Registered Office Level 2, 2 Kings Park Road West Perth WA 6005 PO Box 1891 West Perth WA 6872 Phone: +61 (0) 8 9334 7777 Fax: +61 (0) 8 9486 7866 Email: info@westernareas.com.au westernareas.com.au ANNUAL REPORT 2019 A N N U A L R E P O R T 2 0 1 9 HIGHLIGHTS 21.5kt contained nickel shipped to customers 20% increase in Net Profit after Tax of A$14.3m Stronger year on year nickel price driving stronger financial performance 2 cent fully franked dividend declared A$144m Cash at Bank - Strong debt free Balance Sheet Odysseus mine DFS completed – Decision to mine confirmed at the long life, low cost mining project Odysseus early works programme completed on time and on budget High grade premium nickel product being produced and sold into the EV battery market Western Areas has Australia’s highest grade nickel mines and is a low unit cash cost producer. Its main asset, the 100% owned Forrestania Nickel Operation, is located 400km east of Perth in Western Australia. Western Areas is also Australia’s second largest independent sulphide nickel miner, producing approximately 22,000 to 25,000 nickel tonnes in ore per annum from its Flying Fox and Spotted Quoll mines - two of the lowest cost and highest grade nickel operations in the world. An active nickel project developer at Cosmos and explorer at Western Gawler in Australia, the Company also holds exploration interests in Canada through shareholdings in Grid Metals Corp (TSXV:GRDM). Additionally, the Company has exposure to the emerging lithium market via an exploration joint venture with Kidman Resources Limited. The Board remains focused on the core business of low cost, long life nickel production, new nickel discoveries and generating returns to shareholders. It has put in place the cost structure and capabilities to prosper throughout the cycle by adopting prudent capital management strategies and strict cost control. CONTENTS CHAIRMAN’S LETTER MANAGING DIRECTOR’S REPORT OPERATIONS REVIEW EXPLORATION 3 4 6 16 ORE RESERVE / MINERAL RESOURCE STATEMENT 22 FINANCIAL STATEMENTS Directors' Report 24 25 Auditor's Independence Declaration 43 Consolidated Statement of Profit or Loss and Other Comprehensive Income 44 Consolidated Statement of Financial Position Consolidated Statement of Changes In Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors' Declaration Independent Auditor's Report Tenement Listing Shareholder Information 45 46 47 48 86 87 92 95 CORPORATE DIRECTORY DIRECTORS Ian Macliver (Chairman) Daniel Lougher Richard Yeates Craig Readhead Timothy Netscher Natalia Streltsova COMPANY SECRETARY Joseph Belladonna AUDITORS Crowe Horwath Level 5 45 St Georges Terrace Perth WA 6000 BANKERS REGISTERED OFFICE ANZ Banking Group Limited 77 St Georges Terrace Perth WA 6000 STOCK EXCHANGE Australian Securities Exchange Limited Code: WSA SOLICITORS Ashurst Level 10 & 11 123 St Georges Terrace Perth WA 6000 Level 2 2 Kings Park Road West Perth WA 6005 PO Box 1891 West Perth WA 6872 Phone: +61 (0) 8 9334 7777 Fax: +61 (0) 8 9486 7866 Email: info@westernareas.com.au ABN 68 091 049 357 SHARE REGISTRY Computershare Investor Services Pty Ltd Level 11 172 St Georges Terrace Perth WA 6000 COMPETENT PERSON’S STATEMENT: The information within this report as it relates to exploration results, mineral resources and ore reserves is based on information compiled by Mr Graeme Gribbin, Mr Andre Wulfse and Mr Marco Orunesu Preiata of Western Areas Ltd. Mr Gribbin is a member of AIG, Mr Wulfse is a Fellow of AUSIMM and Mr Orunesu Preiata is a member of AusIMM. They are all full-time employees of the Company. Mr Gribbin, Mr Wulfse and Mr Orunesu Preiata have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as Competent Persons as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves.’ Mr Gribbin, Mr Wulfse and Mr Orunesu Preiata consent to the inclusion in the report of the matters based on the information in the form and context in which it appears. FORWARD LOOKING STATEMENT: This Annual Report contains certain forward-looking statements including nickel production targets. Often, but not always, forward looking statements can generally be identified by the use of forward looking words such as “may”, “will”, “expect”, “intend”, “plan”, “estimate”, “anticipate”, “continue”, and “guidance”, or other similar words and may include, without limitation, statements regarding plans, strategies and objectives of management, anticipated production and expected costs. These forward looking statements are subject to a variety of risks and uncertainties beyond the Company’s ability to control or predict which could cause actual events or results to differ materially from those anticipated in such forward-looking statements. This Annual Report does not include reference to all available information on the Company and should not be used in isolation as a basis to invest in Western Areas. Any potential investors should refer to Western Area’s other public releases and statutory reports and consult their professional advisers before considering investing in the Company. CHAIRMAN’S LETTER Ian Macliver Independent Non-Executive Chairman Dear Fellow Shareholder, On behalf of your Board of Directors, I am pleased to present to you the Annual Report for the financial year ended 30 June 2019. Western Areas has had a successful year operationally, meeting production guidance, advancing growth projects and conducting significant exploration activities across our tenement holdings. The major highlight of the year was the decision to mine the Odysseus mine after results from the Definitive Feasibility Study (DFS) confirmed a robust and long life mining operation. The positive outlook for nickel demand has supported the Company's decision to mine, underpinned by the expectation of increased growth in the Electric Vehicle (EV) market and continued strong stainless steel production rates. Importantly, upside beyond the DFS case exists at Odysseus and is currently being explored which we look forward to reporting on in the coming year. Western Areas also remains focused on controlling costs to further optimise its business to ensure we are in the best position to capitalise on the strengthening nickel market. Notably, we have maintained operational performance throughout the year, and Spotted Quoll and Flying Fox continue to produce consistent and reliable results. Western Areas has now successfully delivered guidance over many years. Importantly, an increase in nickel tonnes sold to offtake customers combined with a stronger nickel price resulted in improved year on year financial outcomes for the group. This included a 20% increase in net profit after tax (NPAT), which reported at A$14.2m, and declaration of a 2 cent per share dividend for shareholders. The Group Balance Sheet remains strong, with A$144.3m cash at bank and no debt. This combined with the Company’s ability to generate strong operating cashflow enabled the advancement of significant organic capital growth projects throughout the year, including investment into the key growth project at the Cosmos nickel operation which totalled A$35.2m and continued exploration activities across all project areas of A$13.1m. As stated, the Company has progressed the Odysseus mine located at the Cosmos nickel operation which will become Western Areas’ second production centre. The DFS results show a larger, longer life project and first nickel ore is scheduled early in FY23. Odysseus will be one of the few nickel sulphide mines coming on-line just as forecast demand for class one nickel is expected to increase in the EV sector substantially. A strong start to the project has been made, with the early capital works now complete. In the year ahead the Company will focus on fully defining the upside beyond the DFS case, principally through the AM5 and AM6 ore bodies, as well as continued preproduction construction works, such as the haulage shaft equipment delivery and installation. The Mill Recovery Enhancement Project (MREP) continued in ramp up mode during FY19. While production rates have been lower than anticipated, improvements to the MREP process has enabled production and sale of a new premium high-grade nickel sulphide precipitate product. A new twelve month offtake agreement for the MREP product has recently been completed with Sumitomo Metals and Mining Co., Ltd, a party that is associated with the EV battery supply chain. The nickel market has remained volatile throughout the year closing over US$6 per pound. As has been common in the past, the nickel price movements have appeared to be driven by geopolitical factors, such as rhetoric around tariffs or other politically driven trade measures, or speculation on policy changes in the large producing countries of Indonesia and the Philippines. However, the emerging EV battery market continues to gain momentum, which is set to reshape the future demand for nickel. Throughout the year the LME nickel stockpile has fallen to its lowest level since 2013, confirming that nickel supply remains in deficit. The Company is confident that a strengthening market will support our operations in FY20. Looking forward, Western Areas will focus on further optimisation of our core business and strive to deliver consistent operational performance. The Company remains in a strong, debt-free, financial position to fund active exploration and pursue organic growth opportunities that strengthen our position in the market. Finally, Western Areas remains committed to providing a safe working environment for all our staff and contractors. In closing, I would like to take this opportunity to thank all our staff, contractors and suppliers for their support throughout the year. The continued hard work and dedication demonstrated by all staff is instrumental to the ongoing success of Western Areas. Ian Macliver Independent Non-Executive Chairman WESTERN AREAS ANNUAL REPORT 2019 3 MANAGING DIRECTOR’S REPORT Daniel Lougher The Company had a strong FY19, focussed on continuing to deliver reliable and consistent production from the Forrestania operations, whilst also making significant progress toward bringing the Odysseus mine into production after announcing the decision to mine, after strong results from the Definitive Feasibility Study (DFS). Growth and exploration activities have been supported overall by a shift in the demand outlook for nickel as the electric vehicle (EV), and energy storage sectors continue to gain momentum. Maintaining stable and consistent operations at Forrestania remains a key performance indicator, which allows the Company to get the full benefit of prevailing nickel prices. Western Areas’ continues to provide a safe working environment throughout its operations, while remaining efficient and productive. The Forrestania operations delivered another year of reliable production in line with guidance, resulting in an increase in nickel sales of 21,483 nickel tonnes. With a year on year higher realised nickel price, the Company produced a solid financial result with an increase in revenue to A$268.7m and a stronger profit at A$14.2m. The Odysseus mine, located at the Company’s 100%-owned Cosmos nickel operation is the key focus of the Company’s organic growth plans. Odysseus is an important asset for Western Areas and will be one of the few new global nickel sulphide operations coming online to deliver into the growing demand profile for nickel that is occurring globally. The Odysseus mine is underpinned by a robust DFS study that demonstrates long term financial returns and a mine life beyond ten years, with additional upside from deposits not included in the study. As announced post year end, Western Areas completed the early capital works at the Odysseus mine on time and to budget. To date, the decline rehabilitation is complete down to the 10,000m RL pump station, with the pump station mechanical and electrical designs completed. In addition, the dismantling has begun of the purchased shaft headgear with winder delivery to Perth expected in the third quarter of FY20. With the early works complete, Western Areas can now advance to the next phase of the underground rehabilitation programme down to the AM5/6 orebodies, which will allow new decline development toward the Odysseus deposit. The overall nickel market outlook has shifted positively as the EV and energy storage sectors continue to gain momentum. We have seen a significant increase in inbound off-take enquiries, and our partner, China’s largest stainless-steel producer, Tsingshan, has strong growth plans which will require significant additional nickel units. This is reinforcing an industry-wide trend as the demand increases for stainless steel. The demand for nickel from the battery market will reshape the nickel industry, and as a result, nickel sulphide supply will need to increase. Currently, around six per cent of the global market for nickel comes from the battery market, and this is expected to grow to 20% by 2025. With a positive outlook for nickel in both the short and long term, Western Areas is confident that we will be able to capitalise on this demand, particularly with the Odysseus mine coming online. The Company has increased exploration throughout the year and continued to target new prospects and existing discoveries. The Cosmos exploration strategy has a single focus, which is to add to the nickel mineral inventory by assessing and drill-testing high quality targets both proximal to existing deposits and within the surrounding tenement package. Expanding from a focus on the Neptune prospect in FY18, the Company has broadened its targeting envelope to assess the mineral potential of the entire interpreted prospective ultramafic channel at Cosmos, which extends from Neptune in the south through to Ajax on the northern margins, representing a target corridor of around 9km. Western Areas completed several exploration activities at Western Gawler including several air-core drilling programmes which were designed to follow up conductive responses from Moving Loop Electromagnetic (MLEM) regional targets identified in 2018, along with prospect-scale drilling at Thunderdome, Mystic, Citadel and Crack in the Earth. Western Areas executed a strategic agreement with Iluka for five leases covering an additional 5,070km² of prospective exploration tenure. This strategic agreement is a two-stage Farm-in earning up to 75% base and precious metals rights and effectively representing close to 100% of the highly prospective Fowler domain. During the year, Western Areas has established a series of exploration programs across this Farm-In and Joint Venture ground. 4 WESTERN AREAS ANNUAL REPORT 2019 I I M A N A G N G D R E C T O R S R E P O R T ’ In addition, the Company continues to support the various primary schools, sporting clubs and community groups that surround the Forrestania operations. The Company continued to work closely with the Tjiwarl Aboriginal Corporation, the traditional owners of the Cosmos project area. The Tjiwarl people were involved in aboriginal heritage surveys, heritage monitoring and contract earthworks on the Cosmos nickel operation. The company also engaged with the Ballardong people, the traditional owners in the Forrestania area and the Far West Coast Aboriginal Corporation (FWCAC) and the Aboriginal Lands Trust (ALT) in the Western Gawler area. Looking ahead, the Company will continue to focus on providing a safe workplace and minimise our environmental impact throughout our operations. Western Areas’ Forrestania operations continue to produce reliable and consistent results, and the Company is well placed heading into FY20. In conclusion, the Company remains in a strong, debt-free, financial position to continue to fund its active growth projects, such as Odysseus mine, and exploration in the near term. Extensive exploration activities throughout the year, coupled with significant achievements from our early works program at Odysseus, demonstrate that Western Areas is continually striving to innovate and grow to remain competitive in the market. We will continue to run our Forrestania operations efficiently to ensure the Company is in a good position to capitalise on the strengthening nickel market. Finally, I would like to take this opportunity to thank our Board, all our staff, contractors and suppliers for their support throughout the year. Daniel Lougher Managing Director and Chief Executive Officer The Company owns 17.4m shares in Kidman Resources, as a result of transactions in recent years that were structured with the aim of generating value for the non-core lithium potential at Forrestania. Prior to the end of the financial year, the Company agreed to support a bid by Wesfarmers for Kidman at A$1.90 per Kidman share with the bid also receiving the endorsement of the Kidman Board. Assuming Kidman shareholder approval of the Scheme, Western Areas will receive proceeds of approximately A$33.1 million from the bid. Overall, the Kidman transactions have generated significant value from the lithium potential at Forrestania that was otherwise not highly valued by the market. At Western Areas, safety is fundamental to our long-term success, and we believe that safe operations result in efficient operations. The Lost Time Injury Frequency rate for the year was 2.8. Key safety management initiatives throughout the year included a comprehensive Health and Hygiene Risk Based Management Assessment. A site-wide Noise Audit was also conducted to assist in noise management plans. The Department of Mines, Industry Regulation and Safety (DMIRS) conducted an Emergency Preparedness Audit on Operations during the year with no significant defects recorded. Practical training was also enforced throughout the year and Emergency Response Team (ERT) training focused on wildfire, rope rescue and rescue skills assessments, with several evacuation drills and mock emergency drills conducted. A high standard of environmental management has been maintained across the Company during the financial year with no major reportable environmental incidents. The early works program commenced at Cosmos with dewatering of the existing workings continued and all water monitoring and compliance reporting obligations completed. A Mining Proposal was submitted to the Department of Mines, Industry Regulation and Safety (DMIRS) for approval of the Cosmos nickel operation including the Odysseus underground mine, new waste rock dump, shaft and associated infrastructure. At Forrestania, baseline environmental studies for the New Morning Daybreak project were completed, including pump testing of a hydrological production bore-hole. Also, the Teddy Bear Mine Closure Plan was accepted by DMIRS, and several DMIRS program-of-work applications (PoW) were approved to allow exploration at Mt Hope and other areas. Western Areas continued its commitment to its Corporate Social Responsibility (CSR) programme during the year, with a range of initiatives supported within the local communities. The Company extended sponsorship of the Perth Zoo Western Quoll enclosure plus the Western Shield wildlife recovery program by Parks and Wildlife WA. Company personnel joined Parks and Wildlife WA on a monitoring trip of the Dryandra Woodland conservation area where Woylie (extremely rare small kangaroo marsupials) populations were growing due to more intensive fox and feral cat management initiated by the program. Lost Time Injury Frequency Rate (LTIFR) Total Ore Mined (tns) Average Mined Grade Contained Nickel Mined (tns) Total Ore Processed (tns) Average Processed Grade Average Recovery Contained Nickel Processed (tns) Nickel Sold (tns) FY19 2.8 FY18 0.9 556,002 607,120 4.2% 4.0% 23,208 24,442 610,487 616,598 4.0% 88% 4.0% 87% 21,675 21,060 21,483 20,459 Average Nickel Price Received (US$/tn) 12,322 12,875 Cash Costs before smelting/refining (A$/tn) Average Exchange Rate USD/AUD 2.98 0.72 2.63 0.77 WESTERN AREAS ANNUAL REPORT 2019 5 OPERATIONS REVIEW GROUP OVERVIEW Western Areas is an Australian based high grade, low cash cost nickel producer. The Company is listed on the Australian Securities Exchange (ASX) under the ticker symbol “WSA” and has been a member of the ASX 200 for many years. The Company owns a 100% interest in both the Forrestania Nickel Operation (“Forrestania”) and the Cosmos Nickel Operation (“Cosmos”) which are both located in Western Australia. The Company’s main operational asset at Forrestania is located 400km east of Perth in Western Australia. Western Areas is a sulphide nickel miner producing approximately 22,000 to 25,000 nickel ore tonnes per annum from its Flying Fox and Spotted Quoll underground mines which are two of the lowest cost and highest grade nickel operations in the world. The high grade nickel ore mined is processed through the Cosmic Boy Concentrator (CBC) and sold into offtake agreements with Tsingshan Group, China’s largest stainless steel producer, for a minimum delivery of 10,000tpa nickel in concentrate and BHP Billiton for a further 12,000tpa. The Company continues to foster innovation within the Group such as the recently constructed Mill Recovery Enhancement Project (MREP) at Forrestania’s CBC that is commercialising the Company’s 100% owned proprietary BioHeap™ bacterial leaching technology. The introduction of filtering and bagging infrastructure has now enabled production of a value added, high grade, nickel product which may potentially directly supply the emerging battery market. FORRESTANIA NICKEL OPERATIONS (100%) COSMOS NICKEL OPERATION (100%) Odysseus Mine Flying Fox Spotted Quoll FORRESTANIA (100%) Lounge Lizard - Ni Diggers South - Ni New Morning - Ni Cosmic Boy - Ni WESTERN AREAS LTD AUSTRALIAN EXPLORATION ASSETS Mt Alexandria JV - Ni Western Gawler (including Strandline JV) - Ni, Cu, Au GRID METALS CORP CANADA Makwa - Ni, PGM Mayville (M2) - Cu, PGM BIOHEAP (100%) Bacterial Heap Leach Worldwide Patents Full Laboratory Western Areas’ primary growth asset is the Odysseus mine located at the Cosmos nickel operation. The decision to mine the Odysseus deposit was announced following completion of the definitive mining feasibility study, early works have been completed allowing the long life, low cost mine to develop. The Company is an active base and precious metal explorer at both Cosmos and Forrestania, with significant interests in the Western Gawler area located in South Australia. The Board remains focused on the core business of low cost, long life nickel production, new nickel discoveries and generating returns to shareholders. It has put in place the cost structure and capabilities to prosper through commodity price cycles that includes a prudent capital management strategy an opportunistic approach to joint venture opportunities and value based asset acquisition assessment. STRUCTURE Western Areas Ltd is a company limited by shares that is incorporated and domiciled in Australia. Western Areas Ltd has prepared a consolidated financial report incorporating the material entities that it controlled during the financial year. These are shown below along with the principal assets of each. 6 WESTERN AREAS ANNUAL REPORT 2019 WESTERN AREAS SAFETY There were three Lost Time Injuries (LTI) recorded during the year. Consequently, the LTI Frequency Rate increased from 0.9 to 2.2. The Total Recordable Injury Frequency Rate (TRIFR) increased from 8.6 to 10.5 at year end. TRIFR includes recordable injuries which require medical treatment, restricted duties or result in lost time across all operations. Key safety management initiatives included updating the Health and Hygiene Management Plan, the Emergency Management Plan and the on-site Medical Providers (poison permit holder), plus completing a risk assessment into organisational factors affecting Mental Health and associated on-site newsletter articles. The Department of Mines, Industry Regulation and Safety (DMIRS) conducted an Emergency Preparedness Audit on operations late in the year with no significant defects identified. Emergency Response Team (ERT) training focused on team skills, underground search & rescue, firefighting and breathing apparatus. The on-site Emergency Response systems have been further aligned with the Australasian Inter-Service Incident Management System with site management undergoing associated training. A summary detailing the LTI free days by operating department at year end is shown in the table below. Department LTI free Spotted Quoll UG mine Cosmic Boy Village Surface Haulage Cosmos Cosmic Boy Concentrator Surface Exploration Flying Fox UG mine days 3,001 2,708 1,916 1,368 296 282 100 ERT FIRE-FIGHTING TRAINING EXERCISE 7 WESTERN AREAS ANNUAL REPORT 2019OPERATIONS REVIEW ENVIRONMENTAL ACTIVITIES Forrestania Community One minor environmental incident occurred during the year where a containment cap failure of a legacy buried pipeline resulted in a decant pH neutral water discharge (approximately one hectare) north of the Cosmic Boy Tailings Storage Facility. No surface drainage lines or wetlands were impacted by the spill and a vegetation monitoring program was implemented in line with best practice. All regulatory commitments were completed, including environmental monitoring and submitting key environmental reports to the relevant state and federal departments, including water quality, groundwater level monitoring, declared rare flora, and rehabilitation monitoring. The annual rehabilitation program commenced in June with the reshaping of the Spotted Quoll waste rock dump and drainage repairs to the Lounge Lizard waste rock dump. The programme includes topsoil spreading and deep ripping of the batters of the Spotted Quoll waste rock dump. Following the remedial earthworks, 24,000 seedlings will be planted by a specialist contractor over approximately 2.5ha in July which should benefit from winter rains. The Company extended sponsorship of the Perth Zoo Western Quoll enclosure plus the Western Shield wildlife recovery program by Parks and Wildlife WA. Company personnel joined Parks and Wildlife WA on a monitoring trip of the Dryandra Woodland conservation area where Woylie (extremely rare small kangaroo marsupials) populations were growing due to more intensive fox and feral cat management initiated by the program. The Company continues to support the various primary schools, sporting clubs and community groups that surround the Forrestania operations. Cosmos Environmental compliance was maintained at a high standard throughout the year. One environmental incident was reported in January where an open-pit dewatering transfer station overflowed due to the failure of an outlet pump. Western Areas self-reported the incident to the Department of Water and Environmental Regulation (DWER). This was an isolated incident, and Western Areas immediately began an investigation to determine the cause and any subsequent impacts on the environment. Since the incident, pit dewatering at Cosmos has finished. Western Areas has an excellent track record with environmental management and safety, with no significant incidents recorded in the last 10 years. The water management pond (WMP) network was expanded during the year with the construction of two WMP’s 8 and 9. An extensive network of seepage recovery bores was installed around the WMP’s to improve the seepage recovery network in the area. Key environmental approvals were obtained from the state regulators during the year, i.e. DMIRS Mining Proposal for the Cosmos nickel operation, including the Odysseus underground mine, new waste rock dump, shaft and associated infrastructure; plus Department of Water and Environmental Regulation (DWER) for water management infrastructure. The Company maintained its excellent relationship with the Tjiwarl Aboriginal Corporation with a number of aboriginal heritage surveys of exploration and key infrastructure areas completed, plus the Tjiwarl people were involved in heritage monitoring and the rehabilitation of completed exploration drill site. THE COMPANY MAINTAINED ITS EXCELLENT RELATIONSHIP WITH THE TJIWARL ABORIGINAL CORPORATION 8 WESTERN AREAS ANNUAL REPORT 2019 FLYING FOX MINE There was 2,139m of total jumbo lateral development for the year. Nearly half (1,044m) was capital development, predominately access development (900m) to the four ‘old Flying Fox’ ore drives (between the 1220 and 1185 levels), which is a down-dip orebody extension below the legacy Outokumpu workings with the remainder (144m) was in the lower areas of T5. Operating waste development (590m) was split between 258m of waste (predominately low grade or waste sections in ore drives) and 332 of paste-fill development to facilitate slot drilling. Production for the year was sourced from the T5 orebody (460 to 215 levels) and predominately from long-hole stoping (86%) with the remainder from a combination of ore development and flatback stoping (460 level) over existing lateral development to rehabilitate areas in preparation for stoping. FLYING FOX MINE INFRASTRUCTURE SPOTTED QUOLL INFRASTRUCTURE There was a 13m vertical extension to the T5 escape-way ladder-way between the 200 and 180 levels. There was also 13m of capital vertical development at the 1170 level to establish primary flow-through ventilation and an escape-way ladder-way for the old Flying Fox stoping area. SPOTTED QUOLL MINE The advance of the Hanna Decline to a depth of 931m below the surface facilitated four ‘Stage Two’ ore drive accesses (600, 570, 540 and 510), which resulted in the establishment of eight ore drives (610, 595, 580, 565, 550, 535, 520 and 505) and commencement of the 480 access. The ‘Stage Two’ area of the mine is located below and laterally offset from the single-boom area (SBA). Ore production was split almost evenly between the two stoping areas, i.e. twin boom jumbo area (TBA, Stage One and Two) and (SBA), with TBA production starting in the 675, 660, 627 and 595 levels and completed 1215, 944 and 932 levels. Production from the SBA (920 to 710m RL) using specialist contractors completed the 871, 862, 837, 833 and 832 levels with ongoing production from the 920, 825, 819, 818, 804 and 795 levels. Smaller ore drive development (nominal 3.5m x 3.5m ‘shanty’ profile) was completed from the 767 to 747 levels with the 757 to 747 level development below SBA ore reserve boundary. The primary surface fan electrical and underground commissioning was completed early in the year with decommissioning of the four 90kW in-pit fans, increasing the total primary return airflows from 180m3/s to 200-250m3/s. The primary underground 756 magazine was commissioned and the 1280 primary underground magazine decommissioned prior to the primary ventilation system upgrade. The underground primary ventilation RAW network was extended to the 510 level with the excavation of five vertical Return Air-ways (RAW) long- hole rises. The escape-way network necessary to continue ‘Stage 2’ stoping was extended, with escape ladder-ways installed in dedicated 1.0m raise-bore shafts from the 640 to 510 levels. Other underground infrastructure established during the year is summarised below: • The 722 Level underground sat-stat refuelling station was installed which reduced the return tramming distance of underground mobile equipment to refuel by 12km; • The 750 underground air compressor and air receiver; • The 600 level high voltage 11kV/1kV substation; • The 745 remote stench gas activation unit; and • The 645 and 545 sixteen person refuge chambers were added for the lower sections of the mine. MINE AND MILL PRODUCTION AND CASH COSTS TONNES MINED Flying Fox Ore Mined Grade Flying Fox Nickel Mined Spotted Quoll Ore Mined Grade Spotted Quoll Nickel Mined Sep Qtr Dec Qtr Mar Qtr Jun Qtr FY19 Tonnes Ni% Tonnes Tonnes Ni% Tonnes 58,699 4.0% 2,330 82,868 4.3% 3,538 59,309 4.3% 2,574 80,219 4.1% 3,277 56,386 4.5% 2,550 85,209 4.1% 3,516 57,213 4.2% 2,381 76,099 4.0% 3,042 YTD Total 231,607 4.2% 9,835 324,395 4.1% 13,373 Total Ore Mined Grade Total Nickel Mined Tonnes 141,567 139,528 141,595 133,312 556,002 Ni% Tonnes 4.1% 5,868 4.2% 5,851 4.3% 6,066 4.1% 5,423 4.2% 23,208 9 WESTERN AREAS ANNUAL REPORT 2019OPERATIONS REVIEW FLYING FOX PRODUCTION Flying Fox mined a total of 231,606 ore tonnes at an average grade of 4.2% nickel for 9,834 contained nickel tonnes. The total mined nickel exceeded mine plans due to diligent control of waste dilution that increased the overall ore grade. The Lounge Lizard ore tonnes mined for the year was 127,615 ore tonnes at a grade of 4.2% nickel for 5,329 nickel tonnes. SPOTTED QUOLL PRODUCTION Spotted Quoll mined a total of 324,395 ore tonnes at an average grade of 4.1% nickel for 13,373 contained nickel tonnes which surpassed last year as the highest annual production of both ore and nickel tonnes to date. COSMIC BOY NICKEL CONCENTRATOR The Cosmic Boy Concentrator (CBC) processed 610,487 tonnes of ore at an average grade of 4.0% nickel, despite its nameplate capacity of 550kt. A total of 146,549 tonnes of concentrate grading 14.8% nickel was produced containing 21,675 nickel tonnes with an average recovery of 89%. NICKEL SALES The delivery of concentrates has been maintained into the two existing offtake agreements along with spot sales of the nickel sulphide precipitate product being produced from the Mill Recovery Enhancement Project (MREP). A total of 147,325 tonnes of concentrate was delivered containing 21,483 tonnes of nickel. The ability to process above nameplate is largely due to the well planned and executed preventative maintenance programme with 98.2% plant availability achieved for the year. Other concentrate sales and marketing costs for FY19 included royalties at A$0.24/lb and concentrate transport of A$0.40/lb of nickel in concentrate delivered to customers. On the 8th February 2019, the CBC had its ten year anniversary and by year end had processed more than 5.6 million tonnes of ore and produced more than 230,000 tonnes of nickel in concentrate. COSMIC BOY NICKEL CONCENTRATOR Sep Qtr Dec Qtr Mar Qtr Jun Qtr FY19 YTD Total tonnes 156,706 154,517 146,935 152,329 610,487 % % tonnes tonnes 3.9% 89% 5,379 5,018 4.0% 88% 5,415 5,386 4.2% 88% 5,448 5,189 4.0% 88% 5,433 5,890 4.0% 88% 21,675 21,483 TONNES MILLED AND SOLD Grade Ave. Recovery Nickel in Concentrate Produced (i) Nickel in Concentrate Sold (i) Includes MREP Nickel tonnes produced. 10 WESTERN AREAS ANNUAL REPORT 2019 COST OF PRODUCTION The year to date cost of production stands at A$2.98/lb, around the mid-point of the full year guidance range. FINANCIAL STATISTICS Group Production Cost/lb Mining Cost (*) Haulage Milling Admin By Product Credits A$/lb A$/lb A$/lb A$/lb A$/lb Cash Cost Ni in Con (***) A$/lb Cash Cost Ni in Con (***) US$/lb(**) Exchange Rate US$ / A$ FY19 Sep Qtr Dec Qtr Mar Qtr Jun Qtr 2.24 0.07 0.49 0.22 (0.03) 2.99 2.19 0.73 2.38 0.07 0.51 0.22 (0.03) 3.15 2.26 0.72 2.11 0.06 0.48 0.20 (0.03) 2.82 2.01 0.71 2.24 0.07 0.46 0.22 (0.03) 2.96 2.07 0.70 YTD 2.24 0.07 0.48 0.22 (0.03) 2.98 2.13 0.72 (*) Mining Costs are net of deferred waste costs and inventory stockpile movements. (**) US$ FX for Relevant Quarter is RBA average daily rate. (***) Payable terms are not disclosed due to confidentiality conditions of the offtake agreements. Cash costs exclude royalties and concentrate logistics costs. Note: Grade and recovery estimates are subject to change until the final assay data are received. FLYING FOX MINERAL RESOURCES AND ORE RESERVES The Flying Fox high grade Mineral Resource and Ore Reserve Estimates (depleted for mining) at the end of the financial year are as follows: • Mineral Resource: 1.69 million tonnes of ore at a grade of 4.7% nickel for 79,332 tonnes of nickel; and • Ore Reserve: 0.60 million tonnes of ore at a grade of 3.5% nickel for 21,100 tonnes of nickel The longitudinal section shows the Flying Fox mine with mineral resources and ore reserves depleted for mining production during the year. 11 WESTERN AREAS ANNUAL REPORT 2019OPERATIONS REVIEW SPOTTED QUOLL MINERAL RESOURCES AND ORE RESERVES The Spotted Quoll Mineral Resource and Ore Reserve Estimates (depleted for mining) at the end of the financial year are as follows: • Mineral Resource: 1.49 million tonnes of ore at a grade of 5.3% nickel for 78,894 tonnes of nickel: and • Ore Reserve: 1.59 million tonnes of ore at a grade of 4.0% nickel for 64,200 tonnes of nickel A surface diamond drilling resource extension program to investigate Stage 3 (below the T3 fault) mineralisation was completed during the year. All of the drill-holes that reached target elevation intersected mineralisation resulting in the following change to the Inferred Resource. Old Stage 3 Resource Estimate Updated Stage 3 Resource Estimate RESCAT Ore Tonnes (t) Grade (Ni %) Ni Tonnes (t) Ore Tonnes (t) Grade (Ni %) Ni Tonnes (t) Inferred 116,367 2.6 3,060 118,464 4.9 5,745 Although the increase in grade from 2.6% to 4.9% is encouraging, the overall average thickness of the mineralised intersections was approximately 0.74m as a result of a hangingwall and footwall felsic intrusion that reduced the ore thickness. Further surface drilling is currently being planned to test a thicker north-east trending plunge that appears to extend beyond the current resource limits. The longitudinal section shows the Spotted Quoll mine with mineral resources and ore reserves depleted for mining production during the year. A SURFACE DIAMOND DRILLING RESOURCE EXTENSION PROGRAM TO INVESTIGATE STAGE 3 MINERALISATION WAS COMPLETED DURING THE YEAR 12 WESTERN AREAS ANNUAL REPORT 2019 NEW MORNING / DAYBREAK RESOURCE COSMOS NICKEL OPERATION (“COSMOS”) There was no change to the New should be Morning / Daybreak (NMDB) and Odysseus Mineral Resource during the year. The early works program has been completed in-line with budget and cost targets (ASX release 5 July 2019) with several key milestones achieved: • Decline rehabilitation completed down to the 10,000m RL pump station (500m below surface), with pump station mechanical and electrical designs complete; • Dismantling of purchased shaft headgear and winder commenced and expedited in South Africa. Delivery to Perth expected in third quarter of FY20, to support hoisting shaft operations; • All required tenders and contracts for ongoing works awarded or substantially complete; and • Successful recruitment of experienced Project Manager and Construction Manager with extensive shaft construction experience. New Morning / Daybreak Open-Pit Feasibility Study The New Morning / Daybreak Feasibility Study started in July with a summary below: • The field component of the Flora and Fauna spring surveys (including stygofauna), waste rock characterisation and groundwater sampling were completed in September; • The haul road bypass conceptual design was completed in August; • Drilling of 14 geotechnical drill-holes to underpin the open-pit design were completed in December; • Completion of the preliminary hydrological drilling program which included a single production bore- hole and one monitoring bore- hole in November; • Twenty-four oxide bottle-roll leach tests were conducted to test the oxide ore leaching kinetics. Further work will investigate alternative methods to improve nickel recovery from the oxide zones. • Metallurgical testing on the transition and primary zones is planned to commence in the next year. Near-term Work Plan and Underground Infrastructure Underground life of mine infrastructure works will continue in parallel with decline rehabilitation down to the AM5/6 orebodies and to the new take-off position for the Odysseus decline. Specific activities include: • Construction and commissioning of the underground pump station (10,000m RL) and associated infrastructure early in the second quarter of FY20; • Rehabilitation of the Alec Mairs twin declines down to the new Odysseus decline take-off, (adjacent to the AM5/6 orebodies) in the third quarter FY20; • Delivery of the shaft headgear and winder from South Africa in the third quarter FY20; • Completion of the mining design for the AM5/6 deposits in the second quarter of FY20; and • A further 106 camp rooms to be upgraded (266 in total) during the first half of FY20, to cater for increased construction activity. 