ANNUAL REPORT 2018 www.bciminerals.com.au ABN 21 120 646 924 Salt crystallising naturally on the Mardie mudflats. CONTENTS Our Company Chairman’s Report Managing Director’s Report Directors’ Report Remuneration Report Director’s Declaration 3 5 6 8 16 23 Annual Financial Report Independent Auditor’s Report 25 54 Auditor’s Independence Declaration 59 Mineral Resources and Ore Reserves 60 Shareholder Information Corporate Directory 64 65 Annual Report 2018 1 BCI’s current focus is on the accelerated development of its 100% owned Mardie Salt & Potash Project. Mardie mudflats. 2 BCI Minerals Limited OUR COMPANY BCI Minerals Limited (ASX:BCI) (“BCI”) is an Australian- based resources company that is developing an industrial minerals business. BCI’s current focus is on the accelerated development of its 100% owned Mardie Salt & Potash Project, located on the West Pilbara coast in the centre of Australia’s key salt production region. BCI has completed a positive Pre-Feasibility Study on a solar evaporation operation producing 3.5 million tonnes per annum (“Mtpa”) salt and 75,000 tonnes per annum sulphate of potash. A Definitive Feasibility Study is underway with all key approvals and a Final Investment Decision targeted by late 2019. In the second half of 2018, BCI has commenced a process for the divestment of its iron ore and exploration tenement portfolio, which includes Iron Valley, Kumina, Bungaroo South and other assets. BCI owned tenements contain a substantial hematite iron ore Mineral Resource of approximately 600Mt.1 Iron Valley is a producing iron ore mine located in the Central Pilbara region of Western Australia, which is operated by Mineral Resources Limited (ASX:MIN). Iron Valley is generating quarterly royalty earnings for BCI. Buckland is an iron ore development project located in the West Pilbara, comprising potential mines at Bungaroo South and Kumina, and a proposed 20Mtpa port facility at Cape Preston East. In addition to these projects, BCI is a 30% joint venture partner of Kalium Lakes Limited (ASX:KLL) in the Carnegie Potash Project, and owns exploration tenements at Marble Bar (gold and lithium) and Black Hills (gold and base metals) in the Pilbara, Peak Hill (gold and base metals) in WA’s Midwest region, and Munglinup (nickel and graphite) in southern WA. The Company’s portfolio also includes potential iron ore royalties over the Nullagine (FMG), Koodaideri South (Rio Tinto) and Extension (AAMC) tenements. CAPE PRESTON EAST PORT PORT HEDLAND MARDIE SALT & SOP PROJECT KARRATHA MARBLE BAR ONSLOW PANNAWONICA KUMINA BUNGAROO SOUTH TOM PRICE PARABURDOO IRON VALLEY MINE NEWMAN CARNEGIE POTASH JOINT VENTURE MEEKATHARRA WILUNA LEGEND Iron Ore Road Haulage Route Proposed BCI Port Agric & Industrial State Roads 0 50 100 3509 16/07/18 1 Refer to the Mineral Resources and Ore Reserves section on page 60. Annual Report 2018 3 Mardie mudflats in foreground and coastal mangrove area in background, which will remain undisturbed to protect environmental values. 4 BCI Minerals Limited CHAIRMAN’S REPORT Dear Shareholders I am pleased to present the 2018 annual report, the first under the Company’s new name of BCI Minerals Limited. The name change from BC Iron Limited to BCI Mineral Limited in late 2017 was an important part of the Company’s ongoing evolution, recognising that our interests and focus now extend well beyond iron ore. In fact, BCI’s industrial and agricultural mineral interests are now the core focus for the Company, particularly the Mardie Salt & Potash Project, which is being rapidly advanced through the study phases towards development. The Company considers Mardie to be an attractive opportunity to create significant long-term shareholder value. Mardie’s key differentiating attribute to typical resource projects is that it plans to derive products from seawater, as opposed to a finite resource, providing for a very long-life operation. Whilst unique in the mainstream resources space, this is a proven production method utilised by a number of existing Pilbara salt operations owned by major companies, which have been in production for up to five decades. Given the overall environment, we have formed the view that BCI’s iron ore assets are potentially most valuable if exploited by a larger company which can leverage a broader asset portfolio, economies of scale and lower cost logistics infrastructure. The Company considers Mardie to be an attractive opportunity to create significant long-term shareholder value. This led the Board to resolve to pursue a sale of our iron ore assets. We believe that monetising these assets would deliver a number of potential benefits, which include: • Unlocking value for assets which are not fully valued in the Company’s share price; • Increasing the ability for management to focus clearly on driving the Mardie Salt & Potash Project through the study and development phases; and We have a very positive view of the market outlook for industrial salt and sulphate of potash, which both have favourable supply/demand dynamics over the next decade. • Providing means for BCI to fund Mardie through to a development decision without needing to raise additional equity. The iron ore market is challenging for junior iron ore companies, driven by the high levels of price discounting applied to iron ore products with sub-60% Fe grades, no evidence of a more favourable supply/demand mix emerging (in contrast to the outlook for salt), and the high cost faced by juniors for ore transport and access to infrastructure. The impact on BCI has been a material reduction in our Iron Valley income stream (refer the Managing Director’s report) and an increasingly challenging pathway to development of our Buckland assets. On a more positive note, we have been very pleased with the positive exploration results at Kumina, and Mineral Resources Limited has done an excellent job at Iron Valley, despite the challenging market conditions. At the time of writing, the iron ore divestment process is still underway. We expect to have been able to update shareholders on developments prior to the Annual General Meeting. I would like to thank the BCI employees, Board, shareholders, business partners and all other stakeholders, for their continued support of the Company through the 2018 financial year, and into the current year. We are optimistic about BCI’s future. The next 12 months is an important time for the Company as Mardie progresses towards development and delivery of substantial value for all stakeholders. Brian O’Donnell Non-Executive Chairman Annual Report 2018 5 MANAGING DIRECTOR’S REPORT Dear Shareholders The 2018 financial year was an active year for BCI, both in relation to project activity and refinement of the Company’s overall strategy. Project activity undertaken during the year comprised value-adding investments in acquisition, exploration and study work across the portfolio and places BCI in a strong position for the future. The Mardie Salt & Potash Project, which is now considered BCI’s flagship development project, advanced materially during the year, with an initial Scoping Study completed in July 2017 and a positive Pre-Feasibility Study (“PFS”), including significant environmental surveys and geotechnical site work, completed in June 2018. Considering that the Project was essentially only a group of tenements with a value concept a couple of years ago, reaching this advanced study stage in a short period and with limited expenditure was a positive achievement for BCI. The Mardie PFS2 established a positive business case for production of 3.5Mtpa of high-purity industrial salt and 75ktpa of sulphate of potash (“SOP”) via solar evaporation of seawater. The economics were robust, with a pre-tax NPV10 of A$335M, IRR of 20% and impressive annual EBITDA of approximately A$100M during steady-state operations. Estimated salt operating costs are competitive with existing suppliers of high-purity salt into Asia and SOP operating costs are forecast to be in the lowest quartile of the global cost curve given salt is carrying a large component of the costs. A Definitive Feasibility Study (“DFS”) is now underway and we are seeking to have this completed by the end of 2019, as well as have key environmental approvals and funding solutions in place to support the start of construction by early 2020. The DFS will seek to improve on the PFS parameters in a number of key areas, including assessing opportunities to increase salt production to 4Mtpa and SOP production to 100ktpa. We are also pursuing a standalone export facility at the Mardie site which has a number of key benefits, including eliminating road haulage costs to the Cape Preston East Port. These improvements would further enhance the economics of the Mardie development case. Mardie is a unique opportunity, given our view that it is the best remaining site in Western Australia to pursue a large-scale solar evaporation project and, once in production, can have a very long operating life due to the input resource being seawater. Large-scale solar evaporation operations have significant barriers to entry, but the Mardie site has excellent characteristics from a location, climate, and environmental perspective. BCI intends to deliver a sustainable and environmentally friendly Mardie Project, where solar energy is to drive the production of both salt and potash products. The market outlook for both industrial salt and SOP is positive and the next decade appears a favourable time to be developing and operating a new salt and potash project. There are no directly comparable projects within smaller ASX-listed companies, further illustrating Mardie’s uniqueness. BCI will actively engage with the investment community to convince them about the salt market potential and the Mardie Project opportunity. In relation to our iron ore assets, the Iron Valley mine continues to generate positive cash flows for the Company. Operator Mineral Resources Limited (“MIN”) shipped 6.1M wet metrics tonnes (“wmt’) during the 2018 financial year, which generated revenue for BCI of A$33.0M and EBITDA of A$7.9M less a negative prior year adjustment of A$2.3M. This was lower than 2017 financial year outputs from Iron Valley of 8.0M wmt shipped and BCI EBITDA of A$18.3M, reflecting the challenging market for iron ore products like Iron Valley. MIN is however a high-quality operator and deserves praise for its performance at Iron Valley in the current iron ore market. Iron Valley Shipments (M wmt) 10 8 6 4 2 0 20 15 10 5 0 FY15 FY16 FY17 FY18 Iron Valley EBITDA (A$M) FY15 FY16 FY17 FY18 2 Refer to BCI’s announcement dated 1 June 2018. All material assumptions and technical parameters underpinning the production target and forecast financial information derived from the production target continue to apply and have not materially changed. 6 BCI Minerals Limited The Mardie Salt & Potash Project, which is now considered BCI’s flagship development project, advanced materially during the year, with an initial Scoping Study completed in July 2017 and a positive Pre-Feasibility Study, including significant environmental surveys and geotechnical site work, completed in June 2018. Drilling at the Kumina J deposit. During the last year, BCI rapidly completed several exploration campaigns at the Kumina iron ore tenements which were acquired in 2017, resulting in a maiden Mineral Resource estimate of 115Mt at 58.0% Fe in June 2018.3 This is an outstanding achievement in a short period of time, particularly considering the starting base of very minimal previous exploration data. Strong upside potential exists at Kumina and the discovery of higher- grade bedded iron ore deposits during initial exploration makes it an attractive project in its own right. As shareholders would be aware, BCI is now pursuing a sale of our iron ore development assets, and potentially our entire iron ore portfolio. Despite the long-term value potential of these assets, challenging iron ore market conditions and BCI’s decision to focus on the Mardie Salt & Potash Project support this strategy. In closing, I’d like to acknowledge the BCI Board for its rigour in protecting shareholder value, and for their engagement and ongoing support. As a result of the changes to our business model and the new focus on fewer projects, BCI made a significant reduction in staff numbers and overhead costs during the last year. I appreciate the contribution of current employees and those who have left the Company as a result of the restructuring during this period. I firmly believe that BCI is entering an exciting time and we are well placed to capitalise on the potential of our Mardie Salt & Potash Project. 3 Refer to BCI’s announcement dated 28 June 2018. BCI is not aware of any new information or data that materially affects the information included in that announcement. Annual Report 2018 7 DIRECTORS’ REPORT (ISSUED 21 AUGUST 2018) The Directors present their report on the results of the Consolidated Entity (referred to hereafter as the Company) consisting of BCI Minerals Limited (“BCI”) and the entities it controlled at the end of, or during the year ended 30 June 2018. PRINCIPAL ACTIVITY The principal activities of the Company during the course of the financial year were the development and exploration of assets in the Pilbara region of Western Australia, including the Mardie Salt Project, Iron Valley Iron Ore Mine, Buckland Iron Ore Project, and Carnegie Potash Project Joint Venture interest. There has been no significant change in the nature of the Company’s activities during the financial year. CHANGE OF COMPANY NAME The Company changed its name to BCI Minerals Limited (formerly BC Iron Limited) in December 2017 in accordance with the special resolution passed by shareholders at the Annual General Meeting on 23 November 2017. The new name of BCI Minerals Limited reflects a broadening of the Company’s strategy over the last 12 months to increase focus on other commodities in addition to iron ore. DIRECTORS The names of directors of the Company in office during the financial year and up to the date of this report are: Brian O’Donnell Chairman (Non-Executive) Alwyn Vorster Managing Director (Executive) Martin Bryant Director (Non-Executive) Andrew Haslam Director (Non-Executive) Michael Blakiston Director (Non-Executive) Jenny Bloom Director (Non-Executive) DIRECTORS’ QUALIFICATIONS, EXPERIENCE AND SPECIAL RESPONSIBILITIES Mr Brian Francis O’Donnell B Com, FCA, MAICD Chairman (Non-Executive) appointed October 2014 Period of office at August 2018 – 3 years and 10 months Mr O’Donnell is Director, Finance and Investments for the Australian Capital Equity Pty Limited (ACE) group, which includes BCI’s largest shareholder, Wroxby Pty Ltd. He is a director of various ACE group companies, including companies active in the property, agricultural, advertising and investment sectors. Mr O’Donnell is also a non-executive director of ASX-listed Capilano Honey Limited, and The Guide Dog Foundation Pty Ltd (WA). He is a former director of Iron Ore Holdings Limited, Coates Group Holdings Pty Ltd, WesTrac Pty Ltd, Landis & Gyr AG, Fremantle Football Club Ltd and YMCA of Perth Inc. He is a Fellow of the Institute of Chartered Accountants and has 32 years’ experience in the finance and investment industry. Mr O’Donnell is a member of the Audit and Risk Committee. Mr Alwyn Vorster BSc (Hons) Geology, MSc (Mineral Economics) and MBA Managing Director appointed 22 September 2016 Period of office at August 2018 – 1 year and 11 months Mr Vorster commenced as Chief Executive Officer of BCI in May 2016 and was appointed as Managing Director in September 2016. He has more than 25 years’ experience with numerous large mining houses in technical and commercial management roles covering the total supply chain from mine to market for iron ore, coal and other minerals. He has most recently been employed as Group Executive Mining at Australian Capital Equity Pty Limited (ACE), and other recent roles include Chief Executive Officer of API Management, and Managing Director of Iron Ore Holdings Ltd. Mr Vorster is a non-executive director of ASX-listed Volt Resources Limited. Mr Andrew (Andy) Malcolm Haslam Grad Dip. Min, GAICD Director (Non-Executive) appointed September 2011 Period of office at August 2018 – 6 years and 11 months Mr Haslam is a mining professional with over 30 years of operational and senior executive experience in the Australian mining industry. He was previously Managing Director of ASX-listed Vital Metals and in 2009 was appointed Managing Director of ASX-listed Territory Resources Ltd until late 2011. Most recently, Mr Haslam was Executive General Manager - Iron ore, with ASX 100 company Mineral Resources Limited. He is currently a non-executive director of ASX-listed uranium exploration company, Vimy Resources Limited and a senior consultant with STS Group, which works with tier one companies to convert strategic plans into operational improvements. Mr Haslam is Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee. 8 BCI Minerals Limited Ms Jenny Bloom Grad. Dip Business Administration, GAICD Mr Michael Blakiston B. Juris Director (Non-Executive) appointed March 2017 Period of office at August 2018 – 1 year and 5 months Director (Non-Executive) appointed March 2017 Period of office at August 2018 – 1 year and 5 months Ms Bloom has an extensive business background with experience in the private and public sector and is currently the Deputy Chair of the Waste Authority Western Australia. Ms Bloom held senior positions with Ansett Australia leading high level change projects across various areas of the business including major operational business realignment. Ms Bloom was seconded to the Victorian Government in 1997 and led the whole of government response to the sale of second tranche airports by the Federal Government. Ms Bloom has owned and