, machinery, other equipment and leased property were classified as operating leases. Operating leases were not capitalised and the lease payments were recognised as rent expense in the profit or loss on a straight-line basis over the lease term. Under adoption of AASB 16, the Group applied a single recognition and measurement approach for all leases, except short-term leases and leases of low-value assets. The standard provides specific transition requirements and practical expedients, which have been applied by the Group. The Group recognised right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short- term leases and leases of low-value assets. The Group has elected to present right-of-use assets separately and lease liabilities as part of interest-bearing liabilities in the statement of financial position. The right-of-use assets were recognised based on the amount equal to the lease liabilities. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. The weighted-average discount rate applied is 3.25%. The Group also applied the available practical expedients wherein it excluded the initial direct costs from the measurement of the right- of-use asset at the date of initial application. The impact on operating cash flows is the removal of the payments for operating lease costs incurred (previously under AASB 117), which were either expensed through operating costs or capitalised to non-current assets, except for cash flows relating to variable, short-term and low-value payments. The effect of adopting AASB 16 as at 1 July 2019 (increase/(decrease)) is, as follows: Assets Non-current : Right-of-use assets Total assets Liabilities Current : Interest-bearing loans and borrowings Non-current : Interest-bearing loans and borrowings Total liabilities (i) Reconciliation of operating lease commitments The lease liabilities as at 1 July 2019 can be reconciled to the operating lease commitments as of 30 June 2019 as follows: Operating lease commitments as at 30 June 2019 Weighted average incremental borrowing rate as at 1 July 2019 Discounted operating lease commitments as at 1 July 2019 Less: Commitments relating to short-term leases Commitments relating to leases of low-value assets Commitments relating to variable leases Lease liabilities as at 1 July 2019 $’000 18,840 18,840 6,610 12,230 18,840 $’000 24,094 3.25% 23,018 (1,704) (218) (2,256) 18,840 MOUNT GIBSON IRON LIMITED 2020 Annual Report81 Notes to the Consolidated Financial Report (continued) (ii) Amounts recognised in the statement of financial position and profit or loss Set out below are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the movements during the period: Recognised at 1 July 2019 on adoption of AASB 16 Additions Depreciation expense Interest expense Payments As at 30 June 2020 Leased Property $’000 Right-of-use Assets Plant and Equipment $’000 Total $’000 Lease Liabilities $’000 1,755 - (585) - - 1,170 17,085 - (6,238) - - 10,847 18,840 - (6,823) - - 12,017 18,840 - - 514 (7,126) 12,228 (b) Nature of the effect of adoption of AASB Interpretation 23 The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of AASB 112 Income Taxes. It does not apply to taxes or levies outside the scope of AASB 112, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following: An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to be followed. Whether an entity considers uncertain tax treatments separately; The assumptions an entity makes about the examination of tax treatments by taxation authorities; How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credit and tax rates; and How an entity considers changes in facts and circumstances. The Group applies significant judgment in identifying uncertainties over income tax treatments. The interpretation did not have an impact on the consolidated financial statements of the Group. B. New and amended Accounting Standards and Interpretations issued but not yet effective Other Australian Accounting Standards and Interpretations relevant to the Group that have recently been issued or amended but are not yet effective, have not been adopted by the Group for the period ended 30 June 2020 are outlined in the table below: Reference Title Summary AASB 2019-3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform AASB 2019-5 Amendments to Australian Accounting Standards – Disclosure of the Effect of New AASB Standards Not Yet Issued in Australia These amendments to AASB 7 Financial Instruments: Disclosures, AASB 9 and AASB 139 Financial Instruments: Recognition and Measurement were issued in response to the effects of Interbank Offered Rates reform on financial reporting. They provide mandatory temporary relief enabling hedge accounting to continue during the period of uncertainty before the replacement of an existing interest rate benchmark with an alternative “nearly risk- free” benchmark. These amendments apply retrospectively. However, any hedge relationships that have previously been de-designated cannot be reinstated, nor can any hedge relationships be designated with the benefit of hindsight. Early application is permitted. It is possible that an entity complying with Australian Accounting Standards cannot assert compliance with IFRS Standards if its reporting date falls between the issuance date of a new IFRS Standard and a later release date of an equivalent Australian Accounting Standard. To enable IFRS compliance assertion despite such