Whitehaven Coal
Annual Report 2012

Plain-text annual report

ANNUAL REPORT 2012 Delivering growth Chairman’s Letter 2 Statement of Changes in Equity 73 2012 Highlights 4 Statement of Cash Flows 74 Achievements 6 Notes to the Financial Statements 75 Asset Portfolio 8 Directors’ Declaration 140 Managing Director’s Report 10 Independent Auditor’s Report 141 Directors’ Report 30 ASX Additional Information 143 Statement of Comprehensive Income 69 Corporate Directory 145 Statement of Financial Position 71 2 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 There is a valid expectation that we will not only engage with communities through our ongoing consultation program, but continually seek and listen to the views of a wide spectrum of community groups and organisations. Dear Whitehaven Shareholder, 2012 OVERVIEW It has been a transformative year for Whitehaven Coal. The successful merger with Aston Resources and the acquisitions of Boardwalk Resources and Coalworks have secured our position as one of Australia’s leading independent coal miners. We now have a business with enviable growth potential, with our existing production of around 5 Mtpa expected to grow to more than 20 Mtpa by 2015, subject to the appropriate approvals being received. The merger of Whitehaven Coal and Aston Resources, and the acquisition of Boardwalk was announced in December 2011 and finalised in May 2012. From the time the transactions were announced, significant focus was directed to the integration of the businesses, and planning to ensure the appropriate management resources and infrastructure capacity were available to support the anticipated growth. This effort has now been rewarded with the Whitehaven, Aston and Boardwalk businesses, as well as the recently acquired Coalworks business, now operating as one company, with a highly experienced management team and a clearly defined future. OpERatIOnS At an operational level we have seen the successful development of our $500 million Narrabri underground operation. Our first longwall coal was cut in June 2012 and production is continuing to increase. Our open cut mines performed at similar levels to last year, with production hampered by exceptionally wet weather in the December and March quarters. The lower production levels had an adverse impact on overall costs, with this being exacerbated by the mine scheduling changes required to address related water management issues. As outlined previously, we are still awaiting NSW Government approval for our Maules Creek development. The economics of this project are compelling, with an extremely competitive cost structure vis-à-vis global competitors. The project brings very large employment and economic benefits to North West NSW with up to 1000 construction jobs and 500 permanent jobs as well as annual operating expenditure in the local region of more than $500 million a year for at least 25 years. NSW Royalties are projected to be in the order of $100 million a year. Subsequent to balance date, the Director-General of the NSW Department of Planning and Infrastructure has issued a recommendation to the Planning Assessment Commission that the project’s benefits outweigh its residual impacts and that it is in the public interest and should be approved, subject to a recommended series of conditions. We remain confident that approvals will be forthcoming, and continue to plan for efficient and timely development of the project on that basis. SuStaInabIlIty We are highly aware that with our expansion comes the need for unwavering corporate responsibility. First and foremost this responsibility is for the health and safety of our employees. We have invested significantly in our safety resources and processes during the year, including seeking broad feedback and input from our workforce as to how we can further improve. You can read more about our safety performance and initiatives, as well as our other sustainability initiatives, throughout this report. Additional resources have also been allocated to our expanding environmental team. As mining becomes more prominent throughout the region it is clear to both mining companies and the community more broadly, that cumulative impacts need to be monitored and managed. This process is currently in its infancy but Whitehaven continues to work with government agencies and other mining companies to develop a monitoring framework that can be expanded as development increases. In terms of our involvement with the community there is a valid expectation that we will not only engage with communities through our ongoing consultation program, but continually seek and listen to the views of a wide spectrum of community groups and organisations. Given the majority of our workforce and senior managers live in the region, this engagement is happening on a constant basis. 2 FInancIal pERFORmancE The company reported a net profit after tax (NPAT) before significant items, of $57.8 million, down 13% from FY2011. NPAT after significant items was $62.5 million. This result has allowed us to declare a final fully franked dividend of 3 cents per share, which, when combined with the special fully franked dividend of 50 cents per share paid earlier in the year, takes the annual dividend to 53 cents per share, fully franked. pROpOSal FROm tInklER GROup On 10 August 2012, Whitehaven announced that it had granted the Tinkler Group access to due diligence in order to further develop an indicative and non-binding proposal for a Tinkler Group-led bid vehicle to take Whitehaven private at $5.20 cash per share. The due diligence period expired in August and Whitehaven was advised by the Tinkler Group that a formal binding proposal of $5.20 cash per share would not be forthcoming. The Whitehaven Board will always assess carefully firm proposals which are in the best interests of shareholders. However, our corporate focus remains on the sustainable and efficient development of our high quality coal assets to deliver value for all shareholders. OutlOOk Since its formation, Whitehaven’s strategy has been to maintain a clear focus on costs, to build a portfolio of assets that are well placed on the cost curve and to develop its assets in a safe, sustainable manner. This has delivered a diversified project risk profile that provides us with numerous options for further value-enhancing growth. Our management team is highly experienced and has a track record of delivering both organic growth and greenfields developments at all stages of the commodity price cycle. Whitehaven’s Maules Creek project is a world-class example of an asset which is capable of delivering attractive returns at any stage of the cycle. We expect that this asset will enter the construction phase in the current financial year. On behalf of the board I would like to thank our expanded management team and workforce for their considerable achievements during the year as our business has become larger and more complex. the Hon. mark Vaile aO chairman It is extremely important to Whitehaven that our workers live in, and enjoy being part of, the local communities in which we operate. From time-to-time we will need to rely on fly-in fly-out contractors (mainly from NSW) to supplement our local workforce, mainly during construction, but we are making every effort to build our local workforce. We continue to work with local councils to provide input into the planning processes required to address housing demand and social impacts linked to growth in our workforce, as well as specific mine and local infrastructure issues. Whitehaven remains the largest corporate contributor to the region with more than 1300 direct employees and contractors in the region. A large percentage of these employees reside in North West NSW, in line with our commitment to maintaining a locally-based workforce. Economically, our contribution to the region continues to grow. Total operating expenditure in producing coal was approximately $396.7 million in FY2012, most of which was spent in local and regional economies. Royalties paid directly to the NSW Government in FY2012 were approximately $33.4 million. In addition to this, we continue to support a wide range of community organisations with more than $115,000 donated during the year. In addition, more than $26 million has been committed to local infrastructure and community initiatives as part of our Voluntary Planning Agreements with local councils. 3 2 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 2012 highlights Business Development Highlights • • • Completed acquisition of Boardwalk Resources and the merger with Aston Resources, creating Australia’s leading independent coal company with a quality portfolio of producing assets and a growth pipeline that includes some of Australia’s most significant new coal projects. Successfully acquired Coalworks Limited. Completed the A$370 million sale of a 10% interest in the Maules Creek Joint Venture to J-Power Australia Pty Ltd. Financial Highlights • • Underlying net profit after tax (NPAT), before significant items, of $57.8 million, down 13% from FY2011. NPAT after significant items of $62.5 million. Total significant items after tax of $4.8 million including: – Historical legacy contract losses pre-tax of $29.4 million (all legacy contracts fulfilled end of March 2012); – Aston/Boardwalk transaction costs pre-tax of $41.4 million; – Profit on sale of interest in Maules Creek to J-Power pre-tax of $116.2 million; – Accounting adjustment for the fair value of Boardwalk Resources goodwill at acquisition pre-tax of $119.8 million; – Initial recognition of Mineral Rent Resource Tax (MRRT) starting base as a deferred tax asset of $101.5 million. • • • Declared a fully franked special dividend of 50 cents per share and a fully franked final dividend of 3 cents per share taking the total dividend for the year to 53 cents per share. Revenue from coal sales of $448.4 million (net of purchased coal and excluding NSW royalty), up 2.6% from FY2011. Cash flow and financial position - $513.6 million cash available with net cash of $24.2 million compared to $207.6 million cash available and net cash of $29.0 million at 30 June 2011. 4 Financial Performance Whitehaven coal limited consolidated Fy2012 $m Fy2011 $m movement % Revenue 618.1 622.2 -0.7% Net profit/(loss) for the period attributable to members Add back: Significant items after tax (refer to note 7) Net profit/(loss) before significant items Profit/(loss) before net financing expense Add back: Depreciation and amortisation Operating EBITDA Add back: Significant items before net financing expense (refer to note 7) 62.5 9.9 +528.8% (4.7) 57.8 26.0 39.7 65.7 83.5 63.4 +107.5% 73.3 33.7 41.0 74.7 -21.2% -22.9% -3.1% -12.0% 73.3 +13.9% Operating EBITDA before significant items 149.2 148.0 +0.8% 5 2 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 Fy2012 Fy2011 movement ROM Coal Production Saleable Coal Production Sales of Produced Coal Sales of Purchased Coal Total Coal Sales Coal Stocks at Period End 4,657 4,275 4,289 1,243 5,532 478 4,592 4,168 4,243 1,883 6,126 444 +1% +3% +1% -34% -10% +8% 6 Operating Highlights • • • • Narrabri longwall installed in the June quarter and undergoing commissioning. More than 300 Kt of longwall coal produced to the end of August 2012. Saleable coal production up 3% (equity basis) to 4.28 Mtpa, and up 4% to 4.90 Mtpa (100% basis). Equity ROM coal production increased slightly to 4.66 Mtpa for the year - lower than anticipated due largely to significant impacts of exceptionally wet weather in the December and March quarters and consequential mine scheduling issues. Planning at the Vickery project has generated an open cut mine plan to produce around 4.5 Mtpa ROM for more than 25 years with a stripping ratio of approximately 10:1. Focus is on obtaining NSW Project Approval for this project and lodgment of the approval for assessment by the NSW Government is planned for the fourth quarter in CY2012. 7 2 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 asset POrtFOliO Narrabri Ka milaroi B A H i g h w a y Baan Baa Boggabri F C d B l u e V a l e E R o a d High w ay Gunnedah Curlewis G O x l e y N 0 10 20 30 40 50 Kilometres AUSTRALIA I J QLD NSW K Gunnedah Basin L M y O x l e Highway Tamworth Werris Creek H K a m il a r o i Quirindi H i g h w a y Key Asset Interest Key Asset A B C D E F G Narrabri North Mine Maules Creek Project Tarrawonga Joint Venture Rocglen Mine Vickery Project Vickery South Project Sunnyside Mine 70% 75% 70% 100% 100% 71% 100% H I J K L M Werris Creek Mine Sienna Project Dingo Project Monto Project Ferndale Project Oaklands North Project Interest 100% 100% 70% 100% 94% 100% 8 2 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 Subject to approvals and other external factors, our production has the potential to quadruple from the current level of around 4.7 Mtpa to more than 20 Mtpa by 2015. OVERVIEW Whitehaven has continued to build its position as one of Australia’s leading independent coal producers, and its growth trajectory remains highly attractive. Subject to approvals and other external factors, our production has the potential to quadruple from the current level of around 4.7 Mtpa to more than 20 Mtpa by 2015. Our merger with Aston Resources has brought the world-class Maules Creek coal deposit to our portfolio, and the acquisitions of Boardwalk Resources and Coalworks have further enhanced our development pipeline. Significant work has been undertaken internally to integrate the businesses and ensure the future corporate structure and management resources are adequate to support anticipated growth. Likewise, we have continued to carefully manage and invest in our infrastructure requirements to ensure we are well positioned to meet our growth targets. In terms of our operating and financial performance, our underlying result has remained broadly in line with the previous year, despite weather impacts, substantial growth and change in the organisation and a reduction in coal prices. At Narrabri, we have completed the installation of the longwall and production is steadily increasing. The open cut mines have recovered from the exceptionally wet weather encountered in the second and third quarters, and are now operating at planned production levels. This wet weather had a flow-on impact on costs, due to both lower production and the additional costs associated with road repairs, water management and more difficult coal recovery. A focussed review of operating costs is currently underway to identify opportunities for reduction. 10 FInancIal pERFORmancE Whitehaven Coal Limited - Consolidated Revenue Net profit for the period attributable to members Add back: Significant items after tax (refer to note 7) Net profit before significant items Profit before net financing expense Add back: Depreciation and amortisation Operating EBITDA Add back: Significant items before net financing expense (refer to note 7) FY2012 $m 618.1 62.5 (4.7) 57.8 26.0 39.7 65.7 83.5 FY2011 $m 622.2 9.9 63.4 73.3 33.7 41.0 74.7 73.3 Operating EBITDA before significant items 149.2 148.0 Movement % -0.7% +528.8% +107.5% -21.2% -22.9% -3.1% -12.0% +13.9% +0.8% Cash on Hand Interest Cover Ratio (times)1 Interest Bearing Liabilities Net Cash Position Net Assets Gearing Ratio2 FY2012 $m 513.6 6.86 489.4 24.2 3,411.1 -0.7% FY2011 $m 207.6 7.87 178.6 29.0 1,040.5 -2.9% 1 EBIT before significant items to Interest Expense excluding FX in financing expense, losses on ineffective hedges and unwind of provision discounting 2 Net Debt to Net Debt plus Equity 11 2 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 Whitehaven’s balance sheet remains strong. Cash on hand at FY2012 year-end was $513.6 million with net cash of $24.2 million compared to $207.6 million cash available and net cash of $29.0 million at 30 June 2011. Cash flow from operations was $2.5 million for the year compared to $120.3 million for FY2011 due to an abnormally high portion of accrued costs from 2011 paid in 2012. Our mining costs increased during the year to an average of $69.93/tonne FOB (excluding Royalty costs). This is up from last year largely as a result of wet weather and the associated impact on lower production in the open cut mines, changes to the open cut mining sequence and mine operating costs from the unavailability of blasting product for part of the year, and the flow-on effect of take or pay commitments for port and rail on lower open cut production. SaFEty The safety and wellbeing of our workforce remains Whitehaven’s highest priority and the company’s safety culture is being further developed as our business expands in size and complexity. A key safety performance measure – lost time injury frequency rate (LTIFR) – improved during the year, with a reduction to 4.1 per million manhours from 6.4 per million manhours well below the NSW Coal Mining industry average of 5.8 per million manhours. The improved performance in our open cut operations has been particularly pleasing. This reflects a significant emphasis on improving our performance, with additional resources allocated to our corporate safety team during the year, and ongoing increases in the number of safety-related interactions including take 5’s and Planned Task Observations. In order to further ensure a consistent approach to safety over the larger group, a series of safety days have been held, subsequent to balance date. These safety days have involved the suspension of production at each site, in turn, as more than 1000 employees and contractors take part in the full-day off-site safety event. The days have been both educational and practically-based with a number of new initiatives and safety improvements being made as a result. Whitehaven remains committed to achieving the goal of zero injuries by continually fostering awareness and cooperation in health and safety. 