w h i t e h A v e n c o A l l i m i t e d A n n u a l R e p o r t 2 0 1 1 ANNUAL REPORT 2011 Delivering growth Chairman’s Letter . . . . . . . . . . . . . 2 Statement of Changes in Equity . . . . . 51 Highlights . . . . . . . . . . . . . . . . 4 Statement of Cash Flows . . . . . . . . . 52 Achievements . . . . . . . . . . . . . . 6 Notes to the Financial Statements . . . . . 53 Managing Director’s Report . . . . . . . . . 8 Directors’ Declaration . . . . . . . . . . 112 Directors’ Report . . . . . . . . . . . . 24 Independent Auditor’s Report . . . . . . . 113 Statement of Comprehensive Income . . . . 47 ASX Additional Information . . . . . . . . 115 Statement of Financial Position . . . . . . . 49 Corporate Directory . . . . . . . . . . . 117 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W chairman’s letter chairman’s letter We recognise that the scale and nature of our operations demand a high level of corporate responsibility in terms of the safety of our workforce, consultation with local communities and environmental management. Dear Whitehaven Shareholder, 2011 OVERVIEW Whitehaven Coal Limited is the largest and most established coal producer in the Gunnedah Basin, planning to produce approximately 7 Mtpa of thermal and metallurgical coal in the 2012 financial year . We have a reputation for successfully implementing our growth plans and this year was no different . Our open cut mines and Gunnedah Coal Handling and Preparation Plant underwent significant expansion during the year and in the June quarter produced at an annual rate of almost 6 Mtpa . We now have an efficient and flexible open cut production base with significant growth coming from our Narrabri underground mine and the proposed Vickery open cut beyond that . Our Narrabri mine has delivered its first full year of development production and now has four continuous miners operating underground . The Stage 2 surface works, including the Coal Handling and Preparation Plant and fan shaft are nearing completion and the longwall is currently being constructed with a view to commencing longwall production in February 2012 . At Vickery, our ongoing exploration work has defined a substantial open cut resource . The development of this operation, which could begin in 2013, would contribute to taking our planned production levels to approximately15 Mtpa over the next five years . SUSTAINABILITY Our mines are the largest employer in north-west New South Wales with more than 450 direct employees and a large number of contract service jobs supported . This direct employment is expected to increase to more than 800 during the next five years as our growth plans are realised . Total operating expenditure in producing coal was approximately $247 million in FY2011, most of which was spent in the local and regional economies . This total operating expenditure is expected to increase to more than $825 million per year by 2015 . Royalties paid directly to the New South Wales Government in FY2011 were approximately $28 million, rising to more than $100 million per year by 2015 . We recognise that the scale and nature of our operations demand a high level of corporate responsibility in terms of the safety of our workforce, consultation with local communities and environmental management . We are a willing and engaged participant in the various policy debates surrounding regional development and mining . We have stated publicly on many occasions that we are committed to a locally-based workforce and are actively engaged with local councils around the region to assist with long-term planning outcomes to support this objective . Despite the challenges raised by the skills shortage in the regions, we do not believe a permanent fly-in fly-out workforce is a good outcome for either our workforce or the community . As such we are working with local councils as they develop sensible planning to protect and enhance the standard of living for our existing communities, which in turn assists in attracting highly-skilled workers and their families to this region . In terms of the environmental initiatives, we have engaged extensively with local communities and this has resulted in a number of sensible variations to our mining plans . In addition, we have expanded our environmental management team, who are now working proactively with other companies in the Gunnedah Basin to assess and address the cumulative impacts of our combined developments . FINANCIAL PERFORMANCE The company reported net profit after tax (NPAT) of $9 .9 million for FY2011 . This included a net loss after tax of $63 .4 million from significant items . Underlying NPAT (before significant items) was $73 .3 million . This performance has allowed us to declare a fully-franked final dividend of 4 .1 cents per share, payable on 30 September 2011 . SAFETY The safety and wellbeing of our workforce is our highest priority and we are focussing on further developing our safety culture and commitment . Significant progress has been made during the year with an increased number of individual hazard assessments (Take 5s) and toolbox talks as well as improvement in incident investigation and root 2 cause analysis . Despite the increased awareness of safety across the business, our key safety performance measure – Lost Time Injury Frequency Rate – has shown an increase this year, particularly in our open cut mines . We are determined to rectify this trend in LTIFR and several initiatives have been introduced to further develop our safety culture and on-site supervision . Additional resources have been allocated to our corporate safety team as well as site-based safety professionals . ACHIEVEMENTS The expansion of our open cut mines and the successful commissioning of our world class Narrabri mine have been our most significant achievements for the year . At the same time we have remained focussed on our pipeline of growth opportunities and have identified attractive development assets – in particular Vickery . Access to infrastructure is a critical component in delivering growth and significant work has been done to ensure we have appropriate rail and port allocations to underpin increased production, as well as the necessary CHPP capacity . These initiatives are outlined in detail in the Managing Director’s Report . FORMAL PROCESS As widely reported during the year, in October 2010, following numerous approaches to the company over several months, Whitehaven announced that it was commencing a formal process to enable selected interested parties to conduct due diligence and submit proposals for a potential corporate transaction with the company . In April 2011 we advised that the formal process was reaching a conclusion with shortlisted parties having completed due diligence and submitted formal proposals . After further negotiation of these proposals, the Whitehaven Board determined that no proposal was sufficiently attractive to warrant recommendation to shareholders . The process was then terminated, allowing the Board and management to continue to focus on our existing high quality coal assets and to examine attractive growth opportunities . On behalf of all non-executive directors, I thank Tony Haggarty and his most capable executive team for their dedication, discipline and commitment to delivering profitable growth to our shareholders and for the leadership position they are taking in our business and the Gunnedah Basin coal industry . John Conde, AO Chairman 3 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 2011 highlights • • Underlying net profit after tax (NPAT), before Significant Items, of $73.3 million, up 33% from FY2010; NPAT after significant items of $9.9 million. Total significant items after tax of $63.4 million including: – $45.8 million from losses incurred on legacy contracts from both purchased coal and financial settlements – $11.6 million foreign exchange loss relating to the outstanding USD receivable from EDF for its Narrabri JV purchase. • • • • • • A fully franked final dividend of 4.1 cents per share has been declared, payable on 30 September 2011. This takes the total dividend for the year to 7.4 cents per share; Revenue of $437.0 million (net of purchased coal and excluding NSW royalty), up 33% from FY2010; Earnings before interest, tax, depreciation and amortisation (EBITDA) of $189.7 million (excluding coal purchases), reduced to $148.0 million after coal purchases; Cash generated from operations of $120.3 million, compared to $69.3 million in FY2010; Proceeds received from the sale of Narrabri of $190.8 million during the year; Strong cash flow and financial position – $207.6 million cash available with net cash of $29.0 million compared to $141.0 million cash available and net cash of $46.1 million at 30 June 2010; Financial Performance (A$ millions) Sales revenue EBITDA before significant items EBIT before significant items NPAT before significant items Significant items net of tax NPAT after significant items 2011 622.2 148.0 107.0 73.3 (63.4) 9.9 2010 406.8 108.8 76.7 55.1 59.8 114.9 EPS-diluted 2.0 cents 24.0 cents Movement +52.9% +36.0% +39.5% +33.0% -206.0% -91.3% -91.7% 4 nsw coalfields QUEENSLAND N ASHFORD BASIN Bonshaw 0 50 100 Ashford Bonshaw Project KILOMETRES NEW SOUTH WALES Moree R a i l w a y GUNNEDAH COALFIELD Narrabri Mine Narrabri Tarrawonga Mine Vickery Project Rocglen Mine Gunnedah CHPP Gunnedah Sunnyside Mine GUNNEDAH BASIN Werris Creek Mine Dunedoo GLOUCESTER BASIN Gloucester Gulgong Mudgee Ulan Muswellbrook Bylong WESTERN COALFIELD HUNTER COALFIELD Singleton PACIFIC OCEAN SYDNEY BASIN Cessnock NEWCASTLE COALFIELD Newcastle Whitehaven Assets Rylstone Kandos Lithgow Railway Sydney AUSTRALIA NSW Campbelltown Picton SOUTHERN COALFIELD Moss Vale Bomaderry Goulburn ACT Wollongong Port Kembla NSW 5 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W achievements Consolidated Equity Production and Sales (Equity Share) Whitehaven Total – 000t ROM Coal Production Saleable Coal Production Sales of Produced Coal Sales of Purchased Coal Total Coal Sales Coal Stocks at Period End 2010 3,724 3,480 3,310 823 4,133 430 Movement +23% +20% +28% +129% +48% +3% 2011 4,592 4,168 4,243 1,883 6,126 444 6 Operating Highlights • • • • • • • • Saleable coal production up 20% (equity basis) to 4.2 Mtpa and up 19% (100% basis) to 4.7 Mtpa; Successful expansion of Whitehaven’s open cut mines which operated at an annual rate of almost 6 Mtpa of ROM coal in the June quarter; Narrabri mine production ramp up continuing with four continuous miners now operating and excellent underground mining conditions; Narrabri Coal Handling and Preparation Plant (CHPP) commenced commissioning in August 2011; Definition of a 439 Mt open cut coal resource at Vickery with preliminary work indicating an open cut mine plan for Vickery of 4.5 Mtpa ROM for at least 25 years with a stripping ratio of approximately 10:1; Continuing investment in infrastructure with rail and port capacity secured to meet growth profile; Expansion of the Gunnedah CHPP completed with washing capacity increased to 3 Mtpa and total coal handling and rail loading capacity of 4.2 Mtpa; Heads of agreement signed with Idemitsu to extend the existing Tarrawonga Joint Venture and share new CHPP and rail infrastructure. 7 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W managing director’s report We now have an efficient and flexible open cut production base with significant growth coming from our Narrabri underground mine and the Vickery open cut beyond that. Our key achievement this year has been to implement our growth plans and increase saleable production and margin while at the same time continuing to enhance our future growth profile . We now have an efficient and flexible open cut production base with significant growth coming from our Narrabri underground mine and the Vickery open cut beyond that . More than $225 million in new capital was invested in our business during the year, resulting in our open cut mines delivering their planned expansion to 5 .5 Mtpa, and in the June quarter surpassing this target to produce at a rate of almost 6 Mtpa . At our new Narrabri mine we now have four continuous miners operating underground and the $130 million longwall is under construction . Our Narrabri CHPP commenced commissioning in August . Continuing exploration and mine planning at our Vickery Project has delivered excellent results with the definition of a 439 Mt open cut coal resource with preliminary work indicating an open cut mine plan for Vickery of 4 .5 Mtpa ROM for at least 25 years with a stripping ratio of approximately 10:1 . In addition, government approval is expected to be granted for the Werris Creek and Rocglen extension projects during the current quarter, and we are expecting to lodge an Environmental Assessment for the Tarrawonga extension by the end of this calendar year . Overall, these development plans will see the investment of more than $600 million in additional new capital in north west NSW over the next five years . While the impact of legacy contracts on our earnings for the year has been disappointing, it is encouraging to note that we expect to have fulfilled all but 230 kt of these contracts by the end of the calendar year . 8 FINANCIAL PERFORMANCE Earnings before interest, tax, depreciation and amortisation (EBITDA) was $189 .7 million (excluding coal purchases), reduced to $148 .0 million after coal purchases . Whitehaven’s balance sheet remains very strong . Cash on hand at FY2011 year-end, together with outstanding cash to be received from previously announced sales of the Narrabri JV interests and cash from operations, is expected to provide sufficient funding to complete the development of Narrabri Stage 2 and the expansion of Whitehaven’s existing open cut mines . Cash flow from operations was $120 .3 million for the year compared to $69 .3 million for FY2010 due to increased coal sales . Closing cash on hand at 30 June 2011 was $207 .6 million, compared to $141 .0 million in FY2010 . Financial Performance (A$ millions) Sales revenue EBITDA before significant items EBIT before significant items NPAT before significant items Significant items net of tax NPAT after significant items 2011 622.2 148.0 107.0 73.3 (63.4) 9.9 2010 406 .8 108 .8 76 .7 55 .1 59 .8 114 .9 EPS-diluted 2.0 cents 24 .0 cents Movement +52 .9% +36 .0% +39 .5% +33 .0% -206 .0% -91 .3% -91 .7% 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 9 managing director’s report Financial Performance and Balance Sheet (A$ millions) Cash on Hand Interest Cover Ratio1 (times) Interest Bearing Liabilities2 Net Cash Position Net Assets Gearing Ratio3 (%) 2011 207.6 7.87 178.6 29.0 1,040.5 -2.9% 2010 141 .0 10 .43 94 .9 46 .1 1,023 .2 -4 .7% 1 EBIT before significant items to Interest Expense excluding FX in financing expense, losses on ineffective hedges and unwind of provision discounting 2 Interest bearing liabilities include loans from Country Rail Infrastructure Authority (formerly Rail Infrastructure Corporation) for track upgrades ($34 .3 million 2011, $20 .6 million 2010) 3 Net Debt to Net Debt plus Equity OPERATINg PERFORMANCE Consolidated Equity Production and Sales (Equity Share) Whitehaven Total – 000t ROM Coal Production Saleable Coal Production Sales of Produced Coal Sales of Purchased Coal Total Coal Sales Coal Stocks at Period End 2010 3,724 3,480 3,310 823 4,133 430 Movement +23% +20% +28% +129% +48% +3% 2011 4,592 4,168 4,243 1,883 6,126 444 10 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 11 managing director’s report OPEN CUT OPERATIONS The Gunnedah Operations include the Tarrawonga (70% owned by Whitehaven), Rocglen (100% owned by Whitehaven), and Sunnyside (100% owned by Whitehaven) open cut mines and the Gunnedah coal handling and preparation plant and train load-out facility (‘CHPP’) (100% owned by Whitehaven) . The Werris Creek mine is 100% owned by Whitehaven . Our open cut mines and Gunnedah CHPP underwent significant expansion during the year and in the June quarter produced at an annual rate of almost 6 Mtpa . In addition to this expansion, a number of approvals are currently being sought for extension of our existing projects . It is expected that the Werris Creek and Rocglen extension projects will receive NSW Government approval in the current quarter . We have received Director General’s Requirements in relation to our Tarrawonga Extension and are expecting to lodge an Environmental Assessment with the NSW Government by the end of this calendar year . In addition, Whitehaven has entered into a Heads of Agreement with Boggabri Coal Pty Limited, a wholly-owned subsidiary of Idemitsu Australia Resources Pty Ltd (Idemitsu) in relation to an extension of the existing Tarrawonga Joint Venture . The proposed extension of the JV has benefits for both parties and promotes the most efficient use of assets in this part of the Gunnedah Basin . Under the proposed arrangements: • Tolling arrangements would be put in place to provide the Tarrawonga JV with access to the Boggabri Coal CHPP and rail spur; and • Tenement ownership within the expanded JV area would be restructured to ensure WHC and Boggabri Coal continue to hold a 70% and 30% interest respectively in each tenement within the project area . The Agreement is subject to a number of conditions, including approval of expansion plans at both Tarrawonga and Boggabri Coal . The Boggabri Coal expansion includes the development of a rail spur and CHPP . 12 gunnedah Operations (Equity Share) Gunnedah Operations – 000t ROM Coal Production Saleable Coal Production Sales of Produced Coal Sales of Purchased Coal Total Coal Sales Coal Stocks at Period End Werris Creek Mine (Equity Share) Werris Creek Mine – 000t ROM Coal Production Saleable Coal Production Sales of Produced Coal Sales of Purchased Coal Total Coal Sales Coal Stocks at Period End 2010 2,441 2,200 2,101 823 2,924 288 2010 1,283 1,280 1,209 – 1,209 143 Movement +7% +5% +11% +129% +44% -19% Movement +41% +34% +47% 0% +47% +30% 2011 2,620 2,303 2,327 1,883 4,210 233 2011 1,809 1,722 1,777 – 1,777 186 13 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W managing director’s report NARRABRI MINE Whitehaven (operator) 70.0%; Electric Power Development Co. Ltd 7.5%; EDF Trading 7.5%; Upper Horn Investments Limited 7.5%; Daewoo International Corporation and Korea Resources Corporation 7.5% Development of the Narrabri mine is proceeding as planned with construction of Stage 2 facilities and delivery of longwall and other equipment on schedule and budget . The Narrabri CHPP has begun commissioning and the upgraded ventilation fans and shaft are well advanced . Pre-drainage of CO2 from the coal seam is working well with confidence in gas extraction methods and gas modelling continuing to grow as the inventory of drained coal grows . Mining conditions underground are excellent and development rates have improved as skills and experience grow and as development has moved away from pit-bottom setup into normal main road and longwall gate road development . Some delays continue to be experienced in development as a result of the difficulty in recruiting experienced underground mine workers . However, at current development rates, commencement of longwall extraction is scheduled for February 2012 . Development of the main gate and tail gate roads for the first longwall panel is on the critical path for commencement of longwall mining and progress against schedule is being monitored closely . Sales of more than 200 Kt of Narrabri coal have now been made, with coal stockpiling and handling systems working well and coal quality meeting expectations . Ongoing review of Stage 2 costs, including tendering for all major components of the work, has not identified any material change to the budget capital cost estimate of approximately $300 million (100% basis) . Narrabri Mine (Equity Share) Narrabri Mine – 000t ROM Coal Production Saleable Coal Production Sales of Produced Coal Sales of Purchased Coal Total Coal Sales Coal Stocks at Period End 2010 Movement – – – – – – – – – – – – 2011 163 143 139 – 139 25 14 DEVELOPMENT PROJECTS Vickery Whitehaven 100% Work has continued at Vickery to further define JORC resources and reserves and to define the mine development plan . To date, a JORC open cut coal resource of 439 Mt has been defined in the combined Vickery area (Vickery, Merton, Bluevale and Canyon Extended) . Current mine planning has defined an open cut JORC marketable reserve of some 113 Mt and further work is expected to increase these reserves . Work is now well advanced to define an open cut mine plan for the Vickery area . Whitehaven expects this work to produce an open cut mine plan for Vickery of around 4 .5 Mtpa ROM for at least 25 years with a stripping ratio of approximately 10:1 . Ongoing analysis of Vickery coal quality indicates that, if all ROM coal is washed, saleable coal yield would be more than 80% of predominantly low ash, low sulphur, low phosphorus semi-soft coking and PCI coal, along with a component of low-ash, low-sulphur, high-energy thermal coal . This saleable coal yield can be increased significantly by by-passing a proportion of low-ash ROM coal, as is done with Whitehaven’s Tarrawonga coal . This will provide the Vickery project with a high degree of flexibility in producing metallurgical or premium thermal coal, depending on market conditions from time to time . Whitehaven currently plans to lodge an application for development approval for Vickery in early 2012, with the aim of having approval and being in a position to commence mine production in calendar 2013 . 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 15 managing director’s report COAL RESOURCES AND RESERVES (100% BASIS) Whitehaven’s JORC Coal Resources now total 1,771 .5 Mt, with JORC Marketable Coal Reserves of 426 .1 Mt . Open cut Marketable Coal Reserves are now in place to support 5 Mtpa of saleable production for more than 20 years . JORC August Statement WHITEHAVEN COAL LIMITED – COAL RESOURCES – AUgUST 2011 Tenement Measured Resource Indicated Resource Inferred Resource Total Resources Competent Person Report Date Bluevale Opencut EL4699/CL316 8 .79 5 .66 Vickery Opencut Vickery Underground CL316 CL316 Merton Opencut ML1471/EL4699 Canyon Extended Rocglen Opencut Rocglen Underground CL316/EL4699 ML1471 ML1620 ML1620 Tarrawonga Opencut * EL5967/ML1579 Tarrawonga Underground EL5967/ML1579 Sunnyside Opencut ML1624/EL5183 EL5183 Underground BLOCK 7 Opencut BLOCK 7 Underground Other Gunnedah Resources Total gunnedah Operations Total Werris Creek ** Narrabri North Underground Narrabri South Underground Total Narrabri *** Brunt Deposit Opencut Arthurs Seat Opencut Total Ashford Total Coal Resources 46 .87 165 .00 – – – 11 .66 – 30 .66 10 .88 19 .60 – – – – – – – 6 .10 2 .24 28 .00 13 .87 47 .40 7 .20 – 12 .90 13 .00 1 .1 95 .0 21 .0 111 .7 5 .1 1 .5 1 .6 14 .3 14 .8 22 .9 32 .2 1 .4 2 .5 15 .5 306 .9 21 .0 111 .7 5 .1 19 .2 3 .8 73 .0 39 .6 89 .9 39 .4 1 .4 15 .4 123 .2 136 .2 128.46 301.37 448.3 878.1 23.35 8.25 2.6 34.2 EL5183 CCL701 CCL701 CCL701 ML1563/ EL5993/ EL7422 ML1609 169 .40 171 .00 135 .0 475 .4 EL6243 45 .20 114 .00 220 .0 379 .2 EL6450 EL6587 214.6 285.0 355.0 854.6 – – – 2 .6 – 2.6 0 .3 1 .7 2.0 2 .9 1 .7 4.6 366.41 597.22 807.9 1,771.5 1 2 2 1 1 1 1 Sep-09 Jul-11 Jul-11 Feb-11 Feb-11 Mar-11 Mar-11 1 Jun 2010 & Mar 2011 1 1 1 1 1 3 1 4 4 3 3 Mar-11 May-09 Jan-09 Jan-09 Mar-10 Mar-11 Dec-09 Dec-09 Sep-09 Nov-09 1 . Colin Coxhead, 2 . Greg Jones, 3 . Tom Bradbury, 4 . Chris Turvey * ** Tarrawonga Joint Venture – Whitehaven owns 70% share of ML1579 . Combined Resource for Tarrawonga Mining Lease and Exploration Licence Combined Reserve for Werris Creek Mining Lease and Exploration Licences *** Narrabri Joint Venture – Whitehaven owns 70% share # The Coal Resources for active mining areas are current to the pit surface as at the report date . 16 WHITEHAVEN COAL LIMITED – COAL RESERVES – AUgUST 2011 Tenement Recoverable Reserves Marketable Reserves Competent Person Report Date Proved Probable Total Proved Probable Total Bluevale Opencut EL4699/CL316 3 .33 6 .42 9 .75 3 .09 5 .98 9 .07 1 Jun-10 Vickery Opencut Rocglen Opencut CL316 37 .90 91 .10 129 .00 30 .20 74 .30 104 .50 2 Aug-11 ML1620 9 .20 3 .80 13 .00 7 .60 3 .10 10 .70 1 Mar-11 Tarrawonga Opencut * EL5967/ML1579 21 .70 22 .20 43 .90 20 .30 20 .70 41 .00 1 Mar-11 Tarrawonga Underground EL5967/ML1579 – 3 .70 3 .70 – 3 .10 3 .10 3 May-09 Sunnyside Opencut ML1624/EL5183 6 .60 21 .10 27 .70 5 .80 18 .90 24 .70 1 Mar-11 BLOCK 7 Underground CCL701 – 4 .00 4 .00 – 4 .00 4 .00 3 May-09 Total gunnedah Operations Total Werris Creek ** Narrabri North Underground Narrabri South Underground Total Narrabri *** Brunt Deposit Opencut Arthurs Seat Opencut Total Ashford Total Coal Reserves 78.73 152.32 231.05 66.99 130.08 197.07 21.50 7.60 29.10 21.50 7.60 29.10 1 Mar-11 ML1564/ EL5993/ EL7422 ML1609 66 .0 67 .4 133 .4 66 .0 67 .4 133 .4 3 Jan-10 EL6243 24 .7 61 .5 86 .2 19 .4 47 .1 66 .5 3 Jan-10 90.7 128.9 219.6 85.4 114.5 199.9 EL6450 EL6587 – – – – – – – – – – – – – – – – – – 190.93 288.82 479.8 173.89 252.18 426.1 1 . Doug Sillar, 2 . William Dean, 3 . Graeme Rigg * ** Tarrawonga Joint Venture – Whitehaven owns 70% share of ML1579 . Combined Reserve for Tarrawonga Mining Lease and Exploration Licence Combined Reserve for Werris Creek Mining Lease and Exploration Licences *** Narrabri Joint Venture – Whitehaven owns 70% share # The Coal Reserves for active mining areas are reported on the end of June 2010 pit surface ## Coal Reserves are quoted as a subset of Coal Resources ### Marketable Reserves are based on geological modeling of the anticipated yield from Recoverable Reserves NB: Refer below for full JORC competent persons statements . JORC COMPETENT PERSONS STATEMENT Information in this report that relates to Coal Resources and Reserves is based on and accurately reflects reports prepared by the Competent Person named beside the respective information . All these persons are consultants for Whitehaven Coal Limited . Mr Colin Coxhead is a private consultant . Mr Greg Jones is a principal consultant with JB Mining Services . Mr Tom Bradbury is a full-time employee of Geos Mining . Mr Chris Turvey is a private consultant . Mr Graeme Rigg is a full-time employee of Minarco-MineConsult Pty Ltd . Mr Doug Sillar is a full-time employee of Minarco-MineConsult Pty Ltd . Mr William Dean is a full-time employee of UGM Australia . Named Competent Persons consent to the inclusion of material in the form and context in which it appears . This Coal Resources and Reserves statement was compiled by Mr Mark Dawson, Group Geologist, Whitehaven Coal Limited . All Competent Persons named are Members of the Australian Institute of Mining and Metallurgy and/or The Australian Institute of Geoscientists and have the relevant experience in relation to the mineralisation being reported on by them to qualify as Competent Persons as defined in the Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code, 2004 Edition) . 