13 WESTERN AREAS ANNUAL REPORT 2019OPERATIONS REVIEW Shaft Project Engineering and Site Construction The project progressed well with key activities outlined below: • Geotechnical logging of selected AM5/6 drill-cores was completed in July; • The winder mechanical and electrical packages were awarded during the quarter, as well as a letter of intent (LOI) issued for the headframe structural package. Mobilisation of personnel to the South African mine-site has commenced; • The shaft geotechnical drill-hole was successfully completed (depth 1.2km), with deviation along the shaft axis within a 1.0m tolerance; • Following a successful heritage survey, the nearby Yakabindie sand deposit was drilled to test the resource extent and quality for use in paste fill; and • A detailed engineering design (DED) of the shaft and materials handling systems. MILL RECOVERY ENHANCEMENT PROJECT (MREP) The MREP continued to ramp up operations during the year. The plant is producing the high-grade nickel sulphide product which has been sold successfully on a regular spot basis to companies producing nickel sulphate destined for the electric vehicle (EV) market. Following year end a 12 month offtake agreement was completed with Sumitomo Metals and Mining., Ltd. THE PLANT IS PRODUCING THE HIGH-GRADE NICKEL SULPHIDE PRODUCT WHICH HAS BEEN SOLD SUCCESSFULLY ON A REGULAR SPOT BASIS 14 WESTERN AREAS ANNUAL REPORT 2019 BIOHEAP LIMITED The BioHeap management team has continued the marketing campaign to promote the BioHeap™ technology. Alliances and working relationships with research institutes, engineering firms and test work facilities continue to be formed and strengthened. BioHeap conducted testwork during the year for external companies who are interested in pursuing the technology for sulphide projects. Laboratory For the past 7 years, the BioHeap laboratory testing facilities have been located as part of CSIRO in Waterford, Perth. The lease for this laboratory was terminated in September 2018 and BioHeap has relocated to a new laboratory facility in the Technology/Industrial area of Canning Vale, Perth. BioHeap has received several samples for testing using the BioHeap™ process as a result of discussions with potential parties interested in battery materials. BioHeap has also conducted support testwork for MREP and continues to test samples from Western Areas Forrestania operations. New Morning / Day Break Leaching Testwork Programme Additional test work is being undertaken looking at processes to recover nickel from the oxide zones. The BioHeap™ process will be tested as part of the next stage of evaluation on the deeper transition and primary ores from the New Morning / Daybreak deposits. This work will be undertaken during FY20, as part of the New Morning feasibility study. Cosmic Boy Scats Leaching Testwork Programme BioHeap has looked at a method to treat a waste stream from the Cosmic Boy Concentrator (CBC), known as ‘scats’. This material is hard critical size pebbles that are ejected from the ball mill during processing. The scats also contain remnants of grinding media which would damage the CBC crushers if the scats were re-fed back into the concentrator. Hence the scats are stockpiled on site as a waste product. The scats are of ideal size for a BioHeap™ leach (6-8mm) which would be a low cost method to recover the nickel locked in this material. To determine the extraction rate of nickel from the scats, BioHeap performed a column leach test programme. This test simulates the possible performance from a BioHeap™ leach. The preliminary results indicate the material is a low acid consumer and initial leaching data has indicated that 70% of the total available nickel is expected to be extracted from the scats product. Further columns commenced during FY19 to confirm operating conditions for the potential heap leach. Capital and operating cost estimates were commenced late in the year to establish a demonstration heap leach for the scats. This is expected to be approximately 20,000 t of scats and to commence build during FY20. The nickel rich solution obtained from the heap leach will add additional nickel into the metal recovery circuit of the MREP. 15 WESTERN AREAS ANNUAL REPORT 2019OPERATIONS REVIEW EXPLORATION KIDMAN RESOURCES LIMITED FARM-IN AND JOINT VENTURE (LITHIUM) Western Areas Limited continues its Farm-in and Joint Venture Agreement with Kidman Resources Limited covering the Company’s northern group of tenements at Forrestania. Kidman has now entered into the third year within a Stage 1 opportunity to earn 50% lithium rights. Western Areas retains all non- lithium rights over this ground. SOUTHERN CROSS GOLDFIELDS JOINT VENTURE (WSA 100% NICKEL RIGHTS INTEREST) In March 2018, Western Areas opted to relinquish its 70% nickel rights across all tenements that formed part of the original agreement, with the exception of tenements E77/1965 and E77/2091, where the Company negotiated to acquire the remaining 30%, bringing the total nickel rights ownership to 100%. E77/1965 and E77/2091 are contiguous with Western Areas Limited’s pending tenement E77/2261, which lies at the northern end of the Parker Dome. The Company maintains strong, practical relationships with project stakeholders, and particularly values its ongoing relationships with the Far West Coast Aboriginal Corporation (FWCAC) and the Aboriginal Lands Trust (ALT). The nickel endowment of the Forrestania Nickel Belt has provided a solid foundation for the Company and the exploration strategy into FY19 reflects this, with a renewed focus on assessing near-mine opportunities for discovery and growth. The Western Ultramafic Belt, incorporating the producing centres of Spotted Quoll and Flying Fox, along with the resource inventory of New Morning, represents a significant exploration opportunity for the discovery of additional nickel sulphide mineralisation. The Company has maintained an elevated focus in assessing target opportunities across this belt in FY19, embracing innovative technologies to unlock new targeting horizons. MT ALEXANDER JOINT VENTURE (WSA 25% NON-CONTRIBUTING INTEREST) With regard to E29/63 at Mt Alexander, Western Areas Limited is in a Joint Venture with St George Mining Limited (SGQ). SGQ is the Manager of the Project and has a 75% interest. WSA retains a 25% non- contributing interest in the Project until there is a decision to mine. Western Areas continues to embrace a balanced exploration programme across its diverse portfolio of tenements. The Company has escalated its exploration activities in FY19, with an expansion of its regional exploration program through a strategic partnership in the Western Gawler region of South Australia. Complementing this regional work, with a strong portfolio of near-mine targets adjacent to existing and emerging nickel producing centres at both Forrestania and Cosmos, Exploration remains committed to assessing, testing and discovering new concentrations of nickel sulphide to support current and future mine operations. The Cosmos exploration strategy has a single focus, which is to add to the nickel mineral inventory by assessing and drill-testing high quality targets both proximal to existing deposits and within the surrounding tenement package. Expanding from a focus on the Neptune prospect in FY18, the Company has broadened its targeting envelope to assess the mineral potential of the entire interpreted prospective ultramafic channel at Cosmos, which extends from Neptune in the south through to Ajax on the northern margins, representing a target corridor of around 9km. Regional exploration saw a significant boost in both target inventory and exploration activity with the execution of a strategic agreement with Iluka Resource Limited covering a 5,070 km² of ground in the Western Gawler region of South Australia. Coupled with the existing tenure on the project, this agreement more than doubles the Company’s interests in the project to 9,520 km² of contiguous ground covering the prospective Fowler Domain. 16 WESTERN AREAS ANNUAL REPORT 2019 COSMOS NICKEL OPERATION Encouraged by the thick nickel sulphides intersections at Neptune, the Company expanded its exploration focus throughout the year, assessing targeting opportunities across the entire length of the interpreted channel position. From this work, the Company has identified the 2.5km corridor extending between Prospero – Tapinos and Alec Mairs as being of notable exploration and strategic significance. Of additional interest is the northern interpreted channel position at Ajax (1km north of the Odysseus resource), which is considered to be significantly under- explored. A hiatus in drilling activities across the December quarter enabled detailed planning and targeting to advance across the entire length of the prospective interpreted channel, extending over a strike length of 9km. Numerous drill sites were proposed, primarily centred on Penelope, with additional locations identified at Ajax and Neptune. Subsequently, planning for a heritage survey covering all these proposed sites also commenced during the December quarter. The Company values the strong collaborative relationship that it has fostered with the Tjiwarl Group native title holders and traditional owners at Cosmos. This bilateral cooperative approach culminated with the completion, in March, of a regionally extensive heritage survey incorporating sites for future exploration targeting covering prospects at Penelope (south of Alec Mairs), Neptune and Ajax (north of Odysseus). The Company understands the importance of maintaining regular dialogue and communication with the traditional owners, with representatives of the Tjiwarl Group involved in the monitoring of all aspects of site preparation and exploration drilling, along with drill site and track rehabilitation activities. PLAN SHOWING COSMOS TENEMENTS, KEY PROSPECTS AND GEOLOGY (100% WSA) Since the acquisition of Cosmos from Xstrata Nickel Australasia Operations (XNAO) in October 2015, the Company has identified numerous near-mine targets considered highly prospective for their potential to host significant accumulations of nickel sulphides. Throughout FY18, the initial focus of these efforts was on a 1.5km corridor centred over the Neptune prospect located approximately 2km south of the previously mined Prospero- Tapinos deposit. Drill targeting continued at Neptune in FY19, along with a broadening of the focus area to incorporate an additional 2.5km corridor extending north from Prospero-Tapinos towards Alec Mairs. The Neptune prospect is interpreted to contain the highest volume of cumulate ultramafic bodies within the Cosmos nickel operation. Continuing into early FY19, Phase 2 of drilling on the Neptune prospect was completed, with this component of the program designed to target the down-plunge extents of mineralisation previously intersected throughout FY18, while further testing the prospectivity of the host cumulate sequence along its northern flanks. Phase 2 works markedly advanced the geological understanding of this prospective ultramafic package, with significant findings throughout the period including; • Further delineation of the prospective host sequence, identified to extend >1200m in strike length (north – south), • Confirmation of additional thick sequences of high-tenor, disseminated nickel sulphide mineralisation (along with localised stringers-sulphide zones) with some notable results of 52.5m @ 0.70% Ni including 2.64m @ 1.56% Ni returned from WCD017 and 25m @ 0.79% Ni returned from WCD018, with the later numbers representing the northernmost intersections received to date at Neptune, • Results of Down Hole Electromagnetic (DHEM) surveying completed in the December quarter, with two off-hole conductors identified, potentially representing semi-massive sulphides. These targets are planned for future drill testing in FY20. 17 WESTERN AREAS ANNUAL REPORT 2019EXPLORATION Western Gawler Nickel-Copper Joint Venture (WSA 100% and earning up to 90% interest) In October 2014, the Company executed a Farm-in and Joint Venture Agreements with Gunson Resources Limited (now Strandline Resources Limited) over a key tenement (EL 5880) along the eastern margin of the Western Gawler region of South Australia. A staged series of exploration programmes continued within EL 5880 across FY19. In the June quarter, the company achieved a 90% interest after meeting Stage 2 earn-in and expenditure requirements. Early exploration in the September and December quarters centred on the Thunderdome prospect, with elevated copper anomalism identified in association with several discrete pyroxene-hornblende rich mafic intrusive units. Anomalism was returned from several drill-holes, with notable values of 3m @ 0.46% Cu (from 27m) including 1m @ 0.81% Cu (from 28m) returned from 18WGRC377. Results to date highlight the potential for this corridor to host additional zones of copper mineralisation. The Mystic prospect represents an emerging Western Gawler target, and was another key focus during FY19. Initial interest stemmed from anomalous nickel in oxide values returned from drilling programs in early FY18, with notable values including 2m @ 1.44% Ni from 18WGAC353. Follow up drilling was undertaken over the December and March quarters with several thick elevated nickel oxide intervals returned, hosted within weathered, iron- chromite enriched clay horizons, with a broad zone of 18m @ 2.06% Ni including 5m @ 4.29% Ni from 19WGAC444. The Company is extremely encouraged by the results returned from Mystic, representing the highest-grade nickel mineralisation identified to date within the Fowler Domain of the Western Gawler project. FY19 DRILLING COMPLETED AT WESTERN GAWLER WESTERN GAWLER NICKEL-COPPER PROJECT The Western Gawler Project lies within the Fowler Domain of western South Australia. The Fowler Domain is an orogenic belt of Proterozoic age, overlain by recent sedimentary cover, which is known to host mafic and ultramafic intrusive rocks. Similarly aged orogenic belts in Australia contain significant mafic-ultramafic related intrusive nickel and copper deposits including Nova-Bollinger and Nebo-Babel. The Company’s exploration strategy is to explore for these deposits through systematic evaluation of targets which lie below cover sequences, using modern geophysical techniques and targeted drilling campaigns. The Company has a consolidated land holding with 100% interest covering five tenements across the Western Gawler Project with an additional 90% interest in a sixth tenement held by Strandline Resources. Further to these interests, the Company announced in the September quarter an expansion of the Western Gawler regional exploration strategy via the execution of a Farm-in and Joint Venture Agreement with Iluka (Eucla Basin) Pty Limited, a 100% owned subsidiary of Iluka Resources Limited. The Company has evolved its exploration strategy across Western Gawler, commencing in FY18 with a migration from a broader regional approach and moving to a more focused, prospect-scale style of targeting. Building on an advancement and maturing of geological understanding across the project, the Company has shifted its focus over the FY19 period from the western corridor (centred around Thunderdome), to a greater focus on its eastern prospects, centred on the Mystic-Woodford-Meredith Corridor. 18 WESTERN AREAS ANNUAL REPORT 2019 The Company continues to embrace new and innovative methods to assist exploration targeting. During the September quarter a regional- scale heli-borne Electromagnetic (EM) Survey was completed over three 100% WSA held tenements along with Strandline tenement EL 5880. The survey was completed using the SkyTEM312 HP system, which is optimised to provide exceptional depth of investigation due to the high current and low base frequency of 12.5 Hz. The survey, which was executed over 1,584 km² and represented 1,844 line-kilometres was designed to define EM conductors with potential to represent semi-massive to massive sulphide bodies associated with Ni-Cu-Co-PGE mineralisation. Numerous targets were identified from this work and followed up throughout FY19. Western Gawler - Iluka Joint Venture (WSA earning up to 75% interest) The execution of a Farm-in and Joint Venture agreement with Iluka Resources across five tenements during the first quarter of FY19 has consolidated the Company’s tenure holding within the Western Gawler Project. The tenements, covering an additional 5,070 km², are contiguous with Western Areas’ substantial existing tenure within the Western Gawler region of South Australia, the combination of which effectively represents 100% of the highly prospective Fowler Domain. The Company believes that combining the Iluka Joint Venture ground with its existing tenement holdings maximises the potential for a significant discovery. EXPLORATION DRILLING (WESTERN GAWLER) Underpinning the exploration efforts across the Iluka JV tenements in FY19 was the completion of a regionally extensive airborne electromagnetic (EM) survey covering 657 km². Numerous low to moderate-response targets were identified from this work, with many of these responses interpreted to be coincident with mafic intrusive bodies. Drill testing of these targets commenced from late March and extended into the June quarter, supplemented by guidance from subsequent follow-up, targeted ground EM surveys. Drill testing was completed over several prospects, commencing initially at Woodford and extending to Roskilde, Coachella, Splendour and Meredith. 19 WESTERN AREAS ANNUAL REPORT 2019EXPLORATION Although exploration on the Iluka JV ground is within its first year, the Company is encouraged by early results that were returned from the maiden drilling program at Woodford, with elevated copper and nickel values identified within partially weathered pyroxenite. Drill-hole 19WGAC510 returned 1m @ 549ppm Cu, 0.29% Ni with drill- hole 19WGAC493 returning 1m @ 996ppm Cu, 685ppb Pt+Pd (PGE). Drilling activity significantly ramped up towards the end of FY19, with several large drill campaigns commencing covering the Meredith and Splendour prospects. This momentum is anticipated to continue into early FY20, with the Company maintaining a focus on the eastern corridor extending from Woodford to Meredith. FORRESTANIA NICKEL OPERATION (100% WSA) The Company has a strong record of exploration and production across the Forrestania Nickel Belt, reflecting its robust nickel endowment. The Company realises the high potential for this belt to host additional nickel resources into the future and has maintained a balanced approach to exploration in FY19, primarily advancing several opportunities proximal to existing resource envelopes, along with exploration across numerous promising regional targets. The Parker Dome Project, located 20km north of the historic Bounty Gold camp, is represented by a continuous group of tenements held by the Company, incorporating the southern and eastern portions of the Parker Dome greenstone sequence. The region is relatively under-explored, and is considered prospective for both komatiite- hosted nickel sulphides and gold. Leveraging off the extensive regional airborne electromagnetic survey completed in late FY18, exploration work at Parker Dome in FY19 has centred around processing and compilation of numerous late- time responses identified from the June 2018 survey. Planning has progressed over the remainder of the reporting year, with a series of drill programs designed to test both nickel and gold targets. Pending final environmental and heritage approvals, drilling is anticipated to commence in FY20. The Company acknowledges the strategic importance of ensuring that all near-mine exploration targeting opportunities are continually reviewed for their potential to add to the nickel sulphide inventory at Forrestania. Early targeting in the period centred on testing for the extension of the mineral system beneath the existing Flying Fox resource, with two holes completed and subsequent down- hole EM survey work. No significant concentration of nickel sulphides was identified from this work. 20 WESTERN AREAS ANNUAL REPORT 2019 A second near-mine target was tested at Cosmic Boy. Located to the west of the Cosmic Boy Mill and concentrator, the Cosmic Boy Deposit (last mined in 1999, producing a total of 3.77Mt @ 1.46% Ni for 55,081t of contained nickel) is characterised by ultramafic- hosted, predominantly high-tenor, disseminated nickel sulphides, lying proximal to a basal contact with a banded iron formation sequence. A review of the controls on mineralisation at Cosmic Boy was completed in the September quarter. A total of four holes were drilled, testing the potential for the mineralised ultramafic channel to reform at depth. Early drilling completed in the December quarter successfully intersected disseminated style mineralisation approaching the basal contact target horizon, with drill- hole CBD211W1 returning a particularly encouraging interval of 2m @1.85% Ni within a broader zone of 7m @ 1.16% Ni (from 1,059m). Follow up drilling was completed in the March quarter, with CBD212W1W1W1 testing the down-plunge extension from CBD211W1, returning 2m @ 1.20% Ni. Despite these encouraging results, owing to the depth of these intersections, success and follow-up drilling would require the mineral system to increase substantially in both grade and width. Immediate follow-up drilling is not planned at this stage. The Company understands the importance of embracing innovative methods of exploration to realise the full potential across its tenure. Commencing in March and extending through the June quarter, the Company commenced a strategic exploration review of the Western Ultramafic Corridor, assessing the potential for this zone to host additional, likely- blind mineral systems at depth. The 25km long Western Ultramafic Corridor, hosting the producing high-tenor nickel mines of Spotted Quoll and Flying Fox, together with the the New Morning resource, continues to represent a significant exploration opportunity for the discovery of additional nickel sulphide mineralisation. Starting in May, the Company, in collaboration with HiSeis Pty Ltd, commenced a two- pronged study designed to identify the applicability of modern seismic to aid future exploration efforts across the Western Ultramafic Belt, with the geological environment incorporating the Spotted Quoll mineral resource identified as the most suitable environment for this work. Work involved capturing detailed physical property data (density and full waveform sonic) from representative drill core samples and down-hole probes. 21 WESTERN AREAS ANNUAL REPORT 2019EXPLORATION ORE RESERVE / MINERAL RESOURCE STATEMENT ORE SUMMARY RESERVES AT 30 JUNE 2019 Ore Reserves Ore Reserves 1. Flying Fox Area 2. Spotted Quoll Area 3. Diggers Area Digger South Digger Rocks TOTAL FORRESTANIA ORE RESERVE 4. Cosmos area Odysseus South Odysseus North TOTAL COSMOS ORE RESERVE TOTAL WESTERN AREAS ORE RESERVE Ore summary reserves at 30 June 2018 Deposit Flying Fox Area Spotted Quoll Area Digger South Digger Rocks Tonnes Grade Ni% Ni Tonnes Classification 601,100 1,598,000 2,016,000 93,000 4,308,100 4,483,700 3,651,900 8,135,600 12,443,700 Tonnes 749,600 89,600 1,708,500 2,016,000 93,000 3.5 4.0 1.4 2.0 2.7 1.9 2.2 2.0 2.3 21,100 Probable Ore Reserve 64,200 Probable Ore Reserve 28,950 Probable Ore Reserve 1,850 Probable Ore Reserve 116,100 85,620 Probable Ore Reserve 78,900 Probable Ore Reserve 164,520 280,620 Grade Ni% Ni Tonnes Classification 3.9 3.8 4.0 1.4 2.0 2.8 29,170 Probable Ore Reserve 3,450 Proved Ore Reserve 68,480 Probable Ore Reserve 28,950 Probable Ore Reserve 1,850 Probable Ore Reserve 131,900 JORC Code 2012 2012 2004 2004 2012 2012 JORC Code 2012 2012 2012 2004 2004 TOTAL FORRESTANIA ORE RESERVES 4,656,700 GOVERNANCE AND INTERNAL CONTROLS Western Areas geology and mining departments have implemented a set of rules and working practices to control the mineral resource and ore reserves estimation and reconciliation process, as well as the quality of the data used. The Mineral Resources and Ore Reserves are reported in accordance with the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (the JORC Code) 2012 Edition (unless otherwise stated). Mineral Resources are quoted inclusive of Ore Reserves. Competent Persons named are Members of the Australasian Institute of Mining and Metallurgy and qualify as Competent Persons as defined in the JORC Code. The Western Areas risk management programme includes assessment of the risks associated with the estimations of mineral resources and ore reserves and the controls in place to ensure that robust resource and reserve calculations are reported. The risk management process measures the likelihood of errors or misstatement and monitors the controls in place that mitigate this outcome. 22 WESTERN AREAS ANNUAL REPORT 2019 WESTERN AREAS MINERAL RESOURCE STATEMENT - EFFECTIVE DATE 30 JUNE 2019 Tonnes Grade Ni% Ni Tonnes Classification JORC Code Ore Reserves Mineral Resources 1. Flying Fox Area T1 South T1 North OTZ Sth Massive Zone T4 Massive Zone T5 Massive Zone T6 Massive Zone T7 Massive Zone Total High Grade T5 Flying Fox Disseminated Zone T5 Lounge Lizard Disseminated Zone 144,125 45,041 54,217 177,614 212,835 722,890 86,044 248,720 1,691,486 197,200 357,800 4,428,000 Total Disseminated Flying Fox / Lounge Lizard 4,983,000 Total FF / LL 2. New Morning / Daybreak Massive Zone Disseminated Zone Total New Morning / Daybreak 3. Spotted Quoll Area Spotted Quoll Total Spotted Quoll Beautiful Sunday Total Western Belt 4. Cosmic Boy Area Cosmic Boy Seagull Total Cosmic Boy Area 5. Diggers Area Diggers South - Core Diggers South - Core Digger Rocks - Core Digger Rocks - Core Purple Haze Total Diggers Area TOTAL FORRESTANIA MINERAL RESOURCE 6. Cosmos Area AM5 AM6 Odysseus South - Disseminated Odysseus North - Disseminated Odysseus North - Massive Total Cosmos Area 7. Mt Goode Area Mt Goode Total Mt Goode Area TOTAL COSMOS MINERAL RESOURCE TOTAL WESTERN AREAS MINERAL RESOURCE 6,674,486 340,126 78,067 3,318,468 2,496,658 6,233,319 1,341,966 146,678 1,488,644 480,000 14,876,449 180,900 195,000 375,900 2,704,500 362,700 282,940 50,600 560,000 3,960,740 19,213,089 479,914 26,922 1,704,548 329,443 4,016,949 219,641 3,128,943 225,248 70,106 124,900 10,326,614 13,563,000 27,363,000 12,009,000 52,935,000 63,261,614 82,474,703 4.6 2.3 5.1 5.9 5.8 5.3 5.6 1.3 4.7 0.8 1.0 0.8 0.8 1.8 3.3 3.9 1.2 1.3 1.4 5.3 5.0 5.3 1.4 2.0 2.8 2.0 2.4 1.4 1.2 1.7 1.3 0.9 1.3 1.9 2.6 1.9 2.7 2.5 2.1 2.0 2.6 2.7 12.6 11.2 2.6 0.8 0.6 0.5 0.6 0.9 1.1 6,625 Indicated Mineral Resource 1,036 Inferred Mineral Resource 2,736 Indicated Mineral Resource 10,550 Indicated Mineral Resource 12,364 Indicated Mineral Resource 37,955 Indicated Mineral Resource 4,833 Indicated Mineral Resource 3,233 Inferred Mineral Resource 79,332 1,590 Indicated Mineral Resource 3,460 Inferred Mineral Resource 36,000 Indicated Mineral Resource 41,050 120,382 11,224 Indicated Mineral Resource 3,025 Inferred Mineral Resource 41,181 Indicated Mineral Resource 32,498 Inferred Mineral Resource 87,928 71,666 Indicated Mineral Resource 7,228 Inferred Mineral Resource 78,894 2012 2012 2012 2012 2012 2012 2012 2012 2004 2004 2004 2012 2012 2012 2012 2012 2012 6,720 Indicated Mineral Resource 2004 293,924 5,050 Indicated Mineral Resource 3,900 Indicated Mineral Resource 8,950 37,570 Indicated Mineral Resource 4,530 Inferred Mineral Resource 4,790 Indicated Mineral Resource 670 Inferred Mineral Resource 5,040 Indicated Mineral Resource 52,600 355,474 12,430 Indicated Mineral Resource 509 Inferred Mineral Resource 45,171 Indicated Mineral Resource 8,203 Inferred Mineral Resource 84,767 Indicated Mineral Resource 4,302 Inferred Mineral Resource 81,156 Indicated Mineral Resource 6,111 Inferred Mineral Resource 8,814 Indicated Mineral Resource 14,002 Inferred Mineral Resource 265,465 105,791 Measured Mineral Resource 158,705 Indicated Mineral Resource 62,447 Inferred Mineral Resource 326,943 592,408 947,882 2004 2004 2004 2004 2004 2004 2004 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 WESTERN AREAS ANNUAL REPORT 2019 23 FINANCIAL STATEMENTS 24 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT The Directors of Western Areas Ltd present the financial report of the Company for the financial year ended 30 June 2019. Unless noted, all amounts in this report refer to Australian dollars. In order to comply with the provisions of the Corporations Act 2001, the Directors’ Report follows: INFORMATION ABOUT THE DIRECTORS The following persons were directors of Western Areas Ltd for the entire financial year and up to the date of this report unless otherwise stated. Ian Macliver Mr Macliver is a highly experienced listed company director and Chartered Accountant with BCom, FCA, SF Fin, FAICD significant experience as a senior executive and director of both resource and industrial companies, with particular responsibility for company strategy development, capital raising and other corporate development initiatives. Mr Macliver is Executive Chairman of Grange Consulting Group Pty Ltd which provides specialist corporate advisory services to both listed and unlisted Non-Executive Independent Chairman companies. Committee responsibilities: Member of the Audit & Risk, Remuneration and Nomination Committee Director appointed October 2011 Other current listed company directorships: Sheffield Resources Ltd (since August 2019) Otto Energy Ltd (since January 2004) - Chair of the Audit & Risk Committee - Member of the Remuneration & Nomination Committee Former listed company directorships in last three years: Nil Other relevant experience: Fellow of Chartered Accountants Australia and New Zealand Fellow of the Australian Institute of Company Directors Senior Fellow of the Financial Services Institute of Australasia Daniel Lougher Mr Lougher is a qualified Mining Geologist and Mining Engineer with over 38 years’ experience in BSc. (Mining Geology), Msc. Eng, MAusIMM all facets of mining project exploration, feasibility, development and operational activities in Australia and overseas. Mr Lougher’s experience covers a diverse range of commodities including gold, platinum and copper. Committee responsibilities: Managing Director Member of the Nomination Committee & CEO Other current listed company directorships: Director appointed May 2008 Perseus Mining Ltd (since May 2019) - Chairman of the Technical Committee Former listed company directorships in last three years: Nil Other relevant experience: Extensive training in Mine, Planning and Geotechnical Engineering (Chamber of Mines, South Africa) WA Mines Manager Certificate 25 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT INFORMATION ABOUT THE DIRECTORS (cont’d) Richard Yeates Mr Yeates is an experienced international mining executive with 36 years industry experience in BSc (Geology), MAusIMM, GAICD the fields of mineral exploration, project management, feasibility studies, project finance audits, project development and transactions. He was a founding director, major shareholder and principal consultant of Resource Service Group (RSG), subsequently RSG Global and Coffey Non-Executive Independent Director Mining, growing a boutique Goldfields consulting entity into an international enterprise over a 20-year period, culminating in the business sale to Coffey International Ltd (now Tetra Tech) in 2006. Mr Yeates’ experience covers a wide range of commodities (including nickel, copper, lead, zinc, tin, tungsten, gold, coal and mineral sands), in 39 countries on five continents. Committee responsibilities: Director appointed October 2009 Chairman of the Nomination Committee Member of the Remuneration Committee Other current listed company directorships: Middle Island Resources Ltd (since March 2010) - Managing Director and CEO - Member of the Remuneration Committee - Member of the Nomination Committee Former listed company directorships in last three years: Nil Other relevant experience: Director, Austmine (ceased October 2009) Director, Australia-Africa Mining Industry Group (AAMIG, now AAMEG) (ceased November 2016) Formerly a member of Swick Mining Services Ltd R&D Advisory Board Craig Readhead Mr Readhead is a lawyer with over 30 years legal and corporate advisory experience with B.Juris, LL.B, FAICD specialisation in the resources sector, including the implementation of large scale mining projects both in Australia and overseas. Mr Readhead had a distinguished legal career Non-Executive Independent Director specialising in mining and corporate law. Committee responsibilities: Chairman of the Audit & Risk Committee Other current listed company directorships: Director appointed Nil June 2014 Former listed company directorships in last three years: Beadell Resources Ltd (ceased April 2019) - Member of the Remuneration, Nomination & Diversity and Audit & Risk Committee - Formerly Chairman of the Board (ceased July 2018) Eastern Goldfields Ltd (ceased February 2019) Redbank Copper Ltd (ceased January 2019) Other relevant experience: Formerly President of the Australian Mining and Petroleum Law Association Previously a member of the WA Council of the Australian Institute of Company Directors 26 Tim Netscher Mr Netscher is an experienced international mining executive with extensive operational, project BSc (Eng) (Chemical), BCom, MBA, FIChE, CEng, MAICD development, transactional and sustainability experience gained in senior executive and board roles over many years. His key executive positions during the past 25 years included Managing Director and CEO of Gindalbie Metals Ltd, Senior Vice President Asia Pacific Region of Newmont Inc., Managing Director of Vale Coal Australia, President of P T Inco and Executive Director of Refining & New Business at Impala Platinum Ltd. Mr Netscher’s experience covers a wide range of resources including nickel, coal, iron ore, uranium, platinum group metals and gold in Africa, Non-Executive Independent Director Asia, North America and Australia. Committee responsibilities: Chairman of the Remuneration Committee Member of the Audit & Risk Committee Director appointed August 2014 Other current listed company directorships: Gold Road Resources Ltd (since September 2014) - Chairman - Member of the Audit & Risk Committee - Member of the Remuneration & Nomination Committee St Barbara Ltd (since February 2014) - Chairman - Member of the Health, Safety, Environment and Community Committee - Member of the Audit and Risk Committee - Member of the Remuneration and Nomination Committee Former listed company directorships in last three years: Chairman, Toro Energy Ltd (ceased September 2016) - Member of the Audit & Risk Committee - Member of Remuneration Committee Other relevant experience: Director, Queensland Resources Council Director, Minerals Council of Australia Director, Chamber of Minerals and Energy of Western Australia Natalia Streltsova MSc, PhD (Chem Eng), GAICD, MSME, MCIM Dr Streltsova is a Chemical Engineer with over 25 years’ experience in the minerals industry. She has a strong background in mineral processing and metallurgy with specific expertise in nickel, gold and base metals. Dr Streltsova has held various leadership and technical roles with major mining houses including Vale SA, BHP Billiton and WMC Resources Ltd. She has broad international experience, both in technical and in business development capacities, covering projects in Australia, Africa, South America and in the countries of the Former Soviet Union. Non-Executive Independent Director Committee responsibilities: Member of the Nomination Committee Other current listed company directorships: Neometals Ltd (since April 2016) Director appointed - Chairman of the Risk Committee January 2017 - Member of the Audit, Nominations and Remuneration Committees Parkway Minerals NL (since June 2015) - Chairman of the Nomination Committee - Member of the Audit & Risk and Remuneration Committees Other relevant experience: Director, CRC Parker Centre Ltd Director, CopperMoly Ltd (ceased 2014) David Southam Mr Southam resigned as a Director of Western Areas as at 26 November 2018. BCom, CPA, MAICD Committee responsibilities: Nil WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT INFORMATION ABOUT THE DIRECTORS (cont’d) Richard Yeates Mr Yeates is an experienced international mining executive with 36 years industry experience in BSc (Geology), MAusIMM, GAICD the fields of mineral exploration, project management, feasibility studies, project finance audits, project development and transactions. He was a founding director, major shareholder and principal consultant of Resource Service Group (RSG), subsequently RSG Global and Coffey Non-Executive Independent Director Mining, growing a boutique Goldfields consulting entity into an international enterprise over a 20-year period, culminating in the business sale to Coffey International Ltd (now Tetra Tech) in 2006. Mr Yeates’ experience covers a wide range of commodities (including nickel, copper, lead, zinc, tin, tungsten, gold, coal and mineral sands), in 39 countries on five continents. Committee responsibilities: Director appointed Chairman of the Nomination Committee October 2009 Member of the Remuneration Committee Other current listed company directorships: Middle Island Resources Ltd (since March 2010) - Managing Director and CEO - Member of the Remuneration Committee - Member of the Nomination Committee Former listed company directorships in last three years: Nil Other relevant experience: Director, Austmine (ceased October 2009) Director, Australia-Africa Mining Industry Group (AAMIG, now AAMEG) (ceased November 2016) Formerly a member of Swick Mining Services Ltd R&D Advisory Board Craig Readhead Mr Readhead is a lawyer with over 30 years legal and corporate advisory experience with B.Juris, LL.B, FAICD specialisation in the resources sector, including the implementation of large scale mining projects both in Australia and overseas. Mr Readhead had a distinguished legal career Non-Executive Independent Director specialising in mining and corporate law. Committee responsibilities: Chairman of the Audit & Risk Committee Other current listed company directorships: Director appointed Nil June 2014 Former listed company directorships in last three years: Beadell Resources Ltd (ceased April 2019) - Member of the Remuneration, Nomination & Diversity and Audit & Risk Committee - Formerly Chairman of the Board (ceased July 2018) Eastern Goldfields Ltd (ceased February 2019) Redbank Copper Ltd (ceased January 2019) Other relevant experience: Formerly President of the Australian Mining and Petroleum Law Association Previously a member of the WA Council of the Australian Institute of Company Directors Tim Netscher Mr Netscher is an experienced international mining executive with extensive operational, project BSc (Eng) (Chemical), BCom, MBA, FIChE, CEng, MAICD Non-Executive Independent Director development, transactional and sustainability experience gained in senior executive and board roles over many years. His key executive positions during the past 25 years included Managing Director and CEO of Gindalbie Metals Ltd, Senior Vice President Asia Pacific Region of Newmont Inc., Managing Director of Vale Coal Australia, President of P T Inco and Executive Director of Refining & New Business at Impala Platinum Ltd. Mr Netscher’s experience covers a wide range of resources including nickel, coal, iron ore, uranium, platinum group metals and gold in Africa, Asia, North America and Australia. Committee responsibilities: Chairman of the Remuneration Committee Member of the Audit & Risk Committee Director appointed August 2014 Other current listed company directorships: Gold Road Resources Ltd (since September 2014) - Chairman - Member of the Audit & Risk Committee - Member of the Remuneration & Nomination Committee St Barbara Ltd (since February 2014) - Chairman - Member of the Health, Safety, Environment and Community Committee - Member of the Audit and Risk Committee - Member of the Remuneration and Nomination Committee Former listed company directorships in last three years: Chairman, Toro Energy Ltd (ceased September 2016) - Member of the Audit & Risk Committee - Member of Remuneration Committee Other relevant experience: Director, Queensland Resources Council Director, Minerals Council of Australia Director, Chamber of Minerals and Energy of Western Australia Natalia Streltsova MSc, PhD (Chem Eng), GAICD, MSME, MCIM Dr Streltsova is a Chemical Engineer with over 25 years’ experience in the minerals industry. She has a strong background in mineral processing and metallurgy with specific expertise in nickel, gold and base metals. Dr Streltsova has held various leadership and technical roles with major mining houses including Vale SA, BHP Billiton and WMC Resources Ltd. She has broad international experience, both in technical and in business development capacities, covering projects in Australia, Africa, South America and in the countries of the Former Soviet Union. Non-Executive Independent Director Committee responsibilities: Member of the Nomination Committee Other current listed company directorships: Neometals Ltd (since April 2016) Director appointed January 2017 - Chairman of the Risk Committee - Member of the Audit, Nominations and Remuneration Committees Parkway Minerals NL (since June 2015) - Chairman of the Nomination Committee - Member of the Audit & Risk and Remuneration Committees Other relevant experience: Director, CRC Parker Centre Ltd Director, CopperMoly Ltd (ceased 2014) David Southam Mr Southam resigned as a Director of Western Areas as at 26 November 2018. BCom, CPA, MAICD Committee responsibilities: Nil 27 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT COMPANY SECRETARY DIRECTORS’ BENEFITS Mr Belladonna is a Certified Practicing Accountant and has been employed at Western Areas Ltd since 2005, No Directors of the Consolidated Entity have, since the end of the previous financial year, received or become originally as Financial Controller and then as the Company Secretary and Chief Financial Officer. During his time at entitled to receive a benefit (other than a benefit included in the total amount of emoluments received or due the Company, he has been intimately involved in the accounting, debt financing, corporate governance, risk and receivable by Directors shown on page 40 of the Directors’ Report) by reason of a contract made by the management, capital raising and financial initiatives at the Company. Mr Belladonna has over 18 years’ experience parent entity or a related body corporate with the director or with any entity in which the director has a in the resources industry including listed gold and base metal companies in a range of management positions. substantial financial interest, with the exception of benefits that may be deemed to have arisen in relation to the transactions entered into in the ordinary course of business as disclosed in Note 28 to the accounts. INTERESTS IN SHARES AND OPTIONS OF THE COMPANY Full details of the Directors’ shareholdings in Western Areas are included in the Remuneration Report section of this Directors’ Report. REMUNERATION OF KEY MANAGEMENT PERSONNEL Information about the remuneration of directors and senior management is set out in the Remuneration Report of this Directors’ Report on page 34. PERFORMANCE RIGHTS GRANTED TO KEY MANAGEMENT PERSONNEL Performance Rights granted to directors and senior management during the financial year ended 30 June 2019 is set out in the Remuneration Report of this Directors’ Report on page 34. INDEMNIFICATION OF OFFICERS AND DIRECTORS During the financial year, the parent entity paid a premium under a contract insuring all Directors and Officers of the Company against liability incurred in that capacity. Disclosure of the nature of liabilities insured and the premium is subject to a confidentiality clause under the contract of insurance. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company against a liability incurred as such an officer or auditor. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of the Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. PRINCIPAL ACTIVITIES The principal activities of the Consolidated Entity during the year consisted of mining, processing and sale of nickel sulphide concentrate, the continued assessment of development feasibility of the high grade nickel mines and the exploration for nickel sulphides and other base metals. DIVIDENDS PAID OR RECOMMENDED In respect of the financial year ended 30 June 2019, the Board of Directors declared a final fully franked dividend of 2 cents to the holders of fully paid ordinary shares on 20 August 2019. In relation to the 30 June 2018 financial year the Board declared a final 2 cent fully franked dividend on 22 August 2018 and paid to shareholders on 6 October 2018. 