12 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 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 FY2012 FY2011 Movement 4,657 4,275 4,289 1,243 5,532 478 4,592 4,168 4,243 1,883 6,126 444 +1% +3% +1% -34% -10% +8% FY2012 FY2011 Movement 2,620 2,303 2,327 1,883 4,210 233 +19% +16% +13% -34% -8% +47% 3,129 2,662 2,621 1,243 3,865 342 13 2 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 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 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 FY2012 FY2011 Movement 1,274 1,343 1,407 – 1,407 117 1,809 1,722 1,777 – 1,777 186 -30% -22% -21% – -21% -37% FY2012 FY2011 Movement 163 143 139 – 139 25 +56% +88% +88% – +88% -27% 254 270 261 – 261 18 14 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 operations produced a solid result, although production was below planned levels due to exceptionally wet weather in both the December and March quarters. Floodwaters associated with high rainfall caused road damage, mine closures and significant in-pit water. Whitehaven’s mines and equipment did not incur any direct damage and all mines were quickly brought back into production as floodwaters receded. Water management required ongoing changes to mine scheduling. In addition, planned mining was interrupted and production of coal reduced due to the reduction in explosives deliveries as a result of the Orica plant shutdown in Newcastle in November 2011. The Werris Creek mine was the most adversely impacted operation in terms of both weather and explosives supply. However, production at Werris Creek is improving steadily and production of approximately 2.0 Mt is expected in FY 2013. Following a substantial upgrade to coal resources and reserves and the extension of the Tarrawonga Joint Venture, an application has been lodged for modification to the existing Project Approval for Tarrawonga. This would allow production to increase from 2 Mtpa to 3 Mtpa and would cover mining of the full JORC reserve over more than 15 years. This application is progressing through the NSW planning process. A revised Project Approval was received from the NSW Minister for Planning for extension of the Werris Creek mine life, to cover the full JORC reserve at up to 2.5 Mtpa over 20 years. Approval has also been received to modify the Rocglen Project Approval to take account of modified geological information. 2 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 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% The Narrabri mine is now fully operational with all infrastructure in place. Installation of the longwall was completed and the first longwall coal cut in June 2012. Production is steadily increasing in line with the planned commissioning process and has reached a weekly rate equivalent of up to 4.0 Mtpa. To the end of August 2012, in excess of 331 Kt of coal had been produced from the longwall face. Roof caving has occurred as predicted. Mechanical and electrical commissioning of the longwall underground has progressed well. However, several vendor related (Caterpillar) issues remain unresolved with the equipment including full commissioning of the face automation, provision of a reliable supply of spare parts, installation of the high pressure set function of the shields and complete installation of the full longwall belt retraction system. Whitehaven is working with Caterpillar to resolve these issues. Mining conditions underground remain excellent and development productivity is good. Main road development has advanced to longwall panel #3 and installation of the maingate conveyor for longwall panel #2 is completed, and maingate #2 development is well advanced. Narrabri continues to successfully drain in-seam gas (85% CO2) to levels below the threshold required for continuous mining. A program of surface to in-seam (SIS) and underground in-seam (UIS) drilling is continuing and a substantial inventory of drained coal is being established, with the development roadways for longwall panel #5 now being drained. As with the installation of any new longwall into a new seam not previously mined by this method, issues are anticipated during the ramp up phase. The operating team is actively monitoring for and addressing issues through rectification and modification works and developing operating practices. Mine infrastructure at Narrabri is operating well, including the permanent ventilation system and CHPP. The CHPP is currently running at around 850 tph to 900 tph, short of its full capacity of 1,000 tph. It is expected to be fully optimised when large throughput tonnages of longwall coal create steady, high volume operation. Narrabri has also commissioned an upgrade to the original Stage 1 raw coal crushing and stacking system, which is currently unutilised. When upgraded, this will provide an additional 1,000 tph of raw saleable coal crushing and stacking capacity, which will provide redundancy for the CHPP and additional capacity if and when required. Whitehaven is continuing to actively seek and recruit experienced underground miners and professional staff, including international searches, to ensure a full complement of staff. On an equity basis, sales of more than 400 Kt of Narrabri coal have now been made with coal stockpiling and handling systems working well and coal quality meeting expectations. Forecast production is approximately 4 Mt of ROM coal for FY2013. DEVElOpmEnt pROJEctS maules creek Whitehaven (operator) 75% ICRA MC Pty Ltd (an entity associated with Itochu Corporation) 15% J-Power Australia Pty Ltd 10% The Maules Creek Coal Project resource, located in the Gunnedah Basin, is projected to support a large open cut mining operation for in excess of 30 years at an average ROM coal production rate of approximately 12 Mtpa. NSW Government approval is still pending, despite the recommendation on 21 March 2012 of the Planning Assessment Commission (PAC) for the project to proceed subject to appropriate conditions. Whitehaven remains confident of receiving approval and is working to ensure development timelines remain on track once approval is granted. 16 Subsequent to balance date, the Director-General of the NSW Department of Planning and Infrastructure has issued a recommendation to the Planning Assessment Commission that the project’s benefits outweigh its residual impacts and that it is in the public interest and should be approved, subject to a recommended series of conditions. Pending approval, first coal is expected in the first quarter of calendar year 2014, ramping up to annual ROM production of 12 Mt by 2016. Following a detailed review of the Maules Creek project plan, capital expenditure to first coal is now expected to be approximately $766 million (100% basis), an increase of approximately 6% over previous estimates. This is primarily a result of the delay in obtaining development approval. The review also confirmed the expectation of average FOB cash operating costs of approximately A$65/t (excluding royalties). This is a very competitive operating cost structure, largely driven by Maules Creek’s relatively low overburden stripping ratio of 6.4 bcm per tonne of ROM coal. This relatively low FOB cash cost, combined with a low development capital cost per annual tonne of capacity and the high value of the saleable coal, confirms the strong economics and substantial value of this project. On 19 June 2012, Whitehaven completed the sale of 10% of its interest in Maules Creek for A$370 million to J-Power Australia Pty Ltd, a wholly-owned subsidiary of Electric Power Development Co., Ltd. (J-Power). Vickery Whitehaven 100% Work continued at Vickery during the year with further drilling in the area to assist in confirming the geological model and mine development plan. Initial mine planning has generated a pit design which produces 164 Mt of ROM coal at a stripping ratio of 10:1. Work is progressing to define an open cut mine plan for Vickery to produce around 4.5 Mtpa ROM for more than 25 years with a stripping ratio of approximately 10:1. Under the plan, Vickery’s ROM coal will be trucked to Whitehaven’s Gunnedah CHPP for processing and loading, resulting in an efficient use of existing infrastructure and a relatively low capital cost development of Vickery. Ongoing analysis of Vickery coal quality indicates that, if all ROM coal were washed, saleable coal yield would be more than 80% of predominantly low-ash, low-sulphur and low-phosphorus semi-soft coking coal. This saleable coal yield can be increased significantly by by-passing a proportion of low-ash ROM coal, similar to 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. The recent acquisition of Coalworks provides the opportunity for Whitehaven to consider the integration of Coalworks’ adjacent Vickery South Joint Venture area, which is owned 49% by Itochu, into Whitehaven’s Vickery project. There are compelling operational and economic benefits to be gained from combining these two assets, which Whitehaven is discussing with Itochu. Whitehaven intends to lodge an application for Project Approval for Vickery open cut in the fourth quarter of calendar 2012, with the aim of obtaining approval and being in a position to make a final decision on the development of the project late in calendar 2013. OtHER pROJEctS Whitehaven has interests in a number of other coal exploration projects, including Ferndale, Dingo, Sienna, Monto, Ashford and Oaklands North. 2 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 17 managing DirectOr’s rePOrt cOal RESOuRcES anD RESERVES (100% baSIS) Whitehaven’s JORC Coal Resources now total 3,706.7 Mt, with JORC Marketable Coal Reserves of 776.7 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 (mt) – auGuSt 2012 Tenement Measured Resource Indicated Resource Inferred Resource Total Resources Competent Person Report Date Bluevale Opencut EL4699/CL316 10.5 6.3 Vickery Opencut CL316 117.96 128.2 48.0 0.1 Vickery South Opencut Vickery Underground EL7407 CL316 Merton Opencut ML1471/EL4699 Canyon Extended Rocglen Opencut Rocglen Underground Tarrawonga Opencut * CL316/EL4699 ML1471 ML1620 ML1620 EL5967/ML1579/ CL368 - - - 11.66 - 41.0 Tarrawonga Underground EL5967/ML1579 10.1 Maules Creek Opencut CL375/AUTH346 197.22 Sunnyside Opencut ML1624/EL5183 19.6 EL5183 Underground BLOCK 7 Opencut BLOCK 7 Underground Other Gunnedah Resources EL5183 CCL701 CCL701 CCL701 Werris Creek Opencut ML1563/ML1672 Narrabri Underground** ML1609/EL6243 - - - - 21.8 153 - - - 6.1 2.2 31.4 15.4 244.4 47.4 7.2 - 12.9 13.0 7.7 375 1.8 76.0 10.4 28.0 18.6 322.2 58.5 28.0 111.7 111.7 5.1 5.1 1.5 1.6 17.3 14.0 237.0 22.9 32.2 1.4 2.5 19.2 3.8 89.7 39.5 678.6 89.9 39.4 1.4 15.4 123.2 136.2 2.0 254 31.5 782 total Gunnedah basin Brunt Deposit Opencut Arthurs Seat Opencut Ferndale Opencut*** Ferndale Underground*** Oaklands North Opencut Pearl Creek Opencut**** total Other coal Resources 630.8 897.3 942.6 2470.7 EL6450 EL6587 EL7430 EL7430 EL6861 EPC862 - - - - 121 - 2.6 - 7.8 - 572 6.6 0.3 1.7 279 82 129 34 2.9 1.7 286.8 82 822 40.6 121.0 589.0 526.0 1236.0 total coal Resources 751.8 1486.3 1468.6 3706.7 1 2 4 2 1 1 1 1 1 1 5 1 1 1 1 3 1 3 3 3 2 2 3 5 Aug-12 Mar-12 Aug-12 Mar-12 Feb-11 Feb-11 Mar-11 Mar-11 Nov-11 Nov-11 Mar-11 Mar-11 May-09 Jan-09 Jan-09 Mar-10 May-12 Jun-12 Sep-09 Nov-09 May-12 May-12 Aug-12 Jun-12 1. Colin Coxhead, 2. Greg Jones, 3. Tom Bradbury, 4. Mark Dawson, 5. Phil Sides. * Whitehaven owns 70% share of ML1579 and Tarrawonga North Joint Venture Area within CL368. Combined Resource for Tarrawonga Mining Lease, Exploration Licence and Tarrawonga North Joint Venture area within CL368 Narrabri Joint Venture - Whitehaven owns 70% share Ferndale Joint Venture - Whitehaven owns 94% share ** *** **** Dingo Joint Venture - Whitehaven owns 70% share # The Coal Resources for active mining areas are current to the pit surface as at the report date. 18 WHItEHaVEn cOal lImItED – cOal RESERVES (mt) – auGuSt 2012 Recoverable Reserves Marketable Reserves Competent Person Report Date Tenement Proved Probable Total Proved Probable Total Bluevale Opencut EL4699/CL316 4.00 6.00 10.00 3.80 5.70 9.50 1 Aug-12 Vickery Opencut Rocglen Opencut Tarrawonga Opencut * CL316 84.70 65.30 150.00 67.10 49.80 116.90 2 Mar-12 ML1620 7.83 3.66 11.49 6.43 3.01 9.44 1 May-12 EL5967/ ML1579/ CL368 32.20 23.10 55.30 30.10 21.60 51.70 1 Nov-11 Tarrawonga Underground EL5967/ML1579 - 5.80 5.80 - 4.90 4.90 3 Feb-12 Maules Creek Opencut CL375/AUTH346 171.10 190.60 361.70 141.30 187.60 328.90 1 Apr-11 Sunnyside Opencut ML1624/EL5183 6.00 21.15 27.15 5.35 18.85 24.20 1 May-12 BLOCK 7 Underground CCL701 - 4.00 4.00 - 4.00 4.00 3 May-09 Werris Creek Opencut ML1563/ ML1672 20.13 7.11 27.24 20.13 7.11 27.24 1 May-12 Narrabri North Underground** Narrabri South Underground** ML1609 66.00 67.40 133.40 66.00 67.40 133.40 3 Jan-10 EL6243 24.70 61.50 86.20 19.40 47.10 66.50 3 Jan-10 total coal Reserves 416.66 455.62 872.28 359.61 417.07 776.68 1. Doug Sillar, 2. Ross Campbell, 3. Graeme Rigg * ** # Whitehaven owns 70% share of ML1579 and Tarrawonga North Joint Venture Area within CL368. Combined Reserve for Tarrawonga Mining Lease, Exploration Licence and Tarrawonga North Joint Venture area within CL368 Narrabri Joint Venture - Whitehaven owns 70% share. Reserve update in progress. The Coal Reserves for active mining areas are current as at report date ## 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 statement. JORc cOmpEtEnt pERSOnS StatEmEnt Information in this report that relates to Coal Exploration Targets, Coal Resources and Coal Reserves is based on and accurately reflects reports prepared by the Competent Person named beside the respective information. Mr Colin Coxhead is a private consultant. Mr Greg Jones is a principal consultant with JB Mining Services. Mr Phillip Sides is a senior consultant with JB Mining Services. Mr Tom Bradbury is a Senior Geologist with Geos Mining. Mr Mark Dawson is Group Geologist with Whitehaven Coal Limited. 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 Ross Campbell is a full time employee of Engenicom Pty Ltd 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). 19 2 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 managing DirectOr’s rePOrt rePOrt InFRaStRuctuRE Whitehaven continues to carefully manage and invest in its infrastructure requirements, including building port capacity and upgrading the existing rail network. The final stage of NCIG (2F) is on schedule for commissioning in mid-2013. This will take the port to its full capacity of 66 Mtpa by late 2013, of which Whitehaven’s share will be approximately 6 Mtpa. Following the merger with Aston and the extension of the Tarrawonga JV, Whitehaven now has rolling 10-year port contracts with PWCS for 6.2 Mtpa. Whitehaven has also secured a total of 14.7 Mt in additional port capacity at Newcastle, spread over the period May 2012 to June 2016. This additional capacity covers the majority of planned growth in Whitehaven’s coal exports during the period prior to the planned commissioning of the PWCS T4 facility, scheduled for 2016. Whitehaven has nominated to PWCS for additional capacity entitlements and has received entitlements of an additional 9.2 Mtpa from T4. This gives Whitehaven long-term entitlements of 21.4 Mtpa, following commissioning of T4. This capacity is sufficient for all of Whitehaven’s growth plans except Vickery, for which capacity will be sought in due course via the annual T4 nomination process. Rail capacity is continuing to increase with the Whitehaven-owned coal train being fully utilised and two additional new Pacific National (PN) trains now operational. Trials are progressing well to increase new train size from 72 wagons to 82 wagons. This would increase train size from 5,400 tonnes to 6,150 tonnes (+14%) with enhanced utilisation of track capacity. Whitehaven has rail track capacity in place for current and medium-term needs and is working actively with Australian Rail Track Corporation (ARTC) to ensure planned upgrades are available to meet Whitehaven’s needs, consistent with the ARTC track expansion works program. Above rail capacity is in place with the Whitehaven owned train and haulage services provided by Pacific National for more than 10 Mt. The Company is currently tendering for additional above rail services to cater for the Maules Creek, Vickery and existing Open Cut mine production increases. 20 manaGEmEnt Subsequent to balance date Whitehaven has put in place a new organisational structure designed to accommodate both current and future expansion of the business and its assets. The restructure includes the creation of seven Executive General Manager roles reporting to the Managing Director and Chief Executive Officer. Existing management will fill each of these roles. The roles are: General Counsel and Company Secretary – Tim Burt EGM Projects Delivery – Brian Cole EGM Operations and Executive Director – Allan Davies EGM Business Development – Peter Kane EGM Marketing – Pat Markey EGM Corporate Services – Lance Muir Chief Financial Officer and Company Secretary – Austen Perrin In addition, Whitehaven has made a number of senior appointments during the year, including the appointment of Peter Wilkinson as General Manager, Open Cut operations, and Steve Bow as General Manager – Narrabri. cORpORatE In August 2011, the Group refinanced its existing syndicated bank facility with a series of long-term bilateral facilities put in place with a number of Australian and foreign financial institutions. The bank facilities have a five year tenor and provide Whitehaven with lines of credit up to A$350 million for working capital and general corporate purposes. The facilities recognise Whitehaven’s strong credit quality and growth prospects and will support Whitehaven’s endeavours to further develop and realise the value from its existing world class coal assets. Whitehaven also secured an expansion of its existing debt facilities by a total of A$450 million in December 2011. $255 million was drawn for the payment of the Whitehaven special dividend. The Group will be looking to maximize and refinance these existing debt facilities into a minimum 3 year tenor. 