operated successful businesses in the Kimberley and was Councillor and Deputy Shire President for the Shire of Broome from 2009 to 2014 and an independent director of an Aboriginal corporation from 2008 to 2011. Ms Bloom is a member of the Remuneration and Nomination Committee. Mr Martin Bryant B Bus, MAICD Director (Non-Executive) appointed May 2015 Period of office at August 2018 – 3 years and 3 months Mr Bryant has extensive international business experience with a particular focus on Asia, having worked in various senior management roles in China, Vietnam and the Philippines over the last 20 years. From 2007 to 2015, Mr Bryant was Managing Director and Chief Executive Officer of WesTrac China, a Caterpillar equipment dealer servicing China’s Northern Provinces, which account for more than 60% of China’s mining activity. During his tenure, Mr Bryant had direct exposure to China’s domestic iron ore and steel industries. He led a significant expansion of the business and managed a major restructure to suit the economic downturn. Prior to this, Mr Bryant held senior management positions with other equipment companies. He was Finance Director and Company Secretary for Vietnam-based V-TRAC Holdings from 1994 to 1996. Mr Bryant is a member of the Remuneration and Nomination Committee. Mr Blakiston is a partner in Gilbert + Tobin’s Energy and Resources group. He has over 30 years’ experience gained across a range of jurisdictions. He advises in relation to asset acquisition and disposal, project structuring, joint ventures and strategic alliances, development agreements and project commercialisation, capital raisings and company merger and acquisitions. Mr Blakiston has served on numerous ASX listed companies and not-for-profit boards and is currently the Chairman of Precision Opportunities Fund Ltd, a specialist small to medium cap fund. Mr Blakiston is the Chairman of the Audit and Risk Committee. COMPANY SECRETARIES The following individuals have acted as Company Secretary during the year: Ms Susan Hunter BCom, ACA, F Fin, MAICD, ACIS Appointed July 2018 Ms Hunter was appointed Company Secretary of BCI, effective 1 July 2018. Ms Hunter has over 23 years’ experience in the corporate finance industry and extensive experience in company secretarial and non- executive director roles with ASX, AIM and TSX listed companies. Ms Hunter is currently Company Secretary of several ASX listed companies. Ms Rubini Ventouras LLB B COM Appointed February 2017, resigned 1 July 2018. Ms Ventouras was appointed General Counsel and Company Secretary of BCI in February 2017. Ms Ventouras has extensive legal and commercial experience involving exploration, project construction, HSE legislation, mining operations and marketing throughout Australasia, Asia and Europe. Annual Report 2018 9 MEETINGS OF DIRECTORS The number of meetings held during the year and the number of meetings attended by each director was as follows: Board Audit and Risk Committee1 Remuneration and Nomination Committee2 Total Number of Meetings held B O’Donnell A Vorster M Bryant A Haslam M Blakiston J Bloom 12 12 12 11 12 11 12 4 4 4 4 4 4 4 3 2 3 3 3 1 3 1. Members of the Audit and Risk Committee are M Blakiston (Chair), B O’Donnell and A Haslam 2. Members of the Remuneration and Nomination Committee are A Haslam (Chair), J Bloom and M Bryant CORPORATE GOVERNANCE In recognising the need for high standards of corporate behaviour and accountability, the Directors of BCI Minerals Limited support and have adhered to the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations. The Company’s detailed corporate governance policy statement can be found in the annual report or viewed on the Company’s web site at www.bciminerals.com.au. DIRECTORS’ INTERESTS AND BENEFITS The relevant interest of each director in the shares, Performance Rights and options over shares issued by the Company at the date of this report is as follows: Director B O’Donnell A Vorster M Bryant A Haslam M Blakiston J Bloom Total Ordinary shares Direct - - 580,822 192,000 - 60,000 832,822 Indirect 351,998 2,665,645 - - - - 3,017,643 Performance Rights Direct - - - - - - - Indirect - 5,320,000 - - - - 5,320,000 DIVIDENDS No dividends have been declared in relation to the year ended 30 June 2018 (June 2017: Nil). ROUNDING OF AMOUNTS The Company is of a kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 2016/191, relating to the ‘rounding off’ of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. REVIEW OF OPERATIONS BCI is a development and exploration company, with assets in Western Australia, including the Mardie Salt Project, Buckland Iron Ore Project, Iron Valley Iron Ore Mine and Carnegie Potash Project Joint Venture interest. Safety performance BCI places a high priority on facilitating a safe working environment for all staff and contractors. No lost time injuries (“LTIs”) were recorded for the year ended 30 June 2018 and the lost time injury frequency rate (“LTIFR”) was zero (June 2017: 0.0). Mineral Resources Limited is responsible for Occupational Health and Safety matters at Iron Valley and therefore BCI does not report safety performance for the Iron Valley site. 10 BCI Minerals Limited Operations Mardie Salt Project The 100% owned Mardie Project, which is located on the northwest coast of Western Australia in one of the world’s premium locations for solar evaporation operations, has the potential to produce salt and sulphate of potash (“SOP”) from seawater. The salt and SOP markets both have a positive long-term outlook. Strong Asian demand growth for salt, driven by expected growth in the chlor-alkali industry, is forecast to result in a supply gap equal to approximately seven Mardie-sized projects emerging over the next decade. SOP’s positive outlook is linked to an increasing Asian population driving food demand, lifestyle changes requiring high quality food, and the requirement for environmentally friendly fertilisers delivering high crop yields. BCI released a positive PFS in June 2018, establishing a technically and financially viable business case for production of 3.5Mtpa of high purity industrial salt and 75ktpa of fertiliser grade SOP. The PFS demonstrated attractive financials including a pre-tax NPV of A$335M, IRR of 20% and annual EBITDA of >A$100M. BCI has now commenced work on a Definitive Feasibility Study (“DFS”), targeting the delivery of an improved project scope and environmental approvals by late 2019. During the quarter, BCI referred Mardie to the Western Australian Environmental Protection Agency (“EPA”) and the EPA has agreed to assess the Project at the Public Environmental Review (“PER”) level, which was in line with BCI’s expectations. Buckland Iron Ore Project Buckland is an iron ore development project located in the West Pilbara region of Western Australia, comprising proposed mines at Bungaroo South, Kumina and a BCI proposed transhipment port at Cape Preston East. BCI acquired a number of prospective and underexplored West Pilbara tenements (Kumina and Cane River) from Mineralogy Pty Ltd in September 2017. Consideration for the acquisition was $9.0M in cash and an iron ore royalty of 2.0% of FOB revenue on the first 100Mt of iron ore mined, increasing to 3.5% of FOB revenue on any iron ore in excess of 100Mt mined, plus a 3.5% royalty on the value of any other minerals sold from the tenements. The Kumina tenements are located within economic trucking distance from BCI’s Cape Preston East Port and have the potential to host iron ore deposits which could support an increase in throughput of the Buckland Project to 15Mtpa and enhance the value and marketability of the proposed “Buckland Blend”, or to be developed as a standalone project. During the financial year, BCI completed a major drilling campaign and in June 2018 released a maiden Mineral Resource at Kumina A, E and J of 115.2Mt at 58.0% Fe (53% Fe cut-off) or 78.3Mt at 59.1% Fe (57% Fe cut-off). Iron Valley Iron Ore Mine The Iron Valley Mine is operated by Mineral Resources Limited (“MIN”) under an ore purchase agreement with BCI. MIN operates the mine at its cost and purchases iron ore from BCI at the mine gate at a price linked to MIN’s received sales price. BCI is responsible for paying third party royalties related to the project and securing key approvals. During the financial year MIN shipped 6.1 million wet metric tonnes (“M wmt”) (June 2017: 8.0 wmt), which generated revenue for BCI of $33.0M (June 2017: $63.5M) and EBITDA of $5.6M, which was made up of EBITDA for the 2018 financial year shipments of $7.9M less a negative adjustment for final pricing for prior financial year shipments of $2.3M (June 2017: $18.3M). Iron Valley Shipments (M wmt) 5 4 3 2 1 0 15 12 9 6 3 0 H1 FY15 H2 FY15 H1 FY16 H2 FY16 H1 FY17 H2 FY17 H1 FY18 H2 FY18 Iron Valley EBITDA (A$M) H1 FY15 H2 FY15 H1 FY16 H2 FY16 H1 FY17 H2 FY17 H1 FY18 H2 FY18 Under the agreements with MIN, BCI’s annual Iron Valley EBITDA for the next two years will at a minimum be in- line with the 2018 financial year. Annual Report 2018 11 Carnegie Potash Project The Carnegie Potash Project is an exploration project located approximately 220km north-east of Wiluna, hosting a sub-surface brine deposit which could potentially be developed into a solar evaporation and processing operation that produces sulphate of potash (“SOP”). BCI currently holds a 30% interest in the Carnegie Potash in a joint venture with ASX-listed potash development company, Kalium Lakes Limited (“KLL”), who is the joint venture manager. BCI has rights to earn up to a 50% interest through sole-funding the Pre-Feasibility Study and Feasibility Study phases. In the financial year, KLL progressed the Scoping Study, which was completed in July 2018 with a maiden Resource and Exploration Target estimate. The Scoping Study, which leveraged KLL’s technical knowledge, experience and intellectual property from their Beyondie Sulphate of Potash Project, confirmed Carnegie has the potential to be a technically and economically viable project. BCI and KLL have agreed to proceed to a staged Pre-Feasibility Study, with an initial focus on securing tenure and access to all required tenements. Exploration Tenements BCI has a number of 100% owned early-stage exploration projects located throughout Western Australia, which are prospective for a range of minerals. BCI has completed initial value-adding exploration work at a number of these projects and intends to monetise these assets during the next year. Environmental Regulation BCI is committed to minimising its environmental impact, with an appropriate focus on continuous monitoring of environmental matters and compliance with environmental regulations. BCI’s exploration, mining and development activities are the subject of various State and Commonwealth environmental regulations. Compliance with these environmental regulations is managed through the Environment and Heritage Management System and a series of other tools used to identify, analyse and control key risks associated with the environmental impact from the Company’s activities. A compliance program is implemented on an annual basis to ensure correct data is being gathered to measure the impacts to the environment and periodic reviews (inspections and audits) are conducted to assess performance against agreed regulatory targets. During the year, BCI submitted a number of reports and compliance statements to State and Federal regulatory bodies detailing BCI’s performance against granted approvals. This includes all Annual Environmental Reports, Annual Compliance Reports, Compliance Assessment Reports and Emissions Reports which were all submitted on time and endorsed by the regulators. There have been no material breaches of the Company’s licences, permits and approvals during the financial year. 12 BCI Minerals Limited REVIEW OF RESULTS Statement of profit or loss The Company’s loss after income tax for the financial year ended 30 June 2018 was $16.9M (June 2017: profit $5.7M), which is a result of reduced Iron Valley earnings driven by lower iron ore pricing and shipping volumes and increased expenditure on developing the Kumina Iron Ore Project and Mardie Salt Project. The discontinued operations for the 2017 financial year is BCI’s 75% interest in the Nullagine Joint Venture which was sold to Fortescue Metals Group Limited (“Fortescue”) in March 2017. The following table provides a summary of the Company’s statement of profit and loss: Continuing operations Revenue Profit/(loss) after tax Discontinued operations Loss after tax from discontinued operations Net profit/(loss) after tax 30 June 2018 A$M 30 June 2017 A$M 33.4 (16.9) - (16.9) 64.0 7.1 (1.4) 5.7 The Company’s EBITDA for the financial year ended 30 June 2018 was a loss of $14.4M (June 2017: $8.3M), which incorporates a positive EBITDA from Iron Valley of $5.6M (June 2017: $18.3M) and increased expenditure in progressing the Mardie Salt Project and Buckland Iron Ore project, including exploration of the Kumina tenements, and other exploration and business development activities. The following table shows the EBITDA contribution for each segment of the Group: Continuing operations Iron Valley Buckland and Kumina Mardie Exploration tenements Business development Corporate EBITDA from continuing operations Discontinued operations EBITDA from discontinued operations Total EBITDA Statement of cash flows 30 June 2018 A$M 30 June 2017 A$M 5.6 (7.5) (2.9) (2.6) (1.1) (5.9) (14.4) - (14.4) 18.3 (1.6) (0.2) (1.8) (0.7) (4.6) 9.4 (1.1) 8.3 Cash and cash equivalents as at 30 June 2018 decreased to $13.1M (June 2017: $36.4M), primarily due to reduced Iron Valley income, acquisition of the Kumina tenements and expenditure on progressing the Buckland Iron Ore Project and Mardie Salt Project. Annual Report 2018 13 Statement of financial position Net assets decreased to $90.6M (June 2017: $107.2M) primarily as a result of reduced Iron Valley income and increased expenditure on BCI’s development projects. Dividends The Directors have not paid or declared any dividends since the commencement of the financial year ended 30 June 2018. (a) out of the profits for the year ended 30 June 2017 and retained earnings on fully paid ordinary shares (2016: nil). (b) out of the profits for the year ended 30 June 2018 and retained earnings on fully paid ordinary shares. Corporate 2018 2017 Nil Nil Nil Nil Annual General Meeting The Company’s annual general meeting was held in Perth on 23 November 2017. All nine resolutions considered at the meeting were passed. Board and Management Changes Rubini Ventouras resigned as General Counsel and Company Secretary, effective 1 July 2018 and Susan Hunter was appointed Company Secretary. Ms Hunter has over 23 years’ experience in the corporate finance industry and extensive experience in company secretarial and non-executive director roles with ASX, AIM and TSX listed companies. PERFORMANCE RIGHTS As at the date of this report, there were 10,590,000 Performance Rights on issue (30 June 2017: 11,052,271). Refer to the Remuneration Report for further details of Performance Rights outstanding. Date Performance Rights Granted 25 May 2016 25 May 2016 19 December 2016 14 March 2017 21 August 2017 21 August 2017 29 November 2017 18 May 2018 18 May 2018 Total Vesting Date 30 June 2018 30 June 2019 30 June 2018 30 June 2018 30 June 2019 30 June 2020 30 June 2020 30 June 2019 30 June 2020 Fair Value at Grant Date $0.0690 $0.0690 $0.1350 $0.0830 $0.0264 $0.0154 $0.0077 $0.0145 $0.0115 Number 1,320,000 2,000,000 528,000 792,000 1,750,000 1,450,000 2,000,000 400,000 350,000 10,590,000 No Performance Rights holder has any right to be provided with any other share issue of the Company by virtue of their Performance Rights holding. None of the Performance Rights are listed on the ASX. Shares issued as a result of conversion of performance rights Since the end of the financial year, the Company issued no ordinary shares as a result of the conversion of performance rights. 