17 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W managing director’s report SAFETY The safety and wellbeing of our workforce is our key priority and our safety culture is being further developed as our business expands in size and complexity . We recorded a significant increase in the number of individual hazard assessments and toolbox talks as well as improving our incident investigation and root cause analysis . Despite the increased awareness of safety across the business, our key safety performance measure – Lost Time Injury Frequency Rate – has shown an increase this year, particularly in our open cut mines . We are determined to rectify this trend in LTIFR and a number of initiatives including increased on-site supervision have been introduced to ensure our workforce is focussed and proactively takes responsibility for their own safety, and the safety of their workmates . Additional resources have been allocated to our corporate safety team as well as site-based safety professionals . THE ENVIRONMENT Whitehaven is committed to ensuring its projects are carried out in accordance with site specific protocols for environmental management, and to the ongoing development of new ways to minimise our environmental impacts . In terms of the environmental initiatives, we have worked hard to increase our level of engagement with local communities and this has resulted in a number of constructive variations to our mining plans . In addition, we have expanded our environmental management team, who are now working proactively with other companies in the Gunnedah Basin to assess and address the cumulative impacts of our combined developments . COMMUNITY Whitehaven continues to work closely with the communities we operate in . It is extremely important to Whitehaven that our workers live in, and enjoy being part of, the local communities in which we operate . We do not believe camp- based accommodation is an appropriate long-term solution for the Whitehaven workforce, and we do not believe a permanent fly-in fly-out workforce is a good outcome for either our workforce or the community . As such, Whitehaven recently announced it is preparing a plan for supporting property development in Narrabri and Gunnedah . This decision follows consultation with the Narrabri Shire Council, Gunnedah Shire Council and Liverpool Plains Shire Council . Sensible planning is beneficial to both communities and mining companies . By protecting and enhancing the standard of living for existing communities, the mining sector is able to attract highly-skilled workers and their families to this region . Whitehaven is continuing to hold regular discussions with local governments and other interested parties to help ensure that appropriate long-term planning is put in place to address the growing population and associated demand on infrastructure . Whitehaven continues to support a broad range of community organisations and projects, with more than $150,000 donated during the year . The recipients include health and education providers, sporting groups, charities and community wide events . In addition to these community donations, Whitehaven has contributed or committed more than $10 million to regional roadworks and major infrastructure projects including the Narrabri Pool redevelopment . INFRASTRUCTURE Subsequent to balance date, Whitehaven announced that it has entered into long-term arrangements with Australian Rail Track Corporation (ARTC) for rail track access between the Company’s mines and Newcastle Port . These arrangements are structured to provide Whitehaven with the rail track capacity that it will require to match long-term production and port capacity . They are based upon the Hunter Valley Rail Access Undertaking approved by the Australian Competition and Consumer Commission (ACCC) in June 2011 and operate on a rolling ten-year term . Entry into these arrangements with ARTC represents a significant milestone for Whitehaven, securing the required long-term rail track capacity to support our significant growth plans . 18 In addition, Whitehaven and Pacific National (PN) entered into a long-term agreement for rail haulage in December 2009 . The new coal train ordered by Whitehaven in 2009 was delivered and put into service in the September 2010 quarter . This train is being operated by PN under lease from Whitehaven . A second new train was delivered by PN in January 2011 and a third new train will be provided by PN in October 2011 . A Capacity Framework Agreement for providing access to additional port capacity at Newcastle was agreed by Newcastle Ports Corporation, PWCS and NCIG in April 2009 and subsequently approved by ACCC . Under this agreement, Whitehaven will have access to approximately 10 .2 Mtpa of port capacity from PWCS and NCIG . Stage 1 of the new NCIG coal loading terminal (Whitehaven owns 11%) is continuing to ramp up to its 30 Mtpa capacity . Construction of the second stage (2AA) of NCIG is underway and is expected to be commissioned in mid-2012, taking the capacity of NCIG to 53 Mtpa . Final feasibility of the last stage of NCIG (2F) is complete and commitment to construction is expected in August . This will take the port to its full capacity of 66 Mtpa in late 2013, of which Whitehaven’s share will be approximately 6 Mtpa . CORPORATE OUTLOOk Whitehaven has emerged from FY2011 with a strong financial position, low-risk open cut production base and attractive growth profile . Careful management and investment in our infrastructure requirements means we have appropriate infrastructure in place to support planned future production . Strong fundamental growth in demand for both metallurgical and thermal coal remains, although supply continues to be constrained by infrastructure and regulatory issues . Tony Haggarty Managing Director As widely reported during the year, in October 2010, following numerous approaches to the company over several months, Whitehaven announced that it was commencing a formal process to enable selected interested parties to conduct due diligence and submit proposals for a potential corporate transaction with the company . In April 2011 we advised that the formal process was reaching a conclusion with shortlisted parties having completed due diligence and submitted formal proposals . After further negotiation of these proposals, the Whitehaven Board determined that no proposal was sufficiently attractive to warrant recommendation to shareholders . The process was then terminated, allowing the Board and management to continue to focus on our existing high quality coal assets and to examine attractive growth opportunities . CARBON TAX The Federal government recently announced details of a proposed carbon tax commencing on 1st July 2012 . The proposal is for a price commencing at $23 per tonne of CO2 equivalent . At this price, the company’s current estimate of the impact of the tax is approximately $1 .60 per tonne of saleable coal from the company’s open cut and underground mines . Further work is being undertaken to firm up the impact of the carbon tax on Whitehaven business and we will advise as more information becomes available . 19 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W health and safetY Highlights • Continuing improvement in Whitehaven’s safety culture • Increased number of individual hazard assessments (Take 5s) • Focus on hazard reporting and management • Improved incident investigation for high risk incidents and underlying root cause analysis • Increased number of toolbox talks and ongoing communication of health and safety topics to our workforce Achievements Emergency services familiarisation – Local emergency service organisations participated in familiarisation sessions at our Narrabri and Tarrawonga mines . These sessions allowed local emergency services to understand site emergency plans and Whitehaven’s emergency procedures . Supervisor training – A new Whitehaven-specific supervisor training package has been introduced . The supervisor training package is based on the S1, S2 & S3 nationally recognised training modules, and is designed using Whitehaven’s own Health and Safety System . Twenty supervisors have been trained in two sessions . 20 Legal obligations information sessions – A number of information sessions have been held across sites to outline individual’s legal obligations to OHS through the use of case studies and recent legal proceedings . Job demands assessments – An Occupational Therapist was engaged to develop job demands assessments . The purpose is to identify the functional demands of each role to assist in the injury management process . Contractor safety meeting – More than 150 contracting companies attended the Whitehaven Coal Contractor Safety meeting . The meeting provided contractors an opportunity to learn more about Whitehaven Coal, our contractor management standard, OHS legislation and our contractor documentation requirements . Risk management audits – Risk management audits have been carried out across the company and the information is being used to develop ongoing safety improvements . Hazard recognition training – Hazard recognition training has been conducted at some operations . The training specifically included equipment damage incidents and risk management tools . Topics included risk perception, incident causation, hazard identification, Take 5’s and JHA’s . Manual handling training – Open cut and CHPP maintenance employees attended manual handling safety training sessions designed to raise awareness in correct lifting techniques, use of mechanical aids and the potential for sprain/strain injuries caused by manual handling . 21 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W environment Environmental highlights 2011 • Implementation of real time noise monitoring at Narrabri, Tarrawonga and Werris Creek operations. • Recruitment of a full-time Environmental Officer for Narrabri site to cater for expanding operations as commencement of longwall operation approaches. • Focus on community engagement at our open cut mines. This has included circulation of newsletters to surrounding residents to keep them informed of developments. This has also included a Community Open Day at the Werris Creek Mine, where residents were encouraged to attend and discuss any concerns with experts (specialist consultants) in air quality, noise, flora and fauna, groundwater, surface water and cultural heritage. A similar event is planned for the local community around the Tarrawonga site later in the year. Planning is also underway for an Open Day at our Narrabri site to provide the community with the opportunity to visit a working mine and understand the longwall mining process. • General terms of agreement reached with the NSW Department of Primary Industries and the Office of Environment and Heritage on the biodiversity offset requirements for the Narrabri project. The offset package comprises approximately 1200ha of land immediately adjacent to Mt Kaputar National Park which can ultimately be incorporated into the Park management in the near term. It also includes post mining rehabilitation of woodland areas associated with the Narrabri Mining Lease. 22 • Rehabilitation works have commenced at our Sunnyside Mine, including initial planting of Koala feed tree species as a means of enhancing koala corridor connections, which is part of the Sunnyside rehabilitation strategy. • Undertaking trials at our Rocglen site using compost materials as a means of enhancing biological activity in low nutrient soils. • Whitehaven Regional Biobank site nearing formal registration. While the site has not yet been resgistered as a Biobank, Whitehaven has been actively managing the biobank site for conservation purposes for the last two years. This includes the exclusion of grazing and the introduction of feral animal control activities which has seen the removal of over 500 wild goats. Ongoing weed control activities are underway including active application of cochineal grub into Prickly Pear as a biological control. • Whitehaven is working with the Namoi Catchment management Authority on Green Cestrum control in and around the Maules Creek area, including substantial works on the bed and bank of Maules Creek as part of a wider catchment strategy for Green Cestrum control. • General infill planting in rehabilitation at both Canyon and Tarrawonga sites. 23 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W DIRECTORS’ REPORT Left to right: John Conde, Neil Chatfield, Tony Haggarty, Alex Krueger, Hans Mende, Andy Plummer, Allan Davies neil chAtfielD fcPA, fAicD Independent Non-Executive Director Appointed: 3 May 2007 tony hAggArty Mcomm Managing Director Appointed: 17 October 2008 Tony has over 30 years experience in the development, management and financing of mining companies, and was co-founder and Managing Director of Excel Coal Limited from 1993 to 2006. Prior to this, Tony worked for BP Coal and BP Finance in Sydney and London, and for Agipcoal as the Managing Director of its Australian subsidiary. Tony was appointed to the Board of Whitehaven on 3 May 2007 and was appointed Managing Director on 17 October 2008. He is also Non-Executive Chairman of King Island Scheelite Limited and a Non-Executive Director of IMX Resources Limited. Neil is an established executive and Non-Executive Director with experience across a range of industries and is currently the Chairman of Virgin Blue Holdings Ltd, and a Non-Executive Director of Seek Ltd, Transurban Group and Grange Resources, all ASX listed companies. He has over 30 years experience in the resources and transport and logistics sectors and has extensive experience in financial management, capital markets, mergers and acquisitions, and risk management. Neil was most recently Executive Director and Chief Financial Officer of ASX listed Toll Holdings Limited, Australia’s largest transport and logistics company, a position he held for over 10 years. Prior to joining Toll, Neil held a number of senior financial and general management roles in the resources and transport industries. The Directors present their report together with the consolidated financial report of Whitehaven Coal Limited (‘the Company’), being the Company, its subsidiaries, and the consolidated entity’s interest in joint ventures for the year ended 30 June 2011 and the auditor’s report thereon. 1. Directors The Directors of the Company at any time during or since the end of the financial year are: John conDe Bsc, Be (electrical) (hons), MBA (Dist) Chairman Independent Non-Executive Director Appointed: 3 May 2007 John has over 30 years of broad based commercial experience across a number of industries, including the energy sector. John is Chairman of Ausgrid, Bupa Australia and the Sydney Symphony. He is also president of the Commonwealth Remuneration Tribunal and a Non-Executive Director of the Dexus Property Group. He is also Chairman of Destination NSW (which incorporates his previous chairmanships of Events NSW and the Homebush Motor Racing Authority). He was formerly Chairman and Managing Director of Broadcast Investment Holdings, as well as being a former Non-Executive Director of BHP Billiton Limited and Excel Coal Limited. 24 Alex Krueger Bs (finance) Bs (chemical engineering) Non-Executive Director Appointed: 3 May 2007 Alex is a Managing Director of First Reserve Corporation (FRC). Alex is a senior member of the FRC investment team and his responsibilities range from deal origination and structuring to due diligence, execution and monitoring. He is involved in investment activities in all areas of the worldwide energy industry, with particular expertise in the mining sector. Prior to joining FRC, Alex worked in the Energy Group of Donaldson, Lufkin & Jenrette in Houston. hAns MenDe Non-Executive Director Appointed: 3 May 2007 Hans has been President of the AMCI Group since he co-founded the company in 1986. Prior to starting AMCI Group, Hans was employed by the Thyssen group of companies in various senior executive positions. Other current directorships held by Hans include Excel Maritime Inc., White Energy, New World Resources and MMX Mineracao. Hans was previously a Non-Executive Director of Felix Resources Limited, an ASX listed company. AnDy PluMMer Bsc Mining eng Executive Director Appointed: 17 October 2008 AllAn DAVies Be (Mining) honours Executive Director Appointed 25 February 2009 Andy has over 35 years experience in the investment banking and mining industries. He was most recently an Executive Director of Excel Coal Limited, responsible for the company’s business development activities. He has worked in the Australian banking and finance industry since 1985 with Eureka Capital Partners, Resource Finance Corporation and Westpac. Prior to that, he was employed in a variety of management and technical positions with ARCO Coal, Utah International and Consolidation Coal. He was appointed to the Board of Whitehaven on 3 May 2007 and was appointed Executive Director on 17 October 2008. He is also a Non-Executive Director of King Island Scheelite Limited and Chairman of Ranamok Glass Prize Ltd. Allan is a mining engineer and has over 35 years experience in the Australian and international coal and metalliferous mining industries. He is a registered mine manager in Australia and South Africa. Allan was a founding director of Excel Coal Limited and as Executive Director – Operations for Excel Coal Limited, Allan had direct responsibility for operations and construction projects. From 2000 until early 2006, Allan worked for Patrick Corporation as Director – Operations. Currently, Allan is a Non-Executive Director of QRNational and a member of the Advisory Board of Qube Logistics. 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 25 DIRECTORS’ REPORT 2. coMPAny secretAries Austen Perrin B.ec, cA Appointed 19 November 2008 Austen has been with the Whitehaven Group since October 2008 as Chief Financial Officer and Company Secretary. He has over 20 years experience in the transport and infrastructure industry including senior executive roles with Toll Holdings Limited including the roles of Chief Financial Officer for Toll NZ Limited and Chief Financial Officer for Pacific National Limited. He was also Chief Financial Officer for Asciano Limited. tiMothy Burt B.ec, llM (hons) Appointed 29 July 2009 Timothy joined Whitehaven as General Counsel and Company Secretary in July 2009. Prior to that, Timothy held senior legal roles at a number of listed Australian companies including Boral Ltd, United Group Ltd and Australian National Industries Ltd. 3. Directors’ interests The relevant interest of each director in the shares and options issued by the Company, as notified by the directors to the Australian Securities Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows: Ordinary shares Options over ordinary shares John Conde Neil Chatfield Tony Haggarty Alex Krueger* Hans Mende Andy Plummer Allan Davies 378,605 256,805 33,479,897 – 76,019,833 33,514,254 – – – – – – 2,625,000 5,000,000 Granted on 17 November 2009 (refer to details in note 33 of the financial statements) * Mr Alex Krueger is a nominee of FRC Whitehaven Holdings BV (FRC) which owns 131,650,000 Whitehaven shares or approximately 26.67% of Whitehaven’s share capital. Mr Krueger neither has a relevant interest in those shares nor is he an associate of FRC under section 12 of the Corporations Act. 26 4. Directors’ Meetings The number of Directors’ meetings (including meetings of Committees of Directors) and number of meetings attended by each of the Directors of the Company during the financial year was: Director John Conde Neil Chatfield Tony Haggarty Alex Krueger Hans Mende Andy Plummer Allan Davies Directors’ Meetings Audit and Risk Committee Meetings Remuneration Committee Meetings A 17 17 16 16 16 16 17 B 17 17 17 17 17 17 17 A 3 5 – 3 – – – B 5 5 – 5 – – – A 2 2 – – 1 – – B 2 2 – – 2 – – A – Number of meetings attended B – Number of meetings held during the time the Director held office during the year 5. corPorAte goVernAnce stAteMent The Board of Whitehaven Coal Limited (the ‘Company’) is committed to achieving the highest standards of corporate governance and to conducting its operations and corporate activities safely and in accordance with all applicable laws and regulatory obligations. This Corporate Governance Statement sets out the key details of Whitehaven’s corporate governance framework. scope of responsibility of Board The Board has a formal Board Charter which sets out the responsibilities, structure and composition of the Board. It provides that the Board’s broad function is to: • determine strategy and set financial targets for the Whitehaven Group • monitor the implementation and execution of strategy and performance against financial targets • appoint and oversee the performance of executive management and to take and fulfil an effective leadership role in relation to Whitehaven The Charter sets out the responsibilities which are specifically reserved for the Board. These include the following: • composition of the Board, including the appointment and removal of Directors • oversight of the Company, including its control and accountability systems • appointment and removal of senior management and the Company Secretary • reviewing and overseeing systems of risk management and internal compliance and control, codes of ethics and conduct, and legal and statutory compliance • monitoring senior management’s performance and implementation of strategy • approving and monitoring financial and other reporting and the operation of committees Day-to-day management of the Company’s affairs and implementation of its strategy and policy initiatives are delegated to the Managing Director and senior executives, who operate in accordance with Board approved policies and delegated limits of authority. A copy of the Board Charter can be viewed on Whitehaven’s website. 27 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W DIRECTORS’ REPORT Audit and risk Management committee The purpose of the Audit and Risk Management Committee is to advise on the establishment and maintenance of a framework of internal control and appropriate ethical standards for the management of the consolidated entity. Its current members are: (a) Neil Chatfield (Chairman); (b) John Conde; and (c) Alex Krueger. The Committee performs a variety of functions relevant to risk management and internal and external reporting and reports to the Board following each meeting. A broad agenda is laid down for each regular meeting according to an annual cycle. The Committee invites the external auditors to attend each of its meetings. remuneration and nominations committee The purpose of the Remuneration and Nominations Committee is to assist the Board and report to it on remuneration and issues relevant to remuneration policies and practices including those for senior management and non-executive Directors and make recommendations to the Board in relation to the appointment of new Directors (both executive and non-executive) and senior management. Its current members are: (a) John Conde (Chairman); (b) Neil Chatfield; and (c) Hans Mende. Among the functions performed by the Committee are the following: • review and evaluation of market practices and trends on remuneration matters • recommendations to the Board in relation to the consolidated entity’s remuneration policies and procedures • oversight of the performance of senior management and non-executive Directors • recommendations to the Board in relation to the remuneration of senior management and non-executive Directors • development of suitable criteria (as regards skills, qualifications and experience) for Board candidates • identification and consideration of possible candidates, and recommendation to the Board accordingly • establishment of procedures, and recommendations to the Chairman, for the proper oversight of the Board and management Best practice commitment Whitehaven is committed to achieving and maintaining the highest standards of conduct and has undertaken various initiatives, as outlined in this statement, designed to achieve this objective. Whitehaven’s corporate governance charter is intended to ‘institutionalise’ good corporate governance and, generally, to build a culture of best practice both in Whitehaven’s internal practices and in its dealings with others. independent professional advice With the prior approval of the Chairman, each Director has the right to seek independent legal and other professional advice concerning any aspect of Whitehaven’s operations or undertakings in order to fulfil their duties and responsibilities as Directors. Any costs incurred are borne by the Company. compliance with Asx corporate governance guidelines and best practice recommendations The Board has assessed the Company’s practice against the Australian Securities Exchange Corporate Governance Council’s ‘Corporate Governance Principles and Recommendations’ (‘ASX Guidelines’). Whitehaven complied with the ASX Guidelines in all material respects throughout the 2011 financial year. Where the Company has an alternative approach, this has been disclosed and explained. 28 Principle 1 – lay solid foundations for management and oversight The role of the Board and delegation to senior management have been formalised as described above. On an annual basis, the Board reviews the performance of the Managing Director. The assessment criteria used in these reviews are both qualitative and quantitative and includes the following: • financial performance • safety performance • strategic actions The Managing Director annually reviews the performance of Whitehaven’s senior executives using criteria consistent with the above. The performance of the Managing Director and the Company’s senior executives during the 2011 financial year has been assessed in accordance with the above processes. Principle 2 – structure the Board to add value The Board reviews its composition from time to time to ensure the Board benefits from an appropriate balance of skills and experience. The Board is currently comprised as follows: Director J Conde (Chairman) N Chatfield A Krueger H Mende T Haggarty A Davies A Plummer Independent Yes Yes No – affiliated with substantial shareholder No – substantial shareholder No – employed in an executive capacity No – employed in an executive capacity No – employed in an executive capacity Non-executive Term in Office Yes Yes Yes Yes No No No 4 years 4 years 4 years 4 years 4 years 2 years 4 years Whitehaven did not comply with recommendation 2.1 of the ASX Guidelines during the 2011 financial year as a majority of the Board are not considered to be independent when considered in accordance with the criteria set out in recommendation 2.1. Notwithstanding this, the Board believes that the individuals on the Board can and do make quality and independent judgements in the best interests of the Company and other stakeholders. The Board regularly assesses the independence of each non- executive Director. The Board periodically undertakes an evaluation of the performance of the Board and its Committees. The evaluation encompasses a review of the structure and operation of the Board, and the skills and characteristics required by the Board to maximise its effectiveness, and the appropriateness of the Board’s practices and procedures to meet the present and future needs of the Company. The most recent evaluation of the performance of the Whitehaven Board was conducted in the 2011 financial year. Principle 3 – Promote ethical and responsible decision making Whitehaven has a Code of Ethics and Values. The purpose of this code is to provide Directors and employees with guidance on what is acceptable behaviour. The code requires all Directors, managers and employees to maintain the highest standards of honesty and integrity. The Code of Ethics and Values can be viewed on Whitehaven’s website. Whitehaven has a Securities Trading Policy which it has disclosed to the ASX in accordance with the listing rules. The policy sets out the windows in which employees and Directors can trade in Whitehaven’s securities. Under the policy all employees and Directors are prohibited from trading in Whitehaven’s securities when they are in possession of price sensitive information that is not generally available. The recruitment and selection processes adopted by Whitehaven ensure that staff and management are selected in a non- discriminatory manner based on merit. Whitehaven also values diversity in the organisation. In light of recent amendments to the ASX’s Corporate Governance Principles, Whitehaven intends to formalise and publish its diversity policy and set suitable diversity targets and benchmarks against which it will report. 