delays, this standard amends AASB 1054 Australian Additional Disclosures to require disclosure of the possible impact of initial application of forthcoming IFRS Standards not yet adopted by the AASB, as specified in paragraphs 30 and 31 of AASB 108. Entities complying with Australian Accounting Standards can assert compliance with IFRS Standards by making this additional disclosure. The amendments are applied prospectively. Earlier application is permitted. Application date of standard Application date for Group 1 January 2020 1 July 2020 1 January 2020 1 July 2020 82MOUNT GIBSON IRON LIMITED 2020 Annual Report Notes to the Consolidated Financial Report (continued) Application date of standard Application date for Group 1 January 2020 1 July 2020 1 January 2020 1 July 2020 1 January 2022 1 July 2022 Reference Title Summary AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material AASB 2018-6 Amendments to Australian Accounting Standards – Definition of a Business AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-current The amendments align the definition of ‘material’ across AASB 101 Presentation of Financial Statements and AAS 108 Accounting Policies, Changes in Accounting Estimates and Errors, and clarify certain aspects of the definition. The new definition states that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.’ The amendments clarify that materiality will depend on the nature or magnitude of information, or both. An entity will need to assess whether the information, either individually or in combination with other information, is material in the context of the financial statements. The amendments are applied prospectively. Earlier application is permitted. The definition of a business helps entities to distinguish business combinations from asset acquisitions. Business combinations are accounted for using the acquisition method, which, among other things, may give rise to goodwill. Accounting treatments for other types of transactions may also be affected, depending on whether the transaction involves a business (e.g., A loss of control transaction where a retained interest is accounted for using the equity method). With the aim of helping companies determine whether an acquired set of activities and assets is a business, the amendments to AASB 3: ► Clarify the minimum requirements for a business to exist ► Remove the assessment of whether market participants are capable of replacing missing elements ► Provide guidance to help entities assess whether an acquired process is substantive ► Narrow the definitions of a business and of outputs ► Introduce an optional fair value concentration test to identify a business These amendments are applied prospectively. Earlier application is permitted. A liability is classified as current if the entity has no right at the end of the reporting period to defer settlement for at least 12 months after the reporting period. The AASB recently issued amendments to AASB 101 to clarify the requirements for classifying liabilities as current or non-current. Specifically: ► The amendments specify that the conditions which exist at the end of the reporting period are those which will be used to determine if a right to defer settlement of a liability exists. ► Management classification of liabilities. ► In cases where an instrument with a conversion option is classified as a liability, the transfer of equity instruments would constitute settlement of the liability for the purpose of classifying it as current or non-current. These amendments are applied retrospectively. Earlier application is permitted. intention or expectation does not affect MOUNT GIBSON IRON LIMITED 2020 Annual Report83 Notes to the Consolidated Financial Report (continued) Application date of standard Application date for Group 1 January 2020 1 July 2020 Reference Title Summary Conceptual Framework AASB 2019-1 Conceptual Framework for Financial Reporting Amendments to Australian Accounting Standards – Reference to the Conceptual Framework The Conceptual Framework for Financial Reporting (Conceptual Framework) describes the objective of, and the concepts for, general purpose financial reporting. The purpose of the Conceptual Framework is to: ► Assist in the development of accounting standards ► Help preparers develop consistent accounting policies where there is no applicable standard in place; and ► Assist all stakeholders to understand the standards better. The Conceptual Framework is not a standard, and none of the concepts override those in any standard or any requirements in a standard. The application of the Conceptual Framework is at present limited to: ► For-profit private sector entities that have public accountability and are required by legislation to comply with Australian Accounting Standards; and ► Other for-profit entities that voluntarily elect to apply the Conceptual Framework, which would permit compliance with Australian Accounting Standards (Tier 1) and IFRS Standards. The revised Conceptual Framework includes: a new chapter on measurement; guidance on reporting financial performance; improved definitions and guidance - in particular the definitions of an asset and a liability; and clarifications in important areas, such as the roles of stewardship, prudence and measurement uncertainty in financial reporting. Exemptions have been provided in applying AASB 3 and developing accounting policies for regulatory