A Annual Report 2013 ANNUAL REPORT 2013 STANMORE COAL B CORPORATE INFORMATION DIRECTORS Neville Sneddon Nicholas Jorss Andrew Martin Stephen Bizzell Viv Forbes Chris McAuliffe JOINT COMPANY SECRETARIES Duncan Cornish and Doug McAlpine REGISTERED OFFICE AND PRINCIPAL BUSINESS OFFICE Level 11, 10 Market Street Brisbane QLD 4000 Phone: +61 7 3238 1000 Fax: +61 7 3238 1098 COUNTRY OF INCORPORATION Australia SOLICITORS SHARE REGISTRY AUDITORS STOCK EXCHANGE LISTING Corrs Chambers Westgarth 1 Eagle St Brisbane QLD 4000 Phone: +61 7 3228 9333 Fax: +61 7 3228 9444 Computershare Investor Services 117 Victoria Street West End QLD 4101 Phone: 1300 55 22 70 Fax: +61 7 3229 9860 BDO Audit Pty Ltd Level 10, 12 Creek Street Brisbane QLD 4000 Phone: +61 7 3237 5999 Fax: +61 7 3221 9227 Australian Securities Exchange Ltd ASX Code: SMR INTERNET ADDRESS www.stanmorecoal.com.au AUSTRALIAN BUSINESS NUMBER ABN 27 131 920 968 1 CONTENTS 2 Chairman’s Letter to Shareholders 4 Company Snapshot 6 Positive Prospects 7 Seizing Opportunities 8 Directors’ Report 53 Financial Report 19 Project Summaries 54 Shareholder Information 38 Remuneration Report 57 Interests in Tenements 52 Auditor’s Independence Declaration 58 Corporate Governance Statement 63 Consolidated Statement of Profit or Loss and Other Comprehensive Income 64 65 Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity 66 Consolidated Statement of Cash Flows 67 Notes to the Financial Statements 101 Declaration by Directors 102 Independent Auditor’s Report 104 Notes ANNUAL REPORT 2013 STANMORE COAL 2 CHAIRMAN’S LETTER TO SHAREHOLDERS Dear Shareholders, Outlook The twelve months since I last reported to you have been turbulent for commodity markets and the junior coal sector. In response to weakening commodity prices, institutional investment support for coal exploration and development companies has contracted and the general sentiment toward commodity based investments has softened dramatically. As a result, the significant progress the Company has made on its two flagship assets, Belview and The Range, has gone largely unrecognised. Commodity markets are inherently cyclical in nature and the Board believes that the Company’s diversified portfolio of projects and its large resource base puts it in a strong position as coal markets recover. Stanmore Coal is well positioned to manage short term market volatility as it has substantial cash reserves, a small but highly skilled management team and no take or pay liabilities. Globally, high quality, low cost coal projects are becoming increasingly difficult to identify and develop. Stanmore Coal is in the fortuitous position of owning two such projects. During the year, the Company continued to improve its Belview Coking Coal Project (“Belview”) by expanding the Project’s JORC Resource base and completing further studies and drilling. Belview has the hallmarks of a world class coking coal project with excellent coal quality characteristics and a competitive cost structure. Over the coming year, management will undertake further work as we progress towards production, with the aim of further reducing capital and operating costs and undertaking necessary studies to further define and de-risk the project. The feasibility study completed on The Range Thermal Coal Project (“The Range”) during the year confirmed that The Range is an attractive five million tonnes per annum (Mtpa) high quality, low cost, open cut thermal coal project. It is geologically benign with low strip ratios suitable for open cut mining operation. No further material expenditure is required on the project until there is certainty around the infrastructure solution for the Surat Basin. There is currently excess port capacity in most Queensland export facilities as a consequence of recent coal project deferrals. We anticipate that in the medium term, port capacity will again become constrained and consequently will be a valuable asset. Stanmore Coal retains its capacity entitlements in Wiggins Island Coal Export Terminal Expansion 1 (WEXP1) and is evaluating opportunities to secure additional low cost port capacity whilst it is available. Stanmore Coal believes that the long term fundamentals of both the coking and thermal coal markets are robust, based on an expectation of improved long term demand for high quality coal in emerging economies including India, China and South East Asia. The Board’s view is that the operating environment will improve as thermal coal prices stabilise in the medium term and excess capacity is eliminated through the combination of continued Asian demand growth and the rationalisation of excess supply. We have also recently observed significant improvement to the coking coal price. Depressed short term market conditions present challenges but also opportunities as other organisations re-evaluate their portfolios and assets are rationalised. We aim to continue to strengthen the Company through any continued downturn by selectively adding to our asset base where acquisitions are logical for us and highly value accretive. The Company is also conscious of the need to deliver its projects with competitive cost structures that will be profitable during periods of volatility in commodity prices. In light of weak market conditions Stanmore Coal has commenced a capital review exercise on both Belview and The Range with the objective of achieving more accurate capital pricing and reducing the project capital cost. At Stanmore Coal, conducting our exploration and development activities within a safe working environment for the Company’s employees and other stakeholders is of utmost importance. I’m pleased to say that the Company’s lost time injury frequency rate for the year was nil. The Company operates with a small, highly skilled group of experienced executives who are focussed on developing the Company’s assets and getting to production. The Board thanks the management team and staff for their loyalty and hard work during a difficult twelve months. We also thank the shareholders of Stanmore Coal for their continued support and encourage them to stay with the Company as it navigates difficult market conditions in the short term with the expectation of emerging as a stronger, better business. Neville Sneddon Chairman STANMORE COAL ANNUAL REPORT 2013 ANNUAL REPORT 2013 STANMORE COAL 3 4 STANMORE COAL ANNUAL REPORT 2013 COMPANY SNAPSHOT Key financials Market capitalisation $30.2m as at 18 October 2013 Cash position $25.9m as at 30 June 2013 Company debt $4m as at 30 June 2013 Share ownership structure Institutions Private holders 21% 20% 22% Board and management 37% Sprint Capital Resources Project Coal type JORC marketable coal reserve1,2 JORC recoverable coal reserve1,2 JORC measured resource1 JORC indicated resource1 JORC inferred resource1 Total JORC resource1 The Range Thermal 94.2 117.5 18.0 Mackenzie Coking Belview Coking Tennyson Thermal/ Coking Clifford Thermal - - - - - - - - - - - - 187.0 25.7 - - - 82.0 117.5 322.0 161.0 287.0 143.2 322.0 161.0 - - Totals 94.2 117.5 18.0 212.7 682.5 913.2 Additional exploration target3 low 45 - 204 65 130 444 high 80 - 306 120 195 701 6 STANMORE COAL ANNUAL REPORT 2013 POSITIVE PROSPECTS Despite difficult market conditions, Stanmore Coal remains positive about its prospects, with the assets, the resources and the people to capitalise on opportunities as coal markets recover. Located in Queensland’s premier coal basins Attractive pipeline of Queensland coal projects Queensland’s Bowen and Surat Basins are major suppliers of some of the world’s best coking, PCI and thermal coal. Stanmore Coal is maintaining a strategy of focusing on opportunities for growth in this region. Stanmore Coal’s two headline projects are Belview, a deposit of high quality underground coking coal on an existing rail line, and The Range, which is at feasibility stage for an open- cut 5 Mtpa (product) export thermal coal mine. The Company owns additional tenements prospective for thermal, PCI and coking deposits in the Bowen and Surat basins. On the path to becoming a significant coal producer Strong Board and management team The first coking coal exports are planned from Belview in 2017, and The Range is one of the most advanced northern Surat projects, with the feasibility study and EIS completed. With over 150 years of combined coal experience and significant expertise in developing and operating Queensland coal mines and infrastructure, Stanmore Coal’s executive team are well positioned to take the Company forward. Infrastructure development parallels proposed mine development Well funded with a strong, supportive cornerstone investor Stanmore Coal has secured 5 Mtpa of capacity in the planned WICET Expansion 1 for The Range, and rail and port capacity for Belview is expected to be available in line with the development timeline. All assets are located within close proximity to existing or proposed rail lines and the Company has no “take or pay” exposure. A cash position of A$25.9M allows the Company to selectively continue project development. A low overhead structure keeps the Company cost-efficient and the Co-Operation Agreement with Sprint Capital provides support for future growth opportunities. ANNUAL REPORT 2013 STANMORE COAL 7 SEIZING OPPORTUNITIES To steer the Company through the current downturn in the coal market and ensure Stanmore Coal is well positioned for future growth, the Board’s strategy for the next 12 months is focused on cost-minimistion and high-value expansion. Deploying capital judiciously, where long term value can be created Undertaking value engineering for key projects The Company intends to limit drilling activity to that required for development of key projects, and progress studies to a point that demonstrates project viability to attract high quality joint venture partners. The aim for the coming financial year is to engineer substantial capital costs out of both The Range and Belview. Stanmore Coal will work with key contractors and suppliers to reduce operating and capital costs, enhance the Company’s ability to finance its projects and attract the right joint venture partners. Selectively pursuing low capital, high-value expansion opportunities Minimising overhead costs Disciplined expansion of existing projects will further enhance project economics via farm-in and joint venture arrangements. An increasing number of late stage development assets are becoming available, which could attract new capital. While Stanmore Coal already maintains a lean operation with low overhead costs, the Company will continue to monitor these costs, as well as maintaining a core team to deliver strategy and retain the ability to respond quickly when market conditions improve. 8 STANMORE COAL ANNUAL REPORT 2013 DIRECTORS’ REPORT Your Directors present their report for the year ended 30 June 2013. The following persons were Directors of Stanmore Coal Limited during the financial year and up to the date of this report, unless otherwise stated: Nicholas Jorss BE (Hons) Civil, MBA, GDip App Fin (Sec Inst) Neville Sneddon B. Eng (Mining) (Hons), M. Eng, MAusIMM, Grad AICD Managing Director Non-Executive Chairman Nick Jorss is a founding Director and shareholder of Stanmore Coal and has over 20 years experience in investment banking, civil engineering, corporate finance and project management. In his roles in investment banking he has been involved in leading advisory mandates with corporate, government and private equity clients across industry sectors ranging from resources to infrastructure. Nick was previously a Director of Pacific Road Corporate Finance and was an engineer with Baulderstone Hornibrook prior to that, where he delivered infrastructure and resource projects over a period of approximately eight years. Nick is a founding shareholder and Director of St. Lucia Resources International, Stanmore Coal and Kurilpa Uranium and Wingate Capital. He was previously a Director of Vantage Private Equity Growth, Vantage Asset Management and WICET Holdings Pty Ltd. During the past three years Nick has not served as a Director of any other ASX listed companies. Nick holds a Bachelor with Honours in Civil Engineering, a Masters of Business Administration and a Graduate Diploma of Applied Finance and Investment.. A mining engineer with over 40 years experience in most facets of the Queensland and NSW resource sectors, Neville Sneddon brings substantial Board and industry knowledge to Stanmore Coal. He has developed and operated both underground and open cut mines working for Coal & Allied in the Hunter Valley and from 1997 worked in a senior role in the NSW Mines Inspectorate, covering operations in all forms of mining in the state. Moving to Queensland in 1999, Neville accepted the position of Chief Operating Officer with Shell Coal which was acquired by Anglo American’s Australian coal operations the following year. Leaving as CEO in 2007, he held several Board positions with mining and infrastructure companies including Chairman of the operating company at Dalrymple Bay Coal Terminal near Mackay and Director of Port Waratah Coal Services, a major coal export facility at Newcastle. Neville has also been a member of the Boards of the Queensland, NSW and National Mining Councils. His expertise has been sought by several government committees such as the NSW Mine Subsidence Board, the NSW Mines Rescue Board, Queensland Ministerial Coal Mine Safety Advisory Committee and the joint federal/state advisory committee which is developing nationally consistent mining safety legislation. Neville is presently on the Board of Envirogen, Solid Energy Limited in New Zealand and is the Chairman of CSM Energy. Neville is Chairman of the Remuneration Committee. During the past three years Neville has also served as a Director of the following ASX listed companies: • Centennial Coal Company Limited (from 19 February 2008 to 17 February 2010) ANNUAL REPORT 2013 STANMORE COAL 9 Andrew Martin B.Ec (Hons) Non-Executive Director Stephen Bizzell BCom MAICD Non-Executive Director An investment banker with Deutsche Bank, Andrew Martin offers more than 15 years financial, advisory and corporate experience within the infrastructure, utilities and natural resources industries. In recent years, Andrew has advised on transactions within the power generation, utilities, gas, water, road, rail and ports sectors. Holding a Bachelor of Economics (Honours) from the University of Sydney, Andrew is a founding Director and shareholder in St Lucia Resources International, Stanmore Coal and Kurilpa Uranium, which was acquired by Renaissance Uranium Ltd before its listing. Andrew is a member of the Audit and Risk Management and Remuneration Committees. During the past three years Andrew has also served as a Director of the following ASX listed companies: • Renaissance Uranium Ltd* Stephen Bizzell is Chairman of boutique corporate advisory and funds management group Bizzell Capital Partners. Stephen spent his early career in the corporate finance division of Ernst & Young and the corporate tax division of Coopers & Lybrand and qualified as a chartered accountant. He is highly experienced in the fields of corporate restructuring, debt and equity financing, and mergers and acquisitions, and has 20 years corporate finance and public company management experience in the resources sector in Australia and Canada. Stephen was previously an Executive Director of Arrow Energy Ltd from 1999 until its acquisition in 2010 by Royal Dutch Shell and PetroChina for $3.5 billion. Stephen was instrumental in Arrow’s corporate and commercial success and its growth from a junior explorer to a large integrated energy company. Stephen is the Chairman of the Audit and Risk Management Committee and a member of the Remuneration Committee. During the year ended 30 June 2013, Stephen was appointed to the Board of Queensland Treasury Corporation. During the past three years Stephen has also served as a Director of the following ASX listed companies: • Apollo Gas Ltd (until takeover in 2011) • Armour Energy Limited* • Arrow Energy Ltd (until takeover in 2010) • Bow Energy Ltd (until takeover in 2012) • Dart Energy Ltd* • Diversa Ltd* • Hot Rock Ltd* • Renaissance Uranium Ltd* • Laneway Resources Limited (formerly Renison Consolidated Mines NL)* • Titan Energy Services Limited* *denotes current ASX listed directorship 10 STANMORE COAL ANNUAL REPORT 2013 Viv Forbes BScApp (Geol), FAusIMM, FSIA Chris McAuliffe LLB (Hons), MBA Non-Executive Director Non-Executive Director (commenced 17 July 2012) Viv Forbes is a Bowen Basin pioneer with more than 40 years coal industry experience including government service, field exploration, mine valuation and acquisition, financing, development, operations and successful asset sales. Viv has been involved in various capacities at Burton Coal, Dalrymple Bay Coal Terminal, South Blackwater Coal Mine, Tahmoor Coal Mine, Newlands/ Collinsville Coal Mines, MIM, Utah Goonyella/Saraji and Gold Fields. He has a degree in Applied Science Geology and is a Fellow of the Australasian Institute of Mining and Metallurgy. Chris McAuliffe is co-founder and Managing Director of Sprint Capital, the Hong Kong based private equity investment management group with whom Stanmore recently signed a funding agreement. Chris has more than 20 years experience in private equity and investment banking with significant relationships across Asia. Prior to co-founding Sprint Capital in 2008, Chris was a Managing Director and co-head of Asia Pacific Industrials Group at Citigroup in Hong Kong, prior to which he was a Managing Director and head of Asia Industrials and Services Group at Credit Suisse in Singapore. During the past three years Viv has not served as a Director of any other ASX listed companies. During the past three years Chris has also served as a Director of the following listed companies: Viv is a member of the Remuneration Committee and stood down from the Audit & Risk Committee on 6 March 2013. • Asian Bamboo AG* (Germany) • Xplorer PLC* (London) • Chaswood Resources Holdings Limited * (SGX) Chris is a member of the Audit & Risk Committee (commenced 6 March 2013). ANNUAL REPORT 2013 STANMORE COAL 11 Doug McAlpine B.Comm, CA CFO, Joint Company Secretary Duncan Cornish B.Bus (Acc), CA Joint Company Secretary Doug McAlpine joined the Company as Chief Financial Officer on 19 September 2012. On 19 December 2012 Doug was appointed Joint Company Secretary and holds both positions up to the date of this report. Doug is an experienced finance executive with 15 years of accounting and finance experience, 10 of those as CFO of public companies in Australia. In his previous role as Chief Financial Officer of Watpac Limited, he played a key role in the establishment and growth of the company’s contact mining services business. Prior to that, he held the roles of Chief Financial Officer and General Manager of Investments at Ariadne Limited, a listed property and Investment Company. Doug has had significant exposure to the coal industry in Queensland, having previously provided external audit and consulting services to BHP Billiton and Rio Tinto during his time in the professional services sector. Doug is an accountant who commenced his career providing external audit and consulting services with Arthur Andersen and Ernst & Young. Duncan Cornish was the Joint Company Secretary of Stanmore Coal Limited from 19 December 2011 up to the date of this report. Duncan is an accomplished and highly regarded corporate administrator and manager. He has many years of experience in pivotal management roles in capital raisings and stock exchange listings for numerous companies on the ASX, AIM Market of the London Stock Exchange and the Toronto Stock Exchange. Highly skilled in the areas of company financial reporting, company regulatory, secretarial and governance areas, business acquisition and disposal due diligence, he has worked with Ernst & Young and PricewaterhouseCoopers both in Australia and the UK. Duncan is currently Company Secretary and CFO of other listed companies on the ASX and TSX-V where he has assisted in their listing and capital raising. He is supported by a small experienced team of accountants and administrators. *denotes current ASX listed directorship 12 Directors’ meetings The number of meetings of Directors (including meetings of committees of Directors) held during the year and the number of meetings attended by each Director was as follows: Board Audit & Risk Management Committee Number of meetings held while in office Meetings attended Number of meetings held while in office Meetings attended Number of meetings held while in office Remuneration Committee Meetings attended Neville Sneddon Nicholas Jorss Andrew Martin Stephen Bizzell Viv Forbes Chris McAuliffe* 11 11 11 11 11 11 11 11 11 11 11 10 n/a n/a 2 2 1 1 n/a n/a 2 2 1 1 1 n/a 1 1 1 1 1 n/a 1 1 1 1 *Chris McAuliffe was appointed to the Board on 17 July 2012. Interests in shares and options As at the date of this report, the interests of the Directors in the shares and options of Stanmore Coal Limited are shown in the table below: Neville Sneddon Nicholas Jorss Andrew Martin Stephen Bizzell Viv Forbes Chris McAuliffe Ordinary Shares Unlisted Options $0.19 @ 31/12/13 Unlisted Options $0.15 @ 16/1/14 300,000 32,163,375* 31,700,270* 7,372,514 2,088,270 - - - - 2,000,000 - - - - - - 525,000 - *31,700,270 shares are held by St. Lucia Resources International Pty Ltd of which both Nicholas Jorss and Andrew Martin have interests in trusts which each own > 20% and are both directors. Principal activities The principal activities of Stanmore Coal Limited and its subsidiaries (“the Company”, “the Group” or “the Consolidated Entity”) during the financial year were the identification and development of export quality thermal, coking and PCI coal deposits within the prime coal bearing regions of Eastern Australia. STANMORE COAL ANNUAL REPORT 2013 13 OPERATING AND FINANCIAL REVIEW The Board of Directors and management of Stanmore Coal have worked persistently toward the goal of building a substantial coal company throughout the 2013 financial year. Company highlights for the year include: Company’s Projects and to prudently expand the business within an environment of realistic asset prices. Stanmore Coal’s strong future is underpinned by: • significantly increasing the Company’s resource base from 498.2 Mt to 913.2 Mt post year end; • its diversified portfolio of high quality coking and export thermal coal projects moving towards production; • enhancing the Project economics of the Belview Coking Coal Project via the addition of an adjacent tenement containing large volumes of shallower coal; and • finalising a feasibility study for The Range Thermal Coal Project. Whilst these are significant milestones, they have occurred in a year where downward pressure on coal prices and negative investor sentiment toward junior resources companies has meant they have failed to translate into positive movement in the Company’s share price. Notwithstanding, the Board of Directors and management are positive about the Company’s prospects. Stanmore Coal believes that the long term fundamentals of both the coking and thermal coal markets are robust, based on an expectation of improved long term demand for high quality coal in emerging economies including India, China and South East Asia. The Company’s diversified portfolio of development and exploration projects puts it in a strong position to benefit as coal markets recover. The current downturn in the commodity cycle presents an excellent opportunity to reduce the capital and operating costs of the • a large and valuable resource and reserve base – 94 Mt of Marketable Reserves; – 913 Mt of JORC Resources1; and – additional 444–701 Mt of currently identified Exploration Targets2,3; • a strong closing cash position at 30 June 2013 of $24 million; and • no take or pay liabilities for rail or port access. Safety The Group undertook approximately 30,000 hours of drilling and exploration activity directly and through its contractors during the 12 month period and reported no lost time injuries. Whilst an excellent safety performance, the Group continues to develop and enhance its occupational health and safety management systems to ensure it creates a culture where health and safety risks are identified and resolved in a timely manner and the potential for harm to employees and other stakeholders is minimised. Resources, reserves and exploration targets At the date of this report the Company has the following Reserves, Resources and Exploration Targets: Project Coal type JORC marketable coal reserve1,2 JORC recoverable coal reserve1,2 JORC measured resource1 JORC indicated resource1 JORC inferred resource1 Total JORC resource1 The Range Thermal 94.2 117.5 18.0 Mackenzie Coking Belview Coking Tennyson Clifford Totals Thermal/ Coking Thermal - - - - - - - - - - - - 187.0 25.7 - - - 82.0 117.5 322.0 161.0 287.0 143.2 322.0 161.0 - - 94.2 117.5 18.0 212.7 682.5 913.2 Additional exploration target3 low 45 - 204 65 130 444 high 80 - 306 120 195 701 ANNUAL REPORT 2013 STANMORE COAL 14 The Company’s total JORC Resource position increased by 415 Mt compared with the prior year as a result of the following initiatives: • 161 Mt initial JORC Inferred Resource established for the Tennyson Project as a result of the 18 hole drilling program completed in October 2012; and • 227 Mt increase in JORC Inferred Resources for the Belview Project as a result of the five hole drilling program completed in June 2013; • 27 Mt increase in JORC Resources (18 Mt Measured, 3 Mt Indicated and 6 Mt Inferred) for the Range Project as a result of further refinement to the geological model as part of completing the bankable feasibility study for the project. Financial performance and financial position For the year ended 30 June 2013, the accounting loss for the Company after the recognition of income tax incentives received and the provision for future income tax liabilities was $5 million (2012: loss of $7.7 million). $ mill Revenue and other income Employee benefits expenses Finance costs Legal expenses Administration and consulting expenses Other expenses Impairment adjustments Profit/(loss) before income tax benefit/(expense) Income tax benefit/(expense) Profit/(loss) after income tax expense 2013 1.7 (3.4) (1.3) (0.7) (1.4) (1.3) (0.8) (7.2) 2.2 (5.0) 2012 0.9 (3.1) (1.4) (0.6) (1.5) (2.0) - (7.7) - (7.7) The Group’s profit result includes recognition of the following key items of revenue and expense: • a $1 million non-recurring mark-to-market gain on financial liabilities associated with financing arrangements provided by Credit Suisse; • an impairment adjustment of $0.8 million