14 BCI Minerals Limited LIKELY DEVELOPMENTS AND EXPECTED RESULTS BCI expects EBITDA from Iron Valley during the 2019 financial year to be at a minimum in line with FY18 results. The Company plans to focus on advancing the Mardie Salt and SOP Project Definitive Feasibility Study during the next year. That will include approvals, process plant design, pond designs and the construction of a small scale concentration and crystalliser ponds. SIGNIFICANT CHANGES IN STATE OF AFFAIRS There were no significant changes in the Company’s state of affairs. MATTERS SUBSEQUENT TO THE REPORTING DATE On the 9 August 2018, the Company received a notice of decision from the Australian Taxation Office, approving the Company’s request for out of time objections to income tax returns for 30 June 2012 to 30 June 2014, which will result in a cash tax refund of $1.5M. No other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in financial periods subsequent to the financial year ended 30 June 2018. AUDIT INDEPENDENCE AND NON-AUDIT SERVICES Auditor’s Independence Declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is attached to the independent auditor’s report and forms part of the Directors’ Report. Non-audit services For the year ended 30 June 2018 the Board of Directors is satisfied that the auditor, BDO, did not provide any non-audit services to the Company. AUDIT INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is attached to the independent auditor’s report and forms part of the Directors’ Report. Signed in accordance with a resolution by the Directors. Brian O’Donnell Chairman Perth, Western Australia 21 August 2018 Alwyn Vorster Managing Director Perth, Western Australia 21 August 2018 Annual Report 2018 15 REMUNERATION REPORT (ISSUED 21 AUGUST 2018) The Remuneration Report outlines the remuneration arrangements in place for Directors and other Key Management Personnel of the Company in accordance with section 308 (3c) of the Corporations Act 2001. For the purpose of this report the Key Management Personnel are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company, directly or indirectly, including any directors of the Company. Non-executive Directors B O’Donnell M Bryant A Haslam M Blakiston J Bloom Executive Director and Executives A Vorster S Hodge R Ventouras Non-executive Chairman Non-executive Director Non-executive Director Non-executive Director Non-executive Director Managing Director Chief Financial Officer General Counsel and Company Secretary (resigned 1 July 2018) REMUNERATION AND NOMINATION COMMITTEE The Remuneration and Nomination Committee (“RNC”) is a committee of the Board comprised of three independent Non-Executive Directors, being Mr Haslam (Chairman), Ms Bloom and Mr Bryant. The role of the RNC is to assist the Board to fulfil its responsibilities with respect to employee and director remuneration, and board composition and diversity, by making recommendations to the Board on: • The Company’s People Policy which sets out the Company’s approach to Remuneration, Diversity and Privacy; • A Remuneration Framework which enables the Company to attract, retain and motivate high quality senior executives who create value for shareholders; and • The selection, composition, performance and appointment of members of the Board so that it is effective and able to operate in the best interests of shareholders. REMUNERATION STANDARD The Remuneration Standard of the Company aims to: • Reward employees fairly and responsibly in accordance with the Australian market; • Provide competitive rewards that attract, retain and motivate employees; • Ensure incentives provide fair reward in line with company and individual performance to deliver on the current and long term strategic activities; and • Ensure a level of equity and consistency across BCI and alignment with BCI’s culture. NON-EXECUTIVE DIRECTOR REMUNERATION Fees and payments to Non-Executive Directors reflect the demands which are made on, and the responsibilities of, the Directors and are reviewed annually by the Board. The Chairman is not present at any discussions relating to determination of his own remuneration. Directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. The maximum currently stands at $900,000 in aggregate and was approved by shareholders at the annual general meeting on 19 November 2014. This amount is separate from any specific tasks the directors or their related entities may take on for the Company. 16 BCI Minerals Limited Fixed Remuneration Non-Executive Directors’ fixed remuneration comprise the following: • Cash remuneration; • Superannuation; and • Insurances. Performance Rights At the November 2017 general meeting, shareholders approved the grant of Performance Rights to Ms Bloom. The Performance Rights were issued on 29 November 2017 and are subject to the following Performance Conditions: Vesting Date 30 June 2019 Performance Conditions If the peak 30-day VWAP for FY18 is: <$0.20, 0% qualify for vesting >$0.20 and <$0.40, proportional vesting >$0.40, 100% qualify for vesting EXECUTIVE REMUNERATION The objective of the Company’s executive remuneration is to ensure reward for performance is market competitive and appropriate for the results delivered. The executive remuneration is aligned with achievement of strategic and operational objectives and the creation of value for shareholders. The Board ensures that executive reward satisfies the following key criteria in line with appropriate corporate governance practices: • Competitiveness and reasonableness; • Acceptability to shareholders; • Performance linkage/alignment of executive compensation; • Transparency; and • Prudent capital management. Fixed Remuneration The components of executives’ fixed remuneration are determined individually and may include: • Cash remuneration; • Superannuation; and • Insurances, parking and other benefits. Variable Remuneration Short-term Incentives Executives may receive a short-term incentive (“STI”) of up to 25-30% of their fixed remuneration. The STI is an “at risk” component of remuneration and payment may, at the Board’s discretion, be in cash and/or equity. Measurement will be based on performance against annually agreed key performance indicators (“KPIs”). These KPIs will typically be aligned to specific operating and corporate objectives in relation to each financial year. For the 2018 financial year, the Board exercised its discretion to award an STI based on the KPIs achieved during the year. Executive Key Management Personnel were in aggregate awarded an STI cash incentive of $131,236 (17% of their aggregate annual salary). The amount of the STI was included in the Company’s financials for the 2018 year and was paid after year-end in the 2019 financial year. For the 2017 financial year, the Board exercised its discretion to award an STI based on the KPIs achieved during year. Executive Key Management Personnel were in aggregate awarded an STI cash incentive of $130,966 (12% of their aggregate annual salary). The amount of the STI was included in the Company’s financials for the 2017 year and was paid after year-end in the 2018 financial year. Long-term Incentives Longer term incentive awards will occur through the Performance Rights Plan (“PRP”). The PRP will form part of an “at risk” component of remuneration and Performance Rights will generally have a vesting period longer than one year. Performance hurdles will be based on company share price and/or other relevant shareholder return measures. The PRP will operate entirely at the discretion of the Company’s Board and may be terminated, suspended or amended at any time, or from time to time, in it’s entirely or in part in relation to any or all employees (except where contractual rights have been created). At the November 2017 general meeting, shareholders approved the grant of Performance Rights to the Managing Director, Alwyn Vorster. The Performance Rights were issued on 29 November 2017 and are subject to the following Performance Conditions: Annual Report 2018 17 Vesting Date Tranche 1 30 June 2019 Tranche 2 30 June 2020 Performance Conditions If the peak 30-day VWAP for FY18 is: If the peak 30-day VWAP for FY19 is: <$0.20, 0% qualify for vesting <$0.30, 0% qualify for vesting >$0.20 and <$0.40, proportional vesting >$0.30 and <$0.60, proportional vesting >$0.40, 100% qualify for vesting >$0.60, 100% qualify for vesting Performance Rights issued to Key Management Personnel on 21 August 2017 are subject to the following Performance Conditions: Vesting Date Tranche 1 30 June 2019 Tranche 2 30 June 2020 Performance Conditions If the peak 30-day VWAP for FY18 or FY19 is: If the peak 30-day VWAP for FY19 is: <$0.20, 0% qualify for vesting <$0.25, 0% qualify for vesting >$0.20 and <$0.25, proportional vesting >$0.25 and <$0.33, proportional vesting >$0.25, 100% qualify for vesting >$0.33, 100% qualify for vesting USE OF REMUNERATION CONSULTANTS The Board and Remuneration Committee reviews executive remuneration annually, including assessment of: • Advice from independent external remuneration consultants; • Individual and business performance measurement against both internal targets and appropriate external comparatives; and • General remuneration advice from both internal and independent external sources. In the current financial year, the Board did not utilise an external remuneration consultant as a comprehensive benchmarking review was completed in the 2017 financial year (2017: SBS Integrated Pty Ltd: $12,500). SERVICE AGREEMENTS The remuneration and other terms of employment for executive Key Management Personnel are covered in formal employment contracts. The key terms of their employment contracts, at the date of release of this report, are shown in the table below. Name Terms/Notice periods/Termination payment A Vorster (Managing Director) Base salary inclusive of superannuation of $499,300 reviewed at intervals to be determined by the Company. Employment can be terminated at three months’ notice by Mr Vorster or by the Company. If the Company elects to terminate the employment agreement for reasons other than Mr Vorster’s gross misconduct or default, Mr Vorster will be entitled to a payment equal to six months’ total fixed remuneration. Certain agreed trigger events will lead to Mr Vorster having the option to terminate the contract and receive a payment equal to twelve months’ total fixed remuneration. S Hodge (Chief Financial Officer) Base salary inclusive of superannuation $295,979 reviewed at intervals to be determined by the Company. Employment can be terminated at twelve weeks’ notice by Mr Hodge or by the Company. Certain agreed trigger events will lead to Mr Hodge having the option to terminate the contract and receive a payment equal to six months’ total fixed remuneration. SHARE TRADING POLICY The trading of shares by all employees is subject to, and conditional upon, compliance with the Company’s share trading policy which is available on the Company’s website: www.bciminerals.com.au. Directors and employees may not engage in short-term or speculative trading of the Company’s securities and are prohibited from trading in financial products issued or created over, or in respect of the Company’s securities during a non-trading period. 18 BCI Minerals Limited REMUNERATION OF KEY MANAGEMENT PERSONNEL FOR THE YEAR ENDED 30 JUNE 2018 The remuneration table below sets out the remuneration information for the directors and executives, which includes the managing director, who are considered to be Key Management Personnel of the Company. Short Term Post Employment Share Based Payments Salary and fees Incentives (a) Other benefits (b) Super- annuation Performance Rights (c) Termination Payment $ Non-executive Directors B O’Donnell 129,452 M Bryant A Haslam M Blakiston J Bloom 66,986 75,205 73,973 69,863 415,479 Executive Director and Executives $ - - - - - - $ $ 10,874 10,874 10,874 10,874 10,874 12,298 6,364 7,144 7,027 6,637 54,370 39,470 $ - - - - 862 862 A Vorster S Hodge R Ventouras 478,836 271,727 258,192 73,500 39,925 17,541 1,008,755 130,966 23,063 23,001 18,094 64,158 20,464 20,464 22,412 63,340 122,852 62,627 42,273 227,752 TOTAL 1,424,234 130,966 118,528 102,810 228,614 $ - - - - - - - - - - - % Performance Related (d) 0% 0% 0% 0% 1% 0% 27% 25% 17% 24% 18% Total $ 152,624 84,224 93,223 91,874 88,236 510,181 718,715 417,744 358,512 1,494,971 2,005,152 a) Short term incentives relate to performance in the previous financial year. Please refer to section on short-term incentive payments above. b) Other benefits include vehicles, fuel, parking, travel and insurances. c) Share-based payments represent the accounting expense incurred by the Company for the stated financial period, reflecting the terms of the Performance Rights as valued using a Monte Carlo simulation. d) Percentage performance related is the sum of short-term incentives and share based payments divided by total remuneration, reflecting the actual percentage of remuneration at risk for the year. Note that short-term incentives are reported in the year in which they are paid but relate to performance in previous reporting periods. Annual Report 2018 19 REMUNERATION OF KEY MANAGEMENT PERSONNEL FOR THE YEAR ENDED 30 JUNE 2017 The remuneration table below sets out the remuneration information for the directors and executives, including the managing director, who are considered to be Key Management Personnel of the Company. Short Term Post Employment Share Based Payments Salary and fees Incentives (a) Other benefits (b) Super- annuation Performance Rights (c) Termination Payment $ $ $ $ Non-executive Directors B O’Donnell A Kiernan M Bryant A Haslam M Blakiston J Bloom 95,411 92,108 66,983 75,205 24,658 23,288 377,653 Executive Director and Executives A Vorster S Hodge R Ventouras B Duncan C Hunt I Goldberg TOTAL 447,115 110,727 104,167 59,361 66,917 137,232 925,519 1,303,172 - - - - - - - - - - - - - - - 17,169 8,088 17,169 17,169 4,884 4,884 9,064 - 6,364 7,144 2,342 2,212 69,363 27,126 58,000 24,899 250,710 $ - - 29,000 29,000 - - 65,994 53,390 27,066 10,635 8,562 4,615 4,671 14,804 70,353 139,716 10,417 10,417 15,733 4,745 14,122 - - - 331,903 411,612 41,762 118,095 43,739 209,897 80,333 370,094 417,404 1,863,703 107,459 428,094 417,404 2,395,845 Total $ 121,644 100,196 119,516 128,518 31,884 30,384 532,142 749,790 197,773 176,536 $ - - - - - - - - - - % Performance Related (d) 0% 0% 24% 23% 0% 0% 11% 33% 33% 30% 0% 0% 0% 20% 18% (a) Short term incentives relate to performance in the previous financial year. Please refer to section on short-term incentive payments above. (b) Other benefits include vehicles, fuel, parking, travel and insurances. (c) Share-based payments represent the accounting expense incurred by the Company for the stated financial period, reflecting the terms of the Performance Rights as valued using a Monte Carlo simulation. (d) Percentage performance related is the sum of short-term incentives and share based payments divided by total remuneration, reflecting the actual percentage of remuneration at risk for the year. Note that short-term incentives are reported in the year in which they are paid but relate to performance in previous reporting periods. 20 BCI Minerals Limited PERFORMANCE RIGHTS ON ISSUE The terms and conditions of Performance Rights granted to Key Management Personnel affecting remuneration in the current or future reporting periods are set out in the following table: Grant date Date to vest Expiry date Non-executive Director Risk free rate at grant date Value per right at grant date Number granted Value at grant date Number vested Number lapsed J Bloom 29/11/2017 30/06/2019 28/11/2022 2.5% $0.012 200,000 $2,340 NA NA Executive Director and Executives A Vorster 25/05/2016 30/06/2018 24/05/2021 A Vorster 25/05/2016 30/06/2019 24/05/2021 A Vorster 29/11/2017 30/06/2019 28/11/2022 A Vorster 29/11/2017 30/06/2020 28/11/2022 S Hodge S Hodge S Hodge 14/03/2017 30/06/2018 14/03/2024 21/08/2017 30/06/2019 21/08/2022 21/08/2017 30/06/2020 21/08/2022 R Ventouras 14/03/2017 30/06/2018 14/03/2024 R Ventouras 21/08/2017 30/06/2019 21/08/2022 R Ventouras 21/08/2017 30/06/2020 21/08/2022 2.2% 2.4% 2.5% 2.5% 2.9% 2.6% 2.6% 2.9% 2.6% 2.6% $0.069 2,000,000 $138,000 1,320,000 680,000 $0.069 2,000,000 $138,000 $0.012 2,000,000 $23,400 $0.008 2,000,000 $15,400 NA NA NA NA NA NA $0.083 700,000 $58,310 462,000 238,000 $0.026 1,000,000 $26,400 $0.015 1,000,000 $15,400 NA NA NA NA $0.083 500,000 $41,650 330,000 170,000 $0.026 500,000 $13,200 $0.015 500,000 $7,700 NA NA NA NA A Monte Carlo simulation is used to value the Performance Rights. The Monte Carlo simulates the Company’s share price and depending on the hurdle arrives at a value based on the number of Performance Rights that are likely to vest. The risk-free rate of the Performance Rights on the date granted are shown in the table above. EQUITY INSTRUMENT DISCLOSURES The interests of Key Management Personnel in shares at the end of the financial year 2018 are as follows: Balance at 1 July 2017 Acquired during year Performance Rights converted during year Disposed during the year Owned on commencement of employment Balance at 30 June 2018 Non-executive Directors B O’Donnell M Bryant A Haslam J Bloom Executive Director A Vorster Total 51,998 248,822 60,000 300,000 200,000 - - 60,000 - 132,000 132,000 - 1,095,645 1,456,465 250,000 810,000 1,320,000 1,584,000 - - - - - - - - - - - - 351,998 580,822 192,000 60,000 2,665,645 3,850,465 The interests of Key Management Personnel in Performance Rights at the end of the financial year 2018 are as follows. Balance at 1 July 2017 Granted as compensation Converted to shares Rights lapsed/ cancelled Balance at 30 June 2018 Non-executive Directors A Haslam M Bryant J Bloom Executive Director and Executives 200,000 200,000 - - - 200,000 A Vorster S Hodge R Ventouras Total 6,000,000 1,000,000 750,000 8,150,000 4,000,000 2,000,000 1,000,000 7,200,000 (132,000) (132,000) - (1,320,000) - - (68,000) (68,000) - - - 200,000 (680,000) (300,000) (250,000) 8,000,000 2,700,000 1,500,000 (1,584,000) (1,366,000) 12,400,000 Annual Report 2018 21 COMPANY PERFORMANCE The table below shows key financial measures of company performance over the past five years. Continuing operations Revenue Net profit/(loss) after tax Basic earnings/(loss) per share Dividends paid per share Share price (last trade day of financial year) 2018 2017 2016 2015 2014 $million $million Cents Cents A$ 33.4 (16.9) (4.29) - 0.14 64.0 7.1 2.2 - 0.14 40.4 (43.9) (22.4) - 0.11 281.2 (158.5) (90.7) 15.0 0.29 471.4 71.8 58.0 47.0 3.20 TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL On 1 March 2017, Michael Blakiston was appointed as a Non-Executive Director of the Company. Mr Blakiston is a partner in the legal firm Gilbert + Tobin. During the current financial year, the Company made legal fee payments to Gilbert + Tobin of $207K (2017: $71K). All transactions were on normal commercial terms and conditions. Refer to Note 27 for Related Party transactions. VOTING AND COMMENTS MADE AT THE COMPANY’S 2017 ANNUAL GENERAL MEETING The Company received 97% of ‘yes’ votes cast on its remuneration report for the 2017 financial year. OTHER INFORMATION Insurance of officers During the financial period, the Company incurred premiums of $96,308 (2017: $84,810) to insure the directors, company secretaries and officers of the Company. The liability insured is the indemnification of the Company against any legal liability to third parties arising out of any directors or officers duties in their capacity as a director or officer other than indemnification not permitted by law. No liability has arisen under this indemnity as at the date of this report. The Company has entered into indemnity deeds with each director and