29 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W DIRECTORS’ REPORT Principle 4 – safeguard integrity in financial reporting Whitehaven is committed to a transparent system for auditing and reporting of the Company’s financial performance. Whitehaven’s Audit and Risk Management Committee performs a central function in achieving this goal. The Chair and members of the Committee are independent directors, and all the members of the Committee are financially literate. The Committee holds discussions with external auditors without management present as required. The Audit and Risk Management Committee’s Charter can be viewed on Whitehaven’s website. Principle 5 – Make timely and balanced disclosure Whitehaven has in place practices and procedures which are aimed at ensuring timely compliance with the Company’s obligations under the Corporations Act 2001 (Cth) and ASX Listing Rules. These practices and procedures require information which may need to be disclosed to be brought to the attention of the Board for consideration as to whether disclosure is required. These practices and procedures can be viewed on Whitehaven’s website. Principle 6 – respect the rights of shareholders The Board recognises the importance of ensuring that shareholders are kept informed of all major developments affecting the Company. Information is communicated to shareholders in the following ways: • regular announcements are made to the Australian Securities Exchange in accordance with the Company’s continuous disclosure obligations, including quarterly reports, half-year results, full-year results and an Annual Report. These announcements are available on Whitehaven’s website • Whitehaven’s Annual Report is delivered to those shareholders who have elected to receive it • through participation at the Company’s annual general meeting. The Board encourages full participation of shareholders at the Annual General Meeting • the Company’s external auditors attend the Annual General Meeting and are available to answer shareholders’ questions Whitehaven’s policy on communications with shareholders can be viewed on Whitehaven’s website. Principle 7 – recognise and manage risks Whitehaven recognises that risk is a part of doing business and that effective risk management is fundamental to achieving the Company’s strategic and operational objectives. Whitehaven has a Risk Management Framework which provides the approach, infrastructure and processes for risk management at the Company. This Framework is constantly evolving, enabling the Company to manage its risks effectively and efficiently. The key components of the Framework are as follows: risk Management Policy – This Policy provides an overview of Whitehaven’s approach to risk management, and includes a summary of the roles and responsibilities of both the Board and management. risk Management standards – These Standards define the minimum risk management requirements that apply to Whitehaven’s operations. They address the identification, assessment and management of all material risks that could impact the Company’s objectives. risk Management guidelines – These Guidelines provide guidance to Directors and management as to what needs to be done to meet the objectives of the Risk Management Policy and the Risk Management Standards. Under the supervision of the Board, management is responsible for identifying and managing risks. The Board is responsible for ensuring that a sound system of risk oversight and management exists and that internal controls are effective. In particular, the Board ensures that the principal strategic, operational, financial reporting and compliance risks are identified, and that systems are in place to manage and report on these risks. The Board, together with management, constantly seeks to identify, monitor and mitigate risk. Internal controls are monitored on a continuous basis and, wherever possible, improved. The whole issue of risk management is formalised in Whitehaven’s corporate governance charter (which complies with the Guidelines in relation to risk management) and will continue to be kept under regular review. Review takes place at both the Audit and Risk Management Committee level and at Board level. 30 Senior management has reported to the Audit and Risk Management Committee and the Board on the effectiveness of the management of the business risks faced by Whitehaven during the 2011 financial year. The Board has also received assurance from the Managing Director and the Chief Financial Officer that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control, and that the system is operating efficiently and effectively in all material respects in relation to financial reporting risks. Principle 8 – remunerate fairly and responsibly Whitehaven’s remuneration policy and practices are designed to attract, motivate and retain high quality people. The policy is built around the following principles: • remuneration being competitive in the markets in which the Company operates • remuneration being linked to Company performance and the creation of shareholder value • a proportion of remuneration to be dependent upon performance against key business measures, both financial and non-financial Whitehaven has a Remuneration and Nominations Committee whose responsibilities include considering the Company’s remuneration strategy and policy and making recommendations to the Board that are in the best interests of the Company and its shareholders. The Committee is comprised of a majority of independent Directors, is chaired by an independent Director and has three members. The Remuneration and Nominations Committee has a formal charter which sets out its roles and responsibilities, composition structure and membership requirements. A copy of this charter can be viewed on Whitehaven’s website. The remuneration of non-executive Directors is fixed by way of cash and superannuation contributions. Non-executive Directors do not receive any options, bonus payments or other performance related incentives, nor are they provided with any retirement benefits other than superannuation. More information relating to the remuneration of non-executive Directors and senior managers is set out in the Remuneration Report on pages 32 to 38. As required by the Corporations Act, a resolution that the Remuneration Report be adopted will be put to the vote at the Annual General Meeting, however the vote will be advisory only and will not bind the Directors of the Company. Whitehaven’s Code of Conduct for Transactions in Securities prohibits executives from entering into transactions or arrangements which limit the economic risk of participating in unvested entitlements under the Company’s equity-based remuneration schemes. 6. DiViDenDs During the year the Company paid fully franked dividends of $30,117,000, representing a final 2010 dividend of 2.8 cents per ordinary share and an interim dividend for 2011 of 3.3 cents per ordinary share. Declared after end of year After the balance date the following dividend was proposed by the Directors. The dividend has not been provided and there are no income tax consequences. Final ordinary (Fully franked) Cents per share 4.1 Total amount $’000 20,273 Franked amount per security Date of payment 100% 30 September 2011 The record date for determining entitlement to the dividend will be 16 September 2011. The financial effect of these dividends has not been brought to account in the financial statements for the year ended 30 June 2011 and will be recognised in subsequent financial reports. 31 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W DIRECTORS’ REPORT reMunerAtion rePort – AuDiteD 7. 7.1 Principles of compensation – audited Remuneration is referred to as compensation throughout this report. Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Company and the consolidated entity, including directors of the Company and other executives. Key management personnel comprise the directors of the Company and executives for the Company and the consolidated entity including the five most highly remunerated executives. Compensation levels for key management personnel and secretaries of the Company and key management personnel of the consolidated entity are competitively set to attract and retain appropriately qualified and experienced directors and executives. The Remuneration and Nominations Committee obtains independent advice on the appropriateness of compensation packages of both the Company and the consolidated entity given trends in comparative companies both locally and internationally and the objectives of the Company’s compensation strategy. The compensation structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The compensation structures take into account: • the capability and experience of the key management personnel • the key management personnel’s ability to control performance • the consolidated entity’s performance including: – the consolidated entity’s earnings – the growth in share price and delivering constant returns on shareholder wealth – the amount of incentives within each key management person’s compensation. Compensation packages may include a mix of fixed compensation and short and long-term incentives. In addition to their salaries, the consolidated entity also provides non-cash benefits to its key management personnel. Fixed compensation Fixed compensation consists of base compensation (which is calculated on a total cost basis and includes any FBT charges related to employee benefits including motor vehicles), as well as employer contributions to superannuation funds. Compensation levels are reviewed annually by the Remuneration and Nominations Committee through a process that considers individual and overall performance of the consolidated entity. In addition, external consultants provide analysis and advice to ensure the directors’ and senior executives’ compensation is competitive in the market place. A senior executive’s compensation is also reviewed on promotion. Short-term incentive bonus Each year, the Managing Director assesses the performance of senior executives and may recommend the payment of a short-term incentive bonus to the Board for approval. Long-term incentive The objective of LTI compensation is to reward and retain key management personnel in a manner which aligns this element of compensation with the creation of shareholder wealth. As such, LTI grants are made to employees who are able to influence the generation of shareholder wealth and therefore have a direct impact on the Company’s performance. LTI grants to executives are delivered in the form of options. The grant of options is a direct link between director, executive and shareholder wealth. The indices below are considered when measuring the Group’s performance and benefits for shareholder wealth. 32 The Company does not permit directors and executives to use hedging instruments to protect the value of the equity based remuneration. 2011 2010 2009 2008 2007 Profit attributable to the group ($000’s) 9,946 114,884 244,212 51,854 24,095 Revenue ($000’s) 622,186 406,807 489,397 252,000 106,201 Share price at year end (dollars per share) $5.83 $4.80 Basic EPS (cents per share) Diluted EPS (cents per share) 2.0 2.0 24.2 24.0 $3.14 60.5 60.3 $4.47 14.5 14.4 $2.09 8.0 8.0 After the year-end the Company agreed to grante Share Acquisition Rights (SARs) over 120,000 ordinary shares to key management personnel (excluding Executive Directors) as part of ongoing long-term incentive plans. The SARs vest over the period 1 July 2012 to 1 July 2015 and are subject to market based performance hurdles. Other benefits Other benefits include motor vehicles and some minor benefits. Employment contracts It is the consolidated entity’s policy that service contracts are entered into with key management personnel. These contracts vary in term but are capable of termination by the consolidated entity at short notice should the specified executive commit any serious breach of any of the provisions of their agreement or is guilty of any grave misconduct or wilful neglect in the discharge of their duties. Tony Haggarty, Managing Director, was appointed on 17 October 2008 and has an evergreen employment agreement, which can be terminated by either party with three months notice or payment in lieu thereof. The components of Mr Haggarty’s remuneration package include: total fixed remuneration of $724,486 and the eligibility to participate in the Company’s incentive schemes. Andy Plummer, Executive Director, was appointed on 17 October 2008 and has an evergreen employment agreement, which can be terminated by either party with three months notice or payment in lieu thereof. The components of Mr Plummer’s remuneration package include: total fixed remuneration of $413,992 and the eligibility to participate in the Company’s incentive schemes. Allan Davies contracts his services to Whitehaven through Dalara Management Services Pty Ltd. This service agreement can be terminated by either party with one months notice or payment in lieu thereof. Austen Perrin, Chief Financial Officer and Joint Company Secretary, was appointed on 27 October 2008 and has an evergreen employment agreement which can be terminated by either party with three months notice or payment in lieu thereof. The components of Mr Perrin’s remuneration package include: total fixed remuneration of $422,273 and the eligibility to participate in the Company’s incentive schemes. Tony Galligan, General Manager Infrastructure, was appointed on 22 May 2006 and has an evergreen employment agreement. The components of Mr Galligan’s remuneration package include: total fixed remuneration of $381,660 and the eligibility to participate in the Company’s incentive schemes. Timothy Burt, General Counsel and Joint Company Secretary, was appointed on 29 July 2009 and has an evergreen employment agreement which can be terminated by either party with three months notice or payment in lieu thereof. The components of Mr Burt’s remuneration package include: total fixed remuneration of $275,306 and the eligibility to participate in the Company’s incentive schemes. During the year, the consolidated entity implemented a retention bonus scheme for key senior employees (excluding the Managing Director) in the Whitehaven Group. Under the scheme, retention amounts up to an aggregate total of $1,491,401 are payable to those key management personnel identified in this remuneration report who remain in the employment of the Whitehaven Group on 1 February 2012. These amounts will become payable earlier than 1 February 2012 if an employee is terminated for any reason other than serious misconduct or material breach of employment conditions. 33 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W DIRECTORS’ REPORT reMunerAtion rePort – AuDiteD (continueD) 7. 7.1 Principles of compensation – audited (continued) Non-Executive Directors The constitution of the Company provides that the non-executive Directors may be paid, as remuneration for their services as non-executive Directors, a sum determined from time to time by the Company’s shareholders in general meeting, with that sum to be divided amongst the non-executive Directors in such manner and proportion as they agree. The maximum aggregate amount which was approved by shareholders for fees to the non-executive Directors is $500,000 per annum. Non-executive Directors’ remuneration for the year ended 30 June 2011 amounted to $430,000. Non-executive directors do not receive equity instruments. 7.2 Directors’ and executive officers’ remuneration (company and consolidated) – audited Details of the nature and amount of each major element of remuneration of each Director of the Company and each of the five named Company executives and relevant consolidated entity executives who receive the highest remuneration and other key management personnel are shown in the table below. Options issued to entities associated with Andy Plummer and Tony Haggarty under the Equity Participation and Option Deed are also disclosed in this table. Short-term Share-based payments Salary & Fees $ STI cash bonus (A) $ Non- monetary benefit $ Other benefits (B) $ Term- ination benefits $ Super- annuation benefits $ Total $ Options issued to Directors/ senior employees (C) $ Post- employ- ment benefits $ Shares issued to Directors (D) $ Options issued under the EPOD (E) $ Value of options as proportion of total % In AUD Directors non-executive Directors 14,862 180,000 11,816 143,100 8,257 100,000 6,002 86,313 – – – – 75,000 63,375 75,000 63,375 65,862 899,486 52,489 826,226 37,636 513,992 41,988 461,867 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 195,000 19.1 – – – 195,000 – 29.7 76.7 96.0 – 639,377 – 2,101,608 – – 696,188 – 9,508,046 7,175,000 – – John Conde (Chairman) 2011 165,138 2010 131,284 Neil Chatfield 2011 91,743 2010 80,311 Alex Krueger 2011 75,000 2010 63,375 Hans Mende 2011 75,000 2010 63,375 executive Directors – – – – – – – – Tony Haggarty 2011 658,624 175,000 2010 661,237 112,500 Andy Plummer 2011 376,356 100,000 2010 363,629 56,250 Allan Davies 2011 526,877 112,500 2010 628,688 67,500 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 34 Short-term Share-based payments Salary & Fees $ STI cash bonus (A) $ Non- monetary benefits $ Other benefits (B) $ Term- ination benefits $ Super- annuation benefits $ Total $ Options issued to Directors/ senior employees (C) $ Post- employ- ment benefits $ In AUD executives Shares issued to Directors (D) $ Options issued under the EPOD (E) $ Value of options as proportion of total % Austen Perrin (CFO/Company Secretary) 2011 376,356 100,000 2010 363,629 67,500 2011 346,964 92,188 2010 307,035 77,083 26,757 – – – 8,281 7,163 – – 2011 243,450 62,500 2010 217,071 – – – 7,511 4,449 Tony Galligan (General Manager Infrastructure) Timothy Burt (General Counsel/ Company Secretary) * – – – – – – 37,636 522,273 43,113 481,405 34,696 473,848 38,412 449,287 24,345 337,806 21,507 243,027 – – – – – – 368,536 94,383 291,892 – 225,789 – – – – – – – – – – – – – 41.4 16.4 38.1 – 40.1 – * Timothy Burt appointed Joint Company Secretary 29 July 2009 Notes in relation to the table of Directors’ and executive officers’ remuneration – audited A. B. C. The amounts disclosed as STI cash bonus relate to amounts approved by the Board for performance of senior executives during the previous financial year. The amounts disclosed as other benefits relate to car spaces, professional fees and other similar items. The fair value for share options granted to the directors and senior employees is based on the fair value of options granted, measured using a Black Scholes model (for options) or a Monte Carlo simulation model (for Share Acquisition Rights). The following factors and assumptions were used in determining the fair value of options on grant date: Grant date Directors* 17/11/09 17/11/09 17/11/09 executives 19/02/09 19/02/09 19/02/09 04/08/10 04/08/10 13/10/10 13/10/10 13/10/10 Expected option life/ Expiry date Fair value per option Exercise price Price of shares on grant date Expected volatility Risk free interest rate Dividend yield 31/10/13 31/10/13 31/10/13 26/10/11 26/10/12 26/10/13 01/07/12 01/07/13 01/07/12 01/07/13 01/07/14 $2.72 $2.39 $2.12 $1.19 $1.36 $1.56 $5.33 $5.09 $5.20 $5.00 $4.95 $1.70 $1.70 $1.70 $1.00 $1.00 $1.00 $0.00 $0.00 $0.00 $0.00 $0.00 $4.42 $4.42 $4.42 $1.51 $1.51 $1.51 $5.73 $5.73 $6.20 $6.20 $6.20 60% 60% 60% 30% 30% 30% 40% 40% 40% 40% 40% 3.50% 3.50% 3.50% 3.00% 3.00% 3.00% 4.60% 4.70% 4.70% 4.70% 4.80% 10% 10% 10% 10% 10% 10% 1% 1% 1% 1% 1% * Director refers to Mr Allan Davies whose options were granted to Dalara Investments Pty Ltd as trustee for the AJ and LM Davies Family Trust 35 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W DIRECTORS’ REPORT reMunerAtion rePort – AuDiteD (continueD) 7. 7.2 Directors’ and executive officers’ remuneration (company and consolidated) – audited (continued) If employment is terminated any options that have not vested will be forfeited. In regard to the options issued to Directors, the Board committed to issue these options on 19 February 2009. The grant of these options was subsequently approved by shareholders at the AGM on 17 November 2009. Accounting standard AASB 2 deems the issue date of these options to be the date shareholder approval was formally received. Accordingly the company is required to account for the issue based on the prevailing share price at the date of the AGM. D. Shares were issued to Dalara Investments Pty Ltd, a company controlled by Mr Allan Davies, as trustee for the AJ and LM Davies Family Trust. The Board committed to issue these shares on 19 February 2009. The grant of shares was subsequently approved by shareholders at the AGM on 17 November 2009. Accounting standard AASB 2 deems the issue date of these shares to be the date shareholder approval was formally received. Accordingly the company is required to account for the issue based on the prevailing share price at the date of the AGM. E. Equity Participation and Option Deed The fair value for options issued under the Equity Participation and Option Deed is based on the fair value of options granted, measured using a Black Scholes model. The following factors and assumptions were used in determining the fair value of options on grant date: Grant date 03/05/07 Expected option life/ Expiry date Fair value per option 10 years 7.2 cents Exercise price $1.00 Price of shares on grant date Expected volatility Risk free interest rate $1.00 30% 5.88% Dividend yield 10% During the year ended 30 June 2007, the consolidated entity entered into an Equity Participation and Option Deed (the Deed) with entities related to Directors Andy Plummer and Tony Haggarty. In accordance with the Deed, the related entities of Andy Plummer and Tony Haggarty were granted six options each to acquire additional shares in the Company. The number of option shares was the percentage (the ‘Grant percentage’ set out in the table below) of a deemed amount of issued shares. For the purposes of the Deed, the deemed number of shares was 300 million shares plus any shares issued under previous exercised options. Each option was exercisable when the share price reached a certain level (as set out in the table below). All share prices were considered attained when the volume weighted average price of ordinary shares on the ASX measured over 10 consecutive trading days reached the required amount. Options 1 and 2 were exercised during the year ended 30 June 2008. Options 3 and 4 were exercised during the year ended 30 June 2009. Options 5 and 6 were exercised during the year ended 30 June 2010. All options had an exercise price of $1 and had to be exercised by the related entities within 90 days of being notified the Company’s share price had reached the target share price. Option No. 1 2 3 4 5 6 Grant percentage 0.835% 1.5% 1.2% 1.195% 1.1% 1.1% Maximum number of potential shares each 2,505,000 4,575,150 3,769,924 3,844,317 3,623,277 3,702,989 22,020,657 Share price $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 Percentage of the Tranche 2 shares released from escrow to be held 100% 90% 80% 70% 60% 50% The options were granted for nil consideration. The fair value of the options at grant date was 7.2 cents per option share. For accounting purposes the fair value of these options attributable to the period ended 30 June 2011 of $nil (2010: $390,000) has been recognised in the profit and loss. 36 7.3 equity instruments – audited All options refer to options over ordinary shares of Whitehaven Coal Limited. 7.3.1 Options over equity instruments granted as compensation – audited Details on options over ordinary shares in the Company that were granted to each key management person during the reporting period are as follows: Number of options granted during 2011 Fair value per option at grant date Exercise price per option Grant date executives Austen Perrin 40,000 4 Aug 2010 20,000 4 Aug 2010 13,334 13 Oct 2010 13,333 13 Oct 2010 13,333 13 Oct 2010 Timothy Burt 26,667 4 Aug 2010 13,333 4 Aug 2010 8,334 13 Oct 2010 8,333 13 Oct 2010 8,333 13 Oct 2010 Tony Galligan 33,333 4 Aug 2010 16,667 4 Aug 2010 11,667 13 Oct 2010 11,667 13 Oct 2010 11,666 13 Oct 2010 $5.33 $5.09 $5.20 $5.00 $4.95 $5.33 $5.09 $5.20 $5.00 $4.95 $5.33 $5.09 $5.20 $5.00 $4.95 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Vesting date Expiry date 1 July 2011 1 July 2012 1 July 2012 1 July 2013 1 July 2011 1 July 2012 1 July 2012 1 July 2013 1 July 2013 1 July 2014 1 July 2011 1 July 2012 1 July 2012 1 July 2013 1 July 2011 1 July 2012 1 July 2012 1 July 2013 1 July 2013 1 July 2014 1 July 2011 1 July 2012 1 July 2012 1 July 2013 1 July 2011 1 July 2012 1 July 2012 1 July 2013 1 July 2013 1 July 2014 The fair value of these options attributable to the period ended 30 June 2011 of $886,000 has been recognised in the profit and loss. The options will vest on meeting the total shareholder return hurdles as set out in note 33(b) and if the employees remain with the Company at the vesting date. Other than the SARs disclosed in section 7.1 of the remuneration report, no options have been granted since the end of the financial year. The options were provided at no cost to the recipients. 7.3.2 Modification of terms of equity-settled share-based payment transactions – audited No terms of equity-settled share-based payment transactions have been altered or modified by the issuing entity during the reporting period. 7.3.3 Exercise of options over equity instruments granted as compensation – audited During the reporting period no shares were issued on the exercise of options previously granted to Director-related entities or executives. 37 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W DIRECTORS’ REPORT reMunerAtion rePort – AuDiteD (continueD) 7. 7.3 equity instruments – audited (continued) 7.3.4 Vesting of options over equity instruments granted as compensation – audited Details of options vested during the year for each of the named executives and director-related entities are detailed below. Options granted Number Grant date % vested in year % Forfeited in year Financial years in which grant vests executives Austen Perrin Director-related entities 33,333 19 Feb 2009 Allan Davies 1,666,666 17 Nov 2009 100 100 – – 2011 2011 The options provided to executives and the related entity of Mr Davies vested in accordance with the vesting dates disclosed in note 33 of the financial statements. 7.3.5 Analysis of movements in options – audited The movement during the reporting period, by value, of options over ordinary shares in the Company held by director-related entities and each key management person is detailed below. executives Austen Perrin Timothy Burt Tony Galligan Granted in year $ (A) Value of options exercised in year $ (B) 517,000 336,250 439,250 – – – Lapsed in year $ (C) – – – (A) (B) The value of options granted in the year is the fair value of the options calculated at grant date using the Black Scholes model or the Monte Carlo simulation model. The total value of the options granted is included in the table above. This amount is allocated to remuneration over the vesting periods 4 August 2010 to 1 July 2013. The value of options exercised during the year is calculated as the market price of shares of the Company as at close of trading on the date the options were exercised after deducting the price paid to exercise the option. No options were exercised during the year. (C) The value of options that lapsed during the year represents the benefit forgone and is calculated at the date the option lapsed using the Black Scholes model or the Monte Carlo simulation model. No options lapsed in the year. 8. PrinciPAl ActiVities The principal activity of the Group during the period was the development and operation of coal mines in New South Wales. During the year ended 30 June 2011, Whitehaven Coal Limited and its controlled entities (‘the Group’) continued development at the Narrabri underground mine. 38 9. oPerAting AnD finAnciAl reView 9.1 overview of the consolidated entity Whitehaven Coal Limited was incorporated on 15 March 2007 and legally acquired Whitehaven Coal Mining Limited and its controlled entities on 29 May 2007. During the year ended 30 June 2011, the Group continued development at the Narrabri underground mine. 9.2 highlights Financial • Underlying net profit after tax (NPAT), before Significant Items, of $73.3 million, up 33% from FY2010; • NPAT after significant items of $9.9 million. Total significant items after tax of $63.4 million including: – $45.8 million from losses incurred on legacy contracts from both purchased coal and financial settlements – $11.6 million foreign exchange loss relating to the outstanding USD receivable from EDF for its Narrabri JV purchase. • A fully franked final dividend of 4.1 cents per share has been declared, payable on 30 September 2011. This takes the total dividend for the year to 7.4 cents per share; • Revenue of $437.0 million (net of purchased coal and excluding NSW royalty), up 33% from FY2010; • Earnings before interest, tax, depreciation and amortisation (EBITDA) of $189.7 million (excluding coal purchases), reduced to $148.0 million after coal purchases; • Cash generated from operations of $120.3 million, compared to $69.3 million in FY2010; • Proceeds received from the sale of Narrabri of $190.8 million during the year; • Strong cash flow and financial position – $207.6 million cash available with net cash of $29.0 million compared to $141.0 million cash available and net cash of $46.1 million at 30 June 2010; Operating • Saleable coal production up 20% (equity basis) to 4.2 Mtpa and up 19% (100% basis) to 4.7 Mtpa; • Successful expansion of Whitehaven’s open cut mines which operated at an annual rate of almost 6 Mtpa of ROM coal in the June quarter; • Narrabri mine production ramp up continuing with four continuous miners now operating and excellent underground mining conditions; • Narrabri Coal Handling and Preparation Plant (CHPP) commenced commissioning in August 2011; • Definition of a 439 Mt open cut coal resource at Vickery with preliminary work indicating an open cut mine plan for Vickery of 4.5 Mtpa ROM for at least 25 years with a stripping ratio of approximately 10:1; • Continuing investment in infrastructure with rail and port capacity secured to meet growth profile; • Expansion of the Gunnedah CHPP completed with washing capacity increased to 3 Mtpa and total coal handling and rail loading capacity of 4.2 Mtpa; • Heads of agreement signed with Idemitsu to extend the existing Tarrawonga Joint Venture and share new CHPP and rail infrastructure. 