28 DIRECTORS’ MEETINGS The following table sets out the number of meetings of the parent entity’s Directors and meetings of the sub-committees of the Board held during the year ended 30 June 2019 and the number of meetings attended by each Director. Meetings held: Meetings attended: I Macliver D Lougher R Yeates C Readhead T Netscher N Streltsova D Southam (*) Directors Meetings Audit & Risk Management Remuneration Nomination Meetings of Committees 11 11 11 10 10 11 11 5 3 3 - - 3 3 - - 3 3 - 3 - 3 - - 1 1 1 1 - - 1 - (*) Mr Southam attended all meetings prior to his resignation as a director. SUBSEQUENT EVENTS fully paid ordinary shares. The Board of Directors, on 20 August 2019, declared a final fully franked dividend of 2 cents to the holders of Other than matters detailed above, there have been no subsequent events after 30 June 2019 which have a material effect on the financial statements for the year ended 30 June 2019. REVIEW OF OPERATIONS OPERATIONAL METRICS The Company continues to strongly operate in line with plan and achieved its published guidance metrics which were updated during the year. Detailed quarterly operating reports are provided throughout the year outlining quarterly and year to date production, cost, sales and operating metrics, some of which are shown below. Financial Year – Physical Summary Tonnes Mined Nickel Grade (average) Tonnes Milled Milled Grade (average) Recovery Nickel in Concentrate Nickel Sales in Concentrate Tns % Tns % % Tns Tns FY19 556,002 4.2% 610,487 4.0% 88% 21,675 21,483 FY18 607,120 4.0% 615,598 4.0% 87% 21,060 20,549 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT COMPANY SECRETARY DIRECTORS’ BENEFITS Mr Belladonna is a Certified Practicing Accountant and has been employed at Western Areas Ltd since 2005, No Directors of the Consolidated Entity have, since the end of the previous financial year, received or become originally as Financial Controller and then as the Company Secretary and Chief Financial Officer. During his time at entitled to receive a benefit (other than a benefit included in the total amount of emoluments received or due the Company, he has been intimately involved in the accounting, debt financing, corporate governance, risk and receivable by Directors shown on page 40 of the Directors’ Report) by reason of a contract made by the management, capital raising and financial initiatives at the Company. Mr Belladonna has over 18 years’ experience parent entity or a related body corporate with the director or with any entity in which the director has a in the resources industry including listed gold and base metal companies in a range of management positions. substantial financial interest, with the exception of benefits that may be deemed to have arisen in relation to the transactions entered into in the ordinary course of business as disclosed in Note 28 to the accounts. INTERESTS IN SHARES AND OPTIONS OF THE COMPANY Full details of the Directors’ shareholdings in Western Areas are included in the Remuneration Report section of this Directors’ Report. REMUNERATION OF KEY MANAGEMENT PERSONNEL Information about the remuneration of directors and senior management is set out in the Remuneration Report of this Directors’ Report on page 34. PERFORMANCE RIGHTS GRANTED TO KEY MANAGEMENT PERSONNEL Performance Rights granted to directors and senior management during the financial year ended 30 June 2019 is set out in the Remuneration Report of this Directors’ Report on page 34. INDEMNIFICATION OF OFFICERS AND DIRECTORS During the financial year, the parent entity paid a premium under a contract insuring all Directors and Officers of the Company against liability incurred in that capacity. Disclosure of the nature of liabilities insured and the premium is subject to a confidentiality clause under the contract of insurance. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company against a liability incurred as such an officer or auditor. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of the Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. PRINCIPAL ACTIVITIES The principal activities of the Consolidated Entity during the year consisted of mining, processing and sale of nickel sulphide concentrate, the continued assessment of development feasibility of the high grade nickel mines and the exploration for nickel sulphides and other base metals. DIVIDENDS PAID OR RECOMMENDED In respect of the financial year ended 30 June 2019, the Board of Directors declared a final fully franked dividend of 2 cents to the holders of fully paid ordinary shares on 20 August 2019. In relation to the 30 June 2018 financial year the Board declared a final 2 cent fully franked dividend on 22 August 2018 and paid to shareholders on 6 October 2018. DIRECTORS’ MEETINGS The following table sets out the number of meetings of the parent entity’s Directors and meetings of the sub-committees of the Board held during the year ended 30 June 2019 and the number of meetings attended by each Director. Meetings held: Meetings attended: I Macliver D Lougher R Yeates C Readhead T Netscher N Streltsova D Southam (*) Directors Meetings Audit & Risk Management Remuneration Nomination Meetings of Committees 11 11 11 10 10 11 11 5 3 3 - - 3 3 - - 3 3 - 3 - 3 - - 1 1 1 1 - - 1 - (*) Mr Southam attended all meetings prior to his resignation as a director. SUBSEQUENT EVENTS The Board of Directors, on 20 August 2019, declared a final fully franked dividend of 2 cents to the holders of fully paid ordinary shares. Other than matters detailed above, there have been no subsequent events after 30 June 2019 which have a material effect on the financial statements for the year ended 30 June 2019. REVIEW OF OPERATIONS OPERATIONAL METRICS The Company continues to strongly operate in line with plan and achieved its published guidance metrics which were updated during the year. Detailed quarterly operating reports are provided throughout the year outlining quarterly and year to date production, cost, sales and operating metrics, some of which are shown below. Financial Year – Physical Summary Tonnes Mined Nickel Grade (average) Tonnes Milled Milled Grade (average) Recovery Nickel in Concentrate Nickel Sales in Concentrate Tns % Tns % % Tns Tns FY19 556,002 4.2% 610,487 4.0% 88% 21,675 21,483 FY18 607,120 4.0% 615,598 4.0% 87% 21,060 20,549 29 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT REVIEW OF OPERATIONS (cont’d) OPERATIONAL METRICS (cont’d) As planned, total ore mined was lower compared to the prior year but at an increased head grade. The Spotted Quoll mine produced 324,395 tonnes of ore at a grade of 4.1% nickel, with Flying Fox producing 231,607 ore tonnes at an average grade 4.2%. The nickel concentrator treated a total of 610,487 tonnes of ore during FY19, continuing to operate well above its 550,000 tonne per annum name plate capacity. Milled grade was in line with the prior year while recovery was higher at 88%. The concentrator celebrated its ten-year anniversary in FY19 processing in excess of 5.6 million tonnes of ore and producing more than 230,000 tonnes of nickel. The Mill Recovery Enhancement Project (‘MREP’) continued in ramp-up mode during FY19. While leach production rates have been lower than anticipated, the addition of the MREP filtering and bagging unit has enabled the production and sale of a new, premium, high-grade, nickel sulphide precipitate product. The recent installation of a de-slime unit to recover coarse un-leached nickel sulphides from the MREP will increase overall nickel recovery from the MREP plant that will report to concentrate. FINANCIAL METRICS Income Statement Full Financial Year – Earnings Results Summary Revenue EBITDA1 EBIT Profit Before Tax Net Profit After Tax FY19 $m 268.7 80.8 20.6 19.0 14.2 FY18 $m 248.3 84.0 18.5 17.2 11.8 Change $m 20.4 (3.2) 2.1 1.8 2.4 1 EBITDA is not defined by International Financial Reporting Standards. As such, it is a Non-IFRS performance measure. The A$20.4m increase in Revenue was due to the higher average nickel price for the year at A$7.84/lb (FY18: A$7.53/lb) and increase in sales volumes. Earnings Before Interest, Tax, Depreciation and Amortisation (‘EBITDA’) and Profit Before Tax were materially consistent with the prior year. The increased sales revenue was partially offset by higher operational costs predominantly relating to increased production tonnages and the prior year comparative period including treatment of free carry, lower grade, ore sorter material. Net Profit After Tax was 20% higher than the prior year due to the higher nickel price and increased earnings from ordinary mining activities. Statement of Cash Flows Full Financial Year – Cashflow Summary FY19 $m 271.4 (169.6) (3.5) 98.3 (0.5) (99.3) (99.8) (5.8) (7.4) FY18 $m 237.2 (154.0) (6.2) 77.0 0.0 (59.8) (59.8) (5.8) 11.3 144.3 151.6 Change $m 34.2 (15.6) 2.7 21.3 (0.5) (39.5) (40.0) - (18.7) (7.3) Revenue Payments to suppliers Other Net Operating Cashflow Sale of investments Capital purchases Net Investing Cashflow Net Financing Cashflow Net Cashflow Cash at Bank 30 Net operating cashflow increased by A$21.3m primarily due to the higher average nickel price and the release of working capital related to nickel sales receivables. This was partly offset by increased payments to suppliers. The significant year-on-year change in Investing Cashflow, primarily relates to investments in growth assets at the Company’s 100% owned Cosmos nickel operation. Completion of the Definitive Feasibility Study (‘DFS’) early in the first half culminated in the announcement of a decision to mine the long life, low all-in sustaining cost project. The final DFS included installation of shaft haulage infrastructure for haulage of ore to surface. The Company has acquired a fit for purpose second-hand winder & headgear, located in South Africa, that is in the process of being refurbished for delivery and installation at Odysseus. The early works infrastructure programme has been completed on time and on budget. The decline rehabilitation is completed to 500 metres below surface. Net cash outflow of A$7.3m resulted in A$144.3m cash at bank at year end. The free cash outflow result was due to the significant year-on-year increase in expenditure invested into the Company’s key organic growth project, the Odysseus mine, located at the Cosmos nickel operation. Statement of Financial Position Full Financial Year – Balance Sheet Summary Current Assets Total Assets Current Liabilities Total Liabilities Net Equity FY19 $m 189.7 596.5 53.4 95.0 FY18 $m 208.7 571.9 47.8 83.1 501.5 488.8 Change $m (19.0) 24.6 5.6 11.9 12.7 Current assets decreased primarily due to the cash at bank decreasing by A$7.3m and the ore stockpile inventory value decreasing by A$12.3m. The decrease in inventory value related to consumption of ore stockpiles enabling maintenance of consistent concentrator throughput. The increase in non-current assets predominantly relates to the Odysseus early works program at Cosmos. Amortisation charges against mine properties of A$44.7m was partly offset by new development expenditure of A$32.8m. Exploration and evaluation expenditure of A$12.7m was capitalised during the year as the Company continued to invest in exploration at Cosmos, Forrestania and Western Gawler. Total assets as at the reporting date were A$596.5m, representing an increase of A$24.6m as compared to the prior year. Total liabilities of A$95.0m represented an increase of A$11.9m from the prior year as a result of a general increase in operating and capital works across the group, which results in higher average payable balances, and an increased deferred tax liability related to a reduction in offsetting deferred tax assets. Total equity attributable to the shareholders increased by A$12.7m to A$501.5m, mainly due to an increase in retained earnings A$8.7m and reserves of A$4.0m. MATERIAL BUSINESS RISKS Understanding and managing risk is essential to achievement of Western Areas short and long term objectives. Western Areas has a well-established integrated risk management framework that ensures risks are effectively managed. The senior management team regularly report to the Board on material risks and related controls to ensure risk remains within the Board’s agreed risk appetite. CORPORATE RISKS People Attraction and retention of skilled motivated people remains a challenge in an environment of increased natural resources projects, an aging population and emigration from Western Australia. The Company recognises and rewards the performance of individuals, and maintain positive, supportive and open communication to foster a culture of learning and development. WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT REVIEW OF OPERATIONS (cont’d) OPERATIONAL METRICS (cont’d) As planned, total ore mined was lower compared to the prior year but at an increased head grade. The Spotted Quoll mine produced 324,395 tonnes of ore at a grade of 4.1% nickel, with Flying Fox producing 231,607 ore tonnes at an average grade 4.2%. The nickel concentrator treated a total of 610,487 tonnes of ore during FY19, continuing to operate well above its 550,000 tonne per annum name plate capacity. Milled grade was in line with the prior year while recovery was higher at 88%. The concentrator celebrated its ten-year anniversary in FY19 processing in excess of 5.6 million tonnes of ore and producing more than 230,000 tonnes of nickel. The Mill Recovery Enhancement Project (‘MREP’) continued in ramp-up mode during FY19. While leach production rates have been lower than anticipated, the addition of the MREP filtering and bagging unit has enabled the production and sale of a new, premium, high-grade, nickel sulphide precipitate product. The recent installation of a de-slime unit to recover coarse un-leached nickel sulphides from the MREP will increase overall nickel recovery from the MREP plant that will report to concentrate. FINANCIAL METRICS Income Statement Full Financial Year – Earnings Results Summary Revenue EBITDA1 EBIT Profit Before Tax Net Profit After Tax FY19 $m 268.7 80.8 20.6 19.0 14.2 FY18 $m 248.3 84.0 18.5 17.2 11.8 Change $m 20.4 (3.2) 2.1 1.8 2.4 1 EBITDA is not defined by International Financial Reporting Standards. As such, it is a Non-IFRS performance measure. The A$20.4m increase in Revenue was due to the higher average nickel price for the year at A$7.84/lb (FY18: A$7.53/lb) and increase in sales volumes. Earnings Before Interest, Tax, Depreciation and Amortisation (‘EBITDA’) and Profit Before Tax were materially consistent with the prior year. The increased sales revenue was partially offset by higher operational costs predominantly relating to increased production tonnages and the prior year comparative period including treatment of free carry, lower grade, ore sorter material. Net Profit After Tax was 20% higher than the prior year due to the higher nickel price and increased earnings from ordinary mining activities. Statement of Cash Flows Full Financial Year – Cashflow Summary Payments to suppliers Revenue Other Net Operating Cashflow Sale of investments Capital purchases Net Investing Cashflow Net Financing Cashflow Net Cashflow Cash at Bank FY19 $m 271.4 (169.6) (3.5) 98.3 (0.5) (99.3) (99.8) (5.8) (7.4) FY18 $m 237.2 (154.0) (6.2) 77.0 0.0 (59.8) (59.8) (5.8) 11.3 144.3 151.6 Change $m 34.2 (15.6) 2.7 21.3 (0.5) (39.5) (40.0) - (18.7) (7.3) Net operating cashflow increased by A$21.3m primarily due to the higher average nickel price and the release of working capital related to nickel sales receivables. This was partly offset by increased payments to suppliers. The significant year-on-year change in Investing Cashflow, primarily relates to investments in growth assets at the Company’s 100% owned Cosmos nickel operation. Completion of the Definitive Feasibility Study (‘DFS’) early in the first half culminated in the announcement of a decision to mine the long life, low all-in sustaining cost project. The final DFS included installation of shaft haulage infrastructure for haulage of ore to surface. The Company has acquired a fit for purpose second-hand winder & headgear, located in South Africa, that is in the process of being refurbished for delivery and installation at Odysseus. The early works infrastructure programme has been completed on time and on budget. The decline rehabilitation is completed to 500 metres below surface. Net cash outflow of A$7.3m resulted in A$144.3m cash at bank at year end. The free cash outflow result was due to the significant year-on-year increase in expenditure invested into the Company’s key organic growth project, the Odysseus mine, located at the Cosmos nickel operation. Statement of Financial Position Full Financial Year – Balance Sheet Summary Current Assets Total Assets Current Liabilities Total Liabilities Net Equity FY19 $m 189.7 596.5 53.4 95.0 FY18 $m 208.7 571.9 47.8 83.1 501.5 488.8 Change $m (19.0) 24.6 5.6 11.9 12.7 Current assets decreased primarily due to the cash at bank decreasing by A$7.3m and the ore stockpile inventory value decreasing by A$12.3m. The decrease in inventory value related to consumption of ore stockpiles enabling maintenance of consistent concentrator throughput. The increase in non-current assets predominantly relates to the Odysseus early works program at Cosmos. Amortisation charges against mine properties of A$44.7m was partly offset by new development expenditure of A$32.8m. Exploration and evaluation expenditure of A$12.7m was capitalised during the year as the Company continued to invest in exploration at Cosmos, Forrestania and Western Gawler. Total assets as at the reporting date were A$596.5m, representing an increase of A$24.6m as compared to the prior year. Total liabilities of A$95.0m represented an increase of A$11.9m from the prior year as a result of a general increase in operating and capital works across the group, which results in higher average payable balances, and an increased deferred tax liability related to a reduction in offsetting deferred tax assets. Total equity attributable to the shareholders increased by A$12.7m to A$501.5m, mainly due to an increase in retained earnings A$8.7m and reserves of A$4.0m. MATERIAL BUSINESS RISKS Understanding and managing risk is essential to achievement of Western Areas short and long term objectives. Western Areas has a well-established integrated risk management framework that ensures risks are effectively managed. The senior management team regularly report to the Board on material risks and related controls to ensure risk remains within the Board’s agreed risk appetite. CORPORATE RISKS People Attraction and retention of skilled motivated people remains a challenge in an environment of increased natural resources projects, an aging population and emigration from Western Australia. The Company recognises and rewards the performance of individuals, and maintain positive, supportive and open communication to foster a culture of learning and development. 31 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT REVIEW OF OPERATIONS (cont’d) CORPORATE RISKS (cont’d) People (cont’d) The development of the long life Odysseus mine has commenced, which will present an attractive employment proposition for existing and prospective professionals with the project offering an attractive opportunity for development of new skills and experience. Value is placed on the contribution of Western Areas people and the required systems and support are in place to motivate, empower, and reward our people. Safety & Health Innovation will assist to ensure exploitation of the ore body is maximised and highly experienced and credentialled project delivery resources have been engaged to complete the necessary studies and manage site works. The schedule and costs are closely monitored against the forecast to ensure the project is delivered in accordance with market disclosures. Investment opportunities The Company strategy includes investment in business development activities (joint ventures, mergers, acquisitions and innovation) to enhance the project portfolio. The strong debt free position and continued generation of positive cash flow from operations places Western Areas in a competitive position. The Company is able to pursue business development opportunities that can clearly demonstrate the best possible value for shareholders, rather than take unnecessary risks. There are a number of inherent hazards associated with exploration, mining and mineral processing that Established networks, technical capability and commercial experience enables the company to identify and require ongoing management and assurance to ensure safety performance is in line with the high standards analyse potential base metal prospects. we expect. The health and wellbeing of personnel undertaking activities on behalf of Western Areas is paramount. A risk based approach to managing health and safety risks is applied to ensure the appropriate control of hazards. We continue to demonstrate excellence in safety performance, by working collaboratively with suppliers and contractors. OPERATIONAL RISKS Business interruption Forrestania Nickel Operations (‘FNO’) is the Company’s sole production hub. A significant interruption at FNO confirm the existence of economic resources. would impact the ability to supply nickel concentrate to customers and therefore curtail revenue. FNO is located in a well-supported mining district with low risk exposure to natural catastrophes and the management team and operations personnel are highly experienced professionals with a long track record in consistently delivering production targets. FNO has limited single point failure exposures and nickel ore is sourced from two separate mining operations. However, where exposures do exist, business continuity and emergency response plans are in place. Infrastructure, equipment and logistics routes are the focus of mature preventative maintenance practices and a comprehensive insurance program is in place. Third parties Western Areas relies on a number of third party entities to support exploration, mining, logistics, design and project execution activities. A high level of due diligence is exercised prior to awarding contracts, and supply chains partners are actively managed. A dedicated commercial team is in place to ensure appropriate commercial measures are applied to protect our position and encourage positive outcomes for both parties. Additionally, contracting strategies provide certainty on delivering the defined outcomes, while limiting exposure to non-performance. Long term partnerships are valued with supply chain partners that have a record of delivering value to the company. EXPLORATION AND GROWTH RISKS Project delays Delays to the delivery of the Odysseus mine at the Cosmos nickel operation would defer the realisation of future revenue and increase project costs. Once in production, the Cosmos nickel operation will become a significant nickel concentrate contributor. A series of technical studies and financial analysis has been undertaken to develop a robust project plan and development schedule. The Company have successfully demonstrated the value of the Odysseus mine under a number of different scenarios, which has led to a positive final investment decision for the project. 32 Exploration success Exploration is inherently risky and there is no guarantee that expenditure in exploration will deliver the targeted results. Organic growth is a key strategic pillar, and therefore there is acceptance of the inherent risks associated with mineral exploration. The exploration program is focussed on highly prospective tenements within the regions of Forrestania, the Cosmos nickel operation and West Gawler. It is believed that these regions will provide the best opportunity to grow near mine resources and establish new mining areas for the Company. Our exploration team apply advanced exploration techniques and geological knowledge to provide the best and most cost-effective way to NICKEL MARKETS Product substitution Over recent years the nickel market has been subject to volatility driven by weak GDP growth, product substitution and foreign Government policy measures. We have been working with offtake partners to establish their appetite for offtake of a high grade concentrate product that can be utilised within the growing EV battery market which is seeing growing interest. At times, we do hedge a portion of expected nickel sales and foreign exchange exposures in line with the board approved treasury management policy. We remain one of the lowest cost nickel producers and are debt free, which provides a buffer against the adverse effects of a deterioration in nickel market fundamentals. WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT REVIEW OF OPERATIONS (cont’d) CORPORATE RISKS (cont’d) People (cont’d) The development of the long life Odysseus mine has commenced, which will present an attractive employment proposition for existing and prospective professionals with the project offering an attractive opportunity for development of new skills and experience. Value is placed on the contribution of Western Areas people and the required systems and support are in place to motivate, empower, and reward our people. Innovation will assist to ensure exploitation of the ore body is maximised and highly experienced and credentialled project delivery resources have been engaged to complete the necessary studies and manage site works. The schedule and costs are closely monitored against the forecast to ensure the project is delivered in accordance with market disclosures. Investment opportunities The Company strategy includes investment in business development activities (joint ventures, mergers, acquisitions and innovation) to enhance the project portfolio. The strong debt free position and continued generation of positive cash flow from operations places Western Areas in a competitive position. The Company is able to pursue business development opportunities that can clearly demonstrate the best possible value for shareholders, rather than take unnecessary risks. There are a number of inherent hazards associated with exploration, mining and mineral processing that Established networks, technical capability and commercial experience enables the company to identify and require ongoing management and assurance to ensure safety performance is in line with the high standards analyse potential base metal prospects. Forrestania Nickel Operations (‘FNO’) is the Company’s sole production hub. A significant interruption at FNO confirm the existence of economic resources. Exploration success Exploration is inherently risky and there is no guarantee that expenditure in exploration will deliver the targeted results. Organic growth is a key strategic pillar, and therefore there is acceptance of the inherent risks associated with mineral exploration. The exploration program is focussed on highly prospective tenements within the regions of Forrestania, the Cosmos nickel operation and West Gawler. It is believed that these regions will provide the best opportunity to grow near mine resources and establish new mining areas for the Company. Our exploration team apply advanced exploration techniques and geological knowledge to provide the best and most cost-effective way to NICKEL MARKETS Product substitution Over recent years the nickel market has been subject to volatility driven by weak GDP growth, product substitution and foreign Government policy measures. We have been working with offtake partners to establish their appetite for offtake of a high grade concentrate product that can be utilised within the growing EV battery market which is seeing growing interest. At times, we do hedge a portion of expected nickel sales and foreign exchange exposures in line with the board approved treasury management policy. We remain one of the lowest cost nickel producers and are debt free, which provides a buffer against the adverse effects of a deterioration in nickel market fundamentals. Safety & Health we expect. contractors. OPERATIONAL RISKS Business interruption The health and wellbeing of personnel undertaking activities on behalf of Western Areas is paramount. A risk based approach to managing health and safety risks is applied to ensure the appropriate control of hazards. We continue to demonstrate excellence in safety performance, by working collaboratively with suppliers and would impact the ability to supply nickel concentrate to customers and therefore curtail revenue. FNO is located in a well-supported mining district with low risk exposure to natural catastrophes and the management team and operations personnel are highly experienced professionals with a long track record in consistently delivering production targets. FNO has limited single point failure exposures and nickel ore is sourced from two separate mining operations. However, where exposures do exist, business continuity and emergency response plans are in place. Infrastructure, equipment and logistics routes are the focus of mature preventative maintenance practices and a comprehensive insurance program is in place. Third parties Western Areas relies on a number of third party entities to support exploration, mining, logistics, design and project execution activities. A high level of due diligence is exercised prior to awarding contracts, and supply chains partners are actively managed. A dedicated commercial team is in place to ensure appropriate commercial measures are applied to protect our position and encourage positive outcomes for both parties. Additionally, contracting strategies provide certainty on delivering the defined outcomes, while limiting exposure to non-performance. Long term partnerships are valued with supply chain partners that have a record of delivering value to the company. Project delays EXPLORATION AND GROWTH RISKS Delays to the delivery of the Odysseus mine at the Cosmos nickel operation would defer the realisation of future revenue and increase project costs. Once in production, the Cosmos nickel operation will become a significant nickel concentrate contributor. A series of technical studies and financial analysis has been undertaken to develop a robust project plan and development schedule. The Company have successfully demonstrated the value of the Odysseus mine under a number of different scenarios, which has led to a positive final investment decision for the project. 33 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) This report outlines the remuneration arrangements in place for Key Management Personnel (‘KMP’) which includes Non-Executive Directors and Executives of Western Areas Ltd. The remuneration structures of the Company. Links executive remuneration to the creation of shareholder value; and Remuneration arrangements are equitable, fair and facilitate the deployment of senior management across Western Areas have been extremely well supported by its shareholders based on the Annual General Meeting Remuneration levels and other terms of employment are reviewed at least annually by the Remuneration (‘AGM’) voting results. Given the level of support and acceptance of the remuneration structures and outcomes, Committee, having regard to performance against goals set each year, qualifications and experience, relevant there has been no material changes in remuneration practices or incentive programmes during the 2019 market conditions and independent remuneration benchmarking reports. financial year (‘FY19’). Key points/changes for FY19: The Remuneration Report resolution continued to be well supported at the 2018 AGM with 99% of votes cast in favour of the resolution. Non-executive Directors’ remuneration remained reduced by 5% for the entirety of FY19. Reduced Non-executive Directors’ salaries were first implemented in March 2016. Continuation of the highly successful $1,000 tax exempt share plan offering to all staff (excluding KMP), aligning all staff to shareholder outcomes and encouraging employees to act like owners of the business. The tranche of Performance Rights, originally issued in FY17, finalised its testing period as at 30 June 2019. Due to the relative total shareholder return performance hurdle not being met, no performance rights vested. It is believed this shows the direct link to shareholder outcomes and executive remuneration. The report is comprised of the following key sections: Remuneration governance and philosophy Section A: Who this report covers Section B: Section C: Use of remuneration consultants Section D: Section E: Section F: Non-executive director remuneration Section G: Service contracts Section H: Details of remuneration Executive remuneration framework Link between performance and remuneration outcomes SECTION A: WHO THIS REPORT COVERS The following people acted as directors of the Company during the financial year: Mr I Macliver Mr D Lougher Mr R Yeates Mr C Readhead Mr T Netscher Dr N Streltsova Mr D Southam Independent Non-Executive Chairman Managing Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Executive Director – resigned 26 November 2018 Other KMP of the Company during the financial year were: Mr J Belladonna Mr W Jones Chief Financial Officer & Company Secretary General Manager Operations SECTION B: REMUNERATION GOVERNANCE AND PHILOSOPHY The Remuneration Committee is responsible for assisting the Board in fulfilling its responsibilities relating to the remuneration of Directors, the Managing Director and KMP remuneration practices, strategies and statutory disclosures generally to ensure that the Company’s remuneration policy: Reflects the competitive global market in which we operate; Retains staff throughout commodity price cycles, which is crucial to ensure achievement of corporate goals and objectives; Mr D Louger Mr J Belladonna Mr W Jones The target remuneration mix of higher level KMP has been designed with emphasis on LTI exposure. This further aligns Executives with shareholders and a focus on long term value generation. In the event of serious misconduct or a material misstatement in the Company’s financial statements, the Remuneration Committee can cancel or defer performance based remuneration that has not yet been vested or paid. There is currently no formal claw back of performance based remuneration paid in prior financial years. Rewards individuals based on sustainable performance across a range of disciplines that apply to delivering It is noted that senior Executives have a balanced blend of physical, financial, mineral resource and exploration results and executing strategies for the Company; targets included in their KPIs, which limits the potential reward payable based on achieving financial targets alone to trigger STI payments. 34 SECTION C: USE OF REMUNERATION CONSULTANTS Western Areas engaged PwC as Remuneration Consultants during FY19 to provide assistance with documentation management and ongoing market trend monitoring and development in relation to the Long Term Incentive (‘LTI’) plans. No remuneration recommendations, as defined in the Corporations Act 2001, were made or supplied by PwC. SECTION D: EXECUTIVE REMUNERATION FRAMEWORK The Company’s Executive reward structure provides a combination of fixed and variable pay, and is comprised of: Fixed remuneration, inclusive of base pay, superannuation, allowances, and salary-sacrifice component; Short term incentives; and Long term incentives. Remuneration element Fixed remuneration Description Performance metrics Inclusive of base pay, superannuation, allowances and Nil median against with market salary-sacrifice component market positioning Potential Changes for opportunity FY19 Position at Reviewed, in line Cash bonus on achievement of STI individual and Company key performance indicators (KPIs) KPIs used span across key focus areas of the business (operations, 40% to 55% of corporate, resource replenishment base salary and exploration) Relative TSR over a 3-year period group consisting of 24 companies 50% to 100% of base salary N/A N/A LTI Performance Rights measured against a custom peer The relative proportion of target FY19 total remuneration packages split between fixed and variable 24% 33% 43% 21% 26% 53% STI LTI Fixed Remuneration mixes remuneration is shown below: 100% 75% 50% 25% 0% 22% 39% 39% WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) This report outlines the remuneration arrangements in place for Key Management Personnel (‘KMP’) which includes Non-Executive Directors and Executives of Western Areas Ltd. The remuneration structures of Links executive remuneration to the creation of shareholder value; and Remuneration arrangements are equitable, fair and facilitate the deployment of senior management across the Company. Western Areas have been extremely well supported by its shareholders based on the Annual General Meeting Remuneration levels and other terms of employment are reviewed at least annually by the Remuneration (‘AGM’) voting results. Given the level of support and acceptance of the remuneration structures and outcomes, Committee, having regard to performance against goals set each year, qualifications and experience, relevant there has been no material changes in remuneration practices or incentive programmes during the 2019 market conditions and independent remuneration benchmarking reports. financial year (‘FY19’). Key points/changes for FY19: in favour of the resolution. The Remuneration Report resolution continued to be well supported at the 2018 AGM with 99% of votes cast Non-executive Directors’ remuneration remained reduced by 5% for the entirety of FY19. Reduced Non-executive Directors’ salaries were first implemented in March 2016. Continuation of the highly successful $1,000 tax exempt share plan offering to all staff (excluding KMP), aligning all staff to shareholder outcomes and encouraging employees to act like owners of the business. The tranche of Performance Rights, originally issued in FY17, finalised its testing period as at 30 June 2019. Due to the relative total shareholder return performance hurdle not being met, no performance rights vested. It is believed this shows the direct link to shareholder outcomes and executive remuneration. The report is comprised of the following key sections: Section A: Who this report covers Section B: Remuneration governance and philosophy Section C: Use of remuneration consultants Section D: Section E: Executive remuneration framework Link between performance and remuneration outcomes Section F: Non-executive director remuneration Section G: Service contracts Section H: Details of remuneration SECTION A: WHO THIS REPORT COVERS The following people acted as directors of the Company during the financial year: Mr I Macliver Mr D Lougher Mr R Yeates Mr C Readhead Mr T Netscher Dr N Streltsova Mr D Southam Independent Non-Executive Chairman Managing Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Executive Director – resigned 26 November 2018 Other KMP of the Company during the financial year were: Mr J Belladonna Mr W Jones Chief Financial Officer & Company Secretary General Manager Operations SECTION B: REMUNERATION GOVERNANCE AND PHILOSOPHY The Remuneration Committee is responsible for assisting the Board in fulfilling its responsibilities relating to the remuneration of Directors, the Managing Director and KMP remuneration practices, strategies and statutory disclosures generally to ensure that the Company’s remuneration policy: Reflects the competitive global market in which we operate; Retains staff throughout commodity price cycles, which is crucial to ensure achievement of corporate goals and objectives; SECTION C: USE OF REMUNERATION CONSULTANTS Western Areas engaged PwC as Remuneration Consultants during FY19 to provide assistance with documentation management and ongoing market trend monitoring and development in relation to the Long Term Incentive (‘LTI’) plans. No remuneration recommendations, as defined in the Corporations Act 2001, were made or supplied by PwC. SECTION D: EXECUTIVE REMUNERATION FRAMEWORK The Company’s Executive reward structure provides a combination of fixed and variable pay, and is comprised of: Fixed remuneration, inclusive of base pay, superannuation, allowances, and salary-sacrifice component; Short term incentives; and Long term incentives. Remuneration element Fixed remuneration Description Performance metrics Inclusive of base pay, superannuation, allowances and salary-sacrifice component Nil Potential opportunity Changes for FY19 Position at median against market Reviewed, in line with market positioning STI Cash bonus on achievement of individual and Company key performance indicators (KPIs) LTI Performance Rights KPIs used span across key focus areas of the business (operations, corporate, resource replenishment and exploration) 40% to 55% of base salary Relative TSR over a 3-year period measured against a custom peer group consisting of 24 companies 50% to 100% of base salary N/A N/A Remuneration mixes The relative proportion of target FY19 total remuneration packages split between fixed and variable remuneration is shown below: 100% 75% 50% 25% 0% 22% 39% 39% 24% 33% 43% 21% 26% 53% STI LTI Fixed Mr D Louger Mr J Belladonna Mr W Jones The target remuneration mix of higher level KMP has been designed with emphasis on LTI exposure. This further aligns Executives with shareholders and a focus on long term value generation. In the event of serious misconduct or a material misstatement in the Company’s financial statements, the Remuneration Committee can cancel or defer performance based remuneration that has not yet been vested or paid. There is currently no formal claw back of performance based remuneration paid in prior financial years. Rewards individuals based on sustainable performance across a range of disciplines that apply to delivering It is noted that senior Executives have a balanced blend of physical, financial, mineral resource and exploration results and executing strategies for the Company; targets included in their KPIs, which limits the potential reward payable based on achieving financial targets alone to trigger STI payments. 