account balances using the previous Framework for the Preparation and Presentation of Financial Statements (July 2004) (Framework), such that entities must continue to apply the definitions of an asset and a liability (and supporting concepts) in the previous Framework, and not the definitions in the revised Conceptual Framework. In some cases, applying the revised definitions would change which assets and liabilities qualify for recognition in a business combination. As a consequence, post-acquisition accounting required by other standards could lead to immediate derecognition of such assets or liabilities, causing ‘day 2 gains or losses’ to arise, which do not depict economic gains or losses. Therefore, the IASB plans to assess how IFRS 3 Business Combinations can be updated for the revised definitions, without these unintended consequences. Requiring entities to continue applying the previous Framework when developing or revising accounting policies for regulatory account balances prevents unhelpful and unnecessary disruption for both preparers and users. This avoids revising accounting policies for regulatory account balances twice within a short time frame – once for the revised Conceptual Framework and again when a revised standard on rate-regulated activities is issued. Earlier application of the revised Conceptual Framework is permitted. AASB2014- 10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments to AASB 10 Consolidated Financial Statements and AASB 128 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. 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. These amendments are applied prospectively. Earlier application is permitted. 1 January 2022 1 July 2022 The Group has elected not to early adopt any of these new standards or amendments in these financial statements. The Group intends to adopt these standards when they become effective. An impact assessment of the standards issued but not yet effective has not been performed. 84MOUNT GIBSON IRON LIMITED 2020 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 2020 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 2020. Signed in accordance with a resolution of the directors. LEE SENG HUI Chairman Date: 18 August 2020 MOUNT GIBSON IRON LIMITED 2020 Annual Report85 Independent Audit Report 86MOUNT GIBSON IRON LIMITED 2020 Annual Report MOUNT GIBSON IRON LIMITED 2020 Annual Report87 88MOUNT GIBSON IRON LIMITED 2020 Annual Report MOUNT GIBSON IRON LIMITED 2020 Annual Report89 90MOUNT GIBSON IRON LIMITED 2020 Annual Report Corporate Governance Statement 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 4th 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 2020. The Corporate Governance Statement has been approved by the Board. MOUNT GIBSON IRON LIMITED 2020 Annual Report91 Additional ASX Information (a) Distribution of equity securities As at 4 September 2020 the number of Shareholders, by size of holding, in each class of share, are as follows: 1 1,001 5,001 10,001 - - - - 1,000 5,000 10,000 100,000 100,001 Over TOTAL Unmarketable parcels Number of holders Number of Shares % of Issued Capital Ordinary Shares 1,769 3,447 1,729 2,759 300 913,490 9,852,716 13,723,148 84,449,298 1,051,289,790 0.08 0.85 1.18 7.28 90.61 10,004 1,160,228,442 100.00 The minimum $500 parcel size at $0.750 per share is 667 shares. 1063 shareholders hold unmarketable parcels comprising a total of 275,394 shares. (b) Equity security holders As at 4 September 2020 the names of the twenty largest holders of shares are: Ordinary Shares Number of Shares % of Shares Held 1. SUN HUNG KAI INVESTMENT SERVICES LIMITED2. APAC RESOURCES INVESTMENTS LIMITED 3. TRUE PLUS LIMITED 4. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 5. J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 6. CITICORP NOMINEES PTY LIMITED 7. DEBORTOLI WINES PTY LIMITED 8. MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED 9. NATIONAL NOMINEES LIMITED 10. NATIONAL NOMINEES LIMITED 11. CS THIRD NOMINEES PTY LIMITED 12. ECAPITAL NOMINEES PTY LIMITED 13. BNP PARIBAS NOMS PTY LTD 14. UBS NOMINEES PTY LTD 203,368,974 193,774,949 163,866,874 121,946,895 72,213,527 64,552,716 34,546,165 33,153,762 11,427,651 10,762,399 8,636,754 7,890,227 7,334,468 5,376,617 15. DE BORTOLI WINES (SUPERANNUATION) PTY LIMITED 4,850,000 16. WARBONT NOMINEES PTY LTD 17. BNP PARIBAS NOMINEES PTY LTD 18. MR PETER KERR 19. MR DAVID STOKES 20. ZERO NOMINEES PTY LTD Top 20 Holders Total Remaining Holders Balance Total Issued Ordinary Shares 4,736,029 4,404,798 4,048,043 2,845,571 2,775,000 962,511,419 197,717,023 1,160,228,442 82.95 17.05 100.00 17.53 16.70 14.12 10.51 6.22 5.56 2.98 2.86 0.98 0.93 0.74 0.68 0.63 0.46 0.42 0.41 0.38 0.35 0.25 0.24 92MOUNT GIBSON IRON LIMITED 2020 Annual Report Additional ASX Information Continued (c) Substantial Shareholders The names of Substantial Shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are provided below, together with details, as at the date of the Substantial Shareholder notification: 1. APAC Resources Limited and its subsidiaries 2. Allied Properties Investments (1) Company Limited and its related corporate entities Note: Substantial shareholdings 1 and 2 are not cumulative and arise through common shareholdings. Number of Shares 402,017,287 402,017,287 % of current issued share capital 34.73% 34.73% 3. Shougang Corporation and Shougang Concord International Enterprises Company Limited and each of their controlled entities 154,166,874 13.64% 4. Shougang Fushan Resources Group Limited, True Plus Limited and its subsidiaries Note: Substantial shareholdings 3 and 4 are not cumulative and arise through common shareholdings. 