Peabody Energy
Annual Report 2017

Plain-text annual report

2017 Annual Report Contents 01 Year in review Chairman’s and CEO’s report Operating and financial review Our commitment Our people Directors’ report Remuneration report 2 Bathurst Resources Limited Annual Report 2017 02 Financial statements Income statement Statement of comprehensive income Balance sheet Statement of changes in equity Statement of cash flows Notes to the financial statements Independent auditor’s report Update on FY17 results 6 8 12 16 18 22 29 30 31 32 33 34 62 68 03 Shareholder information 04 Resources and reserves Shareholder information 72 Tenement schedule Coal resources and reserves Corporate directory 78 80 86 3 4 Bathurst Resources Limited Annual Report 2017 01 Year in Review In this section Chairman’s and CEO’s report Operating and financial review Our commitment Our people Directors’ report Remuneration report Section 1: Year in review 5 Chairman’s and CEO’s report We are pleased to report on a successful year of consolidation and planning for growth against a backdrop of challenging conditions and a very volatile market. The focus for Bathurst during this period was the successful bid for the purchase of three operating mines from Solid Energy New Zealand Limited (Subject to Deed of Company Arrangement) in a joint venture with Talleys Energy Limited. Combining Bathurst’s existing operations with the Solid Energy operations provides economies of scale, a mix of assets and access to markets that will help deliver our strategic goals far earlier than could be expected through organic growth alone. The acquired assets include: • West Coast: Buller Plateau operating assets of Stockton Mine, including Cypress, Upper Waimangaroa, Mt William North and the Ngakawau rail loadout • Waikato: Rotowaro Mine, Maramarua Mine and certain assets at Huntly West Mine. The addition of the Stockton assets to our portfolio opens the door to international sales and marketing opportunities with great promise. Importantly the purchase has the potential to unlock and realise synergies with the company’s existing assets, especially on the South Buller Plateau at Denniston. We ended the year with strong cash reserves to fund the anticipated purchase and have returned an underlying profit of $1.3 million – our second consecutive surplus. The effort to achieve our end of year result and the healthy position with which we begin FY2018 cannot be overstated. The commitment and dedication of the leadership team and those managing our operations is worthy of special mention. Our operational staff have continued to develop and grow our existing resources, stripping out costs where possible, improving sustainability as well as increasing sales and providing a base for our planned expansion. The mines at Takitimu and Canterbury have been the backbone of our domestic operations without which we could not have competed the purchase of the Solid Energy assets – for that we are very grateful. We also need to acknowledge the effort of the leadership team in managing the acquisition in addition to maintaining a healthy business. The transition to become the country’s largest specialist coal mining company has been time consuming and intensive, both in the planning and the management of the complex relationships with numerous stakeholders. “New Zealand’s largest specialist coal mining company 6 Bathurst Resources Limited Annual Report 2017 “Successful bid for the purchase of three operating mines from Solid Energy New Zealand What has also been pleasing for Bathurst is the confidence of our shareholders who embraced and supported the acquisition plans. They have supported a variety of mechanisms to fund the purchase while maintaining existing shareholder value. It is a confidence that is already paying dividends and we are confident it will continue to add value. The focus on health and safety and developing an improved safety culture has remained a fundamental part of our operations and we continue to invest in our people. Our commitment to the underlying principle that every worker returns home safe remains unchanged and takes on even more importance as we plan to integrate our newly acquired operations into Bathurst’s Health and Safety Management Systems. We gladly accept the responsibility that comes with being the country’s largest coal producer, not only to our people, but also our shareholders and customers – our aim is to make the biggest synonymous with the best. Having gone through a period of planning, consolidation and preparation, we are looking forward to a year of implementation where we begin to realise some of the enormous promise and potential we have worked so hard to develop. This includes the development of the Buller assets to realise the value our long-standing shareholders built over the last seven years. We will be pooling resources to bring these projects into production in the near term. Bathurst has the people and the leadership to deliver on the promise and we look forward to a productive and profitable year ahead. Toko Kapea Chairman Richard Tacon Chief Executive Officer Section 1: Year in review 7 Operating and financial review Bathurst is a New Zealand registered, ASX listed resources company. Our operations are in the South Island of New Zealand where we provide energy for local industrial users, having established ourselves as a leading coal producer. With recent growth and acquisitions, Bathurst will add two North Island mines to become the country’s largest coal producer and an exporter of high-quality metallurgical coal for steel production in Asia. Domestic operations With the corporate office based in Wellington, our operations provide energy for the agri-business sector, schools, hospitals and many other sectors in our economy. During the year, we produced more than 330,000 tonnes of energy coal from two operating mines in the South Island. We also have permits over 15,000 hectares on the Buller coalfield. This is part of our strategic plan to become an exporter of high-quality metallurgical coal. In addition, Bathurst holds various exploration and prospecting permits in other areas of the South Island to position ourselves for further opportunities and growth. The recent purchase of the assets in the Buller and the Waikato provide enormous synergies with our existing operations and will be integral to Bathurst’s plans for growth and development, domestically as well as internationally. Takitimu The Takitimu mine is located at Nightcaps, north of Invercargill, where coal has been produced for over 140 years. Takitimu contains one of the few remaining pockets of sub-bituminous coal in the region and produced more than 230,000 tonnes of sub-bituminous coal during the year. In 2017, the land acquisition of the Black Diamond Block was finalised. We are now developing the block, an extension of the Takitimu mine, to provide access to 1.8 million tonnes (Mt) of coal. This will help underpin the local economy – providing jobs and supplying energy to local businesses for years to come. Coal will continue to be mined from the North East of the Coaldale block which has performed better than modelled. We continue rehabilitating the exhausted Takitimu pit, which has now been backfilled. The land is being progressively rehabilitated to pasture and we have had some great results with rehabilitation success over this year. A highlight from Takitimu this year was the purchase and installation of a Komatsu PC2000 excavator which has significantly improved efficiency. 8 Bathurst Resources Limited Annual Report 2017 “During the year we produced more than 330,000 tonnes of energy coal from two operating mines in the South Island Canterbury Escarpment and Cascade The Canterbury mine is an open cast mine near Coalgate, 70 kilometres west of Christchurch. The mine produces energy coal which is low in sulphur and ash and in high demand by the local dairy and food processing industries. Total production from Canterbury was more than 100,000 tonnes during the period. This was a significant increase on the previous year when over 60,000 tonnes were produced. Production capacity at Canterbury is planned to increase in 2018 with run of mine (ROM) production forecast to exceed 150,000 tonnes. In the last quarter of 2017 Canterbury secured a ten year supply agreement for up to 65,000 tonnes per annum, with an escalation option. This agreement underpins the further development of the mine which is strategically located close to markets in the region. With the continued development of the mine, we have progressively upgraded our mining fleet and we expect the benefits of this to flow through 2018 and beyond. Highlights of Canterbury for 2017 include: • the successful tender for the new coal supply contract, resulting in a production increase from 100kT to 165 kT • the development of office, workshop and coal production areas, and • the establishment of 24 hour stripping operations. The Buller coalfield on the west coast of the South Island is regarded as one of the country’s most significant fields and is particularly well known for its production of high quality, low ash and high fluidity coking coals, which are highly sought after by international steelmakers. Escarpment mine has commenced construction works for a mine to produce coking coal used for steel making and Cascade mine produced semi-soft coking coal, for a local New Zealand cement manufacturer. With the closure of the local cement plant in 2016 a decision was made to place the Escarpment mine into care and maintenance in May 2016. This was the result of detailed planning and feasibility work, which demonstrated that the mine required certain levels of production to be profitable. During 2017, water chemistry modelling was undertaken which determined that a passive treatment system (mussel shell bioreactor) would be the most cost effective and practical solution to treat the acidity and dissolved metal loads prior to water discharge at Escarpment. Whilst the site is in care and maintenance the ideal opportunity was presented to construct and trial the mussel shell bioreactor to demonstrate the benefits and opportunities for water treatment and engineered landform construction methods once mining recommences. Based on the data available to date, the approach of a well-constructed engineered landform and downgradient passive treatment can manage the acidity and metal loads generated by the operation. This bodes well for the greater project expansion. Section 1: Year in review 9 Production Production figures for Bathurst’s operating mines for FY2017 are set out below. Production (ROM tonnes) Overburden (BCM) 230,031 101,048 331,079 1,763,424 824,187 2,587,611 Operation Takitimu Canterbury Total Financial We have consolidated our domestic business after changes to the market mix and have delivered on our promises through a sustainable and reliable domestic business. The environment in which we operate remains challenging and with the loss of the West Coast cement market, revenue was considerably reduced in 2017. This was offset by cost reduction across the operations. An underlying profit after tax of $1.3m was recorded for the domestic business ($1.0m in 2016), equating to a statutory loss of $1.9m ($1.0m statutory profit in 2016) once finance costs on debt instruments and transition costs relating to Bathurst’s joint venture acquisition in BT Mining Limited were included. An EBITDA of $11.2m ($13.5m in 2016) reflects a continued focus on cost control given the spend required on the acquisition. We continue to drive this strategy and expect to deliver further positive returns in 2018. The company produced a positive cash flow from operations of $8.9m in the year ended 30 June 2017, compared with an operating cash inflow of $1 million in the same period two years ago. This result demonstrates a strong operational performance and creates a solid platform for us to deliver on the group’s operational efficiency targets in the coming year. We have also been working with an Otago University Masters student who is working towards a thesis on the relationship between rainfall and groundwater flows from historical mine adits on the Denniston Plateau. This research will assist us to understand our future groundwater management requirements when operations recommence. We plan to maintain the value of the resource and will continue to meet all consent requirements to ensure continued access to the permit. Exploration and permits Exploration during the year was focused on meeting short-term operational planning and permit requirements, with a focus on validating the geologic models at both Canterbury and in the Black Diamond block at Takitimu. We have continued to evaluate the Denniston assets through geochemical coal quality modelling and pre-feasibility studies undertaken to better understand the coal quality. The pending purchase of the Sullivan Coal Mining License from Solid Energy, located between Coalbrookdale and Whareatea West, is now being evaluated to enhance the Denniston integrated mine plan. At Takitimu, 16 holes were drilled and 45 trenches excavated to assist in mine planning and geotechnical assessment for excavation works that were scheduled to commence during 2017. Drilling was concentrated in the Coaldale North East area which has provided sufficient coal for an additional nine months production at the site. Drilling was completed at Canterbury for mine planning to support expansion plans. As a result of the exploration programme, the confidence and size of the resource increased significantly, with the Measured Resources increasing from 0.5 to 1.2 Mt and total resources increasing by 1.8 to 7.1 Mt. In the two programmes completed at Canterbury, 26 diamond and 26 RC holes were drilled and 13 sample trenches were excavated. Predominately a single drill crew was deployed and moved to various sites. The use of a single crew provided continuity for the drilling contractor and ensured that consistent operational health and safety standards were met. 10 Bathurst Resources Limited Annual Report 2017 FY2017 $000 FY2016 $000 Underlying profit 1,264 1,031 Add back Finance Costs on Debt Instruments Transaction Costs on BT Mining Acquisition Statutory (loss)/profit after tax Add back Depreciation and Amortisation Net Finance Costs EBITDA 1,858 1,304 (1,898) 1,031 10,632 2,416 11,150 11,220 1,250 13,501 We have continued to seek operational improvements throughout the year and operating cash flows for the year are favourable. This has enabled us to invest in the development of the Canterbury mine, extend into owned land at Takitimu (Black Diamond block), and support BT Mining’s extended transitional period through to completion on the Solid Energy assets acquisition. We began the year ahead of production forecasts, and ended the year in the same position. Operations continued to perform well throughout the year and cash costs remain under tight control. The group had $28.9 million of cash and cash equivalents on hand as at 30 June 2017, compared with $3.3 million at 30 June 2016. $24.9 million held related to cash held in escrow, which was called in accordance with the debt instruments issued during the period. This was subsequently drawn down to enable BT Mining’s purchase of the Solid Energy mine site assets, and provide working capital in BT Mining. Debt instruments Financial highlights Underlying profit of $1.3m EBITDA of $11.2m – continued focus on cost control despite acquisition costs and investments Strong cash flow from operations of $8.9m – solid platform to deliver future value Cash flow positive “ Over 230,000 tonnes of sub- bituminous coal produced at Takitimu – extension to provide access to 1.8 million tonnes of coal A number of debt instruments were issued during the year. These were issued primarily to fund our investment in BT Mining and also to repay secured bank lending and fund the due diligence work on BT Mining’s purchase of the Solid Energy mine site assets. A summary of these instruments are as follows: Instrument Convertible Notes Convertible Notes RCPS* Subordinated Bonds *Redeemable Convertible Preference Shares Date of Issue Original Face Value Conversion Price July 2016 February 2017 February 2017 February 2017 AUD $4.25m AUD $7.5m AUD $11.3m USD $7.9m AUD $0.0220 AUD$0.0375 AUD $0.0220 n/a Section 1: Year in review 11 Our commitment Our focus is on being a safe, responsible development company that adds value to shareholders, the communities we work in and the country as a whole. Sustainable development and responsible resource use is fundamental to all that we do – it extends beyond resource extraction across all phases of our business from exploration through to development, operation, and closure. This means that everything we do is guided by a commitment to provide positive outcomes for shareholders, employees, stakeholders, local communities and, importantly, the environment. We strive to live our values every day. The company is constantly looking for ways to improve productivity in ways that are better for the environment and safer for our people. During 2017, we had numerous site and company-wide sustainability projects. One of the key projects investigated our logistic supply chains where we realised that focusing our efforts to look for improvements for our business would also benefit our customers. The project investigated our South Island rail and road freight movements to look for supply chain efficiencies across the company on a customer by customer basis. Where customer needs were flexible, the project has led to matching supply from the closest mine gate to the customer. The outcomes have seen customer bottom line improvements for reduction in transportation costs per tonne of coal, shorter transportation routes delivering a reduction in fuel consumption, and will deliver a reduction in over a million CO2 equivalent emissions per annum. All from just this one project. 