35 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (cont’d) Long term incentive (‘LTI’) SECTION D: EXECUTIVE REMUNERATION FRAMEWORK (cont’d) Fixed remuneration The fixed remuneration component is reviewed annually by the Remuneration Committee. Base salary for each Executive is benchmarked against market data for comparable roles in the market. Short term incentive (‘STI’) It is the Company’s policy to cap STI payments at a targeted STI level. The percentage is applied against the relevant Executive’s base salary only and excludes all allowances and superannuation. The full list of KPIs set for Executives in FY19 is below. For each Executive, KPIs relevant to their area of influence are selected from the list below and assigned each year. The KPIs set for the Managing Director & CEO are assigned across all areas, to ensure performance and attainment of all Board set goals and objects is not overly focussed in one area at the detriment of others. Operations Overview KPI Why KPI was set Group safety performance Based on Lost Time Injury performance in each quarter. Motivate and reward the continued focus on safety standards and procedures. Group environmental incidents Based on a minimum reported environmental incidences by quarter. Motivate and reward the continued focus on best practice environmental management. Forrestania unit cash cost Focused on average unit cash costs for Flying Fox (‘FF’) and Spotted Quoll (‘SQ’) mines per pound of nickel produced. Performance better than budget is required. Motivate and reward the stringent management of production costs outcomes that exceed Board set business plan. Forrestania nickel in ore production Must achieve Board set nickel metal in ore production target. Motivate and reward nickel production outcomes that exceed Board set business plans. Forrestania mill recoveries Achieve a set threshold recovery above budget levels for the combined ore feed from FF and SQ mines. Motivate and reward nickel production outcomes that exceed Board set business plans. Forrestania nickel in concentrate sales Sale of nickel metal in concentrate to exceed a set tonnage target. Motivate and reward nickel sales outcomes that exceed Board set business plans. Corporate Earnings Cashflow Construction of the Mill Recovery Enhancement Project (‘MREP’) Business development Achieve EBIT target above budget. Motivate and reward financial outcomes that exceed Board set business plans. Achieve pre-funding cashflow target above budget. Motivate and reward financial outcomes that exceed Board set business plans. Achieving on time commissioning and ramp up of the MREP. Motivate and reward commissioning Board set outcomes related to the asset. Based on business development activities and project pipeline development that provides opportunities to add value or protect value in the Company and for the shareholders. Motivate and reward business development initiatives that provide market intelligence, preservation of capital and enhance corporate growth opportunities identification. Mineral Resources and Exploration Nickel resource Establishing replacement nickel reserves or mining inventory tonnages. Motivate and reward mine life extension outcomes at Board set levels. Project evaluation and developments Based on Board set outcomes associated with the evaluation and development activities for new projects. Motivate and reward timely delivery of key growth initiatives and activities. New nickel resources Establishing new published nickel resources exceeding targeted nickel tonnage levels. Motivate and reward economic nickel discovery. New nickel discovery Discovery of a new nickel deposit. Motivate and reward economic nickel discovery. 36 Under the shareholder approved LTI plan Executives receive a grant of Performance Rights each year with each grant measured against a 3-year TSR period. No vesting occurs until the end of the third year to ensure Executives are focused on long-term shareholder value generation. The number of Performance Rights to be granted is determined by dividing the LTI dollar value of the award by the fair value of a Performance Right as calculated by an independent valuation expert at 1 July of each respective year. The quantum of LTI grants made during FY19 was as follows: Name Exercise date Expiry date LTI quantum Number of (% of base salary) Performance Rights issued Fair Value at allocation date(i) Mr D Lougher Mr J Belladonna Mr W Jones 100% 75% 50% 277,080 106,050 75,530 $2.73 $2.73 $2.73 Upon receipt of a vesting notice issued in FY21 As above As above 30/6/2024 30/6/2024 30/6/2024 (i) $2.73 was the fair value of the performance rights as calculated on 1 July 2018. For accounting purposes, the fair value, as required under AASB 2, is measured on the date of the Annual General Meeting where the Performance Rights are approved. For FY19, this was $1.29/right as at 20 November 2018. Performance conditions comprising the following 24 companies: Western Areas TSR performance for the FY19 grant will be assessed against a representative peer group Alumina Ltd Independence Group NL Northern Star Resources Ltd Rex Minerals Ltd Aurelia Metals Ltd Medusa Mining Ltd Beadell Resources Ltd Metals X Ltd OM Holdings Ltd Oz Minerals Ltd Sandfire Resources Ltd Syrah Resources Ltd Bouganville Copper Ltd Mincor Resources NL Panoramic Resources Ltd Talisman Resources Ltd Cudeco Ltd Mt Gibson Iron Ltd Pilbara Minerals Ltd Westgold Resources Ltd Hillgrove Resources Ltd New Century Resources Ltd Poseidon Nickel Ltd Zimplats Holdings Ltd No Performance Rights will vest unless the percentile ranking of the Company’s TSR for the relevant performance year, as compared to the TSR’s for the peer group companies, is at or above the 50th percentile and the participant remains employed with the Company as at 30 June 2021. The following table sets out the vesting outcome based on the Company’s relative TSR performance: Relative TSR performance Performance Vesting Outcomes Less than 50th percentile At the 50th percentile Between 50th and 75th percentile At or above 75th percentile Performance period and vesting 0% vesting 50% vesting 100% vesting Pro-rata/progressive vesting from 50% to 100% No Performance Rights will vest unless they meet a relative TSR measure for the period 1 July 2018 to 30 June 2021 as measured against the peer group and satisfaction of the service based vesting condition which requires the participant remains employed as at 30 June 2021. Upon satisfaction of the performance and service condition, the Performance Rights will vest upon receipt of a vesting notice during the 2022 financial year. Share trading policy The trading of shares issued to participants under any of the Company’s employee equity plans is subject to, and conditional upon, compliance with the Company’s employee share trading policy contained in the Corporate Code of Conduct. Executives are prohibited from entering into any hedging arrangements over unvested performance rights received via the LTI plan. The Company would consider a breach of this policy as gross misconduct which may lead to disciplinary action and potentially dismissal. WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (cont’d) Long term incentive (‘LTI’) Under the shareholder approved LTI plan Executives receive a grant of Performance Rights each year with each grant measured against a 3-year TSR period. No vesting occurs until the end of the third year to ensure Executives are focused on long-term shareholder value generation. The number of Performance Rights to be granted is determined by dividing the LTI dollar value of the award by the fair value of a Performance Right as calculated by an independent valuation expert at 1 July of each respective year. The quantum of LTI grants made during FY19 was as follows: Name LTI quantum (% of base salary) Number of Performance Rights issued Fair Value at allocation date(i) Exercise date Expiry date Mr D Lougher Mr J Belladonna Mr W Jones 100% 75% 50% 277,080 106,050 75,530 $2.73 $2.73 $2.73 Upon receipt of a vesting notice issued in FY21 As above As above 30/6/2024 30/6/2024 30/6/2024 (i) $2.73 was the fair value of the performance rights as calculated on 1 July 2018. For accounting purposes, the fair value, as required under AASB 2, is measured on the date of the Annual General Meeting where the Performance Rights are approved. For FY19, this was $1.29/right as at 20 November 2018. Performance conditions Western Areas TSR performance for the FY19 grant will be assessed against a representative peer group comprising the following 24 companies: Alumina Ltd Independence Group NL Northern Star Resources Ltd Rex Minerals Ltd Aurelia Metals Ltd Medusa Mining Ltd Beadell Resources Ltd Metals X Ltd OM Holdings Ltd Oz Minerals Ltd Sandfire Resources Ltd Syrah Resources Ltd Bouganville Copper Ltd Mincor Resources NL Panoramic Resources Ltd Talisman Resources Ltd Cudeco Ltd Mt Gibson Iron Ltd Pilbara Minerals Ltd Westgold Resources Ltd Forrestania mill recoveries Achieve a set threshold recovery above Motivate and reward nickel production outcomes Hillgrove Resources Ltd New Century Resources Ltd Poseidon Nickel Ltd Zimplats Holdings Ltd No Performance Rights will vest unless the percentile ranking of the Company’s TSR for the relevant performance year, as compared to the TSR’s for the peer group companies, is at or above the 50th percentile and the participant remains employed with the Company as at 30 June 2021. The following table sets out the vesting outcome based on the Company’s relative TSR performance: Relative TSR performance Performance Vesting Outcomes Less than 50th percentile At the 50th percentile Between 50th and 75th percentile At or above 75th percentile Performance period and vesting 0% vesting 50% vesting Pro-rata/progressive vesting from 50% to 100% 100% vesting No Performance Rights will vest unless they meet a relative TSR measure for the period 1 July 2018 to 30 June 2021 as measured against the peer group and satisfaction of the service based vesting condition which requires the participant remains employed as at 30 June 2021. Upon satisfaction of the performance and service condition, the Performance Rights will vest upon receipt of a vesting notice during the 2022 financial year. Share trading policy The trading of shares issued to participants under any of the Company’s employee equity plans is subject to, and conditional upon, compliance with the Company’s employee share trading policy contained in the Corporate Code of Conduct. Executives are prohibited from entering into any hedging arrangements over unvested performance rights received via the LTI plan. The Company would consider a breach of this policy as gross misconduct which may lead to disciplinary action and potentially dismissal. 37 SECTION D: EXECUTIVE REMUNERATION FRAMEWORK (cont’d) The fixed remuneration component is reviewed annually by the Remuneration Committee. Base salary for each Executive is benchmarked against market data for comparable roles in the market. Fixed remuneration Short term incentive (‘STI’) It is the Company’s policy to cap STI payments at a targeted STI level. The percentage is applied against the relevant Executive’s base salary only and excludes all allowances and superannuation. The full list of KPIs set for Executives in FY19 is below. For each Executive, KPIs relevant to their area of influence are selected from the list below and assigned each year. The KPIs set for the Managing Director & CEO are assigned across all areas, to ensure performance and attainment of all Board set goals and objects is not overly focussed in one area at the detriment of others. Operations Overview KPI Why KPI was set Group safety performance Based on Lost Time Injury performance in each Motivate and reward the continued focus on quarter. safety standards and procedures. Group environmental Based on a minimum reported environmental Motivate and reward the continued focus on incidents incidences by quarter. best practice environmental management. Forrestania unit cash cost Focused on average unit cash costs for Flying Motivate and reward the stringent management Fox (‘FF’) and Spotted Quoll (‘SQ’) mines per of production costs outcomes that exceed Board pound of nickel produced. Performance better set business plan. than budget is required. Forrestania nickel in ore Must achieve Board set nickel metal in ore Motivate and reward nickel production outcomes production production target. that exceed Board set business plans. budget levels for the combined ore feed from that exceed Board set business plans. FF and SQ mines. Forrestania nickel in Sale of nickel metal in concentrate to exceed a Motivate and reward nickel sales outcomes that concentrate sales set tonnage target. exceed Board set business plans. Corporate Earnings Project (‘MREP’) Achieve EBIT target above budget. Motivate and reward financial outcomes that exceed Board set business plans. Cashflow Achieve pre-funding cashflow target above Motivate and reward financial outcomes that budget. exceed Board set business plans. Construction of the Mill Achieving on time commissioning and ramp up Motivate and reward commissioning Board set Recovery Enhancement of the MREP. outcomes related to the asset. Business development Based on business development activities and Motivate and reward business development project pipeline development that provides initiatives that provide market intelligence, opportunities to add value or protect value in preservation of capital and enhance corporate the Company and for the shareholders. growth opportunities identification. Mineral Resources and Exploration Nickel resource Establishing replacement nickel reserves or Motivate and reward mine life extension mining inventory tonnages. outcomes at Board set levels. Project evaluation and Based on Board set outcomes associated with Motivate and reward timely delivery of key developments the evaluation and development activities for growth initiatives and activities. new projects. New nickel resources Establishing new published nickel resources Motivate and reward economic nickel discovery. exceeding targeted nickel tonnage levels. New nickel discovery Discovery of a new nickel deposit. Motivate and reward economic nickel discovery. WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (cont’d) Long term incentive SECTION E: LINK BETWEEN PERFORMANCE AND REMUNERATION OUTCOMES The remuneration framework detailed above has been tailored with the objective of attracting and retaining the highest calibre staff who contribute to the success of the Company, while maintaining alignment between Company performance and individual rewards. The remuneration policies seek a balance between the interests of stakeholders and competitive market remuneration levels. Company Performance The Company maintained a class leading performance in safety and environmental management throughout the year. A consistent high level of operational performance was again achieved during FY19 with all production and cost guidance attained, as provided and updated for the market during the year. The consistent operational performance and an improved year-on-year nickel price generated increased after tax net profits and earnings per share, with an improved operating cashflow produced. The Company commenced construction of a significant new capital asset, the Odysseus mine at Cosmos, delivering the first phase of the project on time and on budget. The Odysseus mine is a long life nickel sulphide project that will underpin the long term profitable nickel production future of Western Areas. The table below shows the KPIs of the Company over the last 5 years. Year Ended 30 June Lost time injury frequency rate Nickel tonnes Sold (tns) Nickel Price – US$ Reported Cash Cost US$/lb (*) Net Profit/(Loss) after Tax (‘000) EPS Dividend Cents/share Market capitalisation ($) Closing share price ($) TSR – 3-year peer ranking (% percentile) 2019 2.8 21,483 5.59/lb $2.13/lb 14,194 5.19 2.0 538M $1.96 42nd 2018 0.9 20,549 $5.84/lb $2.03/lb 11,837 4.34 2.0 971M 3.56 57th 2017 1.1 22,639 $4.58/lb $1.80/lb 19,299 7.09 2.0 575M 2.11 60th 2016 0 24,793 $4.14/lb $1.64/lb (29,783) (12.3) - 582M 2.15 74th 2015 0 26,036 $6.58/lb $1.94/lb 35,013 15.1 7.0 753M 3.23 84th (*) Cash cost of production before smelting and refining, concentrate haulage and royalties. Short term incentive Based on the achievements of the Company in FY19, the Remuneration Committee determined that Executives achieved between 79% and 88% of their target STI opportunity. It is noted that no KMP achieved 100% of their target STI award. Performance achieved during the year against the above KPIs has resulted in Executives earning the STI payments below. Name Executive Directors Mr D Lougher Executives Mr J Belladonna Mr W Jones Target STI quantum (% of base salary) Target FY19 STI quantum ($) STI quantum earned ($) STI quantum not earned ($) $412,412 11% No fixed term 1 month 55% 55% 40% 416,000 329,250 86,750 212,500 165,000 187,500 133,000 25,000 32,000 STI payments have historically fluctuated in line with Company performance. The table below demonstrates the variability in awards received over time. Year Ended 30 June 2019 2018 Average KMP STI payout (%) 82% 82% 2017 83% 2016 56% 2015 90% 2014 87% 2013 29% 38 The performance rights that vested and were converted into shares during FY19 were originally issued in FY16. The relative TSR performance of the grant was assessed at the completion of the 3-year performance period ending on 30 June 2018. As a result of the assessment, Western Areas was positioned at the 57th percentile against the peer group which resulted in 64% vesting of the performance rights granted at that time. No performance rights are currently expected to vest during FY20. The tranche of Performance Rights, originally issued in FY17, finalised its testing period as at 30 June 2019. Due to the relative total shareholder return performance hurdle not being met, no performance rights vested. It is believed this shows the direct link to shareholder outcomes and executive remuneration. SECTION F: NON-EXECUTIVE DIRECTOR REMUNERATION Non-Executive Director (‘NED’) fees limits NED fees are determined within an aggregated fee limit of $1,000,000, which was approved by shareholders at the 2012 AGM. This aggregated fee limit is reviewed from time to time and the apportionment amongst Directors is reviewed annually. The following fees (including statutory superannuation) were applicable for the FY19. Fees Actual Financial Year Board Chair Board Member 2019 $183,212 $158,784 Non-Executive Directors fee structure NED remuneration consists of a base Directors fee for their role as Board members, and is inclusive of compensation for any role on nominated Board sub-committees. That is, no separate committee fees are payable. NEDs do not receive any performance-based pay. It is an objective of the Company to encourage Directors to own shares in Western Areas. However, share based payments in the form of options or equity in the Company are not offered to NEDs as encouraged by Corporate Governance guidelines. There is no scheme to provide retirement benefits to NEDs, other than statutory superannuation. SECTION G: SERVICE CONTRACTS Executives A summary of the key contractual provisions for each of the current executives as at 30 June 2019 is set out below: Name & job title Superannuation Termination provision Base salary Contract duration Notice period $756,432 11% No fixed term 3 months Financial Officer/ $425,000 11% No fixed term 3 months 12 months termination payment and accrued leave entitlements 6 months termination payment and accrued leave entitlements 6 months termination payment and accrued leave entitlements D Lougher, Managing Director* J Belladonna, Chief Company Secretary* W Jones, General Manager Operations * In the event that there is a takeover of, or merger with, the Company, the Company must pay the Executive a change of control bonus within 10 days of that takeover or merger occurring. The amount of the takeover bonus will be calculated as follows: a) The positive difference (expressed as a percentage of the 20-day VWAP) between the bid price for the Company’s shares as a result of a takeover or merger bid, and the volume weighted share price of the Company’s share price for the 20 days immediately preceding the takeover or merger bid; and b) Multiplied by 3, as a percentage of the Executive’s base annual salary at the time that such a bid is completed. (This contractual position is a legacy item that has not been applicable to any new executive.) All other senior management contracts are as per the Company’s standard terms and conditions and there are no contractual entitlements to cash bonuses, options or performance rights. Non-Executive Directors Non-Executive Directors receive a letter of appointment before commencing duties on the Board. The letter outlines compensation arrangements relevant to the Director. Non-Executive appointments have no end date, retirement, redundancy or minimum notice periods included in their contracts. WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (cont’d) Long term incentive SECTION E: LINK BETWEEN PERFORMANCE AND REMUNERATION OUTCOMES The remuneration framework detailed above has been tailored with the objective of attracting and retaining the highest calibre staff who contribute to the success of the Company, while maintaining alignment between Company performance and individual rewards. The remuneration policies seek a balance between the interests of stakeholders and competitive market remuneration levels. Company Performance The Company maintained a class leading performance in safety and environmental management throughout the year. A consistent high level of operational performance was again achieved during FY19 with all production and cost guidance attained, as provided and updated for the market during the year. The consistent operational performance and an improved year-on-year nickel price generated increased after tax net profits and earnings per share, with an improved operating cashflow produced. The Company commenced construction of a significant new capital asset, the Odysseus mine at Cosmos, delivering the first phase of the project on time and on budget. The Odysseus mine is a long life nickel sulphide project that will underpin the long term profitable nickel production future of Western Areas. The table below shows the KPIs of the Company over the last 5 years. 2019 2.8 21,483 5.59/lb $2.13/lb 14,194 5.19 2.0 538M $1.96 42nd 2018 0.9 20,549 $5.84/lb $2.03/lb 11,837 4.34 2.0 971M 3.56 57th 2017 1.1 22,639 $4.58/lb $1.80/lb 19,299 7.09 2.0 575M 2.11 60th 2016 0 24,793 $4.14/lb $1.64/lb (29,783) (12.3) - 582M 2.15 74th 2015 0 26,036 $6.58/lb $1.94/lb 35,013 15.1 7.0 753M 3.23 84th Year Ended 30 June Lost time injury frequency rate Nickel tonnes Sold (tns) Nickel Price – US$ Reported Cash Cost US$/lb (*) Net Profit/(Loss) after Tax (‘000) EPS Dividend Cents/share Market capitalisation ($) Closing share price ($) Short term incentive target STI award. payments below. Name Executive Directors Mr D Lougher Executives Mr J Belladonna Mr W Jones TSR – 3-year peer ranking (% percentile) (*) Cash cost of production before smelting and refining, concentrate haulage and royalties. Based on the achievements of the Company in FY19, the Remuneration Committee determined that Executives achieved between 79% and 88% of their target STI opportunity. It is noted that no KMP achieved 100% of their Performance achieved during the year against the above KPIs has resulted in Executives earning the STI Target STI quantum Target FY19 STI STI quantum STI quantum not (% of base salary) quantum ($) earned ($) earned ($) 55% 55% 40% 416,000 329,250 86,750 212,500 165,000 187,500 133,000 25,000 32,000 STI payments have historically fluctuated in line with Company performance. The table below demonstrates the variability in awards received over time. Year Ended 30 June 2019 2018 Average KMP STI payout (%) 82% 82% 2017 83% 2016 56% 2015 90% 2014 87% 2013 29% The performance rights that vested and were converted into shares during FY19 were originally issued in FY16. The relative TSR performance of the grant was assessed at the completion of the 3-year performance period ending on 30 June 2018. As a result of the assessment, Western Areas was positioned at the 57th percentile against the peer group which resulted in 64% vesting of the performance rights granted at that time. No performance rights are currently expected to vest during FY20. The tranche of Performance Rights, originally issued in FY17, finalised its testing period as at 30 June 2019. Due to the relative total shareholder return performance hurdle not being met, no performance rights vested. It is believed this shows the direct link to shareholder outcomes and executive remuneration. SECTION F: NON-EXECUTIVE DIRECTOR REMUNERATION Non-Executive Director (‘NED’) fees limits NED fees are determined within an aggregated fee limit of $1,000,000, which was approved by shareholders at the 2012 AGM. This aggregated fee limit is reviewed from time to time and the apportionment amongst Directors is reviewed annually. The following fees (including statutory superannuation) were applicable for the FY19. Fees Actual Financial Year Board Chair Board Member 2019 $183,212 $158,784 Non-Executive Directors fee structure NED remuneration consists of a base Directors fee for their role as Board members, and is inclusive of compensation for any role on nominated Board sub-committees. That is, no separate committee fees are payable. NEDs do not receive any performance-based pay. It is an objective of the Company to encourage Directors to own shares in Western Areas. However, share based payments in the form of options or equity in the Company are not offered to NEDs as encouraged by Corporate Governance guidelines. There is no scheme to provide retirement benefits to NEDs, other than statutory superannuation. SECTION G: SERVICE CONTRACTS Executives A summary of the key contractual provisions for each of the current executives as at 30 June 2019 is set out below: Name & job title D Lougher, Managing Director* J Belladonna, Chief Financial Officer/ Company Secretary* W Jones, General Manager Operations Base salary Superannuation Contract duration Notice period Termination provision $756,432 11% No fixed term 3 months $425,000 11% No fixed term 3 months $412,412 11% No fixed term 1 month 12 months termination payment and accrued leave entitlements 6 months termination payment and accrued leave entitlements 6 months termination payment and accrued leave entitlements * In the event that there is a takeover of, or merger with, the Company, the Company must pay the Executive a change of control bonus within 10 days of that takeover or merger occurring. The amount of the takeover bonus will be calculated as follows: a) The positive difference (expressed as a percentage of the 20-day VWAP) between the bid price for the Company’s shares as a result of a takeover or merger bid, and the volume weighted share price of the Company’s share price for the 20 days immediately preceding the takeover or merger bid; and b) Multiplied by 3, as a percentage of the Executive’s base annual salary at the time that such a bid is completed. (This contractual position is a legacy item that has not been applicable to any new executive.) All other senior management contracts are as per the Company’s standard terms and conditions and there are no contractual entitlements to cash bonuses, options or performance rights. Non-Executive Directors Non-Executive Directors receive a letter of appointment before commencing duties on the Board. The letter outlines compensation arrangements relevant to the Director. Non-Executive appointments have no end date, retirement, redundancy or minimum notice periods included in their contracts. 39 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT Related Party Transactions During the year the Company engaged Vintage94 Pty Ltd to provide specialist metallurgical consulting services to the value of A$16,000. Vintage94 Pty Ltd is a related party of Dr Natalia Streltsova. There were other related party transactions with KMP during FY19. Shareholding by Key Management Personnel The number of shares held by KMP (and their related parties) in the Group during the FY19 is as follows: Balance at 1 July 2018 Granted as On Vesting of Other Changes Balance at Remuneration Performance Rights During the Year 30 June 2019 I Macliver D Lougher R Yeates T Netscher C Readhead N Streltsova J Belladonna W Jones D Southam (*) 36,448 412,430 10,000 12,000 20,000 - 170,000 169,205 64,923 TOTAL 895,006 - - - - - - - - - - 191,840 (171,840) - - - - - 72,723 52,294 107,930 424,787 - - - - - 3,600 6,620 (100,000) (261,620) 36,448 432,430 10,000 15,600 20,000 6,620 242,723 221,499 72,853 1,058,173 (*) Mr Southam resigned as a Director on 26 November 2018. The shareholding represents Mr Southam’s holding at that date. Options held by Key Management Personnel There were no options held by key management at any time during FY19. Performance Rights held by Key Management Personnel Details of Performance Rights held by KMP and granted but not yet vested under the LTI plan at 30 June 2019 are outlined below: Balance at 1 July 2018 Number granted as Remuneration Number vested Number expired/ lapsed Balance at 30 June 2019 Portion vested Portion unvested D Lougher 1,095,570 277,080 (191,840) (107,910) 1,072,900 J Belladonna 415,310 106,050 (72,723) (40,907) 407,730 W Jones 298,650 75,530 (52,294) (29,416) 292,470 TOTAL 1,809,530 458,660 (316,857) (178,233) 1,773,100 (%) 0% 0% 0% 0% (%) 100% 100% 100% 100% Areas LTI plan. The rights were granted on 30 November 2018 and have a zero exercise price. END OF AUDITED REMUNERATION REPORT. REMUNERATION REPORT (AUDITED) (cont’d) SECTION H: DETAILS OF REMUNERATION Short Term Employee Benefits Post Employment Long Term Employee Benefits (accounting valuation) Base Salary STI Payments/ Bonuses (i) Allowances & Other (ii) Non- Monetary Super- annuation Long Service Leave Share Based Payments LTI (iii) Non-executive Directors I Macliver FY2018 165,056 160,713 C Readhead 143,049 FY2018 T Netscher FY2018 R Yeates FY2018 139,284 158,784 154,606 143,049 139,284 N Streltsova 143,049 FY2018 139,284 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 18,156 17,678 15,735 15,322 - - 15,735 15,322 15,735 15,322 - - - - - - - - - - - - - - - - - - - - TOTAL 183,212 178,391 158,784 154,606 158,784 154,606 158,784 154,606 158,784 154,606 Total Non-Executive Remuneration FY2019 818,348 Total Non-Executive Remuneration FY2018 796,815 Short Term Employee Benefits Post Employment Long Term Employee Benefits (accounting valuation) Base Salary STI Payments/ Bonuses (i) Allowances & Other (ii) Non- Monetary Super- annuation Long Service Leave Share Based Payments LTI (ii) TOTAL Executive Directors D Lougher 756,432 329,250 132,248 49,913 25,000 18,897 749,226 2,060,966 FY2018 716,040 290,000 57,764 48,748 25,000 18,346 890,042 2,045,940 D Southam (iv) 331,007 - 196,047 38,787 FY2018 537,142 253,000 38,086 50,663 14,583 25,000 - - 580,424 13,763 500,750 1,418,404 Executive Officers J Belladonna 399,032 187,500 22,967 47,167 25,000 10,617 284,313 976,596 FY2018 W Jones FY2018 361,920 170,000 18,807 41,624 25,000 9,271 337,400 964,022 All Performance Rights issued during FY19 were allotted in accordance with the shareholder approved Western 412,412 133,000 22,300 37,336 25,000 10,303 204,239 844,590 390,390 118,000 19,843 37,091 25,000 10,002 225,669 825,995 Total Executive Remuneration FY2019 4,462,576 Total Executive Remuneration FY2018 5,254,361 (i) Includes all paid and/or accrued bonuses for the applicable year. (ii) Includes over-cap super. (iii) LTI refers to the value of Performance Rights that were expensed during FY19. No Options were granted or remain outstanding at the end of the financial year. (iv) Mr Southam resigned as a Director on 26 November 2018 and ceased working with the Company on 31 January 2019. 40 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (cont’d) SECTION H: DETAILS OF REMUNERATION Short Term Employee Benefits Post Employment Long Term Employee Benefits (accounting valuation) Base Salary STI Payments/ Bonuses (i) Allowances Non- Super- & Other (ii) Monetary annuation Long Share Based Service Payments Leave LTI (iii) Non-executive Directors C Readhead 143,049 I Macliver FY2018 FY2018 T Netscher FY2018 R Yeates FY2018 165,056 160,713 139,284 158,784 154,606 143,049 139,284 N Streltsova 143,049 FY2018 139,284 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 18,156 17,678 15,735 15,322 - - 15,735 15,322 15,735 15,322 - - - - - - - - - - TOTAL 183,212 178,391 158,784 154,606 158,784 154,606 158,784 154,606 158,784 154,606 - - - - - - - - - - Total Non-Executive Remuneration FY2019 818,348 Total Non-Executive Remuneration FY2018 796,815 Post Employment Long Term Employee Benefits (accounting valuation) TOTAL Short Term Employee Benefits Base Salary STI Payments/ Bonuses (i) Allowances Non- Super- & Other (ii) Monetary annuation Long Share Based Service Payments Leave LTI (ii) Executive Directors Executive Officers FY2018 W Jones FY2018 D Lougher 756,432 329,250 132,248 49,913 25,000 18,897 749,226 2,060,966 FY2018 716,040 290,000 57,764 48,748 25,000 18,346 890,042 2,045,940 D Southam (iv) 331,007 - 196,047 38,787 - - 580,424 FY2018 537,142 253,000 38,086 50,663 13,763 500,750 1,418,404 14,583 25,000 J Belladonna 399,032 187,500 22,967 47,167 25,000 10,617 284,313 976,596 412,412 133,000 22,300 37,336 25,000 10,303 204,239 844,590 390,390 118,000 19,843 37,091 25,000 10,002 225,669 825,995 Total Executive Remuneration FY2019 4,462,576 Total Executive Remuneration FY2018 5,254,361 (i) Includes all paid and/or accrued bonuses for the applicable year. (ii) Includes over-cap super. end of the financial year. (iii) LTI refers to the value of Performance Rights that were expensed during FY19. No Options were granted or remain outstanding at the (iv) Mr Southam resigned as a Director on 26 November 2018 and ceased working with the Company on 31 January 2019. Related Party Transactions During the year the Company engaged Vintage94 Pty Ltd to provide specialist metallurgical consulting services to the value of A$16,000. Vintage94 Pty Ltd is a related party of Dr Natalia Streltsova. There were other related party transactions with KMP during FY19. Shareholding by Key Management Personnel The number of shares held by KMP (and their related parties) in the Group during the FY19 is as follows: Balance at 1 July 2018 Granted as Remuneration On Vesting of Performance Rights Other Changes During the Year Balance at 30 June 2019 I Macliver D Lougher R Yeates T Netscher C Readhead N Streltsova J Belladonna W Jones D Southam (*) 36,448 412,430 10,000 12,000 20,000 - 170,000 169,205 64,923 TOTAL 895,006 - - - - - - - - - - - 191,840 - - - - 72,723 52,294 107,930 424,787 - (171,840) - 3,600 - 6,620 - - (100,000) (261,620) 36,448 432,430 10,000 15,600 20,000 6,620 242,723 221,499 72,853 1,058,173 (*) Mr Southam resigned as a Director on 26 November 2018. The shareholding represents Mr Southam’s holding at that date. Options held by Key Management Personnel There were no options held by key management at any time during FY19. Performance Rights held by Key Management Personnel Details of Performance Rights held by KMP and granted but not yet vested under the LTI plan at 30 June 2019 are outlined below: Balance at 1 July 2018 Number granted as Remuneration Number vested Number expired/ lapsed Balance at 30 June 2019 Portion vested (%) Portion unvested (%) D Lougher 1,095,570 277,080 (191,840) (107,910) 1,072,900 J Belladonna 415,310 106,050 (72,723) (40,907) 407,730 W Jones 298,650 75,530 (52,294) (29,416) 292,470 TOTAL 1,809,530 458,660 (316,857) (178,233) 1,773,100 0% 0% 0% 0% 100% 100% 100% 100% 361,920 170,000 18,807 41,624 25,000 9,271 337,400 964,022 All Performance Rights issued during FY19 were allotted in accordance with the shareholder approved Western Areas LTI plan. The rights were granted on 30 November 2018 and have a zero exercise price. END OF AUDITED REMUNERATION REPORT. 41 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS No significant changes in the consolidated group’s state of affairs occurred during the financial year. FUTURE DEVELOPMENTS Disclosure of information regarding likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information has not been disclosed in this report. ENVIRONMENTAL REGULATION AND PERFORMANCE The Consolidated Entity has conducted exploration and development activities on mineral tenements. The right to conduct these activities is granted subject to State and Federal environmental legislation and regulations, tenement conditions and Mining Proposal commitments. The Consolidated Entity aims to ensure that a high standard of environmental management is achieved and, as a minimum, to comply with all relevant legislation and regulations, tenement conditions and Mining Proposal commitments. The Company has achieved a high level of compliance with all environmental conditions set for its projects and actively strives for continual improvement. AUDITOR’S INDEPENDENCE DECLARATION The Auditor’s Independence Declaration to the Directors of Western Areas Ltd on page 43 forms part of the Directors’ Report for the year ended 30 June 2019. NON-AUDIT SERVICES The entity’s auditor, Crowe Horwath, provided non-audit services, related to renewable energy lodgements, amounting to $4,750 during FY19 (FY18: $4,500). The Board has the following procedures in place before any non-audit services are obtained from the auditors: all non-audit services are reviewed and approved by the Board and the Audit & Risk Management Committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and the nature of the services provided does not compromise the general principles relating to auditor independence as set out in APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. ROUNDING OF AMOUNTS The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Signed in accordance with a resolution of the Board of Directors. D Lougher Managing Director & Chief Executive Officer Perth, 20 August 2019 42 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS No significant changes in the consolidated group’s state of affairs occurred during the financial year. FUTURE DEVELOPMENTS Disclosure of information regarding likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information has not been disclosed in this report. Crowe Perth ABN 96 844 819 235 Level 5 45 St Georges Terrace Perth WA 6000 PO Box P1213 Perth WA 6844 Australia Main +61 (8) 9481 1448 Fax +61 (8) 9481 0152 www.crowe.com.au ENVIRONMENTAL REGULATION AND PERFORMANCE AUDITOR’S INDEPENDENCE DECLARATION The Consolidated Entity has conducted exploration and development activities on mineral tenements. The right to conduct these activities is granted subject to State and Federal environmental legislation and regulations, tenement conditions and Mining Proposal commitments. The Consolidated Entity aims to ensure that a high standard of environmental management is achieved and, as a minimum, to comply with all relevant legislation and regulations, tenement conditions and Mining Proposal commitments. The Company has achieved a high level of compliance with all environmental conditions set for its projects and actively strives for continual improvement. In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Western Areas Ltd for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. AUDITOR’S INDEPENDENCE DECLARATION The Auditor’s Independence Declaration to the Directors of Western Areas Ltd on page 43 forms part of the Directors’ Report for the year ended 30 June 2019. Crowe Perth NON-AUDIT SERVICES The entity’s auditor, Crowe Horwath, provided non-audit services, related to renewable energy lodgements, amounting to $4,750 during FY19 (FY18: $4,500). The Board has the following procedures in place before any non-audit services are obtained from the auditors: all non-audit services are reviewed and approved by the Board and the Audit & Risk Management Committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and the nature of the services provided does not compromise the general principles relating to auditor independence as set out in APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. ROUNDING OF AMOUNTS The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Signed in accordance with a resolution of the Board of Directors. D Lougher Managing Director & Chief Executive Officer Perth, 20 August 2019 Sean McGurk Partner Signed at Perth, 20 August 2019 The title ‘Partner’ conveys that the person is a senior member within their respective division, and is among the group of persons who hold an equity interest (shareholder) in its parent entity, Findex Group Limited. The only professional service offering which is conducted by a partnership is the Crowe Australasia external audit division. All other professional services offered by Findex Group Limited are conducted by a privately owned organisation and/or its subsidiaries. Findex (Aust) Pty Ltd, trading as Crowe Australasia is a member of Crowe Global, a Swiss verein. Each member firm of Crowe Global is a separate and independent legal entity. Findex (Aust) Pty Ltd and its affiliates are not responsible or liable for any acts or omissions of Crowe Global or any other member of Crowe Global. Crowe Global does not render any professional services and does not have an ownership or partnership interest in Findex (Aust) Pty Ltd. Services are provided by Crowe Perth, an affiliate of Findex (Aust) Pty Ltd. Liability limited by a scheme approved under Professional Standards Legislation. Liability limited other than for acts or omissions of financial services licensees. © 2019 Findex (Aust) Pty Ltd 43 WESTERN AREAS ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF PROFIT OR LOSS CONSOLIDATED STATEMENT OF FINANCIAL POSITION AND OTHER COMPREHENSIVE INCOME YEAR ENDED 30 JUNE 2019 Sales Operating Costs Depreciation and Amortisation Other income Finance costs Employee benefit expense Foreign exchange gain Share based payments Administration expenses Care and maintenance expense Realised derivative gain/(loss) Profit before income tax Income tax expense Profit for the year Consolidated Entity 2019 $’000 2018 $’000 Notes 268,716 248,268 (178,755) (146,408) (60,172) (64,872) 5,148 (1,562) (10,272) 382 (2,286) (4,599) (1,257) 3,674 19,017 (4,823) 14,194 3,494 (1,934) (11,342) 1,143 (3,598) (4,286) (1,750) (1,552) 17,163 (5,326) 11,837 4 2 4 29 7 Other comprehensive income, net of tax Items that may be reclassified to profit or loss Changes in fair value of hedging instruments, net of tax 1,616 (2,012) Changes in financial assets at fair value through other comprehensive income, net of tax Total comprehensive income for the year Basic earnings per share (cents per share) Diluted earnings per share (cents per share) The accompanying notes form part of these financial statements. 