required under Australian Accounting Standards against the carrying value of investment loans to Wiggins Island Coal Export Terminal (“WICET”) as part of the Company’s commitments to finance expansion to the terminal beyond the current WEXP1 expansion project. • $2.2 million of research and development tax incentives recognised as a credit to income tax expense; • $0.9 million of amortisation expense associated with the Company’s share based compensation arrangements; and After adjusting for non-cash items and movements in net working capital, the Company delivered a cash operating loss of $2.8 million, a significant improvement on the prior year. $ mill Accounting profit/(loss) after income tax expense Mark-to-market gain on financial instruments Amortisation of share based payments Asset impairment adjustments Net working capital adjustments Operating cash-flow 2013 (5.0) (1.0) 0.9 0.8 1.5 (2.8) 2012 (7.7) - 1.2 - 2.3 (4.2) STANMORE COAL ANNUAL REPORT 2013 15 During the year, the Company raised capital of $23.3 million through the issue of ordinary shares and convertible notes to Sprint Capital Partners. These amounts relate to the aggregate $36 million deal agreed with Sprint Capital Partners in June 2012, with the second portion of funds received during FY13 pursuant to shareholder approval received in October 2012. The Company invested $10.8 million in further exploratory drilling and Project feasibility studies, $5.1 million to expand the tenement area of the Belview Coking Coal Project, $3.1 million in early works and studies as part of the Company’s commitments to WEXP1 and $1.1 million in guarantees. $ mill Net cash at beginning of year Net cash from operating activities Net cash from investing activities Net cash from financing activities Net increase/(decrease) in cash held Net cash at end of year 2013 24.0 (2.8) (20.1) 23.3 0.4 24.4 2012 18.2 (4.2) (28.3) 38.3 5.8 24.0 The Group ended the year in a strong financial position with gross assets of $90 million including $24.4 million of available cash. The Group has a strong current ratio and total net assets of $75 million at 30 June 2013. Other than operating trade payables, at 30 June 2013 the Group had senior debt obligations of $4 million and non-interest bearing convertible notes of $9 million. The senior debt was repaid in full from cash reserves on 23 July 2013. Convertible notes can be repaid or converted into ordinary equity at the Company’s election from 27 June 2014. Operational highlights Expansion of Belview Underground Coking Coal Project The acquisition in October 2012 of EPC 1186 for $5.1 million plus 5.7 million shares has resulted in significant improvement to potential economics of the Belview Project. Concept mining studies completed during the year confirm that the larger, shallower resource base has reduced both operating costs and capital intensity. Relocation of the underground access point to capitalise on shallower coal in the north of the Project area also means it is now located immediately adjacent to existing rail infrastructure on the Blackwater railway line. Post year end the Company upgraded the Project’s JORC Inferred Resource to 322 Mt based on drilling activities completed in June 2013 and has commenced a capital review exercise with the objective of achieving more accurate pricing and reducing Project capital intensity. Completion of The Range Feasibility Study A Project Feasibility Study (bankable standard excluding infrastructure) was completed in April 2013 which confirmed that The Range Project is an attractive 5 Mtpa high quality, open cut thermal coal Project ready for execution upon the delivery of the Surat Basin Rail. State Government environmental approval for the Project has been obtained and we expect that the Mining Lease will be ready for grant by 2014. The Study demonstrated positive economics under both owner- operator and contractor cases. Extensive geological evaluation and testing has been completed with 330 drill holes in the deposit and both the regional and Project specific geology is well understood. The Project is a geologically benign, low strip, open cut mining operation. Similar to the Belview Project, the Company has commenced a capital review exercise with the objective of reducing Project capital intensity. No further material expenditure is required on the Project until there is certainty around the infrastructure solution for the Surat Basin. Extension of thermal coal footprint in the Surat Basin The Company completed the acquisition of EPC 1274 and 1276 in the Surat Basin during the year, through exchange of tenements which required no cash or equity consideration. The new tenements significantly increased the Company’s potential resource base in the Surat Basin, with EPC 1274 and 1276 covering a combined area of 1,371km2. The Company established an initial exploration target2 of 130–195 Mt and commenced a drilling program during the period to test the primary targets. ANNUAL REPORT 2013 STANMORE COAL 16 Lilyvale – establishment of early stage coking coal opportunity Stanmore Coal completed the acquisition of EPC 2157 which doubled the Lilyvale Project area, for total consideration of A$125,000. In conjunction with Cape Coal, the Company has now conducted a desktop review of the Lilyvale Project and identified the German Creek (or Lilyvale) seam as potentially amenable to underground extraction based on depth and estimated seam thickness. The Company is looking to expand the Project resource base and then intends to undertake further concept studies to confirm the geological and economic viability of the resource. The geology of the Project and surrounding areas is well understood and not expected to be geologically complex. Adjacent underground mines at Kestrel (Rio Tinto) and Gregory Crinum (BHP Mitsubishi Alliance) produce a low ash, high volatile hard coking coal from the German Creek seam. Capital management In June 2012, the Company executed a subscription and cooperation agreement with Greatgroup Investments Limited, an investment vehicle managed by Sprint Capital, to provide $36 million of capital to the Company. The funding package provided funds to assist the Company with satisfying its funding obligations for WEXP1 and progress its portfolio of development projects. The funding package consisted of a $27 million placement of 40 million shares at $0.675 per share and a $9 million placement of zero-coupon notes which are convertible into 13.4 million shares at $0.675 per share. 19.2 million shares were placed to Greatgroup Investments prior to 30 June 2012 with the remainder subject to obtaining shareholder approval. Shareholder approval for the balance of the funding package was obtained in October 2012, resulting in the issue of a further 20.8 million shares and 13.4 million convertible notes to Sprint Capital. Cash proceeds of $23 million were received upon allotment of these securities. At 30 June 2013 Sprint Capital now holds shares amounting to just under 20% of the Company’s issued share capital, and notes which upon conversion after two years could increase Sprint Capital’s shareholding in the Company by up to 5%, to an aggregate shareholding of up to 25% based on issued share capital after the current raising. Shareholders also approved Sprint Capital receiving anti-dilution options to subscribe for new shares and notes based on a fixed number of Board and management options which were outstanding and in-the-money as of the date of capital raising transaction, and on the exercise (at any time) of the warrants granted pursuant to the $25m executed Credit Suisse debt facility. As a result of a revised early works expenditure profile in respect of WEXP1, the Company was required to contribute less capital to that Project than originally planned during the year ended 30 June 2013. As a consequence, Stanmore Coal was not required to draw on the senior debt facility established with Credit Suisse in the previous year. Post 30 June 2013, Stanmore Coal renegotiated its ongoing financial obligations to WEXP1 and concluded that it could satisfy its ongoing funding obligations from existing cash reserves. On this basis, the Company repaid the Credit Suisse loan facility on 23 July 2013 which had an outstanding net balance at the time of $3.2 million. Credit Suisse has removed their charges over the Company’s assets, however the options (exercisable at 51.8 cents) issued to Credit Suisse as part of the facility fee structure remain in place. Rail and port infrastructure Prior to 30 June 2012, Stanmore Coal was one of four coal companies selected to execute a Capacity Commitment Deed (CCD) for WEXP1 which provides it with 5 Mtpa of port capacity for The Range Project. The signing of CCDs represented a significant commitment by the coal industry to the development of the 32.2 Mtpa WEXP1 port facility. However, due to deteriorating coal market conditions experienced during the year ended 30 June 2013, the early works expenditure profile for WEXP1 was decelerated and the target date for achieving financial close for that expansion stage was deferred. Post 30 June 2013, Stanmore Coal has negotiated a one year extension to its capacity entitlements in WEXP1 and a material reduction to its financial commitments over that period. During the coming year, the Company will work with WICET management to progress WEXP1 toward financial close and also protect its rights to capacity in future expansion stages in the port based on the material financial commitment which the Company has made to date. The Range Project is one of the most advanced projects in the northern Surat Basin and continues to satisfy the due diligence criteria which are a pre-requisite for securing capacity on the proposed Surat Basin Rail system and the existing Moura system. The Company continues to work with infrastructure providers to support the delivery of essential rail infrastructure necessary to support commercialisation of the Surat Basin, and in particular The Range Project. STANMORE COAL ANNUAL REPORT 2013 17 Regulatory environment In order to deliver on key strategic objectives, resource companies require a stable regulatory environment in which to operate. This includes financial and non- financial measures such as an internationally competitive tax system and a transparent path to obtaining approvals from relevant stakeholder groups. Pleasingly during the year, the new Queensland State Government has made progress in reducing inefficiency inherent in the project approval process and in clarifying the Government’s policy on alienation of mining within nominated protection areas. Stanmore Coal believes that mining activity should be controlled within prime agricultural areas, but in general, it can coexist with other land uses. ANNUAL REPORT 2013 STANMORE COAL 18 STANMORE COAL ANNUAL REPORT 2013 KEY PROJECT OVERVIEW BELvIEW Underground coking coal THE RANGE Open cut thermal coal • Adjacent EPC 1186 acquisition reduced initial entry depth and substantially increased the Project’s resource base • 322 Mt Initial JORC Inferred Resource and a further significant exploration target on the back of 5 hole drilling program completed during FY13 • Mining Lease Application (MLA80199) lodged September 2013 • Concept Study indicates strong Project economics from a single longwall • Further opportunity exists to reduce capital costs in light of market conditions • Pre-feasibility study planned for calendar 2014 • Attractive economics under both owner operator and contractor cases demonstrated in Feasibility Study completed in April 2013 • FOB (ex-royalty, first 13 years of production) $76.11/tonne is competitive on a global scale • 94 Mt JORC Marketable Reserve1, 287 Mt Total JORC Resource (18 Mt Measured, 187 Mt Indicated + 82 Mt Inferred) • Well defined geology supporting the development of a 5 Mtpa (product coal) low strip ratio open cut mine • High energy, low emission thermal coal is attractive to Asian markets • EIS approved by the State and is awaiting Federal approval • Mining lease grant expected in calendar 2014 • Further opportunity to reduce capital costs in light of market conditions • No material level of expenditure required prior to decision to proceed LILYvALE (PREvIOUSLY THERESA CREEK) • Historical geological data indicates the Project area hosts the German Underground coking coal CLIFFORD Open cut thermal coal Creek seam from 336 m in depth with typical coal thickness of 2.2–2.5 m • The region is not expected to be geologically complex and the German Creek seam is mined as a high quality coking coal in adjoining underground mines • Initial drilling and concept study planned for calendar 2014 • Close to existing infrastructure • Large tenement area with the potential to host a substantial thermal coal deposit suitable for open cut mining • Initial scout drilling program completed, some follow up drilling of encouraging drilling targets planned • Significant infrastructure synergies with The Range TENNYSON • Maiden JORC Inferred Resource of 161 Mt Underground thermal coal • Additional Exploration Target2 of 65–120 Mt MACKENzIE Open cut coking coal • Acquired EPC1580 under a royalty arrangement with no upfront consideration, expanding the Project area by 60 sub-blocks • Upgraded 143 Mt JORC Indicated + Inferred Resource, of which 25.7 Mt is at Indicated Resource status • Concept study and yield optimisation work completed in conjunction with Joint Venture partner Cape Coal ANNUAL REPORT 2013 STANMORE COAL 19 Project Summaries 20 BELVIEW UNDERGROUND COKING COAL PROJECT TENEMENTS: EPC 1114, 1186; MLA 80199 OWNERSHIP: Stanmore Coal 100% LOCATION: 6 km east of Blackwater, Bowen Basin AREA: 120 km2 JORC INFERRED RESOuRCE: 322 Mt ExPLORATION TARgET2: 204–306 Mt underground prime coking coal The Company has completed a concept mining study for the Project based on a single and dual underground longwall operation. The acquisition of EPC 1186 has resulted in significant improvement to the underground mining potential of the Project by providing a larger, shallower resource base which has reduced both operating costs and capital intensity. A five hole drilling program completed during the year ended 30 June 2013 has allowed a JORC inferred resource of 322 Mt to be established with clean coal quality and washability results pending. Initial laboratory results indicate that the Project has the capacity to produce an export grade coking coal and a secondary PCI/high energy thermal coal. The Project will mine coal seams within the Rangal Coal Measures which are regionally well understood and down dip from existing and planned coking coal mines. Start-up capital requirements for a single longwall operation were estimated in the Concept Study released in February 2013. However, the Company is currently taking further steps to reduce Project capital costs through a value engineering process. The Company is also investigating the use of supplier provided finance for key pieces of plant and equipment to reduce the capital requirements for Stanmore. The Concept Study also identified the potential for improved economics through the potential for a second longwall unit. The Company intends to undertake further drilling and studies over the coming year in order to progress the Project to feasibility stage. Post 30 June 2013, the Company also lodged its mining lease application which establishes the framework for obtaining regulatory and environmental approvals for the Project. First coal is targeted for 2017. STANMORE COAL ANNUAL REPORT 2013 21 ANNUAL REPORT 2013 STANMORE COAL 22 THE RANGE PROJECT TENEMENTS: EPC 1112, 2030; MLA 55001, 55009, 55010 OWNERSHIP: Stanmore Coal 100% LOCATION: Surat Basin – 24 km south-east of Wandoan, Surat Basin AREA: 92 km2 JORC RESOuRCE: Total of 287 Mt high quality open pit thermal coal (18 Mt Measured + 187 Mt Indicated + 82 Mt Inferred Resource) JORC MARKETABLE RESERVES1: 94 Mt included within the 287 Mt Resource noted above A Project Feasibility Study to bankable standard excluding infrastructure was released in April 2013 and confirms that The Range Project is an attractive 5 Mtpa high quality, export grade, open cut thermal coal Project ready for execution upon the delivery of the Surat Basin Rail. State environmental approval for the Project has been obtained and it is expected that the Mining Lease will be ready for grant in 2014. The Project demonstrates positive economics under both owner-operator and contractor cases. Extensive geological evaluation and testing has been completed with 330 drill holes in the deposit and both the regional and Project specific geology well understood. The Project is a geologically benign, low strip ratio, open cut mining operation. The feasibility study benchmarked capital and operating costs against indicative pricing provided by mining contractors and other OEMs. The Company anticipates that recent Project deferrals and the moderation of activity in the mining and construction services sectors will see considerable scope to further optimise capital and operating costs when procurement contracts are ultimately awarded. The Company is currently taking further steps to reduce Project capital costs through a combination of value engineering, re-pricing of key equipment and investigation of vendor finance for some items of plant. Surat Basin thermal coal mined at The Range will be high energy, high quality bituminous thermal coal, with low emission profiles suitable for Asian markets. The Project has already attracted the interest of Japanese off-takers, supported by the Japanese Government agency NEDO, who under the terms of an exploration support agreement provided $1.2 million of exploration funding. As part of this funding agreement, Taiheiyo will be able to purchase up to a total of 400,000 tonnes of coal over the first three years of production at The Range for distribution to its Japanese customers. Taiheiyo has long standing relationships with Japanese energy utilities and industrial companies and supplies a number of these entities with similar Surat Basin coals. Key metrics – The Range Project Feasibility Study outputs Unit costs ($A/product tonne) Mining and processing cost Rail, port and overhead costs Total FOB cost (first 13 years) Project economics Capital costs ROM strip ratio Source: Feasibility Study, ASX Announcement 29 April 2013. Owner mining Contract mining 41.9 34.2 76.1 $599m 6.7:1 51.1 33.7 84.8 $455m 6.7:1 STANMORE COAL ANNUAL REPORT 2013 23 ANNUAL REPORT 2013 STANMORE COAL 24 LILYVALE UNDERGROUND COKING COAL PROJECT TENEMENTS: EPC 1687, 2157 OWNERSHIP: Stanmore Coal 85%/Cape Coal 15% (farm-in) LOCATION: 25 km north-east of Emerald, Bowen Basin AREA: 13 km2 JORC INFERRED RESOuRCE: N/A The Lilyvale Project is located 25 km north east of Emerald and is in close proximity to the Kestrel and Gregory Crinum operating coking coal mines. The Project is currently owned 100% by Stanmore Coal but at the completion of certain milestones, Cape Coal Pty Ltd will earn a 15% interest. The Company, in conjunction with Cape Coal, has conducted a desktop review of the Lilyvale Project and identified the German Creek (or Lilyvale) seam as potentially amenable to underground extraction based on depth and estimated seam thickness. This seam is presently mined as a high quality coking coal at the adjacent Kestrel and nearby Gregory Crinum operations. The Project is well located relative to existing rail infrastructure. Based on analysis of historical geophysical logs and bore holes in the surrounding region (including two cored holes with quality data within the Project area) the Company estimates that the Lilyvale Project hosts the German Creek seam from 336 m in depth with a typical thickness across the Project area of 2.2–2.5 m. The north of the Project area is estimated to host the shallowest coal and is contiguous to the Kestrel mine. The geology of the Project and surrounding areas is well understood and not expected to be geologically complex. Adjacent underground mines at Kestrel (Rio Tinto) and Gregory Crinum (BHP Mitsubishi Alliance) produce a low ash, high volatile hard coking coal from the German Creek seam. STANMORE COAL ANNUAL REPORT 2013 25 ANNUAL REPORT 2013 STANMORE COAL 26 MACKENZIE OPEN CUT COKING COAL PROJECT TENEMENT: EPC 2081 OWNERSHIP: Stanmore Coal 95%/Cape Coal 5% (farm-in) LOCATION: 30 km west of Blackwater, Bowen Basin AREA: 469 km2 JORC INFERRED RESOuRCE: Total of 143 Mt (25.7 Mt Indicated + 117.5 Mt Inferred) The Mackenzie Coking Coal Project in the Bowen Basin is well located for export as it lies on the rail line to Gladstone. The Project is located between the existing Ensham and Curragh operating mines and is adjacent to the Washpool coking coal Project, which is also targeting the Burngrove Coal Formation. A total of 80 holes have been drilled in the Project. The coal sequence comprises two main coal seams being the Leo and Aquarius seams within the Burngrove Formation. The seams strike in a general north south direction over an approximate 27 km strike length, and dip towards the west at approximately two degrees. The main coal seams occur at depths of 10–110 m. Testing and analysis of samples obtained during the 2011 drilling program indicated substantial variability in the yields achieved across the 27 km strike length. Further yield analysis and study of processing options has been undertaken in conjunction with Cape Coal to improve beneficiation and address metallurgical issues associated with the deposit. STANMORE COAL ANNUAL REPORT 2013 27 ANNUAL REPORT 2013 STANMORE COAL 28 TENNYSON UNDERGROUND THERMAL COAL PROJECT TENEMENT: EPC 1168 OWNERSHIP: Stanmore Coal 100% LOCATION: Adjacent to Emerald, Bowen Basin AREA: 120 km2 JORC INFERRED RESOuRCE: Total of 161 Mt Inferred ExPLORATION TARgET2: 65–120 Mt The Company has established a JORC Inferred Resource of 161 Mt for the Tennyson Project near Emerald in the Bowen Basin. The 2012 drilling program confirmed the potential to produce a low ash, high energy export quality thermal coal utilising underground mining methods from a depth of 150 m. Five partially-cored holes have been completed with each of these holes intersecting the targeted Aries seam. Clean coal quality analysis to date indicates that the Aries seam is capable of producing a high yielding, low ash export thermal product with typical specifications (air dried) being: Yield >80%, Ash <9%, Energy >6,200kcal/ kg, Sulfur 0.2%. The drilling program has identified the Corvus seam at 2.6 m in thickness and the Liskeard seam at 2.1 m in thickness as additional potential mining targets. At this point the Company is restricting further expenditure on the Project while focusing expenditure on the key coking coal projects outlined earlier. The Company has recently expanded the Project footprint through the acquisition of EPC1580 for nil cash consideration and a small future royalty. STANMORE COAL ANNUAL REPORT 2013 29 ANNUAL REPORT 2013 STANMORE COAL 30 CLIFFORD OPEN CUT THERMAL COAL PROJECT TENEMENTS: EPC 1274, 1276 OWNERSHIP: Stanmore Coal 100% LOCATION: Adjacent to Wandoan, Surat Basin AREA: 1,371 km2 TARgET: 130–195 Mt The Project is in the Surat Basin, located 15 km from the proposed Surat Basin Rail line and approximately 35 km from Stanmore Coal’s The Range Project. Tenements are located adjacent to the 4.5 billion tonne Glencore Wandoan coal project. Stanmore Coal believes these tenements to be prospective for potential open pit coal deposits. A total of 1,242 historical boreholes have been drilled within a 10 km radius of the tenements which has allowed the identification of a number of priority target areas within the tenements. A drilling program is currently underway with encouraging initial drilling results confirming the existence of shallow thermal coal deposits which may be suitable for open cut extraction. Further exploration activity is planned to identify and define the most prospective deposits within the very large tenement area. STANMORE COAL ANNUAL REPORT 2013 31 ANNUAL REPORT 2013 STANMORE COAL 32 KERLONG UNDERGROUND COKING COAL PROJECT TENEMENTS: EPC 1552, 1769, 2176 OWNERSHIP: Stanmore Coal 100% LOCATION: 19 km north-east of Moranbah, Bowen Basin AREA: 41 km2 TARgET: Underground PCI/coking coal Stanmore Coal is targeting high quality underground coking/PCI coal at the Kerlong Coking Coal Project which is 8 km north of the rail line to Dalrymple Bay Coal Terminal. Target seams are mined extensively at deposits such as Burton (Peabody), South Walker Creek (BHP Mitsubishi), Carborough Downs (Vale) and Coppabella (Macarthur Coal). 