2 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 21 managing DirectOr’s rePOrt aStOn mERGER anD SynERGIES The integration of Whitehaven, Aston, Boardwalk and Coalworks is complete with the integration of people, property and systems having progressed smoothly. Since balance date, a new organisational structure was announced, designed to accommodate the needs of our existing business and the needs of the much larger and complex business we are becoming. The restructure included the creation of seven Executive General Manager roles, each filled by existing management. The three companies are now operating as one and the Group remains on track to achieve the synergies as outlined in the Scheme Booklet at the time of the merger. Key short-term synergies will include reduction in costs from the procurement of tyres, fuel, explosives, above rail services, electricity, banking facilities and other corporate costs. Longer-term synergies are expected from extensive coal blending opportunities and integrated rail and port infrastructure synergies once Maules Creek is in operation. cOalWORkS tRanSactIOn In early May, Whitehaven announced a proposal to acquire all of the Coalworks Limited (ASX:CWK) shares, that it did not already hold, through an off-market takeover bid for $1.00 per share (the Offer). Whitehaven Coal Holdings commenced compulsory acquisition proceedings for all the ordinary shares it did not own in Coalworks on 19 July 2012. Whitehaven announced on 21 August 2012 that the compulsory acquisition process has been completed and that Whitehaven Coal Holdings now holds 100% of the ordinary shares in Coalworks. caRbOn pRIcInG mEcHanISm The Federal Government’s carbon pricing mechanism commenced from 1 July 2012. With a price of $23 per tonne of CO2 equivalent emissions, Whitehaven’s estimate of the impact of the tax is approximately $1.60 per tonne of saleable coal from our open cut and underground mines. OutlOOk The substantial developments undertaken by Whitehaven in FY2012 have positioned the company well to continue to build its position as one of Australia’s leading coal producers. Our merger with Aston and the acquisitions of Boardwalk and Coalworks have improved our operational diversification, creating a large-scale coal producer with significant growth potential. With Narrabri’s longwall operations now in ramp-up mode, a substantial increase in coal production is imminent. This adds to our open cut mines which will continue to operate at a capacity of 5.5 Mtpa. Our strong portfolio of development projects also serves to reinforce our future growth pipeline. We have the appropriate infrastructure and organisational management structure to support our current operations as well as the significant increase we expect in production over the coming years. Whitehaven is planning to produce approximately 9 to 10 Mtpa of thermal and metallurgical coal in the 2013 financial year with approximately 4.0 Mtpa expected from the ramp-up of longwall coal production and development coal at the Narrabri mine. tony Haggarty Managing Director 22 2 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 23 health anD saFetY WHitEHavEn SaFEty DayS 2012 Whitehaven has recently held its inaugural series of Safety Days with more than 1000 employees and contractors participating. While the events occurred subsequent to balance date, the extensive planning process began in the first half of FY2012 and accelerated during the year. Each of Whitehaven’s sites ceased production for a day as the workforce took part in the event, which included safety presentations, opportunities for employees to share their ideas for safety improvement, and general discussions of what is expected by both the company, and its employees in terms of safety. Feedback from the event was extremely positive and a number of worthwhile safety initiatives have been implemented after being raised by employees or management on the day. In order to ensure the day was a success, in terms of both practical outcomes and safety culture improvement, a perceptions survey of our employees and management was carried out before the event. The survey found that there is an active interest in safety improvement within Whitehaven and that there are significant opportunities for improvement in the key areas of leadership, structure and processes. 24 SaFEty HigHligHtS Improvement in group-wide safety statistics with lost time injury frequency rate (LTIFR) – falling to 4.1 per million manhours from 6.4 per million manhours in FY2011 - well below the NSW Coal Mining industry average of 5.8 per million manhours. Safety values have been redefined and communicated following extensive consultation with the workforce: • We believe that safe production is the only way. • We believe that all incidents can be prevented and working safely is a condition of employment. • We want and need everyone’s input to do business safely. Planned Task Observations have been introduced to our safety platform. All sites have now received training in how to conduct planned task observations. It is anticipated that the number of Planned Task Observations will continue to increase throughout FY2013 and beyond. Whitehaven’s Group Safety Standards have been reviewed to align them with the Work Health and Safety legislation which came into force in 2011. In addition, information sessions were provided for our open cut and underground management teams and broader workforce to ensure the implications of changes to the legislation were well understood. Additional training has been provided for both supervisors and Health and Safety representatives, with more than 50 supervisors completing an advanced course during the year and 30 safety representatives undertaking either a full five-day training course or a one-day update training session. The Whitehaven Coal Fatigue Management Standard and the hours of work at our Werris Creek mine were reviewed by a specialist consultant during the year. The results of this review were presented to the Trade & Investment Resources and Energy Advisory Body and the Government Inspector, with positive feedback received. The findings of the review are also being implemented across the wider Whitehaven group. In addition to our existing Employee Assistance Provider (EAP), we are trialling an onsite EAP at both our Werris Creek and Tarrawonga mines. The trial is of an interventional care model that is designed to increase the visibility and accessibility of the counselling service. A counsellor is onsite one day per week at crib break and/or shift change over. Hazard awareness training was conducted at Rocglen, Tarrawonga, Werris Creek and Sunnyside mines. The sessions included information regarding hazard management, Take 5s, job hazard assessment and incident causation. New contractor access systems are progressively being introduced at all of our sites. For access to be permitted a contractor must have, as a minimum, the WHC Generic Induction, Site Induction and Letter of Competency. This system is now in place at all Whitehaven operating sites. The company’s revised Alcohol and Other Drugs Standard has been authorised and communicated. The alcohol limit was reduced to 0.00 grams of alcohol per 100ml of blood, from its previous limit of 0.02 grams of alcohol per 100ml of blood. The disciplinary process was reviewed and is now two strikes, reduced from three strikes. This disciplinary process now also applies to contractors. 25 2 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 anD cOmmUnitY HigHligHtS biobanking agreement During the year Whitehaven received approval from the New South Wales Office of Environment and Heritage (OEH) to proceed with a regional Biobanking Project covering more than 1400 hectares of land near Gunnedah. The project has been developed under the OEH’s Biodiversity Banking and Offsets Scheme, and is the largest biobank established under the scheme to date. It will cater for the offset requirements of Whitehaven’s Canyon, Tarrawonga and Rocglen mines – all in the Gunnedah Basin. The agreement was welcomed by the Member for Tamworth, Kevin Anderson, and NSW Minister for the Environment, the Hon Robyn Parker. Under the agreement more than $1.8 million will be set aside by Whitehaven to improve and conserve the habitat value of the sites in the future. cumulative impacts and monitoring As mining activity increases in the Gunnedah Basin, the need for monitoring of the cumulative impacts of mining in the region is becoming more important. Whitehaven’s environmental team and other representatives from its Tarrawonga mine and Maules Creek Project are working with neighbouring Boggabri Coal. The ongoing program will be finalised following consultation with the Environmental Protection Authority (EPA) and the Department of Planning and Infrastructure to ensure adequate and effective monitoring systems are in place. This work is continuing in the current year, with a focus on collection and sharing of the data and timely responses to any issues that may arise. 26 live 24-hour camera monitoring trial with Epa Whitehaven and the Environment Protection Authority have been trialling the use of a 24-hour real time monitoring camera at the company’s Tarrawonga operation. The camera allows both the EPA and Whitehaven representative to remotely view operations at the mine. The trial has been extremely successful with both parties regularly accessing the data and using it to ensure activity at the mine is optimised to ensure the best environmental outcomes possible. While the trial has ended, Whitehaven is investigating the funding of the camera on a long-term basis. Rehabilitation monitoring Whitehaven has introduced the use of highly-innovative techniques to monitor and manage its rehabilitation efforts, particularly at the Canyon mine site that was closed in 2010. Remotely sensed data from satellite imagery, LiDAR and EM38 (electro-magnetic survey) have been combined with targeted field survey to provide a thorough picture of performance of all levels of the rehabilitation. The monitoring has found good regeneration of the former mine site, particularly native perennial grass and herb cover. Tree and shrub plantings are also developing well and monitoring of the agricultural lands show performance is consistent with the agricultural control areas. 27 2 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 anD cOmmUnitY Whitehaven remains committed to a locally-based work force Whitehaven continues to be committed to developing and maintaining a locally-based workforce. At the end of February 2012 (before the merger with Aston resources and acquisition of Boardwalk and Coalworks) more than 75% of Whitehaven’s workforce resided in north west NSW. The decision to build a local workforce has placed pressure on housing supply in local areas and Whitehaven announced in 2011 it was working with local councils to develop a plan for easing this pressure. Subsequent to these discussions Whitehaven has formalised agreements with a small number of developers and is continuing discussions with additional developers. These agreements will involve the development of a range of accommodation options, from family homes to home units, in a range of locations. Whitehaven continues to support the MAC development at Narrabri and believes it has provided a real short- term solution for the demand on housing. In particular, Whitehaven expects to rely on the MAC village during the construction phase of its Maules Creek and Vickery projects. Open days and information days Several open days, mine tours and information sessions were held during the year across most of our sites. The Narrabri Mine hosted a Mine Tour Day for more than 250 local community members in December 2011, to coincide with completion of construction of the mine and its $150 million longwall mining unit. In addition, the Maules Creek Project held an open day in September 2011 attracting approximately 100 local residents. Our Tarrawonga mine held two community information sessions, and our Werris Creek mine held visits for local residents and school groups. In addition to our regular Community Consultative Committee meetings, which are held for all of our operating mines, group meetings were held with local residents to discuss specific issues including surface water at in the vicinity of the Tarrawonga mine and the breach of one of our dams at the Werris Creek mine. Engagement in long-term planning initiatives Whitehaven representatives from a number of areas and levels of our organisation are in regular contact with both state and local government representatives. We are a willing participant in the debate surrounding growth and development in north west NSW. In a more formal sense Whitehaven is a member of the Gunnedah Basin Coal Producers Group and the Minerals and Energy Working group which comprises representatives from all levels of government and government agencies. 28 By protecting and enhancing the standard of living for our existing communities we are able to attract highly-skilled workers and their families to this region – a benefit to both communities and the mining companies. Donations and community financial support We continue to support a wide range of community organisations with more than $115,000 donated during the year. In addition, more than $26 million has been committed to local infrastructure and community initiatives as part of our Voluntary Planning Agreements (VPA) with local councils. Part of the money committed under these VPAs is subject to relevant approvals being received. A significant portion of the $26 million is dedicated to roads and infrastructure maintenance and development, with the remainder going to community projects including the Narrabri Pool development and airport upgrade, and community enhancement projects in Gunnedah, Boggabri, Narrabri and Werris Creek. Whitehaven’s workforce made a combined donation of $42,000 to the Westpac Rescue Helicopter Service in FY2012 and the company matched this donation, taking the total donation from the company and its employees to $84,000. Whitehaven and its employees donated approximately $70,000 to the service in 2010 and $74,000 in 2011, taking the total donation for the past three years to approximately $230,000. cadetships and apprenticeships A number of programs are in place across the Whitehaven Group. At our Maules Creek Project we have a strong apprenticeship program in place with eight young people enrolled. Five are full-time apprentices and three are school-based. Elsewhere in the group we have approximately 88 cadets and apprentices. Our cadetship program supports individuals with their university studies and provides them with work experience and future roles at the mines. Most of our cadets and apprentices are young local people who have chosen to stay close to home and develop a career in the mining sector. 29 2 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 above: Mark Vaile, John Conde, Tony Haggarty and Philip Christensen 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 2012 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: the hon. Mark Vaile Chairman Independent Non-Executive Director Appointed: 3 May 2012 As leader of the National Party from 2005 to 2007, Mark established an extensive network of contacts throughout regional Australia, particularly in Northern New South Wales. Mark led negotiations for Australia’s Free Trade Agreements with the United States, Singapore and Thailand and helped to launch negotiations with China, Japan and ASEAN. Importantly, Mark also acted as Minister for Transport and Regional Services and was instrumental in the establishment of the ARTC as operator of the Hunter Valley Rail Network. Mark was formerly the chairman of Aston Resources Limited. Mark brings significant experience as a company director and as a former senior government leader, including as Deputy Prime Minister and Minister for Trade in the Federal Government. Mark is the Chairman of CBD Energy and an independent director of Servcorp Limited and Virgin Australia Holdings Limited, all of which are listed on the ASX. Mark is also a director of Stamford Land Corporation, which is listed on the Singapore Stock Exchange, and a non-executive director of HOST-PLUS Pty Ltd. John conDe Bsc, Be (electrical) (hons), MBa (Dist) Deputy 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 and was chairman of the company prior to the merger with Aston Resources. John is chairman of Bupa Australia, Destination NSW and the Sydney Symphony. He is also president of the Commonwealth Remuneration Tribunal and a non-executive director of the Dexus Property Group and The McGrath Foundation. He retired as chairman of Ausgrid (formerly Energy Australia) in June 2012. 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. 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. PhiliP christensen Bcomm, llB Non-Executive Director Appointed: 3 May 2012 Philip has extensive experience in the mining and energy sector. Philip has 30 years’ experience with leading law firm Freehills, where his clients included Australian and international coal mining companies. Philip was formerly a director of Aston Resources Limited and Boardwalk Resources Limited. Philip was not considered independent because during the financial year he was employed by companies associated with a major shareholder Nathan Tinkler. Those employment arrangements come to an end on 29 September 2012. 