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 39 DIRECTORS’ REPORT 9. oPerAting AnD finAnciAl reView (continueD) 9.3 review of operations The Managing Director’s Report, containing a review of operations, commences on page 8 of this Annual Financial Report. This, together with the Chairman’s Letter and the sections headed ‘Significant Changes in the State of Affairs’ and ‘Events Subsequent to Reporting Date’ in this report, provides a review of operations of the consolidated entity during the year and subsequent to the reporting date. 10. significAnt chAnges in the stAte of AffAirs In the opinion of the directors, there were no significant changes in the state of affairs of the consolidated entity that have not been noted in the review of operations that occurred during the financial year. 11. eVents suBsequent to rePorting DAte In the interval between the end of the financial year and the date of this report there has not arisen any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future financial years other than the following: • The directors have resolved to pay a fully franked dividend of 4.1 cents per ordinary share (refer Note 26). • After the year end the Company agreed to grante Share Acquisition Rights (SARs) over 720,000 ordinary shares to key senior employees (excluding Executive Directors) as part of ongoing long-term incentive plans. The SARs vest over the period 1 July 2012 to 1 July 2015 and are subject to market based performance hurdles. • On 16 August 2011, the Company entered into long-term arrangements with Australian Rail Track Corporation (ARTC) for rail track access between the Company’s mines and Newcastle Port. • On 27 July 2011, 651,679 ordinary shares were issued pursuant to the vesting of employee SARs. • The consolidated entity received a claim in June 2008 in relation to the performance of its obligations under a coal sales contract. The claim was settled on 1 July 2011 for an amount of US$1,625,000. The financial effect of the above matters has not been brought to account in the financial statements for the year ended 30 June 2011 but will be recognised in future financial periods. 40 12. liKely DeVeloPMents The consolidated entity will continue with the operation and development of its coal projects. Further information about likely developments in the operations of the consolidated entity and the expected results of those operations in future financial years has not been included in this report because disclosure of this information would be likely to result in unreasonable prejudice to the consolidated entity. The Government released the draft Clean Energy Bill 2011 (the ‘Bill’ or the ‘Scheme’) which will have an impact on the Australian economy, and also on the Group. The Bill, which is not substantially enacted, is expected to be finalised in November 2011 with a commencement date of 1 July 2012. Management is currently reviewing its operations, expected financial impacts and opportunities, based on the information released, however this may change as the Bill is finalised. 13. shAre oPtions 13.1 options granted to directors and officers of the company During or since the end of the financial year, the Company granted options or agreed to grant options for no consideration over unissued ordinary shares in the Company to the following of the five most highly remunerated officers of the Company as part of their remuneration: officers Austen Perrin Timothy Burt Anthony Galligan Number of options granted Exercise price Expiry date 150,000 100,000 120,000 $0.00 $0.00 $0.00 1 July 2012 to 1 July 2015 1 July 2012 to 1 July 2015 1 July 2012 to 1 July 2015 These options do not entitle the holder to participate in any share issue of the Company or any other body corporate. 13.2 shares issued on exercise of options During the financial year, no Director-related entity nor executive of the Company exercised any options. 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 41 DIRECTORS’ REPORT 13. shAre oPtions (continueD) 13.3 unissued shares under options At the date of this report unissued ordinary shares of the Company under option are: Expiry date 26 October 2011 30 June 2012 21 October 2012 26 October 2012 1 July 2013 26 October 2013 31 October 2013 2 November 2013 1 July 2014 1 July 2015 Exercise price $1.00 $1.00 $2.50 $1.00 $0.00 $1.00 $1.70 $1.00 $0.00 $0.00 Number of shares 33,333 33,334 3,000,000 33,333 658,340 66,668 5,000,000 33,334 424,996 239,985 For details of options issued to key management personnel refer to section 7 of the Directors’ report. 14. inDeMnificAtion AnD insurAnce of officers 14.1 indemnification The Company has agreed to indemnify all current and former directors of the Company against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as directors of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses. 14.2 insurance premiums During the financial year the Company has paid premiums in respect of directors’ and officers’ liability and legal expenses insurance contracts. Such insurance contracts insure against certain liability (subject to certain exclusions) persons who are or have been directors or officers of the Company or its controlled entities. The directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors’ and officers’ liability and legal expenses insurance contracts, as such disclosure is prohibited under the terms of the contract. 42 15. non-AuDit serVices During the year Ernst & Young, the Company’s auditor, has performed certain other services in addition to their statutory duties. The Board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the audit and risk management committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the audit committee to ensure they do not impact the integrity and objectivity of the auditor; and • the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. Details of the amounts paid to the auditor of the Company, Ernst & Young, and their related practices for non-audit services provided during the year are set out below. In AUD non-audit services Ernst & Young Due diligence services Review of Greenhouse Gas emissions Taxation services Other assurance services Consolidated 2011 2010 487,229 74,059 – 7,210 – 86,684 40,508 5,142 568,498 132,334 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 43 DIRECTORS’ REPORT 16. leAD AuDitor’s inDePenDence DeclArAtion The Lead auditor’s independence declaration is set out on page 45 and forms part of the Directors’ report for financial year ended 30 June 2011. 17. rounDing The Company is of a kind referred to in ASIC Class Order 98/100 and dated 10 July 1998 and in accordance with that Class Order, all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated. Signed in accordance with a resolution of the directors: John conde Chairman Dated at Sydney this 23rd day of August 2011 44 auDITOR’S InDEPEnDEnCE DEClaRaTIOn 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 45 Financial report Statement of Comprehensive Income 47 Statement of Financial Position 49 Statement of Changes in Equity 51 Statement of Cash Flows 52 Notes to the Financial Statements 53 Directors’ Declaration 112 Independent Auditor’s Report 113 ASX Additional Information 115 46 Statement oF comprehenSive income For the Year enDeD 30 june 2011 In thousands of AUD ($’000) Revenue Operating expenses Before significant items Significant items Depreciation and amortisation Cost of sales Gross profit Other income Before significant items Significant items Selling and distribution expenses Other expenses Before significant items Significant items Administrative expenses Before significant items Significant items Profit before financing income Financial income Before significant items Significant items Financial expenses Before significant items Significant items Net financing expense Profit before tax Consolidated Note 2011 2010 8 7 9 7 622,186 406,807 (405,646) (240,545) (25,563) – (431,209) (240,545) (40,938) (32,025) (472,147) (272,570) 150,039 134,237 15,184 9,427 – 114,314 15,184 123,741 (66,373) (51,189) (4,329) (802) (41,944) (16,683) (46,273) (17,485) 7 10 (13,053) (14,930) 7 (5,778) (2,375) (18,831) (17,305) 33,746 171,999 7 12 7 12 12 9,169 8,602 17,771 12,817 4,511 17,328 (17,770) (10,857) (24,922) (7,223) (42,692) (18,080) (24,921) (752) 8,825 171,247 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 47 Statement oF comprehenSive income (continueD) For the Year enDeD 30 june 2011 In thousands of AUD ($’000) Profit before tax Income tax expense Before significant items Significant items Profit for the year attributable to equity holders of the parent Before significant items Significant items Net profit attributable to equity holders Other comprehensive income Effective portion of changes in fair value of cash flow hedges Change in fair value of cash flow hedges transferred to profit and loss Income tax on items of other comprehensive income Other comprehensive income for the period, net of tax Total comprehensive income for the period Earnings per share: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Earnings per share before significant items: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Consolidated 2011 8,825 2010 171,247 (25,130) (23,595) 26,251 (32,768) 1,121 (56,363) 73,300 (63,354) 55,108 59,776 9,946 114,884 136,440 (92,244) (13,259) 30,937 40,883 29,494 (48,722) 5,769 (13,459) 101,425 2 0 2 0 14 8 14 7 24 2 24 0 11 6 11 5 Note 7 13 13 36 36 36 36 The statement of comprehensive income is to be read in conjunction with the notes to the financial statements 48 Statement oF Financial poSition aS at 30 june 2011 In thousands of AUD ($’000) Assets Cash and cash equivalents Trade and other receivables Inventories Investments Current tax receivable Deferred stripping Derivative financial instruments Total current assets Trade and other receivables Investments Property, plant and equipment Exploration and evaluation Intangible assets Deferred stripping Total non-current assets Total assets Liabilities Trade and other payables Interest-bearing loans and borrowings Employee benefits Current tax payable Deferred income Provisions Derivative financial instruments Total current liabilities Non-current liabilities Interest-bearing loans and borrowings Deferred tax liabilities Deferred income Provisions Derivative financial instruments Total non-current liabilities Total liabilities Net assets Consolidated Note 2011 2010 14 15 16 18 13 17 15 18 19 20 21 22 23 24 13 25 17 23 13 25 17 207,602 92,365 25,886 14,866 9,957 55,619 55,998 141,049 289,206 20,921 – – 27,903 23,127 462,293 502,206 2,702 1,210 37,159 1,210 936,987 760,981 9,422 49,781 – 5,344 43,488 928 1,000,102 849,110 1,462,395 1,351,316 154,264 128,408 49,436 8,789 – 355 4,932 7,208 37,307 6,245 37,514 191 1,246 14,280 224,984 225,191 129,157 38,621 – 29,097 – 196,875 421,859 57,622 12,089 444 27,652 5,142 102,949 328,140 1,040,536 1,023,176 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 49 Statement oF Financial poSition (continueD) aS at 30 june 2011 In thousands of AUD ($’000) Equity Issued capital Share-based payments reserve Hedge reserve Retained earnings Total equity attributable to equity holders of the parent Consolidated Note 2011 2010 26(a) 591,339 591,176 24,358 33,776 17,927 2,839 391,063 411,234 1,040,536 1,023,176 The statement of financial position is to be read in conjunction with the notes to the financial statements 50 Statement oF changeS in equitY For the Year enDeD 30 june 2011 Consolidated In thousands of AUD ($’000) Issued capital Share based payments reserve Note Retained earnings Hedge reserve Total Opening balance at 1 July 2009 367,352 442 338,753 16,298 722,845 Profit for the period Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners: Dividends paid Share-based payments Share options exercised Shares issued for cash Costs of shares issued, net of tax Closing balance at 30 June 2010 Opening balance at 1 July 2010 Profit for the period Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners: Dividends paid Share-based payments Share options exercised Shares issued for cash Costs of shares issued, net of tax 26 33 26 26 26 26 33 26 26 26 – – – – – 14,753 214,886 (5,815) 591,176 591,176 – – – – – 167 – (4) – – – – 17,485 – – – 114,884 – 114,884 – (13,459) (13,459) 114,884 (13,459) 101,425 (42,403) – – – – – – – – – (42,403) 17,485 14,753 214,886 (5,815) 17,927 17,927 411,234 411,234 2,839 1,023,176 2,839 1,023,176 – – – – 6,431 – – – 9,946 – 9,946 – 30,937 30,937 9,946 30,937 40,883 (30,117) – – – – – – – – – (30,117) 6,431 167 – (4) Closing balance at 30 June 2011 591,339 24,358 391,063 33,776 1,040,536 The statement of changes in equity is to be read in conjunction with the notes to the financial statements 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 51 Statement oF caSh FlowS For the Year enDeD 30 june 2011 In thousands of AUD ($’000) Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Interest paid Interest received Income taxes paid Consolidated Note 2011 2010 656,836 397,363 (536,510) (328,017) 120,326 (14,891) 7,009 69,346 (6,505) 7,426 (33,075) (109,790) Net cash from/(used in) operating activities 31 79,369 (39,523) Cash flows from investing activities Proceeds from sell down of Narrabri project Proceeds from sale of property, plant and equipment Acquisition of property, plant and equipment Acquisition of intangible assets Acquisition of investments Proceeds from sale of investments Exploration and evaluation expenditure Contract guarantee security Proceeds from repayments of loans advanced Loans advanced Net cash used in investing activities Cash flows from financing activities Proceeds from the issue of share capital Proceeds from the exercise of share options Transaction costs paid on issue of share capital Proceeds from borrowings Repayment of borrowings Payment of finance lease liabilities Dividends paid Net cash from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June 190,866 949 99,749 1,071 (225,347) (245,685) (8,044) (37,365) 22,499 (4,078) – 8,707 (1,693) (3,110) – – (1,506) 6,162 – (3,404) (53,506) (146,723) – 167 (6) 90,677 (2,207) 214,886 14,753 (8,306) 32,321 (918) 26 26 (17,824) (14,197) 26 (30,117) (42,403) 40,690 66,553 196,316 9,890 141,049 131,159 14 207,602 141,049 The statement of cash flows is to be read in conjunction with the notes to the financial statements 52 noteS to the Financial StatementS 30 june 2011 1. REPORTiNG ENTiTy The financial report of Whitehaven Coal Limited (‘Whitehaven’ or ‘Company’) for the year ended 30 June 2011 was authorised for issue in accordance with a resolution of the directors on 23 August 2011 Whitehaven Coal Limited is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange The address of the Company’s registered office is Level 9, 1 York Street, Sydney NSW 2000 The principal activity of the consolidated entity is the development and operation of coal mines in New South Wales 2. BAsis Of PREPARATiON The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards (AAS) and other authoritative pronouncements of the Australian Accounting Standards Board (AASB) The financial report has been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value (refer note 3g) The Company is of a kind referred to in ASIC Class Order 98/100 and dated 10 July 1998 and in accordance with that Class Order, all financial information presented in Australian dollars has been rounded to the nearest thousand dollars unless otherwise stated a) statement of compliance The financial report also complies with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and interpretations of the International Financial Reporting Interpretations Committee (IFRIC) b) functional and presentation currency Both the functional and presentation currency of the Company and of all entities in the consolidated entity is Australian dollars ($) 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently by all subsidiaries in the consolidated entity New accounting standards and interpretations (i) Changes in accounting policy and disclosures The accounting policies adopted are consistent with those of the previous financial year except as follows: The Group has adopted the following new and amended Australian Accounting Standards and AASB interpretations where applicable as at 1 July 2010 • AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project effective 1 July 2010 • AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions [AASB 2] effective 1 July 2010 • AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues [AASB 132] effective 1 July 2010 • AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 3, AASB 7, AASB 121, AASB 128, AASB 131, AASB 132 & AASB139] effective 1 July 2010 • Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments effective 1 July 2010 53 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) New accounting standards and interpretations (continued) (i) Changes in accounting policy and disclosures (continued) Where the adoption of the Standard or Interpretation is deemed to have an impact on the financial statements or performance of the Group, its impact is described below: AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project The Improvements to IFRS project is an annual process that the IASB has adopted to deal with non-urgent but necessary amendments to IFRS The amendments result in various accounting changes and terminology or editorial amendments The subject of amendments to the standards are set out below: • AASB 5 Disclosures in relation to non-current assets (or disposal groups) classified as held for sale or discontinued operations • AASB 8 Disclosure of information about segment assets • AASB 101 Current/non-current classification of convertible instruments • AASB 107 Classification of expenditure that does not give rise to an asset • AASB 117 Classification of leases of land • AASB 118 Determining whether an entity is acting as a principal or an agent • AASB 136 Clarifying the unit of account for goodwill impairment test is not larger than an operating segment before aggregation • AASB 139 Treating loan prepayment penalties as closely related embedded derivatives, and revising the scope exemption for forward contracts to enter into a business combination contract The adoption of these amendments did not have any impact on the financial position or the performance of the Group AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions [AASB 2] The amendment clarifies that if an entity receives goods or services that are cash settled by shareholders not within the group, they are outside the scope of IFRS 2 The adoption of this amendment did not have any impact on the financial position or the performance of the Group AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues [AASB 132] The amendment provides relief to entities that issue rights (fixed in a currency other than their functional currency), from treating the rights as derivatives with fair value changes recorded in profit or loss The adoption of this amendment did not have any impact on the financial position or the performance of the Group AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 3, AASB 7, AASB 121, AASB 128, AASB 131, AASB 132 & AASB139] The principal amendments to the standards are set out below: Limits the scope of the measurement choices of non-controlling interest to instruments that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation Other components of NCI are measured at fair value Requires an entity (in a business combination) to account for the replacement of the acquiree’s share-based payment transactions (whether obliged or voluntarily), in a consistent manner i e , allocate between consideration and post combination expenses Clarifies that contingent consideration from a business combination that occurred before the effective date of AASB 3 Revised is not restated Clarifies that the revised accounting for loss of significant influence or joint control (from the issue of IFRS 3 Revised) is only applicable prospectively The adoption of these amendments did not have any impact on the financial position or the performance of the Group 54 noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) New accounting standards and interpretations (continued) (i) Changes in accounting policy and disclosures (continued) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 19 clarifies that equity instruments issued to a creditor to extinguish a financial liability are consideration paid in accordance with paragraph 41 of IAS 39 Financial Instruments; Recognition and Measurement The equity instruments issued are measured at their fair value, unless this cannot be reliably measured, in which case they are measured at the fair value of the liability extinguished Any gain or loss is recognised immediately in profit or loss The adoption of this amendment did not have any impact on the financial position or the performance of the Group (ii) Accounting Standards and Interpretations issued but not yet effective Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ending 30 June 2011 are outlined below: AASB 9 Financial Instruments Phase 1 of IFRS 9 will have a significant impact on the classification and measurement of financial assets The amendments become effective for the consolidated entity’s 30 June 2014 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and interpretations 10 & 12] These amendments arise from the issuance of AASB 9 Financial Instruments that sets out requirements for the classification and measurement of financial assets The requirements in AASB 9 form part of the first phase of the International Accounting Standards Board’s project to replace IAS 39 Financial Instruments: Recognition and Measurement This Standard shall be applied when AASB 9 is applied The amendments become effective for the consolidated entity’s 30 June 2014 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report AASB 124 Related Party Disclosures (Revised) The definition of a related party has been clarified to simplify the identification of related party relationships, particularly in relation to significant influence and joint control The amendments become effective for the consolidated entity’s 30 June 2012 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report AASB 2009-12 Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052] This amendment makes numerous editorial changes to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRS by the IASB The amendments become effective for the consolidated entity’s 30 June 2012 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report AASB 2009-14 Amendments to Australian Accounting Standards – Prepayments of a Minimum Funding Requirement [AASB Interpretation 14] IFRIC 14 provides guidance on assessing the recoverable amount of a net pension asset The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset The amendments become effective for the consolidated entity’s 30 June 2012 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report 55 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) New accounting standards and interpretations (continued) (ii) Accounting Standards and Interpretations issued but not yet effective (continued) AASB 1053 Application of Tiers of Australian Accounting Standards This Standard establishes a differential financial reporting framework consisting of two Tiers of reporting requirements for preparing general purpose financial statements: (a) Tier 1: Australian Accounting Standards (b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements The amendments become effective for the consolidated entity’s 30 June 2014 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report AASB 1054 Australian Additional Disclosures This standard is as a consequence of phase 1 of the joint Trans-Tasman Convergence project of the AASB and FRSB This standard relocates all Australian specific disclosures from other standards to one place and revises disclosures in certain areas The amendments become effective for the consolidated entity’s 30 June 2012 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101, AASB 134 and Interpretation 13] Emphasises the interaction between quantitative and qualitative AASB 7 disclosures and the nature and extent of risks associated with financial instruments The amendments become effective for the consolidated entity’s 30 June 2012 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report AASB 2010-5 Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042] This Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRS by the IASB The amendments become effective for the consolidated entity’s 30 June 2012 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report AASB 2010-6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets [AASB 1 & AASB 7] The amendments increase the disclosure requirements for transactions involving transfers of financial assets The amendments become effective for the consolidated entity’s 30 June 2012 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023, & 1038 and interpretations 2, 5, 10, 12, 19 & 127] The requirements for classifying and measuring financial liabilities were added to AASB 9 The existing requirements for the classification of financial liabilities and the ability to use the fair value option have been retained However, where the fair value option is used for financial liabilities, the change in fair value is accounted for differently The amendments become effective for the consolidated entity’s 30 June 2014 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report 56 noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) New accounting standards and interpretations (continued) (ii) Accounting Standards and Interpretations issued but not yet effective (continued) AASB 2010-8 Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets [AASB 112] These amendments address the determination of deferred tax on investment property measured at fair value and introduce a rebuttable presumption that deferred tax on investment property measured at fair value should be determined on the basis that the carrying amount will be recoverable through sale The amendments become effective for the consolidated entity’s 30 June 2013 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report AASB 2011-1 Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence project [AASB 1, AASB 5, AASB 101, AASB 107, AASB 108, AASB 121, AASB 128, AASB 132, AASB 134, Interpretation 2, Interpretation 112, Interpretation 113] This Standard amendments many Australian Accounting Standards, removing the disclosures which have been relocated to AASB 1054 The amendments become effective for the consolidated entity’s 30 June 2012 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report AASB 2011-2 Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence project – Reduced disclosure regime [AASB 101, AASB 1054] This Standard makes amendments to the application of the revised disclosures to Tier 2 entities, that are applying AASB 1053 The amendments become effective for the consolidated entity’s 30 June 2014 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report IFRS 10 Consolidated Financial Statements IFRS 10 establishes a new control model that applies to all entities It replaces parts of IAS 27 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and SIC-12 Consolidation – Special Purpose Entities The amendments become effective for the consolidated entity’s 30 June 2014 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report IFRS 11 Joint Arrangements IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly- controlled Entities – Non-monetary Contributions by Ventures IFRS 11 uses the principle of control in IFRS 10 to define joint control, and therefore the