9 18 18 (118) 21,911 15,692 31,736 5.19 5.12 4.34 4.27 44 Financial assets at fair value through other comprehensive income 33,725 33,307 AS AT 30 JUNE 2019 Consolidated Entity 2019 $’000 144,261 22,888 22,483 39 2018 $’000 151,643 22,209 34,805 - 189,671 208,657 131,394 89,003 506 506 110,444 97,784 130,790 142,673 406,859 363,273 596,530 571,930 48,974 41,396 53,449 47,769 399 4,061 15 495 25,947 15,062 41,504 94,953 267 4,514 1,592 445 24,408 10,496 35,349 83,118 501,577 488,812 442,963 442,963 48,574 10,040 44,533 1,316 501,577 488,812 Notes 19(b) 5 6 16 8 10 11 9 13 14 15 16 14 15 12 17 30 Derivative financial instruments through other comprehensive income Current Assets Cash and cash equivalents Trade and other receivables Inventories Total Current Assets Non-Current Assets Property, plant and equipment Intangible assets Exploration & evaluation expenditure Mine properties Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Borrowings Provisions Total Current Liabilities Non-Current Liabilities Borrowings Provisions Deferred tax Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Other reserves Retained earnings Total Equity The accompanying notes form part of these financial statements. Derivative financial instruments through other comprehensive income WESTERN AREAS ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME YEAR ENDED 30 JUNE 2019 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019 Depreciation and Amortisation Sales Operating Costs Other income Finance costs Employee benefit expense Foreign exchange gain Share based payments Administration expenses Care and maintenance expense Realised derivative gain/(loss) Profit before income tax Income tax expense Profit for the year Other comprehensive income, net of tax Items that may be reclassified to profit or loss Changes in financial assets at fair value through other comprehensive income, net of tax Total comprehensive income for the year Basic earnings per share (cents per share) Diluted earnings per share (cents per share) The accompanying notes form part of these financial statements. Consolidated Entity 2019 $’000 2018 $’000 Notes 268,716 248,268 (178,755) (146,408) (60,172) (64,872) 4 2 4 29 7 9 18 18 5,148 (1,562) (10,272) 382 (2,286) (4,599) (1,257) 3,674 19,017 (4,823) 14,194 3,494 (1,934) (11,342) 1,143 (3,598) (4,286) (1,750) (1,552) 17,163 (5,326) 11,837 (118) 21,911 15,692 31,736 5.19 5.12 4.34 4.27 Changes in fair value of hedging instruments, net of tax 1,616 (2,012) Current Assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments through other comprehensive income Total Current Assets Non-Current Assets Property, plant and equipment Intangible assets Exploration & evaluation expenditure Mine properties Financial assets at fair value through other comprehensive income Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Borrowings Provisions Derivative financial instruments through other comprehensive income Total Current Liabilities Non-Current Liabilities Borrowings Provisions Deferred tax Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Other reserves Retained earnings Total Equity The accompanying notes form part of these financial statements. Notes 19(b) 5 6 16 8 10 11 9 13 14 15 16 14 15 12 17 30 Consolidated Entity 2019 $’000 144,261 22,888 22,483 39 2018 $’000 151,643 22,209 34,805 - 189,671 208,657 131,394 89,003 506 506 110,444 97,784 130,790 142,673 33,725 33,307 406,859 363,273 596,530 571,930 48,974 41,396 399 4,061 15 267 4,514 1,592 53,449 47,769 495 25,947 15,062 41,504 94,953 445 24,408 10,496 35,349 83,118 501,577 488,812 442,963 442,963 48,574 10,040 44,533 1,316 501,577 488,812 45 WESTERN AREAS ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED 30 JUNE 2019 CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED 30 JUNE 2019 Issued Capital Capital Raising Costs Share Based Payment Reserve Hedge Reserve Investment Reserve Retained Earnings Total Equity $’000 $’000 $’000 $’000 $’000 $’000 $’000 Total equity at 1 July 2017 459,184 (16,221) 27,677 420 (6,650) (5,066) 459,344 Comprehensive income Profit for the year Other comprehensive loss for the year, net of tax Total comprehensive profit for the year Transactions with owners in their capacity as owner, and other transfers Share based payments expense Deferred tax asset on performance rights Dividends paid - - - - - - - - - - - - - - - - - 11,837 11,837 (2,012) 21,911 - 19,899 (2,012) 21,911 11,837 31,736 3,598 (411) - - - - - - - - - 3,598 (411) (5,455) (5,455) Total equity at 30 June 2018 459,184 (16,221) 30,864 (1,592) 15,261 1,316 488,812 Comprehensive income Profit for the year Other comprehensive profit for the year, net of tax Total comprehensive profit for the year Transactions with owners in their capacity as owner, and other transfers Share based payments expense Deferred tax liability on performance rights Dividends paid - - - - - - - - - - - - - - - - - 14,194 14,194 1,616 1,616 (118) (118) - 1,498 14,194 15,692 2,286 257 - - - - - - - - - 2,286 257 (5,470) (5,470) Total equity at 30 June 2019 459,184 (16,221) 33,407 24 15,143 10,040 501,577 The accompanying notes form part of these financial statements. Net cash inflow from operating activities 19(a) 98,297 76,966 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Royalties paid Other receipts Interest paid Income tax paid Realisation on settlement of derivatives Cash flows from investing activities Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Investments in listed companies Mine development expenditure Exploration & evaluation expenditure Net cash outflow from investing activities Cash flows from financing activities Finance lease payments Borrowing costs Dividends paid to company’s shareholders Net cash outflow from financing activities Consolidated Entity 2019 $’000 2018 $’000 Notes 271,381 237,242 (169,566) (154,007) 2,921 (11,416) 1,021 (42) 4,055 (57) 2,480 (9,194) 880 (25) (410) - (49,951) (22,544) - (536) 4 - (32,470) (26,268) (16,881) (10,972) (99,838) (59,780) (321) (50) (282) (100) (5,470) (5,455) (5,841) (5,837) (7,382) 11,349 Net (decrease)/increase in cash and cash equivalents held Cash and cash equivalents as at the beginning of the financial year 151,643 140,294 Cash and cash equivalents at end of financial year 19(b) 144,261 151,643 The accompanying notes form part of these financial statements. 46 WESTERN AREAS ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED 30 JUNE 2019 CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED 30 JUNE 2019 Capital Share Based Issued Raising Payment Hedge Investment Retained Capital Costs Reserve Reserve Reserve Earnings Total Equity $’000 $’000 $’000 $’000 $’000 $’000 $’000 Total equity at 1 July 2017 459,184 (16,221) 27,677 420 (6,650) (5,066) 459,344 Total comprehensive profit for the year (2,012) 21,911 11,837 31,736 Total equity at 30 June 2018 459,184 (16,221) 30,864 (1,592) 15,261 1,316 488,812 Comprehensive income Profit for the year Other comprehensive loss for the year, net of tax Transactions with owners in their capacity as owner, and other transfers Share based payments expense Deferred tax asset on performance rights Dividends paid Comprehensive income Profit for the year Other comprehensive profit for the year, net of tax Total comprehensive profit for the year Transactions with owners in their capacity as owner, and other transfers Share based payments expense Deferred tax liability on performance rights Dividends paid - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,598 (411) - 2,286 257 - - - 11,837 11,837 (2,012) 21,911 - 19,899 - - - - - - - - - - - - - - - 3,598 (411) (5,455) (5,455) - - 2,286 257 (5,470) (5,470) - 14,194 14,194 1,616 1,616 (118) (118) - 1,498 14,194 15,692 Total equity at 30 June 2019 459,184 (16,221) 33,407 24 15,143 10,040 501,577 The accompanying notes form part of these financial statements. Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Royalties paid Other receipts Interest paid Realisation on settlement of derivatives Income tax paid Consolidated Entity 2019 $’000 2018 $’000 Notes 271,381 237,242 (169,566) (154,007) 2,921 (11,416) 1,021 (42) 4,055 (57) 2,480 (9,194) 880 (25) (410) - Net cash inflow from operating activities 19(a) 98,297 76,966 Cash flows from investing activities Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Investments in listed companies Mine development expenditure Exploration & evaluation expenditure Net cash outflow from investing activities Cash flows from financing activities Finance lease payments Borrowing costs Dividends paid to company’s shareholders Net cash outflow from financing activities Net (decrease)/increase in cash and cash equivalents held (49,951) (22,544) - (536) 4 - (32,470) (26,268) (16,881) (10,972) (99,838) (59,780) (321) (50) (282) (100) (5,470) (5,455) (5,841) (5,837) (7,382) 11,349 Cash and cash equivalents as at the beginning of the financial year 151,643 140,294 Cash and cash equivalents at end of financial year 19(b) 144,261 151,643 The accompanying notes form part of these financial statements. 47 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Export Sales These consolidated financial statements and notes represent those of Western Areas Ltd and Controlled Entities (the “consolidated group” or “group”). The separate financial statements of the parent entity, Western Areas Ltd, have not been presented within this financial report as permitted by amendments made to Corporations Act 2001 effective as at 28 June 2010. The group is a for profit entity for financial reporting purposes under Australian Accounting Standards. The Financial Report was approved by the Board of Directors on 20 August 2019. BASIS OF PREPARATION These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of this financial report are presented below and have been consistently applied unless stated otherwise. Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS AASB 15 Revenue from Contracts with Customers The Group has adopted AASB 15 from 1 July 2018. The standard provides a single standard for revenue ownership interests. recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer's payment. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgements made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. Domestic sales Revenue is recognised when the customer obtains control of the concentrates as this is when the consolidated entity has satisfied its performance obligations under the contract. 48 Revenue for export sales is recognised when shipments of concentrates are loaded on to the vessel as the risk and reward of ownership is transferred to the customer at that point. Export contracts are made up of two performance obligations. The first obligation to deliver the concentrates to the port of shipment and the second obligation is to organise shipping of the concentrate, which will be satisfied when concentrates are delivered to the destination port. Freight and, where applicable, insurance, are required to be accounted for as separate performance obligations with revenue recognised over time as the service is rendered. The Group has determined that AASB 15 has had no material impact on the way the Group accounts for its revenue. a) PRINCIPLES OF CONSOLIDATION The Group financial statements consolidate those of the Western Areas Limited (‘company’ or ‘parent’) and all of its subsidiaries as of 30 June 2019. The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 30 June. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra- group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective b) INVESTMENTS IN ASSOCIATES AND JOINT ARRANGEMENTS Associates are those entities over which the Group is able to exert significant influence but which are not subsidiaries. A joint venture is an arrangement that the Group controls jointly with one or more other investors, and over which the Group has rights to a share of the arrangement’s net assets rather than direct rights to underlying assets and obligations for underlying liabilities. A joint arrangement in which the Group has direct rights to underlying assets and obligations for underlying liabilities is classified as a joint operation. Investments in associates and joint ventures are accounted for using the equity method. Interests in joint operations are accounted for by recognising the Group’s assets (including its share of any assets held jointly), its liabilities (including its share of any liabilities incurred jointly), its revenue from the sale of its share of the output arising from the joint operation, its share of the revenue from the sale of the output by the joint operation and its expenses (including its share of any expenses incurred jointly). Any goodwill or fair value adjustment attributable to the Group’s share in the associate or joint venture is not recognised separately and is included in the amount recognised as the investment. The carrying amount of the investment in associates and joint ventures is increased or decreased to recognise the Group’s share of the profit or loss and other comprehensive income of the associate and joint venture, adjusted where necessary to ensure consistency with the accounting policies of the Group. Unrealised gains and losses on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in those entities. Where unrealised losses are eliminated, the underlying asset is also tested for impairment. WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Export Sales Revenue for export sales is recognised when shipments of concentrates are loaded on to the vessel as the risk and reward of ownership is transferred to the customer at that point. Export contracts are made up of two performance obligations. The first obligation to deliver the concentrates to the port of shipment and the second obligation is to organise shipping of the concentrate, which will be satisfied when concentrates are delivered to the destination port. Freight and, where applicable, insurance, are required to be accounted for as separate performance obligations with revenue recognised over time as the service is rendered. The Group has determined that AASB 15 has had no material impact on the way the Group accounts for its revenue. a) PRINCIPLES OF CONSOLIDATION The Group financial statements consolidate those of the Western Areas Limited (‘company’ or ‘parent’) and all of its subsidiaries as of 30 June 2019. The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 30 June. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra- group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective The Group has adopted AASB 15 from 1 July 2018. The standard provides a single standard for revenue ownership interests. b) INVESTMENTS IN ASSOCIATES AND JOINT ARRANGEMENTS Associates are those entities over which the Group is able to exert significant influence but which are not subsidiaries. A joint venture is an arrangement that the Group controls jointly with one or more other investors, and over which the Group has rights to a share of the arrangement’s net assets rather than direct rights to underlying assets and obligations for underlying liabilities. A joint arrangement in which the Group has direct rights to underlying assets and obligations for underlying liabilities is classified as a joint operation. Investments in associates and joint ventures are accounted for using the equity method. Interests in joint operations are accounted for by recognising the Group’s assets (including its share of any assets held jointly), its liabilities (including its share of any liabilities incurred jointly), its revenue from the sale of its share of the output arising from the joint operation, its share of the revenue from the sale of the output by the joint operation and its expenses (including its share of any expenses incurred jointly). Any goodwill or fair value adjustment attributable to the Group’s share in the associate or joint venture is not recognised separately and is included in the amount recognised as the investment. The carrying amount of the investment in associates and joint ventures is increased or decreased to recognise the Group’s share of the profit or loss and other comprehensive income of the associate and joint venture, adjusted where necessary to ensure consistency with the accounting policies of the Group. Unrealised gains and losses on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in those entities. Where unrealised losses are eliminated, the underlying asset is also tested for impairment. 49 These consolidated financial statements and notes represent those of Western Areas Ltd and Controlled Entities (the “consolidated group” or “group”). The separate financial statements of the parent entity, Western Areas Ltd, have not been presented within this financial report as permitted by amendments made to Corporations Act 2001 effective as at 28 June 2010. The group is a for profit entity for financial reporting purposes under Australian Accounting Standards. The Financial Report was approved by the Board of Directors on 20 August 2019. BASIS OF PREPARATION These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of this financial report are presented below and have been consistently applied unless stated otherwise. Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS AASB 15 Revenue from Contracts with Customers recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer's payment. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgements made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. Domestic sales Revenue is recognised when the customer obtains control of the concentrates as this is when the consolidated entity has satisfied its performance obligations under the contract. WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) f) FINANCE COSTS c) SEGMENT REPORTING Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. 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. g) INVENTORIES d) FOREIGN CURRENCY TRANSACTIONS AND BALANCES The financial statements are presented in Australian dollars, which is Western Areas Ltd’s functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. e) REVENUE RECOGNITION The consolidated entity recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the ‘expected value’ or ‘most likely amount’ method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Sale of nickel and other metals Sale of nickel and other metals is recognised when the customer obtains control of the concentrates as this is when the consolidated entity has satisfied its performance obligations under a valid sales contract. Amounts disclosed as revenue are net of sales returns and trade discounts. Interest Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to Class of Fixed Asset Depreciation Rate the financial assets. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Property 2% to 20% Plant and equipment 2% to 33% or units of production over life of mine Motor vehicles 20% Furniture and fittings 6% to 27% 50 Inventories are measured at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories on hand by the method most appropriate to each class of inventory with the majority being valued on an average cost basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. The cost of mining stocks includes direct materials, direct labour, transportation costs and variable and fixed overhead costs relating to mining activities. The cost of consumables and spare parts includes cost of materials and transportation costs. h) PROPERTY, PLANT AND EQUIPMENT Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses. Property Plant and equipment Land and buildings are carried at cost, less accumulated depreciation for buildings. Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present (refer to Note 1(p) for details of impairment). The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the consolidated group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised as expenses in profit or loss during the financial period in which they are incurred. Depreciation Depreciation of an asset (including amounts classified as Works in Progress) begins when it is available for use, that is, when it is in the location and condition necessary for it to be capable of operating in the manner intended by Management. The depreciable amount of all property, plant and equipment is depreciated on a straight line basis over their useful lives or the estimated life of mine, whichever is shorter. Land is not depreciated. The depreciation rates used for each major type of depreciable assets are: WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) f) FINANCE COSTS c) 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. d) FOREIGN CURRENCY TRANSACTIONS AND BALANCES The financial statements are presented in Australian dollars, which is Western Areas Ltd’s functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. e) REVENUE RECOGNITION The consolidated entity recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the ‘expected value’ or ‘most likely amount’ method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Sale of nickel and other metals Sale of nickel and other metals is recognised when the customer obtains control of the concentrates as this is when the consolidated entity has satisfied its performance obligations under a valid sales contract. Amounts disclosed as revenue are net of sales returns and trade discounts. Interest the financial assets. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. g) INVENTORIES Inventories are measured at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories on hand by the method most appropriate to each class of inventory with the majority being valued on an average cost basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. The cost of mining stocks includes direct materials, direct labour, transportation costs and variable and fixed overhead costs relating to mining activities. The cost of consumables and spare parts includes cost of materials and transportation costs. h) PROPERTY, PLANT AND EQUIPMENT Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses. Property Land and buildings are carried at cost, less accumulated depreciation for buildings. Plant and equipment Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present (refer to Note 1(p) for details of impairment). The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the consolidated group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised as expenses in profit or loss during the financial period in which they are incurred. Depreciation Depreciation of an asset (including amounts classified as Works in Progress) begins when it is available for use, that is, when it is in the location and condition necessary for it to be capable of operating in the manner intended by Management. The depreciable amount of all property, plant and equipment is depreciated on a straight line basis over their useful lives or the estimated life of mine, whichever is shorter. Land is not depreciated. The depreciation rates used for each major type of depreciable assets are: Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to Class of Fixed Asset Depreciation Rate Property 2% to 20% Plant and equipment 2% to 33% or units of production over life of mine Motor vehicles 20% Furniture and fittings 6% to 27% 51 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) k) INCOME TAX h) PROPERTY, PLANT AND EQUIPMENT (cont’d) Depreciation (cont’d) 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 carrying amount substantively enacted, except for: is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are recognised in profit or loss in the period in which they arise. i) EXPLORATION AND EVALUATION EXPENDITURE Exploration and evaluation expenditures incurred are capitalised in respect of each identifiable area of interest. These costs are only capitalised for areas of interest where rights of tenure are current, to the extent that they are expected to be recovered through the successful development of the area of interest or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves and active and significant operation in relation to the area of interest are continuing. Accumulated costs in relation to an abandoned area are written off in full against profit or loss in the year in which the decision to abandon the area is made. When production commences, the accumulated costs for the relevant area of interest are transferred to mine properties and are amortised at 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. In accordance with AASB 6, where circumstances suggest that the carrying amount of an asset exceed its recoverable amount, an impairment loss will be recognised. j) MINE PROPERTIES Development expenditure incurred by or on behalf of the consolidated entity is accumulated separately for each area of interest in which economically recoverable resources have been identified. Such expenditure comprises costs directly attributable to the construction of a mine, the related infrastructure and expenditure transferred from the capitalised exploration and evaluation expenditure phase. Amortisation is charged using the units-of production method, with separate calculations being made for each area of interest. The units-of-production basis results in an amortisation charge proportional to the depletion of proved and probable nickel reserves. Mine properties are tested for impairment in accordance with the policy in Note 1(p). Costs of site restoration are provided for over the life of the facility from when exploration commences and are included in the costs from that stage. Site restoration costs include obligations relating to dismantling and removing mining plant, reclamation, waste dump rehabilitation and other costs associated with restoration and rehabilitation of the site. Such costs have been determined using estimates for current costs and current legal requirements and technology. Any changes in the estimates for the costs are accounted for on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly, the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site. 52 The income tax expense or benefit for the period is the tax payable on that 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, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. 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. The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entity's which intend to settle simultaneously. Western Areas Ltd (the ‘head entity’) and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the ‘separate taxpayer within group’ approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. l) GOODS AND SERVICES TAX (‘GST’) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. WESTERN AREAS ANNUAL REPORT 2019 h) PROPERTY, PLANT AND EQUIPMENT (cont’d) Depreciation (cont’d) reporting period. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are recognised in profit or loss in the period in which they arise. i) EXPLORATION AND EVALUATION EXPENDITURE Exploration and evaluation expenditures incurred are capitalised in respect of each identifiable area of interest. These costs are only capitalised for areas of interest where rights of tenure are current, to the extent that they are expected to be recovered through the successful development of the area of interest or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves and active and significant operation in relation to the area of interest are continuing. Accumulated costs in relation to an abandoned area are written off in full against profit or loss in the year in which the decision to abandon the area is made. When production commences, the accumulated costs for the relevant area of interest are transferred to mine properties and are amortised at 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. In accordance with AASB 6, where circumstances suggest that the carrying amount of an asset exceed its recoverable amount, an impairment loss will be recognised. j) MINE PROPERTIES Development expenditure incurred by or on behalf of the consolidated entity is accumulated separately for each area of interest in which economically recoverable resources have been identified. Such expenditure comprises costs directly attributable to the construction of a mine, the related infrastructure and expenditure transferred from the capitalised exploration and evaluation expenditure phase. Amortisation is charged using the units-of production method, with separate calculations being made for each area of interest. The units-of-production basis results in an amortisation charge proportional to the depletion of proved and probable nickel reserves. Mine properties are tested for impairment in accordance with the policy in Note 1(p). Costs of site restoration are provided for over the life of the facility from when exploration commences and are included in the costs from that stage. Site restoration costs include obligations relating to dismantling and removing mining plant, reclamation, waste dump rehabilitation and other costs associated with restoration and rehabilitation of the site. Such costs have been determined using estimates for current costs and current legal requirements and technology. Any changes in the estimates for the costs are accounted for on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly, the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) k) INCOME TAX An asset’s carrying amount is written down immediately to its recoverable amount if the carrying amount substantively enacted, except for: The income tax expense or benefit for the period is the tax payable on that 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, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. 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. The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entity's which intend to settle simultaneously. Western Areas Ltd (the ‘head entity’) and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the ‘separate taxpayer within group’ approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. l) GOODS AND SERVICES TAX (‘GST’) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. 53 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) m) EMPLOYEE BENEFITS Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits obligations as described in the preceding paragraph. The liabilities for long service leave and annual leave that are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised as non-current liabilities and are therefore measured at the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of government bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments The consolidated entity has provided benefits to its Key Management Personnel in the form of share- based payments, whereby services were rendered partly or wholly in exchange for shares or rights over shares. The Remuneration Committee approved the grant of performance rights as incentives to attract Executives and to maintain their long term commitment to the Company. These benefits are awarded at the discretion of the Board, or following approval by shareholders (equity-settled transactions). The costs of these equity-settled transactions are measured by reference to the fair value of the equity instruments at the date on which they are granted. The fair value of performance rights granted is determined using the Black Scholes Option Pricing Model (“BSM”) that includes a Monte Carlo Simulation Model to value the Rights, further details of which are disclosed in Note 29. The costs of these equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the equity instrument (vesting date). At each subsequent reporting date until vesting, the cumulative charge to the income statement is the product of (i) the fair value at grant date of the award; (ii) the current best estimate of the number of equity instruments that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met and (iii) the expired portion of the vesting period. The charge to the income statement for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding credit to equity. Until an equity instrument has vested, any amounts recorded will be adjusted if more or fewer equity instruments vest than were originally anticipated to do so. Any equity instrument subject to a market condition is considered to vest irrespective of whether or not that market condition is fulfilled, provided that all other conditions are satisfied. 54 If the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share based payment arrangement, or is otherwise beneficial to the recipient of the award, as measured at the date of modification. If an equity-settled transaction is cancelled (other than a grant cancelled by forfeiture when the vesting conditions are not satisfied), it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new equity instrument is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new equity instrument are treated as if they were a modification of the original award, n) 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. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. o) FINANCIAL INSTRUMENTS Initial recognition and measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the company commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified ‘at fair value through profit or loss’, in which case transaction costs are expensed to the income statement immediately. Classification and subsequent measurement Financial instruments are subsequently measured at either of fair value or amortised cost using the effective interest rate method. Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted. A financial asset is subsequently measured at amortised cost, using effective interest method and net of any impairment loss, if: contractual cash flows; and The asset is held within the business model whose objective is to hold assets in order to collect The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest. WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) m) EMPLOYEE BENEFITS Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. If the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share based payment arrangement, or is otherwise beneficial to the recipient of the award, as measured at the date of modification. If an equity-settled transaction is cancelled (other than a grant cancelled by forfeiture when the vesting conditions are not satisfied), it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new equity instrument is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new equity instrument are treated as if they were a modification of the original award, Other long-term employee benefits obligations as described in the preceding paragraph. The liabilities for long service leave and annual leave that are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised as non-current liabilities and are therefore measured at the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of government bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments The consolidated entity has provided benefits to its Key Management Personnel in the form of share- based payments, whereby services were rendered partly or wholly in exchange for shares or rights over shares. The Remuneration Committee approved the grant of performance rights as incentives to attract Executives and to maintain their long term commitment to the Company. These benefits are awarded at the discretion of the Board, or following approval by shareholders (equity-settled transactions). The costs of these equity-settled transactions are measured by reference to the fair value of the equity instruments at the date on which they are granted. The fair value of performance rights granted is determined using the Black Scholes Option Pricing Model (“BSM”) that includes a Monte Carlo Simulation Model to value the Rights, further details of which are disclosed in Note 29. The costs of these equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the equity instrument (vesting date). At each subsequent reporting date until vesting, the cumulative charge to the income statement is the product of (i) the fair value at grant date of the award; (ii) the current best estimate of the number of equity instruments that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met and (iii) the expired portion of the vesting period. The charge to the income statement for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding credit to equity. Until an equity instrument has vested, any amounts recorded will be adjusted if more or fewer equity instruments vest than were originally anticipated to do so. Any equity instrument subject to a market condition is considered to vest irrespective of whether or not that market condition is fulfilled, provided that all other conditions are satisfied. n) 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. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. o) FINANCIAL INSTRUMENTS Initial recognition and measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the company commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified ‘at fair value through profit or loss’, in which case transaction costs are expensed to the income statement immediately. Classification and subsequent measurement Financial instruments are subsequently measured at either of fair value or amortised cost using the effective interest rate method. Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted. A financial asset is subsequently measured at amortised cost, using effective interest method and net of any impairment loss, if: The asset is held within the business model whose objective is to hold assets in order to collect contractual cash flows; and The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest. 55 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) Derivative financial instruments o) FINANCIAL INSTRUMENTS (cont’d) Classification and subsequent measurement (cont’d) Amortised cost is calculated as: a) the amount at which the financial asset or financial liability is measured at initial recognition; b) less principal repayments; c) plus or minus the cumulative amortisation of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and d) less any reduction for impairment. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. Financial assets at fair value through profit and loss The group classifies its financial assets in the following measurement categories: those to be measured subsequently at fair value, or those to be measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. The group is required to reclassify all affected debt investments when and only when its business model for managing those assets changes. At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value and is not part of a If the hedging instrument is sold, terminated, expires, exercised without replacement or rollover, or if the hedging relationship is recognised in profit or loss and presented net in the income statement within other hedge becomes ineffective and is no longer a designated hedge, amounts previously recognised in equity income or other expenses in the period in which it arises. A gain or loss on a debt investment that is remain in equity until the forecast transaction occurs. subsequently measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss when the financial asset is derecognised or impaired and through the amortisation process using the effective interest rate method. The group subsequently measures all equity investments at fair value. Where the group’s management has made an irrevocable election to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss. Dividends from such investments continue to be recognised in profit or loss as other revenue when the group’s right to receive payments is established and as long as they represent a return on investment. Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. De-recognition Financial assets are de-recognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the risks and benefits associated with the asset. Financial liabilities are de-recognised where the related the recoverable amount of the cash-generating unit to which the asset belongs. obligations are discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. 56 Derivative financial instruments are used by the consolidated entity to hedge exposures to commodity prices and foreign currency exchange rates. The Group documents at the inception of a transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. Derivatives are initially recognised at fair value on the date the contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Hedging derivatives are either Fair Value Hedges or Cashflow Hedges. Changes in the fair value of derivatives classified as fair value hedges are recognised in the Income Statement, together with any changes in the fair value of the hedge asset or liability that are attributable Cash flow hedges are used to cover the consolidated entity’s exposure to variability in cash flows that is attributable to particular risk associated with a recognised asset or liability or a firm commitment which could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, whilst the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred out of equity and included in the measurement of the hedged transaction when the forecast Cash flow hedges are tested for effectiveness on a regular basis both retrospectively and prospectively to ensure that each hedge is highly effective and continues to be designated as a cash flow hedge. If the forecast transaction is no longer expected to occur, amounts recognised in equity are transferred to profit Fair value hedges to the hedged risk. Cash flow hedge transaction occurs. or loss. Changes in the fair value of derivatives that do not qualify for hedge accounting are recognised in the All other derivatives Income Statement. p) IMPAIRMENT OF ASSETS At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement. WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) Derivative financial instruments o) FINANCIAL INSTRUMENTS (cont’d) Classification and subsequent measurement (cont’d) Amortised cost is calculated as: b) less principal repayments; a) the amount at which the financial asset or financial liability is measured at initial recognition; c) plus or minus the cumulative amortisation of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and d) less any reduction for impairment. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. Financial assets at fair value through profit and loss The group classifies its financial assets in the following measurement categories: those to be measured subsequently at fair value, or those to be measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. The group is required to reclassify all affected debt investments when and only when its business model for managing those assets changes. At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. subsequently measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss when the financial asset is derecognised or impaired and through the amortisation process using the effective interest rate method. The group subsequently measures all equity investments at fair value. Where the group’s management has made an irrevocable election to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss. Dividends from such investments continue to be recognised in profit or loss as other revenue when the group’s right to receive payments is established and as long as they represent a return on investment. Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised Financial liabilities cost. De-recognition Financial assets are de-recognised where the contractual rights to receipt of cash flows expires or the asset obligations are discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. Derivative financial instruments are used by the consolidated entity to hedge exposures to commodity prices and foreign currency exchange rates. The Group documents at the inception of a transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. Derivatives are initially recognised at fair value on the date the contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Hedging derivatives are either Fair Value Hedges or Cashflow Hedges. Fair value hedges Changes in the fair value of derivatives classified as fair value hedges are recognised in the Income Statement, together with any changes in the fair value of the hedge asset or liability that are attributable to the hedged risk. Cash flow hedge Cash flow hedges are used to cover the consolidated entity’s exposure to variability in cash flows that is attributable to particular risk associated with a recognised asset or liability or a firm commitment which could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, whilst the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred out of equity and included in the measurement of the hedged transaction when the forecast transaction occurs. Cash flow hedges are tested for effectiveness on a regular basis both retrospectively and prospectively to ensure that each hedge is highly effective and continues to be designated as a cash flow hedge. If the forecast transaction is no longer expected to occur, amounts recognised in equity are transferred to profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value and is not part of a If the hedging instrument is sold, terminated, expires, exercised without replacement or rollover, or if the hedging relationship is recognised in profit or loss and presented net in the income statement within other hedge becomes ineffective and is no longer a designated hedge, amounts previously recognised in equity income or other expenses in the period in which it arises. A gain or loss on a debt investment that is remain in equity until the forecast transaction occurs. All other derivatives Changes in the fair value of derivatives that do not qualify for hedge accounting are recognised in the Income Statement. p) IMPAIRMENT OF ASSETS At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement. is transferred to another party whereby the entity no longer has any significant continuing involvement in Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the risks and benefits associated with the asset. Financial liabilities are de-recognised where the related the recoverable amount of the cash-generating unit to which the asset belongs. 57 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) Provision for impairment of inventories p) IMPAIRMENT OF ASSETS (cont’d) Reversal of impairment losses An impairment loss recognised in prior periods for an asset/CGU is reversed if there has been a change in the estimates used to determine the asset’s/CGU’s recoverable amount since the last impairment loss was recognised. When an impairment loss subsequently reverses, the carrying amount of the asset/CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset/CGU in prior years. q) ROUNDING AMOUNTS The company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. r) CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash-on-hand, cash in banks and investments in money market instruments, net of outstanding bank overdrafts. s) PROVISIONS Provisions are recognised where the group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow is able to be reliably measured. t) INTANGIBLES Expenditure during the research phase of a project is recognised as an expense when incurred. Patents and trademarks are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably. Patents and trademarks have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project. u) CRITICAL ACCOUNTING ESTIMATES AND BALANCES The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Share-based payment transactions The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Monti Carlo model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. 58 The provision for impairment of inventories assessment requires a degree of estimation and judgement. Costs incurred in or benefits of the productive process are accumulated as stockpiles, nickel and other metals in process, ore on run of mine ore pads and product inventory. Net realisable value tests are performed at least annually and represent the estimated future sales price of the product based on prevailing metal prices, less estimated costs to complete production and bring the product to sale. Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of contained metal tonnes based on assay data, and the estimated recovery percentage based on the expected processing method. Although the quantity of recoverable metal is reconciled by comparing the grades of the ore to the quantities of metals actually recovered (metallurgical balancing), the nature of the process inherently limits the ability to precisely monitor recoverability levels. As a result, the metallurgical balancing process is constantly monitored and the engineering estimates are refined based on actual results over time. Fair value measurement hierarchy The consolidated entity is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3: Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair value and therefore which category the asset or liability is placed in can be subjective. The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs. Estimation of useful lives of assets The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. intangible assets Impairment of non-financial assets other than goodwill and other indefinite life The consolidated entity assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each reporting date by evaluating conditions specific to the consolidated entity and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value- in-use calculations, which incorporate a number of key estimates and assumptions. It is reasonably possible that the underlying metal price assumption may change which may then impact the estimated life of mine determinant and may then require a material adjustment to the carrying value of mining plant and equipment, mining infrastructure and mining development assets. Furthermore, the expected future cash flows used to determine the value-in-use of these assets are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including reserves and production estimates, together with economic factors such as metal spot prices, discount rates, estimates of costs to produce reserves and future capital expenditure. At 30 June 2019, there were no impairment charge to Exploration, Evaluation and Development. WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) Provision for impairment of inventories p) IMPAIRMENT OF ASSETS (cont’d) Reversal of impairment losses An impairment loss recognised in prior periods for an asset/CGU is reversed if there has been a change in the estimates used to determine the asset’s/CGU’s recoverable amount since the last impairment loss was recognised. When an impairment loss subsequently reverses, the carrying amount of the asset/CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset/CGU in prior years. q) ROUNDING AMOUNTS cases, the nearest dollar. r) CASH AND CASH EQUIVALENTS The company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain Cash and cash equivalents comprise cash-on-hand, cash in banks and investments in money market instruments, net of outstanding bank overdrafts. Provisions are recognised where the group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow is able to s) PROVISIONS be reliably measured. t) INTANGIBLES Expenditure during the research phase of a project is recognised as an expense when incurred. Patents and trademarks are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably. Patents and trademarks have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project. u) CRITICAL ACCOUNTING ESTIMATES AND BALANCES The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Share-based payment transactions The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Monti Carlo model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. The provision for impairment of inventories assessment requires a degree of estimation and judgement. Costs incurred in or benefits of the productive process are accumulated as stockpiles, nickel and other metals in process, ore on run of mine ore pads and product inventory. Net realisable value tests are performed at least annually and represent the estimated future sales price of the product based on prevailing metal prices, less estimated costs to complete production and bring the product to sale. Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of contained metal tonnes based on assay data, and the estimated recovery percentage based on the expected processing method. Although the quantity of recoverable metal is reconciled by comparing the grades of the ore to the quantities of metals actually recovered (metallurgical balancing), the nature of the process inherently limits the ability to precisely monitor recoverability levels. As a result, the metallurgical balancing process is constantly monitored and the engineering estimates are refined based on actual results over time. Fair value measurement hierarchy The consolidated entity is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3: Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair value and therefore which category the asset or liability is placed in can be subjective. The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs. Estimation of useful lives of assets The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. Impairment of non-financial assets other than goodwill and other indefinite life intangible assets The consolidated entity assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each reporting date by evaluating conditions specific to the consolidated entity and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value- in-use calculations, which incorporate a number of key estimates and assumptions. It is reasonably possible that the underlying metal price assumption may change which may then impact the estimated life of mine determinant and may then require a material adjustment to the carrying value of mining plant and equipment, mining infrastructure and mining development assets. Furthermore, the expected future cash flows used to determine the value-in-use of these assets are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including reserves and production estimates, together with economic factors such as metal spot prices, discount rates, estimates of costs to produce reserves and future capital expenditure. At 30 June 2019, there were no impairment charge to Exploration, Evaluation and Development. 59 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) y) TRADE AND OTHER RECEIVABLES u) CRITICAL ACCOUNTING ESTIMATES AND BALANCES (cont’d) Income tax The consolidated entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. Provision for restoration and rehabilitation Provision is made for the costs of Restoration and rehabilitation when the related environmental disturbance takes place as outlined in Note 15. The provision recognised represents management’s best estimate of the costs that will be incurred, but significant judgement is required as many of these costs will not crystallise until the end of the life of the mine. Estimates are reviewed annually and are based on current regulatory requirements and the estimated useful life of the mine. Engineering and feasibility studies are undertaken periodically; however significant changes in the estimates of contamination, restoration standards and techniques will result in changes to provisions from period to period. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the consolidated entity considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Employee benefits provision As discussed in Note (m), the liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. v) CONTRIBUTED EQUITY Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. If the entity reacquires its own equity instruments, for example as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit and loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity. w) COMPARATIVE FIGURES Where necessary, comparative figures have been restated to conform with changes in presentation for the current year. x) TRADE AND OTHER PAYABLES Trade and other payables represent the liabilities for goods and services received by the entity that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days of recognition of the liability. 60 Trade receivables are recognised initially at fair value 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. The Group applies the simplified approach to providing for expected credit losses as prescribed by AASB 9. z) EARNINGS PER SHARE Basic earnings per share Basic earnings per share are calculated by dividing: The profit attributable to equity holders 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 (Note 18). Diluted earnings per share into account: ordinary shares, and Diluted earnings per share adjust the figures used in the determination of basic earnings per share to take The after income tax effect of interest and other financing costs associated with dilutive potential The weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. aa) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET MANDATORY OR EARLY ADOPTED Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2019. The Group’s assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. AASB 16 Leases AASB 16 was issued in January 2016 and it replaces AASB 117 Leases, Interpretation 4 Determining whether an Arrangement contains a Lease, Interpretation 115 Operating Leases-Incentives and Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under AASB 117. The standard includes two recognition exemptions for lessees: leases of ’low-value’ assets and short-term leases (i.e. leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e. the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e. the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g. a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under AASB 16 is substantially unchanged from today’s accounting under AASB 117. Lessors will continue to classify all leases using the same classification principle as in AASB 117 and distinguish between two types of leases: operating and finance leases. AASB 16 also requires lessees and lessors to make more extensive disclosures than under AASB 117. WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) y) TRADE AND OTHER RECEIVABLES u) CRITICAL ACCOUNTING ESTIMATES AND BALANCES (cont’d) Income tax uncertain. The consolidated entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is Provision for restoration and rehabilitation Provision is made for the costs of Restoration and rehabilitation when the related environmental disturbance takes place as outlined in Note 15. The provision recognised represents management’s best estimate of the costs that will be incurred, but significant judgement is required as many of these costs will not crystallise until the end of the life of the mine. Estimates are reviewed annually and are based on current regulatory requirements and the estimated useful life of the mine. Engineering and feasibility studies are undertaken periodically; however significant changes in the estimates of contamination, restoration standards and techniques will result in changes to provisions from period to period. Recovery of deferred tax assets and losses. Employee benefits provision Deferred tax assets are recognised for deductible temporary differences only if the consolidated entity considers it is probable that future taxable amounts will be available to utilise those temporary differences As discussed in Note (m), the liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. v) CONTRIBUTED EQUITY Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. If the entity reacquires its own equity instruments, for example as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit and loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity. Where necessary, comparative figures have been restated to conform with changes in presentation for w) COMPARATIVE FIGURES the current year. x) TRADE AND OTHER PAYABLES Trade and other payables represent the liabilities for goods and services received by the entity that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days of recognition of the liability. Trade receivables are recognised initially at fair value 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. The Group applies the simplified approach to providing for expected credit losses as prescribed by AASB 9. z) EARNINGS PER SHARE Basic earnings per share Basic earnings per share are calculated by dividing: The profit attributable to equity holders 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 (Note 18). Diluted earnings per share Diluted earnings per share adjust 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. aa) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET MANDATORY OR EARLY ADOPTED Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2019. The Group’s assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. AASB 16 Leases AASB 16 was issued in January 2016 and it replaces AASB 117 Leases, Interpretation 4 Determining whether an Arrangement contains a Lease, Interpretation 115 Operating Leases-Incentives and Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under AASB 117. The standard includes two recognition exemptions for lessees: leases of ’low-value’ assets and short-term leases (i.e. leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e. the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e. the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g. a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under AASB 16 is substantially unchanged from today’s accounting under AASB 117. Lessors will continue to classify all leases using the same classification principle as in AASB 117 and distinguish between two types of leases: operating and finance leases. AASB 16 also requires lessees and lessors to make more extensive disclosures than under AASB 117. 61 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) NOTE 3: DIVIDENDS aa) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET MANDATORY OR EARLY ADOPTED (cont’d) AASB 16 Leases (cont’d) Transition to AASB 16 AASB 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies AASB 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs. The Group plans to adopt AASB 16 using the modified retrospective approach, which means it will apply the standard from 1 July 2019, the cumulative impact of adoption will be recognised as at 1 July 2019 and comparatives will not be restated. The Group will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value. During the year, the Group continued to progress its detailed impact assessment and implementation project of AASB 16, focusing on reviewing contracts, aggregating data to support the evaluation of the accounting impacts and identifying where key policy decisions were required. Further work on process improvements and reaching conclusions on the Group’s accounting interpretations is continuing. In addition, the Group is aware that implementation activities of other corporates continue, and practical application of the new standard will continue to develop and emerge. Given this, the Group will closely monitor these developments and assess whether there is any impact on the positions taken. Work completed by the Group to date indicates the new leases standard is not expected to have a - Employee benefits expense material effect on the Group’s financial statements. Defined contribution superannuation expense 2,640 2,117 The Group’s existing operating leases will be the main source of leases under the new standard. - Finance costs: Information on the Group’s operating lease commitments under AASB 117 Leases (undiscounted) is disclosed in Note 20. NOTE 2: OTHER INCOME Interest income Other income Profit on sale of PP&E Partial Exemption Certificate credits Total other income Consolidated Entity 2019 $’000 2,709 1,238 - 1,201 5,148 2018 $’000 2,611 879 4 - 3,494 NOTE 4: PROFIT BEFORE INCOME TAX Consolidated Entity Dividends proposed A fully franked final dividend of 2 cents per share is proposed for the year ended 30 June 2019 (2018: 2 cents per ordinary share) Dividends paid A final dividend of 2 cents per share was paid for the year ended 30 June 2018 (2017: 2 cents per ordinary share) No interim dividend for 2019 (2018: Nil) Profit before income tax includes the following specific expenses: - Depreciation of property, plant and equipment - Amortisation of mine development asset - Rental expenditure relating to operating leases Provisions: unwinding of discount Interest expense – finance leases Borrowing costs amortised Total borrowing costs Trade debtors Other receivables GST refund due Prepayments NOTE 5: TRADE AND OTHER RECEIVABLES Consolidated Entity There are no balances within trade and other receivables that contain amounts that are past due but not impaired. It is expected the balances will be received when due as there is no recent history of default or expectation that they will default. 22,888 22,209 Consolidated Entity 2019 $’000 2018 $’000 5,471 5,471 5,470 - 5,470 2019 $’000 15,517 44,655 1,071 1,370 42 150 1,562 2019 $’000 17,454 836 1,271 3,327 5,470 5,470 5,445 - 5,445 2018 $’000 17,764 47,108 1,019 1,297 24 613 1,934 2018 $’000 19,855 929 1,128 297 62 WESTERN AREAS ANNUAL REPORT 2019 aa) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET MANDATORY OR EARLY ADOPTED (cont’d) AASB 16 Leases (cont’d) Transition to AASB 16 AASB 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies AASB 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs. The Group plans to adopt AASB 16 using the modified retrospective approach, which means it will apply the standard from 1 July 2019, the cumulative impact of adoption will be recognised as at 1 July 2019 and comparatives will not be restated. The Group will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value. During the year, the Group continued to progress its detailed impact assessment and implementation project of AASB 16, focusing on reviewing contracts, aggregating data to support the evaluation of the accounting impacts and identifying where key policy decisions were required. Further work on process improvements and reaching conclusions on the Group’s accounting interpretations is continuing. In addition, the Group is aware that implementation activities of other corporates continue, and practical application of the new standard will continue to develop and emerge. Given this, the Group will closely monitor these developments and assess whether there is any impact on the positions taken. Information on the Group’s operating lease commitments under AASB 117 Leases (undiscounted) is disclosed in Note 20. NOTE 2: OTHER INCOME Interest income Other income Profit on sale of PP&E Partial Exemption Certificate credits Total other income Consolidated Entity 2019 $’000 2,709 1,238 - 1,201 5,148 2018 $’000 2,611 879 4 - 3,494 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) NOTE 3: DIVIDENDS Dividends proposed A fully franked final dividend of 2 cents per share is proposed for the year ended 30 June 2019 (2018: 2 cents per ordinary share) Dividends paid A final dividend of 2 cents per share was paid for the year ended 30 June 2018 (2017: 2 cents per ordinary share) No interim dividend for 2019 (2018: Nil) NOTE 4: PROFIT BEFORE INCOME TAX Profit before income tax includes the following specific expenses: - Depreciation of property, plant and equipment - Amortisation of mine development asset - Rental expenditure relating to operating leases Consolidated Entity 2019 $’000 2018 $’000 5,471 5,471 5,470 - 5,470 5,470 5,470 5,445 - 5,445 Consolidated Entity 2019 $’000 15,517 44,655 1,071 2018 $’000 17,764 47,108 1,019 Work completed by the Group to date indicates the new leases standard is not expected to have a - Employee benefits expense material effect on the Group’s financial statements. Defined contribution superannuation expense 2,640 2,117 The Group’s existing operating leases will be the main source of leases under the new standard. - Finance costs: Provisions: unwinding of discount Interest expense – finance leases Borrowing costs amortised Total borrowing costs NOTE 5: TRADE AND OTHER RECEIVABLES Trade debtors Other receivables GST refund due Prepayments 1,370 42 150 1,562 1,297 24 613 1,934 Consolidated Entity 2019 $’000 17,454 836 1,271 3,327 2018 $’000 19,855 929 1,128 297 22,888 22,209 There are no balances within trade and other receivables that contain amounts that are past due but not impaired. It is expected the balances will be received when due as there is no recent history of default or expectation that they will default. 63 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 6: INVENTORIES ASSETS PLEDGED AS SECURITY Ore stockpiles Nickel concentrate stockpiles Consumables and spare parts NOTE 7: INCOME TAX The components of the tax expense comprise: - Current tax - Deferred tax - R&D tax offset - Adjustment of current tax for prior periods Income tax expense/(benefit) Consolidated Entity 2019 $’000 14,440 3,043 5,000 2018 $’000 26,765 3,634 4,406 22,483 34,805 Movement in the carrying amounts for each class of property, plant and equipment between the beginning and The property, plant and equipment are assets over which a mortgage has been granted as security over project loans. The terms of the mortgage preclude the assets from being sold or being used as security for further mortgages without the permission of the existing mortgagor. Assets under lease are pledged as security for the associated lease liabilities (Note 14(b)). MOVEMENT IN CARRYING AMOUNTS the end of the current year: Consolidated Entity 2019 $’000 - 4,566 - 257 4,823 2018 $’000 - 4,594 (246) 978 5,326 The prima facie tax on the profit from ordinary activities before income tax at the statutory income tax rate compared to the income tax expense at the groups’ effective income tax rate is reconciled as follows: Prima facie tax on profit before income tax at 30% (2018: 30%) Adjusted for the tax effect of: - Exploration write-off - Share based payment expense - Other temporary differences - Income tax benefit on share based payments Tax expense NOTE 8: PROPERTY, PLANT AND EQUIPMENT Property – at cost Accumulated depreciation Plant & equipment – at cost Work in progress – at cost Accumulated depreciation Plant & equipment under lease Accumulated depreciation Total property, plant & equipment – at cost Accumulated depreciation Total 64 Consolidated Entity 2019 $’000 5,704 - 686 (1,567) - 4,823 2018 $’000 5,149 - 1,079 821 (1,723) 5,326 Consolidated Entity 2019 $’000 48,253 (37,206) 11,047 152,221 82,236 (115,251) 119,206 2,888 (1,747) 1,141 285,598 (154,204) 131,394 2018 $’000 48,049 (33,294) 14,755 145,693 31,520 (103,933) 73,280 2,428 (1,460) 968 227,690 (138,687) 89,003 Written down value at the beginning of the year Property - Additions - Depreciation expense Plant & Equipment - Additions - Depreciation expense Written down value at the end of the year Written down value at the beginning of the year Written down value at the end of the year Plant & Equipment under Lease Written down value at the beginning of the year - Additions - Depreciation expense Written down value at the end of the year NOTE 9: FINANCIAL ASSETS Consolidated Entity Opening Balance - Acquisition of investment in listed entity - Changes in fair value through other comprehensive income In accordance with the terms of AASB 9, the Company made an irrevocable election to recognise movements in the fair value of its shares in Kidman Resources Ltd, Todd Resources Ltd and Grid Metals Inc. at each reporting period through Other Comprehensive Income. As at 30 June 2019, the investment in Kidman Resources Ltd was fair valued at $32.77m (2018: 32.42m). 33,725 33,307 Consolidated Entity 2019 $’000 14,755 204 (3,912) 11,047 73,280 57,244 (11,318) 119,206 968 460 (287) 1,141 2019 $’000 33,307 536 (118) 2018 $’000 19,411 - (4,656) 14,755 62,764 23,397 (12,881) 73,280 709 486 (227) 968 2018 $’000 11,396 - 21,911 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 6: INVENTORIES ASSETS PLEDGED AS SECURITY Consolidated Entity The property, plant and equipment are assets over which a mortgage has been granted as security over project loans. The terms of the mortgage preclude the assets from being sold or being used as security for further mortgages without the permission of the existing mortgagor. Assets under lease are pledged as security for the associated lease liabilities (Note 14(b)). MOVEMENT IN CARRYING AMOUNTS 22,483 34,805 Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current year: Consolidated Entity Property Written down value at the beginning of the year - Additions - Depreciation expense Written down value at the end of the year Plant & Equipment Written down value at the beginning of the year - Additions - Depreciation expense Written down value at the end of the year Plant & Equipment under Lease Written down value at the beginning of the year - Additions - Depreciation expense Written down value at the end of the year NOTE 9: FINANCIAL ASSETS Opening Balance - Acquisition of investment in listed entity - Changes in fair value through other comprehensive income 2019 $’000 14,755 204 (3,912) 11,047 73,280 57,244 (11,318) 119,206 968 460 (287) 1,141 2018 $’000 19,411 - (4,656) 14,755 62,764 23,397 (12,881) 73,280 709 486 (227) 968 Consolidated Entity 2019 $’000 33,307 536 (118) 2018 $’000 11,396 - 21,911 33,725 33,307 In accordance with the terms of AASB 9, the Company made an irrevocable election to recognise movements in the fair value of its shares in Kidman Resources Ltd, Todd Resources Ltd and Grid Metals Inc. at each reporting period through Other Comprehensive Income. As at 30 June 2019, the investment in Kidman Resources Ltd was fair valued at $32.77m (2018: 32.42m). 65 Ore stockpiles Nickel concentrate stockpiles Consumables and spare parts NOTE 7: INCOME TAX The components of the tax expense comprise: - Current tax - Deferred tax - R&D tax offset - Adjustment of current tax for prior periods Income tax expense/(benefit) Property – at cost Accumulated depreciation Plant & equipment – at cost Work in progress – at cost Accumulated depreciation Plant & equipment under lease Accumulated depreciation Total property, plant & equipment – at cost Accumulated depreciation Total The prima facie tax on the profit from ordinary activities before income tax at the statutory income tax rate compared to the income tax expense at the groups’ effective income tax rate is reconciled as follows: Consolidated Entity Prima facie tax on profit before income tax at 30% (2018: 30%) Adjusted for the tax effect of: - Exploration write-off - Share based payment expense - Other temporary differences - Income tax benefit on share based payments Tax expense NOTE 8: PROPERTY, PLANT AND EQUIPMENT 4,823 5,326 Consolidated Entity Consolidated Entity 2019 $’000 14,440 3,043 5,000 2019 $’000 4,566 - - 257 4,823 2019 $’000 5,704 686 (1,567) - - 2019 $’000 48,253 (37,206) 11,047 152,221 82,236 (115,251) 119,206 2,888 (1,747) 1,141 285,598 (154,204) 131,394 2018 $’000 26,765 3,634 4,406 2018 $’000 - 4,594 (246) 978 5,326 2018 $’000 5,149 - 1,079 821 (1,723) 2018 $’000 48,049 (33,294) 14,755 145,693 31,520 (103,933) 73,280 2,428 (1,460) 968 227,690 (138,687) 89,003 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 10: EXPLORATION AND EVALUATION EXPENDITURE NOTE 12: DEFERRED TAX LIABILITIES Exploration and Evaluation Expenditure consists of: - At cost - Cosmos nickel operation Total Exploration and Evaluation Expenditure MOVEMENT IN CARRYING AMOUNT Consolidated Entity 2019 $’000 83,339 27,105 110,444 2018 $’000 70,679 27,105 97,784 Movement in the carrying amounts for exploration and evaluation expenditure between the beginning and the end of the current period: Balance at the beginning of the year - Expenditure incurred during the year - Tenements sold at written down value - Write-off Balance at the end of the year Consolidated Entity 2019 $’000 97,784 12,660 - - 2018 $’000 87,157 10,627 - - 110,444 97,784 CARRY FORWARD EXPLORATION AND EVALUATION EXPENDITURE The overall movement in the deferred tax account is as follows: The recovery of the costs of exploration and evaluation expenditure carried forward is dependent upon the discovery of commercially viable mineral and other natural resource deposits and their subsequent development and exploitation or alternatively their sale. NOTE 11: MINE PROPERTIES The movement in the deferred tax liabilities for each temporary difference Capitalised development expenditure consists of: - Mine development - Acquisition of mining assets - Exploration expenditure transfer - Deferred mining expenditure - Capitalised restoration costs - Capitalised interest - Accumulated amortisation Total Mine Development MOVEMENT IN CARRYING AMOUNT Consolidated Entity 2019 $’000 167,845 59,796 76,000 403,548 11,645 11,175 2018 $’000 166,796 59,796 76,000 371,825 11,645 11,175 (599,219) (554,564) 130,790 142,673 Movement in the carrying amounts for mine development expenditure between the beginning and the end of the current period: Development Expenditure Written down value at the beginning of the year - Additions - Amortisation charge for the year Written down value at the end of the year 66 Consolidated Entity 2019 $’000 142,673 32,772 (44,655) 130,790 2018 $’000 155,813 33,968 (47,108) 142,673 The balance comprises temporary differences attributable to: a) Liabilities - Exploration and evaluation expenditure - Mine development - Other b) Assets - Property, plant and equipment - Provisions - Tax losses - Employee share trust - Other Net deferred tax liabilities c) Reconciliation i) Gross movement Opening balance (Credit)/Debit to income statement Closing balance ii) Deferred tax liability during the year is as follows: Exploration and development expenditure: Opening balance (Debit)/Credit to income statement Closing balance Mine development: Opening balance Closing balance Other: Credit/(Debit) to income statement Opening balance Credit to income statement Closing balance Consolidated Entity 2019 $’000 2018 $’000 (33,158) (28,144) (10,496) (4,566) (15,062) (5,902) (4,594) (10,496) (21,151) (6,780) (213) 5,061 5,006 3,879 1,178 2,524 17,648 (10,496) (17,707) (3,444) (21,151) (9,997) 3,217 (6,780) (274) 61 (213) (25,536) (6,713) (909) 3,356 6,781 7,583 376 - 18,096 (15,062) (21,151) (4,385) (25,536) (6,780) 67 (6,713) (213) (696) (909) WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 10: EXPLORATION AND EVALUATION EXPENDITURE NOTE 12: DEFERRED TAX LIABILITIES The balance comprises temporary differences attributable to: a) Liabilities - Exploration and evaluation expenditure - Mine development - Other b) Assets - Property, plant and equipment - Provisions - Tax losses - Employee share trust - Other Net deferred tax liabilities c) Reconciliation i) Gross movement CARRY FORWARD EXPLORATION AND EVALUATION EXPENDITURE The overall movement in the deferred tax account is as follows: Opening balance (Credit)/Debit to income statement Closing balance ii) Deferred tax liability The movement in the deferred tax liabilities for each temporary difference during the year is as follows: Exploration and development expenditure: Opening balance (Debit)/Credit to income statement Closing balance Mine development: Opening balance Credit/(Debit) to income statement Closing balance Other: Opening balance Credit to income statement Closing balance Movement in the carrying amounts for exploration and evaluation expenditure between the beginning and the end of the current period: Consolidated Entity The recovery of the costs of exploration and evaluation expenditure carried forward is dependent upon the discovery of commercially viable mineral and other natural resource deposits and their subsequent development and exploitation or alternatively their sale. Exploration and Evaluation Expenditure consists of: - At cost - Cosmos nickel operation Total Exploration and Evaluation Expenditure MOVEMENT IN CARRYING AMOUNT Balance at the beginning of the year - Expenditure incurred during the year - Tenements sold at written down value - Write-off Balance at the end of the year NOTE 11: MINE PROPERTIES Capitalised development expenditure consists of: - Mine development - Acquisition of mining assets - Exploration expenditure transfer - Deferred mining expenditure - Capitalised restoration costs - Capitalised interest - Accumulated amortisation Total Mine Development MOVEMENT IN CARRYING AMOUNT Development Expenditure Written down value at the beginning of the year - Additions - Amortisation charge for the year Written down value at the end of the year Consolidated Entity 2019 $’000 83,339 27,105 110,444 2019 $’000 97,784 12,660 - - 2018 $’000 70,679 27,105 97,784 2018 $’000 87,157 10,627 - - 110,444 97,784 Consolidated Entity 2019 $’000 167,845 59,796 76,000 403,548 11,645 11,175 2018 $’000 166,796 59,796 76,000 371,825 11,645 11,175 (599,219) (554,564) 130,790 142,673 Consolidated Entity 2019 $’000 142,673 32,772 (44,655) 130,790 2018 $’000 155,813 33,968 (47,108) 142,673 Movement in the carrying amounts for mine development expenditure between the beginning and the end of the current period: Consolidated Entity 2019 $’000 2018 $’000 (25,536) (6,713) (909) (21,151) (6,780) (213) (33,158) (28,144) 3,356 6,781 7,583 376 - 18,096 (15,062) 5,061 5,006 3,879 1,178 2,524 17,648 (10,496) (10,496) (4,566) (15,062) (5,902) (4,594) (10,496) (21,151) (4,385) (25,536) (6,780) 67 (6,713) (213) (696) (909) (17,707) (3,444) (21,151) (9,997) 3,217 (6,780) (274) 61 (213) 67 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 12: DEFERRED TAX LIABILITIES (cont’d) a) CORPORATE LOAN FACILITY Consolidated Entity 2019 $’000 2018 $’000 5,006 1,775 6,781 5,061 (1,705) 3,356 3,879 3,704 7,583 1,178 (802) 376 2,524 (2,524) - 5,838 (832) 5,006 5,002 59 5,061 9,752 (5,873) 3,879 192 986 1,178 1,292 1,232 2,524 Consolidated Entity 2019 $’000 29,642 19,332 48,974 2018 $’000 17,792 23,604 41,396 Consolidated Entity 2019 $’000 2018 $’000 399 399 495 495 267 267 445 445 c) Reconciliation (cont’d) iii) Deferred tax assets The movement in the deferred tax assets for each temporary difference during the year is as follows: Provisions: Opening balance (Debit)/Credit to income statement Closing balance Property, plant and equipment: Opening balance Credit to income statement Closing balance Tax losses: Opening balance Debit to income statement Closing balance Employee share trust: Opening balance Credit/(Debit) to income statement Closing balance Other: Opening balance Credit/(Debit) to income statement Closing balance NOTE 13: TRADE AND OTHER PAYABLES Trade payables Accrued expenses NOTE 14: BORROWINGS Current Lease liabilities Non-Current Lease liabilities 68 The Corporate Loan facility can be made available for broad company purposes as agreed between the Australia and New Zealand Banking Group Ltd (‘ANZ’) and Western Areas Ltd. In December 2017 the ANZ corporate loan facility (‘facility’) was renegotiated by the Company. The new facility is a secured, two year, A$25m revolving cash facility. The initial term of the facility is 12 months, which was extended for a further 12 months (24 months in total). The carrying value of assets secured under the corporate loan facility is as follows: The lease liabilities are secured over the assets under the lease. The finance leases have an average term of 3 years and an average implicit discount rate of 5.11%. Refer to Note 8 for the carrying value of the Mine properties Property, plant & equipment b) LEASE LIABILITIES assets under lease. NOTE 15: PROVISIONS Current Employee entitlements Non-Current Rehabilitation and restoration cost Opening balance Unwinding of discount Rehabilitation expenditure incurred during the period Closing balance Employee entitlements Consolidated Entity 2019 $’000 130,790 130,253 2018 $’000 142,673 88,035 261,043 230,708 Consolidated Entity 2019 $’000 2018 $’000 4,061 4,514 24,091 1,370 (49) 25,412 535 22,917 1,297 (123) 24,091 317 25,947 24,408 a) Employee entitlements relate to the balance of annual leave and long service leave accrued by the consolidated entity’s employees. Recognition and measurement criteria have been disclosed in Note 1. b) Rehabilitation and restoration costs relate to an estimate of restoration costs that will result from the development of the Forrestania Nickel Operations and Cosmos Nickel Operation. Based on the current known mine life, restoration activities are not expected to commence within the next 7 years, following full exhaustion of mine life rehabilitation activities will be undertaken. WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 12: DEFERRED TAX LIABILITIES (cont’d) a) CORPORATE LOAN FACILITY c) Reconciliation (cont’d) iii) Deferred tax assets The movement in the deferred tax assets for each temporary difference during the year is as follows: Provisions: Opening balance (Debit)/Credit to income statement Closing balance Property, plant and equipment: Opening balance Credit to income statement Debit to income statement Closing balance Tax losses: Opening balance Closing balance Employee share trust: Opening balance Closing balance Other: Opening balance Credit/(Debit) to income statement Credit/(Debit) to income statement Closing balance NOTE 14: BORROWINGS Trade payables Accrued expenses Current Lease liabilities Non-Current Lease liabilities NOTE 13: TRADE AND OTHER PAYABLES Consolidated Entity 2019 $’000 2018 $’000 5,006 1,775 6,781 5,061 (1,705) 3,356 3,879 3,704 7,583 1,178 (802) 376 2,524 (2,524) - 5,838 (832) 5,006 5,002 59 5,061 9,752 (5,873) 3,879 192 986 1,178 1,292 1,232 2,524 Consolidated Entity 2019 $’000 29,642 19,332 48,974 2018 $’000 17,792 23,604 41,396 Consolidated Entity 2019 $’000 2018 $’000 399 399 495 495 267 267 445 445 The Corporate Loan facility can be made available for broad company purposes as agreed between the Australia and New Zealand Banking Group Ltd (‘ANZ’) and Western Areas Ltd. In December 2017 the ANZ corporate loan facility (‘facility’) was renegotiated by the Company. The new facility is a secured, two year, A$25m revolving cash facility. The initial term of the facility is 12 months, which was extended for a further 12 months (24 months in total). The carrying value of assets secured under the corporate loan facility is as follows: Mine properties Property, plant & equipment b) LEASE LIABILITIES Consolidated Entity 2019 $’000 130,790 130,253 2018 $’000 142,673 88,035 261,043 230,708 The lease liabilities are secured over the assets under the lease. The finance leases have an average term of 3 years and an average implicit discount rate of 5.11%. Refer to Note 8 for the carrying value of the assets under lease. NOTE 15: PROVISIONS Current Employee entitlements Non-Current Rehabilitation and restoration cost Opening balance Unwinding of discount Rehabilitation expenditure incurred during the period Closing balance Employee entitlements Consolidated Entity 2019 $’000 2018 $’000 4,061 4,514 24,091 1,370 (49) 25,412 535 22,917 1,297 (123) 24,091 317 25,947 24,408 a) Employee entitlements relate to the balance of annual leave and long service leave accrued by the consolidated entity’s employees. Recognition and measurement criteria have been disclosed in Note 1. b) Rehabilitation and restoration costs relate to an estimate of restoration costs that will result from the development of the Forrestania Nickel Operations and Cosmos Nickel Operation. Based on the current known mine life, restoration activities are not expected to commence within the next 7 years, following full exhaustion of mine life rehabilitation activities will be undertaken. 