30 christine Mcloughlin Ba, llB (honours), FaicD Independent Non-Executive Director Appointed: 3 May 2012 Christine is an experienced business executive with more than 25 years’ experience working in diverse and highly regulated sectors in Australia, UK and South East Asian markets. Christine has expertise in strategy, risk and governance, stakeholder engagement and human resources across a range of industries including financial services, telecommunications, health and nuclear science. Christine is currently a non-executive Director of nib Holdings Ltd, Australian Nuclear Science & Technology Organisation (ANSTO) and Westpac’s insurance companies in Australia and New Zealand. Left to right above: Allan Davies, Paul Flynn, Rick Gazzard, and Christine McLoughlin allan DaVies Be (Mining) honours Executive Director Appointed: 25 February 2009 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 also worked for Patrick Corporation as Director - Operations. Currently, Allan is also a non-executive Director of Qube Logistics Holdings. Paul Flynn Non-Executive Director Appointed: 3 May 2012 Paul has extensive experience in the mining, infrastructure, construction and energy sectors gained through 20 years as a professional advisor at Ernst & Young. Paul was formerly Chief Executive Officer and Managing Director of the Tinkler Group. Prior to joining the Tinkler Group Paul was the managing partner of Ernst & Young’s Sydney office and a member of its Oceania executive team. As a partner for over eight years, Paul managed many of the firm’s largest mining and energy clients across Australia, Asia, South and North America. Paul was not considered independent because during the financial year he was employed by companies associated with a major shareholder Nathan Tinkler. Those employment arrangements come to an end on 29 September 2012. rick gazzarD Be (Mining) honours Independent Non-Executive Director Appointed: 3 May 2012 Rick is a mining engineer with more than 30 years’ experience in the coal mining industry and a further 10 years’ experience in the iron ore, base metals and gold mining industries. He holds certificates of competency as a mine manager for both the coal and metalliferous mining industries. Rick has previously held senior management positions as President of BHP Qld Coal and as General Manager of Camberwell Coal Pty Ltd and prior to those appointments had more than 10 years’ experience as a mine manager/operations manager/chief mining engineer with CSR Limited and BHP. He is a former non-executive director of ASX Listed Carabella Resources, Eastern Corporation and Aston Resources Limited. Since January 2007, Rick has been an independent director of Stracon Holdings Ltd, a privately owned company with contract mining and civil construction operations in Peru and New Zealand. 31 2 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 PreVious Directors neil chatFielD FcPa, FaicD Independent Non-Executive Director Appointed: 3 May 2007 Resigned: 3 May 2012 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. alex krueger Bs (Finance) Bs (chemical engineering) Non-Executive Director Appointed: 3 May 2007 Resigned: 3 May 2012 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 Resigned: 2 July 2012 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 Resigned: 3 May 2012 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. 32 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, llB (hons) llM 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 section 205G(1) of the Corporations Act 2001, at the date of this report is as follows: Mark Vaile 2,779,867 189,000 Granted on 1 May 2012 (refer to details in note 33 of the financial statements) Ordinary shares Options over ordinary shares John Conde Tony Haggarty Philip Christensen Allan Davies Paul Flynn Rick Gazzard Christine McLoughlin 378,605 33,479,897 – – 2,901,575* 189,000 7,000,000 18,382 50,000 21,000 – – – – Granted on 1 May 2012 (refer to details in note 33 of the financial statements) * Includes 762,902 shares subject to restrictions. Refer to details in note 26 of the financial statements for details. 2 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 33 DIRECTORS’ REPORT 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 are: Director Mark Vaile John Conde Tony Haggarty Philip Christensen Allan Davies Paul Flynn Rick Gazzard Christine McLoughlin Neil Chatfield Alex Krueger Hans Mende Andy Plummer Directors’ Meetings Audit and Risk Management Committee Meetings Remuneration Committee Meetings Healthy, Safety, Environment and Community Committee Meetings A 6 16 15 5 16 6 6 6 9 7 13 10 B 6 16 16 6 16 6 6 6 10 10 16 10 A – 5 – – – 1 1 – 4 4 – – B – 5 – – – 1 1 – 4 4 – – A 2 3 – – – – – 2 1 – 1 – B 2 3 – – – – – 2 1 – 1 – A – – – 1 1 – 1 1 – – – – B – – – 1 1 – 1 1 – – – – 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 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 The Company’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; and • appoint and oversee the performance of executive management and to take and fulfil an effective leadership role in relation to the Whitehaven Group. 34 The Board Charter sets out the responsibilities which are specifically reserved for the Board. These include the following: • determining the composition of the Board, including the appointment and removal of Directors; • oversight of the Whitehaven Group, 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; and • approving and monitoring financial and other reporting and the operation of Board committees (‘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. Under the terms of the Board Charter, an independent Director is a non-executive director who is not a member of management and who is free of any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with – the independent exercise of their judgment. The Board reviews and makes a determination regarding each Director’s independence on a regular basis as required by any change in circumstance that may affect an individual’s independence. In making this determination regarding independence the Board has regard to all relevant facts and circumstances that apply and to the relevant guidelines but ultimately the Governance and Nomination Committee will assess whether the Director is independent of management and any business or other relationship that could materially interfere with the exercise of objective or independent judgment or the Director’s ability to act in the best interests of the Company. Following that process the Governance and Nomination Committee makes recommendations to the Board prior to their final determination of an individual Director’s independence. The Board retains ultimate discretion in its judgment to determine if a Director is independent. Philip Christensen and Paul Flynn were not considered independent because during the financial year they were employed by companies associated with a major shareholder Nathan Tinkler. Those employment arrangements come to an end on 29 September 2012. Tony Haggarty and Allan Davies were not considered independent because during the financial year they were executives of the Company. A copy of the Board Charter can be viewed on Whitehaven’s website. 2 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 35 DIRECTORS’ REPORT committees The Board has established the following standing Committees: Committee Purpose Audit and Risk Management Committee Remuneration Committee Governance and Nomination Committee Health, Safety, Environment and Community Committee Advises on the establishment and maintenance of a framework of internal control and appropriate ethical standards for the management of the Whitehaven Group. It also gives the Board additional assurance regarding the quality and reliability of financial information prepared for use by the Board in determining policies or for inclusion in the financial report. Assists the Board and reports to it on remuneration and issues relevant to remuneration policies and practices including those for key management. The Committee is also responsible for overseeing Whitehaven’s human resources strategy. Assists the Board and reports to it on issues relevant to governance policies and practices including the independence of directors and to make recommendations to the Board in relation to the appointment of new Directors. The Committee also supports and advises the Board on the oversight of succession planning for the chief executive officer and on identifying initiatives required to improve diversity. Assists the Board and reports to it on health, safety, environment and community (‘HSEC’) matters including Whitehaven’s performance on HSEC matters, compliance with relevant HSEC laws and the adequacy and effectiveness of HSEC management systems. Membership John Conde (Chairman) Paul Flynn Rick Gazzard Christine McLoughlin (Chairman) Mark Vaile John Conde Mark Vaile (Chairman) John Conde Philip Christensen Christine McLoughlin Philip Christensen (Chairman) Rick Gazzard Christine McLoughlin In addition to the standing Committees referred to above, the Board also has the ability to establish ad hoc committees formed for a limited period of time to address a specific need. One such circumstance arose during the financial year when the Company received an indicative non binding proposal from Tinkler Group Holdings Pty Limited (an entity controlled by Nathan Tinkler) relating to a possible privatisation of the Company by a Tinkler group consortium. Given the possibility that a formal proposal could ultimately develop from the preliminary approach, the Board took steps to ensure the independence of the Company’s response and established a committee of Directors not associated with the bidder (the ‘Independent Board Committee’) to consider future developments. As a formal proposal was not able to be pursued the Independent Board Committee was disbanded. 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 charters are 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. 36 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 2012 financial year. Where the Company has an alternative approach, this has been disclosed and explained. 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; and • 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 2012 financial year has been assessed in accordance with the above processes. Principle 2 – structure the Board to add value Following the merger of Aston Resources Limited (‘Aston’) and the Company by way of scheme of arrangement in 2012, the Board was reconstituted to comprise nine directors including four independent directors. The initial Directors were Mark Vaile, John Conde, Tony Haggarty, Rick Gazzard, Philip Christensen, Hans Mende, Paul Flynn and Allan Davies. During the course of the implementation of the scheme of arrangement, the Board was supplemented by the addition of Christine McLoughlin as an independent non-executive Director. Allan Davies has decided to not stand for re-election as a director of the Company, consistent with the ongoing review of the composition of the Board, particularly the objective of achieving an increased proportion of independent non-executive Directors. Allan will continue to serve as the Company’s Executive General Manager Operations. The Board is currently comprised as follows: Director Independent Non-executive Term in Office Mark Vaile (Chairman) John Conde (Deputy Chairman) Tony Haggarty Philip Christensen Allan Davies Paul Flynn Rick Gazzard Christine McLoughlin Yes Yes No No No No Yes Yes Yes Yes No Yes No Yes Yes Yes 4 months 5 years 5 years 4 months 3 years 4 months 4 months 4 months 37 2 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 The Board reviews its composition from time to time to ensure the Board benefits from an appropriate balance of skills and experience, details of the experience and skills are set on pages 30 to 31 of the Directors’ report. Whitehaven did not comply with recommendation 2.1 of the ASX Guidelines during the 2012 financial year as a majority of the Board are not considered to be independent. However, following the merger a majority of non-executive directors were considered independent. The Board believes that the Directors on the Board can and do make quality and independent judgements in the best interests of the Company. The Board has appointed three additional independent non-executive Directors during the financial year. 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 was conducted at the time of the merger which resulted in the Board being reconstituted to comprise nine directors including four independent directors. 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 ASX Listing Rules. The Securities Trading Policy sets out the windows in which key management personnel (including Directors) and certain other employees as nominated by the Board can trade in Whitehaven’s securities and provides that all key management personnel and certain other employees of Whitehaven and their families and/or trusts should not trade: • if they have inside information (that is, information that is not generally available, or if it were generally available, a reasonable person would expect it would have a material effect on the price or value of the securities; or would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of securities); • during certain periods pending announcements of Whitehaven’s results (unless approval is obtained); or • for more than $50,000 worth of securities without written approval from the Chairman. In addition, key management personnel and certain other employees are required to not trade for short term or speculative gain. The Securities Trading Policy applies to all securities issued by Whitehaven and also to: • the securities of companies which are either a joint venture partner of Whitehaven or for which Whitehaven has made (or is planning to make) a takeover offer; and • trading by key management personnel and certain other employees in the securities of other companies in which Whitehaven has a substantial interest (10% or more). 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. Amendments to the ASX Guidelines which seek to increase awareness regarding the benefits of workplace diversity and to promote greater transparency and actions aimed at addressing barriers to diversity applied to the Company for the first time in the 2012 financial year. The Company recognises that people are its most important asset and is committed to maintaining and promoting workplace diversity. Diversity drives the Company’s ability to attract, retain and develop the best talent, create an engaged workforce, deliver the highest quality services to its customers and continue to grow the business. 38 While the Board considered and discussed diversity issues throughout the year, it did not have in place a formal diversity policy or measurable objectives for achieving gender diversity in accordance with ASX Recommendations 3.2 and 3.3. In light of the ongoing merger discussions and the associated uncertainty regarding the future size, scope and profile of the Whitehaven Group, the Board formed the view that it was appropriate to wait until it had greater clarity around these key matters before adopting a formal diversity policy and setting its diversity priorities going forward. However, the Company has existing arrangements in place to promote diversity, including opportunities to work flexibly and parental leave entitlements. In addition, the Company undertook a review of pay equity at one of its major operations during the 2012 financial year, which resulted in some adjustments being made to salaries to address potential inequality between male and female pay levels. Now that the merger has taken effect and integration of the Whitehaven, Aston and Boardwalk Resources Limited businesses is underway, the Board has taken the opportunity to set its diversity vision and priorities for the Whitehaven Group, having regard to the current size, scale and workforce profile of the merged entity. Since the end of the 2012 financial year, the Board has adopted a formal Diversity Policy which describes the Company’s diversity aspirations and sets minimum expectations to be met by the Company on workforce diversity. A copy of the Diversity Policy is available on the Company’s website at http://www.whitehavencoal.com.au. Under the Diversity Policy, the Board is required to establish measurable objectives in relation to gender diversity. For the 2013 financial year, the Company’s objectives are to: • conduct training to build employee awareness and understanding of the Company’s Diversity Policy and the importance of diversity in building a sustainable business; • review the Company’s employment arrangements to identify opportunities to promote and enhance diversity, and develop strategies to take advantage of these opportunities; and • complete a review of pay equity across the business covering key diversity parameters, including gender. The Company will assess and report on its progress against these objectives in the 2013 financial year Annual Report. As at 30 June 2012, women comprised: • 12.5% of directors on the Board; • 4.3% of senior executives* across the Group; and • 10.2% of employees across the Group. * Senior executives comprise the CEO, his direct reports and all participants in the Company’s Long Term Incentive Plan. 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. A majority of the members of the Audit and Risk Management Committee (including the chairman of the Committee) are independent Directors, and all the members are financially literate. The Audit and Risk Management 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 (under its Continuous Disclosure Policy) 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. The Continuous Disclosure Policy sets out Whitehaven’s disclosure obligations, explains what type of information needs to be disclosed and identifies who is responsible for disclosure. The Continuous Disclosure Policy requires executive employees of Whitehaven to immediately report to the chief executive officer or if the chief executive officer is not contactable, one of his delegates (the chief financial officer or the general counsel and company secretary) once they become aware of information that is, or may be, price sensitive. 