determination of whether joint control exists may change In addition IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation The amendments become effective for the consolidated entity’s 30 June 2014 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report IFRS 12 Disclosure of Interests in Other Entities IFRS 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structures entities New disclosures have been introduced about the judgements made by management to determine whether control exists, and to require summarised information about joint arrangements, associates and structured entities and subsidiaries with non-controlling interests The amendments become effective for the consolidated entity’s 30 June 2014 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report IFRS 13 Fair Value Measurement IFRS 13 establishes a single source of guidance under IFRS for determining the fair value of assets and liabilities The amendments become effective for the consolidated entity’s 30 June 2014 financial statements The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report 57 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) a) Basis of consolidation The consolidated financial report of the Company for the financial year ended 30 June 2011 comprises the Company and its subsidiaries (together referred to as the ‘consolidated entity’) and the consolidated entity’s interest in jointly controlled operations (i) Subsidiaries Subsidiaries are all those entities over which the consolidated entity has the power to govern the financial and operating policies so as to obtain benefits from their activities The existence and effect of potential voting rights that are currently exercisable are considered when assessing control Subsidiaries are fully consolidated from the date that control commences until the date that control ceases The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies Investments in subsidiaries are carried at their cost of acquisition in the Company’s financial statements (ii) Jointly controlled operations The consolidated entity recognises its interest in jointly controlled operations by recognising its interest in the assets and liabilities of the joint venture The consolidated entity also recognises the expenses it incurs and its share of the income that it earns from the sale of goods or services by the joint venture (iii) Transactions eliminated on consolidation Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements Business combinations Business combinations are accounted for using the acquisition method The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity issued by the acquirer, and the amount of any non-controlling interest in the acquiree For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets Acquisition-related costs are expensed as incurred Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with AASB 139 either in profit or loss or in other comprehensive income If the contingent consideration is classified as equity, it shall not be remeasured Prior to 1 July 2009 Business combinations were accounted for using the purchase method Transaction costs directly attributable to the acquisition formed part of the acquisition costs The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree’s identifiable net assets Contingent consideration was recognised if, and only if, the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable Subsequent adjustments to the contingent consideration were adjusted against the fair value adjustment to mining properties b) foreign currency translation Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date Foreign exchange differences arising on translation are recognised in the statement of comprehensive income Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction 58 noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) c) segment reporting An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors The group aggregates two or more operating segments when they have similar economic characteristics, and the segments are similar in each of the following respects: • nature of the products and services, • nature of the production processes, • type or class of customer for the products and services, • methods used to distribute the products or provide the services, and if applicable • nature of the regulatory environment d) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short term deposits For the purpose of the Statement of Cash Flows, bank overdrafts that are repayable on demand and form an integral part of the consolidated entity’s cash management are included as a component of cash and cash equivalents e) Trade and other receivables Trade receivables, which generally have 5-21 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment Recoverability of trade receivables is reviewed on an ongoing basis Receivables due in more than one year are recognised initially at fair value, discounted back to net present value based on appropriate discount rates for the consolidated entity f) inventories Inventories are measured at the lower of cost and net realisable value Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses The cost of coal inventories is determined using a weighted average basis Cost includes direct material, overburden removal, mining, processing, labour, mine rehabilitation costs incurred in the extraction process and other fixed and variable overhead costs directly related to mining activities Inventory are classified as follows: • Run of mine: material extracted through the mining process • Finished goods: products that have passed through all stages of the production process • Consumables: goods or supplies to be either directly or indirectly consumed in the production process 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 59 noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) g) derivative financial instruments The consolidated entity uses derivative financial instruments to hedge its risks associated with foreign currency rate fluctuations arising from operating activities Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into, and are subsequently remeasured to fair value Any gains and losses arising from changes in the fair value of derivatives are accounted for as described below: • The fair values of forward exchange contracts are calculated by reference to current forward exchange rates for contracts with similar maturity profiles • All attributable transaction costs are recognised in the statement of comprehensive income as incurred Cash flow hedges Cash flow hedges are hedges of the consolidated entity’s exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability that is a firm commitment and that could affect profit or loss Changes in the fair value of the hedging instrument designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss Amounts taken to equity are transferred out of equity and included in the measurement of the hedged transaction (coal sales) when the forecast transaction occurs The consolidated entity tests each of the designated cash flow hedges for effectiveness at each balance date, both retrospectively and prospectively, by using the dollar offset method If the testing falls within the 80:125 range, the hedge is considered to be highly effective and continues to be designated as a cash flow hedge If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if it no longer meets the criteria for hedge accounting (due to it being ineffective), then hedge accounting is discontinued prospectively The cumulative gain or loss previously recognised in equity remains in equity until the forecast transaction occurs Economic hedges Derivatives which do not qualify for hedge accounting are measured at fair value with changes in fair value recognised in profit or loss h) investments and other financial assets Financial assets in the scope of AASB 139 are categorised as either financial assets at fair value through profit and loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets Financial assets are recognised initially at fair value, plus, for assets not at fair value through profit or loss, any directly attributable transaction costs Recognition and derecognition Regular way purchases and sales of financial assets are accounted for at trade date, i e , the date that the consolidated entity commits itself to purchase or sell the asset Financial assets are derecognised if the consolidated entity’s contractual rights to the cash flows from the financial assets expire or if the consolidated entity transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset 60 noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) i) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses Cost includes expenditures that are directly attributable to the acquisition of the asset The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located Cost also may include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment Borrowing costs related to the acquisition or construction of qualifying assets are capitalised as part of the cost of the asset Mining property and development assets include costs transferred from exploration and evaluation assets once technical feasibility and commercial viability of an area of interest are demonstrable and subsequent costs to develop the mine to production phase When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within ‘other income’ (ii) Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the consolidated entity and its cost can be measured reliably The costs of the day-to-day servicing of property, plant and equipment are recognised in the statement of comprehensive income as incurred (iii) Depreciation Depreciation is charged to the statement of comprehensive income on a straight-line or units of production basis over the estimated useful lives of each part of an item of property, plant and equipment Land is not depreciated Mining property and development assets are depreciated on a units of production basis over the life of the economically recoverable reserves The depreciation rates used in the current and comparative periods are as follows: • plant and equipment • leased plant and equipment 2 – 20% 11 – 14% • mining property and development assets units of production The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 61 noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) j) mine development costs The cost of acquiring mineral reserves and mineral resources are capitalised on the statement of financial position as incurred Capitalised costs (development expenditure) include expenditure incurred to expand the capacity of a mine and to maintain production Mine development costs include acquired proved and probable mineral resources at cost at acquisition date Mineral reserves and capitalised mine development expenditure are, upon commencement of production, depreciated over the remaining life of mine The net carrying amounts of mineral reserves and resources and capitalised mine development expenditure at each mine property are reviewed for impairment either individually or at the cash-generating unit level when events and changes in circumstances indicate that the carrying amount may not be recoverable To the extent to which these values exceed their recoverable amounts, that excess is fully provided against in the financial year in which this is determined intangible assets k) (i) Exploration and evaluation assets Exploration and evaluation costs, including the costs of acquiring licences, are capitalised as exploration and evaluation assets on an area of interest basis Costs incurred before the consolidated entity has obtained the legal rights to explore an area are recognised in the statement of comprehensive income Exploration and evaluation assets are only recognised if the rights of the area of interest are current and either: i ii the expenditures are expected to be recouped through successful development and exploitation of the area of interest; or activities in the area of interest have not at the reporting date, reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing Exploration and evaluation assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount For the purposes of impairment testing, exploration and evaluation assets are allocated to cash-generating units to which the exploration activity related The cash generating unit shall not be larger than the area of interest Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified from intangible assets to mining property and development assets within property, plant and equipment (ii) Water access rights The consolidated entity holds water access rights, which have been determined to have an indefinite life The water access rights have been recognised at cost and are assessed annually for impairment (iii) Rail access rights Rail access rights have a finite useful life and are carried at cost less, where applicable, any accumulated amortisation and accumulated impairment losses The carrying values of rail access rights are reviewed to ensure they are not in excess of their recoverable amounts Rail access rights are amortised over the life of the mine or access agreement using a unit sold basis (iv) Other intangible assets Other intangible assets that are acquired by the consolidated entity, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses Amortisation is charged to the statement of comprehensive income on a straight line basis over the estimated life of the mining property to which the intangible relates 62 noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) k) (v) Subsequent expenditure intangible assets (continued) Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates All other expenditure is recognised in the statement of comprehensive income as incurred l) deferred stripping costs Expenditure incurred to remove overburden or waste material during the production phase of a mining operation is deferred to the extent it gives rise to future economic benefits and charged to operating costs on a units of production basis using the estimated average stripping ratio for the area being mined Changes in estimates of average stripping ratios are accounted for prospectively For the purposes of assessing impairment, deferred stripping costs are grouped with other assets of the relevant cash generating unit m) 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 and the arrangement conveys a right to use the asset Consolidated entity as lessee Finance leases, which transfer to the consolidated entity substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at an amount equal to the lower of the fair value of the leased asset and the present value of the minimum lease payments Lease payments are apportioned between the finance charges and the reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability Finance charges are recognised as an expense in the statement of comprehensive income Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and a reduction of the liability n) impairment (i) Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate Individually significant financial assets are tested for impairment on an individual basis The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics All impairment losses are recognised in profit or loss An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised For financial assets measured at amortised cost, the reversal is recognised in profit or loss 63 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) n) (ii) Non-financial assets impairment (continued) The carrying amounts of the consolidated entity’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each balance date to determine whether there is any indication of impairment If any such indication exists, the asset’s recoverable amount is estimated For intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated at each reporting date The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the ‘cash-generating unit’) An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups Impairment losses are recognised in the statement of comprehensive income, unless an asset has previously been revalued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through profit or loss Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit (group of units) on a pro rata basis o) Trade and other payables Trade and other payables are carried at amortised cost Due to their short-term nature they are not discounted They represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year that are unpaid and arise when the consolidated entity becomes obliged to make future payments in respect of the purchase of these goods and services The amounts are unsecured and are usually paid within 30 days of recognition p) interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans and borrowings q) Employee benefits (i) Wages, salaries, annual leave and sick leave Liabilities for wages, salaries, annual leave and sick leave are recognised in respect of employees’ services up to the reporting date They are measured at the amounts expected to be paid when the liabilities are settled i e at undiscounted amounts based on remuneration wage and salary rates including related on-costs, such as workers compensation insurance and payroll tax Non-accumulating non-monetary benefits, such as medical care, housing, cars and free or subsidised goods and services, are expensed based on the net marginal cost to the consolidated entity as the benefits are taken by the employees A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the consolidated entity has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably 64 noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) q) Employee benefits (continued) (ii) Long-term service benefits The consolidated entity’s net obligation in respect of long-term service benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods The obligation is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates, and is discounted using the rates attached to the Commonwealth Government bonds at the balance date which have maturity dates approximating to the terms of the consolidated entity’s obligations (iii) Defined contribution superannuation funds Obligations for contributions to defined contribution superannuation funds are recognised as an expense in the statement of comprehensive income as incurred (iv) Share-based payment transactions The grant date fair value of options granted to employees is recognised as an expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the options The amount recognised is adjusted to reflect the actual number of share options that vest, except for those that fail to vest due to market conditions not being met r) Provisions A provision is recognised in the statement of financial position when the consolidated entity has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability (i) Mine rehabilitation and closure Provisions are made for the estimated cost of rehabilitation relating to areas disturbed during the mine’s operation up to reporting date but not yet rehabilitated Provision has been made in full for all disturbed areas at the reporting date based on current estimates of costs to rehabilitate such areas, discounted to their present value based on expected future cashflows The estimated cost of rehabilitation includes the current cost of re-contouring, topsoiling and revegetation based on legislative requirements Changes in estimates are dealt with on a prospective basis as they arise Significant uncertainty exists as to the amount of rehabilitation obligations which will be incurred due to the impact of changes in environmental legislation The amount of the provision relating to rehabilitation of mine infrastructure and dismantling obligations is recognised at the commencement of the mining project and/or construction of the assets where a legal or constructive obligation exists at that time The provision is recognised as a non-current liability with a corresponding asset included in mining property and development assets At each reporting date the rehabilitation liability is re-measured in line with changes in discount rates, and timing or amount of the costs to be incurred Changes in the liability relating to rehabilitation of mine infrastructure and dismantling obligations are added to or deducted from the related asset, other than the unwinding of the discount which is recognised as a finance cost in the statement of comprehensive income as it occurs If the change in the liability results in a decrease in the liability that exceeds the carrying amount of the asset, the asset is written-down to nil and the excess is recognised immediately in the statement of comprehensive income If the change in the liability results in an addition to the cost of the asset, the recoverability of the new carrying amount is considered Where there is an indication that the new carrying amount is not fully recoverable, an impairment test is performed with the write-down recognised in the statement of comprehensive income in the period in which it occurs The amount of the provision relating to rehabilitation of environmental disturbance caused by on-going production and extraction activities is recognised in the statement of comprehensive income as incurred 65 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) s) Contributed equity Ordinary shares are classified as equity Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity, net of any related income tax benefit t) Revenue recognition (i) Sale of coal Revenue from the sale of coal is recognised in the statement of comprehensive income when the significant risks and rewards of ownership have been transferred to the buyer Transfer of risk and rewards are considered to have passed to the buyer under the terms of the individual contracts (ii) Rental income Rental income is recognised in the statement of comprehensive income on a straight-line basis over the term of the lease Revenue received before it is earned is recorded as unearned lease income in the statement of financial position at its net present value, determined by discounting the expected notional future cash flows at a pre-tax rate that reflects current market assessments of the time value of money (iii) Hire of plant The consolidated entity hires plant under operating leases to its subsidiaries and joint ventures Revenue from the plant hire is recognised in the statement of comprehensive income as earned u) finance income and expense Finance income comprises interest income on funds invested, dividend income, changes in the fair value of financial assets at fair value through profit or loss and foreign currency gains Interest income is recognised as it accrues, using the effective interest method Dividend income is recognised on the date that the consolidated entity’s right to receive payment is established Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, foreign currency losses, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognised on financial assets, and losses on hedging instruments that are recognised in profit or loss All borrowing costs are recognised in profit or loss using the effective interest method, except where capitalised as part of a qualifying asset Foreign currency gains and losses are reported on a net basis v) income tax Income tax on the profit or loss for the year comprises current and deferred tax Income tax expense is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered or paid to the taxation authorities based on the taxable income for the year, using tax rates enacted or substantively enacted at the balance date 66 noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) v) income tax (continued) Deferred income tax is provided on all temporary differences at the balance date between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes, other than for the following temporary differences: • when the deferred income tax asset/liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that affects neither accounting nor taxable profit, • when the taxable temporary difference is associated with investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future Deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences can be utilised The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply when the asset is realised or the liability settled, based on tax rates and tax laws that have been enacted or substantively enacted by the reporting date Deferred tax assets and liabilities are offset only if a legally enforceable right exists to offset current tax assets and liabilities, and the deferred tax assets and liabilities relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a set basis or their tax assets and liabilities will be realised simultaneously Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend (i) Tax consolidation The Company and its wholly-owned Australian resident controlled entities formed a tax-consolidated group with effect from 29 May 2007 and are therefore taxed as a single entity from that date The head entity within the tax-consolidated group is Whitehaven Coal Limited Current tax expense/benefit, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within a consolidated group’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries is assumed by the head entity in the tax-consolidated group and are recognised as amounts payable (receivable) to/(from) other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts (refer below) Any difference between these amounts is recognised by the Company as an equity contribution or distribution The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can be utilised Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability is recognised by the head entity only 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 67 noteS to the Financial StatementS 30 june 2011 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) v) (ii) Nature of tax funding arrangements and tax sharing arrangements income tax (continued) The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding arrangement which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts The tax funding arrangements require payments to/from the head entity equal to the current tax liability/(asset) assumed by the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity receivable/(payable) equal in amount to the tax liability/(asset) assumed The inter-entity receivables/(payables) are at call Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation to make payments for tax liabilities to the relevant tax authorities The head entity, in conjunction with other members of the tax-consolidated group, has also entered into a tax sharing agreement The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations No amounts have been recognised in the financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote w) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense Receivables and payables are stated with the amount of GST included The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position Cash flows are included in the Statement of Cash Flows on a gross basis and the GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows 68 noteS to the Financial StatementS 30 june 2011 4. siGNifiCANT ACCOuNTiNG JudGEmENTs, EsTimATEs ANd AssumPTiONs The preparation of the consolidated 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 expense Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected A number of the consolidated entity’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities Fair values have been determined for measurement and/or disclosure purposes based on the following methods Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability mine rehabilitation The consolidated entity assesses its mine rehabilitation provisions at each reporting date Significant estimates and assumptions are made in determining the provision for mine rehabilitation as there are numerous factors that will affect the ultimate liability payable These factors include estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases, and changes in discount rates Those uncertainties may result in future actual expenditure differing from the amounts currently provided The provisions at balance date represent management’s best estimate of the present value of the future rehabilitation costs required Changes to estimated future costs are recognised in the statement of financial position by adjusting the rehabilitation asset and liability If, for mature mines, the