24 km of 2D seismic survey lines have been completed and have enabled the development of a targeted drilling program. Drilling to date has intersected the Burton Rider (1.7 m @ 836 m), Leichhardt (2.6 m @ 871 m) and Vermont seams (3.6 m @ 916 m). Based on washability analysis undertaken to date, achievable products include a primary coking and secondary export thermal coal. STANMORE COAL ANNUAL REPORT 2013 33 ANNUAL REPORT 2013 STANMORE COAL 34 NEW CAMBRIA OPEN CUT PCI COAL PROJECT TENEMENTS: EPC 1113, 2039, 2371 OWNERSHIP: Stanmore Coal 100% LOCATION: 20 km east of Blackwater, Bowen Basin AREA: 123 km2 TARgET: Open cut low volatile PCI coal The New Cambria Project is targeting the up-thrust Rangal Coal Measures which contain low-volatile, low to medium ash PCI coal with open cut mining potential. High energy coal has been mined historically at the adjoining Excel Colliery and the Project is located adjacent to the rail line to Gladstone. The Company is in receipt of seismic data from the holder of the overlapping coal seam gas tenure. To date the data reviewed has not identified any up thrust blocks of coal sufficiently shallow to be amenable to open cut mining. STANMORE COAL ANNUAL REPORT 2013 35 ANNUAL REPORT 2013 STANMORE COAL 36 Outlook Despite the recent coal market weakness, Stanmore Coal believes that the long term fundamentals of both the coking and thermal coal markets are strong. Whilst thermal coal prices remain weak at the time of writing, coking coal prices have started to rebound from their recent lows. Australian coal will continue to play a key role in providing a cost effective raw material for energy and steel production in the Asian market. Supplying clean, low emission Australian coal into Asia helps lift the living standards and public health outcomes for millions of people in neighbouring countries. The Company’s diversified portfolio of development and exploration projects puts it in a strong position as coal markets inevitably recover from the current down cycle. The downturn in the commodity cycle also presents an excellent opportunity to reduce the capital and operating costs of the Company’s projects and to prudently expand the business within an environment of realistic asset prices. To this end, the Company is in the process of undertaking a comprehensive review of the capital cost estimates for both Belview and The Range and believes that material capital savings can be achieved through value engineering, improved contractor pricing and the selective application of off-balance sheet finance. Reducing project capital costs to the lowest possible level will improve the value of the Company’s projects when attracting strategic partners to assist with procuring construction funding. In light of current market conditions, the Company will restrict its expenditure to exploration and development activities to projects which demonstrate strong economics. The Company is also in the process of further rationalising its already low overhead cost base to ensure it preserves its cash reserves whilst remaining sufficiently resourced to respond to opportunities and react as market conditions improve. We believe that as other organisations seek to dispose of non-core assets in the near future, opportunities will arise to enhance the Company’s existing Projects and accelerate the Company’s timetable to production. The Company aims to capitalise on these opportunities through transaction structures which limit the need for upfront capital or will identify new sources of capital to finance these transactions. Stanmore Coal and its team have a strong history of identifying and capitalising on opportunities with a limited capital base. History reflects that many successful new coal projects and companies are built in difficult market conditions when large resource company strategies are driven by short term shareholder expectations. Stanmore Coal remains committed to delivering its Projects at a low capital cost and implementing a low cost, highly efficient operating model. The Company remains well funded relative to its peers and has no material financial commitments or take or pay obligations with respect to rail or port access. Stanmore Coal has significant flexibility in respect of the timing of delivering its Projects and introducing strategic project partners. As market conditions continue to remain volatile, the Company will maintain a disciplined approach in order to protect shareholder value and best position Stanmore Coal to emerge strongly from the current downturn. Managing risk Exploration and evaluation for coal generally involves a degree of risk as it is inherently uncertain as to whether capital invested will generate an acceptable return within a predefined investment horizon. However the value created for investors through the successful advancement of the Company’s exploration assets along the value curve can be substantial. Certain risks can be mitigated by the Company using safeguards and appropriate systems, and implementing specific management actions. However, some risks may be outside the control of Stanmore Coal and not capable of mitigation. Recognising the nature of the Company’s activities, the Board of Directors applies appropriate governance practices to identify and address key risks to the business, whilst at the same time encouraging management to exercise its entrepreneurial capabilities in delivering the businesses objectives. Safety Safety is of critical importance in the planning, organisation and execution of Stanmore Coal’s exploration and development activities. Stanmore Coal is committed to providing and maintaining a working environment in which its employees are not exposed to hazards that will jeopardise an employee’s health and safety, or the health and safety of others associated with our business. Stanmore Coal recognise that safety is both an individual and shared responsibility of all employees, contractors and other persons involved with the operation of the organisation. The Company has a comprehensive Safety and Health Management system which is designed to minimise the risk of an uncontrolled safety and health event and to continuously improving safety culture within the organisation. STANMORE COAL ANNUAL REPORT 2013 37 Regulatory risk The introduction of the MRRT, Carbon Tax and increased State Government royalties have adversely impacted Australia’s global competitiveness and reduced the attractiveness of Australian coal projects to foreign investors. The Company has little influence over the direction and development of government policy. However, Stanmore Coal’s view is that coal will continue to play an important role in the global energy mix as part of sustaining global growth through efficient electricity generation and steel production. Superior coal quality and proximity to Asian export markets will continue to make Queensland coal projects globally competitive. Forecasting coal prices and foreign exchange rates Stanmore Coal’s possible future revenues streams are likely to be linked to export coal prices which are typically denominated in US$. As the Company is in the development phase, assumptions regarding future commodity prices and foreign exchange rates have a significant influence on the economic viability of proposed mining operations. During the year ended 30 June 2013, spot prices of thermal and metallurgical coal materially declined as a result of increased global supply and lower growth in demand as a consequence of a contraction in industrial activity, particularly in China. Whilst it is inherently difficult to reliably predict future coal prices, Stanmore Coal believes that the long term supply and demand outlook for high quality thermal and metallurgical coal is strong and consequently commodity prices will recover over time. The Company is also of the view that the recent strong trading of the Australian dollar at or above parity with the US dollar will not persist over the long term and Australian dollar revenues will be positively impacted as the currency reverts to levels close to the long term historical trend. In conducting feasibility analysis, the Company applies a conservative approach in respect of forecasting long term coal prices and foreign exchange rates, in most cases adopting broker consensus forecasts. Identifying and estimating resources and reserves The future success of the Company will depend on its ability to develop coal reserves that are economically recoverable. Market price fluctuations in the price of coal, as well as increased production costs or reduced recovery rates may impact original assessments of coal reserves and resources. The mining of coal involves a degree of risk, including that the coal mined may be of a different quality, tonnage or strip ratio from that originally estimated. Stanmore Coal undertakes extensive exploration and coal quality testing prior to establishing JORC compliant resource and reserve estimates and to support mining feasibility studies. The Company engages external experts to assist with the evaluation of exploration results and relies on third party competent persons to prepare JORC resource statements. Economic feasibility modelling of coal deposits is conducted in conjunction with third party experts, the results of which are usually subject to independent third party peer review. Access to capital Stanmore Coal’s ability to effectively implement its business strategy is dependent on the ability to raise additional capital to finance exploration and development activities. There can be no assurance that any such equity or debt funding will be available to the Company on favourable terms. If adequate funds are not available on acceptable terms, the Company may not be able to take advantage of opportunities or progress the development of its existing assets. At 30 June 2013, the Company remains well funded with cash reserves expected to be sufficient to meet the business’s operating costs for at least the next two years. The Company has no material financial commitments or take or pay obligations with respect to rail or port access. Minimising regulatory and land access risk The Company’s operations and Projects are subject to State and Federal laws and regulation regarding environmental hazards. These laws and regulations set various standards regulating certain aspects of health and environmental quality, provide for penalties and other liabilities for the violation of such standards and establish, in certain circumstances, obligations to remediate current and former facilities and locations where operations are or were conducted. Stanmore Coal minimises these risks by conducting its activities in an environmentally responsible manner, in accordance with applicable laws and regulations and where possible, by carrying appropriate insurance coverage. The Company engages experienced consultants and other technical advisors to provide expert advice where necessary. The ability to secure and undertake exploration and development activities within prospective areas is also reliant upon satisfactory resolution of native title and management of overlapping tenure. To address this risk, the Company develops strong, long term effective relationships with landholders, with a focus on developing mutually acceptable access arrangements. The Company takes appropriate legal and technical advice to ensure it manages its compliance obligations appropriately. ANNUAL REPORT 2013 STANMORE COAL 38 REMUNERATION REPORT (AUDITED) This report details the nature and amount of remuneration for each Director of Stanmore Coal Limited, and for the Company’s key management personnel (“KMP”). KMP are defined as those persons who have the authority and responsibility for planning, directing and controlling the activities of the Company. The Company’s KMP during the year were: Details of key management personnel Directors Neville Sneddon Nicholas Jorss Andrew Martin Stephen Bizzell Viv Forbes Chris McAuliffe Senior Management Doug McAlpine Vaughan Wishart Michael McKee Wesley Nichols Non-Executive Chairman Managing Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director (appointed 17 July 2012) Chief Financial Officer and Joint Company Secretary General Manager – Project Development General Manager – Operations General Manager – Exploration (ceased employment 24 May 2013) Stanmore Coal’s business strategy of becoming a coal producer can only be achieved by identifying and retaining high calibre employees with appropriate experience and capability. Developing an appropriate compensation strategy for the Company’s employees is a key factor in ensuring employees are engaged and motivated to improve the Company’s performance over the long term. The Board’s intention is to maximise stakeholder benefit from the retention of a high quality Board and Executive Team without creating an undue cost burden for the Company. The Board regularly reviews the appropriateness of employees’ fixed compensation in light of the Company’s cost structure and the practices of its peers. On a comparative basis to the previous financial year, base remuneration for FY13 increased as a result of certain employees working for a full year and changes to base remuneration arrangements which were agreed at the time employees were engaged. The Board recognises that in light of current market conditions the Company’s overhead costs (including remuneration) must be controlled and consequently has recently implemented the following measures: • reduced headcount across the business, including within the executive team; • no further increase to employee base remuneration arrangements until market conditions substantially improve; and • a greater focus on the structure of at-risk compensation to ensure employee behaviour is appropriately aligned with enhancing shareholder value. In the prior year, the Board acknowledged that as the Company developed and moved into the development and operating phases for its key assets, a more comprehensive, structured and transparent approach to remunerating its employees was required. As a result, the non-executive Directors took advice from an independent remuneration consultant regarding the structure of remuneration plans and the terms on which incentives are offered to improve the alignment between company performance and executive remuneration outcomes. This advice assisted the Board in developing a remuneration framework which satisfies market practice around remuneration governance for public companies and strikes an appropriate balance between fixed and at-risk compensation for its employees. Shareholders approved the new scheme at the EGM held on 10 October 2012, which provided that the maximum entitlement an employee can earn is determined by reference to their seniority and strategic contribution to the business. The shareholder approved remuneration arrangements include tiered participation in a Short Term Incentive (“STI”) scheme, the Stanmore Coal Director and Employee Share Plan (Share Plan), a Long Term Incentive (“LTI”) scheme and the Stanmore Coal Director and Employee Incentive Plan (Incentive Plan). STANMORE COAL ANNUAL REPORT 2013 39 Fixed remuneration Managing Director and senior management remuneration The Consolidated Entity aims to reward the Managing Director and senior management with a base level of remuneration which is both appropriate to the position and competitive in the market. Fixed remuneration is reviewed annually by the Remuneration Committee and the Board. The Managing Director reviews all senior management and employee performance and remuneration and then makes recommendations to the Remuneration Committee. The Remuneration Committee reviews the Managing Director’s performance and remuneration. The process consists of a review of Company-wide and individual performance, relevant comparative remuneration in the market and internal, and where appropriate, external advice on policies and practices. Non-executive Director fixed remuneration The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. The Constitution of Stanmore Coal Limited and the ASX Listing Rules specify that the non-executive Directors are entitled to remuneration as determined by the Consolidated Entity in a general meeting to be apportioned among them in such manner as the Directors agree and, in default of agreement, equally. The maximum aggregate remuneration currently determined by Stanmore Coal Limited is $350,000 per annum. Additionally, non-executive Directors are also entitled to be reimbursed for indirect expenses associated with execution of their responsibilities (for example travel costs). Total non-executive Director remuneration for FY13 was $218,886. If a non-executive Director performs extra services, which in the opinion of the Directors are outside the scope of the ordinary duties of the Director, the Consolidated Entity may remunerate that Director by payment of a fixed sum determined by the Directors in addition to or instead of the remuneration referred to above. However, no payment can be made if the effect would be to exceed the maximum aggregate amount payable to non-executive Directors. A non-executive Director is entitled to be paid travel and other expenses properly incurred by them in attending Directors’ or general meetings of Stanmore Coal Limited or otherwise in connection with the business of the Consolidated Entity. The fixed remuneration of non-executive Directors for the year ending 30 June 2013 is detailed in this Remuneration Report. Short term and long term incentive plan structures The Board considers that the use of STI and LTI are a reasonable means of remunerating employees, on the basis that they: • encourage share ownership and align, in part, remuneration with the future growth and prospects of the Company; • encourage employees to drive toward the realisation of shareholder value; • provide flexibility to the Company to actively manage the way in which it remunerates and incentivises employees; • preserve the Company’s cash resources; and • contribute toward the attraction and retention of skilled talent in a competitive employment market. The tiered structure for remunerating employees through the shareholder approved STI and LTI and the relevant remuneration outcomes for the year ended 30 June 2013 are illustrated in the following tables: ANNUAL REPORT 2013 STANMORE COAL 40 Summary of the key terms of the Short Term Incentive Plan Plan overview The Board may, from time to time offer to issue Shares as part of its short term incentive strategy to an eligible employee under the Share Plan. The STI amount for each respective employee will be assessed and provided on a calendar-year basis with respect to a performance evaluation and other corporate key performance indicators (KPIs). Payment of the assessed STI amount may be made as a combination of shares and cash. Tiered structure The maximum STI entitlement is calculated by reference to the employee’s seniority in the business as set out below. To limit the short term financial impact of scheme implementation, the Board has halved employees’ maximum incentive entitlements in the first year. • Senior Management – up to 30% of base remuneration (first year 15%) • Managers – up to 20% of base remuneration (first year 10%) • Staff – up to 15% of base remuneration (first year 7.5%) Weighting of criteria Each employee is assessed against personal performance and corporate KPIs in accordance with the following framework: Component Weighting Discussion Safety 10–25% Higher for senior management Total Shareholder Return 10–25% Higher for senior management Payable in the event there are no fatalities and the Company’s total reportable injury frequency rate (TRIFR) is maintained in the STI Performance Period at or below coal industry standards as reported by the Department of Mines and Energy. The total shareholder return component is payable on a sliding scale by reference to the Company’s TSR performance in the STI Performance Period compared with the Company’s Competitor Group (a group of 8–10 peers in the resources sector) as follows: Company TSR position relative to Competitor Group Percentage of TSR component earned Equal to or greater than 80th percentile From the 67th up to the 80th percentile From the 50th up to the 67th percentile 100% 50% 20% Individual 20–50% Lower for senior management Satisfaction of individual KPIs agreed with the Managing Director or in the case of the Managing Director, agreed with the Chairman on an annual basis. Discretionary 30% Satisfaction to be determined by the discretion of the Chairman and Managing Director, by reference to both individual and the Company’s general performance for the STI Performance Period. Summary of the key terms of the Long Term Incentive Plan Plan overview The Board may, from time to time, offer to issue incentives as part of its long term incentive strategy to an eligible employee under the Incentive Plan. Each year, the Board can elect whether incentives will be issued in the form of options or performance rights. The Board’s long term intention under the plan is to annually issue premium priced options to employees for nil consideration, exercisable at a certain future date. STANMORE COAL ANNUAL REPORT 2013 41 Summary of the key terms of the Long Term Incentive Plan Tiered structure The maximum LTI entitlement is calculated by reference to the employee’s seniority in the business as set out below. To limit the short term financial impact of scheme implementation, the Board has halved employees’ maximum incentive entitlements in the first year. • Senior Management up to 20% of base remuneration (first year 10%) • Managers up to 15% of base remuneration (first year 7.5%) • Staff up to 10% of base remuneration (first year 5%) Other information The Board’s intention is to issue options that are exercisable at a 34% premium to the prevailing Stanmore share price prior to the issue that can be exercised within a reasonable time period from the issue date. Incentive outcomes for FY13 and FY14 The below table illustrates the remuneration outcomes for both the STI and LTI schemes in the first year of operation (the year ended 30 June 2013). Incentive Award outcome Discussion Calendar 2012 – STI 592,162 shares issued to 10 employees for nil consideration ($121,393 accounting value on date of issue) • The Board reduced the maximum entitlement to STI by 50% in the first year of the scheme • No STIs were issued to Directors other than the Tier Average % award of maximum Managing Director (in accordance with shareholder approval) FY 2013 – LTI Senior management Managers Staff 30% 36% 36% • No amount was paid in respect of the total shareholder return metric given the poor share price performance over the 12 months ending December 2012 • The full amount was awarded in respect of the safety component 1,356,000 options were issued to 10 employees with an exercise price of $0.48, vesting 30 June 2013 and expiring 30 June 2014. • The Board reduced the maximum entitlement to STI by 50% in the first year of the scheme for those employees who had been awarded options as part of their employment contracts Tier Average % award of maximum Senior management Managers Staff 50% 50% 50% 2,350,000 performance rights were issued for nil consideration to six employees. These rights vest in two 50% tranches contingent on milestones relating to The Range Project. • No LTIs were issued to Directors other than the Managing Director (in accordance with shareholder approval) The Board awarded performance rights to key members of the management team who were instrumental in progressing The Range Project to production. 50% of the rights vest on successful ML grant, with the balance vesting upon achieving an annualised production rate of 5 Mtpa. Neither of these criteria had been met at the date of this report. At the time of this award, The Range Project was the Company’s most advanced Project and primary focus. ANNUAL REPORT 2013 STANMORE COAL 42 The Company does not intend to issue more than an aggregate of 5% of its share capital, from time to time, under the plans. The Share Plan and Incentive Plan each aim to more closely align rewards for performance with the achievement of the Company’s growth and strategic objectives for financial year 2013 and beyond. Fees were paid to an independent remuneration consultant in the prior year in respect of scheme design and implementation. No amounts were paid to remuneration consultants in the year ended 30 June 2013. Relationship between remuneration and Consolidated Entity performance During the financial year, the Consolidated Entity has generated accounting losses as its principal activity was the exploration and development of prospective coal assets within Queensland’s Bowen and Surat Basins. On 9 December 2009, official quotation of Stanmore Coal Limited’s shares on the ASX commenced at a price of $0.20. The share price at the end of the financial year ended 30 June 2013 was $0.115 (2012: $0.36). Given the poor performance of the share price there was no award made under the STI scheme with respect to total shareholder returns for the year ended 30 June 2013. There were no dividends paid during the year ended 30 June 2013. As the Consolidated Entity is still in the exploration and early development stage, there is not necessarily a direct relationship between the Consolidated Entity’s financial performance, improvement to shareholder wealth and changes to the Company’s remuneration arrangement. Share prices are subject to the influence of coal prices and market sentiment toward the sector, and as such increases or decreases may occur quite independent of executive performance or remuneration. For the current year, the quantum of employee remuneration has been determined with reference to market practice and the achievement of individual performance criteria established between the Board, the Managing Director and the individual employee. Employment contracts and consultancy agreements It is the Board’s policy that employment contracts or consultancy agreements are entered into with all Executive Directors, executives and employees. Contracts do not provide for pre-determining compensation values or method of payment. Rather the amount of compensation is determined by the Remuneration Committee and the Board in accordance with the Company’s remuneration policies. The current consultancy agreement with the Joint Company Secretary has a three month notice period. All other employment contracts or consultancy agreements have three months (or less) notice periods. No current employment contracts contain early termination clauses. All Non-Executive Directors have received letters outlining the key terms of their appointment. The contracts have no specified duration. Key management personnel are entitled to their statutory entitlements of accrued annual leave and long service leave together with any superannuation on termination. Other termination payments may be negotiated on a case by case basis. Managing Director Stanmore Coal Limited has an Employment Contract with Mr Nick Jorss for the position of Managing Director which commenced on 1 January 2012. Mr Jorss’ base remuneration is $380,000 per annum. Mr Jorss is eligible to participate in the new STI/LTI scheme which commenced during the year pursuant to shareholder approval. Detail of instruments issued under the new schemes is provided on page 42 of this report. These include the following unlisted securities which were held at the date of this report: • 200,000 unlisted options exercisable at 48 cents, vesting 30 June 2013 and expiring on 30 June 2014. These securities were granted as an LTI to Mr Jorss on 12 October 2012 following shareholder approval at the EGM 10 October 2012. • On 26 October 2012 500,000 performance rights were granted following shareholder approval at the EGM 10 October 2012. 50% of these rights vest upon the grant of the Mining Lease for The Range Project and the balance of 50% vest upon achieving an annualised production rate of 5 Mtpa of product coal at The Range Project. At the date of this report none of these rights have vested. Senior Management Chief Financial Officer Stanmore Coal Limited has an Employment Contract with Mr Douglas McAlpine for the position of Chief Financial Officer which commenced on 19 September 2011. Mr McAlpine receives a salary of $336,000 per annum. The employment contract may be terminated by either party by providing three months’ written notice, or STANMORE COAL ANNUAL REPORT 2013 43 immediately in the case of gross negligence or serious misconduct. Under the terms of the contract, on 19 December 2011, Mr McAlpine was issued 30,000 ordinary shares as a sign-on bonus and on 30 September 2011 was granted 1,800,000 unlisted options, expiring 31 March 2016, exercisable as follows: • 450,000 at $1.75 (vesting 30 September 2012) • 450,000 at $2.00 (vesting 30 September 2013) • 450,000 at $2.25 (vesting 30 September 2014) • 450,000 at $2.50 (vesting 30 September 2015). Mr McAlpine is eligible to participate in the new STI/LTI scheme which commenced during the year pursuant to shareholder approval. Detail of instruments issued under the new schemes is provided on page 42 of this report. These include the following unlisted securities which were held at the date of this report: • On 26 October, 2012 450,000 performance rights were granted. 