39 2 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 Under the Continuous Disclosure Policy, Whitehaven must not publicly disclose price-sensitive information until it has given that information to the ASX and has received an acknowledgment from the ASX that the information has been released to the market. After an acknowledgment has been received from the ASX, information disclosed to the ASX should be promptly placed on Whitehaven’s website. This policy 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 ASX 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. A key risk related initiative introduced by the Board in FY2012 was the formation of the Health, Safety, Environment and Community Committee. The Board has 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. 40 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. Whitehaven has a Remuneration Committee whose responsibilities include considering the Company’s remuneration strategy and policy, overseeing the Company’s human resources strategy 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 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 42 to 62. 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. 6. DiViDenDs During the year the Company paid fully franked dividends of $272,265,000, representing a final 2011 dividend of 4.1 cents per ordinary share and a special dividend for 2012 of 50.0 cents per ordinary share. Declared after end of year After the balance date the following dividend was proposed by the Directors. Cents per share Total amount $’000 Franked amount per security Date of payment Final ordinary (Fully franked) 3.0 29,375 100% 28 September 2012 The record date for determining entitlement to the dividend will be 17 September 2012. The financial effect of these dividends has not been brought to account in the financial statements for the year ended 30 June 2012 and will be recognised in subsequent financial reports. 2 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 reMuneration rePort 7. 7.1 Message from the Board Dear Shareholder As you are aware, on 2 May 2012 the merger between the Company and Aston Resources Limited came into effect (Merger), bringing together the assets and resources of Whitehaven Coal, Aston Resources and Boardwalk Resources. As a result of the Merger, the Company became an ASX 50 company, and one of the largest listed coal companies on the Australian Securities Exchange. The Merger also resulted in the establishment of a new Board and committee structure with an increased focus on appropriate levels of independence and expertise. The Remuneration Committee is now a standalone committee comprised entirely of independent non-executive directors, being Christine McLoughlin (Chairman), Mark Vaile and John Conde. There was a fundamental need, upon the completion of the Merger, for the Company to comprehensively review and reassess its remuneration framework and arrangements to ensure that remuneration aligns with the Company’s strategy and reflects its increased size and scale. The Company, with the assistance of an independent external advisor, has developed a new remuneration structure that is consistent with market practice and also appropriate for the Company’s particular circumstances. The revisions to our approach (described in section 7.3 of this report) are intended to support our strategy, enable us to hire, retain and motivate the high calibre of executives our business requires, and to better align the remuneration that executives receive with the interests of our shareholders. The changes to the Company’s remuneration structure have been approved by the Board. The key changes to the remuneration framework include: • fixed remuneration and incentive opportunities commensurate with the Company’s new market position; • a revised short-term incentive plan with more clearly defined key performance indicators (kPis) and a balanced scorecard approach, with deferral of 30% of any award made to KMP into shares in the Company for a further 12 and 24 month period (subject to clawback and forfeiture in certain circumstances); and • a new long-term incentive plan for FY2013 will operate as a grant of performance rights (i.e. a right to receive a share if applicable vesting conditions are met) tested against a relative total shareholder return (tsr) performance hurdle that will be measured over a two to four year period. The comparator group comprises those entities within the ASX 100 Resources Index as at 24 September 2012. 42 The Board sought independent advice from Egan Associates to assist in benchmarking remuneration reflective of the merged entity’s enhanced scale and challenges. Fixed remuneration was benchmarked at the market median with the ‘at risk’ performance components of remuneration more closely reflecting current market practice (including deferral of a portion of the short term incentives). The Merger has resulted in the size of the key management personnel (KMP) team being substantially reduced from that which previously existed across the various merged entities. While there have been adjustments to reflect the new reward levels of the KMP in line with the Company’s market position, the total KMP remuneration expenditure is lower as a merged group than it was as standalone entities. As you will see in reviewing this report, some of the Directors and senior executives received payments on completion of the Merger. This was largely due to the acceleration of payments under the Company’s previous short and long term incentive plans, which was considered appropriate in light of the Company’s performance up to the date of the Merger. Key highlights of the Company’s performance during FY2012 include: • Underlying net profit after tax (NPAT), before significant items, of $57.8 million; • NPAT after significant items of $62.5 million; • Saleable coal production up 3% (equity basis) to 4.28 Mtpa, and up 4% to 4.90 Mtpa (100% basis); • Equity ROM coal production increased slightly to 4.66 Mtpa for the year. This was lower than anticipated due largely to significant impacts of exceptional wet weather in the December and March quarters and consequential mine scheduling issues; • The Narrabri longwall was installed in the June quarter and is currently being commissioned. First longwall coal was cut on 12 June 2012, with over 300 Kt of longwall coal produced to the end of August 2012. Acceleration of entitlements under the Company’s incentive plans was also considered desirable in order to place employees of Whitehaven Coal, Aston Resources and Boardwalk on a level playing field and to pave the way for the new remuneration arrangements to be put in place for all employees of the merged entity (with effect from 1 May 2012). The remuneration outcomes disclosed in this report for FY2012 are therefore distorted by the one-off impact of the Merger. Going forward, the new remuneration arrangements will better reinforce alignment between the Company’s performance and remuneration to executives. The following Remuneration Report provides a summary of KMP entitlements to 30 April 2012 (the date immediately prior to the Merger), remuneration which crystallised at the time of the Merger, and the remuneration levels and new remuneration framework which has been progressively implemented since 1 May 2012. 2 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 reMuneration rePort (continueD) 7. 7.2 key management personnel for Fy2012 – audited This Report details the remuneration of the key management personnel (KMP) of the Company during FY2012, who are listed in the table below. For the remainder of this Remuneration Report, the KMP are referred to as either senior executives or Non- executive Directors. Name Title (at year end) Changes during FY2012 non-executive Directors The Hon. Mark Vaile Chairman and independent Non-executive Director Appointed 3 May 2012 John Conde Independent Non-executive Director Paul Flynn Non-executive Director Philip Christensen Non-executive Director Ceased to be Chairman on 3 May 2012 Appointed 3 May 2012 Appointed 3 May 2012 Rick Gazzard Independent Non-executive Director Appointed 3 May 2012 Christine McLoughlin Independent Non-executive Director Appointed 3 May 2012 Hans Mende* Non-executive Director senior executives Tony Haggarty Allan Davies Austen Perrin Peter Kane Managing Director Executive Director Chief Financial Officer and Joint Company Secretary Chief Operating Officer (Aston Resources and Boardwalk Operations) Appointed 3 May 2012 Timothy Burt General Counsel and Joint Company Secretary * Since the end of FY2012, Mr Mende has resigned as a Non-executive Director, effective 2 July 2012. The following table sets out KMP departures during FY2012: Name Neil Chatfield Alex Krueger Andy Plummer Tony Galligan Title Independent Non-executive Director Non-executive Director Executive Director General Manager Infrastructure Changes during FY2012 Resigned 3 May 2012 Resigned 3 May 2012 Resigned 3 May 2012 Ceased to be a KMP 1 June 2012 (and moved into a consultant role) 44 introducing the new executive remuneration framework – audited 7.3 7.3.1 Overview This section discusses the outcomes of the comprehensive remuneration review and the new remuneration framework which apply and will be in place for FY2013. The new fixed remuneration and STI arrangements were adopted with effect from 1 May 2012, while the first grants under the new LTI arrangements were made in September 2012. Full details of the new remuneration arrangements will be included in next year’s Remuneration Report, however a summary of key terms is set out in this section 7.3. Remuneration principles • to ensure the Company’s remuneration structures are equitable and aligned with the long-term interests of the Company and its shareholders and having regard to relevant Company policies; • to attract and retain skilled executives; • to structure short and long term incentives that are challenging and linked to the creation of sustainable shareholder returns; and • to ensure any termination benefits are justified and appropriate. Remuneration framework Total fixed remuneration (TFR) Short term incentives (STI) Long term incentives (LTI) • reviewed annually • determined based on a mix • made under the new plan, which • benchmarked against peer companies in the materials, industrial and energy sectors • influenced by individual performance of financial and non-financial measures • for KMP, 30% of STI will be deferred into shares for a further 12 – 24 month period • ability of the Remuneration Committee to reduce the number of deferred shares that vest if subsequent events show such a reduction to be appropriate (‘clawback’) • for KMP, the STI opportunity is set at 50% of TFR for target performance and 75% of TFR for stretch performance provides the Remuneration Committee with the flexibility to determine the nature, terms and conditions of the grant each year • the FY2013 grant will operate as an award of performance rights (i.e. a right to receive a share in the Company if the relative TSR performance hurdle is satisfied) • for KMP, the LTI opportunity is set at 80% of TFR 2 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 DIRECTORS’ REPORT reMuneration rePort (continueD) introducing the new executive remuneration framework – audited (continued) 7. 7.3 7.3.2 Transitional arrangements In order to facilitate a smooth transition to the new remuneration framework, the following transitional arrangements have been implemented for FY2013: • the STI for FY2013 will operate over a 14 month performance period from 1 May 2012 to 30 June 2013, in recognition of the fact that the senior executives’ previous STI crystallised on the date of the Merger. This will be reflected in a slightly higher target STI opportunity for FY2013 (58% of TFR instead of the standard 50%). From FY2014 the STI performance period will be 12 months, aligned with the 1 July – 30 June financial year; and • the LTI granted in FY2013 will be divided into three equal tranches that will vest following a 2, 3 and 4 year period (respectively), subject to performance conditions. Going forward, it is likely the LTI will be divided into two equal tranches capable of vesting following a 3 and 4 year performance period. Further details of the new STI and LTI arrangements are set out below. 7.3.3 Mix and timing for delivery of remuneration Executive remuneration for FY2013 will be a mix of fixed remuneration and variable remuneration. Variable remuneration can be earned through STI and LTI. The different elements of remuneration reflect a focus on both short-term and longer- term performance, and delivery of rewards is staggered over a multiyear timeframe to encourage sustained performance and retention. The diagrams below illustrate the remuneration mix for senior executives for FY2013. Remuneration mix for Executive Directors FY2013 (assuming target performance for STI component) Remuneration mix for other senior executives FY2013 (assuming target performance for at risk components) Total fixed remuneration = 63% STI (at risk) = 37% The Executive Directors have elected not to participate in the LTI for FY2013 given they already hold a significant shareholding in the Company. Their TFR and STI components will not be increased to compensate for their decision to forgo any LTI entitlement. Total fixed remuneration = 42% LTI (at risk) = 34% STI (at risk) = 24%* *As a one-off for FY2013, the target STI opportunity will be 58% of TFR, consistent with the 14 month performance period. 46 The diagram below shows timing for determining and delivering executive remuneration for FY2013 and FY2014, including the transitional arrangements described above: 1/5/12 FY2013 FY2014 FY2015 FY2016 FY2017 Total Fixed remuneration Determined based on: • market benchmarking • 2012 performance FY2013 Senior Executive Remuneration Short term incentive At risk based on financial and non-financial KPIs Restriction period for Tranche 1 of STI Deferred Shares Restriction period for Tranche 2 of STI Deferred Shares Long term incentive At risk based on performance against a relative TSR measure Vesting period for Tranche 1 Vesting period for Tranche 2 Vesting period for Tranche 3 Total Fixed remuneration Determined based on: • market benchmarking • FY2013 performance FY2014 Senior Executive Remuneration Short term incentive At risk based on financial and non-financial KPIs Restriction period for Tranche 1 of STI Deferred Shares Restriction period for Tranche 2 of STI Deferred Shares Long term incentive At risk based on performance against a relative TSR measure Vesting period for Tranche 1 Vesting period for Tranche 2 7.3.4 Components of remuneration from FY2013 Fixed remuneration: Fixed remuneration received by senior executives comprises base salary, superannuation and other benefits and is subject to approval by the Remuneration Committee. Following the review of the executive remuneration framework by Egan Associates, fixed remuneration levels were adjusted for senior executives by reference to comparable roles in similar-sized Australian listed companies in the materials, industrials and energy sectors. The new fixed remuneration levels took effect from 1 May 2012. Fixed remuneration and total target remuneration will typically be positioned at around the median percentile of the relevant market. The objective of this target positioning is to attract and retain the best talent in a sector where demand for skilled labour is high. Actual market positioning for each individual may deviate from (above or below) the positioning policy due to consideration of internal relativities, experience, tenure in role, individual performance and retention considerations. short term incentive: A new STI plan has been approved by the Board. Under the new plan, executives will have a target annual incentive equal to 50% of their TFR. A portion of the STI will be determined by Group financial performance and a portion determined by non-financial measures relevant to the executive’s role. It is proposed that a minimum of 50% of KPIs will be measurable financial objectives and up to 50% will be individual performance objectives. Group financial objectives include production, cost per saleable tonne and NPAT. Individual performance objectives include safety, project management and leadership measures. 30% of any award paid will be deferred in the form of fully paid Whitehaven Coal shares (Deferred shares). The Deferred Shares will vest in two equal tranches 12 months and 24 months following allocation. Participants will be required to comply with the Company’s securities trading policy in respect of their Deferred Shares which includes a prohibition on hedging or otherwise protecting the value of their unvested securities. Dividends will accrue on the Deferred Shares but will only be paid to the executive at the end of the deferral period in relation to those Deferred Shares that vest. 47 2 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 (continueD) introducing the new executive remuneration framework – audited (continued) 7. 