revised mine assets net of rehabilitation provisions exceeds the carrying value, that portion of the increase is charged directly to expense For closed mines, changes to estimated costs are recognised immediately in the statement of comprehensive income Exploration and evaluation expenditure The application of the consolidated entity’s accounting policy for exploration and evaluation expenditure requires judgement in determining whether future economic benefits are likely, which may be based on assumptions about future events or circumstances Estimates and assumptions made may change if new information becomes available If, after expenditure is capitalised, information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalised is written off in the statement of comprehensive income in the period when the new information becomes available Carrying value of assets All mining assets are amortised over the shorter of the estimated remaining useful life or remaining mine life For mobile and other equipment, the straight-line method is applied over the estimated useful life of the asset which does not exceed the estimated mine life based on proved and probable mineral reserves as the useful lives of these assets are considered to be limited to the life of the relevant mine The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-in-use calculations and fair values These calculations require the use of estimates and assumptions It is reasonably possible that the coal price assumption may change which may then impact our estimated life of mine determinant which could result in a material adjustment to the carrying value of tangible assets 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 69 noteS to the Financial StatementS 30 june 2011 4. siGNifiCANT ACCOuNTiNG JudGEmENTs, EsTimATEs ANd AssumPTiONs (CONTiNuEd) Carrying value of assets (continued) The consolidated entity reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets Expected future cash flows used to determine the value in use of goodwill and tangible 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 spot and future coal prices, discount rates, foreign currency exchange rates, estimates of costs to produce reserves and future capital expenditure The related carrying amounts are disclosed in note 19 intangible assets The fair values of intangible assets with indefinite useful lives are based on the outcome of recent transactions for similar assets within the same industry, less estimated costs of disposal inventories Costs that are incurred in or benefit the productive process are accumulated as stockpiles Net realisable value tests are performed at least annually and represent the estimated future sales price of the product based on prevailing and long-term sale 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 tonnes of contained anthracite are based on assay data, and the estimated recovery percentage based on the expected processing method Stockpile tonnages are verified by periodic surveys Although the quantities of recoverable anthracite are reconciled, the nature of the process inherently limits the ability to precisely monitor recoverability levels As a result the process is constantly monitored and the engineering estimates are refined based on actual results over time The related carrying amounts are disclosed in note 16 derivatives The fair value of forward exchange contracts is based on their listed market price, if available If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds) The fair value of foreign currency options is the estimated amount the consolidated entity would pay or receive to terminate the derivative at the balance date, taking into account quoted market rates and the current creditworthiness of the counterparties Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date For finance leases the market rate of interest is determined by reference to similar lease agreements share-based payment transactions The consolidated entity measures the cost of equity settled transactions with employees and director-related entities by reference to the fair value of the equity instruments at the date at which they are granted The fair value of services received in return for share options granted to the directors is based on the fair value of share options granted, measured using Black Scholes barrier options techniques or Monte Carlo simulation model, incorporating the probability of the performance hurdles being met The fair value of services received in return for share options granted to the senior employees is based on the fair value of share options granted, measured using a Black Scholes model (for options) or a Monte Carlo simulation model (for Share Acquisition Rights) 70 noteS to the Financial StatementS 30 june 2011 4. siGNifiCANT ACCOuNTiNG JudGEmENTs, EsTimATEs ANd AssumPTiONs (CONTiNuEd) share-based payment transactions (continued) Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information of publicly listed companies operating in the same industry with similar operating characteristics), weighted average expected life of the instruments (based on historical experience of similar instruments and similar option holder characteristics), expected dividends, and the risk-free interest rate (based on government bonds) Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value mineral reserves and resources The estimated quantities of economically recoverable Reserves and Resources are based upon interpretations of geological and geophysical models and require assumptions to be made requiring factors such as estimates of future operating performance, future capital requirements and short- and long-term coal prices The consolidated entity is required to determine and report Reserves and Resources under the Australian Code for Reporting Mineral Resources and Ore Reserves December 2004 (the JORC Code) The JORC Code requires the use of reasonable investment assumptions to calculate reserves and resources Changes in reported Reserves and Resources can impact the carrying value of property, plant and equipment, provision for rehabilitation as well as the amount charged for amortisation and depreciation Overburden in advance The consolidated entity defers advanced stripping costs incurred during the production stage of its operations This calculation involves the use of judgements and estimates such as estimates of the tonnes of waste to be removed over the life of the mining area and economically recoverable reserves extracted as a result Changes in a mine’s life and design will usually result in changes to the expected stripping ratio (waste to mineral reserves ratio) These changes are accounted for prospectively Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise those temporary differences Taxation The consolidated entity’s accounting policy for taxation requires management’s judgement as to the types of arrangements considered to be a tax on income in contrast to an operating cost Judgement is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the statement of financial position Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits Deferred tax liabilities arising from temporary differences in investments, caused principally by retained earnings held in foreign tax jurisdictions, are recognised unless repatriation of retained earnings can be controlled and are not expected to occur in the foreseeable future Assumptions about the generation of future taxable profits and repatriation of retained earnings depend on management’s estimates of future cash flows These depend on estimates of future production and sales volumes, operating costs, restoration costs, capital expenditure, dividends and other capital management transactions Judgements are also required about the application of income tax legislation These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the statement of financial position and the amount of other tax losses and temporary differences not yet recognised In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the statement of comprehensive income 71 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 4. siGNifiCANT ACCOuNTiNG JudGEmENTs, EsTimATEs ANd AssumPTiONs (CONTiNuEd) Australian Government’s proposed carbon pricing mechanism The Australian Government announced the ‘Securing a Clean Energy Future – the Australian Government’s Climate Change Plan’ on 10 July 2011 Whilst the announcement provides further details of the framework for a carbon pricing mechanism, uncertainties continue to exist on the impact of any carbon pricing mechanism on the Group as legislation has yet to be drafted, and must be voted on and passed by both houses of Parliament The introduction of a carbon pricing mechanism has the potential to significantly impact the assumptions used for the purpose of the value in use calculations in asset impairment testing The Group has assessed the potential impact in its impairment testing at 30 June 2011, and does not believe any impairment of assets would be required The carrying amount of the assets that could be affected by the implementation of the government’s proposed emissions trading scheme as at 30 June 2011 are disclosed in note 19 5. fiNANCiAL Risk mANAGEmENT OBJECTivEs ANd POLiCiEs Overview The consolidated entity has exposure to the following risks from their use of financial instruments: • market risk • credit risk • liquidity risk This note presents information about the consolidated entity’s exposure to each of the above risks, its objectives, policies and processes for measuring and managing risk, and the management of capital Further quantitative disclosures are included throughout this financial report The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework The Board has established the Audit and Risk Management Committee, which is responsible for developing and monitoring risk management policies The Committee reports regularly to the Board on its activities Risk management policies are established to identify and analyse the risks faced by the consolidated entity, to set appropriate risk limits and controls, and to monitor risks and adherence to limits Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the consolidated entity’s activities The consolidated entity, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations The Audit and Risk Management Committee oversees how management monitors compliance with the consolidated entity’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the consolidated entity Capital management 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 The consolidated entity defines capital as total shareholders’ equity The Board monitors the capital structure on a regular basis including the level of dividends paid to ordinary shareholders The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position There were no changes in 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 72 noteS to the Financial StatementS 30 june 2011 5. fiNANCiAL Risk mANAGEmENT OBJECTivEs ANd POLiCiEs (CONTiNuEd) Risk exposures and responses Foreign currency risk The consolidated entity is exposed to currency risk on sales, purchases and demurrage that are denominated in a currency other than the respective functional currency of the consolidated entity, the Australian dollar (AUD) The currency in which these transactions primarily are denominated is US Dollars (USD) The consolidated entity uses forward exchange contracts (FECs) to hedge its currency risk The Hedging Policy of the consolidated entity is to utilise forward exchange contracts to cover: • 100% of contracted sales where both volume and US dollar price are fixed; • 90% of contracted sales where volume is fixed but pricing is provisional; • 80% of planned sales from existing operations over a 12 month period; and • a maximum of 50% of planned sales from existing operations for between 12 and 24 months No cover is taken out beyond 24 months other than contracted sales where both volume and US dollar prices are fixed In respect of other monetary assets and liabilities denominated in foreign currencies, the consolidated entity ensures that its net exposure is kept to an acceptable level by buying and selling foreign currencies at spot rates when necessary to address short-term imbalances The consolidated entity classifies its forward exchange contracts as cash flow hedges and measures them at fair value The fair value of forward exchange contracts used as hedges at 30 June 2011 was $48,790,000 (2010: $3,705,000), comprising assets and liabilities that were recognised as fair value derivatives At 30 June 2011, the consolidated entity had the following financial instruments that were not designated in cash flow hedges that were exposed to foreign currency risk: In thousands of USD Cash Trade and other receivables Trade and other payables Finance lease liabilities Net statement of financial position exposure USD 30 June 2011 USD 30 June 2010 33,517 68,186 (25,135) (15,566) 61,002 5,217 124,290 (4,250) (20,964) 104,293 Currency risk exposure arising from derivative financial instruments is disclosed in note 17 The following exchange rates applied during the year: Fixed rate instruments USD EUR Average rate Reporting date spot rate 2011 0 9881 0 7245 2010 0 8821 0 6737 2011 1 0739 0 7405 2010 0 8523 0 6979 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 73 noteS to the Financial StatementS 30 june 2011 5. fiNANCiAL Risk mANAGEmENT OBJECTivEs ANd POLiCiEs (CONTiNuEd) Risk exposures and responses (continued) Foreign currency risk (continued) Sensitivity analysis A 10 per cent strengthening of the Australian dollar against the following currencies at 30 June would have increased/ (decreased) equity and pre tax profit or loss by the amounts shown below The analysis assumes that all other variables, in particular interest rates, remain constant The analysis is performed on the same basis for 2010 Effect in thousands of AUD 30 June 2011 USD EUR 30 June 2010 USD EUR Consolidated Equity Profit or loss 18,057 (1,587) (5,164) – 63,336 (4,085) (11,124) – A 10 per cent weakening of the Australian dollar against the following currencies at 30 June would have increased/(decreased) equity and pre tax profit or loss by the amounts shown below The analysis assumes that all other variables, in particular interest rates, remain constant The analysis is performed on the same basis for 2010 Effect in thousands of AUD 30 June 2011 USD EUR 30 June 2010 USD EUR Consolidated Equity Profit or loss (22,070) 5,680 1,587 – (77,411) 13,596 4,085 – 74 noteS to the Financial StatementS 30 june 2011 5. fiNANCiAL Risk mANAGEmENT OBJECTivEs ANd POLiCiEs (CONTiNuEd) Risk exposures and responses (continued) Credit risk Credit risk arises from the financial assets of the consolidated entity, which comprise cash and cash equivalents, trade and other receivables, available for sale financial assets, derivative financial instruments and the granting of financial guarantees The consolidated entity’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of the financial assets, as outlined below Exposure to credit risk The consolidated entity’s maximum exposure to credit risk at the reporting date was: In thousands of AUD Cash and cash equivalents Trade and other receivables Derivative financial instruments Available-for-sale financial assets Carrying amount Carrying amount Note 30 June 2011 30 June 2010 14 15 17 18 207,602 141,049 95,067 55,998 16,076 326,365 23,127 1,210 374,743 491,751 The consolidated entity’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: In thousands of AUD Asia Europe Australia Carrying amount Carrying amount 30 June 2011 30 June 2010 14,990 1,687 11,510 28,187 32,801 10,030 3,499 46,330 Trade and other receivables The consolidated entity’s exposure to credit risk is influenced mainly by the individual characteristics of each customer The demographics of the consolidated entity’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk Approximately 40 7% of the consolidated entity’s revenue is attributable to sales transactions with three customers (2010: 49% with three customers) More than 90 percent of the consolidated entity’s customers have been transacting with the consolidated entity for over five years, and losses have occurred infrequently Of the consolidated entity’s trade and other receivables, 44% (2010: 76%) relate to receivables resulting from the sell down of the Narrabri Joint Venture (refer to note 7) The remaining trade and other receivables relate mainly to coal customers The consolidated entity does not require collateral in respect of trade and other receivables The consolidated entity trades only with recognised, creditworthy third parties Receivable balances are monitored on an ongoing basis with the result that the consolidated entity’s exposure to bad debts is not significant The consolidated entity has not recognised any impairment loss for trade and other receivables during the year ended 30 June 2011 (2010: Nil) 75 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 5. fiNANCiAL Risk mANAGEmENT OBJECTivEs ANd POLiCiEs (CONTiNuEd) Risk exposures and responses (continued) Credit risk (continued) Impairment losses The aging of the consolidated entity’s trade receivables at the reporting date was: In thousands of AUD Not past due Past due 0-30 days Past due 31-120 days Past due 121 days to one year More than one year Gross 2011 23,616 2,409 2,140 6 16 28,187 Impairment 2011 – – – – – – Gross 2010 44,431 1,219 634 10 36 46,330 Impairment 2010 – – – – – – Based on historic default rates, the consolidated entity believes that no impairment allowance is necessary in respect of trade receivables Guarantees The policy of the consolidated entity is to provide financial guarantees for statutory bonding requirements associated with the mining operations and for construction of the rail upgrade and other purposes such as security of leased premises Guarantees are provided under a $95,000,000 facility Details of outstanding guarantees are provided in note 30 Liquidity risk Liquidity risk is the risk that the consolidated entity will not be able to meet its financial obligations as they fall due The consolidated entity’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the consolidated entity’s reputation Typically, the consolidated entity ensures that it has sufficient cash on demand to meet all expected operational expenses as and when due, including the servicing of financial obligations This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters 76 noteS to the Financial StatementS 30 june 2011 5. fiNANCiAL Risk mANAGEmENT OBJECTivEs ANd POLiCiEs (CONTiNuEd) Risk exposures and responses (continued) Liquidity risk (continued) The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: In thousands of AUD financial liabilities Carrying amount Contractual cash flows 6 mths or less 6-12 mths 1-2 years 2-5 years More than 5 years Consolidated 30 June 2011 Finance lease liabilities 97,996 130,574 13,561 Interest-bearing liabilities 80,598 115,661 2,036 9,576 2,036 21,742 45,201 40,494 14,812 36,427 60,350 Trade and other payables 154,264 154,264 119,600 34,664 Forward exchange contracts: Outflow Inflow 329,229 336,458 197,712 138,746 (378,019) (386,268) (230,505) (155,763) – – – – – – – – – 284,068 350,689 102,404 29,259 36,554 81,628 100,844 In thousands of AUD financial liabilities Carrying amount Contractual cash flows 6 mths or less 6-12 mths 1-2 years 2-5 years More than 5 years Consolidated 30 June 2010 Finance lease liabilities 74,281 89,709 10,880 11,709 19,369 47,751 – Interest-bearing liabilities 20,648 31,259 1,158 1,158 2,315 9,262 17,366 Trade and other payables 128,408 128,408 94,408 34,000 – Forward exchange contracts: Outflow Inflow 744,429 771,837 306,587 259,591 205,658 (748,134) (775,362) (310,845) (264,411) (200,105) – – – – – – 219,632 245,851 102,188 42,047 27,237 57,013 17,366 Amounts included in the tables above include interest bearing liabilities of $34,268,000 (2010: $20,648,000) for which the contractual cash flows extend out for more than five years These amounts are repayable on demand, and as such the entire amount is included within current liabilities in the statement of financial position and notes to the accounts 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 77 noteS to the Financial StatementS 30 june 2011 5. fiNANCiAL Risk mANAGEmENT OBJECTivEs ANd POLiCiEs (CONTiNuEd) Risk exposures and responses (continued) Interest rate risk The consolidated entity’s borrowings comprise both variable and fixed rate instruments The variable rate borrowings expose the consolidated entity to a risk of changes in cash flows due to the changes in interest rates The consolidated entity does not engage in any hedging to mitigate interest rate risk, instead management analyses its exposure on an ongoing basis At the reporting date the interest rate profile of the consolidated entity’s interest-bearing financial instruments was: In thousands of AUD fixed rate instruments Financial liabilities variable rate instruments Financial assets Financial liabilities Net exposure Consolidated Carrying amount 2011 2010 (132,263) (94,929) (132,263) (94,929) 207,602 141,049 (46,330) – 161,272 141,049 29,009 46,120 Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) equity and profit or loss by the amounts shown below This analysis assumes that all other variables, in particular foreign currency rates, remain constant The analysis is performed on the same basis for 2010 Effect in thousands of AUD 30 June 2011 Variable rate instruments Cash flow sensitivity (net) 30 June 2010 Variable rate instruments Cash flow sensitivity (net) Profit or loss 100bp increase 100bp decrease 1,613 1,613 1,410 1,410 (1,613) (1,613) (1,410) (1,410) 78 noteS to the Financial StatementS 30 june 2011 5. fiNANCiAL Risk mANAGEmENT OBJECTivEs ANd POLiCiEs (CONTiNuEd) Risk exposures and responses (continued) Commodity price risk The consolidated entity’s major commodity price exposure is to the price of coal The consolidated entity has chosen not to hedge against the movement in coal prices but enters into sales contracts with a duration of more than 12 months to mitigate this risk For the following financial year 50% of coal sales tonnages have had the sales price fixed Net fair values As of 1 July 2009, the Group has adopted the amendment to AASB 7 Financial Instruments: Disclosures which requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: • Level 1 – measurements based upon quoted prices (unadjusted) in active markets for identical assets or liabilities, • Level 2 – measurements based upon 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), and • Level 3 – measurements based on inputs for the asset or liability that are not based on observable market data (unobservable inputs) The fair value of derivative financial instruments is derived using valuation techniques based on observable market inputs, such as forward currency rates, at the end of the reporting period The amounts disclosed in the statement of financial position are the fair values and are classified under level 2 in the fair value measurement hierarchy (refer note 17) The fair value of the Group’s investment in unlisted shares is classified under level 3 in the fair value measurement hierarchy (refer note 18) The carrying values of financial assets and financial liabilities recorded in the financial statements approximates their respective net fair values, determined in accordance with the accounting policies disclosed in note 3 to the financial statements Financial assets and liabilities by categories In thousands of AUD Consolidated Entity financial assets Cash and cash equivalents Trade and other receivables Investments Other financial assets2 Total financial assets financial liabilities Trade and other payables Borrowings Other financial liabilities2 Total financial liabilities 2011 2010 Note Loans and receivables1 Available for sale Other Loans and receivables1 Available for sale Other 14 15 18 22 23 207,602 95,067 – – – – 141,049 326,365 – – 14,866 1,210 – 55,998 – – 302,669 14,866 57,208 467,414 154,264 178,593 – 332,857 – – – – – – 7,208 7,208 128,408 94,929 – 223,337 – – – – – – – – – – – 1,210 23,127 24,337 – – 19,422 19,422 1 Loans and receivables are non-derivatives with fixed or determinable payments and are not quoted on an active market Loans and receivables are valued at amortised cost 2 Other financial assets include $56 0 million (2010: $23 1 million) relating to derivatives that qualified as being in a hedging relationship Similarly, other financial liabilities include amounts of $7 2 million (2010: $19 4 million) 79 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 6. sEGmENT REPORTiNG a) identification of reportable segments The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources The operating segments are identified by management based on ‘operations at individual mine sites’ Discrete financial information about each of these operating segments is reported to the executive management team on at least a monthly basis The reportable segments are based on aggregated operating segments determined by mining operations The Group has determined that it has two reportable segments: Open Cut Operations and Underground Operations The following table represents revenue and profit information for reportable segments for the years ended 30 June 2011 and 30 June 2010 The Group’s financing (including finance costs and finance income), depreciation and income taxes are managed on a group basis and are not allocated to reportable segments In thousands of AUD Year ended 30 June 2011 Revenue Sales to external customers Total segment revenue Capitalisation of Narrabri development production revenue Difference in treatment of foreign exchange on hedges Total revenue per statement of comprehensive income Result Segment result Depreciation and amortisation Income tax expense (excluding significant items) Significant items after income tax Net interest income Open cut operations Underground operations Total 651,416 651,416 10,0871 661,503 10,087 661,503 (10,087) (29,230) 622,186 94,576 – 94,576 (40,938) 26,251 (63,353) (6,590) 9,946 Net profit after tax per statement of comprehensive income 1 Sales to external customers for underground operations relate to sales of Narrabri development production coal Capital expenditure for the year amounted to $55,336,000 for open cut operations and $104,426,000 for underground operations 80 noteS to the Financial StatementS 30 june 2011 6. sEGmENT REPORTiNG (CONTiNuEd) In thousands of AUD Year ended 30 June 2010 Revenue Sales to external customers Total segment revenue Difference in treatment of foreign exchange on hedges Total revenue per statement of comprehensive income Result Segment result Depreciation and amortisation Income tax expense (excluding significant items) Significant items after income tax Net interest income Net profit after tax per statement of comprehensive income Open cut operations Underground operations Total 418,106 418,106 – – 418,106 418,106 (11,299) 406,807 109,808 – 109,808 (32,025) (23,595) 59,776 920 114,884 Capital expenditure for the year amounted to $111,596,000 for open cut operations and $126,647,000 for underground operations Other segment information Revenue from external customers by geographical locations is detailed below Revenue is attributed to geographic location based on the location of the customers In thousands of AUD Total segment revenue China Japan India Taiwan UK Other Australia1 Domestic Total revenue 1 Includes FOB contracts to Australian intermediaries who on-sell export coal Total revenue by product Thermal PCI Domestic Total revenue major customers The Group has three major customers which account for 40 7% of external revenue 81 2011 2010 79,043 22,485 233,754 128,217 17,781 96,653 111,753 11,599 91,265 19,655 33,563 – 98,803 8,663 115,132 11,243 661,503 418,106 469,781 171,878 19,844 270,476 136,387 11,243 661,503 418,106 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 7. siGNifiCANT iTEms In thousands of AUD Consideration on sale of 7 5% of Narrabri joint venture interest Transaction costs Assets disposed Gain on sale of joint venture interest1 Loss on coal trading for legacy contracts2 Share based compensation3 Due diligence costs and project costs4 Financial income on EDF receivable5 Finance costs on retranslation of EDF receivable5 significant items before tax Applicable income tax expense significant items after tax Consolidated 2011 2010 – – – – (65,405) (2,102) (5,778) 