69 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 16: DERIVATIVE FINANCIAL INSTRUMENTS Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. Current Assets Foreign exchange/nickel options – current assets Current Liabilities Foreign exchange/nickel options – current liabilities Consolidated Entity 2019 $’000 39 15 2018 $’000 - 1,592 Collar options are used to hedge cash flow risk associated with future transactions. Gains and losses arising from changes in the fair value of derivatives are initially recognised directly in the statement of comprehensive income. At the date of settlement, amounts included in the hedge reserve are transferred from equity and included in the income statement. NOTE 17: ISSUED CAPITAL Consolidated Entity 2019 $’000 2018 $’000 273,546,162 fully paid ordinary shares (2018: 272,792,647) 442,963 442,963 MOVEMENTS IN ISSUED CAPITAL 2019 Balance at beginning of the financial year - Performance rights vested issued as shares - Tax exempt share plan shares Balance at end of the financial year 2018 Balance at beginning of the financial year - Performance rights vested issued as shares - Tax exempt share plan shares Balance at end of the financial year CAPITAL MANAGEMENT Number of Shares $’000 272,792,647 442,963 693,733 59,782 - - 273,546,162 442,963 272,276,625 442,963 482,422 33,600 - - 272,792,647 442,963 The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor, and market confidence and to sustain future development of the business. There were no changes to the consolidated entity’s approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. The Board effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. PERFORMANCE RIGHTS Information relating to performance rights issued, exercised and lapsed during the year and the performance rights outstanding at the end of the year are detailed in Note 29 Share Based Payments. TERMS AND CONDITIONS OF ORDINARY SHARES Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid upon shares held. 70 TAX EXEMPT SHARE PLAN During February 2019, the Company issued $1,000 worth of shares to eligible employees under the newly introduced Western Areas Ltd Tax Exempt Share Plan, eligible employees were those that satisfied the minimum service condition and were not included in the existing performance rights plan. NOTE 18: EARNINGS PER SHARE Earnings used to calculate basic/diluted earnings per share Weighted average number of ordinary shares outstanding during the year used in calculating basic earnings per share 273,487,588 272,746,202 Weighted average number of ordinary shares outstanding during the year used in calculating dilutive earnings per share 277,331,708 277,113,672 NOTE 19: CASH FLOW INFORMATION a) RECONCILIATION OF THE NET PROFIT AFTER TAX TO NET CASH PROVIDED BY OPERATING ACTIVITIES Consolidated Entity Profit after income tax Depreciation expense Amortisation expense Impairment/write-off expenses Other Share based payment expense Rehabilitation provision interest unwound Rehabilitation expense Provision for employee entitlements Change in Assets and Liabilities Increase in trade and other payables Decrease/(Increase) in inventories (Increase)/Decrease in trade and other receivables Increase/(Decrease) in interest payable Increase/(Decrease) in tax liabilities Cash and cash equivalents comprise: Cash on hand and at bank Net cash provided by operating activities 98,297 76,966 b) RECONCILIATION OF CASH AND CASH EQUIVALENTS Consolidated Entity 2019 $’000 14,194 2018 $’000 11,837 2019 Number 2018 Number 2019 $’000 14,194 15,517 44,805 - (527) 2,286 1,370 (49) (235) 1,328 12,322 2,251 212 4,823 2018 $’000 11,837 17,764 47,721 - 1,533 3,598 1,297 (123) 881 10,003 (13,524) (9,216) (131) 5,326 Consolidated Entity 2019 $’000 2018 $’000 144,261 151,643 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 16: DERIVATIVE FINANCIAL INSTRUMENTS Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. Collar options are used to hedge cash flow risk associated with future transactions. Gains and losses arising from changes in the fair value of derivatives are initially recognised directly in the statement of comprehensive income. At the date of settlement, amounts included in the hedge reserve are transferred from equity and 273,546,162 fully paid ordinary shares (2018: 272,792,647) 442,963 442,963 Foreign exchange/nickel options – current assets Current Assets Current Liabilities Foreign exchange/nickel options – current liabilities included in the income statement. NOTE 17: ISSUED CAPITAL MOVEMENTS IN ISSUED CAPITAL Balance at beginning of the financial year - Performance rights vested issued as shares - Tax exempt share plan shares Balance at end of the financial year 2019 2018 Balance at beginning of the financial year - Performance rights vested issued as shares - Tax exempt share plan shares Balance at end of the financial year CAPITAL MANAGEMENT Consolidated Entity 2019 $’000 39 15 2018 $’000 - 1,592 Consolidated Entity 2019 $’000 2018 $’000 Number of Shares $’000 272,792,647 442,963 273,546,162 442,963 272,276,625 442,963 693,733 59,782 482,422 33,600 - - - - 272,792,647 442,963 The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor, and market confidence and to sustain future development of the business. There were no changes to the consolidated entity’s approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. The Board effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. PERFORMANCE RIGHTS Information relating to performance rights issued, exercised and lapsed during the year and the performance rights outstanding at the end of the year are detailed in Note 29 Share Based Payments. TERMS AND CONDITIONS OF ORDINARY SHARES Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid upon shares held. TAX EXEMPT SHARE PLAN During February 2019, the Company issued $1,000 worth of shares to eligible employees under the newly introduced Western Areas Ltd Tax Exempt Share Plan, eligible employees were those that satisfied the minimum service condition and were not included in the existing performance rights plan. NOTE 18: EARNINGS PER SHARE Earnings used to calculate basic/diluted earnings per share Consolidated Entity 2019 $’000 14,194 2018 $’000 11,837 2019 Number 2018 Number Weighted average number of ordinary shares outstanding during the year used in calculating basic earnings per share 273,487,588 272,746,202 Weighted average number of ordinary shares outstanding during the year used in calculating dilutive earnings per share 277,331,708 277,113,672 NOTE 19: CASH FLOW INFORMATION a) RECONCILIATION OF THE NET PROFIT AFTER TAX TO NET CASH PROVIDED BY OPERATING ACTIVITIES Consolidated Entity Profit after income tax Depreciation expense Amortisation expense Impairment/write-off expenses Other Share based payment expense Rehabilitation provision interest unwound Rehabilitation expense Provision for employee entitlements Change in Assets and Liabilities Increase in trade and other payables Decrease/(Increase) in inventories (Increase)/Decrease in trade and other receivables Increase/(Decrease) in interest payable Increase/(Decrease) in tax liabilities 2019 $’000 14,194 15,517 44,805 - (527) 2,286 1,370 (49) (235) 1,328 12,322 2,251 212 4,823 2018 $’000 11,837 17,764 47,721 - 1,533 3,598 1,297 (123) 881 10,003 (13,524) (9,216) (131) 5,326 Net cash provided by operating activities 98,297 76,966 b) RECONCILIATION OF CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise: Cash on hand and at bank Consolidated Entity 2019 $’000 2018 $’000 144,261 151,643 71 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 19: CASH FLOW INFORMATION (cont’d) c) FINANCING FACILITIES AVAILABLE As at the reporting date the Consolidated Entity had the following financing facilities in place: Total Facility Utilised at Balance Date Available Facilities (*) $’000 $’000 $’000 Banking Facilities: ANZ Banking Group - Cash advance facility* - Asset Finance Performance Guarantees: ANZ Banking Group - Security bond facility 25,000 2,000 1,000 28,000 - 1,356 472 1,828 25,000 644 528 26,172 * The Corporate Loan facility can be made available for broad company purposes as agreed between the Australia and New Zealand Banking Group Ltd (‘ANZ’) and Western Areas Ltd (refer Note 14a). surface level at Odysseus. d) NON-CASH FINANCING ACTIVITIES During the year, the consolidated entity acquired plant & equipment by means of a finance lease to the value of $460k (2018: $486k). NOTE 20: COMMITMENTS The Directors are not aware of any commitments as at the date of these financial statements other than those listed below. a) OPERATING LEASE COMMITMENTS Non-cancellable operating leases contracted for but not capitalised in the accounts: - No later than 1 year - Later than 1 year and not later than 5 years Lease expenditure contracted for at year end Consolidated Entity 2019 $’000 2018 $’000 655 780 1,435 645 1,436 2,081 The operating leases are for miscellaneous office equipment and office premises in West Perth. The West - Audit of Jobs and Competitiveness Programme Assistance Application Perth office lease expires August 2021. b) FINANCE LEASE COMMITMENTS - No later than 1 year - Later than 1 year and not later than 5 years Total Minimum Lease Payments - Future finance charges Total Lease Liability - Current - Non-current 72 Consolidated Entity 2019 $’000 2018 $’000 399 495 894 59 953 422 531 953 267 445 712 53 765 297 468 765 The finance lease commitments relate primarily to motor vehicles, but also include some office equipment. Motor vehicles are finance leased under 3-year contracts at normal commercial rates, balloon payments are generally required at the expiry of the finance lease, at which point the Company takes ownership of the vehicle. c) CAPITAL EXPENDITURE COMMITMENTS - No later than 1 year - Later than 1 year and not later than 5 years Total minimum commitments Following the Board’s decision to mine the Odysseus mine at Cosmos in October 2018, the Group has committed to the following capital expenditure in the following financial year. Dismantle of the Headgear & Winder purchased in the current financial year and the installation of pump stations at the 500 below d) EXPLORATION EXPENDITURE COMMITMENTS - No later than 1 year - Later than 1 year and not later than 5 years Total Minimum Payments Under the terms and conditions of the Company’s title to its various tenements, it has an obligation to meet tenement rents and minimum levels of exploration expenditure as gazetted by the Department of Mines and Petroleum. Some of this cost may be met by joint venture partners. Consolidated Entity 2019 $’000 11,818 - 11,818 2018 $’000 25,784 - 25,784 Consolidated Entity 2019 $’000 6,838 28,336 35,174 2018 $’000 6,255 25,020 31,275 Consolidated Entity 2019 $’000 2018 $’000 96 5 101 92 5 97 NOTE 21: AUDITOR REMUNERATION During the year the following fees were paid or payable for services provided by the auditor of the Company: - Audit and review of financial statements NOTE 22: MATERIAL CONTRACTS The Company has two main customers. A summary of the key terms of the off-take agreements entered into with these customers are detailed below. Credit risk associated with these customers is detailed in Note 27. A 3-year Offtake Contract with BHP Nickel West (‘BHPNW’) effective 1 February 2017 to deliver up 10,000 tonnes of nickel contained in concentrate per annum with a 30,000 tonne aggregate limit. A 3-year Offtake Contract with Tsingshan Group (‘Tsingshan’), through its associated entity, Golden Harbour Pte Ltd, effective 1 February 2017 to deliver up 10,000 tonnes of nickel contained in concentrate per annum. NOTE 23: CONTINGENT LIABILITIES The Directors are not aware of any contingent liabilities as at the date of these financial statements. WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 19: CASH FLOW INFORMATION (cont’d) c) FINANCING FACILITIES AVAILABLE As at the reporting date the Consolidated Entity had the following financing facilities in place: Total Facility Utilised at Balance Date Available Facilities (*) $’000 $’000 $’000 Banking Facilities: ANZ Banking Group - Cash advance facility* - Asset Finance Performance Guarantees: ANZ Banking Group - Security bond facility 25,000 2,000 1,000 28,000 - 1,356 472 1,828 25,000 644 528 26,172 The finance lease commitments relate primarily to motor vehicles, but also include some office equipment. Motor vehicles are finance leased under 3-year contracts at normal commercial rates, balloon payments are generally required at the expiry of the finance lease, at which point the Company takes ownership of the vehicle. c) CAPITAL EXPENDITURE COMMITMENTS - No later than 1 year - Later than 1 year and not later than 5 years Total minimum commitments Consolidated Entity 2019 $’000 11,818 - 11,818 2018 $’000 25,784 - 25,784 Following the Board’s decision to mine the Odysseus mine at Cosmos in October 2018, the Group has committed to the following capital expenditure in the following financial year. Dismantle of the Headgear & Winder purchased in the current financial year and the installation of pump stations at the 500 below * The Corporate Loan facility can be made available for broad company purposes as agreed between the Australia and New Zealand Banking Group Ltd (‘ANZ’) and Western Areas Ltd (refer Note 13a). surface level at Odysseus. d) NON-CASH FINANCING ACTIVITIES During the year, the consolidated entity acquired plant & equipment by means of a finance lease to the d) EXPLORATION EXPENDITURE COMMITMENTS The Directors are not aware of any commitments as at the date of these financial statements other than those - No later than 1 year - Later than 1 year and not later than 5 years Total Minimum Payments Consolidated Entity 2019 $’000 6,838 28,336 35,174 2018 $’000 6,255 25,020 31,275 Under the terms and conditions of the Company’s title to its various tenements, it has an obligation to meet tenement rents and minimum levels of exploration expenditure as gazetted by the Department of Mines and Petroleum. Some of this cost may be met by joint venture partners. The operating leases are for miscellaneous office equipment and office premises in West Perth. The West - Audit of Jobs and Competitiveness Programme Assistance Application NOTE 21: AUDITOR REMUNERATION During the year the following fees were paid or payable for services provided by the auditor of the Company: - Audit and review of financial statements Consolidated Entity 2019 $’000 2018 $’000 96 5 101 92 5 97 NOTE 22: MATERIAL CONTRACTS The Company has two main customers. A summary of the key terms of the off-take agreements entered into with these customers are detailed below. Credit risk associated with these customers is detailed in Note 27. A 3-year Offtake Contract with BHP Nickel West (‘BHPNW’) effective 1 February 2017 to deliver up 10,000 tonnes of nickel contained in concentrate per annum with a 30,000 tonne aggregate limit. A 3-year Offtake Contract with Tsingshan Group (‘Tsingshan’), through its associated entity, Golden Harbour Pte Ltd, effective 1 February 2017 to deliver up 10,000 tonnes of nickel contained in concentrate per annum. NOTE 23: CONTINGENT LIABILITIES The Directors are not aware of any contingent liabilities as at the date of these financial statements. 73 value of $460k (2018: $486k). NOTE 20: COMMITMENTS listed below. a) OPERATING LEASE COMMITMENTS Non-cancellable operating leases contracted for but not capitalised in the accounts: - No later than 1 year - Later than 1 year and not later than 5 years Lease expenditure contracted for at year end Perth office lease expires August 2021. b) FINANCE LEASE COMMITMENTS - No later than 1 year - Later than 1 year and not later than 5 years Total Minimum Lease Payments - Future finance charges Total Lease Liability - Current - Non-current Consolidated Entity 2019 $’000 2018 $’000 655 780 1,435 645 1,436 2,081 Consolidated Entity 2019 $’000 2018 $’000 399 495 894 59 953 422 531 953 267 445 712 53 765 297 468 765 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 24: SUBSEQUENT EVENTS NOTE 27: FINANCIAL RISK MANAGEMENT On 20 August 2019, the Board of Directors declared a fully franked dividend of 2 cents per share to the holders of fully paid ordinary shares. Other than the matter detailed above, there have been no subsequent events after 30 June 2019 which had a material effect on the financial statements for the year ended 30 June 2019. NOTE 25: STATEMENT OF OPERATIONS BY SEGMENTS IDENTIFICATION OF REPORTABLE SEGMENT The group identifies its operating segments based on the internal reports that are reviewed and used by the board of directors (chief operating decision makers) in assessing performance and determining the allocation of resources. BASIS OF ACCOUNTING FOR PURPOSES OF REPORTING BY OPERATING SEGMENTS Accounting policies adopted Unless stated otherwise, all amounts reported to the Board of Directors as the chief decision maker is in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group. NOTE 26: KEY MANAGEMENT PERSONNEL KEY MANAGEMENT PERSONNEL Key management personnel of the Consolidated Entity (as defined by AASB 124 Related Party transactions) include the following: I Macliver R Yeates Chairman (Non-Executive) Director (Non-Executive) C Readhead Director (Non-Executive) T Netscher Director (Non-Executive) N Streltsova Director (Non-Executive) D Lougher Managing Director J Belladonna Chief Financial Officer/Company Secretary W Jones General Manager Operations D Southam Executive Director (resigned 26 November 2018) Refer to the remuneration report contained in the Directors’ Report for details of the remuneration paid or payable to each member of the group’s key management personnel for the year ended 30 June 2019. The total of remuneration paid to key management personnel of the Consolidated Entity during the year is detailed below: Consolidated Entity 2019 $’000 3,848 1,238 195 5,281 2018 $’000 3,882 1,954 215 6,051 Short term employee benefits Share based payments Post-employment benefits 74 FINANCIAL RISK MANAGEMENT POLICIES The Treasury Committee consisting of senior management meets on a regular basis to analyse and discuss amongst other issues, monitoring and managing financial risk exposures of the consolidated entity. The Treasury Committee monitors the consolidated entity financial risk management policies and exposures and approves financial transactions within the scope of its authority. It also reviews the effectiveness of internal controls relating to commodity price risk, counter party credit risk, currency risk, financing risk and interest rate risk. The Treasury Committee’s overall risk management strategy seeks to assist the consolidated entity in meeting its financial targets, while minimising potential adverse effects on financial performance. Its functions include the review of the use of hedging derivative instruments, credit risk policies and future cash flow requirements. SPECIFIC FINANCIAL RISK EXPOSURES AND MANAGEMENT The main risks the Group is exposed to through its financial instruments are credit risk, liquidity risk and market risk consisting of interest rate risk, foreign currency risk and commodity and equity price risk. a) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The carrying amount of financial assets exposed to credit risk is detailed below: Consolidated Entity 2019 $’000 144,261 22,888 33,725 39 2018 $’000 151,643 22,209 33,307 - Cash and cash equivalents Trade and other receivables Financial assets at fair value through other comprehensive income Derivative financial instruments Cash and cash equivalents and derivative financial instruments The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings. Trade and other receivables The consolidated entity does not have significant credit risk exposure to trade receivables as the consolidated entity’s customers are considered to be of high credit quality. There were no balances within trade and other receivables that are past due. It is expected these balances will be received when due. Export sales are conducted under an irrevocable letter of credit prior to product being loaded at the port of Esperance. Financial assets at fair value through other comprehensive income Credit risk on financial assets at fair value through other comprehensive income is minimised by undertaking transactions with recognised counterparties on recognised exchanges. WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 24: SUBSEQUENT EVENTS NOTE 27: FINANCIAL RISK MANAGEMENT On 20 August 2019, the Board of Directors declared a fully franked dividend of 2 cents per share to the holders of fully paid ordinary shares. Other than the matter detailed above, there have been no subsequent events after 30 June 2019 which had a material effect on the financial statements for the year ended 30 June 2019. NOTE 25: STATEMENT OF OPERATIONS BY SEGMENTS IDENTIFICATION OF REPORTABLE SEGMENT The group identifies its operating segments based on the internal reports that are reviewed and used by the board of directors (chief operating decision makers) in assessing performance and determining the allocation of resources. the Group. BASIS OF ACCOUNTING FOR PURPOSES OF REPORTING BY OPERATING SEGMENTS Accounting policies adopted Unless stated otherwise, all amounts reported to the Board of Directors as the chief decision maker is in accordance with accounting policies that are consistent to those adopted in the annual financial statements of NOTE 26: KEY MANAGEMENT PERSONNEL KEY MANAGEMENT PERSONNEL Key management personnel of the Consolidated Entity (as defined by AASB 124 Related Party transactions) include the following: I Macliver R Yeates Chairman (Non-Executive) Director (Non-Executive) C Readhead Director (Non-Executive) T Netscher Director (Non-Executive) N Streltsova Director (Non-Executive) D Lougher Managing Director J Belladonna Chief Financial Officer/Company Secretary W Jones General Manager Operations D Southam Executive Director (resigned 26 November 2018) Refer to the remuneration report contained in the Directors’ Report for details of the remuneration paid or payable to each member of the group’s key management personnel for the year ended 30 June 2019. The total of remuneration paid to key management personnel of the Consolidated Entity during the year is detailed below: Short term employee benefits Share based payments Post-employment benefits Consolidated Entity 2019 $’000 3,848 1,238 195 5,281 2018 $’000 3,882 1,954 215 6,051 FINANCIAL RISK MANAGEMENT POLICIES The Treasury Committee consisting of senior management meets on a regular basis to analyse and discuss amongst other issues, monitoring and managing financial risk exposures of the consolidated entity. The Treasury Committee monitors the consolidated entity financial risk management policies and exposures and approves financial transactions within the scope of its authority. It also reviews the effectiveness of internal controls relating to commodity price risk, counter party credit risk, currency risk, financing risk and interest rate risk. The Treasury Committee’s overall risk management strategy seeks to assist the consolidated entity in meeting its financial targets, while minimising potential adverse effects on financial performance. Its functions include the review of the use of hedging derivative instruments, credit risk policies and future cash flow requirements. SPECIFIC FINANCIAL RISK EXPOSURES AND MANAGEMENT The main risks the Group is exposed to through its financial instruments are credit risk, liquidity risk and market risk consisting of interest rate risk, foreign currency risk and commodity and equity price risk. a) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The carrying amount of financial assets exposed to credit risk is detailed below: Cash and cash equivalents Trade and other receivables Financial assets at fair value through other comprehensive income Derivative financial instruments Consolidated Entity 2019 $’000 144,261 22,888 33,725 39 2018 $’000 151,643 22,209 33,307 - Cash and cash equivalents and derivative financial instruments The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings. Trade and other receivables The consolidated entity does not have significant credit risk exposure to trade receivables as the consolidated entity’s customers are considered to be of high credit quality. There were no balances within trade and other receivables that are past due. It is expected these balances will be received when due. Export sales are conducted under an irrevocable letter of credit prior to product being loaded at the port of Esperance. Financial assets at fair value through other comprehensive income Credit risk on financial assets at fair value through other comprehensive income is minimised by undertaking transactions with recognised counterparties on recognised exchanges. 75 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 27: FINANCIAL RISK MANAGEMENT (cont’d) SPECIFIC FINANCIAL RISK EXPOSURES AND MANAGEMENT (cont’d) b) Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms which include: preparing forward looking cash flow analysis in relation to its operational, investing and financing activities using derivatives that are only traded in highly liquid markets monitoring undrawn credit facilities, to the extent that they exist obtaining funding from a variety of sources maintaining a reputable credit profile managing credit risk related to financial assets investing surplus cash only with major financial institutions comparing the maturity profile of financial liabilities with the realisation profile of financial assets Net Financial Assets/(Liabilities) 130,597 (445) 33,307 163,459 The tables below reflect an undiscounted contractual maturity analysis for financial assets and liabilities. Cash flows realised from financial assets reflect management’s expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect management’s expectations that banking facilities will be rolled forward. Financial liability and financial asset maturity analysis The Consolidated Entity’s contractual maturity analysis of financial assets and financial liabilities is shown below: 1 year or less $’000 Over 1 to 5 years $’000 More than 5 years $’000 Total contractual cash flows $’000 1 year or less $’000 Over 1 to 5 years $’000 More than Total contractual 5 years cash flows $’000 $’000 151,643 22,209 - 173,852 41,396 267 1,592 43,255 - - - - - - 445 445 33,307 33,307 33,307 207,159 - - - - - - 151,643 22,209 41,396 712 1,592 43,700 2018 Consolidated Entity Financial Assets – Non-Derivative Cash and cash equivalents Trade and other receivables Financial assets at fair value through other comprehensive income Financial Liabilities – Non-Derivative Trade and other payables Lease liabilities Financial Liabilities – Derivative Derivative collar options (net settled) c) Market risk currency risk. i) Interest rate risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, price risk and Exposure to interest rate risk arises on financial assets and financial liabilities recognised at reporting date whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. Interest rate risk is managed using a mix of fixed and floating rate debt. At the reporting date, the interest rate risk profile of the consolidated entity’s interest bearing financial instruments was as follows: Floating Fixed interest maturing in: Non- interest 1 year or Over 1 to More than interest rate less 5 years 5 years bearing $’000 $’000 $’000 $’000 $’000 Weighted average interest rate Total $’000 Cash and cash equivalents 144,261 2019 Consolidated Entity Financial Assets Trade and other receivables Financial assets at fair value through other comprehensive income Financial Liabilities Trade and other payables Lease liability 144,261 - - - - - - - - - - - - - - - - - - - - - - - Net Financial Assets/(Liabilities) 144,261 (399) (495) 7,639 151,006 399 399 495 495 48,974 48,974 - 894 5.11% 48,974 49,868 - 144,261 2.26% 22,888 22,888 33,725 33,725 56,613 200,874 2019 Consolidated Entity Financial Assets – Non-Derivative Cash and cash equivalents Trade and other receivables Financial assets at fair value through other comprehensive income Financial Assets – Derivative Derivative collar options (net settled) Financial Liabilities – Non–Derivative Trade and other payables Lease liabilities Financial Liabilities – Derivative Derivative collar options (net settled) 144,261 22,888 32,767 39 199,955 48,974 399 15 49,388 - - - - - - 495 - 495 - - 144,261 22,888 958 33,725 - 958 39 200,913 - - - - 48,974 894 15 49,883 151,030 Net Financial Assets/(Liabilities) 150,567 (495) 958 76 WESTERN AREAS ANNUAL REPORT 2019 NOTE 27: FINANCIAL RISK MANAGEMENT (cont’d) SPECIFIC FINANCIAL RISK EXPOSURES AND MANAGEMENT (cont’d) b) Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms which include: activities preparing forward looking cash flow analysis in relation to its operational, investing and financing using derivatives that are only traded in highly liquid markets monitoring undrawn credit facilities, to the extent that they exist obtaining funding from a variety of sources maintaining a reputable credit profile managing credit risk related to financial assets investing surplus cash only with major financial institutions The tables below reflect an undiscounted contractual maturity analysis for financial assets and liabilities. Cash flows realised from financial assets reflect management’s expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect management’s expectations that banking facilities will be rolled forward. Financial liability and financial asset maturity analysis The Consolidated Entity’s contractual maturity analysis of financial assets and financial liabilities is shown below: 2019 Consolidated Entity Financial Assets – Non-Derivative Cash and cash equivalents Trade and other receivables Financial assets at fair value through other comprehensive income Financial Assets – Derivative Derivative collar options (net settled) Financial Liabilities – Non–Derivative Trade and other payables Lease liabilities Financial Liabilities – Derivative Derivative collar options (net settled) 1 year or less $’000 Over 1 to 5 years $’000 More than Total contractual 5 years cash flows $’000 $’000 144,261 22,888 32,767 39 199,955 48,974 399 15 49,388 150,567 - - - - - - - 495 495 (495) - - - - - - - 144,261 22,888 958 33,725 39 958 200,913 48,974 894 15 49,883 151,030 Net Financial Assets/(Liabilities) 958 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2018 Consolidated Entity Financial Assets – Non-Derivative Cash and cash equivalents Trade and other receivables Financial assets at fair value through other comprehensive income Financial Liabilities – Non-Derivative Trade and other payables Lease liabilities Financial Liabilities – Derivative Derivative collar options (net settled) 1 year or less $’000 Over 1 to 5 years $’000 More than 5 years $’000 Total contractual cash flows $’000 151,643 22,209 - 173,852 41,396 267 1,592 43,255 - - - - - 445 - 445 - - 151,643 22,209 33,307 33,307 33,307 207,159 - - - - 41,396 712 1,592 43,700 comparing the maturity profile of financial liabilities with the realisation profile of financial assets Net Financial Assets/(Liabilities) 130,597 (445) 33,307 163,459 c) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, price risk and currency risk. i) Interest rate risk Exposure to interest rate risk arises on financial assets and financial liabilities recognised at reporting date whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. Interest rate risk is managed using a mix of fixed and floating rate debt. At the reporting date, the interest rate risk profile of the consolidated entity’s interest bearing financial instruments was as follows: Floating Fixed interest maturing in: Non- interest 1 year or Over 1 to More than interest rate less 5 years 5 years bearing $’000 $’000 $’000 $’000 $’000 Weighted average interest rate Total $’000 2019 Consolidated Entity Financial Assets Cash and cash equivalents 144,261 Trade and other receivables Financial assets at fair value through other comprehensive income Financial Liabilities Trade and other payables Lease liability - - 144,261 - - - - - - - - - - - - - 399 399 495 495 Net Financial Assets/(Liabilities) 144,261 (399) (495) - - - - - - - - - 144,261 2.26% 22,888 22,888 33,725 33,725 56,613 200,874 48,974 48,974 - 894 5.11% 48,974 49,868 7,639 151,006 77 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 27: FINANCIAL RISK MANAGEMENT (cont’d) b) Commodity price risk SPECIFIC FINANCIAL RISK EXPOSURES AND MANAGEMENT (cont’d) c) Market risk (cont’d) i) Interest rate risk (cont’d) Floating Fixed interest maturing in: Non- interest 1 year or Over 1 to More than interest rate less 5 years 5 years bearing $’000 $’000 $’000 $’000 $’000 Weighted average interest rate Total $’000 2018 Consolidated Entity Financial Assets Cash and cash equivalents 151,643 Trade and other receivables Financial assets at fair value through other comprehensive income Financial Liabilities Trade and other payables Lease liability - - 151,643 - - - - - - - - - - - - - 267 267 445 445 Net Financial Assets/ (Liabilities) 151,643 (267) (445) - - - - - - - - - 151,643 2.62% 22,209 22,209 33,307 33,307 55,516 207,159 41,396 41,396 - 712 5.05% 41,396 42,108 14,120 165,051 Interest rate sensitivities have not been included in the financial report as the changes in profit before The following table summarises the nickel collar options open at 30 June 2019. tax due to changes in interest rate is not material to the results of the Consolidated Entity. ii) Price risk a) Equity price risk The consolidated entity is exposed to equity securities price risk. This arises from investments held by the Group and classified on the statement of financial position as financial assets at fair value through other comprehensive income. A majority of the consolidated entity’s equity investments are publicly traded and are quoted either on the ASX or the TSXV. The table below summarises the impact of increases / decreases of these two indexes on the Consolidated Entity’s comprehensive income. The analysis is based on the assumption that the equity indexes had increased by 10% / decreased by 10% (2018: increased by 10% / decreased by 10%) and foreign exchange rate increased by 5% / decreased by 5% (2018: increased by 5% / decreased by 5%) with all other variables held constant and all the Consolidated Entity’s equity instruments moved according to the historical correlation with the index. The percentages are the sensitivity rates used when reporting equity price risk internally to key management personnel and represents management’s assessment of the possible change in equity prices. Financial assets at fair value through other comprehensive income index ASX TSX Consolidated Entity 30 June 2019 $’000 2,922 108 30 June 2018 $’000 3,242 142 Comprehensive income would increase / decrease as a result of gains / losses on equity securities classified as financial assets at fair value through other comprehensive income. A decrease in the share price and exchange rate would result in a further decrease in fair value compared to cost. 78 The Consolidated Entity is exposed to commodity price risk. Commodity price risk arises from the sale of nickel. The entity manages its commodity price risk exposure arising from future commodity sales through sensitivity analysis, cash flow management and forecasting and where appropriate utilise derivative financial instruments to reduce price risk. The following table details the Consolidated Entity’s sensitivity to a US$500/tonne increase and decrease in the nickel price. US$500 is the sensitivity rate used when reporting commodity price risk internally to key management personnel and represents management’s assessment of the possible change in commodity price. The table below assumes all other variables remaining The consolidated entity enters into financial transactions in the normal course of business and in line with Board guidelines for the purpose of hedging and managing its expected exposure to nickel prices. The hedges are treated as cashflow hedges in accordance with AASB 9 Financial Instruments: Recognition and Measurement. Profit $’000 Equity $’000 +/- 153 +/- 153 +/- 147 +/- 147 Consolidated Group Collar Options 2019 - - - - - Collar Options 2018 3,600 15,587 56,113 13,167 47,401 constant. Sensitivity analysis Year Ended 30 June 2019 +- $500/tonne nickel Year Ended 30 June 2018 +- $500/tonne nickel Nickel Collar Options Nickel Tonnes US Price ($/tonne) Cap USD Value ($’000) US Price ($/tonne) Floor USD Value ($’000) iii) Currency risk Currency risk arises when future commercial transactions and recognised financial assets and liabilities are denominated in a currency that is not the entity’s functional currency. The Consolidated Entity manages its foreign currency risk exposure through sensitivity analysis, cash flow management, forecasting and where appropriate, utilises derivative financial instruments. The carrying amount of the Consolidated Entity’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows: 30 June 2019 30 June 2018 Financial liabilities Financial assets Financial liabilities Financial assets US$‘000 - 13,033 - 9,655 The following table details the consolidated entity’s sensitivity to a 5% increase and decrease in the Australian Dollar against the relevant foreign currencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 27: FINANCIAL RISK MANAGEMENT (cont’d) b) Commodity price risk The Consolidated Entity is exposed to commodity price risk. Commodity price risk arises from the sale of nickel. The entity manages its commodity price risk exposure arising from future commodity sales through sensitivity analysis, cash flow management and forecasting and where appropriate utilise derivative financial instruments to reduce price risk. The following table details the Consolidated Entity’s sensitivity to a US$500/tonne increase and decrease in the nickel price. US$500 is the sensitivity rate used when reporting commodity price risk internally to key management personnel and represents management’s assessment of the possible change in commodity price. The table below assumes all other variables remaining constant. Sensitivity analysis Year Ended 30 June 2019 +- $500/tonne nickel Year Ended 30 June 2018 +- $500/tonne nickel Nickel Collar Options Profit $’000 Equity $’000 +/- 153 +/- 153 +/- 147 +/- 147 The consolidated entity enters into financial transactions in the normal course of business and in line with Board guidelines for the purpose of hedging and managing its expected exposure to nickel prices. The hedges are treated as cashflow hedges in accordance with AASB 9 Financial Instruments: Recognition and Measurement. Interest rate sensitivities have not been included in the financial report as the changes in profit before The following table summarises the nickel collar options open at 30 June 2019. Nickel Tonnes US Price ($/tonne) Cap USD Value ($’000) US Price ($/tonne) Floor USD Value ($’000) iii) Currency risk Consolidated Group Collar Options 2019 - - - - - Collar Options 2018 3,600 15,587 56,113 13,167 47,401 Currency risk arises when future commercial transactions and recognised financial assets and liabilities are denominated in a currency that is not the entity’s functional currency. The Consolidated Entity manages its foreign currency risk exposure through sensitivity analysis, cash flow management, forecasting and where appropriate, utilises derivative financial instruments. The carrying amount of the Consolidated Entity’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows: 30 June 2019 30 June 2018 Financial liabilities Financial assets Financial liabilities Financial assets US$‘000 - 13,033 - 9,655 The following table details the consolidated entity’s sensitivity to a 5% increase and decrease in the Australian Dollar against the relevant foreign currencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. 