7.3 7.3.4 Components of remuneration from FY2013 (continued) long term incentive: Participation in the Company’s LTI plan will be through the issue of performance rights, to a value of 80% of the executive’s TFR. The allocation will be based on the volume weighted average share price of Whitehaven Coal shares over the 20 trading day period commencing 10 trading days prior to 30 June 2012. To facilitate transition to the new LTI scheme, initial grants of performance rights will be divided into three equal tranches capable of vesting after a 2, 3 and 4 year performance period. From 2014, it is likely the award will be divisible into two equal tranches capable of vesting after a 3 and 4 year performance period. Vesting will be subject to a performance measure linked to relative TSR, which compares the TSR performance of the Company with the TSR performance of each of the entities in a comparator group. The comparator group for the FY2013 grant comprises those entities within the ASX 100 Resources Index as at 24 September 2012. A TSR hurdle was considered an appropriate benchmark in light of the Company’s focus on long-term developments and capital expenditure, which is intended to generate real long-term shareholder value. There is no re-testing of awards that do not vest. Participants will be required to comply with the Company’s securities trading policy in respect of their performance rights and any shares they receive upon vesting. They will be prohibited from hedging or otherwise protecting the value of their performance rights. In September 2012, the Company made offers to grant performance rights over 364,963 ordinary shares to senior executives named in this Remuneration Report (excluding the Executive Directors) under the new LTI plan. 7.3.5 Remuneration governance Role of the Board and Remuneration Committee The Board is responsible for ensuring that the Company’s remuneration structures are equitable and aligned with the long-term interests of the Company and its shareholders. Consistent with this responsibility, the Board has established a Remuneration Committee (previously the Remuneration and Nominations Committee), which is currently comprised entirely of independent directors. The role of the Remuneration Committee is to: • review and approve the remuneration of the senior executives; • review and approve the remuneration policies and practices for the Group generally, including incentive plans and other benefits; and • review and make recommendations to the Board regarding the remuneration of Non-executive Directors. Further information regarding the Remuneration Committee’s role, responsibilities and membership is set out in the Corporate Governance Statement on pages 34 to 41 of this Annual Report. Use of external advisors The Remuneration Committee seeks and considers advice from external advisers when required. External advisors are engaged by and report directly to the Remuneration Committee. Such advice will typically cover Non-executive Director remuneration, senior executive remuneration and advice in relation to equity plans. With effect from FY2012, the Corporations Act requires companies to disclose specific details regarding the use of remuneration consultants. The mandatory disclosure requirements only apply to those advisers that provide a ‘remuneration recommendation’ as defined in the Corporations Act. The Remuneration Committee appointed Egan Associates to provide remuneration advice in FY2012. During this period, Egan Associates provided remuneration recommendations in connection with the review of the Group’s remuneration framework, in particular regarding the appropriate remuneration structure and comparator group for the merged entity and remuneration quantum for both the Non-executive Directors and senior executives. 48 The Board is satisfied that the recommendations were free from undue influence based on the following reasons: • The remuneration recommendations were provided directly to the members of the Remuneration Committee, none of whom are executive directors; • the engagement of Egan Associates was overseen by the Remuneration Committee and the Committee has no reason to believe that any inappropriate pressure was placed on Egan Associates by members of the management team with a view to influencing the recommendations provided; • Egan Associates have provided a declaration that the recommendations provided during FY2012 were free from undue influence by any members of the KMP to whom the recommendations related; and • aside from the recommendations described above, Egan Associates also provided ad hoc support and advice as requested by the Remuneration Committee, including attendance at Committee meetings and the provision of benchmarking data and technical advice on KMP remuneration.. This additional advice did not constitute remuneration recommendations. As required to be disclosed by the Corporations Act, within the context of the work described above, the fees paid to Egan Associates for the recommendations were $55,825 (excluding GST) and the fees for other services were $65,555 (excluding GST). 7.3.6 Employment contracts – audited The Company entered into new employment contracts with some senior executives in FY2012 in order to align the contract terms with market practice and to ensure consistency across the executive group. A summary of the notice periods under senior executives’ contracts (all of which are of ongoing duration) are set out in the table below. Name Tony Haggarty Allan Davies Peter Kane Austen Perrin Timothy Burt Position (at year-end) Managing Director Executive Director (who contracts his services to the Company through Dalara Management Services Pty Ltd) Chief Operating Officer (Aston & Boardwalk Operations) Appointed 1 May 2012 Chief Financial Officer and Joint Company Secretary Appointed 27 October 2008 Notice 1 month by either party 1 month by either party 3 months by employee 12 months by the Company 3 months by employee 12 months by the Company General Counsel and Joint Company Secretary Appointed 29 July 2009 3 months by employee 12 months by the Company The executive contracts do not provide for any termination benefits aside from payment in lieu of notice (where applicable). Treatment of unvested incentives is dealt with in accordance with the terms of grant. In general, under the new STI and LTI arrangements, ‘bad leavers’ (i.e. executives who resign or are terminated for cause) will forfeit their unvested entitlements while ‘good leavers’ will retain their entitlements (subject to any applicable performance conditions in the case of LTI arrangements). Tony Galligan ceased his role as General Manager Infrastructure on 31 May 2012 and commenced a new role as a consultant to the Company on 1 June 2012. Mr Galligan did not receive any termination benefits on ceasing his previous role as General Manager Infrastructure. 49 2 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 (continueD) 7. 7.4 remuneration during Fy2012 – audited 7.4.1 Remuneration principles in FY2012 (Pre-merger – 1 July 2011 to 30 April 2012) As outlined in section 7.3, a new executive remuneration framework was developed during FY2012 and is being progressively rolled out (with the fixed remuneration and STI components taking effect from 1 May 2012). For the period between 1 July 2011 and 30 April 2012, the Company’s previous remuneration arrangements applied. This section describes the remuneration approach that applied during this period for the Company’s senior executives. For convenience, this period will be referred to as FY2012 even though it does not align with the full financial year. As described in the FY2011 Remuneration Report, the Remuneration Committee’s overall objective for FY2012 was to ensure that remuneration provided to the senior executives was set competitively to attract and retain appropriately qualified and experienced directors and executives. The key remuneration principles in place during FY2012 took into account: • the appropriateness of remuneration 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 remuneration strategy; • the achievement of strategic objectives and the broader outcome of creation of value for shareholders; • the capability and experience of the executives; • the executive’s ability to control performance; and • the consolidated entity’s performance including: – the consolidated entity’s earnings; – the growth in share price and delivering constant returns on shareholder wealth; and – the amount of incentives within each executive’s remuneration. Remuneration included a mix of fixed compensation and short and long-term incentives, as described below. The remuneration for certain key employees also included retention grants that were made in August 2010 and which vested in February 2012 (for those participants who remained in employment). As noted above, the remuneration outcomes for FY2012 were significantly impacted by the Merger in May 2012, which resulted in unvested incentive entitlements crystallising for the senior executives. 50 7.4.2 Components of remuneration for FY2012 Fixed remuneration Fixed remuneration comprised base salary (calculated on a total cost basis and inclusive of any fringe benefits taxes charges related to employee benefits including motor vehicles), as well as employer contributions to superannuation funds, and was subject to approval by the Remuneration Committee. Short term incentives The table below summarises the previous approach to STI for senior executives that applied during FY2012. As explained earlier, the Company has now implemented new STI arrangements, which took effect from 1 May 2012. Who participated? All salaried employees, including the Executive Directors and other senior executives What was the sti award? What was the performance period? Senior executives’ target STI was 25% of fixed remuneration. For FY2012, the STI award was assessed at 80% of the target award, and was then prorated based on the shortened performance period (see below). This resulted in an actual STI award that was equal to 66.67% of the target STI award (i.e. 16.67% of fixed remuneration for each of the senior executives). The balance of the STI award opportunity lapsed. The performance period was intended to be 1 July 2011 to 30 June 2012. However, in light of the Merger, the actual performance period was 1 July 2011 to 30 April 2012. The shortened performance period was considered appropriate so that all employees of the merged entity could start on the same remuneration arrangements (including a new STI plan) as of 1 May 2012. As noted above, actual STI awards were prorated in recognition of the shortened performance period. What were the performance conditions? Usually, payment of the STI is dependent on the Managing Director assessing the performance of the relevant senior executive and recommending the payment of an STI bonus to the Board for approval. However, for FY2012, the STI amount paid to executives upon the Merger was determined based on Group performance to the date of the merger (with all senior executives receiving the same proportion of their target STI opportunity). There were a number of significant achievements during the period from 1 July to 31 March 2012 which influenced the determination, including the increase in the Company’s sales of produced coal by 7%, the increase in both ROM coal and saleable coal production by 9%, and the implementation of several key projects, in addition to the management time and effort required in connection with the Merger. how was the sti delivered? The STI was paid in cash following the Merger on 15 May 2012, with the exception of Mr Haggarty and Mr Plummer who were paid on 10 September 2012. 2 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 DIRECTORS’ REPORT reMuneration rePort (continueD) 7. 7.4 remuneration during Fy2012 – audited (continued) 7.4.2 Components of remuneration for FY2012 (continued) STI awards for FY2012 Senior executive Tony Haggarty Allan Davies Austen Perrin Timothy Burt Tony Galligan Andy Plummer Long term incentives Who participated? What was granted? how was the grant size determined? What was the performance period? What was the performance condition? STI earned (A$) 125,000 80,342 80,642 57,250 65,842 71,417 Percentage of target STI 66.67% 66.67% 66.67% 66.67% 66.67% 66.67% All senior executives across the Group, including those named in this Remuneration Report (but excluding the Executive Directors). The current Executive Directors do not participate in the Company’s LTI plans, as the volume of shares in the Company that they already hold is sufficient to ensure alignment with the interests of shareholders. Grants were made in the form of share acquisition rights (sars) intended to vest over a three year period subject to performance against a relative TSR performance hurdle. Upon vesting, one ordinary share in the Company is provided to the participant for each SAR that vests (without any further action required by the participant). SARs and shares received upon vesting are subject to the Company’s securities trading policy, which includes a prohibition on hedging or otherwise protecting the value of unvested securities. Senior executives were granted SARs equal to 40% of their TFR. The SARs were valued based on the 20 day VWAP of Whitehaven shares to 1 July 2011. The performance period was intended to run from 1 July 2011 to 30 June 2014. However, in light of the change in control of the Company and the resulting Merger, the vesting date of all outstanding equity incentives (including SARs granted in FY2012) was accelerated. This is explained in further detail below. The SARs were tested against a relative TSR hurdle. The TSR of the Company was measured as a percentile ranking compared to a comparator group of listed entities over the performance period. The comparator group was the entities in the S&P ASX 200 (excluding financial services companies) as at 1 July 2011. The level of vesting was determined based on the ranking against the comparator group companies in accordance with the following schedule: • in the 75th percentile or above – 100% of options vest; • between the 50th and 75th percentile – 50% of the options vest at the 50th percentile, and thereafter the percentage vesting increases by 2% for each percentile above the 50th percentile; and • below the 50th percentile – no options vest 52 What was the treatment on change of control? Under the LTI plan rules, a change of control was triggered when Nathan Tinkler and his associates made an offer to acquire a relevant interest in more than 20% of the issued shares of the Company. As a result, the testing date for the LTI grants for FY2012 and previous financial years was brought forward to 16 January 2012. For the FY2012 LTI grant, 64.5% of participants’ SARs vested based on performance against the relative TSR hurdle up to the testing date. Details on the vesting levels for prior year LTI grants are set out in table 7.4.3 below. Upon final court approval of the Merger, the Board exercised its discretion under the LTI plan rules to waive the performance conditions for the remaining unvested portion of the LTI (both for the FY 2012 grant and prior year grants). The Board considered this appropriate in light of the treatment of Aston Resources and Boardwalk Resources employees’ LTI, which vested in full as a result of the Merger, and in order to allow the Company to implement a new remuneration framework for all employees of the merged entity. Retention bonus In FY2011, the Company implemented a cash-based retention bonus scheme to a group of key senior employees in the Whitehaven Group, including all senior executives other than the Managing Director and Andy Plummer. The Board considered that such bonuses were appropriate given the uncertainty at the time regarding the future of the Company and the need to motivate and retain high-calibre employees in the face of strong competition for talented executives with resource and mining experience. Payment of the bonus was subject to participating executives remaining employed by the Company for a continuous period of 18 months, up until 1 February 2012. Under the scheme, retention amounts of an aggregate total of $6,258,120 were paid to the participating executives and senior employees who remained in the employment of the Company on 1 February 2012. The amounts of the retention bonuses paid to senior executives are included in the statutory remuneration table on page 58. A summary of the payments is also set out below. Senior executive Allan Davies Austen Perrin Timothy Burt Tony Galligan Retention bonus (A$) 450,000 411,322 261,325 368,754 2 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 53 DIRECTORS’ REPORT reMuneration rePort (continueD) 7. 7.4 remuneration during Fy2012 – audited (continued) 7.4.3 Summary of treatment of remuneration on change of control and Merger Component Treatment on change of control/Merger Fixed remuneration short term incentive No impact – fixed remuneration continued on foot until implementation of revised fixed remuneration arrangements from 1 May 2012 80% of target STI (pro-rated for the 10 month performance period) vested on the Merger based on Group performance over the period from 1 July 2011 to 30 April 2012. long term incentive Fy2012 grant 64.5% vested based on performance against the relative TSR hurdle up to 16 January 2012. The Board exercised its discretion under the plan rules to vest the remaining 35.5% upon final court approval of the Merger on 18 April 2012. Prior year grants For the FY2011 LTI grant 93.4% vested based on performance against the relative TSR hurdle up to 16 January 2012. The Board exercised its discretion under the plan rules to vest the remaining 6.6% upon final court approval of the Merger, For the FY2010 LTI grant, 100% vested based on performance against the relative TSR hurdle up to 16 January 2012. No impact – retention payments vested prior to Merger on 1 February 2012 in accordance with original terms of the scheme retention bonus As outlined above, the Board determined to accelerate vesting of entitlements under the Company’s incentive plans on the Merger. This was considered appropriate in light of the fact that the incentive entitlements of Aston Resources’ and Boardwalk Resources’ employees crystallised in full on the Merger. In particular, the Board was of the view that: • Whitehaven Coal employees should not be less favourably treated as a result of the Merger than their Aston Resources and Boardwalk Resources counterparts; and • it was preferable for all employees of the merged entity to commence on a consistent, market-appropriate remuneration structure from the date of implementation of the Merger. The following table compares the value of remuneratin that would have been received by executives in FY2012 as part of their standard remuneration arrangements with the value of remuneration that was actually received, having regard to ‘one-off’ payments for FY2012 and the acceleration of benefits as a result of the Merger. 