8,602 (24,922) (89,605) 125,000 (167) (10,519) 114,314 – (16,683) (2,375) 4,511 (7,223) 92,544 26,251 (32,768) (63,354) 59,776 Reconciliation of significant items to face of statement of comprehensive income: Operating expenses: Loss on coal trading for legacy contracts2 – purchased coal (25,563) – Other income: Gain on sale of joint venture interest1 Other expenses: Loss on coal trading for legacy contracts2 – contract settlements Share-based payment expense3 Administrative expenses: Due diligence costs and project costs4 Financial income Unwinding of discount on EDF receivable5 Net unrealised foreign exchange gain on translation of EDF receivable5 Financial expenses Net realised foreign exchange losses on EDF receipts significant items before tax – 114,314 (39,842) – (2,102) (16,683) (41,944) (16,683) (5,778) (2,375) 6,052 2,550 8,602 4,511 – 4,511 (24,922) (89,605) (7,223) 92,544 1 During the prior year, the Company sold a further 7 5% of its joint venture interest in the Narrabri North Project to a Korean consortium, comprising Daewoo International Corporation (Daewoo) and Korea Resources Corporation (KORES), for A$125 million, plus 7 5% of all costs incurred since 1 January 2008 The sale takes the Company’s interest in the project down to 70% The consortium paid the A$125 million in three tranches The first and second tranches of $32 5 million and $30 million were received during the prior year, as well as the consortiums’ 7 5% share of project development costs incurred since 1 January 2008 The third tranche of $62 5 million was received in the current year following the Company obtaining NSW Government approval for stage 2 of the Narrabri Project 2 During the year a significant amount of coal was purchased to fulfil legacy contracts which could not be filled from Whitehaven’s own production, resulting in a significant loss before tax amounting to $22 3 million Where contracts could not be filled with either Whitehaven coal or purchased coal, financial settlements were undertaken resulting in a loss before tax of $39 8 million In addition, provision for future losses on sales of coal into legacy contracts of $3 3 million before tax have been made 82 noteS to the Financial StatementS 30 june 2011 7. siGNifiCANT iTEms (CONTiNuEd) 3 This expense relates to the issue of executive shares and executive options The Board committed to issue these shares and options on 19 February 2009 These shares and options were subsequently approved by shareholders at the AGM on 17 November 2009 Accounting standard AASB 2 deems the issue date of these shares and options to be the date shareholder approval was formally received Accordingly, the company is required to account for the issue based on the prevailing share price at the date of the AGM 4 During the year the Group undertook due diligence on a number of projects in relation to corporate and asset transactions 5 A receivable arising on a previous sell down of the Narrabri North Project is denominated in US$ and has been discounted on initial recognition At the reporting date the receivable has been retranslated to Australian dollars at current exchange rates, and the discount partially unwound The resulting income and expense have been disclosed as significant items Significant items are amounts considered by the company not to be in the normal course of operations and are generally one-off or non-recurring 8. REvENuE In thousands of AUD Sale of coal 9. OThER iNCOmE Before significant items: Hire of plant Rental income Gain on Sale of Non-Current assets Sundry income1 significant items: Gain on sale of interest in Narrabri project2 Consolidated 2011 2010 622,186 406,807 4,548 1,027 294 9,315 15,184 3,569 350 165 5,343 9,427 – – 114,314 114,314 1 Included within sundry income is $6 1 million (2010: $2 9 million) of the Group’s share of income from the Blackjack Carbon Joint Venture 2 During the prior year the Group sold 7 5% of its joint venture interest in the Narrabri North Project Refer to Note 7 for further details of this transaction 10. OThER ExPENsEs In thousands of AUD Payments for unfulfilled legacy contracts Share based compensation payments 11. PERsONNEL ExPENsEs Wages and salaries Contributions to superannuation plans Other associated personnel expenses Increase in liability for annual leave Increase in liability for long-service leave Share-based compensation payments Consolidated 2011 39,842 6,431 46,273 2010 – 17,485 17,485 53,989 37,159 4,988 2,404 1,329 100 6,431 69,241 3,494 1,950 1,500 100 17,485 61,688 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 83 noteS to the Financial StatementS 30 june 2011 12. fiNANCE iNCOmE ANd ExPENsE In thousands of AUD Recognised in profit and loss Interest income on bank facilities Dividend income Net unrealised foreign exchange gain on translation of EDF receivable Net realised foreign exchange gain Unwinding of discount on EDF receivable1 Gains from ineffective portion of hedges financial income Interest expense on finance lease liabilities Unwinding of discounts on provisions Losses from ineffective portion of hedges Net realised foreign exchange loss Net unrealised foreign exchange loss Net unrealised foreign exchange loss on translation of EDF receivable1 Net realised foreign exchange losses on EDF receipts1 Other interest charges financial expenses Net financing expense Recognised directly in equity Effective portion of changes in fair value of cash flow hedges Net change in fair value of cash flow hedges transferred to profit or loss – sale of coal Income tax on income and expense recognised directly in equity finance expense recognised directly in equity, net of tax 1 These items have been disclosed as significant items Please refer to note 7 for further details Consolidated 2011 2010 7,009 1,318 2,550 – 6,052 842 17,771 (7,449) (728) – (2,056) (1,388) – (24,922) (6,149) 7,426 4 – 5,387 4,511 – 17,328 (4,923) (852) (2,497) – (1,002) (5,199) (2,024) (1,583) (42,692) (18,080) (24,921) (752) 136,440 (92,244) (13,259) 29,494 (48,722) 5,769 30,937 (13,459) 84 noteS to the Financial StatementS 30 june 2011 13. iNCOmE TAx In thousands of AUD a) income tax (expense)/benefit Current income tax Current period Adjustment for prior periods Deferred income tax Consolidated 2011 2010 18,860 3,392 22,252 (39,392) (1,038) (40,430) Origination and reversal of temporary differences (21,131) (15,933) income tax benefit/(expense) reported in the statement of comprehensive income 1,121 (56,363) Numerical reconciliation between tax expense recognised in the statement of comprehensive income and profit before tax Profit/(loss) for the period Total income tax benefit/(expense) Profit excluding income tax Income tax using the Company’s domestic tax rate of 30% (2010: 30%) Non-deductible expenses Change in unrecognised temporary differences Over/(Underprovided) in prior periods Aggregate income tax benefit/(expense) b) income tax recognised directly in equity Deferred income tax related to items charged/(credited) directly to equity Derivatives Transaction costs on issue of share capital income tax expense recorded in equity 9,946 1,121 8,825 114,884 (56,363) 171,247 (2,648) (51,374) 377 – 3,392 1,121 (3,951) – (1,038) (56,363) (13,259) 2 (13,257) 5,769 2,490 8,259 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 85 noteS to the Financial StatementS 30 june 2011 13. iNCOmE TAx (CONTiNuEd) c) Recognised tax assets and liabilities In thousands of AUD Opening balance Charged to income Charged to equity Recognition of DTA on current year losses Transfer between current and deferred tax Payments Closing balance Tax expense in statement of comprehensive income: (18,860) 11,004 33,075 9,957 Charged to income Charged to equity Amounts recognised in the statement of financial position: Deferred tax asset Deferred tax liability Consolidated 2011 Current income tax 2011 Deferred income tax 2010 Current income tax 2010 Deferred income tax (37,514) (12,089) (106,874) (4,415) 22,252 (21,131) (40,430) (15,933) – (13,257) 18,860 (11,004) – – – 8,259 – – – – 109,790 (38,621) (37,514) (12,089) 1,121 (13,257) – (38,621) (38,621) (56,363) 8,259 – (12,089) (12,089) Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the cost base available on disposal of the following items: In thousands of AUD Land and mining tenements Consolidated 2011 21,530 21,530 2010 21,530 21,530 86 noteS to the Financial StatementS 30 june 2011 13. iNCOmE TAx (CONTiNuEd) c) Recognised tax assets and liabilities (continued) Deferred income tax assets and liabilities are attributable to the following: In thousands of AUD Property, plant and equipment Receivables Derivatives Investments Deferred stripping Deferred revenue Deferred foreign exchange gain Provisions Unearned income Tax losses Other items Tax assets/(liabilities) Set off of tax assets Net tax assets/(liabilities) d) Tax consolidation Consolidated Assets Liabilities 2011 2010 2011 2010 – – – – – – 7,259 12,486 – 18,860 1,258 39,863 – – – – – – 7,662 10,762 122 – 943 (46,893) (16,852) (428) (97) (14,476) (1,216) (1) (16,686) – – – – – – (1) (9,999) (3,413) – – – – – 19,489 (78,484) (31,578) (39,863) (19,489) 39,863 19,489 – – (38,621) (12,089) The Company and its 100% owned Australian subsidiaries formed a tax consolidated group with effect from 29 May 2007 The consolidated tax group has entered into both a tax funding arrangement and a tax sharing agreement 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 87 noteS to the Financial StatementS 30 june 2011 14. CAsh ANd CAsh EquivALENTs In thousands of AUD Cash and cash equivalents The weighted average interest rate for cash balances at 30 June 2011 is 4 01% (2010: 4 02%) 15. TRAdE ANd OThER RECEivABLEs Current Trade receivables Other receivables and prepayments Receivables due from related parties Non-current Other receivables and prepayments Consolidated 2011 2010 207,602 141,049 28,187 55,362 8,816 46,330 237,198 5,678 92,365 289,206 2,702 37,159 Included in Current and Non-current Other Receivables are amounts of $41,787,000 and $nil respectively (2010: $216,402,000 and $32,570,000), relating to consideration due on the sell down of the Narrabri North project For further details of this transaction please refer to note 7 16. iNvENTORiEs Coal stocks (at cost) Consumables and stores 17. dERivATivE fiNANCiAL iNsTRumENTs Current assets forward exchange contracts – receivable Current liabilities forward exchange contracts – payable Non-current liabilities forward exchange contracts – payable 19,912 5,974 25,886 17,052 3,869 20,921 55,998 23,127 7,208 14,280 – 5,142 88 noteS to the Financial StatementS 30 june 2011 17. dERivATivE fiNANCiAL iNsTRumENTs (CONTiNuEd) instruments used by the consolidated entity Derivative financial instruments are used by the consolidated entity in the normal course of business in order to hedge exposure to fluctuations in foreign exchange rates Forward currency contracts – cash flow hedges The consolidated entity undertakes sales in US dollars In order to protect against exchange rate movements and reduce the foreign exchange rate related volatility of the consolidated entity’s revenue stream, the consolidated entity enters into forward exchange contracts to sell US dollars in the future at stipulated exchange rates Forward exchange contracts are entered for future sales undertaken in US dollars The contracts are timed to mature when funds for coal sales are forecast to be received At 30 June 2011, the forward exchange contracts are designated as cash flow hedges and are expected to impact profit and loss in the periods specified below forward exchange contracts In thousands of AUD (except exchange rates) Sell US dollars Less than 6 months 6 months to 1 year 1 year to less than 2 years Buy Euros Less than 6 months 6 months to 1 year 18. iNvEsTmENTs In thousands of AUD Current investments Investment in unlisted preference shares Non-current investments Investment in unlisted preference shares Fair value 2011 39,572 16,426 – Average exchange rates 2011 0 8614 0 9349 – 55,998 0.8945 (7,208) 0 5707 – – (7,208) 0.5707 Fair value 2010 Average exchange rates 2010 10,458 5,319 (5,142) 10,635 (6,251) (679) (6,930) 0 8145 0 8108 0 8246 0.8160 0 5882 0 5902 0.5885 Consolidated 2011 2010 14,866 – 1,210 1,210 During the year the Group acquired a total of $37 3m in preference shares ($14 8m) and shareholder loan notes ($22 5m) as part of the funding requirement of the NCIG Stage 2AA expansion The shareholder loan notes were all disposed of during the year as NCIG secured funding from other investors As part of one of these disposals the Company issued a put option giving the acquirer the right, subject to certain criteria being met, to sell back the shareholder loan notes The likelihood of the put option being exercised is considered remote 89 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 19. PROPERTy, PLANT ANd EquiPmENT Consolidated In thousands of AUD Note Freehold land Plant and equipment Leased plant and equipment Mining property and development Total Cost Balance at 1 July 2009 Acquisitions Transfer to plant and equipment and freehold land Disposals Balance at 30 June 2010 Balance at 1 July 2010 Acquisitions Transfer to plant and equipment and mining property and development 41,655 15,110 727 114,683 104,482 6,725 76,381 32,176 1,439 343,242 575,961 156,939 308,707 (8,891) – (3,352) (5,492) – (16,497) (25,341) 54,140 54,140 19,556 (1,665) 220,398 109,996 220,398 109,996 474,793 474,793 859,327 859,327 26,944 40,333 130,460 217,293 970 (970) 1,665 – Disposals (351) (250) – – (601) Balance at 30 June 2011 71,680 248,062 149,359 606,918 1,076,019 depreciation Balance at 1 July 2009 Depreciation charge for the year Transfer to plant and equipment Disposals Balance at 30 June 2010 Balance at 1 July 2010 Depreciation charge for the year Transfer to plant and equipment Disposals Balance at 30 June 2011 Carrying amounts At 1 July 2009 At 30 June 2010 At 1 July 2010 At 30 June 2011 – – – – – – – – – – (22,967) (18,622) (25,534) (67,123) (9,415) (1,349) 649 (10,895) (11,562) (31,872) (1,195) 2,544 – – – 649 (33,082) (30,712) (34,552) (98,346) (33,082) (30,712) (34,552) (98,346) (13,399) (12,719) (14,667) (40,785) (1,454) 1,454 99 – – – – 99 (47,836) (41,977) (49,219) (139,032) 41,655 54,140 54,140 71,680 91,716 187,316 187,316 57,759 79,284 79,284 317,708 508,838 440,241 440,241 760,981 760,981 200,226 107,382 557,698 936,987 90 noteS to the Financial StatementS 30 june 2011 19. PROPERTy, PLANT ANd EquiPmENT (CONTiNuEd) Leased plant and machinery The consolidated entity leases mining equipment under a number of finance lease agreements At 30 June 2011, the consolidated entity’s net carrying amount of leased plant and machinery was $107,382,000 (2010: $79,284,000) The leased equipment is pledged as security for the related finance lease liabilities 20. ExPLORATiON ANd EvALuATiON In thousands of AUD Balance at 1 July 2009 Exploration and evaluation expenditure Balance at 30 June 2010 Balance at 1 July 2010 Exploration and evaluation expenditure Balance at 30 June 2011 Exploration and evaluation assets Consolidated Cost 3,838 1,506 5,344 5,344 4,078 9,422 Impairment losses – – – – – – The recoverability of the carrying amounts of exploration and evaluation assets is dependent on the successful development and commercial exploitation or sale of the respective area of interest 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 91 noteS to the Financial StatementS 30 june 2011 21. iNTANGiBLE AssETs In thousands of AUD Water access rights Acquired haulage rights Less: accumulated amortisation Marketing commission rights1 Less: accumulated amortisation Rail access rights2 Consolidated 2011 4,063 1,300 (548) 6,687 (1,317) 39,596 49,781 2010 4,063 1,300 (395) – – 38,520 43,488 1 During the year the consolidated entity acquired marketing commission rights (refer to note 39) The marketing commission rights have been assessed as having a finite useful life and are amortised over specific sales tonnages using a fixed cost per tonne The amortisation has been recognised in the statement of comprehensive income in the line item ‘selling and distribution expenses’ 2 The consolidated entity has entered into agreements with the Rail Infrastructure Corporation and Australian Rail Track Corporation to underwrite 60% of the funding of a major upgrade of the Muswellbrook to Narrabri rail infrastructure, which will increase the capacity of that line to more than 15 million tonnes per annum The initial funding for the upgrade has been obtained by Rail Infrastructure Corporation and 60% of this will be subject to repayment by the consolidated group over 15 years The corresponding asset has been recognised and represents the group’s right to rail access over that period The access rights will be amortised on a units sold basis reflecting the economic benefit derived over the life of the access once the upgrades are complete In thousands of AUD movement in intangibles Balance at 1 July 2009 Acquired during the year Less: Accumulated amortisation Balance at 30 June 2010 Balance at 1 July 2010 Acquired during the year Less: Accumulated amortisation Balance at 30 June 2011 22. TRAdE ANd OThER PAyABLEs In thousands of AUD Current Trade payables Other payables and accruals Deferred purchase consideration Consolidated Water access rights Contract related intangible Rail access rights Marketing commission rights 953 3,110 – 4,063 4,063 – – 4,063 1,058 – (153) 905 905 – (153) 752 35,383 3,137 – 38,520 38,520 1,076 – 39,596 – – – – – 6,687 (1,317) 5,370 Total 37,394 6,247 (153) 43,488 43,488 7,763 (1,470) 49,781 Consolidated 2011 2010 58,855 60,745 34,664 24,429 61,315 42,664 154,264 128,408 Deferred purchase consideration relates to an amount payable under the acquisition agreement for Creek Resources Pty Ltd executed in October 2007 The amount of contingent consideration payable is calculated based on the total coal reserve tonnage within the area acquired During the current year, the consolidated entity made a payment of $8 million on account for the deferred consideration 92 noteS to the Financial StatementS 30 june 2011 23. iNTEREsT-BEARiNG LOANs ANd BORROwiNGs This note provides information about the contractual terms of the consolidated entity’s interest-bearing loans and borrowings In thousands of AUD Current liabilities Finance lease liabilities Other loans unsecured Non-current liabilities Finance lease liabilities Secured bank loans Total interest-bearing liabilities financing facilities Secured bank loans facilities utilised at reporting date Secured bank loans facilities not utilised at reporting date Secured bank loans financing facilities Consolidated 2011 2010 15,169 34,267 49,436 82,827 46,330 129,157 178,593 95,595 46,330 49,265 16,659 20,648 37,307 57,622 – 57,622 94,929 – – – At 30 June 2011, the consolidated entity’s financing facilities are secured by a fixed and floating charge over the assets of the consolidated entity finance lease facility At 30 June 2011, the consolidated entity’s lease liabilities are secured by the leased assets of $107,382,000 (2010: $79,284,000), as in the event of default, the leased assets revert to the lessor finance lease liabilities Finance lease liabilities of the consolidated entity are payable as follows: In thousands of AUD Less than one year Between one and five years More than five years Consolidated Minimum lease payments 2011 23,136 66,942 40,496 130,574 Interest 2011 7,967 19,807 4,804 32,578 Principal 2011 15,169 47,135 35,692 97,996 Minimum lease payments 2010 22,589 67,120 – Interest 2010 5,930 9,498 – Principal 2010 16,659 57,622 – 89,709 15,428 74,281 93 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 24. EmPLOyEE BENEfiTs In thousands of AUD Current Salaries and wages accrued Liability for long service leave Liability for annual leave 25. PROvisiONs Mine rehabilitation and closure Onerous contracts Current Non-current In thousands of AUD movement in provisions Balance at 1 July 2010 Provisions made during the period Provisions used during the period Unwind of discount Balance at 30 June 2011 Consolidated 2011 2010 2,998 215 5,576 8,789 30,746 3,283 34,029 4,932 29,097 34,029 1,883 115 4,247 6,245 28,898 – 28,898 1,246 27,652 28,898 Mine rehabilitation and closure Onerous contracts 28,898 1,380 (260) 728 – 3,283 – – 30,746 3,283 Increases in the provision for rehabilitation were made during the year as a result of additional disturbance at several mines and a reassessment of the areas of disturbance and rehabilitation rates Rehabilitation and mine closure expenditure is expected to occur over the life of the mining operations which ranges from 5 to 25 years Refer to Note 3(r) for details on the nature of the obligation 94 noteS to the Financial StatementS 30 june 2011 26. shARE CAPiTAL ANd REsERvEs In thousands of AUD a) share capital Consolidated 2011 2010 Fully paid ordinary shares 493,816,735 (2010: 493,650,070) 591,339 591,176 b) movements in shares on issue Ordinary shares Beginning of the financial year Issued for cash Exercise of share options Costs of shares issued, net of tax Consolidated 2011 Nos of shares 000’s $000’s 2010 Nos of shares 000’s $000’s 493,650 591,176 407,213 367,352 – 167 – – 167 (4) 71,684 14,753 – 214,886 14,753 (5,815) 493,817 591,339 493,650 591,176 The Company has also issued share options (see note 33) c) Terms and conditions of issued capital Fully paid ordinary shares carry one vote per share, either in person or by proxy, at a meeting of the Company and carry the right to receive dividends as declared In the event of a winding up of the Company, fully paid ordinary shares carry the right to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held d) hedge reserve The hedging reserve comprises the effective portion of the cumulative change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred e) share-based payments reserve The share-based payment reserve is used to record the value of share-based payments provided to director-related entities and senior employees under share option plans Refer to note 33 for further details of these plans 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 95 noteS to the Financial StatementS 30 june 2011 26. shARE CAPiTAL ANd REsERvEs (CONTiNuEd) f) dividends In thousands of AUD Recognised amounts Declared and paid during the year: Final franked dividend for 2010: 2 8c (2009:6 0c) Interim franked dividend for 2011: 3 3c (2010: 2 8c) unrecognised amounts Consolidated 2011 2010 13,822 16,295 30,117 28,584 13,819 42,403 Final franked dividend for 2011: 4 1c (2010: 2 8c) 20,273 13,822 The above final dividend was declared after the year end These amounts have not been recognised as a liability in the financial statements for the year ended 30 June 2011 but will be brought to account in the year ending 30 June 2012 dividend franking account In thousands of AUD 30 per cent franking credits available to shareholders of Whitehaven Coal Limited for subsequent financial years The Company 2011 2010 101,723 143,374 The above available amounts are based on the balance of the dividend franking account at year end adjusted for: (a) franking credits that will arise from the payment of the current tax liabilities; (b) franking debits that will arise from the payment of dividends recognised as a liability at the year end; (c) franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated entity at the year end; and (d) franking credits that the entity may be prevented from distributing in subsequent years The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends In accordance with the tax consolidation legislation, the Company as the head entity in the tax-consolidated consolidated entity has also assumed the benefit of $nil (2010: $nil) franking credits In thousands of AUD Impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the period The Company 2011 2010 (8,689) (5,924) 96 noteS to the Financial StatementS 30 june 2011 27. OPERATiNG LEAsEs Consolidated entity as lessee The consolidated entity leases mining equipment, office equipment and office space under operating leases The leases typically run for one to five years with an option to renew on the mining equipment and office space None of the leases includes contingent rentals Future minimum rentals payable under non-cancellable operating leases as at 30 June 2011 are as follows: In thousands of AUD Less than one year Between one and five years Leases as lessor Consolidated 2011 3,727 988 4,715 2010 5,053 1,348 6,401 The consolidated entity leases out land it will use for future mining operations under operating leases Some lease payments have been received upfront under these contracts and have been recorded as deferred income on the statement of financial position At 30 June 2011 $32,612,000 (2010: $16,829,000) of land was leased under these operating leases 28. CAPiTAL ExPENdiTuRE COmmiTmENTs In thousands of AUD Plant and equipment and intangibles Contracted but not provided for and payable: Within one year One year or later and no later than five years Consolidated 2011 2010 55,866 148,830 – 7,480 55,866 156,310 29. ExPLORATiON ExPENdiTuRE COmmiTmENTs In order to maintain current rights of tenure to exploration tenements, the consolidated entity is required to perform minimum exploration work to meet the minimum expenditure requirements specified by various State governments These obligations are subject to renegotiation when application for a mining lease is made and at other times These obligations are not provided for in the financial report and are payable: In thousands of AUD Within one year One year or later and no later than five years Consolidated 2011 – 6,495 6,495 2010 504 6,313 6,817 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 97 noteS to the Financial StatementS 30 june 2011 30. CONTiNGENCiEs The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement In thousands of AUD Guarantees Consolidated 2011 2010 (i) The consolidated entity provided bank guarantees to the Department of Mineral Resources NSW as a condition of continuation of mining and exploration licenses 26,079 20,790 (ii) The consolidated entity provided bank guarantees to Rail Infrastructure Corporation (iii) The consolidated entity provided bank guarantees to the Roads and Traffic Authority of NSW (iv) The consolidated entity provided bank guarantees to Newcastle Coal Infrastructure Group (v) The consolidated entity provided bank guarantees to Port Waratah Coal Services Limited (vi) The consolidated entity provided bank guarantees to Peabody Coal Trade International Ltd (vii) The consolidated entity provided bank guarantees to Jones Lang LeSalle 38,622 400 16,920 6,754 – 82 38,622 1,650 16,920 6,754 5,866 – 88,857 90,602 Take-or-Pay commitments The consolidated entity has entered into contracts for rail and port capacity which are under Take-or-Pay arrangements The minimum commitment under these contracts is detailed below: In thousands of AUD Less than one year Between one and five years More than five years Retention bonus scheme Consolidated 2011 46,457 2010 39,228 141,128 113,288 58,100 66,815 245,685 219,331 During the year, the consolidated entity implemented a retention bonus scheme for 28 key senior employees in the Whitehaven Group Under the scheme, retention amounts up to an aggregate total of $6,638,119 are payable to those key senior employees who remain in the employment of the Whitehaven Group on 1 February 2012 These amounts will become payable earlier than 1 February 2012 if an employee is terminated for any reason other than serious misconduct or material breach of employment conditions 98 noteS to the Financial StatementS 30 june 2011 31. RECONCiLiATiON Of CAsh fLOws fROm OPERATiNG ACTiviTiEs In thousands of AUD Cash flows from operating activities Profit for the period Adjustments for: Depreciation Amortisation Foreign exchange losses unrealised Unwinding of discounts on provisions Unwinding of discounts on receivables Share-based compensation payments Gain on sale of interest in Narrabri project Gain on sale of non-current assets Operating profit before changes in working capital and provisions Change in trade and other receivables Change in inventories and deferred stripping Change in trade and other payables Change in unearned revenue Change in provisions and employee benefits Change in tax payable Change in deferred taxes Cash flows from operating activities Consolidated Note 2011 2010 19 21 25 12 33 9 9 9,946 114,884 40,785 1,470 26,985 728 (6,052) 6,431 31,872 153 8,698 852 (4,511) 17,485 – (114,314) (294) (165) 