officer. Under the deeds, the Company indemnifies each director and officer to the maximum extent permitted by law against legal proceedings or claims made against or incurred by the directors or officers in connection with being a director or officer of the Company, or breach by the Company of its obligations under the deed. INDEPENDENT AUDIT OF REMUNERATION REPORT The Remuneration Report has been audited by BDO. Please see page 51 of this report for BDO’s report on the Remuneration Report. Signed in accordance with a resolution by the Directors. Brian O’Donnell Chairman Perth, Western Australia 21 August 2018 Alwyn Vorster Managing Director Perth, Western Australia 21 August 2018 22 BCI Minerals Limited DIRECTOR’S DECLARATION In the opinion of the Directors of BCI Minerals Limited: a. the financial statements comprising the consolidated statement of profit or loss and other comprehensive income, consolidated statement of financial position, consolidated statement of cash flows, consolidated statement of changes in equity and accompanying notes are in accordance with the Corporations Act 2001 including: i. giving a true and fair view of the financial position of the Consolidated Entity as at 30 June 2018 and of its performance for the financial year ended 30 June 2018; and ii. complying with Accounting Standards and the Corporations Regulations 2001 and other mandatory professional reporting requirements. b. there are reasonable grounds to believe that the Consolidated Entity will be able to pay its debts as and when they become due and payable. c. the Company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001 (Cth). This declaration is made in accordance with a resolution of the Directors and is signed on their behalf by: Brian O’Donnell Chairman Perth, Western Australia 21 August 2018 Annual Report 2018 23 24 BCI Minerals Limited ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 www.bciminerals.com.au ABN 21 120 646 924 FINANCIAL STATEMENT CONTENTS Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Preface to the notes Basis of preparation Note 1 – Revenue Note 2 – Expenses Note 3 – Impairment of non-financial assets Note 4 – Discontinued operations Note 5 – Income taxes Note 6 – Cash and cash equivalents Note 7 – Trade and other receivables Note 8 – Property, plant and equipment Note 9 – Exploration and evaluation Note 10 – Intangibles Note 11 – Trade and other payables Note 12 – Provisions Note 13 – Capital risk management Note 14 – Contributed equity Note 15 – Reserves Note 16 – Accumulated losses Note 17 – Dividends Note 18 – Earnings per share Note 19 – Financial risk management Note 20 – Subsidiaries Note 21 – Segment information Note 22 – Commitments Note 23 – Contingent liabilities and assets Note 24 – Events occurring after the reporting period Note 25 – Parent entity Note 26 – Auditor’s remuneration Note 27 – Related party transactions Note 28 – Share based payments Note 29 – Other accounting policies 27 28 29 30 31 31 31 32 33 33 34 36 38 38 39 40 41 42 42 43 43 44 44 44 45 45 47 48 49 49 49 49 50 50 50 52 26 BCI Minerals Limited CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME BCI MINERALS LIMITED AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2018 Revenue from continuing operations Sale of goods Other revenue Total revenue from continuing operations Foreign exchange gain/(loss) Cost of sales Administration expenses Exploration and evaluation expenditure Profit / (loss) before income tax Income tax benefit / (expense) Profit / (loss) after income tax from continuing operations Discontinued operations Loss for the year from discontinued operations Profit / (loss) for the year attributable to owners of BCI Minerals Limited Basic earnings / (loss) per share from continuing operations Diluted earnings / (loss) per share from continuing operations Basic loss per share from discontinued operations Diluted loss per share from discontinued operations Notes 2018 $000’s 2017 $000’s 32,970 479 33,449 - (29,954) (7,118) (13,287) (16,910) - (16,910) - (16,910) Cents (4.29) (4.26) - - 63,480 552 64,032 80 (47,796) (6,454) (2,798) 7,064 - 7,064 (1,395) 5,669 Cents 2.23 2.21 (0.44) (0.44) 1 2 2 5 4 18 18 4 4 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. Annual Report 2018 27 CONSOLIDATED STATEMENT OF FINANCIAL POSITION BCI MINERALS LIMITED AND ITS CONTROLLED ENTITIES AS AT 30 JUNE 2018 Notes 2018 $000’s 2017 $000’s Current assets Cash and cash equivalents Trade and other receivables Total current assets Non-current assets Receivables Property, plant and equipment Exploration and evaluation assets Intangibles Total non-current assets Total assets Current liabilities Trade and other payables Provisions Total current liabilities Non-current liabilities Provisions Total non-current liabilities Total liabilities Net assets Shareholders’ equity Contributed equity Reserves Accumulated losses Total shareholders’ equity 6 7 7 8 9 10 11 12 12 14 15 16 13,057 7,213 20,270 5,583 42,153 14,500 23,532 85,768 36,376 10,053 46,429 4,931 44,996 4,600 23,532 78,059 106,038 124,488 9,373 471 9,844 5,583 5,583 15,427 90,611 266,984 5,542 (181,915) 90,611 12,107 294 12,401 4,931 4,931 17,332 107,156 266,735 5,426 (165,005) 107,156 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 28 BCI Minerals Limited CONSOLIDATED STATEMENT OF CHANGES IN EQUITY BCI MINERALS LIMITED AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2018 Contributed equity $000’s Accumulated losses $000’s 242,467 (170,674) Reserves $000’s 4,883 Balance at 1 July 2016 Profit for the year Reclassification to profit or loss Total comprehensive income Transactions with equity holders in their capacity as equity holders Shares issued net of transaction costs Performance Rights converted Share based payments Dividends paid Balance at 30 June 2017 Loss for the year Reclassification to profit or loss Total comprehensive income Transactions with equity holders in their capacity as equity holders Performance Rights converted Share based payments Dividends paid Balance at 30 June 2018 - - - 24,188 80 - - 5,669 - 5,669 - - - - 266,735 (165,005) - - - 249 - - (16,910) - (16,910) - - - 266,984 (181,915) Total $000’s 76,676 5,669 - 5,669 24,188 - 623 - 107,156 (16,910) - (16,910) - 365 - 90,611 - - - - (80) 623 - 5,426 - - - (249) 365 - 5,542 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Annual Report 2018 29 CONSOLIDATED STATEMENT OF CASH FLOWS BCI MINERALS LIMITED AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2018 Notes 2018 $000’s 2017 $000’s Cash flows from operating activities Receipts from customers Payments to suppliers and employees Management fees received Interest received Net cash flows from operating activities Cash flows from investing activities Payments for mine property and development expenditure Payments for plant and equipment Payments for exploration project earn-ins Payments for exploration and evaluation assets Net cash flows from investing activities Cash flows from financing activities Proceeds from issue of shares net of costs Repayment of borrowings Repayment of Royalty Rebate Net cash flows from financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of exchange rate changes on cash and cash equivalents 35,833 (48,210) - 420 6 (11,957) - (74) (1,000) (9,000) (10,074) - - (1,288) (1,288) (23,319) 36,376 - 13,057 66,588 (55,320) 15 577 11,860 (122) (1,598) (500) - (2,220) 24,189 (1,966) (5,151) 17,072 26,712 9,450 214 36,376 Cash and cash equivalents at end of year 6 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 30 BCI Minerals Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS BCI MINERALS LIMITED AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2018 PREFACE TO THE NOTES The notes include information which is required to understand the financial statements and is material and relevant to the operations and the financial position and performance of the Company. Information is considered relevant and material if: • The amount is significant due to its size or nature; • The amount is important in understanding the results of the Company; • It helps to explain the impact of significant changes in the Company’s business; or • It relates to an aspect of the Company’s operations that is important to its future performance. The notes are organised into the following sections: • Basis of preparation; • Key numbers; • Capital; • Risk management; • Group structure; • Unrecognised items; and • Other notes. BASIS OF PREPARATION Corporate information The financial statements for BCI Minerals Limited for the year ended 30 June 2018 were authorised for issue in accordance with a resolution of the Directors on 21 August 2018. BCI Minerals Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. BCI Minerals Limited and its subsidiaries together are referred to in these financial statements as the ‘Company’ or the ‘Consolidated Entity’. The principal activities of the Company during the financial year were the development and exploration of assets in Western Australia, including the Mardie Salt Project, Iron Valley Iron Ore Mine, Buckland Iron Ore Project, and Carnegie Potash Project. Basis of preparation The principal accounting policies adopted in the preparation of the financial statements are set out in the notes to the accounts. These policies have been consistently applied to all the financial years presented, unless otherwise stated. These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (“AASB”), and the Corporations Act 2001. BCI Minerals Limited is a for-profit entity for the purpose of preparing the financial statements. The financial statements are presented in Australian dollars. The Company is of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 2016/191, and in accordance with that Corporations Instrument amounts in the directors’ report and annual financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. Compliance with IFRS The consolidated financial statements of BCI Minerals Limited comply with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and cash flow hedges at fair value through other comprehensive income. New, revised or amending Accounting Standards and Interpretations adopted The Company has not adopted any new and amended Australian Accounting Standards and AASB Interpretations as of 1 July 2017. Changes in accounting policy, estimates disclosures, standards and interpretations The accounting policies adopted and estimates made are consistent with those of the previous financial year. Discontinued operations A discontinued operation is a component of the Consolidated Entity that has been disposed of or is classified as held for sale and that represents a major line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the profit or loss and other comprehensive income. Where a decision is made to treat a major line of business or area of operations as discontinued the comparative information is restated to reflect as if that major line of business or area of operations had been discontinued in the prior period. The assets and liabilities held for sale are stated on the Statement of Financial Position at the lower of carrying value and fair value less cost to sell (“FVLCTS”). Annual Report 2018 31 Foreign currency The financial statements are presented in Australian dollars which is the Company’s functional and presentation currency. Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Comparatives Where applicable, comparatives have been adjusted to conform with current year presentation. Key estimates and judgements In the process of applying the Company’s accounting policies, management has made a number of judgements and applied estimates of future events. Judgements and estimates which are material to the financial report are found in the following notes: Note 3: Impairment of non-financial assets Note 5: Income taxes Note 8: Property, plant and equipment Note 9: Exploration and evaluation Note 10: Intangibles Note 12: Provisions Note 28: Share based payments KEY NUMBERS NOTE 1 – REVENUE Sales – Iron Valley Interest revenue Other income Total Accounting policy 2018 $000’s 32,970 420 59 2017 $000’s 63,480 552 - 33,449 64,032 Revenue is measured at the fair value of the gross consideration received or receivable. Revenue is recognised if it meets the criteria outlined below. Sales – Iron Valley Revenue from the sale of goods and disposal of other assets is recognised when persuasive evidence, usually in the form of an executed sales agreement, or an arrangement exists, indicating there has been a transfer of risks and rewards to the customer, no further work or processing is required by the Company, the quantity and quality of the goods has been determined with reasonable accuracy, the price can be reasonably estimated, and collectability is reasonably assured. The Company receives revenue from Mineral Resources Limited (“MIN”) based on a mine gate sale agreement based on MIN’s realised price. The Company recognises revenue when the ore passes over the railhead which is typically at the bill of lading. MIN send monthly shipping information based on either a provisional basis at the date of shipment or the subsequent final pricing, which is typically once the vessel has arrived at its destination and quotation pricing has been determined. BCI recognises revenue on provisionally priced sales based on the estimated fair value of the total consideration, which is adjusted for any changes when pricing is finalised. Interest revenue Interest revenue is recognised on a time proportionate basis using the effective interest method. 32 BCI Minerals Limited NOTE 2 – EXPENSES Amortisation of mine properties Royalties Cost of sales Employee benefits expense Depreciation and amortisation Share based payments Non-executive directors’ fees Occupancy related expenses Consultant and legal fees Other Administration expenses 2018 $000’s 2,837 27,117 29,954 3,356 80 365 481 229 1,301 1,306 7,118 2017 $000’s 2,882 44,914 47,796 2,456 102 623 408 327 1,435 1,103 6,454 NOTE 3 – IMPAIRMENT OF NON-FINANCIAL ASSETS Accounting policy Assets are reviewed for impairment at each reporting date or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which an asset’s carrying amount exceeds its recoverable amount. The valuation used by BCI to determine recoverable amount is the higher of an asset’s fair value less costs of disposal (“FVLCD”) and value in use (“VIU”). Accounting standards require that the valuation technique used be consistent with one of three commonly accepted approaches outlined below: • Level 1 Market - The market approach uses prices and other relevant information generated by market transactions involving identical or comparable (i.e. similar) assets, liabilities or a group of assets and liabilities, such as a business. Examples relevant to BCI include earnings multiples or JORC reserve/resource multiples; • Level 2 Cost - The cost approach reflects the amount that would be required currently to replace the service capacity of an asset (often referred to as current replacement cost); and • Level 3 Income - The income approach converts future amounts (e.g. cash flows or income and expenses) to a single current (i.e. discounted) amount. When the income approach is used, the fair value measurement reflects current market expectations about those future amounts. Examples include Net Present Value (“NPV”) techniques. FVLCD is an NPV calculation which is consistent with the Level 3 income approach. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows which are largely independent of the cash flows from other assets or groups of assets (cash-generating units). An impairment loss is recognised for the amount by which an asset’s carrying amount exceeds its recoverable amount. Non-financial assets other than goodwill that have been impaired are reviewed for possible reversal of impairment at each reporting period. Impairment assessment The Company has completed its annual review of its assets for impairment. Based on these assessments, the Company has concluded that impairment of assets was not required. Annual Report 2018 33 Revenue assumptions Cash flow projections used to estimate recoverable amounts include assumptions on revenue. The assumptions used for revenue in impairment testing are summarised below: CFR 62% Fe iron ore price (USD/dmt, nominal) Years 1-5 Years 6-10 Years 11-20 Foreign exchange rate (AUD:USD, nominal) Years 1-5 Years 6-10 Years 11-20 Inflation (% per annum) USD inflation rate Key estimates and judgements 2018 2017 64-69 72-83 85-96 62-63 67-75 78-82 0.76-0.77 0.73-0.75 0.76 0.76 2.8% 0.74 0.74 1.7% The recoverable amount of mine property, plant and equipment and intangible assets is estimated on the basis of the discounted value of future cash flows. The estimates of future cash flows are based on significant assumptions including: • estimates of the quantities of ore reserves and mineral resources for which there is a high degree of confidence of economic extraction and the timing of access to these reserves and resources; • future iron ore prices and exchange rates based on forecasts by a range of recognised economic forecasters as well as recent spot prices and rates; • production rates, production costs and capital expenditure based on approved budgets and projections including inflation factors; and • the asset specific discount rate applicable to the cash generating unit. NOTE 4 – DISCONTINUED OPERATIONS As announced on 10 March 2017 the Company completed the sale of its interest in the Nullagine Joint Venture (Nullagine) to Fortescue Metals Group (Fortescue). BCI agreed to sell to Fortescue its 75% interest and related assets in Nullagine, which included the following: • 75% interest in the iron ore rights over the Nullagine tenements; • 100% title in the Nullagine tenements; • existing fixed assets and equipment; • existing low-grade stockpiles; and • all associated mining information. Fortescue assumed BCI’s liabilities and obligations, including the existing rehabilitation liability. BCI retained its obligation to pay deferred State Government Royalties A$3.9M (30 June 2017: A$1.3M). As consideration for the sale, Fortescue paid $1 plus a royalty on 75% of the future iron ore that is mined from the Nullagine tenements. Specifically, the royalty is: • 1.0% - 2.0% of free-on-board revenue received by Fortescue for direct shipping ore (≥55% Fe); and • A$0.50 – A$1.50 per tonne for low grade ore (<55% Fe), adjusted for 15% yield loss. A 50% reduction in the royalty rate will apply to all iron ore mined above 15 million tonnes, and a 75% reduction for all iron ore mined above 25 million tonnes. Fortescue will initially pay BCI 33% of the agreed royalty in cash, until the total amount waived by BCI equals A$7.5M. Thereafter, Fortescue will pay BCI 100% of the agreed royalty. The amount to be waived by BCI is intended to offset the obligations Fortescue assumes as part of the transaction, including rehabilitation liabilities. 