54 Executive Tony Haggarty Andy Plummer Allan Davies Austen Perrin Timothy Burt Tony Galligan Remuneration component STI LTI Retention bonus STI LTI Retention bonus STI LTI Retention bonus STI LTI Received under standard remuneration arrangements Received as a result of Merger or one-off payment $147,163* $125,000** – – – – Total actually received for FY2012 $272,163 – – $82,798* $71,417** $154,215 – – – – – – $165,211* $80,342** $245,553 – – $85,064* – $450,000 $201,604** $263,500*** $144,215**** Retention bonus – STI LTI $55,825* $173,494*** Retention bonus – $76,332* STI LTI $411,322 $143,125** $98,621**** $261,325 $65,842** $202,391*** $106,621**** Retention bonus – $368,754 – $450,000 $286,668 $407,715 $411,322 $198,950 $272,115 $261,325 $142,174 $309,012 $368,754 * The STI amount received under standard remuneration arrangements represents the FY2011 STI award which was determined based on performance to 30 June 2011 and which was paid in line with the original terms of the STI plan in August 2011. ** The STI amount received as a result of the Merger or as a one-off payment represents the FY2012 STI award, which would ordinarily have been tested based on performance to 30 June 2012 and paid in August 2012, but which was accelerated to a vesting date of 30 April 2012 and paid on 15 May 2012 as a result of the Merger. *** The LTI amount received under standard remuneration arrangements represents the accounting value of the FY2012 and prior year LTI grants which would have accrued during FY2012 based on the expected vesting dates. **** The LTI amount received as a result of the Merger or as a one-off payment represents the balance of the accounting value of the FY2012 and prior year LTI grants which vested in full as a result of the Merger, resulting in the full accounting value being recognised and disclosed in FY2012. 7.4.4 Equity instruments granted as remuneration SARs granted to senior executives Details of SARs over ordinary shares in the Company that were granted to senior executives during FY2012 are set out in the table below. The grants to senior executives constituted their full LTI entitlement for FY2012 and were made on the terms summarised above. All SARs vested in full following the change of control in the Company and subsequent approval of the Merger. Upon vesting, senior executives were allocated one fully paid ordinary share in the Company for each SAR that vested. 2 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 55 DIRECTORS’ REPORT reMuneration rePort (continueD) 7. 7.4 remuneration during Fy2012 – audited (continued) 7.4.4 Equity instruments granted as remuneration (continued) Options and shares granted to Mr Kane The options granted to Mr Kane were made in recognition of shares in Boardwalk Resources that Mr Kane was entitled to under his previous employment arrangements. The options have an exercise price of $0.0001 per option, resulting in a total payment on exercise of $97.43. Mr Kane’s options vested on 1 August 2012 and are exercisable from 1 October 2012. Whilst the options do not have any performance conditions attached to them (as they were granted in consideration for shares that Mr Kane was already entitled to under his previous employment arrangements), they are subject to a continuous service condition until 1 March 2014. If Mr Kane resigns or is terminated for cause prior to 1 March 2014, he will forfeit any options that remain unexercised and any shares he receives on exercise of the options. The 173,938 shares granted to Mr Kane were made to compensate him for options he would have been entitled to under Boardwalk Resources’ proposed LTI arrangements. No performance or vesting conditions apply to the shares, as they were granted in place of Mr Kane’s pre-existing entitlements. executives Peter Kane Austen Perrin Timothy Burt Tony Galligan Instrument Options Shares SARs SARs SARs SARs SARs SARs SARs SARs SARs Number of instruments granted Grant date Fair value per instrument at grant date* Vesting date Expiry date 974,035 173,938 16,667 16,667 16,666 11,667 11,667 11,666 11,667 11,667 11,666 1 May 2012 1 May 2012 26 Oct 2011 26 Oct 2011 26 Oct 2011 26 Oct 2011 26 Oct 2011 26 Oct 2011 26 Oct 2011 26 Oct 2011 26 Oct 2011 $5.01 $5.18 $4.65 $4.51 $4.45 $4.65 $4.51 $4.45 $4.65 $4.51 $4.45 1 Aug 2012 – n/a – 1 July 2012** 1 July 2013 1 July 2013** 1 July 2014 1 July 2014** 1 July 2015 1 July 2012** 1 July 2013 1 July 2013** 1 July 2014 1 July 2014** 1 July 2015 1 July 2012** 1 July 2013 1 July 2013** 1 July 2014 1 July 2014** 1 July 2015 * The fair value for SARs and options granted to the senior executives is based on the fair value, measured using a Black Scholes model (for options) or a Monte Carlo simulation model (for SARs). The factors and assumptions used in determining the fair value on grant date are set out in the note 33 to the financial statements. ** Vested prior to the original vesting date as a result of the change in control of the Company and Merger. Further details regarding vesting of equity instruments in FY2012 are set out in tables 7.4.6 and 7.4.7 below. 56 Since the end of FY2012, the Company has made offers to grant 364,963 performance rights to the senior executives named in this Remuneration Report (excluding the Executive Directors) as part of the new LTI arrangements described in section 7.3 above. Details of performance rights offered are set out in the table below: executives Peter Kane Austen Perrin Timothy Burt Number of performance rights granted 145,985 126,521 92,457 Full details regarding the FY2013 LTI grants will be included in next year’s Remuneration Report. Mr Davies elected not to receive any new grants under the LTI for FY2012 or FY2013, as he had previously received 5,000,000 options in the Company on his appointment as a Director of the Company on 25 February 2012 (as disclosed in previous years’ reports and approved by shareholders at the 2009 Annual General Meeting). The options vested in tranches over the three years prior to the Merger and were all exercised following the Merger (as shown in the table at 7.4.6). All shares that Mr Davies received on exercise of these options have been retained by him, ensuring that he has a significant shareholding in the Company and that his interests continue to be aligned with those of shareholders. Similarly, Mr Haggarty elected not to participate in the FY2012 or FY2013 LTI grants, as he already has a substantial shareholding in the Company which is sufficient to ensure alignment with the interests of shareholders. 7.4.5 Statutory senior executive remuneration table The following table sets out the statutory remuneration disclosures required under the Corporations Act 2001 (Cth). The totals disclosed in this table are significantly higher than previous years’ disclosures due to: • two years’ of STI awards being accrued in FY2012, rather than one as is usually the case. This is because the FY2011 STI was approved and paid in August 2011 and the FY2012 STI was paid earlier than expected in April 2012; • the full balance of LTI values being required to be disclosed (including those granted in prior years) due to the acceleration of vesting on the Merger; and • the full value of the retention bonus being disclosed, even though the bonus vested over an 18 month period. As such, the information presented below for FY2012 is not comparable to the FY2011 information in the table. 2 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 57 DIRECTORS’ REPORT reMuneration rePort (continueD) 7. 7.4 remuneration during Fy2012 – audited (continued) 7.4.5 Statutory senior executive remuneration table (continued) Short-term benefits Post-employment benefits Share-based payments Salary & fees Cash bonus (A) Non- monetary benefits (B) Super- annuation Benefits Post- employ- ment Term- ination Benefits Rights and options (D) Shares (C) Total Remun- eration Share- based payments as proportion of total In AUD Directors Tony Haggarty 2012 681,818 272,163 3,149 68,182 2011 658,624 175,000 Andy Plummer* 2012 324,621 154,215 2011 376,356 100,000 Allan Davies 2012 535,982 695,553 2011 526,877 112,500 executives Peter Kane** 2012 122,371 2011 – – – – – – – – – – 65,862 32,462 37,636 – – 2,629 – Austen Perrin 2012 456,455 697,990 8,302 45,645 2011 376,356 100,000 8,281 37,636 Tony Galligan*** 2012 320,920 510,928 2011 346,964 92,188 – – 32,092 34,696 Timothy Burt 2012 323,614 460,275 8,302 32,361 2011 243,450 62,500 7,511 24,345 * Resigned 3 May 2012 ** Appointed 3 May 2012 – – – – – – – – – – – – – – – – 100,040 – – – – – – – – – – – – – – – – – – – – 1,025,312 899,486 611,338 513,992 – – – – 437,011 1,668,546 26.2% – 2,101,608 2,740,985 76.7% 900,999 2,400,000 3,425,999 95.0% – – – – – – – – – – 407,715 1,616,108 25.2% 368,536 890,810 41.4% 309,012 1,172,952 26.3% 291,892 765,740 38.1% 272,115 1,096,667 24.8% 225,789 563,595 40.1% *** Ceased to be a KMP on 1 June 2012 following change of role from full time employee to consultant (A) The amounts disclosed as cash bonus relate to amounts approved by the Board for performance of senior executives during the previous financial year, the current financial year to 30 April 2012 and retention bonuses as applicable (refer to section 7.4 of the Remuneration Report for details). (B) The amounts disclosed as non-monetary benefits relate to car spaces, professional fees and other similar items. (C) (D) Mr Kane received shares in the Company on 1 May 2012 for no consideration in recognition of the shares he would have been entitled to under his proposed LTI arrangements with his previous employer, Boardwalk Resources. These shares are not subject to any performance conditions. The market price of the Company’s shares at the date of grant was $5.18. The fair value for SARs and options granted to the senior executives is based on the fair value, measured using a Black Scholes model (for options) or a Monte Carlo simulation model (for SARs). The factors and assumptions used in determining the fair value on grant date are set out in the note 33 to the financial statements. 58 The movement during the reporting period, by number and value, of SARs and options over ordinary shares in the Company held by director-related entities and each senior executive is detailed below. There are no unpaid amounts on the shares issued as a result of the vesting of SARs or exercise of options in FY2012. Executive Instrument Balance as at 1 July 2011 Granted (number) Granted (value) (A) Vested (number) Vested (value) (B) Exercised (number) Exercised (value) (B) Lapsed (number) Lapsed (value) (C) Balance as at 30 June 2012 SARs only SARs only Options only Options only Allan Davies Options 5,000,000 – – Peter Kane Options – 974,035 $4,800,000 – – – – 5,000,000 $20,300,000*** Austen Perrin SARs 100,000 50,000 $230,933 150,000** $877,267** – – – – Options 100,000 – – – – 100,000* $462,332* Tony Galligan SARs 85,000 35,000 $161,653 120,000** $704,100** Timothy Burt SARs 65,000 35,000 $161,653 100,000** $584,399** – – – – – – – – – – N/A – N/A 974,035 N/A N/A N/A N/A – – – – * Exercised in two tranches: 33,333 options were exercised at an exercise price of $1.00 on 27 October 2011; 66,667 options were exercised at an exercise price of $1.00 on 8 February 2012. ** Comprises SARs that vested in the ordinary course on 27 July 2011 and SARs that vested as a result of the change of control and Merger on 23 April 2012. *** 1,666,667 options, being the final tranche of options granted in February 2009 vested on 31 October 2011. The first two tranches, comprising 3,333,333 options, vested in prior years. Mr Davies exercised all 5,000,000 options on 4 April 2012 at an exercise price of $1.70. (A) (B) The value of SARs and options granted in the year is the fair value of the options calculated at grant date using the Black Scholes model (for options) or the Monte Carlo simulation model (for SARs). The total value of the options granted is included in the table above. The value of SARs vested during the year is calculated as the market price of shares of the Company as at close of trading on the date the SARs vested and shares issued to senior executives. The value of options exercised during the year is calculated as the market price of the shares of the Company as at the close of trading on the date the options were exercised, less the price paid upon exercise. (C) The value of SARs and options that lapsed during the year represents the benefit forgone and is calculated at the date the option lapsed using the Black Scholes model (for options) or the Monte Carlo simulation model (for SARs). No SARs or options lapsed in the year. 2 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 DIRECTORS’ REPORT reMuneration rePort (continueD) 7. 7.5 company performance – audited The remuneration outcomes for FY2012 have been significantly distorted by the one-off impact of the Merger, which resulted in the acceleration of payments under the Company’s STI and LTI plans. As a result, the correlation between Company performance and remuneration outcomes will be less evident than in previous years. However, going forward, the Company has implemented robust remuneration arrangements that ensure a direct and transparent link between performance and remuneration outcomes. Profit attributable to the group ($000’s) 2012 62,539 2011 9,946 2010 2009 114,884 244,212 2008 51,854 Revenue ($000’s) 618,087 622,186 406,807 489,397 252,000 Share price at year end (dollars per share) $4.15 $5.83 $4.80 $3.14 Basic EPS (cents per share) Diluted EPS (cents per share) Dividends paid (cents per share) Special dividends paid (cents per share) 10.9 10.9 4.1 50.0 2.0 2.0 6.1 – 24.2 24.0 8.8 – 60.5 60.3 4.2 – $4.47 14.5 14.4 – – 7.6 non-executive Director remuneration – audited This section explains the remuneration for Non-executive Directors. 7.6.1 Setting Non-executive Director remuneration Remuneration for Non-executive Directors is designed to ensure that the Company can attract and retain suitably qualified and experienced 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. Non-executive Directors do not receive shares, share options or any performance-related incentives as part of their remuneration from the Company. Directors are also entitled to be remunerated for any travel and other expenses reasonably incurred when attending meetings of the Board or in connection with the business of the Company. The Remuneration Committee reviews and makes recommendations to the Board with respect to Non-executive Directors’ fees and committee fees. 60 7.6.2 Current fee levels and fee pool Shareholders approved an increase to the total aggregate maximum amount of Non-executive Directors’ remuneration to $2,500,000 per annum at Whitehaven’s Extraordinary General Meeting held on 16 April 2012. The significant increase to the fee pool was sought to accommodate increases to Non-executive Director fees to align with the Company’s increased size and scope of operations, and the increase in the number of Non-executive Directors on the Board. As described in section 7.3 above, Egan Associates were engaged in FY2012 to provide guidance and recommendations on the appropriate remuneration arrangements for the merged entity. An increase to the Non-executive Directors’ fees, based on the recommendation of Egan Associates, came into effect on 1 May 2012. The table below sets out the Board and committee fees in Australian dollars as at 30 June 2012. Board Audit & Risk Management Committee Remuneration Committee Governance & Nominations Committee Health, Safety, Environment & Community Committee Chairman Deputy Chairman $350,000* $262,500* $40,000 $25,000 No fee $25,000 – – – – Member $140,000 $20,000 $12,500 No fee $12,500 * This is a composite fee. The Chairman and Deputy Chairman of the Board receive no standing committee fees in addition to their Board fees. The fees set out above are exclusive of mandatory statutory superannuation contributions made on behalf of the Non-executive Directors. 2 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 DIRECTORS’ REPORT reMuneration rePort (continueD) 7. 7.6 non-executive Director remuneration – audited (continued) 7.6.3 Statutory disclosures The statutory disclosures required under the Corporations Act 2001 (Cth) and in accordance with the Accounting Standards are set out in the table below. Short-term benefits Post-employment benefits Total Board & Committee fees Non- monetary benefits Super- annuation benefits Termination benefits Remuneration for services as a Non- executive Director 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 58,333 – 306.365 165,138 201,453 91,743 62,500 75,000 87,933 75,000 27,500 – 26,667 – 28,750 – 29,583 – 829,084 406,881 – – – – – – – – – – – – – – – – – – – – 2,629 – 15,014 14,862 6,881 8,257 – – – – 2,475 – 2,400 – 2,588 – 2,588 – 34,574 23,119 – – – – – – – – – – – – – – – – – – – – 60,963 – 321,379 180,000 208,333 100,000 62,500 75,000 87,933 75,000 29,975 – 29,067 – 31,338 – 32,171 – 863,658 430,000 In AUD non-executive Directors The Hon. Mark Vaile (Chairman)** John Conde (Deputy Chairman) Neil Chatfield* Alex Krueger* Hans Mende*** Philip Christensen** Paul Flynn** Rick Gazzard** Christine McLoughlin** total * Resigned 3 May 2012 ** Appointed 3 May 2012 *** Resigned 2 July 2012 7.7 Payments and equity to kMP in their capacity as shareholders – audited Some members of the KMP (both senior executives and Non-executive Directors) received payments and equity grants as a result of the Merger in their capacity as shareholders of Aston Resources or of Boardwalk. These amounts did not form part of their remuneration for FY2012. The particular details of the amounts received by the KMP in their capacity as shareholders are set out in note 34 to the financial statements. 