79,999 17,542 54,954 (18,007) (31,753) (29,682) 45,541 (280) 2,517 4,671 (311) 2,279 (47,471) (69,360) 13,274 79,369 15,933 (39,523) 32. suBsEquENT EvENTs In the interval between the end of the financial year and the date of this report there has not arisen any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future financial years other than the following: • The directors have resolved to pay a fully franked dividend of 4 1 cents per ordinary share (refer Note 26) • After the year end the Company granted Share Acquisition Rights (SARs) over 720,000 ordinary shares to key senior employees as part of ongoing long-term incentive plans The SARs vest over the period 1 July 2012 to 1 July 2015 and are subject to market based performance hurdles • On 27 July 2011, 651,679 ordinary shares were issued pursuant to the vesting of employee SARs • On 16 August 2011, the Company entered into long-term arrangements with Australian Rail Track Corporation (ARTC) for rail track access between the Company’s mines and Newcastle Port • The consolidated entity received a claim in June 2008 in relation to the performance of its obligations under a coal sales contract The claim was settled on 1 July 2011 for an amount of US$1,625,000 The financial effect of the above matters has not been brought to account in the financial statements for the year ended 30 June 2011 but will be recognised in future financial periods 99 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 33. shARE-BAsEd PAymENTs a) Recognised share-based payment expenses In thousands of AUD Employee expenses Share options – director-related entities Shares issued – director-related entities1 Share options – senior employees Consolidated 2011 2010 2,102 – 4,329 6,431 9,898 7,175 412 17,485 1 Shares were issued to Dalara Investments Pty Ltd, a company controlled by Mr Allan Davies, as trustee for the AJ and LM Davies Family Trust The Board committed to issue these shares on 19 February 2009 The shares were subsequently approved by shareholders at the AGM on 17 November 2009 Accounting standard AASB 2 deems the issue date of these shares to be the date shareholder approval was formally received Accordingly, the company is required to account for the issue based on the prevailing share price at the date of the AGM resulting in a significantly higher valuation for accounting purposes b) Types of share-based payment plans Option grant to former CEO/Managing Director on 5 September 2007 The Company issued share options to the former Chief Executive Officer when he was appointed in October 2007 The terms and conditions of the grant are as follows Option Tranche 1 Tranche 2 Tranche 3 Exercise price Number of instruments Vesting conditions Expiration date $2 50 $2 50 $2 50 1,000,000 1st anniversary of employment 21 October 2012 1,000,000 2nd anniversary of employment 21 October 2012 1,000,000 3rd anniversary of employment 21 October 2012 3,000,000 Option grant to senior employees on 19 February 2009 The Company issued share options to senior employees on 19 February 2009 The terms and conditions of the grant are as follows Option Tranche 1 Tranche 2 Tranche 3 Tranche 4 Tranche 5 Tranche 6 Tranche 7 Tranche 8 Tranche 9 Tranche 10 Exercise price Number of instruments $1 00 $1 00 $1 00 $1 00 $1 00 $1 00 $1 00 $1 00 $1 00 $1 00 33,333 16,667 16,666 66,666 33,333 33,334 66,666 33,333 66,668 33,334 400,000 Vesting conditions 1 July 2008 1 January 2009 1 July 2009 26 October 2009 2 November 2009 1 July 2010 26 October 2010 2 November 2010 26 October 2011 2 November 2011 Expiration date 30 June 2010 31 December 2010 30 June 2011 26 October 2011 2 November 2011 30 June 2012 26 October 2012 2 November 2012 26 October 2013 2 November 2013 100 noteS to the Financial StatementS 30 june 2011 33. shARE-BAsEd PAymENTs (CONTiNuEd) Option grant to director-related entity on 17 November 2009 The Company issued share options to Dalara Management Pty Limited, an entity related to Allan Davies, at the AGM on 17 November 2009 These options had previously been approved by the board on 19 February 2009 The terms and conditions of the grant are as follows Option Tranche 1 Tranche 2 Tranche 3 Exercise price $1 70 $1 70 $1 70 Number of instruments Vesting conditions 1,666,666 31 October 2009 1,666,667 31 October 2010 1,666,667 31 October 2011 5,000,000 Expiration date 31 October 2013 31 October 2013 31 October 2013 Option grant to senior employees on 4 August 2010 and 13 October 2010 The Company issued share acquisition rights to senior employees under the company’s long-term incentive program The terms and conditions of the grant are as follows Option Tranche 1 Tranche 2 Tranche 1 Tranche 2 Tranche 3 Exercise price Number of instruments Vesting conditions $0 00 $0 00 $0 00 $0 00 $0 00 486,671 1 July 2011/1 July 2012 243,329 1 July 2012/1 July 2013 191,675 1 July 2011/1 July 2012 191,669 1 July 2012/1 July 2013 191,656 1 July 2013/1 July 2014 1,305,000 Expiration date 1 July 2012 1 July 2013 1 July 2012 1 July 2013 1 July 2014 The share acquisition rights vest subject to achieving a total shareholder return (‘TSR’) as follows: • TSR over vesting period above 75th percentile – 100% vest • TSR over vesting period below the 50th percentile – 0% vest • TSR over vesting period between 50th and 75th percentile – sliding scale of vesting between 0% and 100% c) movement in options The following table illustrates the number and weighted average exercise prices of, and movements in, share options issued during the year: Outstanding at beginning of period Exercised during the period Granted during the period Forfeited during the period Outstanding at 30 June Exercisable at 30 June Weighted average exercise price 2011 $1 96 $1 00 $0 00 $0 00 $1 71 $2.06 Number of options 2011 8,366,667 (166,665) 1,305,000 (50,000) 9,455,002 6,433,333 Weighted average exercise price 2010 $1 25 $1 00 $1 70 – $1 96 $2.18 Number of options 2010 18,119,200 (14,752,533) 5,000,000 – 8,366,667 4,799,998 101 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 33. shARE-BAsEd PAymENTs (CONTiNuEd) c) movement in options (continued) The outstanding balance as at 30 June 2011 is represented by: (i) (ii) 200,002 senior employee options over ordinary shares having an exercise price of $1 00, exercisable on meeting the above conditions and until the dates shown above 3,000,000 senior employee options over ordinary shares having an exercise price of $2 50, exercisable on meeting the above conditions and until 22 October 2012 (iii) 5,000,000 director-related entity options over ordinary shares having an exercise price of $1 70, exercisable on meeting the above conditions and until 31 October 2013 (iv) 1,255,000 share acquisition rights having an exercise price of $0 00, exercisable on meeting the above conditions and until the dates shown above The weighted average share price at the date of exercise for share options exercised during the year ended 30 June 2011 was $6 68 (2010: $4 89) The weighted average remaining contractual life of share options outstanding at 30 June 2011 is 1 91 years (2010: 2 92 years) d) Option pricing models The fair value of options granted to director-related entities is measured using a Black Scholes model The fair value of options granted to the senior employees is measured using a Monte Carlo Simulation model incorporating the probability of the performance hurdles being met The following table lists the inputs to the models used for the years ended 30 June 2011 and 30 June 2010: Fair value of share options and assumptions 2011 2010 2011 2010 Director-related entities Senior employees Fair value at grant date Share price Exercise price Expected volatility (weighted average volatility) Option life (expected weighted average life) Expected dividends Risk-free interest rate (based on government bonds) All shared-based payments are equity settled – – – – – – – $2 41 $4 95-$5 33 $4 42 $5 73-$6 20 $1 70 60% $0 00 40% 1-3 years 1-4 years 10% 1% 3 50% 4 60-4 80% – – – – – – – 102 noteS to the Financial StatementS 30 june 2011 34. RELATEd PARTiEs The following were key management personnel of the consolidated entity at any time during the reporting period and unless otherwise indicated were key management personnel for the entire period: Name directors John Conde Neil Chatfield Alex Krueger Hans Mende Tony Haggarty Andrew Plummer Allan Davies Executives Austen Perrin Timothy Burt Tony Galligan Position Chairman Non-executive Director Non-executive Director Non-executive Director Managing Director Executive Director Executive Director Chief Financial Officer and Joint Company Secretary General Counsel and Joint Company Secretary General Manager Infrastructure key management personnel compensation The key management personnel compensation included in ‘personnel expenses’ (see note 11) is as follows: In AUD Wages and salaries Contributions to superannuation plans Other associated personnel expenses Increase in liability for annual leave Increase in liability for long service leave Share-based compensation payments Consolidated 2011 2010 3,491,742 3,178,047 223,294 215,327 15,792 85,954 – 38,369 82,420 – 2,987,825 17,167,429 6,804,607 20,681,592 individual directors and executives compensation disclosures Information regarding individual directors and executives compensation and some equity instruments disclosures as permitted by Corporations Regulations 2M 3 03 and 2M 6 04 are provided in the Remuneration Report in the Directors’ report Apart from the details disclosed in this note, no director has entered into a material contract with the consolidated entity since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year end 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 103 noteS to the Financial StatementS 30 june 2011 34. RELATEd PARTiEs (CONTiNuEd) Loans from key management personnel and their related parties There were no loans outstanding to key management personnel and their related parties, at any time in the current or prior reporting periods Other key management personnel transactions A number of related parties and key management persons hold positions in other entities that result in them having control or significant influence over the financial or operating policies of those entities These entities transacted with the Company or its subsidiaries in the reporting period The terms and conditions of the transactions with management persons and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-director-related entities on an arm’s length basis For all related parties disclosed below, there were no guarantees given or received, or provisions for doubtful debts over the outstanding balances at year end, nor were these balances secured against any assets of the consolidated entity The aggregate amounts recognised during the year relating to key management personnel and their related parties were as follows: (i) The consolidated entity has entered into a sub-lease with XLX Pty Limited, a company of which Tony Haggarty, Andrew Plummer and Allan Davies are all directors, for office space in Sydney Fees amounted to $353,753 (2010: $311,381) This agreement includes payment for utilities, parking, teleconferencing, office supplies and services and is on normal commercial terms XLX Pty Limited also provided project consulting services to the consolidated entity during the year amounting to $1,252,673 (2010: $341,661) There was no outstanding balance payable to XLX Pty Limited at year end (2010: $44,000) (ii) The consolidated entity sells coal to and buys coal from Energy Coal Marketing Pty Ltd (‘ECM’), a company controlled by Hans Mende During the year the company made sales to ECM amounting to $27,919,142 (2010: $43,481,042) and purchases of $nil (2010: $30,750,712) These transactions were carried out on an arm’s length basis at market rates At the year end there was no balance owed to the consolidated entity (2010: $208,966) (iii) The consolidated entity sells coal to and buys coal from AMCI International AG, a company jointly controlled by Hans Mende During the year the company made sales to AMCI amounting to $124,177 (2010: $20,604,418) and purchases of $nil (2010: $14,576,664) These transactions were carried out on an arm’s length basis at market rates There was no balance outstanding at year end (2010: $nil) 104 noteS to the Financial StatementS 30 june 2011 34. RELATEd PARTiEs (CONTiNuEd) movements in shares The movement during the reporting period in the number of ordinary shares in Whitehaven Coal Limited held, directly, indirectly or beneficially, by each key management person, including their related parties is as follows: No of shares directors John Conde Neil Chatfield Tony Haggarty Alex Krueger Hans Mende Andy Plummer Allan Davies Executives Austen Perrin Timothy Burt Tony Galligan No of shares directors John Conde Neil Chatfield Tony Haggarty Alex Krueger Hans Mende Andy Plummer Allan Davies1 Executives Austen Perrin Timothy Burt Tony Galligan Held at 1 July 2010 Received on exercise of options Purchased under the Equity Participation and Option Deed Other purchases Held at Sales 30 June 2011 378,605 256,805 33,479,897 – 76,019,833 33,514,254 2,625,000 54,635 6,500 73,000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 378,605 256,805 33,479,897 – 76,019,833 33,514,254 2,625,000 (54,635) (6,500) (39,000) – – 34,000 Held at 1 July 2009 Received on exercise of options Purchased under the Equity Participation and Option Deed Other purchases Held at Sales 30 June 2010 301,887 301,887 31,143,795 – 75,379,833 29,883,070 125,000 49,717 – – – – – – – – – – 92,666 33,334 – – 76,718 4,918 – (50,000) 378,605 256,805 7,326,266 9,836 (5,000,000) 33,479,897 – – – 640,000 – – – 76,019,833 7,326,266 4,918 (3,700,000) 33,514,254 – – – – 2,500,000 4,918 6,500 – – – – (53,000) 2,625,000 54,635 6,500 73,000 1 Shares were issued to Dalara Investments Pty Ltd, a company controlled by Mr Allan Davies, as trustee for the AJ and LM Davies Family Trust The Board committed to issue these shares on 19 February 2009 The shares were subsequently approved by shareholders at the AGM on 17 November 2009 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 105 noteS to the Financial StatementS 30 june 2011 34. RELATEd PARTiEs (CONTiNuEd) Options and rights over equity instruments The movement during the reporting period in the number of options over ordinary shares in the Company held, directly, indirectly or beneficially, by each key management person and director-related entities, including their related parties, is as follows: Held at 1 July 2010 Granted/ (Forfeited) Exercised 30 June 2011 Held at Vested during the year Vested and exercisable at 30 June 2011 director-related entities Tony Haggarty Andy Plummer Allan Davies Executives Austen Perrin Timothy Burt Tony Galligan director-related entities Tony Haggarty Andy Plummer Allan Davies Executives Austen Perrin Tony Galligan – – 5,000,000 – – – 100,000 100,000 – – 65,000 85,000 Held at 1 July 2009 Granted/ (Forfeited) – – – – – – – – – – – – 5,000,000 1,666,667 3,333,333 200,000 33,333 66,666 65,000 85,000 Held at – – – – Vested during the year Vested and exercisable at 30 June 2010 Exercised 30 June 2010 7,326,266 7,326,266 – – 7,326,266 7,326,266 – – 7,326,266 7,326,266 – – – 5,000,000 100,000 33,334 – – – – 33,334 5,000,000 1,666,666 1,666,666 100,000 – 33,333 33,334 33,333 – 106 noteS to the Financial StatementS 30 june 2011 35. CONsOLidATEd ENTiTy’s suBsidiARiEs, AssOCiATEs ANd iNTEREsTs iN JOiNT vENTuREs The consolidated financial statements include the financial statements of the Company and the subsidiaries listed below Ownership interest Country of incorporation 2011 % 2010 % Parent entity Whitehaven Coal Limited subsidiaries Whitehaven Coal Mining Limited Namoi Mining Pty Ltd Namoi Agriculture and Mining Pty Limited Betalpha Pty Ltd Betalpha Unit Trust Tarrawonga Coal Pty Ltd Whitehaven Coal Holdings Limited Whitehaven Coal Infrastructure Pty Ltd Narrabri Coal Pty Ltd Narrabri Coal Operations Pty Ltd Narrabri Coal Sales Pty Ltd Creek Resources Pty Ltd Werris Creek Coal Sales Pty Ltd Werris Creek Coal Pty Ltd WC Contract Hauling Pty Ltd Whitehaven Blackjack Pty Ltd Whitehaven Project Pty Ltd Whitehaven Project Holdings Pty Ltd Australian Coal Inter Holdings 11 B V Australian Coal Inter Holdings 11A B V Jointly controlled entities Tarrawonga Coal Sales Pty Limited Blackjack Carbon Pty Limited Blackjack Carbon Sales Pty Limited Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Netherlands Netherlands Australia Australia Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 70 50 50 The consolidated entity has interests in the following jointly controlled operations, whose principal activities involve the development and mining of coal: Tarrawonga Coal Project Joint Venture Narrabri Coal Joint Venture Blackjack Carbon Joint Venture 2011 70% 70% 50% 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 n/a n/a 100 100 70 50 50 2010 70% 70% 50% The consolidated entity’s share of the above jointly controlled entities has been recorded using the proportional consolidation method The amounts set out below are included in the 30 June 2011 consolidated financial statements under their respective categories 107 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 35. CONsOLidATEd ENTiTy’s suBsidiARiEs, AssOCiATEs ANd iNTEREsTs iN JOiNT vENTuREs (CONTiNuEd) In thousands of AUD statement of comprehensive income Operating and administration expenses Current assets Cash and cash equivalents Trade and other receivables Inventory Deferred stripping Total current assets Non-current assets Trade and other receivables Property, plant and equipment Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Provisions Non-current liabilities Provisions Total liabilities Guarantees 2011 $000 2010 $000 70,954 66,826 8,510 4,961 9,674 15,984 39,129 6,065 3,164 6,088 5,317 20,634 – 2,054 419,091 246,881 1,691 1,691 420,782 250,626 459,911 271,260 53,560 36,542 87 270 53,647 36,812 7,497 7,497 6,999 6,999 61,144 43,811 The Joint Ventures provided bank guarantees to the Department of Mineral Resources NSW as a condition of continuation of mining and exploration licenses 3,055 3,055 Capital expenditure commitments – Plant and equipment and intangibles Contracted but not provided for and payable: Within one year One year or later and no later than five years Take-or-Pay commitments Less than one year Between one and five years More than five years 108 46,282 125,491 – 7,480 46,282 132,971 28,801 101,433 58,100 13,889 89,298 66,815 188,334 170,002 noteS to the Financial StatementS 30 june 2011 36. EARNiNGs PER shARE Basic earnings per share The calculation of basic earnings per share at 30 June 2011 is based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the year calculated as follows: Profit attributable to ordinary shareholders Net profit attributable to ordinary shareholders Net profit attributable to ordinary shareholders before significant items weighted average number of ordinary shares Issued ordinary shares at 1 July Effect of shares issued during the year Weighted average number of ordinary shares at 30 June Basic earnings per share attributable to ordinary shareholders (cents) Basic earnings per share before significant items attributable to ordinary shareholders (cents) diluted earnings per share Consolidated 2011 $000 2010 $000 9,946 114,884 73,300 55,108 Consolidated 2011 000’s 2010 000’s 493,650 407,213 55 68,219 493,705 475,432 2.0 14.8 24.2 11.6 The calculation of diluted earnings per share at 30 June 2011 is based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding adjusted for the diluting impact of potential equity instruments calculated as follows: Profit attributable to ordinary shareholders (diluted) Net profit attributable to ordinary shareholders (diluted) Net profit attributable to ordinary shareholders before significant items weighted average number of ordinary shares (diluted) Weighted average number of ordinary shares (basic) Effect of share options on issue Weighted average number of ordinary shares (diluted) diluted earnings per share attributable to ordinary shareholders (cents) diluted earnings per share before significant items attributable to ordinary shareholders (cents) 109 Consolidated 2011 $000 2010 $000 9,946 114,884 73,300 55,108 Consolidated 2011 000’s 2010 000’s 493,705 475,432 6,316 2,628 500,021 478,060 2.0 14.7 24.0 11.5 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W noteS to the Financial StatementS 30 june 2011 37. AudiTORs’ REmuNERATiON In AUD Audit services: Auditors of the Company – Ernst & Young Audit and review of statutory financial statements – current year Audit of joint ventures Non-audit services: Auditors of the Company – Ernst & Young Due diligence services Review of National Greenhouse Energy Reporting Act requirements Taxation services Other assurance services 38. PARENT ENTiTy iNfORmATiON In thousands of AUD information relating to whitehaven Coal Limited: Current assets Total assets Current liabilities Total liabilities Issued capital Retained earnings Share-based payment reserve Total shareholders’ equity Profit of the parent entity Total comprehensive income of the parent entity 110 Consolidated 2011 2010 354,138 156,300 510,438 487,229 74,059 – 7,210 342,503 151,723 494,226 – 86,684 40,508 5,142 568,498 132,334 Company 2011 2010 285,614 770,720 (2) (9,694) 720,338 16,330 24,358 761,026 35,496 35,496 325,337 790,087 (37,527) (41,034) 720,175 10,951 17,927 749,053 49,837 49,837 noteS to the Financial StatementS 30 june 2011 39. BusiNEss COmBiNATiONs – ACquisiTiONs During the year the consolidated entity acquired a coal marketing business The provisional fair values of identifiable assets and liabilities acquired as at the date of acquisition were: In thousands of AUD Assets Property, plant and equipment Liabilities Employee benefits Total net identifiable assets at fair value Marketing commission rights acquired1 Total consideration Fair value at acquisition date Carrying value 50 (26) 50 (26) 24 7,000 7,024 1 The marketing commission rights arise as a result of acquiring interests in existing marketing agreements The consolidated entity will receive the benefit of cost savings on marketing commissions that would have otherwise been payable under the marketing agreements Of the total cost savings on marketing commissions, $0 3m related to marketing commissions payable as at the date of acquisition and were expensed on acquisition The remaining $6 7m of cost savings have been recognised as an intangible asset (refer to note 21) 40. dEEd Of CROss GuARANTEE Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and directors’ report It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001 If a winding up occurs under other provisions of the Act, the Company will only be liable in the event that after six months any creditor has not been paid in full The subsidiaries have also given similar guarantees in the event that the Company is wound up The subsidiaries subject to the Deed are: • Whitehaven Coal Mining Limited • Namoi Mining Pty Ltd • Betalpha Pty Ltd • Tarrawonga Coal Pty Ltd • Whitehaven Coal Holdings Limited • Whitehaven Coal Infrastructure Pty Ltd • Narrabri Coal Pty Ltd • Narrabri Coal Operations Pty Ltd • Narrabri Coal Sales Pty Ltd • Creek Resources Pty Ltd • Werris Creek Coal Sales Pty Ltd • Werris Creek Coal Pty Ltd • WC Contract Hauling Pty Ltd The Company and each of the subsidiaries entered into the deed on 27 June 2008 The Deed of Cross Guarantee includes the Company and subsidiaries which are included within the statement of comprehensive income and statement of financial position of the consolidated entity 111 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W DirectorS’ Declaration In accordance with a resolution of the directors of Whitehaven Coal Limited, I state that: In the opinion of the directors: (a) the financial statements and notes of Whitehaven Coal Limited are in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2011 and of its performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2; and (c) (d) (e) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable this declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2011 as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in note 39 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee On behalf of the Board John Conde Chairman Sydney 23 August 2011 112 inDepenDent auDitor’S report to the memberS oF whitehaven coal limiteD 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W 113 inDepenDent auDitor’S report to the memberS oF whitehaven coal limiteD 114 aSX aDDitional inFormation Additional information required by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere in this report is set out below shAREhOLdiNGs substantial shareholders The number of shares recorded as owned by substantial shareholders and their associates in the most recent substantial shareholder notices advised to the Company by these shareholders are set out below: Shareholder FRC Whitehaven Holdings BV Hans Mende Fritz Kundrun AMCI International AG Ranamok Pty Ltd* Anthony Haggarty and HFTT Pty Ltd Percentage of capital held 27 63 15 96 15 82 11 32 7 65 6 78 Number of ordinary shares held per most recent substantial shareholder notice 131,650,000 76,019,833 75,379,833 53,951,500 37,214,254 33,479,897 * Figures are based upon the substantial shareholder notice received 20 January 2010 Current holding as at 10 August 2011 is 33,514,254 shares equating to 6 78% of capital voting rights Ordinary shares Refer to note 26 in the financial statements Options There are no voting rights attached to the options Distribution of equity security holders Category 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over There are 28 holders of options over ordinary shares Refer to note 33 in the financial statements The number of shareholders holding less than a marketable parcel of ordinary shares is 190 sECuRiTiEs ExChANGE The Company is listed on the Australian Securities Exchange 115 Number of equity security holders 1,580 2,524 845 686 70 5,705 1 1 0 2 t r o p e R l a u n n A – d e t i m L i l a o C n e v a h e t i h W aSX aDDitional inFormation OThER iNfORmATiON Whitehaven Coal Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares Twenty largest shareholders (legal ownership) Name FRC Whitehaven Holdings BV JP Morgan Nominees Australia Limited (Cash Income A/C) Citicorp Nominees Pty Ltd UBS Wealth Management Australia Nominees Pty Ltd JP Morgan Nominees Australia Limited National Nominees Limited Ranamok Pty Ltd (Plummer Family A/C) HFTT Pty Ltd (Haggarty Family A/C) HSBC Custody Nominees (Australia) Ltd Cogent Nominees Pty Limited Mr Michael Jack Quillen (Quillen Family A/C) Nicola Investments II LLC Kirstin Investments II LLC Markus Investments II LLC INVIA Custodian Pty Limited (Davies Family A/C) Tasman Asset Management Ltd (Tyndall Australian Share Whole) ARGO Investments Limited UBS Nominees Pty Ltd RBC Dexia Investor Services Australia Nominees Pty Limited (Pipooled A/C) Cogent Nominees Pty Limited (SMP Accounts) This information is current as at 10 August 2011 Number of ordinary shares held Percentage of capital held 80,650,000 63,981,745 54,145,503 52,360,193 36,916,878 36,779,297 33,514,254 33,437,979 18,717,433 7,780,369 7,085,000 5,660,377 2,830,189 2,830,188 2,625,000 2,129,099 2,111,698 2,060,843 1,905,279 1,760,165 16 31 12 94 10 94 10 59 7 47 7 44 6 78 6 76 3 79 1 57 1 43 1 14 0 57 0 57 0 53 0 43 0 43 0 42 0 39 0 36 449,281,489 90.86 116 CORPORATE DIRECTORY diRectoRs John Conde, Chairman Tony Haggarty, Managing Director Neil Chatfield Alex Krueger Hans Mende Andy Plummer Allan Davies compAny secRetARies Austen Perrin Timothy Burt RegisteRed And pRincipAl AdministRAtive office Level 9, 1 York Street Sydney NSW 2000 Ph: +61 2 8507 9700 Fax: +61 2 8507 9701 AustRAliAn Business numBeR ABN 68 124 425 396 stock exchAnge listing Australian Securities Exchange Ltd ASX Code: WHC AuditoR Ernst & Young Ernst & Young Centre 680 George Street Sydney NSW 2000 Ph: +61 2 9248 5555 Fax: +61 2 9248 5199 shARe RegistRy Computershare Investor Services Pty Limited GPO Box 523 Brisbane QLD 4001 Ph: 1300 850505 Fax: +61 7 3237 2100 legAl AdviseRs McCullough Robertson Level 12, Central Plaza Two 66 Eagle Street Brisbane QLD 4000 countRy of incoRpoRAtion Australia weB AddRess www.whitehavencoal.com.au . . . u a m o c e e r p u d w w w p u o r G n g s e D e e r p u D i : n o i t c u d o r p d n a i n g s e D . www.whitehavencoal.com.au w h i t e h A v e n c o A l l i m i t e d A n n u a l R e p o r t 2 0 1 1