154,166,874 13.64% (d) Voting rights All ordinary Shares carry one vote per Share without restriction. No voting rights attach to options. (e) Schedule of interests in mining tenements Location Tenements Held by MGX Extension Hill Extension Hill Extension Hill Koolan Island Koolan Island Koolan Island Koolan Island Koolan Island Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tallering Peak Tenement Status Percentage Held L70/133 G70/232 G70/238 M04/416-I M04/417-I E04/1266-I L04/29 L04/68 M70/1062-I M70/896-I E70/3732 L70/60 L70/69 L70/73 L70/74 G70/192 G70/201 G70/202 G70/203 G70/204 G70/205 Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% MOUNT GIBSON IRON LIMITED 2020 Annual Report93 (e) Schedule of interests in mining tenements (continued) Location MGX Has Interests In Tenement Status Percentage Held Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Extension Hill 1 Fields Find 1 Fields Find 1 Fields Find 1 Fields Find 1 Fields Find 1 Fields Find 1 Fields Find 1 Fields Find 1 Fields Find 1 Shine 2 Shine 2 Shine 2 M59/338-I M59/339-I M59/454-I M59/455-I M59/550-I M59/526-I M59/609-I L59/63 G59/30 G59/31 G59/45 G59/33 G59/34 G59/35 G59/36 G59/41 E59/1984 E59/1268-I M59/63-I E59/1996 E59/1997 E59/2064 E59/2065 E59/2066 E59/2067 M59/406-I M59/421-I M59/731-I Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Live Tenements are held by another party. MGX has rights to Hematite, Goethite and Limonite. Tenements are held by another party. MGX has rights to Iron on a portion of these tenements. 1 2 94MOUNT GIBSON IRON LIMITED 2020 Annual Report Mount Gibson Iron Limited is an established Australian producer and exporter of iron ore. The Company was incorporated in 1996 and was listed on the Australian Securities Exchange in 2002. The Company was readmitted to the Standard & Poor’s ASX-300 Index in March 2019. The Company seeks to provide sustainable, long-term returns to shareholders by optimising its existing operations and growing long-term profitability through the discovery, development, participation in and acquisition of mineral resources. Headquartered in Perth, Mount Gibson owns the Extension Hill operation in the Mount Gibson Range south east of Geraldton, and the Koolan Island mine off the Kimberley coast in the remote north-west of the State. Our MGX Values provide us with a behavioural guide on how to sustainably deliver shareholder value. It includes always putting the health and safety of our people first, working together with the communities in which we operate, and undertaking our activities in an environmentally responsible and sustainable manner. MGX Values COURAGE INTEGRITY SAFETY AGILITY RESPECT Taking and giving feedback Do what you say you will do Genuine care for self and others Make timely decisions Be approachable and open to other points of view Be prepared to admit being wrong Do the right thing, even when no one is looking Constant concern (hazard identification) Be dynamic and embrace change Treat others as you would expect to be treated Challenge the norm constructively “walk the talk” Actively intervene to improve Grab the opportunity Encourage and develop people Make the hard calls Corporate Directory All information correct as at 30 June 2020 Board of Directors Auditors Lee Seng Hui Chairman, Non-Executive Director Alan Jones Non-Executive Director Ding Rucai Non-Executive Director Russell Barwick Non-Executive Director Paul Dougas Non-Executive Director Simon Bird Non-Executive Director Company Secretary David Stokes Registered Office Level 1, 2 Kings Park Road West Perth 6005, Western Australia Telephone: +61 8 9426 7500 Facsimile: +61 8 9485 2305 Email: Website: www.mtgibsoniron.com.au admin@mtgibsoniron.com.au Solicitors Herbert Smith Freehills Level 36, QV1 Building 250 St George’s Terrace Perth 6000, Western Australia Ernst & Young Ernst & Young Building 11 Mounts Bay Road Perth 6000, Western Australia Bankers HSBC Bank Australia Ltd 188-190 St George’s Terrace Perth 6000, Western Australia Stock Exchange Listing The company’s shares are listed on the Australian Securities Exchange. ASX Code: MGX Share Registry Computershare Investor Services Pty Ltd Level 11, 172 St George’s Terrace Perth 6000, Western Australia Telephone: 1300 787 272 Facsimile: +61 8 9323 2033 Annual General Meeting of Shareholders Due to COVID-19 travel restrictions, Mount Gibson will hold an online virtual AGM at 3:00pm AEDT (12:00 noon WA time) on Wednesday 11 November 2020. Shareholders will not be able to attend in person at the AGM. Information explaining how shareholders may access, vote and ask questions within the online meeting room is provided in the Company’s Notice of AGM released to the ASX in October 2020. Easy Access to Information See our website at www.mtgibsoniron.com.au for regular quarterly reports and financial results. Additionally, shareholders or interested parties can register to receive emailed updates shortly after the company makes any regular or major announcement. 2 MOUNT GIBSON IRON LIMITED 2020 Annual Report MOUNT GIBSON IRON LIMITED 2020 Annual Report 95 www.mtgibsoniron.com.au M O U N T G I B S O N I R O N L I M I T E D 2 0 2 0 A N N U A L R E P O R T 2020 Annual Report