34 BCI Minerals Limited Loss from discontinued operations Revenue Sale of goods Other income Total revenue from discontinued operations Foreign exchange gain/(loss) Administration expenses Exploration and evaluation expenditure Impairment of mine property and other assets Depreciation and amortisation Loss before finance cost and income tax Finance costs Loss before income tax Income tax benefit / (expense) Loss after income tax from discontinued operations Weighted average number of ordinary shares (basic) Basic loss per share from discontinued operations (cents) Cash flows from discontinued operations Net cash flows from operating activities Net cash flows from investing activities 2018 $000’s 2017 $000’s - - - - - - - - - - - - - - 292 292 (85) (1,186) (183) (302) (242) (1,706) 311 (1,395) - (1,395) 394,597,863 316,706,617 - (0.44) 2018 $000’s - - - 2017 $000’s (2,628) (1,532) (4,160) During the 2017 financial year, discontinued assets were remeasured at fair value less cost to sell, resulting in an impairment of $0.3M. Accounting policy The NJV was recognised as a joint operation and the Company recognised its direct right to the assets, liabilities, revenues and expenses of the joint operation and its share of any jointly held or incurred assets, liabilities, revenues and expenses. These have been incorporated in the financial statements under the appropriate headings. Profit or loss on transactions with joint operations are eliminated to the extent of the Company’s ownership interest. Annual Report 2018 35 NOTE 5 – INCOME TAXES Current tax expense/(benefit) Current period Adjustments for prior periods Deferred tax expense/(benefit) Origination and reversal of temporary differences De-recognition of deferred tax assets Equity deferred tax movement Adjustments for prior periods Income tax expense from discounted operation (excluding gain on sale) Income tax expense/(benefit) reported in the Consolidated statement of profit or loss and other comprehensive income Reconciliation of effective tax rate Profit / (loss) before tax Income tax at the statutory rate of 30 per cent (2017: 30 per cent) Non-deductible expenses Temporary differences derecognised Tax losses not recognised Recognised directly in equity Under/(over) provided in prior periods and other Income tax expense/(benefit) reported in the Consolidated statement of profit or loss and other comprehensive income 2018 $000’s 2017 $000’s (1,332) 1,411 79 1,169 (1,140) (79) (29) (79) - - (16,910) (5,073) 110 (1,061) 6,132 (79) (29) - 336 (93) 243 877 (1,033) (243) 156 (243) - - 7,064 2,119 187 (1,033) (1,429) (243) 399 - Accounting policy The income tax expense on income for the financial year is the tax payable on the current financial period’s taxable income based on the national income tax rate, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Significant judgement The Company is subject to income taxes in Australia. Significant judgement is required in determining the provisions for income taxes. There are certain transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination may be subject to change. The Company estimates its tax liabilities based on the Company’s understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The Company recognises deferred tax assets relating to carried forward tax losses to the extent they can be utilised. The utilisation of the tax losses depends on the ability of the entities to generate sufficient future taxable profits. At 30 June 2018, the Company had unrecognised deferred tax assets relating to tax losses of $76.0M (2017: $71.0M). The Company also has an R&D off-set available of $5.7M (2017 $5.7M). 36 BCI Minerals Limited Deferred tax assets not recognised Temporary differences Income Tax losses Capital losses Deferred tax assets and liabilities Amounts recognised in Profit or Loss: Mine property, plant and development Provisions Intangibles Exploration Other items Amounts recognised directly in equity: Share issue costs in equity Temporary differences derecognised Tax assets/(liabilities) Movements in deferred tax assets At 1 July 2016 (Charged)/credited to profit or loss to (under)/over prior period directly to equity At 30 June 2017 (Charged)/credited to profit or loss to (under)/over prior period At 30 June 2018 Movement in deferred tax liabilities At 1 July 2015 (Charged)/credited to profit or loss to (under)/over prior period reclassification to deferred tax liability At 30 June 2017 (Charged)/credited to profit or loss to (under)/over prior period At 30 June 2018 2018 $000’s (5,027) 74,074 1,598 2017 $000’s (3,887) 69,382 1,598 Assets Liabilities Net 2018 $000’s 2017 $000’s 2018 $000’s 2017 $000’s 2018 $000’s 2017 $000’s - 141 - - 843 238 1,222 - 1,222 - 88 - - 618 318 1,024 - 1,024 (2,757) (2,115) (2,757) (2,115) - - 141 88 (2,409) (2,409) (2,409) (2,409) (781) (302) - (6,249) 5,027 (1,222) (381) (6) - (4,911) 3,887 (1,024) (781) 541 238 (5,027) 5,027 - (381) 612 318 (3,887) 3,887 - Total $000’s 2,689 Provisions $000’s Share issue costs $000’s Mine property $000’s Other $000’s Temporary differences derecognised $000’s 1,596 128 18,821 702 (18,558) (1,509) 190 (20,729) (182) 18,558 (3,672) 1 - 88 53 - 141 - - 318 (80) - 238 (206) 2,114 - - - - 98 - 618 165 60 843 - - - - - - (107) 2,114 1,024 138 60 1,222 Inventory $000’s Intangibles $000’s (18) (2,409) Mine property $000’s Exploration $000’s Other $000’s Temporary differences derecognised $000’s Total $000’s (250) (12) - (2,689) - - - (2,114) (2,114) - - - (2,409) (132) - - (382) - - (650) (399) 7 - (2,409) (2,757) (781) 18 - - - - - - 2 4 - (6) (259) (37) (302) 3,887 3,775 - - 4 (2,114) 3,887 (1,024) 1,140 - (168) (30) 5,027 (1,222) Annual Report 2018 37 NOTE 6 – CASH AND CASH EQUIVALENTS Cash at bank Cash on deposit Total Reconciliation of profit / (loss) after income tax to net cash flows from operating activities Net Profit / (loss) Depreciation and amortisation Share based payments Impairment of non-financial assets Finance costs Foreign exchange (gains)/losses Other (Increase)/decrease in assets Trade and other receivables Increase/(decrease) in liabilities Trade and other payables Provisions Net cash inflow/(outflow) by operating activities 2018 $000’s 5,824 7,233 13,057 (16,910) 2,917 365 - - - 33 2017 $000’s 5,765 30,611 36,376 5,669 3,227 623 302 (311) 4 (345) 2,841 3,641 (1,372) 169 (11,957) (771) (179) 11,860 Cash on deposit relates to 31-day term deposits held with financial institutions. See Note 19 – Financial risk management note for further details. Accounting policy For statement of cash flows presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. There are no non-cash investing or financing activities. NOTE 7 – TRADE AND OTHER RECEIVABLES Current Trade receivables and prepayments Other receivables Total current Non-current Other receivables Total non-current Total trade and other receivables 2018 $000’S 2017 $000’S 7,171 43 7,213 5,583 5,583 12,796 10,007 46 10,053 4,931 4,931 14,984 Due to the short-term nature of current receivables, their carrying amount is assumed to approximate their fair value. As at 30 June 2018 no receivables were past due or impaired (2017: Nil). Other current receivables include $16k for GST receivable (2017: $46k). Other non-current receivables include an estimate of the amount payable by the operator of the Iron Valley operation for fulfilment of rehabilitation obligations at the end of operations. Refer to note 19 for information on the risk management policy of the Company. Accounting policy Receivables from the sale of iron ore are recognised initially at fair value and, where the sales receivable is subject to final pricing during a quotation period in the future, are subsequently measured at the estimated fair value of the total consideration receivable. Other receivables are recognised initially at fair value and subsequently at amortised cost using the effective interest method, less allowance for impairment. Trade receivables are due for settlement within 5 days. Other receivables are due for settlement no more than 30 days from the date of invoice. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off. The Company’s sales are sold under an agreement, the historical loss rate is nil. Consequently, a general provision for 12-month expected credit loss has not been recognised. 38 BCI Minerals Limited NOTE 8 – PROPERTY, PLANT AND EQUIPMENT Mine Properties $000’s Plant and equipment $000’s Office furniture, equipment and IT $000’s Year ended 30 June 2017 Opening net book value Additions Disposals Depreciation and amortisation expense Impairment Closing net book value At 30 June 2017 Cost Accumulated depreciation and amortisation Net carrying amount Year ended 30 June 2018 Opening net book value Additions Reclassification of assets Depreciation and amortisation expense Closing net book value At 30 June 2018 Cost Accumulated depreciation and amortisation Net carrying amount Accounting policy 49,710 122 (2,063) (2,882) - 44,887 51,659 (6,772) 44,887 44,887 - - (2,838) 42,049 51,658 (9,609) 42,049 3,125 - (2,527) (235) (302) 61 856 (795) 61 61 19 (50) (5) 25 753 (728) 25 93 66 (1) (110) - 48 1,589 (1,541) 48 48 55 50 (74) 79 1,695 (1,616) 79 Total $000’s 52,928 188 (4,591) (3,227) (302) 44,996 54,104 (9,108) 44,996 44,996 74 - (2,917) 42,153 54,106 (11,953) 42,153 Mine Properties Once a mining project has been established as commercially viable and technically feasible, expenditure other than that on land, buildings, plant and equipment is transferred and capitalised as mine property. Mine property costs include past capitalised exploration and evaluation costs, pre-production development costs, development excavation, development studies and other subsurface and permanent installation expenditure pertaining to that area of interest. Mine property costs are accumulated in respect of each separate area of interest. Costs associated with commissioning new assets in the period before they are capable of operating in the manner intended by management, are capitalised. Mine property costs incurred after the commencement of production are capitalised to the extent they are expected to give rise to a future economic benefit. When an area of interest is abandoned, or the Directors decide that it is not commercial or technically feasible, any accumulated cost in respect of that area is written off in the financial period the decision is made. Each area of interest is reviewed at the end of each accounting period and accumulated costs written off to the profit or loss to the extent that they will not be recoverable in the future. Amortisation of mine property costs is charged on a unit of production basis over the life of economically recoverable reserves once production commences. Mine property assets are assessed for impairment if facts and circumstances suggest that the carrying amount exceeds the recoverable amount. For the purposes of impairment testing, mine property is allocated to cash-generating units to which the development activity relates. The cash generating unit shall not be larger than the area of interest. Plant and equipment Plant and equipment, including mechanical, electrical, field and computer equipment as well as furniture, fixtures and fittings, is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis so as to write off the net cost of each asset over either its expected useful life of 2.5 to 5 years for furniture, computers and equipment, or the life of the mine for plant and equipment. Spare parts, stand-by equipment and servicing equipment is classified as property, plant and equipment if they are expected to be used during more than one period. Otherwise they are classified as inventory. Annual Report 2018 39 Impairment Assets are reviewed for impairment at each reporting date or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Refer to note 3 for details of impairment accounting policy. Assets assessed for impairment included the following: Iron Valley The Iron Valley mine property asset was tested for impairment. The recoverable amount has been assessed based on its FVLCD in line with the impairment policy (refer to note 3) and classified as level 3 under the fair value hierarchy. FVLCD was determined by estimating cash flows until the end of the life of mine plan, including anticipated expansions, of approximately 13 years. The discount rate used in determining FVLCD was 11.1%. Forecast iron ore price, foreign exchange and inflation assumptions used in the calculation of FVLCD are summarised in note 3. The recoverable amount was determined to be significantly in excess of carrying value, and there are no reasonably possible changes in key assumptions that would cause the asset to be impaired. Key judgement – Mine properties expenditure Development activities commence after commercial viability and technical feasibility of the project is established. Judgement is applied by management in determining when a project is commercially viable and technically feasible. Key estimate – Iron ore reserves Iron ore reserves are estimates of the amount of product that can be economically and legally extracted from the Company’s current mining tenements. In order to calculate ore reserves, estimates and assumptions are required about a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity demand, commodity prices and exchange rates. Estimating the quantity and grade of ore reserves requires the size, shape and depth of ore bodies or fields to be determined by analysing geological data such as drilling samples. This requires complex and difficult geological judgements and calculations to interpret the data. As economic assumptions used to estimate reserves change, and as additional geological data is generated during the course of operations, estimates of reserves may vary from period to period. Changes in reported reserves may affect the Company’s financial results and financial position in a number of ways, including the following: • asset carrying values may be affected due to changes in estimated future cash flows; • depreciation and amortisation charges in profit or loss may change where such charges are determined by the units of production basis, or where the useful economic lives of assets change; and • the carrying value of deferred tax assets may change due to changes in estimates of the likely recovery of tax benefits. NOTE 9 – EXPLORATION AND EVALUATION Opening balance Exploration earn-in Exploration tenements acquisition Unsuccessful exploration expenditure derecognised Net carrying amount Accounting policy 2018 $000’s 4,600 1,000 9,000 (100) 14,500 2017 $000’s 4,100 500 - - 4,600 The Company accounts for exploration and evaluation activities as follows: Acquisition and Exploration earn-in Exploration and evaluation costs arising from acquisitions and earn-ins are carried forward where exploration and evaluation activities have not, at reporting date, reached a stage to allow a reasonable assessment of economically recoverable reserves. Exploration and evaluation costs Costs arising from on-going exploration and evaluation activities are expensed as incurred. Key judgement – Capitalisation of exploration and evaluation expenditure The Company has capitalised acquired exploration and evaluation expenditure and earn-in expenditure on the basis that either it is expected to be recouped through future successful development (or alternatively sale) of the areas of interest concerned or on the basis that it is not yet possible to assess whether it will be recouped. The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether the Company decides to exploit the related lease itself, or, if not, whether it successfully recovers the related exploration and evaluation asset through sale. Factors that could impact the future recoverability include the level of reserves and resources, future technological changes, costs of drilling and production, production rates, future legal changes (including changes to environmental rehabilitation obligations) and changes to commodity prices. 