50% of these rights vest upon the grant of the Mining Lease for The Range Project and the balance of 50% vest upon achieving an annualised production rate of 5 Mtpa of product coal at The Range Project. At the date of this report none of these rights have vested. • Mr McAlpine also holds 163,000 unlisted options exercisable at 48 cents, vesting 30 June 2013 and expiring on 30 June 2014. These securities were granted to Mr McAlpine following shareholder approval at the EGM 10 October 2012. General Manager – Operations Stanmore Coal Limited has an Employment Contract with Mr Michael McKee for the position of General Manager – Operations (formerly the Operations Manager) which commenced on 1 February 2011. Mr McKee receives a salary of $353,200 per annum. The employment contract may be terminated by either party by providing three months’ written notice, or immediately in the case of gross negligence or serious misconduct. Under the terms of the contract, on 16 March 2011, Mr McKee was issued 20,000 ordinary shares and on 27 April 2011 granted 2,000,000 unlisted options, expiring 31 December 2015, exercisable as follows: • 500,000 at $1.75 (vesting 27 April 2012) • 500,000 at $2.00 (vesting 27 April 2013) • 500,000 at $2.25 (vesting 27 April 2014) • 500,000 at $2.50 (vesting 27 April 2015). On 12 October 2012 Mr McKee was issued 250,000 ordinary shares upon being promoted to the role of General Manager – Operations. Mr McKee is eligible to participate in the new STI/LTI scheme which commenced during the year pursuant to shareholder approval. Detail of instruments issued under the new schemes is provided on page 42 of this report. These include the following unlisted securities which were held at the date of this report: • On 26 October 2012, 500,000 performance rights were granted to Mr McKee. 50% of these rights vest upon the grant of the Mining Lease for The Range Project and the balance of 50% vest upon achieving an annualised production rate of 5 Mtpa of product coal at The Range Project. At the date of this report none of these rights have vested. • Mr McKee also holds 175,000 unlisted options exercisable at 48 cents, vesting 30 June 2013 and expiring on 30 June 2014. These securities were granted to Mr McKee following shareholder approval at the EGM 10 October 2012. General Manager – Project Development Stanmore Coal Limited has a consulting agreement with West End Consulting Pty Ltd (West End) and Vaughan Wishart, the General Manager – Project Development (previously Project Development Manager). The Agreement commenced on 15 October 2009 and was extended during calendar 2011 for an additional two years, unless terminated earlier in accordance with the provisions of the agreement. Under the terms and conditions of the agreement, West End has agreed to provide certain general management services to Stanmore Coal Limited. West End receives a base fee for provision of the services of $6,500 per week (exclusive of GST) on the basis of performance of five full days per week. The Consolidated Entity is also obliged to reimburse West End for all reasonable and necessary expenses incurred by West End in providing services pursuant to the West End Agreement. Both Stanmore Coal Limited and West End are entitled to terminate the agreement upon giving not less than two months’ written notice. In the event that West End is in breach of the agreement, Stanmore Coal Limited may terminate the agreement immediately on written notice. In addition, Stanmore Coal Limited is entitled to terminate the agreement upon the happening of various events in respect of West End’s solvency or other conduct of West End or Vaughan Wishart. Mr Wishart is eligible to participate in the new STI/LTI scheme which commenced during the year pursuant to ANNUAL REPORT 2013 STANMORE COAL 44 shareholder approval. Detail of instruments issued under the new schemes is provided on page 42 of this report. These include the following unlisted securities which were held at the date of this report: • On 26 October 2012, 400,000 performance rights were granted to Mr Wishart. 50% of these rights vest upon the grant of the Mining Lease for The Range Project and the balance of 50% vest upon achieving an annualised production rate of 5 Mtpa of product coal at The Range Project. At the date of this report none of these rights have vested. • Mr Wishart also holds 150,000 unlisted options exercisable at 48 cents, vesting 30 June 2013 and expiring on 30 June 2014. These securities were granted to Mr Wishart following shareholder approval at the EGM 10 October 2012. General Manager Exploration Stanmore Coal Limited had an Employment Contract with Mr Wesley Nichols for the position of General Manager Exploration which commenced on 23 June 2011. Mr Nichols received a salary of $250,000 per annum. Following a review by the Board on the exploration plans for the Company it was determined that the role of General Manager – Exploration was no longer required. On 24 May 2013 Mr Nichols was made redundant and received a negotiated payout post year end. As a consequence of his termination and in accordance with the Company policy, all unexercised option entitlements are cancelled three months after departing the Company. No options were exercised by Mr Nichols and as a result the following options were cancelled: • 400,000 at $1.75 (vesting 4 July 2012) • 400,000 at $2.00 (vesting 4 July 2013) • 400,000 at $2.25 (vesting 4 July 2014) • 150,000 @ $0.48 (vesting 30 June 2013). STANMORE COAL ANNUAL REPORT 2013 45 Remuneration details The following table details the components of remuneration for each key management person of the Company, in respect of the financial years ending 30 June 2012 and 30 June 2013. 2013 Short-term benefits Post- employment Termi- nation benefits $ Share-based payments Total $ % Remuneration as share based payments % Performance- related remuneration Salary & fees $ Cash bonus $ Super- annuation $ Other short- term benefits $ Equity- settled (options) $ Equity- settled (shares) $ Directors Neville Sneddon Nicholas Jorss Andrew Martin Stephen Bizzell Viv Forbes Chris McAuliffe# 60,000 - 380,000 13,781 40,000 40,000 40,000 37,886 - - - - Total 597,886 13,781 Senior Management Doug McAlpine Vaughan Wishart Michael McKee Wesley Nichols* 327,758 13,272 310,050 11,382 353,200 14,474 221,153 9,630 Total 1,212,161 48,758 - - - - - - - - - - - - - 16,470 - - - - 16,470 16,470 - 16,470 - - - - - - - - - - - - 60,000 55,140 20,671 486,062 - - - - - - - - 40,000 40,000 40,000 37,886 55,140 20,671 703,948 156,545 19,958 534,003 43,432 17,129 381,993 275,045 96,645 755,834 16,470 27,114 188,851 12,928 476,146 49,410 27,114 663,873 146,660 2,147,976 0% 16% 0% 0% 0% 0% 33% 16% 49% 42% 0% 18% 0% 0% 0% 0% 36% 19% 51% 44% #Chris McAuliffe was appointed to the Board on 17 July 2012. *Wesley Nichols ceased employment with the Company on 24 May 2013 and is not considered to be key management personnel following that date. ANNUAL REPORT 2013 STANMORE COAL 46 2012 Short-term benefits Post- employment Share-based payments Termi- nation benefits $ % Remuneration as share based payments % Performance- related remuneration Salary & fees $ Cash bonus $ Super- annuation $ Other short- term benefits $ Equity- settled (options) $ Equity- settled (shares) $ Total $ Directors Neville Sneddon Nicholas Jorss Andrew Martin Stephen Bizzell Viv Forbes Total 60,000 390,447 35,046 40,000 40,000 565,493 Senior Management Doug McAlpine^ Vaughan Wishart Michael McKee Wesley Nichols Duncan Cornish* 251,077 292,369 271,600 250,000 73,333 Total 1,138,379 - - - - - - - - - - - - - - - - - - - - - - - - - 7,888 4,954 - - 12,842 12,467 - 15,531 15,531 - 43,529 - - - - - - - - - - - - - - - - - - - - - - - - 60,000 398,335 40,000 40,000 40,000 578,335 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 136,629 35,277 435,450 39.5% 3.1% - 45,000 337,369 13.3% 13.3% 529,996 129,916 947,043 69.7% 324,402 48,315 638,248 58.2% - - 73,333 0% 5.1% 3.0% 0% 991,027 258,508 2,431,443 ^Doug McAlpine commenced employment on 19 September 2011. *Duncan Cornish stepped down as Chief Financial Officer on 19 September 2011 and is not considered to be key management personnel following that date. Cash bonuses, performance-related bonuses and share-based payments performance-related bonuses in cash during the year ended 30 June 2012. Under the Director and Employee Share Plan and Director and Employee Incentive Plan approved by shareholders at the 12 October 2012 Extraordinary General Meeting, employees and Executive Directors of the Company may be eligible to receive a combination of cash, shares and long term options or performance rights to more closely align rewards for performance with the achievement of Company objectives. Pursuant to shareholder approval, the Share Plan and Incentive plan were first applied in the financial year ending 30 June 2013. Key management personnel and other executives were not paid Details of cash and share-based payments to key management personnel and other executives during the year ended 30 June 2013 are detailed in the table below. Premium-priced options were issued in October 2012 in respect of long term incentives for employees based on their level of seniority and strategic contribution. An issue of shares and payment of cash was made on 11 March 2013 in relation to the short term incentives for each employee applicable to the calendar year ended 31 December 2012. An issue of performance rights was made on 25 October 2012 for each applicable employee in relation to development and production milestones for The Range Project. STANMORE COAL ANNUAL REPORT 2013 47 Grant value (per instru- ment) $# % vested /paid during year % expired during year % forfeited during year % remaining as unvested Expiry date 0.068 0.205 n/a 0.30 0.068 0.205 n/a 0.30 0.068 0.205 0% 27% 27% 0% 0% 33% 33% 0% 0% 32% 0.30 100% n/a 0.30 0.068 0.205 n/a 0.30 0.068 0.205 n/a 0.30 32% 0% 0% 29% 29% 0% 0% 30% 30% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 73% 73% 0% 0% 67% 67% 0% 0% 68% 0% 68% 0% 0% 71% 71% 0% 0% 70% 70% 0% 100% 30/6/14 0% 0% n/a n/a 100% 30/6/20 100% 30/6/14 0% 0% n/a n/a 100% 30/6/20 100% 30/6/14 0% 0% 0% n/a n/a n/a 100% 30/6/20 100% 30/6/14 0% 0% n/a n/a 100% 30/6/20 100% 30/6/14 0% 0% n/a n/a 100% 30/6/20 2013 Remuneration type Number Grant date Vesting date Exercise price Consolidated entity key management personnel W Nichols W Nichols W Nichols W Nichols Options 150,000 12/10/12 30/6/13 0.48 Shares 63,061 11/3/13 11/3/13 Cash 9,630 11/3/13 Performance Rights 400,000 12/10/12 n/a * n/a n/a 0 D McAlpine Options 163,000 12/10/12 30/6/13 0.48 D McAlpine D McAlpine Shares 97,358 11/3/13 11/3/13 Cash 13,272 11/3/13 D McAlpine Performance Rights 450,000 12/10/12 n/a n/a 0 n/a * M McKee M McKee M McKee M McKee M McKee N Jorss N Jorss N Jorss N Jorss V Wishart V Wishart V Wishart V Wishart Options 175,000 12/10/12 30/6/13 0.48 Shares 105,585 11/3/13 11/3/13 Shares 250,000 12/10/12 12/10/12 Cash 14,474 11/3/13 Performance Rights 500,000 12/10/12 n/a * n/a n/a n/a 0 Options 200,000 12/10/12 30/6/13 0.48 Shares 100,835 11/3/13 11/3/13 Cash 13,781 11/3/13 Performance Rights 500,000 12/10/12 n/a * n/a n/a 0 Options 150,000 12/10/12 30/6/13 0.48 Shares 83,555 11/3/13 11/3/13 Cash 11,382 11/3/13 Performance Rights 400,000 12/10/12 n/a * n/a n/a 0 #Calculation of value of options granted using the Black-Scholes option pricing model, which takes into account factors such as the option exercise price, the market price at the date of issue and volatility of the underlying share price and the time to maturity of the option. *Performance rights vest 50% upon being awarded the Mining Lease at The Range and 50% based on attaining an annualised production rate of 5 Mtpa at The Range. ANNUAL REPORT 2013 STANMORE COAL 48 Details of share-based payments to key management personnel and other executives during the year ended 30 June 2012 are detailed in the table below. A modest amount of shares were awarded to key employees on 23 March 2012 as a discretionary bonus in recognition for superior performance during the calendar year ended 31 December 2011. 2012 Remuneration type Number Grant date Vesting date Exercise price Grant value (per instru- ment) $# % vested /paid during year % Expired during year % Forfeited during year % remaining as unvested Expiry date Consolidated entity key management personnel W Nichols W Nichols W Nichols W Nichols Options 400,000 20/07/11 04/07/12 $1.75 $0.477 Options 400,000 20/07/11 04/07/13 $2.00 $0.436 Options 400,000 20/07/11 04/07/14 $2.25 $0.401 0% 0% 0% Shares 25,000 20/07/11 n/a n/a $1.160 100% D McAlpine Options 450,000 30/09/11 30/09/12 $1.75 $0.214 D McAlpine Options 450,000 30/09/11 30/09/13 $2.00 $0.191 D McAlpine Options 450,000 30/09/11 30/09/14 $2.25 $0.171 D McAlpine Options 450,000 30/09/11 30/09/15 $2.50 $0.155 0% 0% 0% 0% D McAlpine Shares 30,000 19/12/11 M McKee M McKee Shares 67,606 19/12/11 Shares 106,406 07/02/12 D McAlpine Shares 17,534 23/03/12 W Nichols M McKee V Wishart Shares 24,763 23/03/12 Shares 61,943 23/03/12 Shares 57,692 23/03/12 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a $0.720 100% $0.720 100% $0.930 100% $0.800 100% $0.800 100% $0.800 100% $0.800 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100% 31/12/15 100% 31/12/15 100% 31/12/15 0% n/a 100% 31/03/16 100% 31/03/16 100% 31/03/16 100% 31/03/16 0% 0% 0% 0% 0% 0% 0% n/a n/a n/a n/a n/a n/a n/a #Calculation of value of options granted using the Black-Scholes option pricing model, which takes into account factors such as the option exercise price, the market price at the date of issue and volatility of the underlying share price and the time to maturity of the option. During the year ending 30 June 2013 Mike McKee was provided with 250,000 ordinary shares for nil consideration in relation to his promotion to the role of General Manager Operations. All options were issued by Stanmore Coal Limited and entitle the holder to one ordinary share in Stanmore Coal Limited for each option exercised. All options granted as part of remuneration for the years ended 30 June 2013 and 2012 were granted for nil consideration. Once vested, options can be exercised at any time up to the expiry date. There is no market or performance based vesting criteria in respect of these options. End of remuneration report STANMORE COAL ANNUAL REPORT 2013 49 Indemnification and insurance of Directors, officers and auditor Each of the Directors and the Secretaries of Stanmore Coal Limited have entered into a Deed with Stanmore Coal Limited whereby Stanmore Coal Limited has provided certain contractual rights of access to books and records of Stanmore Coal Limited to those Directors and Secretary. Stanmore Coal Limited has insured all of the Directors of the Consolidated Entity. The contract of insurance prohibits the disclosure of the nature of the liabilities covered and amount of the premium paid. The Corporations Act does not require disclosure of the information in these circumstances. Stanmore Coal Limited has not indemnified or insured its auditor. Options and performance rights At the date of this report there were 25,052,000 unissued ordinary shares under options, 2,350,000 unissued ordinary shares under performance rights and 13,373,377 unissued ordinary shares under convertibles notes as follows: • 3,500,000 unlisted options exercisable at $0.19, on or before 31 December 2013 • 525,000 unlisted options exercisable at $0.15, on or before 16 January 2014 • 100,000 unlisted options exercisable at $0.73, on or before 31 December 2013 • 100,000 unlisted options exercisable at $0.87, on or before 31 December 2013 • 100,000 unlisted options exercisable at $1.09, on or before 31 December 2013 • 900,000 unlisted options exercisable at $1.75, on or before 31 December 2015 • 900,000 unlisted options exercisable at $2.00, on or before 31 December 2015 • 900,000 unlisted options exercisable at $2.25, on or before 31 December 2015 • 500,000 unlisted options exercisable at $2.50, on or before 31 December 2015 • 450,000 unlisted options exercisable at $1.75, on or before 31 March 2016 • 450,000 unlisted options exercisable at $2.00, on or before 31 March 2016 • 450,000 unlisted options exercisable at $2.25, on or before 31 March 2016 • 450,000 unlisted options exercisable at $2.50, on or before 31 March 2016 • 1,216,000 unlisted options exercisable at $0.48, on or before 30 June 2014 • 75,000 unlisted options exercisable at $0.25, on or before 2 April 2015 • 2,766,000 unlisted options exercisable at $0.22, on or before 4 September 2015 • 11,670,000 unlisted options exercisable at $0.518, on or before 27 June 2015 • 13,373,377 unlisted convertible notes which can be converted to ordinary shares not before 27 June 2014 • 2,350,000 unlisted performance rights which vest upon achieving development and production milestones at The Range Project. There is no consideration payable upon vesting. No option holder, performance right holder or convertible note holder has any right under the options to participate in any other share issue of Stanmore Coal Limited or any other entity. During the year ended 30 June 2013 there were 1,600,000 fully paid ordinary shares in Stanmore Coal Limited issued as a result of the exercise of options and nil fully paid ordinary shares issued as a result of vesting performance rights. Changes to capital structure On 12 October 2012, 292,553 ordinary shares (value $87,766) were issued to employees of the Company as part of terms of employment contracts. On 12 October 2012, 1,216,000 unlisted options were issued to employees of the Company as part of the LTI scheme approved by Shareholders at the EGM 10 October 2012. These options have a vesting date of 30 June 2013 and an expiry of 30 June 2014. Employees may convert their options in a 1 to 1 ratio for ordinary shares of the Company at a price of $0.48 per option. On 12 October 2012, 2,350,000 unlisted performance rights were issued to senior employees of the Company pursuant to Shareholder approval obtained at the EGM 10 October 2012. The performance rights vest upon the triggering of certain milestones related to The Range Project: • 50% conversion upon grant of Mining Lease • 50% conversion upon achieving an annualised production rate of 5 Mtpa for one month. On 26 October 2012, 20,791,143 ordinary shares were issued to Greatgroup Investments Limited pursuant to ANNUAL REPORT 2013 STANMORE COAL 50 Shareholder approval obtained at the EGM October 2012. The shares were priced at $0.675 per security (value $14,034,021). On 26 October 2012, 11,670,000 unlisted options were issued to Credit Suisse AG pursuant to Shareholder approval obtained at the EGM 10 October 2012. The options are convertible to ordinary shares of the Company at a ratio of 1 to 1 at an exercise price of $0.518 per option. The options have vested and expire on 27 June 2015. On 26 October 2012, 13,373,377 unlisted convertible notes were issued to Greatgroup Investments Limited pursuant to Shareholder approval obtained at the EGM 10 October 2012. The notes are convertible to ordinary shares of the Company at a ratio of 1 to 1 at an exercise price of $0.675 per note. The notes cannot be converted prior to 27 June 2014 and have an expiry of 27 June 2015. In addition the notes can be converted at the election of either the Company or Greatgroup. On 26 October 2012, 140,000 unlisted options were issued to an employee of the Company as part of the LTI payment for the year commencing 1 July 2012 and pursuant to Shareholder approval obtained at the EGM 10 October 2012. Prior to 30 June 2013 the employee left the Company and in accordance with the Incentive Plan the options have been cancelled. On 12 November 2012, 5,714,286 ordinary shares (value $1,314,286) were issued to the vendor as consideration for the acquisition of EPC 1186. On 12 November 2012, 20,000 ordinary shares (value $4,600) were issued pursuant to terms of employment contracts. On 26 November, 29 November and 7 December 2012, a total of 1,600,000 employee options were exercised (value $308,800 with a strike price of 19.3 cents, resulting in 1,600,000 ordinary shares being issued. 4,750,000 options (with strike price of 19.3 cents) were not exercised and expired on 9 December 2012. On 11 March 2013, 592,162 ordinary shares (value $121,393) were issued to employees of the Company as part of the STI payment for the year ending 31 December 2012 and pursuant to Shareholder approval obtained at the EGM 10 October 2012. On 3 April 2013, 75,000 unlisted options were issued to a consultant to the Company as part of the LTI scheme approved by Shareholders at the EGM 10 October 2012. These options have a vesting date of 2 April 2014 and an expiry of 2 April 2015. Employees may convert their options in a 1 to 1 ratio for ordinary shares of the Company at a price of $0.25 per option. At the date of this report, the Consolidated Entity had 208,469,252 ordinary shares, 25,052,000 unlisted options, 13,373,377 convertible notes and 2,350,000 performance rights on issue. After balance date events Extension to WICET capacity entitlements The Capacity Commitment Deed executed on 27 June 2012 had an original expiry date of 27 June 2013. Subsequent to year end, the WEXP1 producers, including Stanmore Coal, negotiated a one year extension to the CCD which gives the producers the option to accelerate the Project or finalise a longer term framework for protecting their priority rights to future expansions of the terminal. Stanmore’s contractual rights under the CCD remain unchanged. As part of the extension Stanmore Coal also negotiated a reduction to its bonding and expenditure commitments associated with WEXP1. Voluntary prepayment and cancellation of Credit Suisse Facility Post 30 June 2013, the Company and Credit Suisse AG agreed to a voluntary prepayment of the facility. The net outstanding amount of $3.2 million was repaid to Credit Suisse AG in July 2013 and Credit Suisse AG has released its security position over the assets and undertakings of the Company. There have been no other events since 30 June 2013 that impact upon the financial report as at 30 June 2013. Dividends paid or recommended There were no dividends paid or recommended during the financial year. Environmental issues The Consolidated Entity is subject to environmental regulation in relation to its exploration activities. There are no material matters that have arisen in relation to environmental issues up to the date of this report. Proceedings on behalf of the consolidated entity No person has applied for leave of Court to bring proceedings on behalf of the Consolidated Entity or intervene in any proceedings to which the Consolidated STANMORE COAL ANNUAL REPORT 2013 51 Auditor’s independence declaration The Auditor’s Independence Declaration forms part of the Directors’ Report and can be found on page 52. Corporate governance In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of Stanmore Coal Limited support and have adhered to the principles of corporate governance. Stanmore Coal Limited’s Corporate Governance Statement can be found on page 58. This report is signed in accordance with a resolution of the Directors. Nicholas Jorss Managing Director Brisbane 24 September 2013 Entity is a party for the purposes of taking responsibility on behalf of the Consolidated Entity for all or any part of those proceedings. The Consolidated Entity was not a party to any such proceedings during the year. Future developments, prospects and business strategies Other than the matters discussed in the Operating and Financial Review there are no other developments of which the Directors are aware which could be expected to affect the results of the Consolidated Entity’s operations in subsequent financial years, other than information which the Directors believe comment on, or disclosure of, would prejudice the interests of the Consolidated Entity. Non-audit services The following non-audit services were provided by the entity’s auditor BDO Audit Pty Ltd. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. BDO Audit Pty Ltd received the following amounts for the provision of non-audit services: Tax services: $18,625 ANNUAL REPORT 2013 STANMORE COAL 52 AUDITOR’S INDEPENDENCE DECLARATION Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000, GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY DAMIAN WRIGHT TO THE DIRECTORS OF STANMORE COAL LIMITED As lead auditor of Stanmore Coal Limited for the year ended 30 June 2013, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (cid:127) (cid:127) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. This declaration is in respect of Stanmore Coal Limited and the entities it controlled during the period. D P WRIGHT Director BDO Audit Pty Ltd Brisbane, 24 September 2013 BDO Audit Pty Ltd ABN 33 134 022 870 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 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. STANMORE COAL ANNUAL REPORT 2013 ANNUAL REPORT 2013 STANMORE COAL 53 Financial Report 54 SHAREHOLDER INFORMATION Additional information required by the Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 31 August 2013. (a) Distribution of equity securities The number of holders, by size of holding, in each class of security is: Ordinary shares Unlisted options ($0.19 @ 31/12/13) Unlisted options ($0.15 @ 16/1/14) Unlisted options ($0.73 @ 31/12/13) Number of holders Number of shares Number of holders Number of options Number of holders Number of options Number of holders Number of options 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 159 361 254 859 57,220 1,093,971 1,997,738 29,470,645 100,001 and over 162 175,849,678 Total 1,795 208,469,252 - - - - 3 3 - - - - 3,500,000 3,500,000 - - - 1 1 1 - - - - 525,000 525,000 - - - 1 - 1 - - - 100,000 - 100,000 Unlisted options ($0.87 @ 31/12/13) Unlisted options ($1.09 @ 31/12/13) Unlisted options ($1.75 @ 31/12/15) Unlisted options ($2.00 @ 31/12/15) Number of holders Number of options Number of holders Number of options Number of holders Number of options Number of holders Number of options 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001 and over Total - - - 1 - 1 - - - 100,000 - 100,000 - - - 1 - 1 - - - 100,000 - 100,000 - - - - 2 2 - - - - 900,000 900,000 - - - - 2 2 - - - - 900,000 900,000 Unlisted options ($2.25 @ 31/12/15) Unlisted options ($2.50 @ 31/12/15) Unlisted options ($1.75 @ 31/03/16) Unlisted options ($2.00 @ 31/03/16) Number of holders Number of options Number of holders Number of options Number of holders Number of options Number of holders Number of options 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001 and over Total - - - - 2 2 - - - - 900,000 900,000 - - - - 1 1 - - - - 500,000 500,000 - - - - 1 1 - - - - 450,000 450,000 - - - - 1 1 - - - - 450,000 450,000 STANMORE COAL ANNUAL REPORT 2013 55 Unlisted options ($2.25 @ 31/03/16) Unlisted options ($2.50 @ 31/03/16) Unlisted options ($0.48 @ 30/06/14) Unlisted options ($0.25 @ 02/04/15) Number of holders Number of options Number of holders Number of options Number of holders Number of options Number of holders Number of options 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001 and over Total - - - - 1 1 - - - - 450,000 450,000 - - - - 1 1 - - - - - - - - - - - - 450,000 450,000 10 10 1,216,000 1,216,000 - - - 1 - 1 - - - 75,000 - 75,000 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001 and over Total Unlisted options ($0.518 @ 30/06/15) Unlisted options ($0.675 @ 27/06/15) Number of holders Number of options Number of holders Number of options - - - - 1 1 - - - - - - - - - - - - 11,670,000 11,670,000 1 13,373,377 1 13,373,377 The number of shareholders holding less than a marketable parcel (2,778 ordinary shares) is 320 (358,805 ordinary shares). (b) Twenty largest holders he names of the twenty largest holders as at 31 August 2013, in each class of quoted security are: Ordinary shares 1 2 3 4 5 6 7 8 9 10 11 Greatgroup Investments Ltd* St Lucia Resources 3rd Wave Investors Ltd* National Nominees Limited BT Portfolio Services LtdNorfolk Enchants Pty Ltd JH Nominees Australia Pty Ltd HSBC Custody Nominees (Australia) Limited Mr Vivian Forbes Bizzell Nominees Pty Ltd UBS Wealth Management Australia Nominees Pty Ltd Number of shares 41,565,418 31,700,270 18,960,000 8,729,221 3,500,000 3,000,000 2,768,124 2,732,271 2,088,270 2,003,950 1,960,228 % of total shares 19.94 15.21 9.09 4.19 1.68 1.44 1.33 1.31 1.00 0.96 0.94 ANNUAL REPORT 2013 STANMORE COAL 56 12 13 14 15 16 17 18 19 20 Rookharp Pty Ltd Kabila Investments Pty Ltd CPS International Holdings Pty Ltd Citicorp Nominees Pty Limited JP Morgan Nominees Australia Limited Mrs Elizabeth Anne Fogarty + Miss Caitlyn Elizabeth Fogarty Caythorpe Pty Ltd Citicorp Nominees Pty Limited CPS International Holdings Pty Ltd Total of twenty largest holders Total ordinary shares *Merged. Substantial shareholders Number of shares 1,879,588 1,768,502 1,571,207 1,541,974 1,455,420 1,300,000 1,265,507 1,262,020 132,501,970 208,469,252 % of total shares 0.90 0.85 0.75 0.74 0.70 0.62 0.61 0.61 63.56 100.00 Substantial shareholders as shown in substantial shareholder notices received by Stanmore Coal Limited at 31 August 2013 are: Name of shareholder Greatgroup Investments Limited St Lucia Resources International Pty Ltd VW & AC Pty Ltd* Olross Investments Pty Ltd* Raplon Pty Ltd* 3rd Wave Investors Limited Kinetic Investment Partners Pty Ltd Ordinary share: 41,565,418 31,700,270 31,700,270 31,700,270 31,700,270 16,786,020 12,887,368 *Relevant interest under s.608(3)(a) Corporations Act 2001 (Cth) by having voting power of above 20% in St Lucia Resources International Pty Ltd, which holds 31,700,270 shares in Stanmore Coal Limited. (c) Voting rights All ordinary shares carry one vote per share without restriction. Options do not carry voting rights. (d) Restricted securities There are no restricted securities on issue at 31 August 2013. STANMORE COAL ANNUAL REPORT 2013 57 INTERESTS IN TENEMENTS Stanmore Coal Limited held the following interests in tenements as at 31 August 2013: Tenement EPC 1112 EPC 1113 EPC 1114 EPC 1168 EPC 1186 EPC 1274 EPC 1276 EPC 1545 EPC 1552 EPC 1567 EPC 1627 EPC 1687 EPC 1769 EPC 1804 EPC 2030 EPC 2039 EPC 2062 EPC 2081 EPC 2176 EPC 2371 MLA 55001 MLA 80199 % Interest 100 100 100 100 100 100 100 100 100 100 100 85 100 100 100 100 100 95 100 100 Application Application Grant Date 23/03/2007 23/03/2007 28/02/2008 24/10/2007 12/03/2013 10/09/2008 10/09/2008 20/05/2009 20/05/2009 27/06/2011 12/08/2011 28/07/2011 31/05/2011 27/06/2011 12/10/2010 12/10/2010 09/02/2012 15/10/2010 22/11/2011 28/07/2011 - Expiry Date 22/03/2017 22/03/2017 27/02/2013 23/10/2015 11/03/2018 09/09/2013 09/09/2013 19/05/2014 19/05/2017 26/06/2016 11/08/2016 27/07/2016 30/05/2016 26/06/2016 11/10/2015 11/10/2015 08/02/2017 14/10/2015 21/11/2016 27/07/2016 - ANNUAL REPORT 2013 STANMORE COAL 58 CORPORATE GOVERNANCE STATEMENT The Board of Directors of Stanmore Coal Limited is responsible for the corporate governance of the Consolidated Entity. The Board guides and monitors the business and affairs of Stanmore Coal Limited on behalf of the shareholders by whom they are elected and to whom they are accountable. Stanmore Coal Limited’s Corporate Governance Statement is structured with reference to the Australian Securities Exchange (ASX) Corporate Governance Council’s (the Council) “Corporate Governance Principles and Recommendations, 2nd Edition”, which are as follows: Principle 1 Principle 2 Principle 3 Principle 4 Principle 5 Principle 6 Principle 7 Principle 8 Lay solid foundations for management and oversight Structure the Board to add value Promote ethical and responsible decision making Safeguard integrity in financial reporting Make timely and balanced disclosure Respect the rights of shareholders Recognise and manage risk Remunerate fairly and responsibly A copy of the eight Corporate Governance Principles and Recommendations can be found on the ASX’s website. A copy of the Company’s Corporate Governance Charter can be downloaded from the Company’s website www.stanmorecoal.com.au. Structure of the Board and Director independence The skills, experience and expertise relevant to the position of Director held by each Director in office at the date of the Annual Report is included in the Director’s Report. The Corporate Governance Council defines an independent Director as a non-executive Director who is not a member of management and who is free of any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with – the independent exercise of their judgement. In the context of Director independence, “materiality” is considered from both the Company and the individual Director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be quantitatively immaterial if it is equal to or less than 5% of the appropriate base amount. It is presumed to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 5% of the appropriate base amount. Qualitative factors considered include whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other factors which point to the actual ability of the Director in question to shape the direction of the Company’s loyalty. Factors that may impact on a Director’s independence are considered each time the Board meets. Stanmore Coal Limited considers industry experience and specific expertise, as well as general corporate experience, to be important attributes of its Board members. The Directors noted above have been appointed to the Board of Stanmore Coal Limited due to their considerable industry and corporate experience. There are procedures in place, agreed by the Board, to enable Directors, in furtherance of their duties, to seek independent professional advice at the Consolidated Entity’s expense. Mr Nicholas Jorss is the Managing Director. The Consolidated Entity does not consider Mr Jorss to be an independent Director as defined in the ASX Guidelines on the basis that he is a Director of St Lucia Resources International Pty Ltd, a substantial shareholder (greater than 5%) in the Consolidated Entity. Mr Stephen Bizzell is a non-executive Director and the current Chairman of the Audit and Risk Management Committee. The Consolidated Entity does not consider Mr Bizzell to be an independent Director as defined in the ASX Guidelines on the basis that he is a Director of Bizzell Capital Partners Pty Ltd, an entity that partially underwrote a Share Purchase Plan announced in December 2011 and provides investor relations to the Company. STANMORE COAL ANNUAL REPORT 2013 59 Mr Andrew Martin is a non-executive Director. The Consolidated Entity does not consider Mr Martin to be an independent Director as defined in the ASX Guidelines on the basis that he is a Director of St Lucia Resources International Pty Ltd, a substantial shareholder (greater than 5%) in the Consolidated Entity. Mr Chris McAuliffe is a non-executive Director. The Consolidated Entity does not consider Mr McAuliffe to be an independent Director as defined in the ASX Guidelines on the basis that he is the Managing Director of Sprint Capital, the investment management group responsible for Greatgroup Investments Limited, who is a substantial shareholder (greater than 5%) in the Consolidated Entity. Based on the above, for the purposes of the ASX Corporate Governance Principles and Recommendations, Messrs Jorss, Bizzell, Martin and McAuliffe are not considered independent Directors. The term in office held by each Director in office at the date of this report is as follows: Name Neville Sneddon Nicholas Jorss Andrew Martin Stephen Bizzell Viv Forbes Chris McAuliffe Term in office 3 year 11 months 5 years 3 months 5 years 3 months 3 year 11 months 3 year 11 months 1 year 2 months ASx principles and recommendations The Board is of the view that with the exception of the departures from the ASX Guidelines as set out in the table below, it otherwise complies with all of the ASX Guidelines. ASX principles and recommendations Summary of the Consolidated Entity’s position Principle 2 – Structure the board to add value Recommendation 2.1 – A majority of the Board should be independent Directors Recommendation 2.4 – The Board should establish a nomination committee Messrs Jorss, Bizzell, Martin and McAuliffe are not considered independent Directors. While the Consolidated Entity does not presently comply with this recommendation, the Consolidated Entity may consider appointing further independent Directors in the future. The Consolidated Entity believes that given the size and scale of its operations, non-compliance by the Consolidated Entity with this recommendation will not be detrimental to the Consolidated Entity. The Board’s view is that the Consolidated Entity is not currently of the size to justify the formation of a separate nomination committee. The Board currently performs the functions of a nomination committee and where necessary will seek advice of external advisors in relation to this role. The Board shall, upon the Consolidated Entity reaching the requisite corporate and commercial maturity, approve the constitution of a nomination committee to assist the Board in relation to the appointment of Directors and senior management. Principle 3 – Promote ethical and responsible decision making Recommendation 3.2 – Companies should establish a policy concerning diversity The Company does not have a formal Diversity Policy, however its approach to recruitment is driven by identifying the best candidate for all positions regardless of gender, age, ethnicity and cultural background. Based on the current scale and complexity of the Company’s operations there is no set objective to achieve a certain percentage of female employees in the workforce. ANNUAL REPORT 2013 STANMORE COAL 60 ASX principles and recommendations Summary of the Consolidated Entity’s position Principle 4 – Safeguard integrity in financial reporting Recommendation 4.2 – The audit committee should be structured so that it: • Consists only of non-executive directors • Consists of a majority of independent Directors • Is chaired by an independent chair, who is not chair of the Board • Has at least three members Messrs Jorss, Bizzell, Martin and McAuliffe are not considered independent Directors and consequently the Committee does not consist of a majority of independent Directors. Whilst the Consolidated Entity does not presently comply with this Recommendation 4.2, it may consider appointing further independent Directors in the future. The Consolidated Entity believes that given the size and scale of its operations, non-compliance by the Consolidated Entity with this Recommendation 4.2 will not be detrimental to the Consolidated Entity. Audit and Risk Management Committee The Board has established an Audit and Risk Management Committee, which operates under a charter approved by the Board. It is the Board’s responsibility to ensure that an effective internal control framework exists within the Company. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators. The Board has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the management of the Company to the Audit and Risk Management Committee. The Committee also provides the Board with additional assurance regarding the reliability of financial information for inclusion in the financial reports. All members of the Audit and Risk Management Committee are Non-Executive Directors. The members of the Audit and Risk Management Committee at the date of this report are: • Stephen Bizzell (Chairman) • Andrew Martin • Chris McAuliffe For additional details of Directors’ attendance at Audit and Risk Management Committee meetings and to review the qualifications of the members of the Audit and Risk Management Committee, please refer to the Directors’ Report. The Audit and Risk Management Charter has been made publicly available on the Company’s website. Remuneration Committee The Remuneration Committee, which operates under a charter approved by the Board, is responsible for reviewing the remuneration policies and practices of the Consolidated Entity and making recommendations to the Board in relation to: • executive remuneration and incentive plans; • the remuneration packages for Management, Directors and the Managing Director; • non-executive Director remuneration; • the Consolidated Entity’s recruitment, retention and termination policies and procedures for senior management; • incentive plans and share allocation schemes; • superannuation arrangements; and • remuneration of members of other committees of the Board. In performing its role, the committee is required to ensure that the remuneration offered is in accordance with prevailing market conditions, contract provisions reflect market practice and targets and incentives are based on realistic STANMORE COAL ANNUAL REPORT 2013 61 performance criteria. The committee will also oversee the application of sound remuneration and employment practices across the Consolidated Entity and ensure the Consolidated Entity complies with legislative requirements related to employment practices. All members of the Remuneration Committee are non-executive Directors. The members of the Remuneration Committee at the date of this report are: • Viv Forbes • Neville Sneddon (Chairman) • Andrew Martin • Stephen Bizzell • Chris McAuliffe For additional details of Directors’ attendance at Remuneration Committee meetings and to review the qualifications of the members of the Remuneration Committee, please refer to the Directors’ Report. Nomination Committee Due to the size and scale of operations, Stanmore Coal Limited does not have a separately established Nomination Committee. The full Board carries out the functions of the Nomination Committee, operating under a charter approved by the Board. Risk management The Company has developed an appropriate framework for risk management and internal compliance and control systems which cover organisational, financial and operational aspects of the Company’s affairs. Further detail of the Company’s Risk Management Policies can be found within the Corporate Governance Charter on the Company’s website. Recommendation 7.2 requires that the Board disclose that management has reported to it as to the effectiveness of the Company’s management of its material business risks. Business risks are considered regularly by the Board and management. As required by Recommendation 7.3, the Board has received written assurances from the Managing Director and Chief Financial Officer that to the best of their knowledge and belief, the declaration provided by them in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Performance evaluation The Remuneration Committee and the Board (in carrying out the functions of the Nomination Committee) considers remuneration and nomination issues annually and otherwise as required in conjunction with the regular meetings of the Board. No formal performance evaluation of the Directors was undertaken during the year ended 30 June 2013. Remuneration The Company’s remuneration strategy and the details of compensation paid to Directors and Key Management Personnel of the Company for the year ended 30 June 2013 are set out in the Company’s Remuneration Report on pages 38 to 48. The Remuneration Committee is responsible for determining and reviewing compensation arrangements for the Directors themselves, subject to Stanmore Coal Limited’s constitution and prior shareholder approvals, and the Executive team. There is no scheme to provide retirement benefits to non-executive Directors. ANNUAL REPORT 2013 STANMORE COAL 62 Continuous disclosure Detailed compliance procedures for ASX Listing Rule disclosure requirements have been adopted by the Consolidated Entity. Stanmore Coal Limited’s Obligation of Disclosure Policy can be found within Stanmore Coal Limited’s Corporate Governance Charter on the Stanmore Coal Limited website (www.stanmorecoal.com.au) in the Corporate Governance section. Trading policy The Board has adopted a policy and procedure on dealing in the Company’s securities by Directors, officers and employees which prohibits dealing in the Company’s securities when those persons possess inside information until it has been released to the market and adequate time has passed for this to be reflected in the security’s prices, and during certain pre-determined windows. The Company’s policy regarding dealings by Directors in the Company’s shares is that Directors should never engage in short term trading and should not enter into transactions when they are in possession of price sensitive information not yet released by the Company to the market; or for a period of fourteen (14) days prior to the scheduled (per ASX Listing Rules) release by the Company of (ASX) Quarterly Operations and Cash Flow Reports or such shorter period as may be approved of by the Board of Directors after receipt of notice of intention to buy or sell by a Director to other members of the Board. Directors will generally be permitted to engage in trading (subject to due notification being given to the Chairperson and Secretary) for a period commencing one (1) business day after the release of (ASX) Quarterly Operations and Cash Flow Reports to the market and for a period commencing one (1) business day following the release of price sensitive information to the market which allows a reasonable period of time for the information to be disseminated among members of the public. gender diversity At 30 June 2013 the Company has 30% female employees. There are currently no females in the Executive Management Team. No member of the six person Board of Directors is female. Based on the current scale and complexity of the Company’s operations there is no set objective to achieve a certain percentage of female employees in the workforce, as the Board does not currently believe that such an initiative would significantly improve the functions currently performed by the Board and Executive Management Team, nor enhance the ability of the Company to deliver on its stated objectives. Stakeholder communications The Consolidated Entity has designed a disclosure system to ensure it complies with the ASX’s continuous disclosure rules and that information is made available to all investors equally, promoting effective communications with shareholders and encouraging shareholder participation at general shareholder meetings. A copy of the Information Disclosure Program Procedures can be found within Stanmore Coal Limited’s Corporate Governance Charter on Stanmore Coal Limited’s website (www.stanmorecoal.com.au) in the Corporate Governance section. In addition to corporate and Project information generally available on the Company’s website, in the Investors section of the Company’s website the following information is made available: • ASX releases • Annual reports • Quarterly reports • Presentations • Media coverage • Flyers STANMORE COAL ANNUAL REPORT 2013 63 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2013 Revenue and other income Employee benefits expenses Depreciation and amortisation expenses Finance costs Legal expenses Impairment expense Administration and consulting expenses Other expenses Profit/(loss) before income tax expense Income tax expense Net profit/(loss) for the year Other comprehensive income Items that will not be subsequently reclassified to profit or loss Items that will be reclassified to profit or loss Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit/(loss) for the year is attributable to: Owners of Stanmore Coal Ltd Total comprehensive income for the year is attributable to: Note 2 3,15 3 4 2013 $’000 1,732 (3,441) (46) (1,284) (701) (787) (1,359) (1,317) (7,203) 2,192 (5,011) - - - 2012 $’000 899 (3,072) (36) (1,432) (607) - (1,462) (1,972) (7,682) - (7,682) - - - (5,011) (7,682) (5,011) (7,682) Owners of Stanmore Coal Ltd (5,011) (7,682) Earnings/(loss) per share attributable to the owners of Stanmore Coal Ltd: Basic earnings/(loss) per share (cents per share) Diluted earnings/(loss) per share (cents per share) Note 8 8 2013 Cents (2.5) (2.5) 2012 Cents (5.3) (5.3) The above Consolidated Statement of Profit or Loss and other Comprehensive Income should be read in conjunction with the accompanying notes. ANNUAL REPORT 2013 STANMORE COAL 64 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2013 Current assets Cash and cash equivalents Restricted cash Trade and other receivables Other current assets Total current assets Non-current assets Property, plant and equipment Exploration and evaluation assets Capitalised development costs Other non-current assets Total non-current assets Total assets Current liabilities Trade and other payables Other current financial liabilities Interest bearing loans and borrowings Total current liabilities Non-current liabilities Interest bearing loans and borrowings Non-interest bearing convertible notes Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity attributable to owners of Stanmore Coal Limited Note 9 10 11 15 13 14a 14b 15 16 16 17 17 18 19 20 21 2013 $’000 24,360 1,500 500 1,356 27,716 2,073 30,517 20,831 8,921 62,342 90,058 1,905 - 4,040 5,945 - - 9,027 9,027 14,972 75,086 88,253 3,543 (16,710) 75,086 2012 $’000 23,957 - 1,700 750 26,407 2,116 19,286 15,200 8,785 45,387 71,794 3,324 1,400 - 4,724 - 4,040 - 4,040 8,764 63,030 72,398 2,331 (11,699) 63,030 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. STANMORE COAL ANNUAL REPORT 2013 65 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2013 Balance at 1 July 2011 Total comprehensive income for the financial year Profit/(loss) for the year Other comprehensive income Transactions with owners in their capacity as owners Issue of share capital Costs associated with issue of share capital Share based payments At 30 June 2012 Total comprehensive income for the financial year Profit/(loss) for the year Other comprehensive income Transactions with owners in their capacity as owners Issue of share capital Costs associated with issue of share capital Share based payments At 30 June 2013 Issued capital $’000 34,770 - - - 38,964 (1,336) - 37,628 72,398 - - - 15,870 (15) - 15,855 88,253 Accumulated losses $’000 (4,017) - (7,682) (7,682) - - - - (11,699) (5,011) - (5,011) - - - - (16,710) Option reserve $’000 1,248 - - - - - 1,083 1,083 2,331 - - - - - 1,212 1,212 3,543 Total $’000 32,001 - (7,682) (7,682) 38,964 (1,336) 1,083 38,711 63,030 (5,011) - (5,011) 15,870 (15) 1,212 17,067 75,086 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. ANNUAL REPORT 2013 STANMORE COAL 66 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2013 Note Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest and other finance costs paid Income taxes (paid)/refunded Net cash (outflow)/inflow from operating activities 26 Cash flows from investing activities Payments for property, plant and equipment Payments for exploration, evaluation and development assets Loans for finance port infrastructure Security deposit (payments)/refunds Net cash (outflow)/inflow from investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from issue of convertible notes Capital raising and IPO expenses Net proceeds from borrowings Net cash (outflow)/inflow from financing activities Net increase/(decrease) in cash held Net cash at beginning of year Net cash at end of year 9 2013 $’000 1,468 (6,983) 578 (99) 2,192 (2,844) (3) (15,901) (3,146) (1,057) (20,107) 14,342 9,027 (15) - 23,354 403 23,957 24,360 2012 $’000 317 (5,385) 886 - (4,182) (113) (20,295) (6,213) (1,743) (28,364) 37,084 (1,336) 2,573 38,321 5,775 18,182 23,957 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. STANMORE COAL ANNUAL REPORT 2013 67 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Note 1: Summary of significant accounting policies The financial statements of Stanmore Coal Limited for the year ended 30 June 2013 were authorised for issue in accordance with a resolution of the Directors on 24 September 2013 and cover the Consolidated Entity consisting of Stanmore Coal Limited and its subsidiaries (“the Company” or “the Group”) as required by the Corporations Act 2001. The financial statements are presented in the Australian currency. Stanmore Coal Limited is a company limited by shares, incorporated and domiciled in Australia, whose shares are publicly traded on the Australian Securities Exchange. Basis of preparation 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, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Company is of a kind referred to in ASIC Class Order 98/100 issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this financial report and Directors’ Report have been rounded off in accordance with this Class Order to the nearest thousand dollars, unless otherwise stated. The financial statements have been prepared on a historical cost basis, except for derivatives, available-for-sale financial assets and held-for-trading investments that have been measured at fair value. The entity is a for-profit entity for the purposes of Australian Accounting Standards. Going concern The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of business. The ability of the Consolidated Entity to continue to adopt the going concern assumption will depend upon a number of matters including the successful raising in the future of necessary funding through debt, equity or farm-out, or the successful exploration and subsequent exploitation of the Consolidated Entity’s tenements. Should these avenues be delayed or fail to materialise, the Group expects to have the ability to scale back its activities to allow the Group to continue as a going concern and meet its debts as and when they fall due. Comparatives When required by Accounting Standards, comparatives have been adjusted to conform to changes in presentation for the current year end. (a) Principles of consolidation The consolidated financial statements comprise the financial statements of Stanmore Coal Limited and its subsidiaries at 30 June each year. Subsidiaries are entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Potential voting rights that are currently exercisable or convertible are considered when assessing control. Consolidated financial statements include all subsidiaries from the date that control commences until the date that control ceases. The financial statements of subsidiaries are prepared for the same reporting period as the parent, using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from intragroup transactions have been eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. ANNUAL REPORT 2013 STANMORE COAL 68 Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income and statement of financial position respectively. Total comprehensive income is attributable to owners of Stanmore Coal Limited and non-controlling interests even if this results in the non- controlling interests having a debit balance. (b) Business combinations The acquisition method of accounting is used to account for all business combinations. Consideration is measured at the fair value of the assets transferred, liabilities incurred and equity interests issued by the Group on acquisition date. Consideration also includes the acquisition date fair values of any contingent consideration arrangements, any pre-existing equity interests in the acquiree and share-based payment awards of the acquiree that are required to be replaced in a business combination. The acquisition date is the date on which the Group obtains control of the acquiree. Where equity instruments are issued as part of the consideration, the value of the equity instruments is their published market price at the acquisition date unless, in rare circumstances it can be demonstrated that the published price at acquisition date is not fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Identifiable assets acquired and liabilities and contingent liabilities assumed in business combinations are, with limited exceptions, initially measured at their fair values at acquisition date. Goodwill represents the excess of the consideration transferred and the amount of the non-controlling interest in the acquiree over fair value of the identifiable net assets acquired. If the consideration and non-controlling interest of the acquiree is less than the fair value of the net identifiable assets acquired, the difference is recognised in profit or loss as a bargain purchase price, but only after a reassessment of the identification and measurement of the net assets acquired. For each business combination, the Group measures non-controlling interests at either fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed when incurred. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Where the Group obtains control of a subsidiary that was previously accounted for as an equity accounted investment in associate or jointly controlled entity, the Group remeasures its previously held equity interest in the acquiree at its acquisition date fair value and the resulting gain or loss is recognised in profit or loss. Where the Group obtains control of a subsidiary that was previously accounted for as an available-for-sale investment, any balance on the available-for-sale reserve related to that investment is recognised in profit or loss as if the Group had disposed directly of the previously held interest. Where settlement of any part of the cash consideration is deferred, the amounts payable in the future are discounted to present value at the date of exchange using the entity’s incremental borrowing rate as the discount rate. Contingent consideration is classified as equity or financial liabilities. Amounts classified as financial liabilities are subsequently remeasured to fair value at the end of each reporting period, with changes in fair value recognised in profit or loss. Assets and liabilities from business combinations involving entities or businesses under common control are accounted for at the carrying amounts recognised in the Group’s controlling shareholder’s consolidated financial statements. (c) Revenue recognition Revenue is measured at the fair value of consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, and duties and taxes paid. The following specific recognition criteria must also be met before revenue is recognised: Interest Revenue is recognised as interest accrues using the effective interest method. STANMORE COAL ANNUAL REPORT 2013 69 (d) Grants received Government grant monies received directly or indirectly are brought to account when there is reasonable assurance that the grant monies will be received and that any attached conditions will be complied with. Grants received that relate to the creation of assets are recognised as a reduction to the carrying amount of the relevant asset. Such grants will be recognised as income through reduced depreciation or amortisation charges in respect of the relevant assets. (e) Income tax The income tax expense for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax base of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for all temporary differences, between carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, at the tax rates expected to apply when the assets are recovered or liabilities settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. Exceptions are made for certain temporary differences arising on initial recognition of an asset or a liability if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit. Deferred tax assets are only recognised for deductible temporary differences and unused tax losses if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax bases of investments in subsidiaries, associates and interests in joint ventures where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances relating to amounts recognised directly in other comprehensive income and equity are also recognised directly in other comprehensive income and equity, respectively. Amounts received under the Research & Development Tax Incentive Scheme are treated as an income tax benefit as it is effectively the monetisation of future tax benefits. These amounts are recognised in the period in which they are received as there is no reliable method to measure or quantify the potential incentive at the end of the financial period to which the claim relates. Stanmore Coal Limited and its wholly-owned subsidiaries have implemented the tax consolidation legislation for the whole of the financial year. Stanmore Coal Limited is the head entity in the tax consolidated group. These entities are taxed as a single entity and deferred tax assets and liabilities have been offset in these consolidated financial statements. Tax consolidation Stanmore Coal Limited and its wholly-owned subsidiaries have implemented the tax consolidation legislation for the whole of the financial year. Stanmore Coal Limited is the head entity in the tax consolidated group. These entities are taxed as a single entity. The stand-alone taxpayer/separate taxpayer within a group approach has been used to allocate current income tax expense and deferred tax expense to wholly-owned subsidiaries that form part of the tax consolidated group. Stanmore Coal Limited has assumed all the current tax liabilities and the deferred tax assets arising from unused tax losses for the tax consolidated group via intercompany receivables and payables because a tax funding arrangement has been in place for the whole financial year. The amounts receivable/payable under tax funding arrangements are due upon notification by the head entity, which is issued soon after the end of each financial year. Interim funding notices may also be issued by the head entity to its wholly-owned subsidiaries in order for the head entity to be able to pay tax instalments. These amounts are recognised as current intercompany receivables or payables. ANNUAL REPORT 2013 STANMORE COAL 70 (f) Impairment of assets At the end of each reporting period the Consolidated Entity assesses whether there is any indication that individual assets are impaired. Where impairment indicators exist, recoverable amount is determined and impairment losses are recognised in profit or loss where the asset’s carrying value exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where it is not possible to estimate recoverable amount for an individual asset, the Consolidated Entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. (g) Cash and cash equivalents For the purposes of the Statement of Cash Flows, cash and cash equivalents includes cash on hand and at bank, deposits held at call with financial institutions, other short term, highly liquid investments with 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 and bank overdrafts. (h) Restricted cash Restricted cash includes term deposits which securitise a bank guarantee or other facility provided by an external third party lender. These amounts are not able to be converted to readily accessible cash without the consent of an external third party. (i) Trade receivables Trade receivables are recognised at original invoice amounts less an allowance for uncollectible amounts and have repayment terms between 30 and 90 days. Collectability of trade receivables is assessed on an ongoing basis. Debts which are known to be uncollectible are written off. An allowance is made for doubtful debts where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. Objective evidence of impairment includes financial difficulties of the debtor, default payments or debts more than 180 days overdue. On confirmation that the trade receivable will not be collectible the gross carrying value of the asset is written off against the associated provision. From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and are not, in the view of the Directors, sufficient to require the derecognition of the original instrument. (j) Non-current assets classified as held for sale Non-current assets classified as held for sale are those assets whose carrying amounts will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. These assets are stated at the lower of their carrying amount and fair value less costs to sell and are not depreciated or amortised. Interest expenses continues to be recognised on liabilities of a disposal group classified as held for sale. An impairment loss is recognised for any initial or subsequent write-down of the asset to fair value less costs to sell. A gain is recognised for subsequent increases in fair value less costs to sell of an asset but not exceeding any cumulative impairment losses previously recognised. (k) Investments and other financial assets All investments and other financial assets are initially stated at cost, being the fair value of consideration given plus acquisition costs. Purchases and sales of investments are recognised on trade date which is the date on which STANMORE COAL ANNUAL REPORT 2013 71 the Group commits to purchase or sell the asset. Accounting policies for each category of investments and other financial assets subsequent to initial recognition are set out below. Held for trading Investments held for trading are measured at fair value with gains or losses recognised in profit or loss. A financial asset is classified as held-for-trading if acquired principally for the purpose of selling in the short term or if it is a derivative that is not designated as a hedge. Assets in this category are classified as current assets in the statement of financial position if they are expected to be settled within 12 months, otherwise they are classified as non-current assets. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has the positive intention and ability to hold-to-maturity and are measured at amortised cost subsequent to initial recognition using the effective interest method. If the Group were to sell other than an insignificant amount of held-to-maturity investments, the whole category is then reclassified as available-for-sale. Available-for-sale financial assets Available-for-sale financial assets comprise investments in listed and unlisted entities and any non-derivatives that are not classified as any other category of financial assets, and are classified as non-current assets (unless management intends to dispose of the investment within 12 months of the end of the reporting period). After initial recognition, these investments are measured at fair value with gains or losses recognised in other comprehensive income (available-for-sale investments revaluation reserve). Where there is a significant or prolonged decline in the fair value of an available-for-sale financial asset (which constitutes objective evidence of impairment) the full amount including any amount previously charged to other comprehensive income is recognised in profit or loss. On sale, the amount held in available-for-sale reserves associated with an available-for-sale financial asset is recognised in profit or loss as a reclassification adjustment. Interest on corporate bonds classified as available-for- sale is calculated using the effective interest rate method and is recognised in finance income in profit or loss. Reversals of impairment losses on equity instruments classified as available-for-sale cannot be reversed through profit or loss. Reversals of impairment losses on debt instruments classified as available-for-sale can be reversed through profit or loss where the reversal relates to an increase in the fair value of the debt instrument occurring after the impairment loss was recognised in profit or loss. The fair value of quoted investments are determined by reference to Securities Exchange quoted market bid prices at the close of business at the end of the reporting period. For investments where there is no quoted market price, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment. Loans receivable Loans receivable are non-derivative financial assets with fixed or determinable repayment dates that are not traded in an active market. After initial recognition, such assets are subsequently recognised at amortised cost less impairment. Loans and borrowings After initial recognition, loans and borrowings are subsequently recognised at amortised cost. Fair values Fair values may be used for financial asset and liability measurement as well as for sundry disclosures. ANNUAL REPORT 2013 STANMORE COAL 72 Fair values for financial instruments traded in active markets are based on quoted market prices at the end of the reporting period. The quoted market price for financial assets is the current bid price. The carrying value less impairment provision of current receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of other financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. (l) Plant and equipment Plant and equipment is measured on the cost basis less depreciation and impairment losses. The cost of fixed assets constructed within the Consolidated Entity includes the cost of materials, direct labour, borrowing costs and an appropriate portion of fixed and variable costs. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Consolidated Entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets is depreciated over their useful life to the Consolidated Entity commencing from the time the asset is held ready for use. The depreciation rates used for each class of assets are: Class of fixed asset Plant and equipment Computer equipment Furniture and office equipment Depreciation rate 10–25% straight line 33.3% straight line 5–10% straight line The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Gains and losses on disposal are determined by comparing proceeds with the carrying amount. The gains and losses are included in profit or loss. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Gains and losses on disposal are determined by comparing proceeds with the carrying amount. The gains and losses are included in profit or loss. (m) Derivative financial liabilities Obligations to settle fees payable to financiers as either cash or shares are reflected as derivative financial liabilities with changes in fair value recognised directly through profit and loss. (n) Exploration and evaluation expenditure Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. Such expenditures comprise net direct costs and an appropriate portion of related overhead expenditure but do not include overheads or administration expenditure not having a specific nexus with a particular area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful STANMORE COAL ANNUAL REPORT 2013 73 development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves and active or significant operations in relation to the area are continuing. A regular review has been undertaken on each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structure, waste removal, and rehabilitation of the site in accordance with clauses of mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis. Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly the costs have been determined on the basis that restoration will be completed within one year of abandoning the site. (o) Intangible assets/development costs Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate: • the technical feasibility of completing the intangible asset so that it will be available for use or sale; • its intention to complete and its ability to use or sell the asset; • how the asset will generate future economic benefits; • the availability of resources to complete the asset; and • the ability to measure reliability the expenditure during development. Following initial recognition of the development expenditures an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. During the period of development, the asset is tested for impairment annually. (p) Trade and other payables Trade and other payables represent liabilities for goods and services provided to the Group prior to the year end and which are unpaid. These amounts are unsecured and have 7–60 day payment terms. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. (q) Employee benefits Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the end of the reporting period are recognised in respect of employees’ services rendered up to the end of the reporting period and are measured at amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when leave is taken and measured at the actual rates paid or payable. In determining the liability, consideration is given to employee wage increases and the probability that the employee may satisfy vesting requirements. ANNUAL REPORT 2013 STANMORE COAL 74 (r) Provisions Provisions for legal claims, service warranties and make good obligations are recognised when the Consolidated Entity has a present legal or constructive obligation as a result of a past event, it is probable that that an outflow of economic resources will be required to settle the obligation and the amount can be reliably estimated. (s) Issued capital Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares or options are shown as a deduction from the equity proceeds, net of any income tax benefit. (t) Share-based payments The Consolidated Entity provides benefits to employees and consultants in the form of share-based payment transactions, whereby they render services in exchange for shares or options over shares (equity-settled transactions). The fair value of shares or options granted to employees and consultants is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees or consultants become unconditionally entitled to the instruments. For options, fair value is determined by an independent valuer using a Black-Scholes option pricing model. In determining fair value, no account is taken of any performance conditions other than those related to the share price of Stanmore Coal Limited (market conditions). The cumulative expense recognised between grant date and vesting date is adjusted to reflect the Directors’ best estimate of the number of instruments that will ultimately vest because of internal conditions of the instruments, such as the employees having to remain with the Consolidated Entity until vesting date, or such that employees are required to meet internal sales targets. No expense is recognised for instruments that do not ultimately vest because internal conditions were not met. An expense is still recognised for instruments that do not ultimately vest because a market condition was not met. Where the terms of options are modified, the expense continues to be recognised from grant date to vesting date as if the terms had never been changed. In addition, at the date of the modification, a further expense is recognised for any increase in fair value of the transaction as a result of the change. Where options are cancelled, they are treated as if vesting occurred on cancellation and any unrecognised expenses are taken immediately to profit or loss. However, if new options are substituted for the cancelled options and designated as a replacement on grant date, the combined impact of the cancellation and replacement options are treated as if they were a modification. (u) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to owners of Stanmore Coal Limited by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share Earnings used to calculate diluted earnings per share are calculated by adjusting the amount used in determining basic earnings per share by 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 shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. STANMORE COAL ANNUAL REPORT 2013 75 (v) GST Revenues, expenses and assets are recognised net of GST except where GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (w) Operating segments The Consolidated Entity applies AASB 8 Operating Segments which requires a management approach under which segment information is presented on the same basis as that used for internal reporting purposes. Operating segments are reported in a manner that is consistent with the internal reporting to the chief operating decision maker (CODM), which has been identified by the Consolidated Entity as the Managing Director and other members of the Board of Directors. (x) New and amended standards and interpretations not yet adopted A number of new standards, amendments and interpretations are effective for annual periods beginning after 1 July 2012, and have not been applied in preparing these financial statements. The Consolidated Entity’s assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Consolidated Entity, are set out below: (i) AASB 9 Financial Instruments (effective from 1 January 2015) This standard introduces new classification and measurement models for financial assets, using a single approach to determine whether a financial asset is measured at amortised cost of fair value. The accounting for financial liabilities continues to be classified and measured in accordance with AASB 139, with one exception, being that the portion of a change of fair value relating to the entity’s own credit risk is to be presented in other comprehensive income unless it would create an accounting mismatch. The Consolidated Entity will adopt this standard from 1 July 2015 but the impact of its adoption is yet to be assessed by the Consolidated Entity. (ii) AASB 11 Joint Arrangements (effective 1 January 2013) This standard is application to annual reporting periods beginning on or after 1 January 2013. The standard defines which entities qualify as joint ventures and removes the option to account for joint venture using proportionate consolidation. Joint ventures, where the parties to the agreement have the rights to the net assets will use equity accounting. Joint operations, where the parties to the agreements have the rights to the assets and obligations for the liabilities will account for the assets, liabilities, revenues and expenses separately. The adoption of this standard from 1 July 2013 will not have a material impact on the Consolidated Entity. In addition to the above, new and amended standards dealing with Consolidated Financial Statements, Separate Financial Statements and Fair Value Measurement have recently been released. These standards are effective from 1 January 2013. The Consolidated Entity does not plan to adopt these standards early nor has the extent of their impact been determined. ANNUAL REPORT 2013 STANMORE COAL 76 (y) Accounting estimates and judgments Critical accounting estimates and judgements Details of critical accounting estimates and judgements made by management at the end of the reporting period are set out below: (i) Key estimates – share-based payments The Consolidated Entity uses estimates to determine the fair value of equity instruments issued to Directors, executives and employees. Further detail of estimates used in determining the value of share-based payments is included in Note 27. (ii) Key estimates – impairment The Consolidated Entity assesses impairment at each reporting date by evaluating conditions specific to the Consolidated Entity that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. At the end of the reporting period the Consolidated Entity held several loan receivable amounts with the port developer Wiggins Island Coal Export Terminal. The loan relating to the second expansion phase for $787 was assessed as impaired due to uncertainty around timing and delivery of the expansion. All other loans to the port developer and all other assets of the Consolidated Entity are considered to be not impaired at year end. (iii) Key judgements – exploration & evaluation assets The Consolidated Entity performs regular reviews on each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. While there are certain areas of interest from which no reserves have been extracted, the Directors