12 Bathurst Resources Limited Annual Report 2017 Next year our central sustainability focus will be to understand the exciting changes to our business created through the BT Mining joint venture acquisitions through a materiality review. This review will be completed to ensure we commence to gather information on the issues which matter most to our stakeholders post acquisition. It will include reviewing items such as: • water use and management • re-examining our approach to life of mine integration into mine closure • supplier efficiency analysis for our existing 200 suppliers • functional expertise in business support areas such as finance to deliver services to the operations where all hubs work to a common framework to create greater efficiencies and strengthened governance • advances to our land management and rehabilitation practices • continuing our journey in seeking further health and safety improvements. “ Sustainable development and responsible resource use is fundamental to all that we do “Our ultimate goal is to ensure every employee and contractor goes home healthy and safe at the end of the day Health and safety Our operations are focused on its people. Our objective is to have an injury-free workplace. We are working hard to encourage a committed safety mindset in all of our employees and contractors, and to ensure supporting behaviours, cultures and processes are in place across every area of our operations. The health and safety culture at Bathurst is reinforced through training initiatives, updated standards and risk minimisation procedures. Our ultimate goal is to ensure every employee and contractor goes home healthy and safe at the end of the day. Following the introduction of the Health and Safety at Work Act 2015, we have maintained our high standards of health and safety. Training continued across the company in FY2017 to ensure that the company meets its obligations under the new health and safety act and revised mining regulations which came into effect on 4 April 2016. Bathurst has Health and Safety Management Systems at each site and is committed to a continuous process of review and improvement. Key focuses on health and safety included: • a full day of learning for all mine workers on risk management and health and safety procedures • increasing training and testing of Bathurst’s emergency systems • the delivery of a three day supervisor management training course, including conflict management, situational leadership and negotiation management • review of broad-brush and principal hazard risk assessments for Takitimu and Canterbury • development of nine additional corporate health and safety standards • the set up and training of a rescue team for Takitimu as the team begin opencast mining of old underground mine workings at Black Diamond. During FY2017, there was one Lost Time Injury across all Bathurst’s operating mines, project works and exploration activities. The injury involved a serviceman who slipped on ground ice within the pit operations, and required shoulder surgery. As part of the due diligence process ahead of the Solid Energy asset acquisition, extensive reviews of existing health and safety systems were completed and a 150 day transition plan developed. This due diligence has now been incorporated into the existing Bathurst Health and Safety Management System as we undertake to foster a positive, safe culture and drive continuous improvement. Section 1: Year in review 13 Environment Community We support the vision “for us and our children after us” and are committed to delivering positive outcomes for present and future generations of New Zealanders through careful stewardship of assets, resources and mining activities. We aspire to be valued as a trusted member of each of the communities that host our operations. Our ambition is to develop partnerships based on regular and open dialogue, transparency and mutual respect. Being given access to a mineral resource is a responsibility that we take seriously. We recognise that coal is an important and finite resource that must be used as efficiently and effectively as possible for the medium-term. We work to understand environmental impacts through geological surveys, environmental planning, management of infrastructure, extraction of natural resources, regeneration of natural landforms and habitats and reinvestment in the conservation estate. Our environmental policy commits the company to effective environmental management in all areas of our business. We work to achieve leading industry practise in managing the environmental and social impacts of our operations. We work with a range of groups and businesses to return benefits from our operations while working with them to minimise any negative impacts from our activities. We also understand the importance of keeping neighbours informed with regular information sessions and updates. Bathurst proudly supports a local hiring policy and we maintain collaborative relationships with the wider community. A good example of our commitment to engagement is Takitimu in Southland where we have established a successful relationship with the local community development association and have regular interaction with neighbours, local residents and regional businesses to anticipate and address any issues that arise. During FY2017, efforts included: • terrestrial and riparian planting of rehabilitation areas at Takitimu • growing of plants within the Escarpment and Cascade nursery for rehabilitation • resource consents for Takitimu Black Diamond block and Canterbury extension areas. As part of the due diligence process ahead of the Solid Energy asset acquisition, we completed reviews of environmental operational risks, life of mine closure planning, and environmental personnel resources. These reviews have led the creation of an action plan for alignment of site environmental management systems. During the year, we supported the communities we are part of by sponsoring and donating to local groups such as the Buller High School and the Mount Linton, which we have sponsored annually since 2012. Buller High School sponsorship is a scholarship that supports a local student to study a tertiary qualification in science, with strength in the biological sciences. The annually awarded scholarship assists the student for each year of their university studies.  We are also proud to have supported the Mount Linton Muster over the past five years, which comprises of mountain bike - run - walk events throughout the scenic Mount Linton Station. The event is organised by the Lions Club of Ohai / Nightcaps and the Takitimu Primary School’s Parent and Teacher Association. “ We recognise that coal is an important and finite resource that must be used as efficiently and effectively as possible for the medium-term 14 Bathurst Resources Limited Annual Report 2017 “ Commitment to deliver positive outcomes for present and future generations of New Zealanders through careful stewardship of assets, resources, and mining activities Section 1: Year in Review 15 Our people Martin Doull General Manager, Export Operations Sam Johnstone General Manager, Export Marketing and Logistics Martin is a mining engineer with over 25 years’ experience in a variety of countries, commodities and industries, each with differing degrees of complexity. In resources, Martin has had roles in mid-tier and blue chip companies ranging from working in operations as a professional mining engineer, driving and implementing commercial, cost and productivity improvements, to the implementation of strategic business plans for growth, acquisition and/or divestment. More recently, Martin has been Project Manager/Director with the overall responsibility for the development of several large scale mine projects from optimisation of the project during the study phase, to meeting schedule, safety and cost targets during construction and commissioning. Damian Spring General Manager, Domestic Operations Damian is a Mining Engineer with over 25 years in underground and open pit mines, mining coal, gold, polymetallics and nickel in New Zealand, Australia, Mexico and Argentina. Until recently Damian operated a mining consultancy serving clients in Australasia and the Americas, including Bathurst and a recent role as Chief Operating Officer for a junior Australian producer. Prior to that Damian has held roles as Chief Mining Engineer for a world class silver-lead deposit in Argentina, Underground Manager with WMC Resources and Senior Mining Engineer with Solid Energy. Damian holds a degree in mine engineering from the University of Auckland and is a Chartered Professional Mining Engineer of the Australian Institute of Mining and Metallurgy. 16 Bathurst Resources Limited Annual Report 2017 Sam brings a wealth of experience in marketing New Zealand’s unique coal internationally to Japan, India, China, South East Asia, US, Europe and other specialist markets. Prior to joining BT Mining, Sam spent over ten years with the Solid Energy marketing team, initially within the domestic markets and then transitioned into export marketing in 2009. In 2013, Sam was appointed General Manager – Marketing and Logistics, managing the domestic and export markets through a period of consolidation, mine and market optimisation and the sale of Solid Energy assets. Sam holds a Postgraduate Masters in Science, majoring in Geography from the University of Canterbury. Sam is based in the Christchurch office and leads the Export Marketing and Logistics Team. Craig Pilcher General Manager, Domestic Marketing Craig has extensive engineering experience with both coal and oil-fired steam boiler installations and maintenance, as well as refrigeration, marine, plant maintenance and general engineering. Born in South Canterbury, Craig’s first career was as an A-grade fitter and welder, undertaking regular coal and oil steam boiler installations. After a period as plant engineer and construction diver at the Port of Timaru, Craig became owner and director of a South Island coal supply business in 1997. The business was bought by Eastern Corporation in 2006, and Craig joined the company as Marketing Manager and then Operations Manager, playing a key role in the establishment and growth of the Takitimu and Cascade coal mines. Craig joined Bathurst as General Manager of Eastern Coal when the Eastern assets were acquired on March 2011. He is based in Timaru at Bathurst’s Coal handling and distribution centre. Craig is a director of BT Mining Limited as a Bathurst Resources representative. Craig Palmer General Manager, Commercial Alison Brown General Counsel Craig is an experienced commercial and corporate finance practitioner, having worked in industry and in consulting. Alison has more than 35 years’ legal experience in private law practices and as in-house counsel for commercial enterprises. Craig has joined BT Mining from Solid Energy, where he held a variety of roles over 12 years. This has included managing the sales of company assets (land and business units), being part of the team negotiating the Deed of Company Arrangement, being Acting CEO of Nature’s Flame (the Solid Energy pellet business), commercial manager/corporate finance roles and Emissions Trading Scheme management. Prior to his employment at Solid Energy, Craig worked in the energy and telecommunications industries and professional consulting as a corporate finance practitioner, in New Zealand and Europe. Craig has a Master of Commerce and is a holder of the Chartered Financial Analyst (CFA) designation. Fiona Bartier General Manager, Health, Safety, Environment and Community Fiona is an environmental and resource scientist who has worked for government, in research and education for industry groups, and for a range of mining companies. Fiona spent seven years working in mining environmental research at The University of Queensland and the University of New England, where she visited and worked at more than 40 mine sites across a range of commodities. She then spent a period of time working for the Minerals Council of Australia. Before joining Bathurst, Fiona lived for nine years in mining communities in the Hunter Valley and western coalfields of New South Wales, working first as a consultant, and then within the industry on operations and projects. Fiona holds a Bachelor of Applied Science (Resource Science) and New Zealand Senior Site Executive competency. She joined Bathurst in 2012 and is based in the Wellington office. She has specialised in mining, environmental and climate change law, has worked for Simpson Grierson, Minter Ellison Rudd Watts and the Minister of Foreign Affairs and Trade, and has taught law professionals. Alison was General Counsel for Solid Energy from 2000 to 2011 and holds a Master of Laws with Honours. She has held the position of General Counsel with Bathurst since 2013. Jason Hungerford Chief Financial Officer and Joint Company Secretary (up to 31 August, 2017)* Jason joined the Bathurst team in 2013 following the relocation of its head office to Wellington. He began his career as a chartered accountant with KPMG in Wellington prior to spending a number of years in the UK. Jason has broad sector experience in the resources, FMCG and financial services sectors, having worked in senior finance roles at Anglo American, Cadbury and Kiwibank. Jason brings a commercial outlook to the business underpinned by a strong focus on risk, governance and financial control. He holds a Bachelor’s degree in commerce and administration with a post-graduate Diploma in Professional Accounting. Jason is a member of Chartered Accountants Australia and New Zealand. Jason was appointed Chief Financial Officer in July 2015 and Joint Company Secretary in June 2016. *Mr Hungerford resigned effective 31 August 2017 and Mr Middleton was appointed as Chief Financial Officer (interim) from 31 August 2017 Section 1: Year in review 17 Directors’ report Your directors present their report on the consolidated entity (“the Group”) consisting of Bathurst Resources Limited (“Bathurst”) and the entities it controlled at the end of, or during, the year ended 30 June 2017. Directors Environmental regulation The following persons were directors of Bathurst Resources Limited as at 30 June 2017. Toko Kapea Non-executive Chairman Richard Tacon Executive Director Russell Middleton Executive Director* Peter Westerhuis Non-executive Director *Mr Middleton was appointed an executive director on 4 May 2017. Prior to this time he was a non-executive director. On 31 August 2017 Mr Middleton was also appointed to the role of Chief Financial Officer (interim). Principal activities During the year the principal continuing activities of the group consisted of: • the production of coal in New Zealand, and • the exploration and development of coal mining assets in New Zealand. Dividends No dividend was paid or declared during the current or prior financial year and the directors do not recommend the payment of a dividend. Our exploration and mining activities are subject to a range of environmental controls which govern how we carry out our business. These are set out below. Mine development/mining activities Mining activities are regulated by the following: • Resource consents granted by the relevant district and regional territorial authorities, after following the processes set out in the Resource Management Act 1991. • Mining permits, issued under the Crown Minerals Act 1991 by the Minister of Energy and Resources, required to mine Crown coal. • Access arrangements, granted by relevant landowners and occupiers granted under the Crown Minerals Act 1991. For Crown-owned land managed by the Department of Conservation, these access arrangements are either granted by the Minister of Conservation or for significant projects, jointly by the Minister of Conservation and the Minister of Energy and Resources. • Concession agreements under the Conservation Act 1987 for land outside a permit area but owned by the Crown and managed by the Department of Conservation. • Wildlife authorities, issued under the Wildlife Act 1953 granted by the Minister of Conservation. 18 Bathurst Resources Limited Annual Report 2017 Controls around water and air discharges that result from mining operations are governed by the conditions of the resource consents that the particular mining operation is operating under. Our mining operations are inspected on a regular basis and no significant instances of non-compliance have been noted. To the best of the directors’ knowledge, all mining activities have been undertaken in compliance with the requirements of the Resource Management Act 1991, Crown Minerals Act 1991, Conservation Act 1987 and Wildlife Act 1953. Exploration activities To carry out exploration, we need to hold a relevant exploration permit (where the coal is Crown owned) or consent from the mineral owner where the coal is privately owned, relevant resource consents to permit exploration, access arrangements with the relevant landowner and occupier and where wildlife is impacted a wildlife authority. To the best of the directors’ knowledge, all exploration activities have been undertaken in compliance with the requirements of the Resource Management Act 1991, Crown Minerals Act 1991, Conservation Act 1987 and Wildlife Act 1953. Corporate Governance Bathurst’s Corporate Governance Statement is available on the company’s website www.bathurst.co.nz/our-company/ corporate-governance/ Information on directors Mr Toko Kapea BA, LLB Non-executive Chairman Experience and expertise Toko is a Wellington based commercial lawyer, consultant and director at Tuia Group Limited. He has worked at Chapman Tripp and in legal roles in-house at Meridian Energy, Bank of New Zealand, St. George Bank NZ and ANZ. He currently sits on the board of TVNZ Limited (New Zealand Crown entity), Ngāti Apa Developments Limited (Wanganui-Rangitikei region), and Iron Duke Exploration Pty Limited (Brisbane). Toko is also an independent committee member of the Banjima Direct Benefits Trust in Perth, Western Australia. Other current directorships of listed companies Hazardous substances Nil Mining activities involve the storage and use of hazardous substances, including fuel. We must comply with the Hazardous Substances and New Organisms Act 1996 when handling hazardous materials. To the best of the directors’ knowledge, no instances of non-compliance have been noted. Former directorships in last three years of listed companies Nil Special responsibilities Chairman of the Remuneration and Nomination committee Emissions Trading Scheme Chairman of the Audit and Risk committee* The New Zealand Emissions Trading Scheme (“NZ ETS”) came into effect from 1 July 2010 which essentially makes us liable for greenhouse gas emissions associated with the coal we mine and sell in New Zealand and for the fugitive emissions of methane associated with that mined coal. Liability is based on the type and quantity of coal tonnes sold, with the cost of such being passed onto customers. Bathurst’s Emissions Trading Policy can be found on our website www.bathurst.co.nz/our- commitment/supporting-our-environment/emissions- trading-scheme *appointed on 31 August 2017 Interests in shares and options 485,000 fully paid ordinary shares in Bathurst Resources Limited 2,000,000 unlisted performance rights over shares in Bathurst Resources Limited 24 redeemable convertible preference shares AUD $1,000 each, convertible at AUD $0.022 per share up to 1 February 2018* *Converted to 1,090,909 ordinary fully paid shares on 18 September 2017 Section 1: Year in review 19 Richard Tacon Executive Director and Chief Executive Officer Mr Russell Middleton MBA, BBus Executive director* Experience and expertise Experience and expertise Richard’s first job in the industry was at Greymouth’s Liverpool State Mine. He moved to Australia to further his mining career and went on to hold several management roles in coal mines around the country, working his way from undermanager to General Manager. Richard has held senior leadership roles in the coal sector for the past decade. After living and working in Australia for 32 years, Richard returned to New Zealand to take up the position of Chief Operating Officer in 2012. He was appointed to the role of Chief Executive Officer in March 2015. He has also spent 15 years on a rescue crew, making him familiar with the principles and practices of mine safety. Richard is the Chair of the Coal Association of New Zealand and sits on the board of the New Zealand Mines Rescue Trust and Straterra as well as other industry stakeholder organisations. Richard is Chair and a director of BT Mining Limited as a Bathurst Resources representative. Other current directorships of listed companies Russell has almost 30 years in the mining and construction sector with significant experience in the project evaluation, construction and development of new operations. He has held various executive and board positions for ASX listed resources companies over the last 15 years. Russell has had extensive experience with both large and small enterprises including senior management roles with BHP before working with both Shell / Anglo American in development, construction and production of a major mining operations. Russell is a director of BT Mining Limited as a Bathurst Resources representative. Other current directorships of listed companies Nil Former directorships in last three years of listed companies Non-executive director Tiger Resources Limited July 2016 – October 2016 Nil Special responsibilities Former directorships in last three years of listed companies Chairman of the Audit and Risk committee** Nil Special responsibilities Chief Executive Officer Member of the Health, Safety, Environment and Community committee Interests in shares and options 5,976,596 fully paid ordinary shares in Bathurst Resources Limited 4,000,000 unlisted performance rights over shares in Bathurst Resources Limited Interests in shares and options 2,926,453 fully paid ordinary shares in Bathurst Resources Limited 4,000,000 unlisted performance rights over shares in Bathurst Resources Limited 80 redeemable convertible preference shares AUD $1,000 each, convertible at AUD $0.022 per share up to 1 February 20181 1 Converted to 3,636,364 ordinary fully paid shares on 18 September 2017 *Mr Middleton was appointed an Executive Director on 4 May 2017. On 31 August 2017 Mr Middleton was appointed to the role of Chief Financial Officer (interim). 