40 BCI Minerals Limited BCI currently holds a 30% interest in the Carnegie Potash in a joint venture with ASX-listed potash development company, Kalium Lakes Limited (“KLL”), who is the joint venture manager. BCI has rights to earn up to a 50% interest through sole-funding the Pre-Feasibility Study and Feasibility Study phases. During the financial year, BCI sole funded $1.0M to progress the Scoping Study, which was completed in July with a maiden Resource and Exploration Target estimate. BCI acquired a number of prospective and underexplored West Pilbara tenements (Kumina and Cane River) from Mineralogy Pty Ltd in September 2017. Consideration for the acquisition was $9.0M in cash and BCI is also obliged to pay an iron ore royalty of 2.0% of FOB revenue on the first 100Mt of iron ore mined, increasing to 3.5% of FOB revenue on any iron ore in excess of 100Mt mined, and a 3.5% royalty on the value of any other minerals sold from the tenements. These tenements are located within economic trucking distance from BCI’s Cape Preston East Port and have the potential to host iron ore deposits which could support an increase in throughput of the Buckland Project to 15Mtpa and enhance the value and marketability of the proposed “Buckland Blend”. NOTE 10 – INTANGIBLES Opening balance Impairment charge Net carrying amount Net carrying value of intangibles: Royalties Port lease rights Net carrying amount Notes 3 2018 $000’s 23,532 - 23,532 15,502 8,030 23,532 2017 $000’s 23,532 - 23,532 15,502 8,030 23,532 The intangible assets were acquired through Iron Ore Holdings Limited as follows: Royalties The Company holds royalties over the Koodaideri South and North Marillana Extension tenements. The assets have a finite life reflecting the underlying resource and will be amortised as the resource is depleted. Production has not commenced at either Koodaideri South or North Marillana and hence the assets remain unamortised. The Koodaideri South royalty asset has been tested for impairment with the recoverable amount assessed by reference to the FVLCD, in line the policy in note 3 and classified as level 3 under the fair value hierarchy. FVLCD was determined using an income approach based on the net present value of future cash flows projected over the estimated mine life of 32 years. The pre-tax nominal discount rate used in determining FVLCD was 10.1%. Forecast iron ore price, foreign exchange and inflation assumptions used in the calculation of FVLCD are summarised in note 3. The North Marillana Extension royalty asset has been tested for impairment with the recoverable amount assessed by reference to the FVLCD, in line the policy in note 3 and classified as level 3 under the fair value hierarchy. FVLCD was determined using an income approach based on the net present value of future cash flows projected over the estimated mine life of 10 years. The pre-tax nominal discount rate used in determining FVLCD was 10.1%. Forecast iron ore price, foreign exchange and inflation assumptions used in the calculation of FVLCD are summarised in note 3. The recoverable amounts were determined to be in excess of carrying values, and there are no reasonably possible changes in key assumptions that would cause the asset to be impaired. Refer to note 3 for details of the key estimates and judgements applied in determining the recoverable amount. Port lease rights The Company holds a lease at the Cape Preston East Port and through the purchase price allocation a value has been ascribed to the intellectual property associated with developing this port. The port is yet to be developed and the intangible asset will be amortised once the port is operational. The Company has tested the asset for impairment with the recoverable amount assessed by reference to the FVLCD of the Buckland project, in line with the policy in note 3 and classified as level 3 under the fair value hierarchy. FVLCD for the Buckland project including mineral assets and the port access rights was determined by estimating cash flows over the project life of approximately 12 years. The pre-tax nominal discount rate used in determining FVLCD was 12.1%. Forecast iron ore price, foreign exchange and inflation assumptions used in the calculation of FVLCD are summarised in note 3. The recoverable amount was determined to be in excess of carrying value, and there are no reasonably possible changes in key assumptions that would cause the asset to be impaired. Refer to note 3 for details of the key estimates and judgements applied in determining the recoverable amount. Annual Report 2018 41 NOTE 11 – TRADE AND OTHER PAYABLES Current Trade payables and accruals Total Accounting policy 2018 $000’s 9,373 9,373 2017 $000’s 12,107 12,107 These amounts represent liabilities for goods and services provided to the Company prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. The Company has financial risk management policies in place to ensure that all payables are paid within the credit timeframe (refer to note 19). NOTE 12 – PROVISIONS Current Employee benefits Total current Non-current Rehabilitation Total non-current Total Movement in Provisions in 2018 Opening balance 1 July 2017 Changes in rehabilitation estimate Charged/(credited) to profit or loss: additional provisions recognised unused amounts reversed unwinding of discount (non-cash) Amounts used during the year Closing balance Accounting policy 2018 $000’s 2017 $000’s 471 471 5,583 5,583 6,054 Rehabilitation and site closure $000’s Employee benefits $000’s 4,931 507 - - 145 - 5,583 294 - 443 (8) - (258) 471 294 294 4,931 4,931 5,225 Total $000’s 5,225 507 443 (8) 145 (258) 6,054 Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Employee benefits, salaries and annual leave Liabilities for salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in respect of employee’s services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Employee benefits – long service leave The liability for long service leave is recognised and measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. The obligations are presented as current liabilities in the Statement of Financial Position if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur. 42 BCI Minerals Limited Rehabilitation The Company has obligations to dismantle and remove certain items of property, plant and equipment and to restore and rehabilitate the land on which they are situated. A provision is raised for the estimated cost of settling the rehabilitation and restoration obligations existing at balance date, discounted to present value using an appropriate discount rate. When provisions for rehabilitation are initially recognised, the corresponding cost is capitalised as an asset within mine properties and amortised accordingly. Where rehabilitation is conducted systematically over the life of the operation, rather than at the time of closure, costs are charged to the profit or loss in the period in which the work is undertaken. At each reporting date the rehabilitation liability is re-measured to account for any new disturbance, updated cost estimates, changes to the estimated lives of operations, new regulatory requirements and revisions to discount rates. Changes to the rehabilitation liability are added to or deducted from the related rehabilitation asset and amortised accordingly. Key estimate – Rehabilitation The Company’s accounting policy for the recognition of rehabilitation provisions requires significant estimates in determining the estimated cost for the rehabilitation of disturbed areas, removal of infrastructure and site closure at a point in the future. These uncertainties may result in future actual expenditure differing from the amounts currently provided. A provision is made for the estimated cost to rehabilitate the Iron Valley site, which is offset by a receivable from Mineral Resources Limited recognising the contractual requirement to rehabilitate the site. NOTE 13 – CAPITAL RISK MANAGEMENT The Company’s objective when managing capital is to safeguard its ability to continue as a going concern so that it can continue to provide returns to shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Company defines capital as equity and net debt. Net debt is defined as borrowings less cash and cash equivalents, and equity as the sum of share capital, reserves and accumulated losses/retained earnings. Net debt to equity Total debt Less cash and cash equivalents Excess of cash over debt Equity 2018 $000’s - 13,057 13,057 90,611 2017 $000’s - 36,376 36,376 107,156 Net debt as percentage of equity - not applicable as the Company has no debt. NOTE 14 – CONTRIBUTED EQUITY Share capital Ordinary shares - fully paid Movements in ordinary share capital Opening balance 2018 2017 Number $000’s Number $000’s 394,968,910 266,984 392,526,910 266,735 392,526,910 266,735 196,196,992 242,467 Issue of shares under Employee Performance Rights Plan 2,442,000 249 66,463 Issue of shares under entitlement offer 18 November 16 - - 196,263,455 Closing balance Accounting policy 394,968,910 266,984 392,526,910 80 24,188 266,735 Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. In November 2016, the Company successfully completed a pro-rata renounceable entitlement offer of 1 new share for every 1 share held at an issue price of $0.13 per share to raise $24.2M after costs. Terms and conditions of ordinary shares Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of winding up of the Company, ordinary shareholders rank after all other shareholders and creditors are fully entitled to any proceeds of liquidations. Annual Report 2018 43 NOTE 15 – RESERVES Share based payments reserve Balance as at 1 July Share based payments expense Issue of shares under Employee Performance Rights Plan Balance as at 30 June Financial assets at fair value through other comprehensive income Balance as at 1 July Balance as at 30 June Options exercised reserve Balance as at 1 July Balance as at 30 June Total reserves Nature and purpose of reserves 2018 $000’s 10,648 365 (249) 10,764 (9,009) (9,009) 3,787 3,787 5,542 2017 $000’s 10,105 623 (80) 10,648 (9,009) (9,009) 3,787 3,787 5,426 The share based payments reserve is used to recognise the fair value of options (not exercised), Performance Rights and equity-settled benefits issued in settlement of share issue costs. Changes in the fair value of investments such as equities measured at fair value through other comprehensive income, are recognised in other comprehensive income and accumulated in a separate reserve within equity. On adoption of AASB9 Financial Instruments investments in listed shares previously classified as available-for-sale were reclassified as financial assets at fair value through other comprehensive income. The options exercised reserve is used to recognise the fair value of options exercised. NOTE 16 – ACCUMULATED LOSSES Balance as at 1 July Net profit / (loss) Dividends paid Balance as at 30 June NOTE 17 – DIVIDENDS Dividend paid during the financial year (fully franked at 30 per cent) Final franked dividend for 2017: Nil (2016: Nil) Interim franked dividend for 2018: Nil (2017: Nil) Total dividends paid Dividend declared not recognised as a liability (fully franked at 30 per cent) Final franked dividend for 2018: Nil (2017: Nil) 2018 $000’s (165,005) (16,910) - 2017 $000’s (170,674) 5,669 - (181,915) (165,005) 2018 $000’s 2017 $000’s - - - - - - - - 44 BCI Minerals Limited NOTE 18 – EARNINGS PER SHARE Earnings per share from continuing operations Profit / (loss) after income tax from continuing operations 2018 $000’s 2017 $000’s (16,910) Number 7,064 Number Weighted average number of ordinary shares used in calculating basic earnings per share 394,597,863 316,706,617 Adjustments for calculation of diluted earnings per share: Vested Performance Rights outstanding at year end 2,640,000 2,442,000 Weighted average number of ordinary shares used in calculating diluted earnings per share 397,237,863 319,148,617 Earnings per share attributable to the ordinary equity holders of the company Basic earnings / (loss) per share Diluted earnings / (loss) per share Accounting policy Cents (4.29) (4.26) Cents 2.23 2.21 Basic earnings per share is calculated by dividing net profit after income tax attributable to equity holders of the Company by the weighted average number of ordinary shares on issue during the financial year. Diluted earnings per share is calculated using net profit after income tax attributable to equity holders of the Company adjusted for the after-tax effect of dividends and interest associated with dilutive potential ordinary shares. The weighted average number of shares used is adjusted for the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. RISK MANAGEMENT NOTE 19 – FINANCIAL RISK MANAGEMENT The Company holds the following financial instruments: Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables 2018 $000’s 2017 $000’s 13,057 12,796 25,853 9,373 9,373 36,376 14,984 51,360 12,107 12,107 Market (including foreign exchange, commodity price and interest rate risk), credit and liquidity risks arise in the normal course of the Company’s business. Primary responsibility for identification and control of financial risk rests with senior management under directives approved by the Board. a. Market risk i. Foreign exchange risk Foreign exchange risk arises from future commitments, assets and liabilities that are denominated in a currency that is not the functional currency in which they are measured. The Company is not exposed to foreign exchange risk on trade receivables. ii. Commodity price risk The Company’s revenue is exposed to commodity price fluctuations, specifically iron ore prices. The Company measures exposure to commodity price risk by monitoring and stress testing the Company’s forecast financial position to sustained periods of low iron ore prices on a regular basis. Trade receivables outstanding at year end are subject to potential changes in future iron ore prices. Annual Report 2018 45 b. Credit risk Credit risk arises from cash and cash equivalents and deposits with financial institutions, and from receivables from customers for iron ore sales. For banks and financial institutions, only independently rated parties with a minimum rating of “A” are accepted in accordance with ratings guidelines of major global credit rating agencies. For customers, credit reference checks are undertaken. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Company’s maximum exposure to credit risk without taking account of the fair value of any collateral or other security obtained. The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised at the beginning of this note. The credit quality of financial assets that are neither past due nor impaired can be summarised as follows: • Cash and cash equivalents $13.1M (2017: $36.4M) held with banks with minimum long term external credit ratings of AA-. • Trade receivables $7.0M (2017: $10.0M) due from existing customers are backed by an agreement with quarterly invoices paid within 5 working days. There has been no history of default in the past. • In the money derivatives Nil (2017: Nil) held with banks with minimum long term external credit ratings of AA-. c. Liquidity risk Prudent liquidity management involves the maintenance of sufficient cash and access to capital markets. It is the policy of the Board to ensure that the Company is able to meet its financial obligations and maintain the flexibility to pursue attractive investment opportunities through keeping committed credit lines available where possible, ensuring the Company has sufficient working capital and preserving the 15% share issue limit available to the Company under the ASX Listing Rules. Maturity analysis of financial assets and liabilities The table below groups undiscounted cash flows from the Company’s financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities and net and gross settled derivative financial instruments. Less than 6 months $000’s 6 - 12 months $000’s 1-5 years $000’s Greater than 5 years $000’s Contractual cash flows $000’s Carrying amount $000’s Year ended 30 June 2018 Financial liabilities Trade and other payables Loans and borrowings Total non-derivatives Year ended 30 June 2017 Financial liabilities Trade and other payables Loans and borrowings Total non-derivatives 9,372 - 9,372 12,107 - 12,107 - - - - - - - - - - - - - - - - - - 9,372 - 9,372 9,372 - 9,372 12,107 12,107 - - 12,107 12,107 46 BCI Minerals Limited GROUP STRUCTURE NOTE 20 – SUBSIDIARIES The consolidated financial statements include the financial statements of BCI Minerals Limited and the subsidiaries listed in the following table. BC Iron Nullagine Pty Ltd BCI (SA) Pty Ltd BC Potash Pty Ltd (formerly BCI Finance Pty Ltd) BC Gold Pty Ltd BC Pilbara Iron Ore Pty Ltd PEL Iron Ore Pty Ltd Buckland Minerals Transport Pty Ltd Cape Preston Logistics Pty Ltd Mardie Minerals Pty Ltd Iron Valley Pty Ltd Bungaroo South Pty Ltd Mal’s Ridge Pty Ltd Maitland River Pty Ltd BCI Exploration Pty Ltd (formerly Metal Holdings Pty Ltd) Accounting policy Country of incorporation Functional currency 2018 % 2017 % Beneficial interest Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia AUD AUD AUD AUD AUD AUD AUD AUD AUD AUD AUD AUD AUD AUD 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of BCI Minerals Limited as at 30 June 2018, and the results of all subsidiaries for the year then ended. Subsidiaries are all entities (including structured entities) over which the Company has control. The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Consolidated Entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of an asset transferred. Accounting policies of subsidiaries are consistent with the policies adopted by the Consolidated Entity. Annual Report 2018 47 NOTE 21 – SEGMENT INFORMATION 2018 Segment information Segment revenue Sale of goods Other revenue Total Segment results EBITDA Interest revenue Finance costs Foreign exchange Depreciation and amortisation Impairment Profit / (loss) before income tax Segment assets Segment liabilities 2017 Segment information Segment revenue Sale of goods Other revenue Total Segment results EBITDA Interest revenue Finance costs Foreign exchange Depreciation and amortisation Impairment Profit / (loss) before income tax Segment assets Segment liabilities Iron Valley $000’s Mardie $000’s Buckland $000’s Discontinued Operations $000’s Other $000’s Consolidated $000’s 32,970 - 32,970 - - - - - - 5,598 (2,885) (7,501) - - - (2,837) - 2,761 54,657 10,767 - - - - - - - - - - (2,885) (7,501) 800 - 16,930 - - - - - - - - - - - - - - 479 479 32,970 479 33,449 (9,625) (14,413) 420 420 - - (80) - - - (2,917) - (9,285) (16,910) 33,652 4,660 106,039 15,427 Iron Valley $000’s Mardie $000’s Buckland $000’s Discontinued Operations $000’s Other $000’s Consolidated $000’s 63,480 - 63,480 - - - - - - - 292 292 - 552 552 63,480 844 64,324 18,277 (179) (1,540) (1,100) (7,141) 8,317 - - - (2,882) - 15,395 59,704 14,309 - - - - - - - - - - 23 311 (85) (242) (302) 552 - 80 (103) - (179) (1,540) (1,395) (6,612) 575 311 (5) (3,227) (302) 5,669 800 - 8,030 - - - 55,955 3,024 124,489 17,333 Management has determined that the Company has five reportable segments, being Iron Valley, Mardie, Buckland, Discontinued Operations (Nullagine) and Other (Corporate and other Exploration). Revenue derived from iron ore sales is derived from customers located in Australia 100%. Accounting policy Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Company’s Board. Internal reporting is provided to the Board on a consolidated basis. 