are of the continued belief that such expenditure should not be written off since feasibility studies in such areas have not yet concluded. Such capitalised expenditure is carried at the end of the reporting period at $30,517 (2012: $19,286). (iv) Key judgements – fair value of development costs Development costs are capitalised in accordance with the accounting policy in Note 1(n). Initial capitalisation of costs is based on management’s judgement that technological and economic feasibility is confirmed, usually when a PFS has been completed. In determining the amounts to be capitalised, management makes assumptions regarding the expected future cash generating potential of the Project, discount rates to be applied and the expected period of which cashflows are expected to be received. As at 30 June 2013, the carrying amount of capitalised developments costs was $20,831 (2012: $15,200). This amount relates wholly to The Range Project located in the Surat Basin. (v) Key judgements – financial instruments When the fair value of financial assets and financial liabilities cannot be derived from active markets, the fair value is determined valuation techniques including the discounted cashflow model. The judgements applied in development these models relate to inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. (z) Parent entity financial information The financial information for the parent entity, Stanmore Coal Limited, included in Note 22, has been prepared on the same basis as the consolidated financial statements, except as follows: Investments in subsidiaries Investments in subsidiaries, associates and joint ventures are accounted for at cost. STANMORE COAL ANNUAL REPORT 2013 77 Note 2: Revenue and other income Revenue from continuing operations Interest received – other persons Other income Total revenue and other income Note 3: Profit/(loss) Note 2013 $’000 764 968 1,732 Note 2013 $’000 Profit/(loss) before income tax includes the following specific expenses Depreciation Plant and equipment Finance costs Interest paid – external parties Borrowing costs Write-off of capitalised exploration expenditure and infrastructure funding Costs of securing infrastructure capacity rights Share-based payments (shares) Share-based payments (options) Superannuation expense Minimum lease payments made under operating leases 15 27 27 46 305 979 787 - 214 776 125 79 2012 $’000 886 13 899 2012 $’000 36 18 14 - 902 380 1,082 98 76 ANNUAL REPORT 2013 STANMORE COAL 78 Note 4: Income tax expense Reconciliation Current income tax expense Deferred income tax expense Deferred income tax through equity R&D refund Income tax expense/benefit 2013 $’000 (6,090) 5,971 119 (2,192) (2,192) 2012 $’000 (5,462) 5,491 (29) - - The prima facie income tax on the loss is reconciled to the income tax expense as follows: Prima facie tax benefit (30%) on loss before income tax (2,160) (2,304) Add tax effect of: Permanent differences Deferred tax asset not recognised R&D refund Income tax expense/(benefit) Recognised deferred tax assets and liabilities Deferred tax assets Unused tax losses Deductible temporary differences* Deferred tax liabilities Assessable temporary differences Deferred tax Unrecognised deferred tax assets Unused tax losses Deferred tax assets not taken up at 30% (2012: 30%) 14 2,146 (2,192) (2,192) 14,826 578 15,404 (15,404) - 11,817 3,545 392 1,912 - - 9,458 728 10,186 (10,186) - 11,220 3,366 *At 30 June 2013 there are $283 (2012: $396) of deferred tax assets relating to share issue costs which were recognised in equity. In order to recoup carried forward losses in future periods, either the Continuity of Ownership Test (COT) or Same Business Test (SBT) must be passed. There is approximately $61,235 in losses carried forward at 30 June 2013. Deferred tax assets which have not been recognised as an asset, will only be obtained if: (i) the Consolidated Entity derives future assessable income of a nature and of an amount sufficient to enable the losses to be realised; (ii) the Consolidated Entity continues to comply with the conditions for deductibility imposed by the law; and (iii) no changes in tax legislation adversely affect the Consolidated Entity in realising the losses. STANMORE COAL ANNUAL REPORT 2013 79 Note 5: Key management personnel (a) Total key management personnel compensation Short-term employee benefits Post-employment benefits Termination benefits Share-based payments 2013 $’000 1,873 66 27 886 2,852 2012 $’000 1,704 56 - 1,250 3,010 Further information regarding the identity of key management personnel and their compensation can be found in the Audited Remuneration Report contained in the Directors’ Report on pages 38 to 48 of this Annual Report. (b) Equity instruments Shareholdings Details of ordinary shares held directly, indirectly or beneficially by key management personnel and their related parties are as follows: Balance 1 July 2012 Granted as remuneration On exercise of options or rights Net change other Balance 30 June 2013 Directors Neville Sneddon Nicholas Jorss* Andrew Martin* Stephen Bizzell Viv Forbes Chris McAuliffe - 31,762,540 31,700,270 7,372,514 2,088,270 - Senior Management Doug McAlpine 47,534 Vaughan Wishart* 31,769,962 Michael McKee Wesley Nichols^ 280,098 49,763 - 100,835 300,000 300,000 - - - - 97,358 83,555 355,585 63,061 - - - - - 1,000,000 - - - - - - - - - - 58,783 (112,824) 300,000 32,163,375 31,700,270 7,372,514 2,088,270 - 144,892 32,853,517 694,466 - *Shares are held by St Lucia Resources International Pty Ltd of which Nicholas Jorss, Andrew Martin and Vaughan Wishart are Directors, and each have interest in trusts which own >20%. ^Wesley Nichols ceased employment with the Company on 24 May 2013, resulting in a nil KMP shareholding at 30 June 2013. The net reduction is not a result of Mr Nichols selling his shares in the Company. There were no shares held nominally at 30 June 2013. ANNUAL REPORT 2013 STANMORE COAL 80 Balance 1 July 2011 Granted as remuneration On exercise of options or rights Net change other Balance 30 June 2012 Directors Neville Sneddon Nicholas Jorss* Andrew Martin* Stephen Bizzell Viv Forbes Chris McAuliffe# Senior Management Doug McAlpine^ - 31,710,000 31,680,000 7,138,347 2,068,000 - - Vaughan Wishart* 31,680,000 Michael McKee Wesley Nichols 44,143 - Duncan Cornish** 1,115,771 - - - - - - 47,534 57,692 235,955 49,763 - - - - - - - - - - - - - 52,540 20,270 234,167 20,270 - - - 31,762,540 31,700,270 7,372,514 2,088,270 - 47,534 32,270 31,769,962 - - (1,115,771)** 280,098 49,763 - *Shares are held by St Lucia Resources International Pty Ltd of which Nicholas Jorss, Andrew Martin and Vaughan Wishart are Directors, and each have interest in trusts which own >20%. **Duncan Cornish stepped down as Chief Financial Officer on 19 September 2011 and is not considered to be key management personnel following that date, resulting in a nil balance key management personnel shareholding at 30 June 2012. The net reduction of 1,105,771 shares during the year is not a result of Mr Cornish selling his shares in the Company. ^Opening balance on commencement of employment. #Chris McAuliffe commenced as a Director on 17 July 2012. There were no shares held nominally at 30 June 2012. Options holdings Balance 1 July 2012 Granted as remuneration Exercise of options Net change other Balance 30 June 2013 Total vested at 30 June 2013 Total vested and exercisable at 30 June 2013 Total vested and not exercisable at 30 June 2013 Directors Neville Sneddon 1,350,000 Nicholas Jorss 2,000,000 Andrew Martin 1,000,000 Stephen Bizzell 3,000,000 Viv Forbes 525,000 Chris McAuliffe - Senior Management Doug McAlpine 1,800,000 - - - - - - - (300,000) (1,050,000) (300,000) (1,700,000) - (1,000,000) - - - - - - - - - - (1,000,000) 2,000,000 2,000,000 2,000,000 525,000 525,000 525,000 - - - - - - - - 1,800,000 - - - 2,000,000 - - - - - - - - - - - - - - - - - - - - Vaughan Wishart 1,000,000 - (1,000,000) Michael McKee 2,000,000 Wesley Nichols^ 1,200,000 - - - (1,200,000) - ^Wesley Nichols ceased employment with the Company on 24 May 2013, resulting in a nil KMP option holding at 30 June 2013. STANMORE COAL ANNUAL REPORT 2013 81 Balance 1 July 2011 Granted as remuneration Exercise of options Net change other Balance 30 June 2012 Total vested at 30 June 2012 Total vested and exercisable at 30 June 2012 Total vested and not exercisable at 30 June 2012 Directors Neville Sneddon 1,350,000 Nicholas Jorss 2,000,000 Andrew Martin 1,000,000 Stephen Bizzell 3,000,000 Viv Forbes 525,000 Chris McAuliffe* Senior Management Doug McAlpine^ - - Vaughan Wishart 1,000,000 Michael McKee^ 2,000,000 - - - - - - 1,800,000 - - Wesley Nichols^ - 1,200,000 Duncan Cornish** 1,000,000 - - - - - - - - - - - - - 1,350,000 1,350,000 1,350,000 - 2,000,000 2,000,000 2,000,000 - 1,000,000 1,000,000 1,000,000 - 3,000,000 3,000,000 3,000,000 525,000 525,000 525,000 - - - - 1,800,000 - - - - - 1,000,000 1,000,000 1,000,000 - 2,000,000 - 1,200,000 - - - - - 1,000,000 1,000,000 1,000,000 - - - - - - - - - - - ^Opening balance on commencement of employment. *Chris McAuliffe commenced as a Director on 19 July 2012. **Duncan Cornish stepped down as Chief Financial Officer on 19 September 2011 and is not considered to be key management personnel following that date. Performance rights Balance 1 July 2012 Granted as remuneration Exercise of options Net change other Balance 30 June 2013 Total vested at 30 June 2013 Total vested and exercisable at 30 June 2013 Total vested and not exercisable at 30 June 2013 Directors Neville Sneddon Nicholas Jorss Andrew Martin Stephen Bizzell Viv Forbes Chris McAuliffe* Senior Management Doug McAlpine Vaughan Wishart Michael McKee Wesley Nichols^ - - - - - - - - - - - 500,000 - - - - 450,000 400,000 500,000 400,000 - - - - - - - - - - - - - - - - - - - - 500,000 - - - - 450,000 400,000 500,000 (400,000) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ^Wesley Nichols ceased employment with the Company on 24 May 2013, resulting in a nil KMP option holding at 30 June 2013. *Chris McAuliffe commenced as a Director on 19 July 2012. No performance rights were issued or held prior to 1 July 2012. ANNUAL REPORT 2013 STANMORE COAL 82 (c) Loans to key management personnel There were no loans to key management personnel during the year (2012: none). (d) Other transactions and balances Other transactions with key management personnel are set out in Note 29 (c). There were no other transactions or balances with key management personnel during the year. Note 6: Dividends and franking credits There were no dividends paid or recommended during the financial year. There are no franking credits available to the shareholders of Stanmore Coal Limited. Note 7: Auditor’s remuneration Audit services Amounts paid/payable to BDO Audit Pty Ltd for audit or review of the financial statements for the entity or any entity in the Consolidated Entity 74,500 53,891 2013 $ 2012 $ Taxation services Amounts paid/payable to BDO Audit Pty Ltd for non-audit taxation services performed for the entity or any entity in the Consolidated Entity: Preparation of income tax return Note 8: Earnings per share 18,625 93,125 20,892 74,783 2013 $’000 2012 $’000 Earnings Loss attributable to owners of Stanmore Coal Limited used to calculate basic and diluted earnings per share (5,011) (7,682) Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 2013 Number ’000 2012 Number ’000 197,925 143,658 Adjustments for calculation of diluted earnings per share: options* - - Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 197,925 143,658 *Options are considered anti-dilutive as the Consolidated Entity is loss making. Options could potentially dilute earnings per share in the future. Refer to Note 19 (b) for details of options granted as at 30 June 2013. STANMORE COAL ANNUAL REPORT 2013 83 Note 9: Cash and cash equivalents Cash at bank and in hand 2013 $’000 24,360 2012 $’000 23,957 Cash at bank bear floating and fixed interest rates between 1% and 4.45% (2012: 1% and 5.15%). Reconciliation of cash The above figures are reconciled to the cash at the end of the financial year as shown in the statement of cash flows as follows: Balances as above Balances per statement of cash flows 24,360 24,360 23,957 23,957 Cash and cash equivalents of $24.36 million held at 30 June 2013, includes term deposits of $22.00 million (2012: nil). These term deposits are at-call and readily available to be converted to cash without restriction. Note 10: Restricted cash Restricted cash 2013 $’000 1,500 2012 $’000 Restricted cash of $1.5 million held at 30 June 2013 is an amount held on term deposit to cash-back a bank guarantee. The bank guarantee is provided by National Australia Bank and relates to the Company’s commitment to WEXP1. Note 11: Trade and other receivables Current GST receivable Sundry receivables 2013 $’000 338 162 500 2012 $’000 806 894 1,700 No receivables balances are past due or impaired at the end of the reporting period. Sundry receivables reflect interest receivable in relation to $22 million of term deposits held as at 30 June 2013 with various financial institutions. ANNUAL REPORT 2013 STANMORE COAL 84 Note 12: Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(a). Country of incorporation Class of shares Percentage owned (%)* 2013 Percentage owned (%)* 2012 Name of entity Mackenzie Coal Pty Ltd Comet Coal & Coke Pty Ltd Belview Coal Pty Ltd Belview Expansion Pty Ltd (incorporated 7/9/2012) Brown River Project Pty Ltd Emerald Coal Pty Ltd New Cambria Pty Ltd Kerlong Coking Coal Pty Ltd Stanmore Surat Coal Pty Ltd Theresa Creek Coal Pty Ltd (incorporated 6/6/2013) Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary *The proportion of ownership interest is equal to the proportion of voting power held. Note 13: Property, plant and equipment Land deposit At cost Plant and equipment At cost Accumulated depreciation Computer equipment At cost Accumulated depreciation Furniture and office equipment At cost Accumulated depreciation 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2013 $’000 1,930 14 (4) 10 91 (62) 29 137 (33) 104 100% 100% 100% 0% 100% 100% 100% 100% 100% 0% 2012 $’000 1,930 14 (2) 12 91 (34) 57 134 (17) 117 Total plant and equipment 2,073 2,116 STANMORE COAL ANNUAL REPORT 2013 85 Movements in carrying amounts 2013 Balance at the beginning of the year Additions Depreciation expense Carrying amount at the end of the year 2012 Balance at the beginning of the year Additions Depreciation expense Carrying amount at the end of the year Land deposit $’000 1,930 - - 1,930 Land deposit $’000 1,930 - - 1,930 Plant and equipment $’000 Computer equipment $’000 Furniture and office equipment $’000 Total $’000 12 - (2) 10 57 - (28) 29 117 2,116 3 (16) 104 3 (46) 2,073 Plant and equipment $’000 Computer equipment $’000 Furniture and office equipment $’000 6 7 (1) 12 29 50 (22) 57 74 56 (13) 117 Total $’000 2,039 113 (36) 2,116 Note 14 (a): Exploration and evaluation expenditure Non-current Exploration and evaluation expenditure capitalised – exploration and evaluation phases 2013 $’000 2012 $’000 30,517 19,286 Recoverability of the carrying amount of exploration and evaluation assets is dependent on the successful development and commercial exploitation of coal, or alternatively, sale of the respective areas of interest. Movements in carrying amounts Balance at the beginning of the year Additions Written-off Carrying amount at the end of the year Commitments for exploration and evaluation expenditure are disclosed in Note 21. 2013 $’000 19,286 11,231 - 30,517 2012 $’000 14,697 4,589 - 19,286 ANNUAL REPORT 2013 STANMORE COAL 86 Note 14 (b): Capitalised development costs Non-current Capitalised development costs 2013 $’000 2012 $’000 20,831 15,200 Recoverability of the carrying amount of development assets is dependent on the successful completion of development activities, or alternatively, sale of the respective areas of interest. Movements in carrying amounts Balance at the beginning of the year Other additions Written-off Carrying amount at the end of the year Note 15: Other assets Current Prepaid insurance Prepaid borrowing costs Debt service reserve account# Non-current Loans receivable^ Debt service reserve account# Security deposits Prepaid borrowing costs 2013 $’000 15,200 5,631 - 20,831 2013 $’000 11 492 853 1,356 8,595 - 326 - 8,921 2012 $’000 4,672 10,528 - 15,200 2012 $’000 16 734 - 750 6,213 1,069 769 734 8,785 ^Loans receivable reflects amounts due from third parties in respect of funding provided for port infrastructure development. During the year the Company impaired a $787,000 loan which related to funding of early studies for a long term future port expansion which is currently not subject to a formal capacity commitment arrangement. Based on uncertainty around timing of this potential expansion the Company has adopted a conservative position and fully impaired the loan until there is further clarity around delivery of the future expansion. #The Company is required to maintain a Debt Service Reserve Account in accordance with the requirements of a debt finance facility. This balance has been classified as a Current Asset at 30 June 2013 as at balance date the Company had entered into negotiations with Credit Suisse AG to voluntarily repay the facility. The facility was subsequently repaid in July 2013. Refer Note 17. STANMORE COAL ANNUAL REPORT 2013 87 Note 16: Trade and other payables Current Trade and other payables Sundry payables and accrued expenses Employee benefits Other current financial liabilities Other payables 2013 $’000 1,084 785 36 1,905 - 2012 $’000 524 2,738 62 3,324 1,400 Current other payables in the prior year relate to the fair value of the cash-settlement obligation of options granted to Credit Suisse AGin June 2012. As a consequence of obtaining shareholder approval to settle this obligation via the issuance of equity at the extraordinary general meeting in October 2012, there is no liability for this obligation at 30 June 2013. Note 17: Interest bearing loans and liabilities Current Interest bearing loan Non-current Interest bearing loan 2013 $’000 4,040 2012 $’000 4,040 On 28 June 2012 the Company entered into a facility with Credit Suisse AG to provide funding support for part of an infrastructure related financing commitment. During the year no additional funding was drawn from Credit Suisse AG and at 30 June 2013 the Company commenced negotiations with Credit Suisse AG to voluntarily prepay the facility. The facility was repaid in July 2013 and Credit Suisse AG has fully released their secured charge against the assets and undertakings of the Company and its subsidiaries. The amount standing in the Debt Service Reserve Account at balance date ($0.8 million) was returned to the Company such that the net cash outflow to prepay the facility was $3.2 million. Note 18: Non-interest bearing convertible notes Non-current Non-interest bearing convertible notes 2012 $’000 2013 $’000 9,027 On 27 June 2012 the Company signed a Subscription and Co-Operation Agreement with Greatgroup which included the issuance of 13,373,377 convertible notes at a price of 67.5 cents per note (value $9,027,029). The terms of the notes specify that they cannot be converted (except in the limited case of a change of control) to ordinary shares of the Company by either party prior to the conversion period which commences on 27 June 2014. Consequently, in the unlikely circumstance that an event of default occurs prior to the conversion period, it is possible that Greatgroup could enforce its right to redeem the notes for full cash consideration. This feature is described as a contingent settlement provision in AASB 132 Financial Instruments: Presentation and as such the notes are considered a non-current liability prior to the date the conversion period commences. ANNUAL REPORT 2013 STANMORE COAL 88 Note 19: Issued capital 208,419,252 fully paid ordinary shares (2012: 179,409,108) Share issue costs (a) Ordinary shares At the beginning of the year 179,409,108 125,676,177 2013 Number 2012 Number 20 July 20111 11 August 20112 14 December 20113 19 December 20114 18 January 20125 27 January 20126 7 February 20127 23 March 20128 29 June 20129 12 October 201210 26 October 201211 12 November 201212 12 November 201213 26 November 201214 11 March 201315 Share issue costs At reporting date 25,000 1,495,664 19,079,526 97,606 9,756,553 3,736,486 106,406 206,803 19,228,887 - 292,553 20,791,143 5,714,286 20,000 1,600,000 592,162 - 2013 $’000 92,113 (3,860) 88,253 2013 $’000 72,398 87 14,034 1,314 5 309 121 (15) 2012 $’000 76,243 (3,845) 72,398 2012 $’000 34,770 29 1,500 14,119 104 7,220 2,765 82 165 12,980 (1,336) 72,398 208,419,252 179,409,108 88,253 1. On 20 July 2011, 25,000 ordinary shares (value of $29,000) were issued to an employee of the Consolidated Entity. 2. On 11 August 2011, 1,495,664 ordinary shares were issued at an exercise price of $1.0029 (value of $1,500,000) to the vendors of Comet Coke & Coal Pty Ltd in satisfaction of the third and final payment of the purchase of Comet Coal & Coke Pty Ltd. 3. On 14 December 2011, 19,079,526 ordinary shares were issued pursuant to a placement to investors, raising $14,118,849 before issue costs. 4. On 19 December 2011, 97,606 ordinary shares (value of $104,000) were issued to employees of the Consolidated Entity. 5. On 18 January 2012, 9,756,553 ordinary shares were issued pursuant to a placement to investors, raising $7,219,849 before issue costs. 6. On 27 January 2012, 3,736,486 ordinary shares were issued pursuant a placement to investors, raising $2,765,000 before issue costs. 7. On 7 February 2012, 106,406 ordinary shares were issued to an employee of the Consolidated Entity (value of $81,600). 8. On 23 March 2012, 206,806 ordinary shares (value of $165,442) were issued to employees of the Consolidated Entity. 9. On 29 June 2012, 19,228,887 ordinary shares were issued to Greatgroup Investments Limited, raising $12,979,498 before issue costs. 10. On 12 October 2012, 292,553 ordinary shares (value $87,000) were issued to employees of the Company as part of terms of employment contracts. 11. On 26 October 2012, 20,791,143 ordinary shares were issued to Greatgroup Investments Limited pursuant to Shareholder approval obtained at the EGM October 2012. The shares were priced at $0.675 per security (value $14,034,021). 12. On 12 November 2012, 5,714,286 ordinary shares (value $1,314,000) were issued to the vendor as consideration for the acquisition of EPC 1186. 13. On 12 November 2012, 20,000 ordinary shares (value $5,000) were issued pursuant to terms of employment contracts. 14. On 26 November, 29 November and 7 December 2012, a total of 1,600,000 employee options were exercised (value $308,800 with a strike price of 19.3 cents, resulting in 1,600,000 ordinary shares being issued. 4,750,000 options (with strike price of 19.3 cents) not exercised expired on 9 December 2012. 15. On 11 March 2013, 592,162 ordinary shares (value $121,000) were issued to employees of the Company as part of the STI payment for the year ending 31 December 2012 and pursuant to Shareholder approval obtained at the EGM October 2012. STANMORE COAL ANNUAL REPORT 2013 89 Ordinary shares participate in dividends and the proceeds on winding up of the Consolidated Entity in proportion to the number of shares held. At shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. Ordinary shares have no par value and Stanmore Coal Limited does not have a limited amount of authorised capital.. (b) Options and performance rights For information relating to the Stanmore Coal Limited employee option plan, including details of options issued, exercised and lapsed during the financial year and the options outstanding at year-end refer to Note 27. For information relating to the Stanmore Coal Limited performance rights, including details of rights issued, exercised and lapsed during the financial year and the performance rights outstanding at year-end refer to Note 27. All options on issue at 30 June 2013 were as follows: Number of options 3,500,000 525,000 100,000 100,000 100,000 75,000 900,000 900,000 900,000 500,000 450,000 450,000 450,000 450,000 1,216,000 11,670,000 22,286,000 Exercise price Expiry date $0.19 31 December 2013 $0.15 16 January 2014 $0.73 31 December 2013 $0.87 31 December 2013 $1.09 31 December 2013 $0.25 2 April 2015 $1.75 31 December 2015 $2.00 31 December 2015 $2.25 31 December 2015 $2.50 31 December 2015 $1.75 $2.00 $2.25 $2.50 $0.48 31 March 2016 31 March 2016 31 March 2016 31 March 2016 30 June 2014 $0.518 27 June 2015 (c) Capital management The capital of the Consolidated Entity is managed in order to provide capital growth to shareholders and ensure the Consolidated Entity can fund its operations and continue as a going concern. The Consolidated Entity’s capital comprises equity as shown in the Statement of Financial Position. There are no externally imposed capital requirements. Management manages the Consolidated Entity’s capital by assessing the Consolidated Entity’s financial risks and adjusting its capital structure in response to changes in these risks and the market. These responses include the management of share issues and debt. There have been no changes in the strategy adopted by management to control the capital of the Consolidated Entity since the prior year other than the need to limit dilution arising from our issuances of capital at low share prices. ANNUAL REPORT 2013 STANMORE COAL 90 Note 20: Reserves Option reserve – capital raising Option reserve – Director, executive and employee options Option reserve – other options 2013 $’000 286 2,821 436 3,543 2012 $’000 286 2,045 - 2,331 The option reserve records the value of options issued as part of capital raisings, as well as expenses relating to Director, executive and employee share options. Note 21: Accumulated losses Accumulated losses attributable to members of Stanmore Coal Limited at beginning of the financial year Losses after income tax Accumulated losses attributable to members of Stanmore Coal Limited at the end of the financial year 2013 $’000 (11,699) (5,011) (16,710) 2012 $’000 (4,017) (7,682) (11,699) Note 22: Parent entity information The Corporations Act requirement to prepare parent entity financial statements where consolidated financial statements are prepared has been removed and replaced by the new regulation 2M.3.01 which requires the following limited disclosure in regards to the parent entity (Stanmore Coal Limited). The consolidated financial statements incorporate the assets, liabilities and results of the parent entity in accordance with the accounting policy described in Note 1(a). Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Issued capital Reserves Accumulated losses Total shareholder’s equity Profit/(loss) for the year Total comprehensive income for the year 2013 $’000 66,009 23,412 89,421 5,338 9,027 14,365 75,056 88,253 3,539 (16,736) 75,056 (5,196) (5,196) 2012 $’000 58,431 13,437 71,868 4,724 4,040 8,764 63,104 72,316 2,328 (11,540) 63,104 (7,682) (7,682) STANMORE COAL ANNUAL REPORT 2013 91 Guarantees No guarantees have been entered into by the parent entity in relation to debts of its subsidiaries (2012: $nil). Contingent liabilities The parent entity has no contingent liabilities. Capital commitments The parent entity has no capital commitments. Note 23: Commitments (a) Future exploration The Consolidated Entity has certain obligations to expend minimum amounts on exploration in tenement areas. These obligations may be varied from time to time and are expected to be fulfilled in the normal course of operations of the Consolidated Entity. The commitments to be undertaken are as follows: Payable: Not later than 12 months Between 12 months and 5 years Greater than 5 years 2013 $’000 2,322 7,829 - 10,151 2012 $’000 936 9,377 - 10,313 To keep tenements in good standing, work programs should meet certain minimum expenditure requirements. If the minimum expenditure requirements are not met, the Consolidated Entity has the option to negotiate new terms or relinquish the tenements. The Consolidated Entity also has the ability to meet expenditure requirements by joint venture or farm-in agreements. (b) Operating leases The commitments to be undertaken are as follows: Payable: Not later than 12 months Between 12 months and 5 years Greater than 5 years 2013 $’000 26 - - 26 2012 $’000 96 32 - 128 The Consolidated Entity has an operating lease commitment in relation to the lease of commercial office premises. The lease commenced on 1 November 2010 for a term of three years. The economic entity has provided a bank guarantee of $25,121 as a security bond on the premises. ANNUAL REPORT 2013 STANMORE COAL 92 (c) Capital commitments The commitments to be undertaken are as follows: Payable: Not later than 12 months Between 12 months and 5 years Greater than 5 years Land acquisitions 2013 $’000 3,100 - - 3,100 2012 $’000 - 3,100 - 3,100 On 7 April 2011 the Consolidated Entity announced that it had completed an agreement for the right to purchase a key property at The Range thermal coal Project in the Surat Basin. This agreement gives the Company access to undertake evaluation and development work as the Project moves to first coal production in 2015. The terms of the acquisition are confidential but are within normal market expectations and involve a series of staged payments over a number of years. A completion payment of $3,100,000 in cash is due the earlier of 30 days after the Mining Lease is granted by the Department of Mines and Energy or 29 November 2013. The Company is in the process of negotiating an extension to the completion payment date. WICET port infrastructure On 27 June 2012 the Company executed a Capacity Commitment Deed (CCD) for 5 Mtpa of port capacity in WEXP1. The CCD committed the Company to provide $44 million of early works costs for the Project prior to WEXP1 financial close. The CCD contemplated that financial close would occur on or before 30 June 2013 but due to market conditions this was not achieved. Subsequent to year end the WEXP1 producers have negotiated a one year extension to the CCD which gives the producers the option to accelerate the Project or finalise a longer term framework for protecting their priority rights to future expansions of the terminal. Stanmore’s contractual rights under the CCD remain unchanged. Post execution of binding take or pay contracts at WEXP1 financial close, early works funding will be converted to an equity interest in WICET. Note 24: Contingent liabilities and contingent assets The Directors are not aware of any other significant contingent liabilities or contingent assets at the date of this report. Note 25: Operating segments The Consolidated Entity has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The Consolidated Entity is managed primarily on a geographic basis, that is, the location of the respective areas of interest (tenements) in Australia. Operating segments are determined on the basis of financial information reported to the Board which is at the Consolidated Entity level. The Consolidated Entity does not have any products or services it derives revenue from. Accordingly, management currently identifies the Consolidated Entity as having only one reportable segment, being exploration for coal in Australia. There have been no changes in the operating segments during the year. Accordingly, all significant operating decisions are based upon analysis of the Consolidated Entity as one segment. The financial results from this segment are equivalent to the financial statements of the Consolidated Entity as a whole. STANMORE COAL ANNUAL REPORT 2013 93 Note 26: Cash flow information (a) Reconciliation of profit/(loss) after income tax to net cash flow from operating activities Loss for the year Depreciation Revaluation of derivatives Impairment of loans to secure infrastructure capacity Borrowing costs Share-based payments expense Change in operating assets and liabilities (Increase)/decrease in trade and other receivables (Increase)/decrease in other assets Increase/(decrease) in trade and other payables Net cash flow from operating activities (b) Non-cash investing activities 2013 $’000 (5,011) 46 (964) 787 979 990 300 44 (15) (2,844) 2012 $’000 (7,682) 36 - - 1,400 1,462 (978) 4 1,576 (4,182) During the year ended 30 June 2013, 5,714,286 ordinary shares (value $1,314,000) were issued to the vendor as consideration for the acquisition of EPC 1186. Note 27: Share-based payments The following share based payment arrangements existed at 30 June 2013. (a) Share-based payments to Directors, executives and employees During the year ended 30 June 2013 the following options were issued to employees and consultants of the Consolidated Entity: • 1,356,000 unlisted options exercisable at $0.48, on or before 30 June 2014 (vesting 30 June 2013) • 75,000 unlisted options exercisable at $0.25, on or before 2 April 2015 (vesting 2 April 2014). All of these options were issued by Stanmore Coal Limited and entitle the holder to one ordinary share in Stanmore Coal Limited for each option exercised. The options were granted for nil consideration. Once vested, options can be exercised at any time up to the expiry date. There is no market or performance based vesting criteria in respect of these options. No. of options 2013 Weighted average exercise price 2013 $ No. of options 2012 Weighted average exercise price 2012 $ Outstanding at beginning of year Granted Forfeited Exercised Expired Outstanding at year-end Exercisable at year-end 13,400,000 1,431,000 (365,000) (1,600,000) (4,750,000) 8,116,000 3,675,000 0.94 0.47 1.20 0.19 0.19 1.43 1.06 10,700,000 3,000,000 (300,000) - - 13,400,000 8,750,000 0.63 2.08 1.19 - - 0.94 0.31 ANNUAL REPORT 2013 STANMORE COAL 94 The options exercisable at 30 June 2013 had a weighted average exercise price of $1.06 (2012: $0.31) and weighted average remaining contractual life of 1.5 years (2012: 1.8 years). Exercise prices range from $0.15 to $2.50 in respect of options outstanding at 30 June 2013 (2012: $0.15 to $2.50). In the year ending 30 June 2013, 1,600,000 options were exercised at a price of $0.19, with a weighted average exercise price of options exercised of $0.19. (2012: Nil options exercised.) Pursuant to the Consolidated Entity’s Incentive Option Scheme, if an employee ceases to be employed by the Consolidated Entity then options will expire three months from the date employment ceases. The weighted average fair value of the options granted during the year ended 30 June 2013 was $0.10 (2012: $0.28). This price was calculated by using a Black-Scholes options pricing model applying the following inputs: Weighted average exercise price Weighted average life of the option Weighted average share price Weighted average expected share price volatility Weighted average risk free interest rate 2013 $0.47 2012 $2.08 1.73 years 4.48 years $0.29 58.36% 3.81% $0.91 58.63% 4.11% Historical volatility has been the basis for determining expected share price volatility. The expected life of the options has been taken to be the full period of time from grant date to expiry date. The options pricing model assumes that options will be exercised on or immediately before the expiry date. The settlement method for the above options is on a 1:1 basis. During the year ended 30 June 2013, 1,600,000 ordinary shares (2012: nil) in Stanmore Coal Limited were issued as a result of the exercise of options. The amount paid for the exercise of options into shares was $308,800 (2012: nil). During the year ended 30 June 2013, the following shares were granted to key management personnel as share-based payments: Grant date 12 October 2012 12 November 2012 11 March 2013 Number 292,553 20,000 592,162 Fair value 87,766 5,000 121,393 The fair value of the shares, as determined by reference to the closing price on the date of grant, was $214,159. These shares were issued as compensation to Directors and employees of the Group. Further details are provided in the Directors’ Report. During the year ended 30 June 2013, the following performance rights were granted to key management personnel as share-based payments: Grant date 12 October 2012 Number 2,350,000 Total fair value $ 705,000 FY13 fair value amortised $ 193,139 The total fair value of the performance rights, as determined by reference to the closing price on the date of grant, was $705,000. The amortised cost for the year ended 30 June 2013 was $193,139. STANMORE COAL ANNUAL REPORT 2013 95 These shares were issued as compensation to Directors and employees of the Group. Further details are provided in the Directors’ Report. The amount included in the statement of Comprehensive Income is as follows: Employee benefits expense Administration and consulting expense These amounts have been recognised in equity in the Balance Sheet as follows: Share capital Option reserve (b) Other share-based payments 2013 $’000 956 34 990 2013 $’000 214 776 990 2012 $’000 1,380 82 1,462 2012 $’000 380 1,082 1,462 During the year ended 30 June 2013 $436,000 was recognised as a share base payment expense in relation to the method to settle options issued to Credit Suisse AG. In the prior year these options were only capable of being cash settled and therefore valued marked-to-market as a financial liability. Shareholder approval was obtained in October 2012 which provided the Company with the ability to settle these options by issuing ordinary shares of the Company. Accordingly the settlement is no longer considered to be a financial liability and the marked-to-market liability at the time of shareholder approval was reclassified to equity. There were no other share based payments made by the Company (2012: 1,495,664 ordinary shares issued, fair value $1,500,151). Note 28: Events after balance date WICET Capacity Commitment Deed extension The WEXP1 CCD had an expiry of 30 June 2013 and was subsequently extended to 31 August 2014 which includes a revised, relatively low bonding and expenditure commitment. The extension was executed on 29 August 2013. Voluntary prepayment and voluntary cancellation of Credit Suisse Facility The Company and Credit Suisse AG have agreed to a voluntary close out of the facility. The net outstanding amount of $3.2 million was paid to Credit Suisse AG in July 2013 and Credit Suisse AG has released its security position over the assets and undertakings of the Company. There have been no other events since 30 June 2013 that impact upon the financial report as at 30 June 2013. ANNUAL REPORT 2013 STANMORE COAL 96 Note 29: Related party transactions Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. (a) Parent entity The parent entity and ultimate controlling entity is Stanmore Coal Limited, which is incorporated in Australia. (b) Subsidiaries Interests in subsidiaries are disclosed in Note 12. (c) Key management personnel Disclosures relating to key management personnel are set out in the Remuneration Report contained in the Directors’ Report and in Note 5. (d) Transactions with Directors and Director-related entities During the financial year ended 30 June 2013, Bizzell Capital Partners Pty Ltd provided investor relations services to the Consolidated Entity. The services were based on normal commercial terms and conditions. Bizzell Capital Partners Pty Ltd received $209,941 (GST inclusive) (2012: $179,102) for these services during the financial year. As at 30 June 2013 the Consolidated Entity had an accounts payable amount of $10,106 (2012: $1,141) owing to Bizzell Capital Partners Pty Ltd in relation to these services. Note 30: Financial risk management (a) General objectives, policies and processes In common with all other businesses, the Consolidated Entity is exposed to risks that arise from its use of financial instruments. This note describes the Consolidated Entity’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Consolidated Entity’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. The Consolidated Entity’s financial instruments consist mainly of deposits with banks, trade and other receivables, security deposits and trade and other payables. The Board has overall responsibility for the determination of the Consolidated Entity’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Consolidated Entity’s finance function. The Consolidated Entity’s risk management policies and objectives are therefore designed to minimise the potential impacts of these risks on the results of the Consolidated Entity where such impacts may be material. The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Consolidated Entity’s competitiveness and flexibility. Further details regarding these policies are set out below: STANMORE COAL ANNUAL REPORT 2013 97 (b) Credit risk Credit risk is the risk that the other party to a financial instrument will fail to discharge their obligation resulting in the Consolidated Entity incurring a financial loss. This usually occurs when debtors fail to settle their obligations owing to the Consolidated Entity. The Consolidated Entity’s objective is to minimise the risk of loss from credit risk exposure. The Consolidated Entity’s maximum exposure to credit risk at the end of the reporting period, without taking into account the value of any collateral or other security, in the event other parties fail to perform their obligations under financial instruments in relation to each class of recognised financial asset at reporting date, is as follows: Cash and cash equivalents Restricted cash Receivables Security deposits and debt service reserve Loans receivable 2013 $’000 24,360 1,500 500 1,682 8,595 36,637 2012 $’000 23,957 - 1,700 1,838 6,213 33,708 Credit risk is reviewed regularly by the Board and the audit committee. The Consolidated Entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the Consolidated Entity. No receivables balances were past due or impaired at year end. The credit quality of receivables that are neither past due nor impaired is good. Bank deposits are held with National Australia Bank Limited, Westpac Banking Corporation and Bank of Queensland Limited. (c) Liquidity risk Liquidity risk is the risk that the Consolidated Entity may encounter difficulties raising funds to meet financial obligations as they fall due. The object of managing liquidity risk is to ensure, as far as possible, that the Consolidated Entity will always have sufficient liquidity to meets its liabilities when they fall due, under both normal and stressed conditions. Liquidity risk is reviewed regularly by the Board and the audit committee. The Consolidated Entity manages liquidity risk by monitoring forecast cash flows and liquidity ratios such as working capital. The Consolidated Entity’s working capital, being current assets less current liabilities has decreased from $27.896 million in 2012 to $21.771 million in 2013. As outlined Note 1, the ability for the Company to deliver on its strategic objectives is dependent upon the ability to secure necessary funding through debt, equity or farm-out, or the successful exploration and subsequent exploitation of the Consolidated Entity’s tenements. Should these avenues be delayed or fail to materialise, the Group has the ability to scale back its activities to allow the Group to continue as a going concern and meet its debts as and when they fall due. Maturity analysis – consolidated 2013 Financial liabilities Trade payables Other payables Interest bearing loan Non-interest bearing convertible notes Carrying amount $’000 Contractual cash flows $’000 <6 months $’000 6–12 months $’000 1–3 years $’000 >3 years $’000 1,084 821 4,040 9,027 1,084 821 4,040 - 1,084 821 4,040 - 14,972 5,945 5,945 - - - - - - - - - - - - - - - ANNUAL REPORT 2013 STANMORE COAL 98 Maturity analysis – consolidated 2012 Financial liabilities Trade payables Other payables Interest bearing loan Carrying amount $’000 Contractual cash flows $’000 <6 months $’000 6–12 months $’000 1–3 years $’000 >3 years $’000 524 4,200 4,040 8,764 524 4,200 4,732 9,456 524 4,200 173 4,897 - - 173 173 - - 4,386 4,386 - - - - Further information regarding commitments is included in Note 23. (d) Market risk Market risk arises from the use of interest bearing, tradable and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) or other market factors (other price risk). The entity does not have any material exposure to market risk other than as set out below. Interest rate risk Interest rate risk arises principally from cash and cash equivalents. The objective of interest rate risk management is to manage and control interest rate risk exposures within acceptable parameters while optimising the return. Interest rate risk is managed with a mixture of fixed and floating rate debt. For further details on interest rate risk refer to the tables below: 2013 Floating interest rate $’000 Fixed interest rate $’000 Non-interest bearing $‘000 Total carrying amount as per the statements of financial position $‘000 Weighted average effective interest rate % Financial assets Cash and cash equivalents Restricted cash Receivables Security deposits, debt service reserve and prepayment Loan receivables Total financial assets Financial liabilities Trade payables Other payables Interest bearing loan Total financial liabilities 2,360 - - 853 8,595 11,808 - - 4,040 4,040 22,000 1,500 - - - 23,500 - - - - - - 500 829 - 1,329 1,084 822 9,027 10,933 24,360 1,500 500 1,682 8,595 36,637 1,084 822 13,067 14,973 4.15 4.10 - 1.46 3.07 - - - 2.58 - STANMORE COAL ANNUAL REPORT 2013 99 2012 Floating interest rate $’000 Fixed interest rate $’000 Non-interest bearing $’000 Total carrying amount as per the statements of financial position $’000 Weighted average effective interest rate % Financial assets Cash and cash equivalents Receivables Security deposits Loan receivables Total financial assets Financial liabilities Trade payables Other payables Interest bearing loans Total financial liabilities - - 1,742 6,213 7,955 - - 4,040 4,040 23,957 - - - - 1,700 96 - 23,957 1,796 - - - - 524 4,200 - 4,724 23,957 1,700 1,838 6,213 33,708 524 4,200 4,040 8,764 4.99 - 4.99 4.99 - - - 8.58 - The Consolidated Entity has performed a sensitivity analysis relating to its exposure to interest rate risk. This sensitivity demonstrates the effect on the current year results and equity which could result from a change in these risks. At 30 June 2013 the effect on profit and equity as a result of changes in the interest rate would be as follows: 2013 Increase in interest rate by 1% Decrease in interest rate by 1% Cash and cash equivalents Restricted cash Security deposits Loans receivable Interest bearing loan Tax charge of 30% After tax increase/(decrease) Carrying amount $’000 24,360 1,500 853 8,595 (4,040) - - Profit $’000 Other comprehensive income $’000 Profit $’000 Other comprehensive income $’000% 240 15 9 86 (40) - 310 - - - (240) (15) (9) (86) 40 - (310) - - - The above analysis assumes all other variables remain constant. ANNUAL REPORT 2013 STANMORE COAL 100 2012 Increase in interest rate by 1% Decrease in interest rate by 1% Cash and cash equivalents Security deposits Loans receivable Interest bearing loan Tax charge of 30% After tax increase/ (decrease) Carrying amount $’000 23,957 1,742 6,213 (4,040) - - Profit $’000 Other comprehensive income $’000 Profit $’000 Other comprehensive income $’000% 240 17 62 (40) - 279 - - - (240) (17) (62) 40 - (279) - - - The above analysis assumes all other variables remain constant. (e) Fair values The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. Stanmore Coal Limited has adopted the amendment to AASB 7 Financial Instruments: Disclosures which requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); (b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2); and (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). The following table presents the consolidated entity’s assets and liabilities measured and recognised at fair value at 30 June 2012 and 2013. 2013 Financial liabilities Other payables Total financial liabilities 2012 Financial liabilities Other payables Total financial liabilities Level 1 $’000 Level 2 $’000 Level 3 $’000 Level 4 $’000 - - - - Level 1 $’000 Level 2 $’000 - - - - - - Level 3 $’000 1,400 1,400 - - Level 4 $’000 1,400 1,400 The fair values disclosed in the above table have been determined using the probable future cash outflows payable, discounted to net present value. The fair values of all remaining financial assets and financial liabilities approximate their carrying value. STANMORE COAL ANNUAL REPORT 2013 101 DECLARATION BY DIRECTORS The Directors of the Consolidated Entity declare that: 4. The remuneration disclosures included in pages 1. The financial statements, comprising the statement of comprehensive income, statement of financial position, statement of cash flows, statement of changes in equity, and accompanying notes, are in accordance with the Corporations Act 2001 and: (a) comply with Accounting Standards and the Corporations Regulations 2001; and (b) give a true and fair view of the Consolidated Entity’s financial position as at 30 June 2013 and of its performance for the year ended on that date. 2. The Consolidated Entity has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. 3. In the Directors’ opinion, 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. 38–48 of the Directors’ Report (as part of the audited Remuneration Report) for the year ended 30 June 2013, comply with section 300A of the Corporations Act 2001. 5. 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. This declaration is signed in accordance with a resolution of the Directors. Nicholas Jorss Managing Director Brisbane 24 September 2013 ANNUAL REPORT 2013 STANMORE COAL 102 INDEPENDENT AUDITOR’S REPORT Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000, GPO Box 457 Brisbane QLD 4001 Australia INDEPENDENT AUDITOR’S REPORT To the members of Stanmore Coal Limited Report on the Financial Report We have audited the accompanying financial report of Stanmore Coal Limited, which comprises the consolidated statement of financial position as at 30 June 2013, 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, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility 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 Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO Audit Pty Ltd ABN 33 134 022 870 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 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. STANMORE COAL ANNUAL REPORT 2013 103 Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Stanmore Coal Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of Stanmore Coal Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 38 to 48 of the directors’ report for the year ended 30 June 2013. 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. Opinion In our opinion, the Remuneration Report of Stanmore Coal Limited for the year ended 30 June 2013 complies with section 300A of the Corporations Act 2001.Error! Unknown document property name. BDO Audit Pty Ltd D P WRIGHT Director Brisbane, 24 September 2013 BDO Audit Pty Ltd ABN 33 134 022 870 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 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. ANNUAL REPORT 2013 STANMORE COAL 104 NOTES Note 1 Marketable reserves note The Marketable Coal Reserves of 94 Mt is derived from a JORC compliant run of mine (ROM) Probable Coal Reserve of 117.5 Mt based on a 14.8% ash product and predicted yield of 80%. The 94 Mt Marketable Reserve is included in the 287 Mt total JORC Resource (18 Mt Measures + 187 Mt Indicated + 82 Mt Inferred Resource). Note 2 Exploration target note All statements as to exploration targets of Stanmore Coal and statements as to potential quality and grade are conceptual in nature. There has been insufficient exploration undertaken to date to define a coal Resource and identification of a Resource will be totally dependent on the outcome of further exploration. Any statement contained in this report as to exploration results or exploration targets has been made consistent with the requirements of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code)”. Competent persons statement The information in this report relating to exploration results and coal resources is based on information compiled by Mr Troy Turner who is a member of the Australasian Institute of Mining and Metallurgy (AusIMM) and is a full time employee of Xenith Consulting Pty Ltd. Mr Turner is a qualified geologist and has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking, to qualify as a Competent Person as defined in the 2004 Edition of the JORC Code. Mr Turner consents to the inclusion in this document of the matters based on the information, in the form and context in which it appears. The information in this report relating to coal reserves is based on information compiled by Mr Richard Hoskings who is a member of Minserve Pty Ltd. Mr Hoskings is a mining engineer, a Fellow of the AusIMM and has the relevant experience (30+ years) in relation to the mineralisation being reported to qualify as a Competent Person as defined in the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code 2004 Edition)”. Mr Hoskings consents to the inclusion in the report of the matters based on the information, in the form and context in which it appears. STANMORE COAL ANNUAL REPORT 2013 www.stanmorecoal.com.au Level 11, 10 Market Street Brisbane QLD 4000 Phone: + 61 7 3238 1000 Fax: +61 7 3238 1098 ASX Code: SMR