80 redeemable convertible preference shares AUD $1,000 each, convertible at AUD $0.022 per share up to 1 February 20181 **Upon Mr Middleton’s appointment to Chief Financial Officer Mr Kapea was appointed Chairman of the Audit and Risk Committee and Mr Middleton became a member of the committee at this time. 1Converted to 3,636,364 ordinary fully paid shares on 18 September 2017 20 Bathurst Resources Limited Annual Report 2017 Joint company secretary Bill Lyne Company Secretary (Joint Company Secretary up to 31 August, 2017) Mr Lyne has a wealth of experience in the role of company secretary for public companies ranging from stock exchange listed to small private companies and “not-for-profit” entities. He has operated his own business, Australian Company Secretary Service, since 1998, providing professional, specialist company secretarial, corporate compliance, governance and administrative services to various clients in diverse businesses in a wide range of industries. He is currently company secretary of four other ASX listed companies, including Jumbo Interactive Limited, of which he is also a director. Mr Lyne holds a Bachelor of Commerce degree in economics from the University of New South Wales, is a chartered accountant, and is a Fellow of the Institute of Chartered Secretaries & Administrators (UK) and Governance Institute of Australia. Mr Lyne was appointed company secretary in May 2015. Jason Hungerford Chief Financial Officer and Joint Company Secretary (up to 31 August, 2017). Refer to Jason’s profile on page 17 of Our People. Interests in shares and options 20 redeemable convertible preference shares AUD $1,000 each, convertible at AUD $0.022 per share up to 1 February 20182 2Converted to 909,091 ordinary fully paid shares on 18 September 2017 Peter Westerhuis MBA, BEng Non-executive director Experience and expertise Peter is a professional engineer with post-graduate business qualifications and more than 30 years of Australian and international resources experience in the iron ore, gold and coal industries; the last ten years at CEO and MD level. He has successfully developed and managed large mining and processing operations including overseeing the transition from explorer to producer. Peter has undertaken many complex commercial negotiations for joint ventures, capital funding, contracts, litigation, product marketing and off-take agreements. He is particularly passionate about health and safety, teamwork, operational effectiveness, business improvement and project delivery. Peter is the CEO of Batchfire Resources Pty Ltd, owner of the Callide Mine in Central Queensland. Previously he worked for 11 years at the Ensham Joint Venture, including four years as CEO, developing and operating large open cut and underground coal reserves in Queensland. Other current directorships of listed companies Nil Former directorships in last three years of listed companies Nil Special responsibilities Chairman of the Health, Safety, Environment and Community committee Member of the Remuneration and Nomination committee Interests in shares and options 365,000 fully paid ordinary shares in Bathurst Resources Limited 1,500,000 unlisted performance rights over shares in Bathurst Resources Limited 30 redeemable convertible preference shares AUD $1,000 each, convertible at AUD $0.022 per share up to 1 February 20181 1Converted to 1,363,636 ordinary fully paid shares on 18 September 2017 Section 1: Year in review 21 Remuneration report Role of the Remuneration and Nomination committee Principles used to determine the nature and amount of remuneration Non-executive directors The fees and payments the company makes to its non-executive directors reflect the level of responsibility attributed to board members and the demands which are made on the directors’ time. Non-executive directors’ fees and payments are reviewed annually by the board. The fees paid to the Chairman are determined independently to the fees of non-executive directors. The Chairman is not present at any discussions relating to determination of his own remuneration. The Remuneration and Nomination committee (“R&N committee”) is a subcommittee of the Bathurst board. The R&N committee is responsible for making recommendations to the board on remuneration matters such as non-executive director fees, executive remuneration for directors and other executives, and the over-arching executive remuneration policy and incentive schemes. The objective of the R&N committee is to ensure that the company’s remuneration policies and structures are fair and competitive, and aligned with the long-term interests of the company. The R&N committee draws on its own experience in remuneration matters and seeks advice from independent remuneration consultants. There were no major changes to the remuneration framework during the year as Bathurst focussed on the BT Mining joint venture and transition. Now that the transition is complete the R&N Committee will re-evaluate the remuneration policy and framework to ensure they are updated to reflect changes to the business and market. The Corporate Governance Statement provides further information on the role of the R&N committee. 22 Bathurst Resources Limited Annual Report 2017 Directors’ fees Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. The maximum currently stands at $1,000,000 per annum. The total remuneration and other benefits to directors for services in all capacities during the year ended 30 June 2017 was: Director Mr T Kapea Mr R Middleton Mr P Westerhuis Mr R Tacon Directors fees Short-term benefits Share-based payments $120,000 $63,653 $63,653 - $316,788 - - $505,605 $39,014 $74,356 $30,178 $82,922 Total $159,014 $454,797 $93,831 $588,527 During the year, Mr Middleton provided consulting services to the Company in relation to commercial due diligence activities. Mr Middleton was appointed Executive Director (previously Non-Executive Director) on 4 May 2017. On 31 August 2017 Mr Middleton was appointed to the role of Chief Financial Officer (interim). Directors’ securities interests The interests of directors in securities of the company as at 30 June 2017 were: Director Mr T Kapea Mr R Middleton Mr P Westerhuis Mr R Tacon Ordinary shares Performance rights Redeemable Convertible Preference Shares* 485,000 2,926,453 365,000 5,976,596 2,000,000 4,000,000 1,500,000 4,000,000 24 80 30 80 *AUD $1,000 each, convertible at AUD $0.022 per share up to 1 February 2018. Note that these shares converted into ordinary fully paid shares on 18 September 2017. Refer to information in the directors report earlier in this report for further details. Section 1: Year in review 23 Executive remuneration Base pay and benefits Executives are offered a competitive base pay that comprises the fixed component and rewards. External remuneration consultants provide analysis and advice to ensure base pay is set to reflect the market for a comparable role. Base pay for executives is reviewed annually to ensure the executives’ remuneration is competitive with the market. An executive’s remuneration is also reviewed on promotion. There are no guaranteed base pay increases included in any executives’ contracts. Long-term incentives The Bathurst Resources Limited Long Term Incentive Plan (LTIP) was approved by shareholders at the 2015 AGM. The purpose of the plan is to reinforce a performance focused culture by providing a long-term performance-based element to the total remuneration packages of certain employees and non-executive directors (in the form of performance rights) by aligning and linking the interests of Bathurst’s leadership team and shareholders, and to attract and retain executives and key management. The plan forms part of the company’s remuneration policy and provides the company with a mechanism for driving long-term performance for shareholders and retention of executives. Performance rights granted under the plan carry no dividend or voting rights. When exercised, each performance right converts into one fully paid ordinary share. Service agreements On appointment to the board, all non-executive directors enter into a service agreement with the company in the form of a letter of appointment. The letter summarises the board policies and terms, including compensation, relevant to the office of director. Remuneration and other terms of employment for the Chief Executive Officer and other key management personnel are also formalised in service agreements. The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms to industry practice. The R&N committee ensures that executive pay is competitive and reasonable, as well as acceptable to shareholders. The company ensures that an executive’s remuneration is linked to that executive’s performance to ensure that the interests of the company and its executives are aligned. The R&N committee determines executive remuneration to ensure transparency and to effectively manage capital. In consultation with external remuneration consultants, the company has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation. The company believes that the policy for determining executives’ remuneration is aligned to shareholders’ interests because it focuses on sustained growth in shareholder wealth by pushing growth in share price and delivering constant return on assets, as well as focusing the executive on key non-financial drivers of value. Most importantly, the company ensures that its remuneration policy attracts and retains high calibre executives, who in turn add value to the company and to the shareholders. The company also believes that its remuneration policy for executives is aligned to the interests of its executives. The executive remuneration policy rewards capability and experience and reflects competitive reward for contribution to growth in shareholder wealth. The policy is transparent so it provides a clear structure for earning rewards and provides recognition for contribution. The framework provides a mix of fixed and variable pay, and a blend of short- and long-term incentives. As executives gain seniority with the group, the balance of this mix shifts to a higher proportion of ‘at risk’ rewards. The executive remuneration and reward framework has two components: • base pay and benefits, including superannuation, and • long-term incentives. The combination of these comprises an executive’s total remuneration. 24 Bathurst Resources Limited Annual Report 2017 Employees’ remuneration Donations The company made donations to several local groups during the year totalling $10,240. Directors’ and officers’ liability insurance The company and its subsidiaries have arranged policies of directors’ and officers’ liability insurance, which, together with a deed of indemnity, seek to ensure to the extent permitted by law that directors and officers will incur no monetary loss as a result of actions legitimately taken by them as directors and officers. This report is made in accordance with a resolution of directors on 10 October 2017. During the year ended 30 June 2017, 17 employees (excluding the Chief Executive Officer) received individual remuneration over $100,000. Range 100,001 – 110,000 110,001 – 120,000 120,001 – 130,000 130,001 – 140,000 170,001 – 180,000 180,001 – 190,000 190,001 – 200,000 210,001 – 220,000 220,001 – 230,000 250,001 – 260,000 270,001 – 280,000 330,001 – 340,000 # of employees 2 2 4 1 1 1 1 1 1 1 1 1 The interests of the current company officers (excluding the Chief Executive Officer) in securities of the company at 30 June 2017 were nil1. 1Refer to p21 for Chief Financial Officer interests. “ The objective of the R&N committee is to ensure that the company’s remuneration policies and structures are fair and competitive, and aligned with the long-term interests of the company Section 1: Year in review 25 26 Bathurst Resources Limited Annual Report 2017 Section 2: Financial statements 27 Financial statementsIn this sectionIncome statementStatement of comprehensive incomeBalance sheetStatement of changes in equityStatement of cash flowsNotes to the financial statementsIndependent auditor’s reportUpdate on FY17 results02Contents Income Statement Statement of Comprehensive Income Balance Sheet Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Independent Auditor’s Report Update on FY17 results 29 30 31 32 33 34 62 68 The Directors of Bathurst Resources Limited authorised these financial statements for issue on behalf of the Board on 31 August 2017 Toko Kapea Chairman Russell Middleton Director 28 Bathurst Resources Limited Annual Report 2017 Income Statement For the year ended 30 June 2017 Revenue Less: cost of sales Gross Profit Other income Depreciation Administrative and other expenses Fair value gain on deferred consideration Gain on disposal of fixed assets Impairment losses Share of joint venture loss Finance cost Finance income (Loss)/profit before income tax Income tax benefit Total (loss)/profit after tax (Loss)/profit per share Basic (loss)/earnings per share Diluted (loss)/earnings per share Notes 3 4 15 5 22 9 14 7 7 8 26 26 2017 $’000 41,591 2016 $’000 50,879 (32,379) (40,356) 9,212 618 (2,952) (7,650) 1,749 110 - (569) (3,212) 796 (1,898) - (1,898) Cents (0.19) (0.19) 10,523 460 (4,330) (6,541) 2,175 122 (100) (28) (1,334) 84 1,031 - 1,031 Cents 0.11 0.11 The above Income Statement should be read in conjunction with the accompanying notes. Section 2: Financial statements 29 Statement of Comprehensive Income For the year ended 30 June 2017 Total (loss)/profit after tax Other comprehensive loss, net of tax Items that may be reclassified to profit or loss: Exchange differences on translation Total comprehensive (loss)/income for the year 2017 $’000 (1,898) 2016 $’000 1,031 - (1,898) (14) 1,017 The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 30 Bathurst Resources Limited Annual Report 2017 Balance Sheet As at 30 June 2017 Cash and cash equivalents Restricted short term deposits Trade and other receivables Inventories Intangible assets – New Zealand emission units Other financial assets Assets held for sale Total current assets Loans to related parties Property, plant and equipment Mining licences, properties, exploration and evaluation assets Other financial assets Total non-current assets TOTAL ASSETS Trade and other payables Borrowings Deferred consideration Provisions Total current liabilities Trade and other payables Borrowings Deferred consideration Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS Contributed equity Debt Instruments – equity component Reserves Accumulated losses TOTAL EQUITY Notes 10 11 12 13 14 15 16 20 21 22 23 20 21 22 23 24 24 25 2017 $’000 28,892 3,808 4,033 2,083 233 20 - 39,069 3,721 15,825 19,114 114 38,774 77,843 7,677 23,591 953 1,111 33,332 143 13,959 6,975 2,874 23,951 57,283 20,560 2016 $’000 3,325 2,628 2,777 1,901 313 20 790 11,754 - 11,948 20,127 154 32,229 43,983 5,167 2,563 873 350 8,953 287 2,577 8,796 3,419 15,079 24,032 19,951 247,865 247,378 1,794 - (32,636) (32,862) (196,463) (194,565) 20,560 19,951 These Financial Statements were authorised for issue on behalf of the Board of Directors on 31 August 2017. Toko Kapea Chairman Russell Middleton Director The above Balance Sheet should be read in conjunction with the accompanying notes. Section 2: Financial statements 31 Statement of Changes in Equity For the year ended 30 June 2017 Contributed Equity $’000 247,378 - - - - 247,378 - Debt Instrument Equity Component $’000 Share Based Payment Foreign Exchange Retained Earnings Re- organisation Reserve Total Equity $’000 $’000 $’000 $’000 $’000 2,028 (140) (197,587) (32,760) - - - - - - - - - 15 (1,991) 52 - - 226 278 - 1,031 (14) - - - - 1,991 - - - - (154) (194,565) (32,760) - - - (1,898) - - - - - 18,919 1,031 (14) 15 - 19,951 (1,898) 2,281 226 (154) (196,463) (32,760) 20,560 487 1,794 - - 247,865 1,794 Balance at 1 July 2015 Profit for the year Other comprehensive income Transactions with owners in their capacity as owners: Share based payments expense Conversion of performance rights and transfer of reserves Balance at 30 June 2016 Loss for the year Transactions with owners in their capacity as owners: Contributions of equity Share based payments expense Balance at 30 June 2017 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. 32 Bathurst Resources Limited Annual Report 2017 Statement of Cash Flows For the year ended 30 June 2017 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest and other finance costs paid Net cash inflow from operating activities Cash flows from investing activities Exploration and consenting expenditure Mining assets (including elevated stripping) Property, plant and equipment purchases Proceeds from disposal of property, plant and equipment Restricted deposits Deferred consideration Advances paid to related parties Net cash outflow from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Net cash inflow/(outflow) from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Notes 2017 $’000 2016 $’000 41,155 52,870 (31,992) (42,473) 81 (382) 99 (255) 28 8,862 10,241 (898) (5,759) (3,770) 925 (1,225) (809) (4,290) (972) (4,050) (382) 463 143 (1,603) - (15,826) (6,401) 35,557 (3,026) 32,531 25,567 3,325 28,892 - (2,980) (2,980) 860 2,465 3,325 10 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. Section 2: Financial statements 33 1. Summary of significant accounting policies A. General information D. Critical estimates, judgements and errors Bathurst Resources Limited (“Company” or “Parent”) is a company incorporated and domiciled in New Zealand, registered under the Companies Act 1993 and is listed on the Australian Securities Exchange (“ASX”). These financial statements have been prepared in accordance with the requirements of the ASX listing rules. These financial statements have been approved for issue by the Board of Directors on 31 August 2017. The financial statements presented as at and for the year ended 30 June 2017 comprise the Company and its subsidiaries (together referred to as the “Group”). Joint ventures are accounted for using the equity method. The Group is principally engaged in the exploration, development and production of coal. B. Basis of preparation These financial statements of the Group have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (NZ GAAP). The Group is a for-profit entity for the purposes of complying with NZ GAAP. The consolidated financial statements comply with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS), other New Zealand accounting standards and authoritative notices that are applicable to entities that apply NZ IFRS. The consolidated financial statements also comply with International Financial Reporting Standards (IFRS). These financial statements are presented in New Zealand dollars, which is the Company’s functional and presentation currency. References in these financial statements to ‘$’ and ‘NZ$’ are to New Zealand dollars. All financial information has been rounded to the nearest thousand unless otherwise stated. C. Measurement basis These financial statements have been prepared under the historical cost convention, except certain financial assets and liabilities that are measured at fair value through profit or loss. 34 Bathurst Resources Limited Annual Report 2017 Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (i) Impairment The future recoverability of the assets recorded by the Group is dependent upon a number of factors, including whether the Group decides to exploit its mine property itself or, if not, whether it successfully recovers the related asset through sale. Factors that could impact future recoverability include the level of reserves and resources, future technological changes, costs of drilling and production, production rates, future legal changes, and changes to commodity prices and foreign exchange rates. This impacts both an assessment of whether impairment should be recognised, as well as if there are indicators that previously recognised impairment should be reversed. (ii) Convertible Notes and Redeemable Convertible Preference Shares The conversion feature of the Convertible Notes and Redeemable Convertible Preference Shares (“RCPS”) is included in Equity as Debt Instruments – equity component. The Group has made a judgement that the conversion feature of these debt instruments should be classified as equity. This judgement was made on the basis that the conversion feature satisfies the equity classification test of converting a fixed amount of debt principal to a fixed quantity of the Group’s own shares (the ‘fixed for fixed’ test). As a result of this classification the value attributed to the conversion feature is not subsequently remeasured after initial recognition. An alternative approach that the Group considered but did not adopt is that the fixed for fixed test is not met and as such does not satisfy the equity classification requirement. When the debt principal in AUD is translated to the Group’s functional currency (NZD), this creates variability in the amount recorded. However because both the debt and share price conversion value are both in AUD, at the point of converting these instruments into the Group’s shares, no further cash would change hands and the instrument holder would receive the same number of shares on conversion date as at issue date. Adoption of the alternative approach would mean that the conversion feature of the Convertible Notes and RCPS would be classified as a derivative liability and not equity. A derivative is re-measured at fair value through profit or loss at each reporting date. Notes to the Financial StatementsFor the year ended 30 June 20171. Summary of significant accounting policies (continued) D. Critical estimates, judgements and errors continued E. Principles of consolidation (iii) Valuation of deferred consideration Subsidiaries In valuing the deferred consideration payable under business acquisitions management uses estimates and assumptions. This includes future coal prices, discount rates, coal production, and the timing of payments. The amounts of deferred consideration are reviewed at each balance date and updated based on best available estimates and assumptions at that time. The carrying amount of deferred consideration is set out in note 22. Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the Company and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. (iv) Reserves and Resources Reserves and resources are based on information compiled by a Competent Person as defined in accordance with the Australasian Code of Mineral Resources and Ore Reserves of 2012 (the JORC code). There are numerous uncertainties inherent in estimating reserves and assumptions that are valid at the time of estimation but that may change significantly when new information becomes available. Changes in forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status and may, ultimately, result in the reserves being restated. Such changes in reserves could impact on depreciation and amortisation rates, asset carrying values and provisions for rehabilitation. (v) Provision for rehabilitation In calculating the estimated future costs of rehabilitating and restoring areas disturbed in the mining process certain estimates and assumptions have been made. (Refer to note 1(P)). The amount the Group is expected to incur to settle these future obligations includes estimates in relation to the appropriate discount rate to apply to the cash flow profile, expected mine life, application of the relevant requirements for rehabilitation, and the future expected costs of rehabilitation. Changes in the estimates and assumptions used could have a material impact on the carrying value of the rehabilitation provision and related asset. The provision is reviewed at each reporting date and updated based on the best available estimates and assumptions at that time. The carrying amount of the rehabilitation provision is set out in note 23. (vi) Waste in advance Waste moved in advance is calculated with reference to the stripping ratio (waste moved over coal extracted) of the area of interest and the excess of this ratio over the estimated stripping ratio for the area of interest expected to incur over its life. Management estimates this life of mine ratio based on geological and survey models as well as reserve information for the areas of interest. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred. Contingent consideration (deferred consideration) to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be a financial asset or financial liability is recognised in accordance with NZ IAS 39 in profit or loss as “fair value (loss)/gain on deferred consideration”. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Section 2: Financial statements 35 1. Summary of significant accounting policies (continued) E. Principles of consolidation continued (i) Sale of goods Joint arrangements Joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Company has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method. Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the group’s share of the post-acquisition profits or losses and movements in other comprehensive income. When the group’s share of losses in a joint venture equals or exceeds its interests in the joint venture (which includes any long-term interests that, in substance, form part of the group’s net investment in the joint venture), the group does not recognise further losses, except to the extent that the group has an obligation or has made payments on behalf of the investee. F. Foreign currency translation (i) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. (ii) Group companies The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • income and expenses for each income statement and statement of comprehensive income are translated at monthly average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and • all resulting exchange differences are recognised in other comprehensive income. G. Revenue recognition Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: 36 Bathurst Resources Limited Annual Report 2017 Revenue from the sale of goods is recognised when there is an executed sales agreement at the time of delivery of the goods to customer, indicating that there has been a transfer of risks and rewards to the customer, no further work or processing is required, the quantity and quality of the goods has been determined, the price is fixed and when title has passed. (ii) Freight income Revenue from freight services is recognised in the accounting period in which the services are provided. Revenue is not recognised until the service has been completed. (iii) Interest income Interest income is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. H. Income tax The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting or taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Notes to the Financial StatementsFor the year ended 30 June 20171. Summary of significant accounting policies (continued) H. Income tax continued Financial assets carried at amortised cost Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those that are not expected to be recovered within the next 12 months. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the Company has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. I. Inventories Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to inventory on the basis of weighted average costs. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. J. Financial instruments (i) Non-derivative financial instruments Non-derivative financial instruments comprise trade and other receivables, cash and short term deposits, other financial assets, loans to related parties, deferred consideration, borrowings and other payables. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through the income statement, transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below. A financial instrument is recognised if the Group becomes party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial asset expire or if the Group transfers the financial asset to another party without retaining control of substantially all risks and rewards of the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or are cancelled. Management determines the classification of its investments at initial recognition. Loans and receivables are subsequently carried at amortised cost using the effective interest rate method. Cash and cash equivalents Cash and cash equivalents in note 10 comprise cash at bank and on hand and short-term deposits with an original maturity of three months or less. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts, and excluding restricted cash deposits. Trade receivables Trade receivables are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value less transaction costs and subsequently measured at amortised cost using the effective interest method. Deferred consideration The fair value of deferred consideration payments is determined at acquisition date. Subsequent changes to the fair value of the deferred consideration are recognised through the income statement. The portion of the fair value adjustment due to the time value of money (unwinding of discount) is recognised as a finance cost. For further information on deferred consideration refer to note 22. Section 2: Financial statements 37 1. Summary of significant accounting policies (continued) J. Financial instruments continued Financial assets Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings denominated in foreign currency are re-translated at each reporting period to account for un-realised foreign exchange movements. The fair value of the liability portion of a convertible instrument is determined using a market interest rate for an equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders’ equity, net of income tax effects. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. (ii) Derivative financial instruments Derivative instruments are initially recognised at fair value, and subsequently measured at fair value with movements in fair value recognised in profit or loss. Associated transaction costs are expensed as incurred. From time to time the Group may use derivative financial instruments to hedge its exposure to commodity risks and foreign exchange risks arising from operational and financing activities. Derivatives that do not qualify for hedge accounting are accounted for as trading instruments. K. Impairment The Group assesses at the end of each reporting period whether there is objective evidence that an asset or group of assets is impaired. 38 Bathurst Resources Limited Annual Report 2017 A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of an event that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows that can be reliably estimated. For loans and receivables, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price. Non-financial assets For non-financial assets, the recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Exploration and evaluation assets as well as property, plant and equipment are assessed for impairment collectively as part of their respective cash generating units. Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at the end of each reporting period. L. Property, plant and equipment All property, plant and equipment are measured at cost less depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. 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 expenditure will flow to the Group. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred. Depreciation is recognised in profit or loss over the estimated useful lives of each item of property, plant and equipment. Leasehold improvements and certain leased plant and equipment are depreciated over the shorter of the lease term and their useful lives. Notes to the Financial StatementsFor the year ended 30 June 20171. Summary of significant accounting policies (continued) L. Property, plant and equipment continued N. Mining and development properties The estimated useful lives for significant items of property, plant and equipment are as follows: Buildings Mine infrastructure Plant and machinery Plant and machinery leased Furniture, fittings and equipment 25 years 3 – 8 years 2 – 25 years Units of use 3 – 8 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(K)). Any gain or loss on disposals of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss. M. Exploration and evaluation expenditure Exploration and evaluation expenditure incurred is capitalised to the extent that the expenditure is expected to be recovered through the successful development and exploitation of the area of interest, or the exploration and evaluation activities in the area of interest have not yet reached a point where such an assessment can be made. All other exploration and evaluation expenditure is expensed as incurred. Capitalised costs are accumulated in respect of each identifiable area of interest. Costs are only carried forward to the extent that tenure is current and they are expected to be recouped through the successful development of the area (or, alternatively by its sale) or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves and operations in relation to the area are continuing. Accumulated costs in relation to an abandoned area are written off in full against profit in the period 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. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Mining and development properties include the cost of acquiring and developing mining properties, licenses, mineral rights and exploration, evaluation and development expenditure carried forward relating to areas where production has commenced. These assets are amortised using the unit of production basis over the proven and probable reserves. Amortisation starts from the date when commercial production commences. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the asset will flow to the Group and the cost of the item can be measured reliably. O. Waste in advance Waste removed in advance costs incurred in the development of a mine are capitalised as parts of the costs of constructing the mine and subsequently amortised over life of the relevant area of interest or life of mine if appropriate (herein referred to as “life of mine”). Waste removal normally continues through the life of the mine. The Group defers waste removal costs incurred during the production stage of its operations and discloses it within the cost of constructing the mine. The amount of waste removal costs deferred is based on the ratio obtained by dividing the volume of waste removed by the tonnage of coal mined. Waste removal costs incurred in the period are deferred to the extent that the current period ratio exceeds the life of mine ratio. Costs above the life of ore component strip ratio are deferred to waste removed in advance. The stripping activity asset is amortised on a units of production basis. The life of mine ratio is based on proven and probable reserves of the operation. Waste moved in advance costs form part of the total investment in the relevant cash generating unit, which is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. Changes to the life of mine stripping ratio are accounted for prospectively. Section 2: Financial statements 39 1. Summary of significant accounting policies (continued) P. Provisions Provision for rehabilitation Provisions are made for site rehabilitation costs relating to areas disturbed during the mine’s operation up to reporting date but not yet rehabilitated. The provision is based on management’s best estimate of future costs of rehabilitation. When the provision is recognised, the corresponding rehabilitation costs are recognised as part of mining property and development assets. At each reporting date, the rehabilitation liability is re-measured in line with changes in the timing or amount of the costs to be incurred. Changes in the liability relating to rehabilitation of mine infrastructure and dismantling obligations are added to or deducted from the related asset. If the change in the liability results in a decrease in the liability that exceeds the carrying amount of the asset, the asset is written down to nil and the excess is recognised immediately in the income statement. If the change in the liability results in an addition to the cost of the asset, the recoverability of the new carrying value is considered. Where there is an indication that the new carrying amount is not fully recoverable, an impairment test is performed with the write down recognised in the income statement in the period in which it occurs. The net present value of the provision is calculated using an appropriate discount rate, the unwinding of the discount applied in calculating the net present value of the provision is charged to the income statement in each reporting period and is classified as a finance cost. Q. Share-based payments R. Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Finance leases, those under which a significant portion of the risks and rewards of ownership are transferred to the company, are capitalised at the lease’s inception at the fair value of the leased property, or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability. S. Intangible assets – emissions trading units Emissions trading units are acquired by the Group to satisfy its obligations under the New Zealand Emissions Trading Scheme. These units have a finite useful life but are not amortised because they are expected to be utilised to offset the Group’s obligation under the Emissions Trading Scheme within 12 months of balance date. The units are recognised at cost. Share-based compensation benefits are provided to employees via the Bathurst Resources Limited Long Term Incentive Plan. T. Goods and Services Tax The fair value of performance rights granted under the Bathurst Resources Limited Long Term Incentive Plan is recognised as an employee benefits expense with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the rights granted, which includes any market performance conditions and the impact of any non-vesting conditions but excludes the impact of any service and non-market performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of rights that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the Company revises its estimates of the number of rights that are expected to vest based on the non- market vesting conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. 40 Bathurst Resources Limited Annual Report 2017 Revenues, expenses and assets are recognised net of the amount of goods and services tax (“GST”), except where the GST incurred on a purchase of goods and services is not recoverable from the taxation authorities, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense item as applicable. Receivables and payables in the balance sheet are shown inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the 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. Notes to the Financial StatementsFor the year ended 30 June 20171. Summary of significant accounting policies (continued) U. Contributed equity (i) NZ IFRS 9 Financial Instruments. Ordinary shares are classified as equity. Issued and paid up capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. Effective for periods beginning on or after 1 January 2018, expected to be applied in the financial year ending 30 June 2019. The standard adds requirements related to the classification, measurement of financial instruments. No material impact is expected from the adoption of this standard. (ii) NZ IFRS 15 Revenue from contracts with customers Effective for periods beginning on or after 1 January 2018, expected to be applied in the financial year ending 30 June 2019. The standard details a comprehensive principles based approach on how to recognise revenue from contracts with customers. It is expected that this standard may affect the Group’s recognition of certain revenue items but is not expected to have a material impact. (iii) NZ IFRS 16 Leases Effective for periods beginning on or after 1 January 2019, expected to be applied in the financial year ending 30 June 2020. The standard eliminates the distinction between operating and finance leases. A formal impact assessment is yet to be undertaken. Y. Standards and Interpretations adopted during the year The financial information presented for the year ended 30 June 2017 has been prepared on the basis of accounting policies consistent with those applied in the 30 June 2016 financial statements contained within the 2016 Annual Report of Bathurst Resources Limited. V. Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing: • the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares • by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account: • the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and • the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. W. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors. X. New accounting standards and interpretations not yet effective At the date of authorisation of the financial statements, three accounting standards were on issue but not yet effective. The Group does not intend to apply these pronouncements until their effective date. Section 2: Financial statements 41 2. Segment information Management has determined operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions. The Board reviews the business from both a mine and geographic perspective and has identified two reportable segments. The Buller Coal segment relates to the mining, development and ultimate exploitation of permits under the Buller Coal management team in the Buller region of New Zealand. The Eastern Coal segment refers to the Takitimu and Canterbury mines and Timaru coal handling and distribution centre under the Eastern management team. The financial performance of these segments is monitored and operated separately from each other. All other operations of the Group are classified within “Corporate” section of the segment note which encompasses the administration and treasury management of the Group. Revenue is not presented to the chief operating decision maker on a segmented basis, instead it is presented as a sales function across the Group. Total assets and total liabilities are reported on a group basis and are not provided internally on a segmented basis. Two Bathurst customers met the reporting threshold of ten percent of Bathurst’s operating revenue in the year to 30 June 2017, contributing $11.4m and $5.7m (2016: two customers contributing $10.4m and $9.4m). The segment information provided to the Board for the reportable segments is as follows:1 Buller Coal $’000 Eastern Coal $’000 Corporate $’000 (1,184) (1,294) 15,497 4,604 (3,163) (5,208) Total $’000 11,150 (1,898) (44) (10,529) (59) (10,632) 3,949 3,419 11,502 244 (1,951) (2,632) 13,500 1,031 (3) (257) (97) (10,866) - (97) (100) (11,220) 2017 $’000 29,063 12,528 41,591 2016 $’000 36,981 13,898 50,879 30 June 2017 EBITDA¹ Loss before tax Profit before tax includes: Depreciation and amortisation 30 June 2016 EBITDA Profit before tax Profit before tax includes: Net impairment losses Depreciation and amortisation 3. Sales revenue Coal sales Freight Sales Revenue 1 Earnings before interest, tax, depreciation and amortisation 42 Bathurst Resources Limited Annual Report 2017 Notes to the Financial StatementsFor the year ended 30 June 20174. Cost of sales Raw materials, mining costs and consumables used Freight costs Mine labour costs Amortisation expenses Changes in inventories of finished goods and work in progress Total cost of sales 5. Administrative and other expenses Administrative and other expenses includes the following items: Audit and review fees Directors fees Legal fees Consultants Employee benefit expense Rent Share based payments expense 2017 $’000 7,124 11,508 6,253 7,680 (186) 2016 $’000 12,632 13,060 8,705 6,890 (931) 32,379 40,356 176 282 1,112 1,144 2,557 271 226 172 248 542 1,133 2,210 307 15 Included in the above for the current year is $0.80m of legal fees and $0.47m of consulting fees relating to due diligence work on purchasing certain mine site assets from Solid Energy, via the Company’s joint venture BT Mining Limited (“BT Mining”). For further information refer to note 18. 6. Remuneration of auditors During the year, the following fees were paid or payable for services provided by the auditor of the Group: Audit and review of financial statements Share registry audit Total remuneration for auditors 7. Net finance costs Interest income Foreign exchange gain Total finance income Interest expense Foreign exchange loss Provisions: unwinding of discount Deferred consideration: unwinding of discount Total finance costs Total net finance costs 176 - 176 142 654 796 (2,216) - (210) (786) (3,212) (2,416) 170 2 172 81 3 84 (335) (5) (173) (821) (1,334) (1,250) 23 22 Included in the above interest expense is $1.9m relating to the debt instruments issued during the year. The debt instruments were issued primarily to enable funding in the Company’s joint venture BT Mining (refer note 18 and 21 for further information). Section 2: Financial statements 43 8. Income tax benefit (a) Income tax benefit Current tax Deferred tax Income tax benefit Reconciliation of income tax benefit to prima facie tax payable (Loss)/profit before income tax Tax at the standard New Zealand rate of 28% Tax effects of amounts not assessable in calculating taxable income: Share based payment expense Fair value gain on deferred consideration Deferred consideration: unwinding of discount Tax losses not recognised Other deferred tax movements Permanent adjustments Income tax benefit Further information relating to deferred tax is set out in note 19. (b) Imputation credits New Zealand imputation credit account Available for use in future periods 9. Impairment losses Impairment of exploration and evaluation assets Impairment of plant, property and equipment Reversal of impairment Impairment of other assets Total impairment losses Notes 16 15 2017 $’000 (480) 480 - (1,898) (531) 63 (511) 220 511 (257) 505 - - - - - - - 2016 $’000 1,111 (1,111) - 1,031 289 4 (609) 230 17 (100) 169 - 815 374 97 (608) 237 100 Management has assessed the cash generating units (“CGU”) for the Group as follows: • Bathurst Domestic Coal, as the coal yard cannot generate its own cash flows independent of the mine. Bathurst Domestic Coal includes the Canterbury and Takitimu mines and the Timaru coal yard. • Buller Coal Project, as there is a large amount of shared infrastructure between the proposed mines, necessary blending of the pit products at the same site, and the similar geographical location of the pits. • Cascade mine, as the mine has had established domestic markets which allow a profitable operation without relying on the infrastructure to be built for the Buller Coal Project. Management assessed each CGU for indicators of impairment, or indicators that previously recognised impairment losses may no longer be relevant, where appropriate. Further details for each CGU are noted below. 44 Bathurst Resources Limited Annual Report 2017 Notes to the Financial StatementsFor the year ended 30 June 20179. Impairment losses (continued) Bathurst Domestic Coal No indicators of impairment were present at 30 June 2017, and no impairment was recorded as at 30 June 2017. Buller Coal Project The Buller Coal Project was previously fully impaired in the year ended 30 June 2015, in the context of reducing coking coal prices. The Buller Coal Project has remained on care and maintenance and Management has no immediate plans to reinstate the project. As such the CGU remains fully impaired at 30 June 2017. Cascade Mine The Cascade mine was placed on care and maintenance during the year ended 30 June 2016 and remains on care and maintenance at 30 June 2017. The only remaining assets attributable to this CGU are low levels of inventory, which are held at the lower of cost and net realisable value. 10. Cash and cash equivalents Cash at bank and on hand Cash held in escrow Cash and cash equivalents 2017 $’000 3,950 24,942 28,892 2016 $’000 3,325 - 3,325 Cash and cash equivalents includes cash called in accordance with debt instruments issued during the period (refer to note 21). The cash is held in escrow, is unrestricted, and will be used to settle the acquisition of certain Solid Energy assets via the Company’s joint venture BT Mining (for further information see note 18). 11. Trade and other receivables Trade receivables Less: provision for impairment Receivable from BT Mining Other receivables Prepayments Total trade and other receivables The provision for impairment relates to the Company’s joint venture Bathurst Industrial Coal Limited. 12. Inventories Raw materials and stores Finished goods Other Total inventories 3,264 (500) 2,764 823 410 36 3,049 (500) 2,549 - 212 16 4,033 2,777 241 1,563 279 2,083 857 1,010 34 1,901 Section 2: Financial statements 45 13. Assets held for sale Previous assets held for sale ($790k at 30 June 2016) included a residential property subject to a conditional sale and purchase agreement and some heavy machinery listed for sale. These were sold in the year ended 30 June 2017. 14. Loans to related parties Loan to BT Mining Share of BT Mining’s Loss 2017 $’000 4,290 (569) 3,721 2016 $’000 - - - The loan enabled BT Mining to pay the deposit required under the conditional sale and purchase agreement (“SPA”) to acquire selected Solid Energy assets, and provided working capital. The Company’s contribution to fund the deposit was in proportion to the Company’s shareholding. The loan is not secured, does not attract interest, and can be settled either by cash or converted to an investment in BT Mining. It is expected that on completion of the SPA, the loan will be transferred to represent an equity investment in BT Mining. The share of BT Mining’s loss represents the Company’s proportionate share of the loss recorded in BT Mining for the year ended 30 June 2017. BT Mining is not yet operating and the loss reflects transaction costs of the intended asset acquisitions. 46 Bathurst Resources Limited Annual Report 2017 Notes to the Financial StatementsFor the year ended 30 June 201715. Property, plant and equipment Freehold Land Buildings Mine Infrastructure Plant & Machinery Furniture Fittings and Equipment Work in Progress Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 1,970 2,347 82 (889) - 3,510 796 68 150 (112) - 902 347 14 (20) (196) 8,598 3,579 (200) (1,648) - (26) 145 10,303 219 73 - (107) - 185 18 774 (12) - - 11,948 6,855 - (2,952) (26) 780 15,825 16,967 6,085 2,669 22,879 2,236 12,904 63,740 (13,457) (5,183) (2,524) (12,576) (2,051) (12,124) (47,915) 3,510 902 145 10,303 185 780 15,825 9,854 - - 892 15 - (2,509) (111) - 720 (6,095) - - - 803 15 82 (471) (82) - - 4,891 4,615 300 312 49 16 (1,090) (149) (15) 61 (164) - - (9) 400 18 (398) - - - 17,152 4,712 - (4,330) (97) 781 (2) (6,270) 1,970 796 347 8,598 219 18 11,948 14,538 5,867 2,675 19,526 2,163 12,142 56,911 (12,568) (5,071) (2,328) (10,928) (1,944) (12,124) (44,963) 1,970 796 347 8,598 219 18 11,948 Year ended 30 June 2017 Opening net book value Additions Transfers Depreciation Assets held for sale and other disposals Closing net book value As at 30 June 2017 Cost Accumulated depreciation and impairment Closing net book value Year ended 30 June 2016 Opening net book value Additions Transfers Depreciation Impairment recognised Impairment reversed Assets held for sale and other disposals Closing net book value As at 30 June 2016 Cost Accumulated depreciation and impairment Net book value Section 2: Financial statements 47 15. Property, plant and equipment (continued) Included in property, plant and equipment above are the following amounts where the Group is a lessee under a finance lease: Cost Accumulated depreciation Net book value 16. Mining licences, properties, exploration, and evaluation assets Exploration and evaluation assets Opening balance Expenditure capitalised Impairment recognised Total exploration and evaluation assets Mining licenses and property assets Opening balance Expenditure capitalised Amortisation Abandonment provision movement Waste moved in advance capitalised Total mining licenses and property assets 2017 $’000 6,473 (1,232) 5,241 1,245 777 - 2,022 2016 $’000 5,037 (766) 4,271 650 969 (374) 1,245 18,882 30 21,848 - (7,680) (6,890) 132 5,728 17,092 93 3,831 18,882 Total mining licenses, property, exploration and evaluation assets 19,114 20,127 17. Investment in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries: Name of entity BR Coal Pty Limited Bathurst New Zealand Limited Bathurst Coal Holdings Limited Buller Coal Limited Bathurst Coal Limited New Brighton Collieries Limited Country of Incorporation Class of Shares Australia New Zealand New Zealand New Zealand New Zealand New Zealand Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Equity Holding 2017 % 2016 % 100 100 100 100 100 100 100 100 100 100 100 100 All subsidiary companies have a balance date of 30 June, are predominantly involved in the coal industry and have a functional currency of New Zealand dollars with the exception of BR Coal Pty Ltd which has a functional currency of Australian dollars. 48 Bathurst Resources Limited Annual Report 2017 Notes to the Financial StatementsFor the year ended 30 June 201718. Joint ventures BT Mining Limited The Company holds a 65% shareholding in BT Mining, which was incorporated on the 21 September 2016. On the 2 November 2016 BT Mining successfully entered into a conditional sale and purchase agreement (“SPA”) with Solid Energy New Zealand Limited (Subject to Deed of Company Arrangement). Under the agreement BT Mining will acquire certain coal mining assets located in New Zealand, including: - Buller Plateau operating assets of the Stockton Mine including Cypress, Upper Waimangaroa, Mt William North and the Ngawakau loadout; and - Rotowaro Mine, Maramarua Mine and certain assets at Huntly West Mine located in the North Island. The Company invested $20.4m on 28 August 2017 to allow BT Mining to complete its sale and purchase obligations, and provide working capital. This was based on the Company’s proportional share of BT Mining’s final purchase price for the coal mining assets, and working capital requirements. The economic interest held in these assets will be finalised post settlement, and is effective from 1 July 2017 up to the date of settlement. BT Mining is accounted for using the equity method, and is treated as a joint venture as the Company jointly shares control of BT Mining with BT Mining’s other shareholder, Talleys Energy Limited (“TEL”). This is evidenced through unanimous approval being required on activities that significantly affect BT Mining’s operations. The material balances sitting in BT Mining’s Balance Sheet at 30 June 2017 were loans due to related parties ($6.6m) and deposit paid to Solid Energy ($4.6m). BT Mining secured bank funding of $15.0m which was drawn on the 30 August 2017 to provide working capital in advance of the intended SPA. The legal ownership of the associated mining permits and licenses transferred to BT Mining on settlement of the SPA which was the 31 August 2017, which is considered to be the acquisition date. Other key conditions met include approval from the New Zealand Overseas Investment Office (received 27 July 2017), approval from New Zealand Petroleum and Minerals (“NZP&M”) to transfer the key mining licences (received 14 June 2017), and acceptable owner status granted by NZ Treasury on 25 August 2017. Bathurst Industrial Coal Limited The Company holds 50% shareholding in Bathurst Industrial Coal Limited. This venture has ceased to operate and it is intended that this entity will be wound up. 19. Net deferred tax asset The balance comprises temporary differences attributable to: Tax losses Employee benefits Provisions Mining licenses Exploration and evaluation expenditure Property, plant and equipment Total deferred tax assets Waste moved in advance Total deferred tax liabilities Net deferred tax asset not recognised Net deferred tax asset 2017 $’000 2016 $’000 14,621 196 1,322 16,661 421 8,175 41,396 (787) (787) 14,010 184 1,246 16,422 1,446 8,003 41,311 (1,057) (1,057) (40,609) (40,254) - - The Group has not recognised a net deferred tax asset of $40.6m (2016: $40.2m) on the basis that it is not probable these losses will be utilised in the foreseeable future. Section 2: Financial statements 49 20. Trade and other payables Current Trade payables Accruals Employee benefit payable Other payables Interest payable Non-current Other payables Total trade and other payables 21. Borrowings Current Secured Bank loans Lease liabilities Subordinated bonds Unsecured Redeemable convertible preference shares (“RCPS”) Total current borrowings Non-current Secured Lease liabilities Unsecured Convertible notes Total non-current borrowings Total borrowings 2017 $’000 2016 $’000 2,604 1,849 948 626 1,650 7,677 143 7,820 - 1,582 10,733 11,276 23,591 3,531 10,428 13,959 37,550 2,484 1,448 854 381 - 5,167 287 5,454 1,439 1,124 - - 2,563 2,577 - 2,577 5,140 The Company issued a number of debt instruments during the year primarily to enable funding in its joint venture BT Mining (refer note 18). A summary of key details of these instruments at 30 June 2017 are as follows: Denomination Currency Face Value Coupon Rate Issue Date Instrument Convertible Notes Convertible Notes RCPS Subordinated Bonds AUD AUD AUD USD $m $3.8m $7.5m $11.3m $7.9m Maturity Date Conversion Price $AUD % 8% 8% 8% 22/07/2016 22/07/2019 1/02/2017 1/02/2021 1/02/2017 1/02/2018 10% 1/02/2017 1/02/2020 $0.0220 $0.0375 $0.0220 n/a The carrying value of the debt is different to the face value due to effects of foreign exchange translation on the debt portion, and the recognition of the equity component of the RCPS and convertible notes (refer to note 24). 474,000 of the convertible notes from the issue due to mature in July 2019 were converted to equity during the year. 50 Bathurst Resources Limited Annual Report 2017 Notes to the Financial StatementsFor the year ended 30 June 201721. Borrowings (continued) Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial statements revert to the lessor in the event of default. RCPS Conversion The RCPS can be converted into ordinary shares at the Company’s election at any time after the SPA becomes unconditional. Redemption The Company is entitled to early redeem all or any of the RCPS, if within two business days following the exercise of the Company’s discretion to convert all of the RCPS, all of the RCPS have not converted. The RCPS must be redeemed on the earlier of maturity date or partial conversion of some of the RCPS. If the SPA becomes unconditional and the Company elects to only convert some of the RCPS, a coupon rate of 12% comes into effect. Ranking The RCPS rank in priority to any payment to ordinary shareholders. Convertible Notes (“Notes”) Conversion • July 2016 issue - the Notes can be converted into ordinary shares at the election of the holder any time until ten days prior to maturity date. • February 2017 issue - the Notes can be converted into ordinary shares at the election of the holder any time after the SPA becomes unconditional during the period starting 90 days after the completion of SPA and 180 days after the issue date, and finishing 10 days before maturity date. The Company has a one-off right to redeem some or all of the Notes within ten business days after the SPA becomes unconditional. The Company must redeem all of the Notes if the SPA is terminated. Ranking The Notes rank equally with all other present and future unsecured obligations except for obligations accorded preference by mandatory provisions of applicable law. Any shares issued on conversion will rank equally with all other ordinary shares. Subordinated Bonds Redemption The Company is entitled to elect early redemption, at any time prior to the SPA going unconditional, or after the SPA becoming unconditional and after the 1 February 2019. If the Subordinated Bonds are redeemed early the Company must pay 104% of the issue price. The Subordinated Bonds are classified as current liabilities due to a technical breach of covenants. Refer note 29 (d). Ranking The Subordinated Bonds rank equally with existing and future bonds and without priority or preference amongst themselves. The Subordinated Bonds will be formally secured by the Company’s share ownership in BT Mining once the SPA is settled. Section 2: Financial statements 51 22. Deferred consideration Current Acquisition of subsidiary deferred consideration Non-current Acquisition of subsidiary deferred consideration Total deferred consideration Movement: Opening balance Unwinding of discount Fair value adjustment Consideration paid during the year Closing balance 2017 $’000 2016 $’000 953 873 6,975 7,928 9,670 786 (1,749) (779) 7,928 8,796 9,669 12,613 821 (2,175) (1,590) 9,669 Deferred consideration liabilities have been categorised as level 3 under the fair value hierarchy. (a) Buller Coal Project The Company acquired Buller Coal Limited (formally L&M Coal Limited) in November 2010 and the sale and purchase agreement contained an element of deferred consideration. The deferred consideration comprised cash consideration and/or royalties on coal sold and the issue of performance shares. The deferred cash consideration is made up of two payments of USD$40,000,000 (performance payments). The first being payable upon 25,000 tonnes of coal being shipped from the Buller Coal Project, the second payable upon 1 million tonnes of coal being shipped from the Buller Coal Project. The Company has the option to defer cash payment of the performance payments and elect to submit a higher royalty on coal sold from the respective permit areas until such time the performance payments are made. The option to pay a higher royalty rate has been assumed in the valuation and recognition of deferred consideration. This also reflects the current status of the mine on care and maintenance. Whilst in excess of 25,000 tonnes has been mined from Escarpment during construction the Company does not believe, in the legal context, that 25,000 tonnes has been shipped from the project. This would therefore not legally trigger the payment of the first performance payment. Bathurst has and will continue to remit royalty payments to L&M Coal Holdings (the vendor) on all Escarpment coal sold as required by the Royalty Deed and this includes ongoing sales from stockpiles. Further information is included in note 31 (d). (b) Canterbury Coal Limited The acquisition of Canterbury Coal Limited in November 2013 contained a royalty agreement. The amounts that are payable in the future under this royalty agreement are required to be recognised as part of the consideration paid for Canterbury Coal Limited. The fair value of the future royalty payments is estimated using a discount rate based upon the latest New Zealand ten year government bond rate and production profile at a set rate per tonne of coal produced. A reasonable change in discount rate does not have a material impact on the deferred consideration. 