48 BCI Minerals Limited UNRECOGNISED ITEMS NOTE 22 – COMMITMENTS Operating leases - buildings The Company has non-cancellable operating leases for office and storage buildings. Within one year Greater than one year but not more than five years More than five years Operating leases - vehicles The Company has non-cancellable operating leases for a vehicle. Within one year Greater than one year but not more than five years More than five years Capital commitments The Company currently has no Capital commitments. NOTE 23 – CONTINGENT LIABILITIES AND ASSETS As at 30 June 2018, the Company has no contingent liabilities or assets. 2018 $000’s 2017 $000’s 303 74 - 377 1 - - 1 288 294 - 582 5 - - 5 NOTE 24 – EVENTS OCCURRING AFTER THE REPORTING PERIOD On the 9 August 2018, the Company received a notice of decision from the Australian Taxation Office, approving the Company’s request for out of time objections to income tax returns for 30 June 2012 to 30 June 2014, which will result in a cash tax refund of $1.5M. No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in financial periods subsequent to the year ended 30 June 2018. OTHER NOTES NOTE 25 – PARENT ENTITY The following details information related to the parent entity, BCI Minerals Limited, as at 30 June 2018. The information presented here has been prepared using accounting policies consistent with those presented in the notes to the accounts. Statement of Financial Position Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Issued capital Reserves Accumulated losses Total shareholders’ equity Loss for the year Total comprehensive loss for the year 2018 $000’s 2017 $000’s 12,552 123,068 1,759 37,477 266,984 5,670 (187,063) 85,591 (32,271) (32,271) 7,479 119,509 1,151 915 266,735 5,554 (153,695) 118,594 (2,859) (2,859) Included in note 22 are commitments incurred by the parent entity relating to the lease of offices. Annual Report 2018 49 NOTE 26 – AUDITOR’S REMUNERATION The auditor of BCI Minerals Limited is BDO Audit (WA) Pty Ltd Amounts received or due and receivable by BDO Audit (WA) Pty Ltd for: Audit or review of financial reports for the Company Non-audit services – assurance services Total NOTE 27 – RELATED PARTY TRANSACTIONS a. Parent entity BCI Minerals Limited is the parent entity. b. Subsidiaries Interests in subsidiaries are set out in note 20. c. Joint operations Interests in joint operations are set out in note 4. d. Key management personnel 2018 $ 58,950 7,889 66,839 2017 $ 54,050 3,325 57,375 Disclosures relating to Key Management Personnel are set out in the Audited Remuneration Report. Short-term employee benefits Termination payments Share based payments Post-employment benefits Total e. Transactions with related parties Management fee income from joint operation Payment for services made to other related parties 2018 $ 2017 $ 1,673,729 1,578,585 - 228,614 102,811 467,195 428,094 132,357 2,005,154 2,606,230 2018 $ - 207,101 2017 $ 14,789 79,174 On 1 March 2017, Michael Blakiston was appointed as a Non-Executive Director of the Company. Mr Blakiston is a partner in the legal firm Gilbert + Tobin. During the current financial year, the Company made legal fee payments to Gilbert + Tobin of $207K (2017: $71K). All transactions were on normal commercial terms and conditions. NOTE 28 – SHARE BASED PAYMENTS During the 2011-2018 financial years, the Company provided share based payments to employees only, whereas in the 2010 financial year they were also granted to consultants and financers. An employee share option incentive plan was approved at the shareholder’s annual general meeting of 16 November 2011. An Employee Performance Rights Plan was initially approved at the shareholder’s annual general meeting of 19 November 2010 and a revised plan was approved at the Company’s 2016 annual general meeting. Under the terms of these plans, the Board may offer options and Performance Rights at no more than nominal consideration to employees or directors (the latter subject to shareholder approval) based on a number of criteria, including contribution to the Company, period of employment, potential contribution to the Company in the future and other factors the Board considers relevant. These long-term incentives are provided to certain employees at the discretion of the Board to deliver long-term shareholder returns. Set out below is a summary of the Performance Rights granted by the Company. Employee Performance Rights During the year the Company issued share based payments in the form of Performance Rights to directors and employees as per below. Refer to the Remuneration Report in the Directors’ Report for more information. 50 BCI Minerals Limited 2018 – Performance Rights Grant date 21/08/2017 21/08/2017 27/10/2017 29/11/2017 29/11/2017 18/05/2018 18/05/2018 Granted during the year 3,300,000 2,450,000 Vesting date 30/06/2019 30/06/2020 500,000 30/06/2019 2,200,000 2,000,000 1,000,000 1,500,000 30/06/2019 30/06/2020 30/06/2019 30/06/2020 Fair value per right at grant date Share price on grant date* Expected dividends $0.03 $0.02 $0.03 $0.01 $0.01 $0.01 $0.01 $0.19 $0.19 $0.15 $0.16 $0.16 $0.15 $0.15 0% 0% 0% 0% 0% 0% 0% *Source: www.asx.com.au The fair value per Performance Right on grant date was determined as follows: Grant date Vesting date Grant date share price Volatility (per cent) Dividend yield (per cent) Risk free rate 21/08/2017 21/08/2017 27/10/2017 29/11/2017 29/11/2017 18/05/2018 18/05/2018 30/06/2019 30/06/2020 30/06/2019 30/06/2019 30/06/2020 30/06/2019 30/06/2020 $0.19 94.4% 0% 2.6% $0.19 95.1% 0% 2.6% $0.15 94.4% 0% 2.6% $0.16 94.7% 0% 2.5% $0.16 94.4% 0% 2.5% $0.15 94.4% 0% 2.6% $0.15 95.1% 0% 2.6% 2017 – Performance Rights Grant date 19/12/2016 19/12/2016 19/12/2016 14/03/2017 14/03/2017 Granted during the year 400,000 1,900,000 1,400,000 Vesting date 30/06/2017 30/06/2017 30/06/2018 550,000 30/06/2017 1,200,000 30/06/2018 Fair value per right at grant date Share price on grant date* Expected dividends $0.15 $0.15 $0.14 $0.18 $0.08 $0.19 $0.19 $0.19 $0.21 $0.21 0% 0% 0% 0% 0% *Source: www.asx.com.au The fair value per Performance Right on grant date was determined as follows; Grant date Vesting date Grant date share price Volatility (per cent) Dividend yield (per cent) Risk free rate 19/12/2016 19/12/2016 30/06/2017 30/06/2018 14/03/2017 30/06/2017 14/03/2017 30/06/2018 $0.19 108.9% 0% 2.8% $0.19 108.9% 0% 2.8% $0.21 105.2% 0% 2.9% $0.21 105.2% 0% 2.9% Summary of Performance Rights on issue Vesting date 30/06/2017 30/06/2018 30/06/2019 30/06/2020 Total Opening balance at 1 July 2017 Rights granted during the year Rights cancelled / lapsed during the year Rights converted to shares during the year Closing balance at 30 June 2018 Rights vested as at 30 June 2018 (1,808,000) (2,442,000) - NA 4,250,000 4,802,271 - - - 2,000,000 8,000,000 (1,000,000) - 5,950,000 - - - - 4,802,271 2,640,000 9,000,000 5,950,000 NA NA 11,052,271 13,950,000 (2,808,000) (2,442,000) 19,752,271 2,640,000 a. Expenses arising from share-based payment transactions Total expenses arising from share based payments recognised during the financial period as part of employee benefits expense were as follows. Where Performance Rights are forfeited or cancelled due to a vesting condition not being satisfied, the previously recognised cumulative share based payment expense is reversed. Director benefits Employee benefits Total Annual Report 2018 2018 $ 139,107 225,471 364,578 2017 $ 308,710 313,979 622,689 51 Accounting policy The fair value of share based payments granted is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options or Performance Rights. A Monte Carlo simulation is used to value Performance Rights. The Monte Carlo calculation simulates the Company’s share price and depending on the hurdle arrives at a value based on the number of Performance Rights that are likely to vest. The employee benefit expense recognised each period takes into account the most recent estimate of the options and Performance Rights. The impact of revision to original estimates, if any, is recognised in the profit or loss with a corresponding adjustment to equity. Key estimate: Share-based payment costs The cost of share-based payments to financiers is measured by reference to the difference between the nominal value and net present value of the finance facility provided. The net present value is determined based upon a market comparable discount rate applicable to similar size companies within the mining sector. NOTE 29 – OTHER ACCOUNTING POLICIES Summary of other significant accounting policies Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, except where the GST incurred 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. Receivables and payables are stated inclusive of the amount of GST receivable or payable, where an invoice has been issued. The net amount of GST recoverable from, or payable to, the taxation authority is included within receivables or payables in the statement of financial position. 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. Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is based on the presumption that the transaction takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market. The principal or most advantageous market must be accessible to, or by, the Company. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest. The fair value measurement of a non-financial asset takes into account the market participant’s ability to generate economic benefits by using the asset at its highest and best use or by selling it to another market participant that would use the asset at its highest and best use. In measuring fair value, the Company uses valuation techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Tax consolidation legislation BCI Minerals Limited and its wholly owned Australian controlled entities have entered into the tax consolidation legislation. On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement which, limits the joint and several liability of the wholly owned entities in the case of a default by the head entity, BCI Minerals Limited. The entities entered into a tax funding agreement under which the wholly owned entities fully compensate BCI Minerals Limited for any current tax payable assumed and are compensated by BCI Minerals Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to BCI Minerals Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly owned entities’ financial statements. The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which where appropriate, 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. The funding amounts are recognised as current intercompany receivables or payables. 52 BCI Minerals Limited New, revised or amending Accounting Standards and Interpretations adopted The following applicable accounting standards, amendment of standards and interpretations have recently been issued but are not yet effective. These standards have not been adopted by the Company as at the financial reporting date. Impact on Company’s financial report The Company has considered this standard and identified there will be minimal impact on the financial statements. Standard title AASB 9 Financial Instruments Application date of the standard Summary Periods beginning on or after 1 January 2018 AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below. a. Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. b. Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the investment. c. Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. d. Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: • The change attributable to changes in credit risk are presented in other comprehensive income • The remaining change is presented in profit or loss If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the change in credit risk are also presented in profit or loss. AASB 15 Revenue from Contracts with Customers Periods beginning on or after 1 January 2018 An entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This means that revenue will be recognised when control of goods or services is transferred, rather than on transfer of risk and rewards as is currently the case under IAS 18 Revenue. The Company has considered this standard and identified there will be no impact on the financial statements. AASB 16 Leases Periods beginning on or after 1 January 2019 If a lessee has significant operating leases outstanding at the date of initial application, right-of-use assets will be recognised for the amount of the unamortised portion of the useful life, and lease liabilities will be recognised at the present value of the outstanding lease payments. This will increase EBITDA as operating leases that were previously expensed will be amortised as a right-of-use asset, and an interest expense on the lease liability. However, there will be an overall reduction in net profit before tax in the early years of a lease because the amortisation and interest charges will exceed the current straight-line expense incurred under AASB 117 Leases. This trend will reverse in the later years. There will be no change to the accounting treatment for short- term leases less than 12 months and leases of low value items, which will continue to be expensed on a straight-line basis. The Company has considered this standard and identified that future contractual arrangements may impact on the financial statements. Current contractual arrangements will not be impacted by the standard. Annual Report 2018 53 INDEPENDENT AUDITOR’S REPORT Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR'S REPORT To the members of BCI Minerals Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of BCI Minerals Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matter Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees 54 BCI Minerals Limited Carrying Value of Intangible Assets Key audit matter How the matter was addressed in our audit At 30 June 2018, we note that the carrying value of We evaluated management’s impairment assessment Intangible Assets is significant to the financial for the Intangible assets by challenging the key statement, as disclosed in note 10. estimates and assumptions used by management. Our An annual impairment test is required for intangible assets not being amortised under the Australian Accounting Standards. The assessment of the carrying value of Intangible Assets requires management to make significant accounting judgements and estimates in producing the discounted cash flow models used to determine whether the assets require impairment. Due the significance of the estimates and assumptions in this assessment we have identified this as a key audit matter. Refer to Note 10 for the detailed disclosures, which include the related accounting policies and the critical accounting judgements and estimates. procedures included, but were not limited to the following: • • • • • • • Analysing management’s key assumptions used in the discounted cash flow models against external data and market information to determine their reasonableness; Challenging the appropriateness of management’s discount rates used in the discounted cash flow models in conjunction with our internal valuation experts; Challenging assumptions around timing of future cash flows; Comparing ore reserve to most recent available reserve statements; Checking the mathematical accuracy of the discounted cash flow model; Performing sensitivity analysis on key assumptions to determine if there would be a significant change to the carrying value of the asset; and Assessed the adequacy of the Group’s disclosures in respect of intangible asset carrying values and impairment assessment assumptions as disclosed in note 10 of the financial report. Annual Report 2018 55 Carrying Value of Mine Properties Key audit matter How the matter was addressed in our audit At 30 June 2018, we note that the carrying value of We evaluated management’s discounted cash flow Mine Properties is significant to the financial model for Iron Valley by challenging the key estimates statement, as disclosed in note 8. and assumptions used by management. Our The assessment of the carrying value of Mine Properties requires management to make significant accounting judgements and estimates in producing the discounted cash flow model used to determine whether the assets require impairment in accordance with Australian Accounting Standards. Due to the significance of estimates and assumptions in this assessment, we have identified this as a key audit matter. Refer to Note 8 for the detailed disclosures, which include the related accounting policies and the critical accounting judgements and estimates. procedures included, but were not limited to the following: • • • • • Analysing management’s key assumptions used in the discounted cash flow model against external data and market consensus information to determine their reasonableness; Challenging the appropriateness of management’s discount rates used in the discounted cash flow model in conjunction with our internal valuation experts; Checking the mathematical accuracy of the discounted cash flow model; Performing sensitivity analysis on significant assumptions to determine if there would be a significant change to the carrying value of the asset; and Assessing the adequacy of the Group’s disclosures in respect of mine property carrying values and impairment assessment assumptions as disclosed in note 8 of the financial report. Other information The directors are responsible for the other information. The other information comprises the information contained in Directors’ report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon, which we obtained prior to the date of this auditor’s report, and the Annual report, which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. 