79 SPECIFIC FINANCIAL RISK EXPOSURES AND MANAGEMENT (cont’d) c) Market risk (cont’d) i) Interest rate risk (cont’d) Floating Fixed interest maturing in: Non- interest 1 year or Over 1 to More than interest rate less 5 years 5 years bearing $’000 $’000 $’000 $’000 $’000 Weighted average interest rate Total $’000 Cash and cash equivalents 151,643 2018 Consolidated Entity Financial Assets Trade and other receivables Financial assets at fair value through other comprehensive income Financial Liabilities Trade and other payables Lease liability 151,643 - - - - - - - - - - - - - - - 267 267 445 445 - - - - - - - - - 151,643 2.62% 22,209 22,209 33,307 33,307 55,516 207,159 41,396 41,396 - 712 5.05% 41,396 42,108 14,120 165,051 Net Financial Assets/ (Liabilities) 151,643 (267) (445) tax due to changes in interest rate is not material to the results of the Consolidated Entity. ii) Price risk a) Equity price risk The consolidated entity is exposed to equity securities price risk. This arises from investments held by the Group and classified on the statement of financial position as financial assets at fair value through other comprehensive income. on the ASX or the TSXV. A majority of the consolidated entity’s equity investments are publicly traded and are quoted either The table below summarises the impact of increases / decreases of these two indexes on the Consolidated Entity’s comprehensive income. The analysis is based on the assumption that the equity indexes had increased by 10% / decreased by 10% (2018: increased by 10% / decreased by 10%) and foreign exchange rate increased by 5% / decreased by 5% (2018: increased by 5% / decreased by 5%) with all other variables held constant and all the Consolidated Entity’s equity instruments moved according to the historical correlation with the index. The percentages are the sensitivity rates used when reporting equity price risk internally to key management personnel and represents management’s assessment of the possible change in equity prices. Financial assets at fair value through other comprehensive income index ASX TSX Comprehensive income would increase / decrease as a result of gains / losses on equity securities classified as financial assets at fair value through other comprehensive income. A decrease in the share price and exchange rate would result in a further decrease in fair value compared to cost. Consolidated Entity 30 June 30 June 2019 $’000 2,922 108 2018 $’000 3,242 142 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 27: FINANCIAL RISK MANAGEMENT (cont’d) SPECIFIC FINANCIAL RISK EXPOSURES AND MANAGEMENT (cont’d) c) Market risk (cont’d) iii) Currency risk (cont’d) Sensitivity analysis Year Ended 30 June 2019 +5% in $A/$US -5% in $A/$US Year Ended 30 June 2018 +5% in $A/$US -5% in $A/$US Profit $’000 Equity $’000 1,135 (1,142) 850 (886) 1,135 (1,142) 850 (886) Foreign exchange collar options The consolidated entity had open foreign exchange collar options at 30 June 2019 relating to highly probable forecast transactions and recognised financial assets and financial liabilities. These contracts commit the Group to buy and sell specified amounts of foreign currencies in the future at specified exchange rates. The hedges are treated as cash flow hedges in accordance with AASB 9 Financial Instruments: Recognition and Measurement. The following table summarises the notional amounts of the consolidated entity’s commitments in relation to foreign exchange collar options. The notional amounts do not represent amounts exchanged by the transaction counterparties and are therefore not a measure of the exposure of the consolidated entity through the use of these contracts. Consolidated Group Buy AUD/Sell USD Settlement: - Less than 6 months - 6 months to 1 year d) Net fair values Notional Amounts Exchange Rate 2019 $000 2018 $000 2019 $ 2018 $ Put – Call Put – Call 22,500 30,000 0.677 – 0.723 0.737 – 0.788 - - - - The fair values of financial assets and financial liabilities are presented in the following table and can be compared to their carrying values as presented in the balance sheet. Fair values are those amounts at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Financial assets at fair value through other comprehensive income 33,725 Fair values derived may be based on information that is estimated or subject to judgement, where changes in assumptions may have a material impact on the amounts estimated. Areas of judgement and the assumptions have been detailed below. Where possible, valuation information used to calculate fair value is extracted from the market, with more reliable information available from markets that are actively traded. In this regard, fair values for listed securities are obtained from quoted closing market bid prices. Where securities are unlisted and no market quotes are available, fair value is obtained using discounted cash flow analysis and other valuation techniques commonly used by market participants. Differences between fair values and carrying values of financial instruments with fixed interest rates are due to the change in discount rates being applied by the market since their initial recognition by the Group. Most of these instruments which are carried at amortised cost are to be held until maturity and therefore the net fair value figures calculated bear little relevance to the Group. 80 Cash and cash equivalents 144,261 144,261 151,643 151,643 Financial assets at fair value through other Financial Assets comprehensive income Derivative financial assets Trade receivables Financial Liabilities Trade and other payables Derivative financial liabilities Other liabilities 2019 2018 Carrying Amount $’000 Net Fair Value $’000 Carrying Amount $’000 Net Fair Value $’000 Note I ii iii i i iii i 33,725 33,725 33,307 33,307 39 39 - - 22,888 22,888 22,209 22,209 200,913 200,913 207,159 207,159 48,974 48,974 41,396 41,396 15 894 15 894 1,592 712 1,592 712 49,883 49,883 43,700 43,700 The fair values disclosed in the above table have been determined based on the following methodologies: i) Cash and cash equivalents, trade and other receivables and trade and other liabilities are short-term instruments in nature whose carrying value is equivalent to fair value. Trade and other payables exclude amounts provided for annual leave, which is not considered a financial instrument. ii) Quoted closing bid prices at reporting date. iii) Fair valuation calculations are performed by an independent financial risk management consulting firm. The calculations include valuation techniques incorporating observable market data relevant to the hedged position. Financial instruments measured at fair value The financial instruments recognised at fair value in the statement of financial position have been analysed and classified using a fair value hierarchy reflecting the significance of the inputs used in making the measurements. The fair value hierarchy consists of the following levels: quoted prices in active markets for identical assets or liabilities (Level 1); 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 inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). 2019 Financial assets: Derivative financial instruments Financial liabilities: Derivative financial instruments 2018 Financial assets: Financial assets at fair value through other comprehensive income 33,307 Derivative financial instruments Level 1 Level 2 Level 3 $000 $000 $000 Total $000 - - - 33,725 33,307 - 39 (15) 24 - (1,592) (1,592) - - - - - - - 33,725 39 (15) 33,749 33,307 (1,592) 31,715 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 27: FINANCIAL RISK MANAGEMENT (cont’d) SPECIFIC FINANCIAL RISK EXPOSURES AND MANAGEMENT (cont’d) c) Market risk (cont’d) iii) Currency risk (cont’d) Sensitivity analysis Year Ended 30 June 2019 +5% in $A/$US -5% in $A/$US +5% in $A/$US -5% in $A/$US Year Ended 30 June 2018 Profit $’000 Equity $’000 1,135 (1,142) 850 (886) 1,135 (1,142) 850 (886) Foreign exchange collar options The consolidated entity had open foreign exchange collar options at 30 June 2019 relating to highly probable forecast transactions and recognised financial assets and financial liabilities. These contracts commit the Group to buy and sell specified amounts of foreign currencies in the future at specified exchange rates. The hedges are treated as cash flow hedges in accordance with AASB 9 Financial Instruments: Recognition and Measurement. The following table summarises the notional amounts of the consolidated entity’s commitments in relation to foreign exchange collar options. The notional amounts do not represent amounts exchanged by the transaction counterparties and are therefore not a measure of the exposure of the consolidated entity through the use of these contracts. Consolidated Group Buy AUD/Sell USD Settlement: - Less than 6 months - 6 months to 1 year d) Net fair values Notional Amounts Exchange Rate 2019 $000 2018 $000 2019 $ 2018 $ Put – Call Put – Call 22,500 30,000 0.677 – 0.723 0.737 – 0.788 - - - - The fair values of financial assets and financial liabilities are presented in the following table and can be compared to their carrying values as presented in the balance sheet. Fair values are those amounts at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an Fair values derived may be based on information that is estimated or subject to judgement, where changes in assumptions may have a material impact on the amounts estimated. Areas of judgement and the assumptions have been detailed below. Where possible, valuation information used to calculate fair value is extracted from the market, with more reliable information available from markets that are actively traded. In this regard, fair values for listed securities are obtained from quoted closing market bid prices. Where securities are unlisted and no market quotes are available, fair value is obtained using discounted cash flow analysis and other valuation techniques commonly used by market participants. Differences between fair values and carrying values of financial instruments with fixed interest rates are due to the change in discount rates being applied by the market since their initial recognition by the Group. Most of these instruments which are carried at amortised cost are to be held until maturity and therefore the net fair value figures calculated bear little relevance to the Group. Financial Assets Cash and cash equivalents Financial assets at fair value through other comprehensive income Derivative financial assets Trade receivables Financial Liabilities Trade and other payables Derivative financial liabilities Other liabilities 2019 2018 Carrying Amount $’000 Net Fair Value $’000 Carrying Amount $’000 Net Fair Value $’000 Note I ii iii i i iii i 144,261 144,261 151,643 151,643 33,725 33,725 33,307 33,307 39 39 - - 22,888 22,888 22,209 22,209 200,913 200,913 207,159 207,159 48,974 48,974 41,396 41,396 15 894 15 894 1,592 712 1,592 712 49,883 49,883 43,700 43,700 The fair values disclosed in the above table have been determined based on the following methodologies: i) Cash and cash equivalents, trade and other receivables and trade and other liabilities are short-term instruments in nature whose carrying value is equivalent to fair value. Trade and other payables exclude amounts provided for annual leave, which is not considered a financial instrument. ii) Quoted closing bid prices at reporting date. iii) Fair valuation calculations are performed by an independent financial risk management consulting firm. The calculations include valuation techniques incorporating observable market data relevant to the hedged position. Financial instruments measured at fair value The financial instruments recognised at fair value in the statement of financial position have been analysed and classified using a fair value hierarchy reflecting the significance of the inputs used in making the measurements. The fair value hierarchy consists of the following levels: quoted prices in active markets for identical assets or liabilities (Level 1); 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 inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). 2019 Financial assets: Level 1 Level 2 Level 3 $000 $000 $000 Total $000 arm’s length transaction. Financial assets at fair value through other comprehensive income 33,725 Derivative financial instruments Financial liabilities: Derivative financial instruments 2018 Financial assets: - - 33,725 Financial assets at fair value through other comprehensive income 33,307 Derivative financial instruments - 33,307 - 39 (15) 24 - (1,592) (1,592) - - - - - - - 33,725 39 (15) 33,749 33,307 (1,592) 31,715 81 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 28: RELATED PARTY TRANSACTIONS During the year the Company engaged Vintage94 Pty Ltd to provide specialist metallurgical consulting services to the value of A$16,000. Vintage94 Pty Ltd is a related party of Dr Natalia Streltsova. There were other related party transactions with KMP during FY19. NOTE 29: SHARE BASED PAYMENTS a) EXPENSES ARISING FROM SHARE BASED TRANSACTIONS Equity settled share options and performance rights granted during: - Year ended 30 June 2019 - Year ended 30 June 2018 - Year ended 30 June 2017 - Year ended 30 June 2016 Consolidated Entity 2019 $’000 2018 $’000 443 1,333 510 - 1,121 1,449 1,028 - Total expense recognised as employee costs 2,286 3,598 b) PERFORMANCE RIGHTS Under the Performance Rights plan, executives and senior management are granted a right to be issued a share in the future subject to the performance based vesting conditions being met. The Company’s share price performance is measured via a relative total shareholder return (‘TSR’). The Company’s TSR is measured against a customised peer group of companies. For grants made under the LTI plan during FY17, vesting will occur subject to the meeting of a 3-year service condition to 30 June 2019 and the performance condition tested against the relative TSR measure for the period 1 July 2016 to 30 June 2019. For grants made under the LTI plan during FY18, vesting will occur subject to the meeting of a 3-year service condition to 30 June 2020 and the performance condition tested against the relative TSR measure for the period 1 July 2017 to 30 June 2020. For grants made under the LTI plan during FY19, vesting will occur subject to the meeting of a 3-year service condition to 30 June 2021 and the performance condition tested against the relative TSR measure for the period 1 July 2018 to 30 June 2021. The following table sets out the vesting outcome based on the Company’s relative TSR performance: Relative TSR performance Performance Vesting Outcomes i) SHARE BASED PAYMENT RESERVE Less than 50th percentile At the 50th percentile 0% vesting 50% vesting Between 50th and 75th percentile Pro-rata/progressive vesting from 50% to 100% At or above 75th percentile 100% vesting No Performance Rights will vest unless the percentile ranking of the Company’s TSR for the relevant performance year, as compared to the TSRs for the peer group companies, is at or above the 50th percentile. 82 The valuation inputs used in determining the fair value of performance rights issued during the year are detailed below: Underlying share price Exercise price of rights Risk free rate Volatility factor Dividend yield Effective life Entitled number of employees 2019 $2.18 Nil 2.03% 49% 1.61% 2018 $3.08 Nil 1.86% 50% 1.18% 3.0 years 3.0 years 24 23 Performance Rights held by Key Management Personnel at 30 June 2019 Balance at Granted as 1 July 2018 Remuneration Exercise of Lapsed/ Performance Cancelled/ Rights Other Balance at Performance 30 June 2019 Rights Vested D Lougher 1,095,570 415,310 298,650 277,080 106,050 75,530 (191,840) (72,723) (52,294) (107,910) (40,907) (29,416) 1,072,900 407,730 292,470 1,809,530 458,660 (316,857) (178,233) 1,773,100 J Belladonna W Jones TOTAL Performance Rights held by Key Management Personnel at 30 June 2018 Balance at Granted as 1 July 2017 Remuneration Exercise of Performance Expired/ Lapsed/ Rights Cancelled Balance at 30 June 2018 Performance Rights Vested D Lougher D Southam J Belladonna W Jones TOTAL 880,430 495,335 333,755 240,002 420,280 236,460 159,320 114,570 (143,598) (80,791) (54,436) (39,145) (61,542) (34,624) (23,329) (16,777) 1,095,570 616,380 415,310 298,650 1,949,522 930,630 (317,970) (136,272) 2,425,910 - - - - - - - - - c) SHARE OPTION PLANS There were no options outstanding as at 30 June 2019. NOTE 30: RESERVES The share based payment reserve records the items recognised as expenses on valuation of employee share options and performance rights. ii) HEDGE RESERVE The hedge reserve records revaluations of items designated as hedges. iii) INVESTMENT REVALUATION RESERVE The investment revaluation reserve records revaluations of financial assets at fair value through other comprehensive income. WESTERN AREAS ANNUAL REPORT 2019 NOTE 28: RELATED PARTY TRANSACTIONS During the year the Company engaged Vintage94 Pty Ltd to provide specialist metallurgical consulting services to the value of A$16,000. Vintage94 Pty Ltd is a related party of Dr Natalia Streltsova. There were other related party transactions with KMP during FY19. NOTE 29: SHARE BASED PAYMENTS a) EXPENSES ARISING FROM SHARE BASED TRANSACTIONS Equity settled share options and performance rights granted during: - Year ended 30 June 2019 - Year ended 30 June 2018 - Year ended 30 June 2017 - Year ended 30 June 2016 b) PERFORMANCE RIGHTS Total expense recognised as employee costs 2,286 3,598 Consolidated Entity 2019 $’000 2018 $’000 443 1,333 510 - 1,121 1,449 1,028 - Under the Performance Rights plan, executives and senior management are granted a right to be issued a share in the future subject to the performance based vesting conditions being met. The Company’s share price performance is measured via a relative total shareholder return (‘TSR’). The Company’s TSR is measured against a customised peer group of companies. For grants made under the LTI plan during FY17, vesting will occur subject to the meeting of a 3-year service condition to 30 June 2019 and the performance condition tested against the relative TSR measure for the period 1 July 2016 to 30 June 2019. For grants made under the LTI plan during FY18, vesting will occur subject to the meeting of a 3-year service condition to 30 June 2020 and the performance condition tested against the relative TSR measure for the period 1 July 2017 to 30 June 2020. For grants made under the LTI plan during FY19, vesting will occur subject to the meeting of a 3-year service condition to 30 June 2021 and the performance condition tested against the relative TSR measure for the period 1 July 2018 to 30 June 2021. The following table sets out the vesting outcome based on the Company’s relative TSR performance: Less than 50th percentile At the 50th percentile 0% vesting 50% vesting Between 50th and 75th percentile Pro-rata/progressive vesting from 50% to 100% At or above 75th percentile 100% vesting No Performance Rights will vest unless the percentile ranking of the Company’s TSR for the relevant performance year, as compared to the TSRs for the peer group companies, is at or above the 50th percentile. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS The valuation inputs used in determining the fair value of performance rights issued during the year are detailed below: Underlying share price Exercise price of rights Risk free rate Volatility factor Dividend yield Effective life Entitled number of employees 2019 $2.18 Nil 2.03% 49% 1.61% 2018 $3.08 Nil 1.86% 50% 1.18% 3.0 years 3.0 years 24 23 Performance Rights held by Key Management Personnel at 30 June 2019 Balance at 1 July 2018 Granted as Remuneration Exercise of Performance Rights Lapsed/ Cancelled/ Other Balance at 30 June 2019 Performance Rights Vested D Lougher 1,095,570 415,310 298,650 277,080 106,050 75,530 (191,840) (72,723) (52,294) (107,910) (40,907) (29,416) 1,072,900 407,730 292,470 1,809,530 458,660 (316,857) (178,233) 1,773,100 J Belladonna W Jones TOTAL - - - - Performance Rights held by Key Management Personnel at 30 June 2018 Balance at 1 July 2017 Granted as Remuneration Exercise of Performance Rights Expired/ Lapsed/ Cancelled Balance at 30 June 2018 Performance Rights Vested D Lougher D Southam J Belladonna W Jones TOTAL 880,430 495,335 333,755 240,002 420,280 236,460 159,320 114,570 (143,598) (80,791) (54,436) (39,145) (61,542) (34,624) (23,329) (16,777) 1,095,570 616,380 415,310 298,650 1,949,522 930,630 (317,970) (136,272) 2,425,910 - - - - - c) SHARE OPTION PLANS There were no options outstanding as at 30 June 2019. NOTE 30: RESERVES Relative TSR performance Performance Vesting Outcomes i) SHARE BASED PAYMENT RESERVE The share based payment reserve records the items recognised as expenses on valuation of employee share options and performance rights. ii) HEDGE RESERVE The hedge reserve records revaluations of items designated as hedges. iii) INVESTMENT REVALUATION RESERVE The investment revaluation reserve records revaluations of financial assets at fair value through other comprehensive income. 83 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 31: INTERESTS IN SUBSIDIARIES CONTINGENT LIABILITIES The consolidated financial statements incorporate the assets, liabilities and results of the following wholly- owned subsidiaries in accordance with the accounting policy described in Note 1: Name Country of Incorporation Western Platinum NL Australian Nickel Investments Pty Ltd Bioheap Ltd Western Areas Nickel Pty Ltd Western Areas Employee Share Trust Australia Australia Australia Australia Australia Percentage of equity held 2019 100% 100% 100% 100% 100% 2018 100% 100% 100% 100% 100% All the entities above are members of the tax consolidated group of which Western Areas Ltd is the head entity. Western Areas Ltd is the parent entity and is incorporated and domiciled in Australia. NOTE 32: PARENT INFORMATION The following information has been extracted from the books of the parent and has been prepared in accordance with the accounting standards. STATEMENT OF FINANCIAL POSITION The Directors are not aware of any contingent liabilities as at the date of these financial statements. CONTRACTUAL COMMITMENTS Australian Nickel Investments Pty Ltd. Refer to Note 20, all commitments were entered into by Western Areas Ltd or its fully owned subsidiary, NOTE 33: ADDITIONAL COMPANY INFORMATION Western Areas Ltd is a Public Company, incorporated and domiciled in Australia. Registered office and Principal place of business: Level 2 2 Kings Park Road West Perth WA 6005 Tel: +61 8 9334 7777 Fax: +61 8 9486 7866 Web: www.westernareas.com.au Email: info@westernareas.com.au Assets Current Assets Non-Current Assets Total Assets Liabilities Current Liabilities Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Retained Earnings Total Equity Statement of Comprehensive Income Profit for the year Total comprehensive income for the year GUARANTEES Parent Entity 2019 $’000 187,785 420,319 608,104 44,508 31,766 76,274 2018 $’000 206,834 379,589 586,423 41,791 27,920 69,711 531,830 516,712 442,963 48,815 40,054 531,832 16,308 18,048 442,963 44,533 29,216 516,712 15,847 35,746 Western Areas Ltd has not entered into any guarantees, in the current or previous financial year, in relation to the debts of its subsidiaries. 84 WESTERN AREAS ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTE 31: INTERESTS IN SUBSIDIARIES CONTINGENT LIABILITIES The consolidated financial statements incorporate the assets, liabilities and results of the following wholly- owned subsidiaries in accordance with the accounting policy described in Note 1: Name Country of Incorporation Percentage of equity held Western Platinum NL Australian Nickel Investments Pty Ltd Bioheap Ltd Western Areas Nickel Pty Ltd Western Areas Employee Share Trust Australia Australia Australia Australia Australia 2019 100% 100% 100% 100% 100% 2018 100% 100% 100% 100% 100% All the entities above are members of the tax consolidated group of which Western Areas Ltd is the head entity. Western Areas Ltd is the parent entity and is incorporated and domiciled in Australia. The following information has been extracted from the books of the parent and has been prepared in NOTE 32: PARENT INFORMATION accordance with the accounting standards. STATEMENT OF FINANCIAL POSITION The Directors are not aware of any contingent liabilities as at the date of these financial statements. CONTRACTUAL COMMITMENTS Refer to Note 20, all commitments were entered into by Western Areas Ltd or its fully owned subsidiary, Australian Nickel Investments Pty Ltd. NOTE 33: ADDITIONAL COMPANY INFORMATION Western Areas Ltd is a Public Company, incorporated and domiciled in Australia. Registered office and Principal place of business: Level 2 2 Kings Park Road West Perth WA 6005 Tel: +61 8 9334 7777 Fax: +61 8 9486 7866 Web: www.westernareas.com.au Email: info@westernareas.com.au Assets Current Assets Non-Current Assets Total Assets Liabilities Current Liabilities Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Retained Earnings Total Equity Statement of Comprehensive Income Profit for the year Total comprehensive income for the year GUARANTEES the debts of its subsidiaries. Parent Entity 2019 $’000 187,785 420,319 608,104 44,508 31,766 76,274 442,963 48,815 40,054 531,832 16,308 18,048 2018 $’000 206,834 379,589 586,423 41,791 27,920 69,711 442,963 44,533 29,216 516,712 15,847 35,746 531,830 516,712 Western Areas Ltd has not entered into any guarantees, in the current or previous financial year, in relation to 85 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS DECLARATION INDEPENDENT AUDITOR’S REPORT 1. In the opinion of the Directors of Western Areas Ltd: a) the Consolidated Entity’s financial statements and notes set out on pages 44 to 85 are in accordance with the Corporations Act 2001, including: i) giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2019 and of its performance, for the financial year ended on that date; and ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; b) the financial report also complies with International Financial Reporting Standards as set out in Note 1; c) the remuneration disclosures that are contained in the remuneration report in the Directors’ Report comply with Australian Accounting Standard AASB 124 Related Party Disclosures, the Corporations Act 2001 and the Corporations Regulations 2001; d) there are reasonable grounds to believe that the Consolidated Entity will be able to pay its debts as and when they become due and payable. 2. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director & Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2019. Signed in accordance with a resolution of the Board of Directors. D Lougher Managing Director & Chief Executive Officer Dated – 20 August 2019 86 WESTERN AREAS ANNUAL REPORT 2019 DIRECTORS DECLARATION INDEPENDENT AUDITOR’S REPORT 1. In the opinion of the Directors of Western Areas Ltd: a) the Consolidated Entity’s financial statements and notes set out on pages 44 to 85 are in accordance with the Corporations Act 2001, including: i) giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2019 and of its performance, for the financial year ended on that date; and ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; b) the financial report also complies with International Financial Reporting Standards as set out in Note 1; c) the remuneration disclosures that are contained in the remuneration report in the Directors’ Report comply with Australian Accounting Standard AASB 124 Related Party Disclosures, the Corporations Act 2001 and the Corporations Regulations 2001; d) there are reasonable grounds to believe that the Consolidated Entity will be able to pay its debts as and when they become due and payable. 2. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director & Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2019. Signed in accordance with a resolution of the Board of Directors. D Lougher Managing Director & Chief Executive Officer Dated – 20 August 2019 Crowe Perth ABN 96 844 819 235 Level 5 45 St Georges Terrace Perth WA 6000 PO Box P1213 Perth WA 6844 Australia Main +61 (8) 9481 1448 Fax +61 (8) 9481 0152 www.crowe.com.au INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF WESTERN AREAS LTD REPORT ON THE AUDIT OF THE FINANCIAL REPORT Opinion We have audited the financial report of Western Areas Ltd (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements comprising a summary of significant accounting policies and the Director’s Declaration. In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (a) Giving a true and fair view of the Group’s financial position at 30 June 2019 and of its financial performance for the year then ended; and (b) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of this report. We are independent of the Group in accordance with the independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The title ‘Partner’ conveys that the person is a senior member within their respective division, and is among the group of persons who hold an equity interest (shareholder) in its parent entity, Findex Group Limited. The only professional service offering which is conducted by a partnership is the Crowe Australasia external audit division. All other professional services offered by Findex Group Limited are conducted by a privately owned organisation and/or its subsidiaries. Findex (Aust) Pty Ltd, trading as Crowe Australasia is a member of Crowe Global, a Swiss verein. Each member firm of Crowe Global is a separate and independent legal entity. Findex (Aust) Pty Ltd and its affiliates are not responsible or liable for any acts or omissions of Crowe Global or any other member of Crowe Global. Crowe Global does not render any professional services and does not have an ownership or partnership interest in Findex (Aust) Pty Ltd. Services are provided by Crowe Perth, an affiliate of Findex (Aust) Pty Ltd. Liability limited by a scheme approved under Professional Standards Legislation. Liability limited other than for acts or omissions of financial services licensees. © 2019 Findex (Aust) Pty Ltd 87 WESTERN AREAS ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT Key Audit Matter How we addressed the Key Audit Matter Amortisation of mine properties (mines in production) Amortisation of mine properties was material to our audit and represented an area of significant estimate and judgement within the financial report. As outlined in Note 4, the Group recorded amortisation expenses of $44.7m for the year ended 30 June 2019. Our procedures included, but were not limited to: • Ensuring the Group’s amortisation accounting policy was in accordance with Australian Accounting Standards and was consistently applied; As outlined in Notes 1(j), the annual amortisation expense was calculated using the unit of production method that was highly dependent on management’s estimate of the remaining nickel ore reserves for each mine and actual production volumes. • Recalculation of the amortisation rate and checking the amortisation rate inputs by: o agreeing reserve estimations to published reserve statements; and o agreeing production volumes to the Group’s Quarterly Activity Reports. • Assessing the competency and objectivity of the experts used by management in compiling the ore reserve estimations and evaluating the appropriateness and adequacy of the work. Impairment of mine properties (mines in production) and property, plant and equipment As outlined in Notes 8 and 11, the carrying value of the Group’s Mine Properties was $130.8m and the carrying value of Property, Plant and Equipment was $131.4m at 30 June 2019. These represented significant balances recorded in the Group’s consolidated statement of financial position and encompassed substantial capitalisation of expenditure. The process undertaken by management to assess whether there were any indicators of impairment involved significant judgement. Our procedures included, but were not limited to: • Evaluating management’s documented assessment of the existence of impairment indicators from internal and external sources; • Corroborating representations made by management with available external data and evidence obtained by us during the course of our audit; and • Considering the appropriateness of relevant disclosures in the notes to the financial statements. Provision for rehabilitation At 30 June 2019, the carrying value of the Group’s provision for rehabilitation was $25.4m. The accounting policy adopted by the Group in relation to its provision for rehabilitation was disclosed in Notes 1(j, s and u) and further disclosures were in Note 15. Our procedures included, but were not limited to: • Obtaining the closure cost estimates prepared by management; • Challenging the reasonableness of key assumptions and conclusions reached by management, by reference to information obtained during the course of our audit. This area was a key audit matter because the calculations of the provision were complex and 88 WESTERN AREAS ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT Key Audit Matter How we addressed the Key Audit Matter based on the estimates of future costs of the required work, including volume and unit rates, the timing of future cash flows and the discount rate. • Checking the mathematical accuracy of the calculations; and • Assessing the competency and objectivity of the expert used by management and evaluating the appropriateness and adequacy of the work. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s 2019 Annual Report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based upon the work we have performed, we conclude that there is material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors’ for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the 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 Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material mis-statement when it exists. Mis-statements 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 the financial report. 89 WESTERN AREAS ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained whether a material uncertainty exists related to events and conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the group financial report. The auditor is responsible for the direction, supervision and performance of the group audit. The auditor remains solely responsible for the audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We are also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may be reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 90 WESTERN AREAS ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 34 to 41 of the directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of Western Areas Ltd for the year ended 30 June 2019 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Crowe Perth Sean McGurk Partner Signed at Perth, 20 August 2019 91 WESTERN AREAS ANNUAL REPORT 2019 TENEMENT LISTING Name Cosmos (WA) Lease Status WSA Interest Applicant/Holder E36/0935 M36/0127 M36/0180 M36/0302 M36/0303 Granted Granted Granted Granted Granted M36/0305 M36/0329 Granted Granted 100% 100% 100% 100% 80.6% 100% 80.6% M36/0330 Granted 80.6% Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd (80.6%) and Alkane Resources Ltd (19.4%) Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd (80.6%) and Alkane Resources Ltd (19.4%) Australian Nickel Investments Pty Ltd (80.6%) and Alkane Resources Ltd (19.4%) M36/0332 M36/0349 M36/0371 M36/0377 M36/0467 M36/0632 M36/0633 M36/0659 L36/0042 L36/0067 L36/0068 L36/0069 L36/0070 L36/0071 L36/0072 L36/0073 L36/0074 L36/0075 L36/0076 L36/0077 L36/0078 L36/0079 L36/0080 L36/0081 L36/0094 L36/0095 L36/0118 L36/0119 L36/0145 L36/0148 L36/0159 L36/0171 L36/0172 L36/0189 L36/0194 L36/0199 L36/0225 E74/0470 E77/1734 E77/1865 E77/2127 E77/2228 E77/2235 E77/2236 E77/2261 E77/2440 Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Pending Granted Granted Granted Pending Pending Pending Pending Pending Pending 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd BHP Billiton Yakabindie Nickel Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Australian Nickel Investments Pty Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Forrestania (WA) 92 WESTERN AREAS ANNUAL REPORT 2019 Name Lease Status WSA Interest Applicant/Holder TENEMENT LISTING Forrestania (WA) E77/2523 E77/2524 E77/2527 G70/0226 G70/0231 G77/0135 L70/0111 L74/0011 L74/0012 L74/0025 L74/0044 L77/0104 L77/0141 L77/0182 L77/0197 L77/0203 L77/0204 M74/0057 M74/0058 M74/0064 M74/0065 M74/0081 M74/0090 M74/0091 M74/0092 M77/0098 M77/0215 M77/0216 M77/0219 M77/0284 M77/0285 M77/0286 M77/0329 M77/0335 M77/0336 M77/0389 M77/0399 M77/0458 M77/0542 M77/0543 M77/0545 M77/0550 M77/0568 M77/0574 M77/0582 M77/0583 M77/0584 M77/0585 M77/0586 M77/0587 M77/0588 M77/0589 M77/0911 M77/0912 M77/1289 P77/4278 P77/4279 Granted Granted Pending Granted Granted Pending Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Pending Granted Granted 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd WESTERN AREAS ANNUAL REPORT 2019 93 TENEMENT LISTING Name Lease Status WSA Interest Applicant/Holder Forrestania (WA) Mt Alexander JV (WA) Mt Gibb JV (WA) Musgraves (WA) Western Gawler (SA) P77/4473 P77/4474 P77/4475 P77/4476 P77/4477 P77/4478 P77/4479 P77/4496 P77/4497 P77/4498 P77/4499 P77/4500 P77/4501 E77/1416 E77/1436 E77/1581 M77/0099 M77/0324 M77/0467 M77/0468 M77/0544 P77/4067 E77/1965 E77/2091 E77/1400 E77/2099 E29/0638 E74/0603 E69/3160 EL 5688 EL 5880 EL 5939 EL 6087 EL 6248 EL 6249 Pending Pending Pending Pending Pending Pending Pending Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Nickel Pty Ltd Western Areas Nickel Pty Ltd Western Areas Nickel Pty Ltd Western Areas Nickel Pty Ltd Western Areas Nickel Pty Ltd Western Areas Nickel Pty Ltd Western Areas Nickel Pty Ltd Western Areas Nickel Pty Ltd Western Areas Nickel Pty Ltd Granted 100% Ni Rights IMD Gold Mines Ltd Granted 100% Ni Rights IMD Gold Mines Ltd Granted 100% Ni Rights MH Gold Pty Ltd Granted 100% Ni Rights MH Gold Pty Ltd Granted 25% Blue Thunder Resources Pty Ltd (75%), Western Areas Ltd (25%) Granted Pending Granted Granted Granted Granted Granted Granted 90% 100% 100% 90% 100% 100% 100% 100% Western Areas Ltd Western Areas Ltd Western Areas Ltd Strandline Resources Limited Western Areas Ltd Western Areas Ltd Western Areas Ltd Western Areas Ltd 94 WESTERN AREAS ANNUAL REPORT 2019 SHAREHOLDER INFORMATION (AS AT 31 AUGUST 2019) Distribution of Shareholdings i. Distribution schedule of holdings 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 Over Total number of holders ii. Number of holders of less than a marketable parcel iii. Number of overseas holders iv. Percentage held by 20 largest holders *All ordinary shares carry one vote per share without restriction Largest Security Holders Names of the 20 largest holders of Ordinary Shares are listed below: Name HSBC CUSTODY NOMINEESJ P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED NORTHMEAD HOLDINGS PTY LTD BNP PARIBAS NOMINEES PTY LTD ZERO NOMINEES PTY LTD BNP PARIBAS NOMS PTY LTD BELL POTTER NOMINEES LTD AMP LIFE LIMITED BUTTONWOOD NOMINEES PTY LTD HSBC CUSTODY NOMINEES CS FOURTH NOMINEES PTY LIMITED CS THIRD NOMINEES PTY LIMITED FARJOY PTY LTD WARBONT NOMINEES PTY LTD BAINPRO NOMINEES PTY LIMITED HARMANIS HOLDINGS PTY LTD HSBC CUSTODY NOMINEES BRAZIL FARMING PTY LTD Totals: Top 20 holders of ORDINARY SHARES (GROUPED) Total Remaining Holders Balance Substantial Shareholders Name Paradice Investment Mgt Dimensional Fund Advisors LP Total Ordinary shares* 1,875 2,336 1,011 1,224 115 6,561 549 172 73.8% No. of shares 71,657,651 49,285,688 % 26.20 18.02 27,200,191 17,198,238 7,014,900 6,035,316 4,536,944 4,496,465 2,487,659 1,924,806 1,420,247 1,187,371 1,136,313 1,122,862 1,000,000 930,698 834,695 800,000 763,183 730,000 9.94 6.29 2.56 2.21 1.66 1.64 0.91 0.70 0.52 0.43 0.42 0.41 0.37 0.34 0.31 0.29 0.28 0.27 201,763,227 71,782,935 73.76 26.24 No. of shares 23,527,245 16,460,207 % 8.60% 6.02% 37,987,452 23.22% WESTERN AREAS ANNUAL REPORT 2019 95 HIGHLIGHTS 21.5kt contained nickel shipped to customers 20% increase in Net Profit after Tax of A$14.3m Stronger year on year nickel price driving stronger financial performance 2 cent fully franked dividend declared A$144m Cash at Bank - Strong debt free Balance Sheet Odysseus mine DFS completed – Decision to mine confirmed at the long life, low cost mining project Odysseus early works programme completed on time and on budget High grade premium nickel product being produced and sold into the EV battery market Registered Office Level 2, 2 Kings Park Road West Perth WA 6005 PO Box 1891 West Perth WA 6872 Phone: +61 (0) 8 9334 7777 Fax: +61 (0) 8 9486 7866 Email: info@westernareas.com.au westernareas.com.au ANNUAL REPORT 2019 A N N U A L R E P O R T 2 0 1 9