52 Bathurst Resources Limited Annual Report 2017 Notes to the Financial StatementsFor the year ended 30 June 201722. Deferred consideration (continued) (c) New Brighton Collieries Limited The Company completed the acquisition of New Brighton Collieries Limited on 10 March 2015. The balance due on settlement is to be satisfied by an ongoing royalty based on mine gate sales revenue. The fair value of the future royalty payments is estimated using a discount rate based upon a risk adjusted New Zealand ten year government bond rate of 8.98% (2016: 8.37%), projected production profile, and forecast domestic coal prices. These are based on the Group’s forecasts which are approved by the Board of Directors. A 1% increase or decrease in the discount rate used would impact the deferred consideration balance by -$0.4m and +$0.3m respectively (2016: -$0.4m and +$0.5m respectively). Security Pursuant to a deed of guarantee and security the deferred consideration is secured by way of a first-ranking security interest in all of New Brighton Collieries Limited’s present and future assets (and present and future rights, title and interest in any assets). 23. Provisions Current Rehabilitation Restructuring provision Non-current Rehabilitation Total provisions Rehabilitation provision movement: Opening balance Change recognised in the mining and property asset Unwinding of discount Other changes recognised in the income statement Closing balance total rehabilitation provision Rehabilitation provision 2017 $’000 2016 $’000 1,111 - 1,111 2,874 3,985 3,714 (132) 210 193 3,985 295 55 350 3,419 3,769 3,521 92 173 (72) 3,714 Provision is made for the future rehabilitation of areas disturbed in the mining process. Management estimates the provision based on expected levels of rehabilitation, areas disturbed and an appropriate discount rate. A reasonable change in assumptions would not have a material impact on the provision. Section 2: Financial statements 53 24. Equity Contributed equity Ordinary fully paid shares Movement: Opening balance Issue of shares Exercise of options and conversion of performance rights Closing balance Ordinary shares 2017 Number of Shares 000s 2016 Number of Shares 000s 986,028 986,028 964,483 21,545 - 964,483 964,483 947,828 16,500 154 986,028 964,483 Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. Every ordinary share is entitled to one vote. During the year 21,545,454 shares were issued on conversion of 474,000 convertible notes. Equity component of debt instruments Debt Instrument: RCPS Convertible Notes Closing balance 2017 $’000 414 1,380 1,794 2016 $’000 - - - During the year the Company issued a number of debt instruments that contain an option to convert the debt into equity. The value attributed to these options is the difference between the present value of interest and principal repayments of the instruments, discounted at a discount rate for a similar type of debt without the conversion option, and the fair value of cash received. 25. Reserves Share based payment reserve Foreign exchange translation reserve Re-organisation reserve Total reserves Nature and purpose of reserves Share based payment reserve 278 (154) (32,760) (32,636) 52 (154) (32,760) (32,862) The share based payment reserve is used to recognise the fair value of performance rights issued. Foreign exchange translation reserve Exchange differences arising on translation of companies within the Group with a different functional currency to New Zealand dollars are taken to the foreign currency translation reserve. The reserve is recognised in the income statement when the investment is disposed of. 54 Bathurst Resources Limited Annual Report 2017 Notes to the Financial StatementsFor the year ended 30 June 201725. Reserves (continued) Reorganisation reserve Bathurst Resources Limited was incorporated on 27 March 2013. A scheme of arrangement between Bathurst Resources Limited and its shareholders resulted in Bathurst Resources (New Zealand) Limited becoming the new ultimate parent company of the Group on 28th June 2013. A reorganisation reserve was created, which reflects the previous retained losses of subsidiaries. 26. Earnings per share Basic earnings per share Total basic earnings per share attributable to the ordinary equity holders of the Company Diluted earnings per share Total diluted earnings per share attributable to the ordinary equity holders of the Company Reconciliation of earnings used in calculation Earnings from continued operations Earnings used in calculation of basic and diluted earnings per share Weighted average number of shares used as denominator Used in the calculation of basic earnings per share Adjustments for diluted earnings per share: Performance rights Used in the calculation of diluted earnings per share 2017 Cents (0.19) (0.19) 2017 $’000 (1,898) (1,898) 2016 Cents 0.11 0.11 2016 $’000 1,031 1,031 Number of Shares 000s Number of Shares 000s 977,645 958,360 - 9,500 977,645 967,860 Potential ordinary shares from the convertible notes and RCPS and performance rights issued during the year are excluded from the calculation of diluted earnings per share as they are anti-dilutive. 27. Share-based payments (a) Employee long term incentive plan The purpose of the plan is to reinforce a performance focused culture by providing a long term performance based element to the total remuneration packages of certain employees. This aligns the interests of Bathurst’s leadership team and Shareholders, and helps to retain key executives. Share based payments are recognised based on the fair value of performance rights offered at the grant date. The fair value of the Long term incentive plan (LTIP) performance rights is AUD$0.00832 per performance right. This was determined using the price path of Bathurst shares modelled using the Monte Carlo simulation. The total number of performance rights that will vest to participants and the payoff to participants is then calculated and discounted back to present value today. No LTIP performance rights were granted in the year ended 30 June 2017. Performance rights granted under the plan carry no dividend or voting rights. When exercised each performance right converts into one fully paid ordinary share. The exercise price of all performance rights is nil. Section 2: Financial statements 55 27. Share based payments (continued) (b) Transaction performance rights Transaction performance rights were issued to certain key executives during the year, conditional on the successful signing of a sale and purchase agreement for the acquisition of certain Solid Energy mine site assets via the Company’s joint venture vehicle, BT Mining. These form part of the Group’s overall retention strategy, and recognises their instrumental roles in relation to the negotiation and signing of the contract. These were approved by Shareholders at the 2016 Annual General Meeting. The fair value of these rights was assessed as equal to the market value of the Company’s share price at grant date. Performance rights granted carry no dividend or voting rights. When exercised each performance right converts into one fully paid ordinary share. The exercise price of all performance rights is nil. Grant date LTIP Performance Rights Vesting Date Opening Balance 000s Issued 000s Expired/ Forfeited 000s Closing Balance 000s Exercisable 000s 22 January 16 30 June 18 Transaction Performance Rights 6 February 17 31 December 18 9,500 - 9,500 - (9,500) - 13,000 13,000 (1,500) (11,000) 11,500 11,500 28. Reconciliation of (loss)/profit before income tax to net cash flow from operating activities 2017 $’000 (1,898) 10,632 (1,749) - 569 786 184 226 (358) 17 (110) (356) 24 895 8,862 (Loss)/profit before income tax Non-cash items: Depreciation and amortisation expense Fair value adjustment to deferred consideration Impairment losses Share of loss of BT Mining Unwinding of discount rate on deferred consideration Unwinding of discount rate on rehabilitation provision Share based payment expense Unrealised foreign exchange movements Other Non-operating items: Gain on sale of property, plant and equipment Realised foreign exchange gain on borrowing activities Other Movement in working capital Cash flow from operating activities 56 Bathurst Resources Limited Annual Report 2017 - - - 2016 $’000 1,031 11,220 (2,175) 100 - 821 173 15 - 254 (122) - - (1,076) 10,241 Notes to the Financial StatementsFor the year ended 30 June 201729. Financial risk management The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks and aging analysis for credit risk. Risk management is carried out by the management team under policies approved by the Board of Directors. Management identifies and evaluates financial risks on a regular basis. (a) Market risk Foreign exchange risk Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not New Zealand dollars. The risk is measured using sensitivity analysis and cash flow forecasting. The Group had minimal operating exposure to foreign currency risk at the end of the reporting period. The Group assesses potential foreign currency exposures on foreign currency denominated debt instruments as follows: Debt Instrument Subordinated Bonds RCPS and convertible notes Denomination Currency USD AUD Foreign Exchange Rate Movement +3% $’000 314 684 -3% $’000 (334) (726) The above assessment is estimated based on future foreign exchange movements similar to what was experienced during the year end 30 June 2017, on the face value of the underlying debt instruments. (b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with credit worthy counterparties and obtaining sufficient collateral where appropriate as a means of minimising the risk of financial defaults. Financial instruments which potentially subject the Group to credit risk consist primarily of cash and cash equivalents, short term deposits, as well as credit exposures to our customers including outstanding receivables. The credit risk on liquid funds is limited because the counterparties are banks with credit ratings of AA-, with funds required to be invested with a range of separate counterparties. The Group’s maximum exposure to credit risk for trade and other receivables and loans to related parties is its carrying value. (c) Liquidity risk Liquidity risk represents the Group’s ability to meet its contractual obligations. The Group evaluates its liquidity requirements on an ongoing basis. Maturities of financial liabilities The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. Section 2: Financial statements 57 29. Financial risk management (continued) Contractual maturities of the Group’s non-derivative financial liabilities were as follows: Less than 6 Months 6 – 12 Months Between 1 – 2 Years Between 2 – 5 Years $’000 7,677 1,886 904 460 $’000 - 13,390 929 497 10,927 14,816 5,167 696 723 416 - 679 533 457 7,002 1,669 $’000 143 2,027 1,224 1,172 4,566 287 110 1,054 1,480 2,931 $’000 - 25,142 2,623 3,620 31,385 - - 1,679 4,657 6,336 Over 5 Years $’000 Total Contractual Flows $’000 - - - 7,268 7,268 - - - 8,241 8,241 7,820 42,445 5,680 13,017 68,962 5,454 1,485 3,989 15,251 26,179 30 June 2017 Trade and other payables Borrowings² Finance leases³ Deferred consideration Total 30 June 2016 Trade and other payables Borrowings Finance leases Deferred Consideration Total (d) Capital management The Group’s capital includes contributed equity, reserves, and retained earnings. The Board’s policy is to maintain a strong capital base to maintain investor, creditor, and market confidence and to sustain the future development of the business. Given the stage of the Company’s development there are no formal targets set for return on capital. There were no changes to the Company’s approach to capital management during the year. The covenants within the USD Subordinated Bond agreements issued during the year, specify that the Company will maintain shareholders’ funds of no less than 30% of the adjusted tangible assets (including mining licences and permits) and the Company’s consolidated earnings for any 12 month period will be no less than two times interest costs whilst the Subordinated Bonds are outstanding. Whilst it was the intent of both the bond holders and Company for the covenants to only be applied after the settlement of BT Mining’s intended acquisition of the Solid Energy coal mining assets, the wording in the agreement does not clarify this. This means that there was a technical breach of these covenants during the period from the date of issue and at 30 June 2017, and if more than 50% of bond holders give notice to the Company the bonds are repayable. Therefore the bonds are classified as current liabilities. The bond holders and the Company intend to change the terms of the bond agreement to reflect the original intent. The Company is not subject to any other externally imposed capital requirements. 2 Borrowings in this context represent the underlying contractual commitments on the USD denominated Subordinated Bonds, and AUD denominated RCPS and convertible notes. The RCPS and convertible notes have the option to convert to equity, so future interest and principal repayments may not occur. 3 Total contractual cash flows equal minimum lease payments plus interest. 58 Bathurst Resources Limited Annual Report 2017 Notes to the Financial StatementsFor the year ended 30 June 201729. Financial risk management (continued) (e) Financial instruments by category Financial Assets Loans and receivables Cash and cash equivalents Restricted short term deposits Trade and other receivables Loans to related parties Other financial assets Total Financial Liabilities Amortised Cost Trade and other payables Borrowings Fair Value Deferred consideration Total (f) Fair value measurements 2017 $’000 2016 $’000 28,892 3,808 4,032 3,721 134 40,587 7,820 37,549 7,928 53,297 3,325 2,628 2,761 - 174 8,888 5,454 5,140 9,669 20,263 Fair value is the price that would be received from the sale of an asset or paid to transfer a liability in a transaction between active market participants or in its absence, the most advantageous market to which the Group has access to at the reporting date. The fair value of a financial liability reflects its non-performance risk. When available, fair value is measured using the quoted price in an active market. A market is active if transactions take place with sufficient frequency and volume to provide pricing information on an on-going basis. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The following fair value hierarchy, as set out in NZ IFRS 13: Fair Value Measurement, has been used to categorise the inputs to valuation techniques used to measure the financial assets and financial liabilities which are carried at fair value: (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 Group’s only financial asset or liability measured at a fair value hierarchy of level 3 is deferred consideration. This is discussed further in note 22. Section 2: Financial statements 59 29. Financial risk management (continued) (f) Fair value measurements continued Debt instruments in note 21 are carried at amortised cost. Their fair values have been measured at a fair value hierarchy of level 2 as noted below: Instrument Subordinated Bonds Convertible Notes RCPS Fair Value $’000 Carrying Value $’000 10,812 10,413 11,699 10,733 10,428 11,276 All other assets and liabilities have a carrying value that is equivalent to fair value. 30. Key management personnel Key management personnel are all the management and directors (executive and non-executive) of the Group. Key management personnel compensation 30 June 2017 Management Directors Total 30 June 2016 Management Directors Total Short term benefits $’000 Share based payments $’000 Termination benefits $’000 1,149 247 1,396 1,163 248 1,411 82 144 226 284 25 309 - - - 289 - 289 Total $’000 1,231 391 1,622 1,736 273 2,009 Other transactions or loans with key management personnel During the year, Mr Middleton in his capacity as independent director provided consulting services to the Company in relation to commercial due diligence activities. The amount paid during the year was $265k (30 June 2016: $271k). Mr Middleton was an executive director from 2 May 2017 with fees paid from that date to 30 June 2017 disclosed as part of Management fees in the table above. 31. Commitments and contingent liabilities (a) Capital commitments There was no capital expenditure contracted for at the reporting date but not recognised as a liability (2016: $2.3m). (b) Lease commitments (i) Non-cancellable operating leases The Group leases various offices, accommodations, and equipment under non-cancellable operating leases expiring within one to six years. The leases have varying terms, escalation clauses and renewal rights. Commitments for non-cancellable minimum lease payments are payable as follows: 60 Bathurst Resources Limited Annual Report 2017 Notes to the Financial StatementsFor the year ended 30 June 201731. Commitments and contingent liabilities (continued) Lease commitments Within one year Later than one year but not later than five years Total lease commitments 2017 $’000 2016 $’000 123 40 163 112 71 183 During the year ended 30 June 2017 $0.3m (2016: $0.3m) was recognised as an expense in the income statement in respect of operating leases. (ii) Finance leases The Group leases various plant and equipment expiring within one to five years. Refer to note 21 for further information. (c) Exploration expenditure commitments To maintain the various permits in which the Group is involved the Group has ongoing operational expenditure as part of its normal operations. The actual costs will be dependent on a number of factors including final scope and timing of operations (d) Contingent assets and liabilities On 23 December 2016, the Company announced that LMCH had filed legal proceedings in the High Court of New Zealand in relation to an alleged breach of the first USD$40m performance payment described in note 22. The Company, with its position supported by its legal advisors, denies any default in payment and will vigorously defend the claim. Proceedings have been set down for hearing in February 2018. 