56 BCI Minerals Limited If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the Annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and will request that it is corrected. If it is not corrected, we will seek to have the matter appropriately brought to the attention of users for whom our report is prepared. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: http://www.auasb.gov.au/auditors_files/ar2.pdf This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 9 to 16 of the directors’ report for the year ended 30 June 2018. In our opinion, the Remuneration Report of BCI Minerals Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Annual Report 2018 57 Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit (WA) Pty Ltd Glyn O'Brien Director Perth, 21 August 2018 58 BCI Minerals Limited AUDITOR’S INDEPENDENCE DECLARATION Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia DECLARATION OF INDEPENDENCE BY GLYN O’BRIEN TO THE DIRECTORS OF BCI MINERALS LIMITED As lead auditor of BCI Minerals Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of BCI Minerals Limited and the entities it controlled during the period. Glyn O'Brien Director BDO Audit (WA) Pty Ltd Perth, 21 August 2018 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees Annual Report 2018 59 MINERAL RESOURCES AND ORE RESERVES BCI has a substantial Mineral Resource and Ore Reserves base across its portfolio of operating and development projects in the Pilbara region of Western Australia. The Company’s Mineral Resources and Ore Reserves are summarised in the following tables and further details are provided below. MINERAL RESOURCES Project Iron Valley Kumina Buckland Cut-off % Fe 50 53 50 Total – Hematite Various Mt 197.8 115.2 283.3 596.3 Maitland River – Magnetite 26 1,106.0 Fe % CaFe % 58.1 58.0 56.5 57.3 30.4 62.6 62.6 61.4 62.0 30.8 SiO2 % 5.4 Al2O3 % 3.3 5.7 7.8 6.6 44.0 3.2 2.7 3.0 2.3 ORE RESERVES Project Iron Valley Buckland Total Cut-off % Fe 54 54 54 Mt Fe % CaFe % 95.4 134.3 229.7 58.4 57.6 57.9 63.1 62.6 62.8 SiO2 % 5.0 Al2O3 % 3.1 6.5 5.8 2.4 2.7 P % 0.17 0.10 0.14 0.15 0.06 P % 0.18 0.15 0.16 LOI % 7.2 7.5 8.1 7.7 1.2 LOI % 7.4 8.0 7.8 IRON VALLEY Mineral Resource and Ore Reserve estimates for Iron Valley as at 30 June 2018 are set out below, with a comparison to 30 June 2017 figures. The estimates have been completed by MIN, the operator of the Iron Valley mine. Mineral Resources reduced by 32.2Mt due to mining depletion and geological model updates from recent drilling. Ore Reserves reduced by 17.6Mt during the year, accounting for mining depletion, the revised Mineral Resource model and mine planning re-optimisation. Iron Valley Mineral Resource Estimate (100% BCI, subject to iron ore sale agreement with MIN) Classification Measured – In-situ Measured – Stockpiles Indicated Inferred Total as at 30-Jun-18 Total as at 30-Jun-17 Cut-off % Fe 50 50 50 50 50 50 Mt 86.8 5.2 79.6 26.1 197.8 230.0 Fe % CaFe % 57.9 56.1 58.4 57.8 58.1 58.4 62.8 60.1 62.9 61.3 62.6 62.8 SiO2 % 5.2 Al2O3 % 3.2 8.3 5.2 6.6 5.4 5.2 3.7 3.3 3.9 3.3 3.2 Iron Valley Ore Reserve Estimate (100% BCI, subject to iron ore sale agreement with MIN) Classification Proved – In-situ Proved – Stockpiles Probable – In-situ Total as at 30-Jun-18 Total as at 30-Jun-17 Cut-off % Fe 54 54 54 54 54 Mt 56.6 5.2 33.6 95.4 113.0 Fe % CaFe % 58.4 56.1 58.6 58.4 58.6 63.3 60.1 63.1 63.1 63.3 SiO2 % 4.6 Al2O3 % 3.1 8.3 5.0 5.0 4.8 3.7 3.2 3.1 3.0 P % 0.19 0.14 0.17 0.14 0.17 0.17 P % 0.19 0.14 0.16 0.18 0.18 LOI % 7.8 6.6 7.1 5.6 7.2 7.0 LOI % 7.7 6.6 7.2 7.4 7.3 Notes: • Tonnages are dry metric tonnes and have been rounded. Small difference in totals may exist due to rounding. • CaFe means “calcined Fe” and equals Fe% / (1- LOI%). • Stockpiles have been converted to dry tonnes based on a 7% moisture content. • Stockpiles include 2.1Mt of post-process lump and fines products and 3.1Mt of pre-process ore. 60 BCI Minerals Limited KUMINA BCI acquired Kumina in September 2017 and rapidly completed initial exploration and drilling programmes. A maiden Mineral Resource estimate was completed in June 2018, as set out below. Kumina Mineral Resource Estimate (100% BCI) Classification Measured Indicated Inferred Total as at 30-Jun-18 Total as at 30-Jun-17 Cut-off % Fe - - 53 53 - Mt - - 115.2 115.2 - Fe % CaFe % - - 58.0 58.0 - - - 62.6 62.6 - SiO2 % - Al2O3 % - - 5.7 5.7 - - 3.2 3.2 - P % LOI % - - 0.10 0.10 - - - 7.5 7.5 - Notes: • The Kumina Mineral Resource estimate includes deposits A, E and J. • CaFe means “calcined Fe” and equals Fe% / (1- LOI%). BUCKLAND Mineral Resource and Ore Reserve estimates for Buckland as at 30 June 2018 are set below, with a comparison to 30 June 2017 figures. There were no changes to the Mineral Resource and Ore Reserve estimates during the year. Buckland Mineral Resource Estimate (100% BCI) Deposit Classification Cut-off % Fe Bungaroo South Area Regional Satellite Deposits Measured Indicated Inferred Indicated Inferred Sub-total Measured Indicated Inferred Total as at 30-Jun-18 Total as at 30-Jun-17 50 50 50 50 50 50 50 50 50 50 Buckland Ore Reserve Estimate (100% BCI) Deposit Classification Bungaroo South Area Proved Probable Total as at 30-Jun-18 Total as at 30-Jun-17 Cut-off % Fe 54 54 54 54 Mt 30.9 224.0 3.4 11.1 13.8 30.9 235.1 17.2 283.3 283.3 Mt 23.2 111.1 134.3 134.3 Fe % CaFe % 57.4 56.6 54.7 55.4 54.8 57.4 56.5 54.8 56.5 56.5 62.1 61.6 59.4 59.5 59.9 62.1 61.5 59.8 61.4 61.4 SiO2 % 6.7 Al2O3 % 3.0 7.8 10.2 8.8 7.8 6.7 7.9 8.3 7.8 7.8 2.4 3.0 4.0 4.2 3.0 2.5 4.0 2.7 2.7 Fe % CaFe % 58.3 57.5 57.6 57.6 62.9 62.6 62.6 62.6 SiO2 % 5.8 Al2O3 % 2.9 6.6 6.5 6.5 2.3 2.4 2.4 P % 0.15 0.15 0.13 0.11 0.11 0.15 0.14 0.11 0.14 0.14 P % 0.15 0.15 0.15 0.15 LOI % 7.6 8.1 7.9 6.9 8.6 7.6 8.1 8.4 8.1 8.1 LOI % 7.4 8.1 8.0 8.0 Notes: • Bungaroo South Area is Bungaroo South and Dragon. Regional Satellite Deposits are Rabbit, Rooster and Snake. • Tonnages are dry metric tonnes and have been rounded. Small difference in totals may exist due to rounding. • CaFe means “calcined Fe” and equals Fe% / (1- LOI%). Annual Report 2018 61 MAITLAND RIVER The Mineral Resource estimate for Maitland River as at 30 June 2018 is set out below, with a comparison to 30 June 2017 figures. There was no change to the Mineral Resource estimate during the year. Maitland River Mineral Resource Estimate (100% BCI) Classification Measured Indicated Inferred Total as at 30-Jun-18 Total as at 30-Jun-17 Cut-off % Fe - - 26 26 26 Mt - - 1,106.0 1,106.0 1,106.0 Fe % CaFe % - - 30.4 30.4 30.4 - - 30.8 30.8 30.8 SiO2 % - Al2O3 % - - 44.0 44.0 44.0 - 2.3 2.3 2.3 P % LOI % - - 0.06 0.06 0.06 - - 1.2 1.2 1.2 Notes: • Tonnages are dry metric tonnes and have been rounded. Small difference in totals may exist due to rounding. • CaFe means “calcined Fe” and equals Fe% / (1- LOI%). • The Mineral Resource estimate is for beneficiable feed ore, which requires beneficiation (upgrading). • Indicative Davis Tube Recovery (grind size, P80 25µ) test work produced a beneficiated magnetite concentrate with weight yields ranging from 13-28%. MINERAL RESOURCES AND ORE RESERVES GOVERNANCE BCI’s Mineral Resources and Ore Reserves as at 30 June 2018 are reported in accordance with JORC (2012) guidelines except for the Maitland River Mineral Resource estimate, which is reported in accordance with JORC (2004) guidelines on the basis that the information has not materially changed. In relation to Kumina, Buckland and Maitland River, the Mineral Resource and Ore Reserve estimates are completed by or under the guidance of a suitably qualified BCI or independent Competent Person. The estimates are based on industry standard techniques and standard company practices for public reporting. In relation to Iron Valley, the Mineral Resource and Ore Reserve estimates are completed by or under the guidance of a suitably qualified MIN or independent Competent Person. BCI is satisfied with the procedures MIN has advised it has in place for Mineral Resource and Ore Reserve estimation. Suitably qualified BCI personnel have also reviewed the documentation and are comfortable with the methodologies used by MIN. The Mineral Resources and Ore Reserves statement included in the Annual Report is reviewed and approved by a suitably qualified BCI Competent Person prior to its inclusion. COMPETENT PERSONS STATEMENTS The Mineral Resources and Ore Reserves statement in this report has been approved by Mr Paul Penna who is an employee of BCI Minerals Limited and a Member of the Australian Institute of Geoscientists. Mr Penna consents to the inclusion in this report of the Mineral Resources and Ore Reserves statement in the form and context in which it appears. The information in this report that relates to the Mineral Resource estimate at Iron Valley is based on, and fairly represents, information which has been compiled by Mr Matthew Watson, who is a Member of the Australasian Institute of Mining and Metallurgy and a full time employee of Mineral Resources Limited. Mr Watson has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that is being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Watson consents to the inclusion in this report of the matters based on his information in the form and context in which they appear. The information in this report that relates to the Ore Reserve estimate at Iron Valley is based on, and fairly represents, information which has been compiled by Mr Ross Jaine, who is a Member of the Australasian Institute of Mining and Metallurgy and a full-time employee of Mineral Resources Limited. Mr Jaine has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that is being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Jaine consents to the inclusion in this report of the matters based on his information in the form and context in which they appear. The information in this report that relates to the data that was used to compile the Mineral Resource estimate at Kumina is based on, and fairly represents, information which has been compiled by Mr Ian Shackleton. Mr Shackleton is a Member of the Australian Institute of Geoscientists and was a full-time employee of BCI Minerals Limited at the time the estimate was completed. Mr Shackleton has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that is being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Shackleton consents to the inclusion in this report of the matters based on his information in the form and context in which they appear. 62 BCI Minerals Limited The information in this report that relates to estimation of the Mineral Resource estimate at Kumina is based on, and fairly represents, information which has been compiled by Mr Rodney Brown. Mr Brown is a Member of the Australasian Institute of Mining and Metallurgy and a full-time employee of SRK Consulting. Mr Brown has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that is being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Brown consents to the inclusion in this report of the matters based on his information in the form and context in which they appear. The information in this report that relates to the Mineral Resource estimates at Buckland is based on, and fairly represents, information which has been compiled by Mr Lynn Widenbar, who is a Member of the Australasian Institute of Mining and Metallurgy and a full-time employee of Widenbar and Associates. Mr Widenbar has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that is being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Widenbar consents to the inclusion in this report of the matters based on his information in the form and context in which they appear. The information in this report that relates to the Ore Reserve estimate at Buckland is based on, and fairly represents, information which has been compiled by Mr Alan G. Cooper, who was a Member of the Australasian Institute of Mining and Metallurgy and was a full-time employee of Snowden Mining Industry Consultants Pty Ltd at the time the estimate was completed. Mr Cooper had sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that is 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’. The information in this report that relates to the Mineral Resource estimate at Maitland River is based on, and fairly represents, information which has been compiled by Mr Lynn Widenbar, who is a Member of the Australasian Institute of Mining and Metallurgy and a full-time employee of Widenbar and Associates. Mr Widenbar has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that is being undertaken to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Widenbar consents to the inclusion in this report of the matters based on his information in the form and context in which they appear. It has been not been updated to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last reported. Annual Report 2018 63 SHAREHOLDER INFORMATION (AS AT 30 SEPTEMBER 2018) SUBSTANTIAL SHAREHOLDERS Substantial shareholders as disclosed in substantial notices given to the Company are as follows: Shareholder Wroxby Pty Ltd DISTRIBUTION OF SHAREHOLDINGS Shares held % of issued capital 109,578,131 27.56 Size of shareholding Number of holders Number of shares % of issued capital 1-1,000 1,001-5,000 5,001-10,000 10,001 – 100,000 100,001 and over Total 1,565 2,252 1,045 1,923 399 7,184 729,904 6,334,093 8,179,195 67,277,762 315,08,956 0.18 1.59 2.06 16.92 79.25 397,608,910 100.00 UNMARKETABLE PARCELS There were 3,216 members holding less than a marketable parcel of shares in the Company at $0.13 per unit. TWENTY LARGEST SHAREHOLDERS # Shareholder 1 Wroxby Pty Ltd 2 3 Citicorp Nominees Pty Limited J P Morgan Nominees Australia Limited 4 National Nominees Limited 5 Wroxby Pty Ltd 6 One Managed Invt Funds Ltd7 Mineralogy Pty Ltd 8 Mr Alwyn Petrus Vorster 9 Mr Benny Xu Zhang 10 One Managed Invt Funds Ltd <1 A/C> 11 HSBC Custody Nominees (Australia) Limited 12 Pacific L Pty Ltd 13 Foster Stockbroking Nominees Pty Ltd 14 Super Smart Investments Pty Ltd 15 Ms Karen Anne Davies + Mr Bruce Donald Maclean 16 Minton Ltd 17 Mr Richard Cheng Shih Koo + Ms Cindy Bee Har Koo 18 Mr Brian Maxwell Durham + Mrs Ann Marie Durham 19 Mr Timothy Francis Buckett 20 Mr George Chien Hsun Lu + Mrs Jenny Chin Pao Lu Shares held % of issued capital 102,114,132 17,983,856 15,781,226 8,877,177 7,463,999 7,195,711 6,090,000 3,985,645 3,037,461 3,000,000 2,776,364 2,741,850 2,644,908 2,300,000 2,183,912 2,102,673 2,061,753 2,000,000 1,900,000 1,785,000 25.68 4.52 3.97 2.23 1.88 1.81 1.53 1.00 0.76 0.75 0.70 0.69 0.67 0.58 0.55 0.53 0.52 0.50 0.48 0.45 Total 198,025,667 49.80 VOTING RIGHTS All issued shares carry voting rights on a one for one basis. Unlisted Securities Security type Performance rights Class 1 Number Number of holders 10,000,000 12 64 BCI Minerals Limited CORPORATE DIRECTORY BCI MINERALS LIMITED | ABN 21 120 646 924 Registered Office and Principal Place of Business Share Registry Level 1, 15 Rheola Street West Perth, Western Australia 6005, Australia Telephone: Facsimile: Website: Email: +61 (08) 6311 3400 +61 (08) 6311 3449 www.bciminerals.com.au info@bciminerals.com.au Investors seeking information about their shareholdings should contact the company’s share registry: Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace Perth, Western Australia 6000 Postal Address GPO Box 2811 Perth, Western Australia 6001 Executive Directors Alwyn Vorster – Managing Director Non-executive Directors Brian O’Donnell – Chairman Michael Blakiston Jenny Bloom Martin Bryant Andrew Haslam Company Secretary Susan Hunter Postal address: GPO Box 2975, Melbourne Victoria 3001 Telephone: 1300 850 505 (within Australia) +61 3 9415 4000 (outside Australia) (03) 9473 2500 (within Australia) +61 3 9473 2500 (outside Australia) web.queries@computershare.com.au www.investorcentre.com/contact Facsimile: Email: Website: The share registry can assist with queries on share transfers, dividend payments and changes of name, address or bank account details. For security reasons you will need your Security Reference Number (SRN) or Holder Identification Number (HIN) when communicating with the share registry. Australian Securities Exchange Listing BCI Minerals Limited securities are listed on the Australian Securities Exchange (ASX) under the code BCI. Annual General Meeting The 2018 Annual General Meeting of BCI Minerals Limited will be held at 2pm (AWST) on Thursday 22 November 2018 at the offices of BDO, 38 Station Street, Subiaco, Western Australia. Details of the business of the meeting will be provided in the Notice of Meeting. Copies of the Chairman’s and Managing Director’s speeches will be available on the Company’s website. Financial Calendar* September 2018 quarter report: Annual General Meeting: Half-year end: 25 October 2018 22 November 2018 31 December 2018 *Timing of events is subject to change Annual Report 2018 65 Level 1, 15 Rheola Street, West Perth, WA 6005, Australia GPO Box 2811, Perth, WA 6001 Telephone: +61 (08) 6311 3400 Facsimile: +61 (08) 6311 3449 Email: info@bciminerals.com.au www.bciminerals.com.au ABN 21 120 646 924