32. Events after the reporting period Other than as disclosed in these financial statements, there are no material events that occurred subsequent to reporting date, that require recognition of, or additional disclosure in these financial statements. Section 2: Financial statements 61 62 Bathurst Resources Limited Annual Report 2017 PricewaterhouseCoopers, 113 – 119 The Terrace, PO Box 243, Wellington 6140, New Zealand T: +64 4 462 7000, F: +64 4 462 7001, pwc.co.nz Independent Auditor’s Report To the shareholders of Bathurst Resources Limited The financial statements comprise: • the Balance Sheet as at 30 June 2017; • the Income Statement for the year then ended; • the Statement of Comprehensive Income for the year then ended; • the Statement of Changes in Equity for the year then ended; • the Statement of Cash Flows for the year then ended; and • the Notes to the Financial Statements, which include a summary of significant accounting policies. Our qualified opinion In our opinion, except for the effects of the matter described in the Basis for qualified opinion section of our report, the financial statements of Bathurst Resources Limited (the Company), including its subsidiaries (the Group), present fairly, in all material respects, the financial position of the Group as at 30 June 2017, its financial performance and its cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and International Financial Reporting Standards (IFRS). Basis for qualified opinion The Company issued Australian Dollar denominated convertible notes in July 2016 and February 2017 and Australian Dollar denominated redeemable convertible preference shares in February 2017 (collectively, the “convertible instruments”). Management assessed the convertible instruments to be hybrid instruments, containing both debt contracts and embedded conversion options and have accounted for the debt contracts as financial liabilities, valued at $21,704,000, as disclosed in note 21 of the financial statements, and the embedded conversion options as equity, valued at $1,794,000, as at 30 June 2017. The convertible instruments are denominated in Australian Dollars which differs from the New Zealand Dollar functional currency of the Company. Therefore, in accordance with IFRIC Update April 2005, the embedded conversion options meet the definition of financial liabilities, rather than equity, under NZ IFRS and IFRS, and should be recognised as derivative liabilities, measured at fair value through profit or loss. As a result, the treatment adopted by management constitutes a departure from NZ IFRS and IFRS. While recognising the possible effect of judgements and assumptions on the value of the embedded derivative, if management had recognised the embedded conversion options as liabilities measured at fair value through profit or loss, management’s estimate of the fair value of those options indicates a derivative liability of $16,508,000 would be recognised at 30 June 2017, and there would be an overall increase in liabilities and decrease in equity of $15,807,000. This arises because the loss before tax, the loss after tax and accumulated losses would have increased by $15,116,000, current borrowings would have increased by $414,000, non-current borrowings would have decreased by $1,115,000, debt instruments – equity component would have decreased by $1,794,000 and due to the conversion of some options during the year, contributed equity would have increased by $1,103,000. Had management adopted the treatment as defined by the IFRIC Update April 2005, the notes to the financial statements would have included details of management’s valuation method, model inputs and sensitivities. These would have been disclosed as critical estimates and judgements due to the range of assumptions that could be used in the valuation of the derivative liabilities. Section 2: Financial statements 63 We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs NZ) and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners (PES 1) issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. Other than in our capacity as auditor we have no relationship with, or interests in, the Group. Our audit approach Overview An audit is designed to obtain reasonable assurance as to whether the financial statements are free from material misstatement. Overall group materiality was $415,000, which represents 1% of total revenue for the year. We chose revenue as the benchmark because, in our view, the Group is currently in a break even position as the business transforms and revenue is a stable metric which more accurately reflects the performance of the Group. Our key audit matters are: • Conditional acquisition of Solid Energy assets; and • Deferred consideration. Materiality The scope of our audit was influenced by our application of materiality. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the financial statements as a whole as set out above. These, together with qualitative considerations, helped us to determine the scope of our audit, the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Audit scope We designed our audit by assessing the risks of material misstatement in the financial statements and our application of materiality. As in all of our audits, we also addressed the risk of management override of internal controls including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. 64 Bathurst Resources Limited Annual Report 2017 We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Basis for Qualified Opinion section we have determined the matters described below to be the key audit matters to be communicated in our report. Key audit matter How our audit addressed the key audit matter Conditional acquisition of Solid Energy assets As disclosed in Note 18 of the financial statements, there was a conditional acquisition transaction entered into during the year. This was an area of audit focus due to the significance of the transaction to the Company. During the year the Company incorporated BT Mining Limited (“BT Mining”) as the vehicle through which it would undertake the acquisition of certain assets from Solid Energy New Zealand Limited (“Solid Energy”). The sale and purchase agreement was signed on 29 October 2016 and management assessed the transaction against the requirements of NZ IFRS 3 Business Combinations and concluded that it was a business combination. Management also determined that the acquisition had not occurred as at 30 June 2017 as substantive conditions included in the agreement had not been satisfied at that date. Assessment of joint control of BT Mining BT is 65% owned by the Company, with the remaining shareholding held by Talley’s Energy Limited (“TEL”). This ownership is subject to a “Joint Venture Agreement” between the Company and TEL which sets out a number of matters that require unanimous approval of both parties including matters relating to the operational decisions and activities of BT Mining. Management assessed that the Company has joint control with TEL over BT Mining and determined that it is a joint venture for financial reporting purposes. Consequently the Group equity accounts its investment in BT Mining, recognising its share of profit or loss from the joint venture in the income statement. For the purposes of our audit, we considered the two components of the transaction which impact both the timing of the recognition of the transaction and basis of accounting for the transaction. Assessment of the nature and timing of the transaction We obtained an understanding of the acquisition by reading the relevant contractual agreements, including but not limited to, the sale and purchase agreement between BT Mining and Solid Energy. We considered whether the acquisition is a business combination or asset acquisition and the date at which the acquisition is considered to have occurred. Specifically, we validated that substantive conditions exist within the sale and purchase agreement (in particular, approval by the Overseas Investment Office, the Minister of Energy and the Minister of Conservation) and assessed whether these conditions had been satisfied by 30 June 2017. Assessment of joint control of BT Mining We assessed the judgements made by management in determining the accounting treatment of BT Mining by reading the joint venture agreement. We challenged management’s judgement by considering the Company’s majority ownership of BT Mining, its proposed role as operator of the mining permits acquired and the nature of the operational decisions and relevant activities of BT Mining that require unanimous approval and compared these to the requirements of the relevant accounting standards. We obtained an accounting consultation from our internal accounting technical team to support our evaluation of both the timing of the recognition and accounting treatment of the transaction. We also considered the adequacy of the Company’s disclosures in respect to the acquisition. Our own evaluation is consistent with that of management. Section 2: Financial statements 65 Key audit matter How our audit addressed the key audit matter Deferred consideration As disclosed in Note 22 of the financial statements, the fair value of the Group’s deferred consideration in respect of previous mine acquisitions was $7,928,000 at 30 June 2017. Management uses a discounted cash flow model to estimate the fair value of deferred consideration. This model requires significant judgement in relation to estimating future coal prices, coal production, the timing of cash flows and the appropriate discount rate. The discount rate is based on the risk free rate plus a mine-specific risk premium to reflect the risk that is not incorporated into the estimated future cash flows. This was an area of audit focus because of the estimation uncertainties and significant judgements applied by management in estimating future coal prices, production levels and timing of cash flows. Our audit procedures included the following: We updated our understanding of the deferred consideration obligations related to each mine where a deferred consideration arrangement exists. We assessed the reasonableness of the assumptions used by comparing the key assumptions used in management’s models to external and internal data. Specifically, we have: • Tested the mathematical accuracy of the models; • Compared coal production with Board approved mine plans; • Compared future coal prices with current prices charged to the Company’s largest customers and a growth rate based on historic achieved growth rates; • Assessed management’s forecasting accuracy by comparing historical forecasts to actual results; • Considered the reasonableness of the discount rate by comparison to an independently calculated discount rate developed via the use of an internal valuation expert; and • Performed a sensitivity analysis on the key estimates and assumptions applied. We also assessed whether the Group’s disclosures in relation to deferred consideration and the sensitivities of key assumptions were appropriate in the financial statements. Whilst recognising that cash flow forecasting and estimation of the fair value of deferred consideration is inherently judgmental, our audit procedures did not identify evidence of management bias in determining the value of the deferred consideration. Information other than the financial statements and auditor’s report The Directors are responsible for the annual report. Our qualified opinion on the financial statements does not cover the other information included in the annual report and we do not, and will not, express any form of assurance conclusion on other information. At the time of our audit, there was no other information available to us. In connection with our audit of the financial statements, if other information is included in the annual report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of our auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. 66 Bathurst Resources Limited Annual Report 2017 Responsibilities of the Directors for the financial statements The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of the financial statements in accordance with NZ IFRS and IFRS, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs NZ and ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located at the External Reporting Board’s website at: https://xrb.govt.nz/Site/Auditing_Assurance_Standards/Current_Standards/Page1.aspx This description forms part of our auditor’s report. Who we report to This report is made solely to the Company’s shareholders, as a body. Our audit work has been undertaken so that we might state those matters which we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed. The engagement partner on the audit resulting in this independent auditor’s report is Chris Ussher. For and on behalf of: Chartered Accountants Wellington 31 August 2017 Section 2: Financial statements 67 1 September 2017 Update on FY17 results Bathurst Resources Limited (ASX: BRL) (Bathurst or the Company) released on 31 August 2017 its audited financial statements for the year ending 30 June 2017 (Accounts). Bathurst has disagreed with its auditor, PricewaterhouseCoopers (PwC), on the accounting treatment of Convertible Notes and Redeemable Convertible Preference Shares (“Convertible Instruments”) issued in July 2016 and February 2017. The Convertible Instruments were issued by Bathurst primarily to fund Bathurst’s investment in BT Mining Limited (“BT Mining”), a joint venture of which Bathurst owns 65%. BT Mining on the 31 August 2017 successfully acquired assets from Solid Energy New Zealand Limited (Solid Energy Transaction). How the Convertible Instruments can be measured As the Convertible Instruments can be converted into equity (the “conversion option”) there are two potential accounting outcomes. The difference in opinion relates to how the accounting standard that governs these instruments (NZ IAS 32 Financial Instruments: Presentation) should be interpreted and applied to the conversion option. The debt and conversion option can be accounted for as either: 1. Debt held at amortised cost and an embedded derivative component (representing the conversion option) which is measured at fair value through profit or loss; or 2. Debt held at amortised cost and an equity component (representing the conversion option) which remains unchanged until conversion or the debt is repaid. Where Bathurst’s and PwC’s interpretations diverge For the convertible option to be able to be treated as equity (the second accounting treatment noted above), the fixed for fixed test must be met. Specifically, the debt must be settled by exchanging a fixed amount of cash for a fixed number of shares. The specific point of difference that arises is whether the exchange of AUD debt into AUD denominated shares constitutes fixed for fixed, as the AUD has to be re-translated into NZD for financial reporting purposes (NZD being Bathurst’s functional currency). Bathurst believes that in substance, the conversion option of the Convertible Instruments results in the extinguishment of a fixed amount of debt (denominated in AUD) for a fixed amount of Bathurst’s equity (also denominated in AUD). The number of shares the instrument holders will receive was fixed at the date the instruments were issued, likewise the amount of cash Bathurst will receive for these shares if the instruments do convert was fixed on the same date. What would be the impact of PwC’s interpretation The accounting treatment for the Convertible Instruments in the FY17 accounts is consistent with the treatment applied in the Company’s financial statements for 31 December 2016. Despite the fact that PwC performed a formal review of the 31 December 2016 financial statements, PwC no longer agrees with this accounting treatment as they believe the Convertible Instruments fail the fixed for fixed test, and has issued a qualified audit report. 68 Bathurst Resources Limited Annual Report 2017 www.bathurst.co.nzLevel 12, 1 Willeston Street, Wellington 6011, New ZealandPO Box 5963 Lambton Quay, Wellington 6145, New ZealandP. +64 4 499 6830 F. +64 4 974 5218 E. wellington@bathurst.co.nz If PwC’s view were adopted in the FY17 accounts, it would result in Bathurst reporting a net loss of $17.0m versus the $1.9m loss position it has reported; the difference being a net increase in its liabilities. It is important to note that this increase in liabilities would not represent an actual additional liability for Bathurst that required settlement – it is a technical accounting matter that will not in any way change the actual cash flows relating to these Convertible Instruments. Importantly, if the convertible instruments are repaid by Bathurst instead of converting, any fair value movements on these Convertible Instruments previously recognised would recycle back through the Income Statement, leading to greater volatility in Bathurst’s reported financial performance. What this means Bathurst in its financial statements for FY17 has made full disclosure of the accounting treatment applied to the Convertible Instruments (see Note 1 D (ii)) which the Directors consider provide a fair presentation of the Convertible Instruments, and as such the financial performance and position of the Company. The Directors note that this approach has been adopted by other companies listed on ASX with similar instruments on issue, and that if Bathurst’s functional currency was AUD, there would be no question raised over the applied treatment. The Directors maintain that the Accounts provide a fair presentation of the financial performance and financial position of Bathurst as at 30 June 2017. Bathurst is not aware of any other issues with the Accounts. Further information For further information in respect of this announcement, please contact Richard Tacon (Chief Executive Officer) or Russell Middleton (Chief Financial Officer) on +64 4 499 6830. Section 2: Financial statements 69 www.bathurst.co.nzLevel 12, 1 Willeston Street, Wellington 6011, New ZealandPO Box 5963 Lambton Quay, Wellington 6145, New ZealandP. +64 4 499 6830 F. +64 4 974 5218 E. wellington@bathurst.co.nz70 Bathurst Resources Limited Annual Report 2017 In this sectionShareholder informationSection 3: Shareholder information 71 Shareholder informationIn this sectionShareholder information03Shareholder information Additional information required by the Australian Securities Exchange (ASX) and not shown elsewhere in the Annual Report, current as at 29 September 2017, is advised hereunder. Stock exchange quotation The Company’s shares are quoted on the ASX under the code “BRL”. Classes of securities The Company has the following equity securities on issue: Quoted Ordinary shares, each fully paid 1,513,164,577 3,860 Number on issue Number of holders Unquoted Convertible notes of A$1,000 each, converting to shares at A$0.022 per share maturing 22 July 2019 Convertible notes of A$1,000 each, converting to shares at A$0.0375 per share maturing 1 February 2021 Transaction Performance Rights exercisable at $nil up to 31 March 2019 3,483 7,500 11,500,000 3 10 4 Voting rights Only holders of ordinary shares have voting rights. These are set out in Clause 21 of the Company’s Constitution and are summarised as follows: • where voting is by show of hands or by voice, every Shareholder present in person or by proxy or Representative has one vote; and • on a poll every Shareholder present in person or by proxy or Representative has, in respect of each fully paid Share held by that Shareholder, one vote. Holders of convertible notes and performance rights have no voting rights until they are converted/exercised into ordinary shares. 72 Bathurst Resources Limited Annual Report 2017 Restricted securities There are no restricted securities or securities subject to voluntary escrow. On-market buy-backs There is no current on-market buy-back of any securities. Distribution of quoted equity securities Analysis of the numbers of holders of ordinary shares by size of holding: Holding range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over TOTAL Total Shareholders Ordinary Shares 337 618 465 1,672 768 3,860 55,411 1,634,361 3,096,912 52,926,727 1,455,451,166 1,513,164,577 There are 761 shareholders holding less than a marketable parcel of ordinary shares as determined by the ASX (A$500) based on the closing price of A$0.155 per share on 29 September 2017. Substantial holders Holders of 5% or more ordinary shares as disclosed in substantial holding notices given to the Company as of 29 September 2017: Republic Investment Management Pte Limited Asian Dragon Acquisitions Limited Corporate government statement Number Held Percentage of Issued Shares 288,225,323 151,343,823 19.05% 10.00% The Corporate Governance Statement is available on the Company’s website at www.bathurst.co.nz/our-company/corporate-governance/ Section 3: Shareholder information 73 Twenty largest shareholders The names, numbers and percentages of the twenty largest holders of quoted equity securities are listed below: Shareholding name HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED ASIAN DRAGON ACQUISITIONS LIMITED CHNG SENG CHYE JP MORGAN NOMINEES AUSTRALIA LIMITED OOI THEAN YAT RONALD ANTHONY AVVENTURA HOLDINGS LIMITED TEO PENG KWANG BELL POTTER NOMINEES LIMITED TH INVESTMENTS PTE LIMITED CITICORP NOMINEES PTY LIMITED BERNE NO 132 NOMINEES PTY LTD <608725 A/C> ANG POON LIAT ARMADA TRADING PTY LTD RICH TREND VENTURES LIMITED KARAMJIT SINGH NARULA JOHN MCCALLUM FORSYTH BARR CUSTODIANS LIMITED NATIONAL NOMINEES LIMITED ROBERT JAMES GRIFFITHS + JEAN DARLING GRIFFITHS BNP PARIBAS NOMINEES PTY LTD 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Number of Shares Held 396,849,964 Percentage of Issued Shares 26.23 63,636,364 54,545,455 45,773,745 45,454,545 40,909,091 40,909,091 34,553,255 31,818,182 30,391,249 27,888,773 27,272,727 24,114,272 22,727,273 18,181,818 18,181,017 17,852,460 17,202,940 15,000,000 13,373,548 4.21 3.60 3.03 3.00 2.70 2.70 2.28 2.10 2.01 1.84 1.80 1.59 1.50 1.20 1.20 1.18 1.14 0.99 0.88 Total top 20 shareholders Total remaining shareholders 986,635,769 526,528,808 65.20 34.80 74 Bathurst Resources Limited Annual Report 2017 Section 3: Shareholder information 75 76 Bathurst Resources Limited Annual Report 2017 In this sectionTenement scheduleCoal resources and reservesCorporate directorySection 1: Resources and reserves 77 Resources and reservesIn this sectionTenement scheduleCoal resources and reservesCorporate directory04Tenement schedule For the year ended 30 June 2017 Permit Id Location (Region) Minerals Permit Type Permit Operator Bathurst Interest 60047 60194 57205 56927 56233 55401 54846 53614 51279 51260 51212 41456 41455 41372 41332 41274 40628 40625 40591 West Coast Canterbury West Coast Southland West Coast West Coast Canterbury Southland West Coast Southland West Coast West Coast West Coast Canterbury West Coast West Coast West Coast Southland West Coast Coal Coal Coal Exploration Permit Bathurst Coal Limited Exploration Permit Bathurst Coal Limited Exploration Permit Bathurst Coal Limited Minerals Prospecting Permit Bathurst Coal Limited Coal Mining Permit Buller Coal Limited Minerals Mining Permit Buller Coal Limited Exploration Permit Bathurst Coal Limited Mining Permit Bathurst Coal Limited Mining Permit Buller Coal Limited Exploration Permit Bathurst Coal Limited Exploration Permit Buller Coal Limited Mining Permit Buller Coal Limited Mining Permit Bathurst Coal Limited Mining Permit Bathurst Coal Limited Mining Permit Buller Coal Limited Mining Permit Buller Coal Limited Exploration Permit Buller Coal Limited Coal Coal Coal Coal Coal Coal Coal Coal Coal Coal Coal Coal Coal Exploration Permit New Brighton Collieries Limited 100% Exploration Permit Bathurst Coal Limited 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 78 Bathurst Resources Limited Annual Report 2017 Bathurst Resources permitting changes 1 July 2016 – 30 June 2017 Permits granted in past twelve months Permit Id Permit Type Operator Bathurst Interest Location (Region) Granted Date Operation Name 60047 Exploration Permit Bathurst Coal Limited 100% West Coast 03.08.16 Wellington 60194 Exploration Permit Bathurst Coal Limited 100% Canterbury 13.04.17 Waihao Forks Extension of duration Permit Id Permit Type Operator Bathurst Interest Operation Name Location (Region) Permit Extension (Years) 41455 Mining Permit Bathurst Coal Limited 100% Cascade West Coast 10 Change of mineral Permit Id Permit Type Operator Bathurst Interest Operation Name Location (Region) Mineral Added 41455 Mining Permit Bathurst Coal Limited 100% Cascade West Coast Aggregate Partial surrender Permit Id Permit type Operator Bathurst Interest Operation Name Location (Region) Reduction (ha) 51260 Exploration Permit Bathurst Coal Limited 100% Ohai Southland 140.7881 Full surrender Permit Id Permit Type Operator Bathurst Interest Operation Name Location (Region) 54658 Exploration Permit Buller Coal Limited 100% Coal West Coast Expired Permit Id Permit Type Operator Bathurst Interest Operation Name Location (Region) 54935 54896 Prospecting Permit Bathurst Coal Limited 100% Waitaki Otago Prospecting Permit Buller Coal Limited 100% Buller Metals West Coast Section 4: Resources and reserves 79 Coal resources and reserves Resources Table 1 – Resource Tonnes (1) d e r u s a e M 7 1 0 2 ) t M ( e c r u o s e R d e r u s a e M 6 1 0 2 ) t M ( e c r u o s e R 3.1 0.5 6.2 0.0 7.6 3.1 0.5 6.2 0.0 7.6 ) t M ( e g n a h C 0.0 0.0 0.0 0.0 0.0 d e t a c i d n I 7 1 0 2 ) t M ( e c r u o s e R 2.1 0.6 3.1 3.8 d e t a c i d n I 6 1 0 2 ) t M ( e c r u o s e R 2.1 0.6 3.1 3.8 10.8 10.8 ) t M ( e g n a h C 0.0 0.0 0.0 0.0 0.0 ) t M ( d e c r u o s e R d e r r e f n I 7 1 0 2 1.0 0.3 1.6 5.4 4.9 d e r r e f n I 6 1 0 2 ) t M ( e c r u o s e R 1.0 0.3 1.6 5.4 4.9 ) t M ( e g n a h C 0.0 0.0 0.0 0.0 0.0 Area Escarpment Cascade Deep Creek (2) Coalbrookdale Whareatea West South Buller Totals 17.4 17.4 0.0 20.4 20.4 0.0 13.2 13.2 0.0 ) t M ( e c r u o s e R l a t o T 7 1 0 2 6.2 1.5 ) t M ( e c r u o s e R l a t o T 6 1 0 2 6.2 1.5 10.9 10.9 9.2 9.2 23.3 23.3 51.1 5.5 20.6 19.9 51.1 5.5 20.6 19.9 ) t M ( e g n a h C 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Millerton North (2) North Buller Blackburn (2) North Buller Totals Buller Coal Project Totals Takitimu (3) New Brighton Canterbury (4) Southland/ Canterbury Totals 0.0 2.4 0.0 2.4 0.0 2.4 0.0 2.4 0.0 0.0 0.0 1.9 7.3 5.8 1.9 7.3 5.8 0.0 0.0 0.0 3.6 3.6 10.9 10.9 14.1 14.1 0.0 0.0 0.0 0.0 15.0 15.0 0.0 28.6 28.6 0.0 46.0 46.0 0.0 19.8 19.8 0.0 35.4 35.4 0.0 41.8 41.8 0.0 97.1 97.1 0.0 0.9 0.2 1.2 1.0 0.2 0.5 -0.1 0.0 0.7 2.0 0.4 2.5 1.9 0.4 1.4 0.1 0.0 1.1 0.5 1.3 3.4 0.8 1.3 3.4 -0.3 0.0 0.0 3.4 1.9 7.1 3.7 1.9 5.3 2.3 1.7 0.6 4.9 3.7 1.2 5.2 5.5 -0.3 12.4 10.9 -0.3 0.0 1.8 1.5 1.3 Total 22.1 21.6 0.5 40.3 39.2 1.1 47.0 47.3 -0.3 109.4 108.1 All resources and reserves quoted in this release are reported in terms as defined in the 2004 and 2012 Editions of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ as published by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (“JORC”). All resources quoted are reported as of 30 June 2017. 80 Bathurst Resources Limited Annual Report 2017 Resources (continued) 1. The Measured and Indicated Mineral Resources are inclusive of those Mineral Resources modified to produce the Ore Reserves. Resource tonnages have been calculated using a density value calculated using approximated in-ground moisture values (Preston and Sanders method) and as such all tonnages quoted in this report are wet tonnes. All coal qualities quoted are on an Air Dried Basis. Rounding of tonnes as required by reporting guidelines may result in summation differences between tonnes and coal quality 2. No additional work has been was undertaken on the coal resources for Deep Creek, Millerton North, Blackburn and New Brighton since originally reported. This information was prepared and first disclosed under the JORC Code 2004. It has not been updated since to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last reported. 3. Resources were depleted by mining. Additional drilling and a revision of the geological model resulted in an overall decrease in the resource tonnage. Takitimu resources include Black Diamond and Coaldale. 4. Additional drilling, improved mining economics and a revision of the geological model have resulted in improved resource confidence and an overall increase in the resource tonnage. Table 2 – Average Coal Quality – Measured d e r u s a e M e c r u o s e R ) T M ( 3.1 0.5 6.2 7.6 0.0 2.4 0.0 0.9 0.2 1.2 ) D A ( % h s A 20.0 15.5 11.0 23.0 - 8.6 - 11.1 10.7 9.0 Area Escarpment Cascade Deep Creek Whareatea West Millerton North North Buller Blackburn Takitimu New Brighton Canterbury r u h p l u S ) D A ( % 0.57 1.66 2.50 0.82 - e l i t a l o V r e t t a M ) D A ( % n o b r a C ) D A ( % d e x i F 32.7 39.3 32.9 24.2 - 46.3 42.6 53.9 52.2 - 4.70 43.1 45.4 - 0.40 0.37 0.84 - 37.4 35.9 35.3 - 36.1 39.1 38.9 N S C 7.0 4.5 - 7.0 - 4.5 - N/A N/A N/A t n e r e h n I e r u t s i o M 0.9 2.6 2.2 0.6 - 2.9 - 15.5 14.3 16.8 e r u t s i o M u t i S n I 5.5 7.6 5.2 6.3 - ) D A ( e u l a V c i f i r o l a C 28.5 30.8 29.7 26.8 - 11.4 29.7 - 24.5 21.0 26.1 - 21.5 22.7 21.7 Section 4: Resources and reserves 81 Resources (continued) Table 3 – Average Coal Quality – Indicated e c r u o s e R d e r r e f n I ) T M ( 2.1 0.6 3.1 3.8 Area Escarpment Cascade Deep Creek Coalbrookdale Whareatea West 10.8 Millerton North North Buller Blackburn Takitimu New Brighton Canterbury 1.9 7.3 5.8 2.0 0.4 2.5 ) D A ( % h s A 19.2 14.8 9.7 18.4 22.1 9.7 8.8 3.9 9.4 9.0 8.8 Table 4 – Average Coal Quality – Inferred e c r u o s e R d e r r e f n I ) T M ( 1.0 0.3 1.6 5.4 4.9 3.6 10.9 14.1 0.5 1.3 3.4 ) D A ( % h s A 18.4 16.5 10.1 16.4 21.7 12.0 9.9 6.4 11.1 9.0 9.3 Area Escarpment Cascade Deep Creek Coalbrookdale Whareatea West Millerton North North Buller Blackburn Takitimu New Brighton Canterbury % r u h p l u S ) D A ( 1.11 1.79 2.70 1.43 0.93 4.90 5.10 4.30 0.28 0.34 0.89 % r u h p l u S ) D A ( 1.70 2.16 2.40 1.50 0.92 5.50 5.10 4.80 0.30 0.30 1.1 82 Bathurst Resources Limited Annual Report 2017 % r e t t a M e l i t a l o V ) D A ( % n o b r a C d e x i F ) D A ( 35.0 38.3 34.7 36.3 22.7 36.9 42.6 42.1 35.9 35.9 35.4 44.6 44.5 53.6 43.5 54.5 52.4 46.3 51.8 38.4 42.1 39.1 % r e t t a M e l i t a l o V ) D A ( % n o b r a C d e x i F ) D A ( 35.5 36.7 29.7 35.2 21.3 35.3 45.6 41.8 35.6 35.7 35.3 44.7 44.7 57.8 46.7 56.3 51.6 42.3 49.5 37.3 43.6 38.8 N S C 7.0 4.0 - 5.0 6.5 10.0 5.0 6.0 N/A N/A N/A N S C 7.0 4.0 - 5.0 6.0 9.0 5.0 6.0 N/A N/A N/A t n e r e h n I e r u t s i o M 1.2 2.4 2.0 1.8 0.6 1.0 2.3 2.2 16.2 12.9 16.7 t n e r e h n I e r u t s i o M 1.4 2.1 2.4 1.7 0.7 1.1 2.2 2.3 16.0 11.6 16.6 e r u t s i o M u t i S n I 5.3 8.0 4.8 6.1 6.3 6.1 9.4 10.1 25.6 20.5 26.3 e r u t s i o M u t i S n I 5.7 6.7 7.1 5.5 6.3 7.2 9.6 11.2 25.6 19.6 26.4 ) D A ( e u l a V c i f i r o l a C 30.3 29.3 30.3 30.0 25.6 31.1 30.0 30.4 21.5 23.7 21.8 ) D A ( e u l a V c i f i r o l a C 30.2 27.6 29.7 29.1 24.6 30.2 29.5 30.1 21.0 24.1 21.7 Reserves (5) Table 5 – Coal Reserves (ROM (6)) Tonnes ROM Coal Area Escarpment Domestic Escarpment Export Whareatea West Takitimu (7) Canterbury (8) Total Proved (Mt) Probable (Mt) Total (Mt) 2017 2016 Change 2017 2016 Change 2017 2016 Change 0.2 2.3 0.0 0.5 0.5 3.5 0.2 2.3 0.0 0.5 0.1 3.0 0.0 0.0 0.0 0.0 0.4 0.5 0.1 0.5 15.8 1.3 1.1 18.7 0.1 0.5 15.8 1.1 0.1 17.5 0.0 0.0 0.0 0.2 1.0 1.2 0.3 2.8 0.3 2.8 15.8 15.8 1.8 1.6 1.6 0.1 22.2 20.5 0.0 0.0 0.0 0.2 1.5 1.7 Table 6 – Marketable Coal Reserves (9) Tonnes Proved (Mt) Probable (Mt) Total (Mt) Area 2017 2016 Change 2017 2016 Change 2017 2016 Change Escarpment Domestic Escarpment Export Whareatea West Takitimu (7) Canterbury (8) Total 0.2 1.9 0.0 0.5 0.5 3.1 0.2 1.9 0.0 0.5 0.1 2.7 0.0 0.0 0.0 0.0 0.4 0.4 0.1 0.4 9.9 1.2 0.9 0.1 0.4 9.9 1.0 0.1 12.5 11.5 0.0 0.0 0.0 0.2 0.8 1.0 0.3 2.3 9.9 1.7 1.4 0.3 2.3 9.9 1.5 0.2 15.6 14.2 0.0 0.0 0.0 0.2 1.2 1.4 Table 7 – Marketable Coal Reserves – Proved and Probable Average Quality Proved Marketable (9) Probable Marketable (9) Deposit (6,7,8,9) Escarpment Export Whareatea West Escarpment Domestic Takitimu (7) Canterbury (8) ) t M ( 1.9 0.0 0.2 0.5 0.5 ) % ( h s A 8.9 - r u h p l u S ) % ( ) % ( M V ) # ( N S C / J M ( V C ) g K 0.5 35.1 8.5 31.3 - - 12.9 1.9 35.0 8.9 8.4 0.28 33.1 0.83 35.2 - 6.8 N/A N/A - 28.9 19.8 21.9 ) % ( h s A 7.1 12.1 14.5 5.9 8.4 r u h p l u S ) % ( 0.6 0.9 1.5 ) % ( M V 36.4 26.0 34.0 0.21 32.6 0.87 35.4 ) # ( N S C 8.5 9.5 6.1 N/A N/A / J M ( V C ) g K 32.0 31.9 28.4 20.0 21.9 ) t M ( 0.4 9.9 0.1 1.2 0.9 Section 4: Resources and reserves 83 Table 8 – Marketable Coal Reserve – Total Average Quality Deposit (6,7,8,9) Coal Type Escarpment Export Whareatea West Met Met Mining Method Open Pit Open Pit Escarpment Domestic Thermal Open Pit Takitimu (7) Thermal Open Pit Canterbury (8) Thermal Open Pit Total Marketable (9) (Mt) Ash (%) Sulphur (%) VM (%) CSN CV (MJ/Kg) 2.3 9.9 0.3 1.7 1.4 8.6 12.1 13.4 6.8 8.4 0.5 0.9 1.8 0.2 0.9 35.3 26.0 34.7 32.7 35.3 8.5 9.5 6.6 N/A N/A 31.4 31.9 28.7 19.9 21.9 All reserves quoted in this release are reported in terms as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ as published by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (“JORC” ). All Reserves quoted are reported as of 30 June 2017. 5. The Measured and Indicated Mineral Resources are inclusive of those Mineral Resources modified to produce the Ore Reserves. Reserve tonnages have been calculated using a density value calculated using approximated in-ground moisture values (Preston and Sanders method) and as such reserve tonnages quoted in this report are wet tonnes. All coal qualities quoted are on an Air Dried Basis. Rounding of tonnes as required by reporting guidelines may result in summation differences between tonnes and coal quality. 6. Coal reserve estimates (Run of Mine (ROM) tonnes), include consideration of standard mining factors (JORC Code 2012). 7. 8. Increase in coal reserves due to revised mining plans and economics. Takitimu reserves include Black Diamond and Coaldale. Increase in coal reserves due to increase of available resources, revised mining plans and economics. 9. Marketable Reserves are based on geologic modelling of the anticipated yield from ROM Reserves. Total Marketable Coal Reserves are reported at a product specific moisture content (10–12% for Escarpment Export and Whareatea West, 5-8% at Escarpment Domestic and 22-23% at Takitimu and Canterbury) and at an air-dried quality basis, for sale after the beneficiation of the Total Coal Reserves, converted using ASTM D3180 ISO 1170. Reserve tonnages have been calculated using a density value calculated using approximated in-ground moisture values (Preston and Sanders method) and as such all tonnages quoted in this report are wet tonnes. All coal qualities quoted are on an Air Dried Basis. 84 Bathurst Resources Limited Annual Report 2017 Resource quality Competent Person Statements The company is not aware of any information to indicate that the quality of the identified resources will fall outside the range of specifications for reserves as indicated in the above table. Further resource and reserve information can be found on the company’s website at www.bathurst.co.nz Mineral resource and ore reserves governance and estimation process Resources and Reserves are estimated by internal and external personnel, suitably qualified as Competent Persons under the Australasian Institute of Mining and Metallurgy, reporting in accordance with the requirements of the JORC code, industry standards and internal guidelines. All Resource estimates and supporting documentation are reviewed by a Competent Person either employed directly by Bathurst or employed as an external consultant. If there is a material change in an estimate of a Resource, or if the estimate is an inaugural Resource, the estimate and all relevant supporting documentation is further reviewed by an external suitably qualified Competent Person. All Reserve estimates are prepared in conjunction with pre-feasibility, feasibility and life of mine studies which consider all material factors. All Resource and Reserve estimates are then further reviewed by suitably qualified internal management. The Resources and Reserves statements included in Bathurst’s 2017 Annual Report have been reviewed by qualified internal and external Competent Persons, and internal management, prior to their inclusion. The information on this report that relates to mineral resources for Deep Creek and the mineral reserves for Escarpment Export and Whareatea West is based on information compiled by Sue Bonham-Carter who is a full time employee of Golder Associates (NZ) Ltd and is a member of the Australasian Institute of Mining and Metallurgy. Ms. Sue Bonham-Carter has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which she is undertaking to qualify as a Competent Person as defined in the 2004 and 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Ms. Sue Bonham-Carter consents to the inclusion in this report of the matters based on her information in the form and context in which it appears above. The information in this report that relates to exploration results and mineral resources for Escarpment, Cascade, Coalbrookdale, Whareatea West, Millerton North, North Buller, Blackburn, Takitimu, Canterbury and New Brighton and is based on information compiled by Hamish McLauchlan as a Competent Person who is a full time employee of Bathurst Resources Limited and is a member of the Australasian Institute of Mining and Metallurgy. Mr. McLauchlan has a B.Sc and M.Sc (Hons) majoring in geology from the University of Canterbury, and has had 20 years of experience in the mineral resource industry in New Zealand and offshore. He has sufficient experience which 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 and 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr. McLauchlan consents to the inclusion in this report of the matters based on his information in the form and context in which it appears above. The information on this report that relates to mineral reserves for Escarpment Domestic, Takitimu and Canterbury is based on information compiled by Terry Moynihan who is a full time employee of Core Mining Consultants Ltd and is a member of the Australasian Institute of Mining and Metallurgy. Mr. Moynihan has sufficient experience which 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 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr. Moynihan consents to the inclusion in this report of the matters based on his information in the form and context in which it appears above. Section 4: Resources and reserves 85 Corporate directory Share registry Computershare Investor Services Limited 159 Hurstmere Road Takapuna Central 0622 New Zealand Phone: +64 9 488 8700 60 Carrington Street Sydney NSW 2000 Phone: +61 3 9415 4000 Auditor PricewaterhouseCoopers 113-119 The Terrace Wellington 6011 New Zealand Solicitor Minter Ellison Rudd Watts Lawyers 125 The Terrace Wellington 6011 New Zealand Banker ANZ Bank New Zealand Limited Stock exchange listing Bathurst Resources Limited shares are listed on the Australian Securities Exchange (ASX) under the code BRL Website address www.bathurst.co.nz Directors Toko Kapea Non–executive chairman Peter Westerhuis Non-executive director Richard Tacon Executive director and chief executive officer Russell Middleton Executive director and chief financial officer Company secretary Bill Lyne New Zealand company number 4382538 New Zealand business number 9429030288560 Australian registered business number 164 306 905 Registered office Level 12, 1 Willeston Street Wellington 6011 New Zealand Phone: +64 4 499 6830 Australian registered office 10 Ngeringa Crescent, Chapel Hill, Qld 4069 Australia Phone: +61 7 3378 7673 86 Bathurst Resources Limited Annual Report 2017 Disclaimer This report has been prepared by Bathurst Resources Limited. Information contained in this report is current as at 30 June 2017 or as otherwise noted in the report. This report is provided for information purposes only and has been prepared without taking account of any particular reader's financial situation or objectives. Nothing contained in this report constitutes investment, tax, legal or other advice. Accordingly, readers should, before acting on any information in this report, consider its appropriateness, having regard to their objectives, financial situation and needs, and seek the assurance of their financial advisor or other licensed professional before making any investment decision. This report does not constitute an offer, invitation, solicitation or recommendation with respect to the subscription for purchase or sale of any security, nor does it form the basis of any contract or commitment. Bathurst Resources Limited Level 12, 1 Willeston Street Wellington 6011 New Zealand +64 4 499 6830 www.bathurst.co.nz 

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