62 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 2012, Whitehaven Coal Limited and its controlled entities (‘the Group’) continued development at the Narrabri underground mine. 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 2012, the Group continued development at the Narrabri underground mine as well as exploration of its Vickery Project. 9.2 highlights Financial • Underlying net profit after tax (NPAT), before significant items, of $57.8 million, down 13% from FY2011; • NPAT after significant items of $62.5 million. Total significant items after tax of $4.8 million including: – Historical legacy contract losses pre-tax of $29.4 million (all legacy contracts fulfilled end of March 2012); – Aston/Boardwalk transaction costs pre-tax of $41.4 million; – Profit on sale of interest in Maules Creek to J Power pre-tax of $116.2 million; – Accounting adjustment for the fair value of Boardwalk Resources goodwill at acquisition pre-tax of $119.8 million; – Initial recognition of Mineral Rent Resource Tax (MRRT) starting base as a deferred tax asset of $101.5 million. • A fully franked final dividend of 3 cents per share has been declared, payable on 23 September 2012. This takes the total dividend for the year to 53 cents per share after the payment earlier in the year of the special dividend of 50 cents per share; • Revenue from coal sales of $448.4 million (net of purchased coal and excluding NSW royalty), up 2.6% from FY2011; • Cash flow and financial position – $513.6 million cash available with net cash of $24.2 million compared to $207.6 million cash available and net cash of $29.0 million at 30 June 2011. Operating • The Narrabri longwall was installed in the June quarter and is currently being commissioned. First longwall coal was cut on 12 June 2012, with over 240 Kt of longwall coal produced to date during commissioning. • Saleable coal production up 3% (equity basis) to 4.28 Mtpa, and up 4% to 4.90 Mtpa (100% basis); • Equity ROM coal production increased slightly to 4.66 Mtpa for the year. This was lower than anticipated due largely to significant impacts of exceptional wet weather in the December and March quarters and consequential mine scheduling issues. • NSW Project Approval for the Maules Creek project is still pending and has taken much longer than anticipated. Latest indications are that approval will be received in the September quarter. There are no apparent issues to be resolved and Whitehaven remains confident of a successful outcome. It is extremely difficult to predict the timing of approvals under the current NSW planning process, but Whitehaven is remaining optimistic that approval will be forthcoming in this timeframe. • Planning at the Vickery project has generated an open cut mine plan to produce around 4.5 Mtpa ROM for more than 25 years with a stripping ratio of approximately 10:1. Focus is on obtaining NSW Project Approval for this project and lodgement of the approval for assessment by the NSW Government is planned for the fourth quarter in CY2012. A full review of the South Vickery project is underway. South Vickery is contiguous with Vickery and was recently acquired as part of the Coalworks acquisition. 9.3 review of operations The Managing Director’s Report, containing a review of operations, commences on page 10 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. 63 2 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 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 3.0 cents per ordinary share (refer Note 26). • After the year end the Company approved grants of Performance Rights over up to 2,000,000 ordinary shares to key senior employees as part of its long term incentive plans. The Performance Rights will vest over the period to 23 September 2016 and are subject to market based performance hurdles. • After the year end the Company continued its acquisition of Coalworks Limited and on 21 August completed the compulsory acquisition of all remaining shares not previously acquired. • Narrabri longwall production has reached operational levels and from 1 August 2012 operational costs will no longer be capitalised. The financial effect of the above matters has not been brought to account in the financial statements for the year ended 30 June 2012 but will be recognised in future financial periods. 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. 13. share oPtions 13.1 shares issued on exercise of options During the reporting period employees and executives have exercised options to acquire 10,167,244 fully paid ordinary shares in Whitehaven Coal Limited at a weighted average exercise price of $1.59 per share. For details of shares issued to key management personnel on exercise of options refer to section 7 of the Directors’ report. 13.2 unissued shares under options At the date of this report there were 17,846,945 unissued ordinary shares of the Company under options (17,846,945 at the reporting date). Refer to note 33 of the financial statements for further details of the options outstanding. For details of options issued to key management personnel refer to section 7 of the Directors’ report. 64 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. 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 Taxation services – MRRT Consolidated 2012 2011 559,586 487,229 437,750 997,336 – 487,229 16. leaD auDitor’s inDePenDence Declaration The Lead auditor’s independence declaration is set out on page 67 and forms part of the Directors’ report for financial year ended 30 June 2012. 65 2 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 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: Mark Vaile Chairman Dated at Sydney this 14th day of September 2012 66 auDITOR’S InDEPEnDEnCE DEClaRaTIOn 2 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 Financial report Statement of Comprehensive Income . . . . . . . . . . . 69 Statement of Financial Position . . . . . . . . . . . . . 71 Statement of Changes in Equity . . . . . . . . . . . . 73 Statement of Cash Flows . . . . . . . . . . . . . . 74 Notes to the Financial Statements . . . . . . . . . . . . 75 Directors’ Declaration . . . . . . . . . . . . . . . 140 Independent Auditor’s Report . . . . . . . . . . . . . 141 ASX Additional Information . . . . . . . . . . . . . . 143 68 Statement oF comprehenSive income For the Year enDeD 30 june 2012 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/(expense) Financial income Before significant items Significant items Financial expenses Before significant items Significant items Net financing expense Profit before tax Consolidated Note 2012 2011 8 7 9 7 618,087 622,186 (396,690) (405,646) (7,494) (25,563) (404,184) (431,209) (39,674) (40,938) (443,858) (472,147) 174,229 150,039 17,038 15,184 116,175 133,213 – 15,184 (71,330) (66,373) (5,014) (4,329) 7 10 (29,490) (41,944) (34,504) (46,273) (12,914) (13,053) 7 (162,682) (5,778) (175,596) (18,831) 26,012 33,746 7 12 7 12 12 11,229 23,867 35,096 9,169 8,602 17,771 (25,681) (17,770) (21,525) (24,922) (47,206) (42,692) (12,110) (24,921) 13,902 8,825 2 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 Statement oF comprehenSive income (continueD) For the Year enDeD 30 june 2012 In thousands of AUD ($’000) Profit before tax Income tax expense Before significant items Significant items Net profit for the year Other comprehensive income Effective portion of changes in fair value of cash flow hedges Change in fair value of cash flow hedges transferred to profit and loss Consolidated Note 2012 13,902 2011 8,825 7 13(a) (37,270) (25,130) 85,907 48,637 62,539 26,251 1,121 9,946 9,416 136,440 (53,436) (92,244) Income tax on items of other comprehensive income 13(b) 13,206 (13,259) Other comprehensive (loss)/income for the year, net of tax Total comprehensive income for the year Net Profit attributable to: Owners of the parent Non-controlling interests Total comprehensive income attributable to: Owners of the parent Non-controlling interests Earnings per share: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) (30,814) 31,725 30,937 40,883 62,539 – 62,539 9,946 – 9,946 31,725 40,883 – – 31,725 40,883 36 36 10.9 10.9 2.0 2.0 The statement of comprehensive income is to be read in conjunction with the notes to the financial statements. 70 Statement oF Financial poSition aS at 30 june 2012 In thousands of AUD ($’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 Total non-current assets Total assets Liabilities Trade and other payables Interest-bearing loans and borrowings Employee benefits Deferred income Provisions Derivative financial instruments Total current liabilities Non-current liabilities Interest-bearing loans and borrowings Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Consolidated Note 2012 2011 14 15 16 18 13 17 15 18 19 20 21 22 23 24 25 17 23 13 25 513,625 207,602 70,192 37,973 6,899 7,530 99,601 6,274 92,365 25,886 14,866 9,957 55,619 55,998 742,094 462,293 11,128 5,628 2,702 1,210 2,954,158 936,987 506,069 102,540 9,422 49,781 3,579,523 1,000,102 4,321,617 1,462,395 252,860 154,264 294,416 11,639 – 5,550 2,053 49,436 8,789 355 4,932 7,208 566,518 224,984 195,030 129,157 78,770 70,209 38,621 29,097 344,009 196,875 910,527 421,859 3,411,090 1,040,536 2 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 71 Statement oF Financial poSition (continueD) aS at 30 june 2012 In thousands of AUD ($’000) Equity Issued capital Share-based payments reserve Hedge reserve Retained earnings Equity attributable to owners of the parent Non-controlling interest Total equity attributable to equity holders of the parent Consolidated Note 2012 2011 26(a) 3,116,769 591,339 67,696 2,962 24,358 33,776 181,337 391,063 3,368,764 1,040,536 42,326 – 3,411,090 1,040,536 The statement of financial position is to be read in conjunction with the notes to the financial statements. 72 Statement oF changeS in equitY For the Year enDeD 30 june 2012 Consolidated In thousands of AUD ($’000) Note Issued Capital Share- based payments reserve Hedge reserve Retained earnings Non- controlling interest Total 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 Costs of shares issued, net of tax Closing balance at 30 June 2011 Opening balance at 1 July 2011 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 Acquisition of subsidiary Acquisition of non-controlling interest Share options exercised Costs of shares issued, net of tax Closing balance at 30 June 2012 26 33 26 26 26 33 26 26 26 591,176 17,927 2,839 411,234 1,023,176 – – – – – 167 (4) – – – – 6,431 – – – 9,946 9,946 30,937 – 30,937 30,937 9,946 40,883 – – – – (30,117) (30,117) – – – 6,431 167 (4) 591,339 24,358 33,776 391,063 1,040,536 591,339 24,358 33,776 391,063 1,040,536 – 62,539 62,539 (30,814) – (30,814) (30,814) 62,539 31,725 – – – – – – – – – 10,420 2,509,988 32,918 – 16,200 (758) – – – – – – – – – (272,265) (272,265) 10,420 – – – – – 2,542,906 87,764 2,630,670 – (45,438) (45,438) 16,200 (758) – – 16,200 (758) Total equity 1,023,176 9,946 30,937 40,883 (30,117) 6,431 167 (4) 1,040,536 1,040,536 62,539 (30,814) 31,725 (272,265) 10,420 – – – – – – – – – – – – – – – 3,116,769 67,696 2,962 181,337 3,368,764 42,326 3,411,090 The statement of changes in equity is to be read in conjunction with the notes to the financial statements. 73 2 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 Statement oF caSh FlowS For the Year enDeD 30 june 2012 In thousands of AUD ($’000) Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Cash paid in respect of transaction costs Interest paid Interest received Income taxes refunded/(paid) Consolidated Note 2012 2011 629,321 656,836 (626,865) (536,510) 2,456 120,326 (57,491) – (24,540) (14,891) 5,968 2,427 7,009 (33,075) Net cash from/(used in) operating activities 31 (71,180) 79,369 Cash flows from investing activities Proceeds from sell down of Narrabri project Proceeds from sell down of Maules Creek JV (net of cash disposed) 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 Cash acquired on business combinations 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 exercise of share options 26 Proceeds from issue of share capital to non-controlling interests 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 44,130 190,866 369,461 86 – 949 (267,169) (225,347) (152) (8,044) – (37,365) 8,464 (11,183) 207,399 669 2,111 – 22,499 (4,078) – – 8,707 (1,693) 353,816 (53,506) 16,200 7,673 (1,083) 351,949 (62,114) 167 – (6) 90,677 (2,207) (16,973) (17,824) 26 (272,265) (30,117) 23,387 306,023 40,690 66,553 207,602 141,049 14 513,625 207,602 The statement of cash flows is to be read in conjunction with the notes to the financial statements. 74 noteS to the Financial StatementS 30 june 2012 1. REPORTiNG ENTiTy The financial report of Whitehaven Coal Limited (‘Whitehaven’ or ‘Company’) for the year ended 30 June 2012 was authorised for issue in accordance with a resolution of the directors on 14 September 2012. 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 28, 259 George Street, Sydney NSW 2000. The Company is a for-profit entity, and 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 2011. • AASB 124 Related Party Disclosures (Revised) • 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] • 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] • 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] • AASB 1054 Australian Additional Disclosures • AASB 2010-6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets [AASB 1 & AASB 7] 75 2 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 2012 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 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 adoption of this amendment did not have any impact on the financial position or the performance of the Group. 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 adoption of this amendment did not have any impact on the financial position or the performance of the Group. 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. Clarifies that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. The adoption of this amendment did not have any impact on the financial position or the performance of the Group. 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 adoption of this amendment did not have any impact on the financial position or the performance of the Group. 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 adoption of this amendment did not have any impact on the financial position or the performance of the Group. 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 but which are not derecognised and introduce new disclosures for assets that are derecognised but the entity continues to have a continuing exposure to the asset after the sale. The adoption of this amendment did not have any impact on the financial position or the performance of the Group. 76 noteS to the Financial StatementS 30 june 2012 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) New accounting standards and interpretations (continued) (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 2012 are outlined below: AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Other Comprehensive Income [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049] This Standard requires entities to group items presented in other comprehensive income on the basis of whether they might be reclassified subsequently to profit or loss and those that will not. 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 10 Consolidated Financial Statements AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation – Special Purpose Entities. Consequential amendments were also made to other standards via AASB 2011-7. 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 11 Joint Arrangements AASB 11 replaces AASB 131 Interests in Joint Ventures and UIG-113 Jointly- controlled Entities – Non-monetary Contributions by Ventures. AASB 11 uses the principle of control in AASB 10 to define joint control, and therefore the determination of whether joint control exists may change. In addition it removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Consequential amendments were also made to other standards via AASB 2011-7 and amendments to AASB 128. 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 12 Disclosure of Interests in Other Entities AASB 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 judgments 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. 2 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 2012 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 13 Fair Value Measurement AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. It also expands the disclosure requirements for all assets or liabilities carried at fair value. Consequential amendments were also made to other standards via AASB 2011-8. 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 119 Employee Benefits The main change introduced by this standard is to revise the accounting for defined benefit plans. The revised standard also changes the definition of short-term employee benefits. Consequential amendments were also made to other standards via AASB 2011-10. 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. Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine This interpretation applies to stripping costs incurred during the production phase of a surface mine. Production stripping costs are to be capitalised as part of an asset, if an entity can demonstrate that it is probable future economic benefits will be realised, the costs can be reliably measured and the entity can identify the component of an ore body for which access has been improved. This asset is to be called the ‘stripping activity asset’. The stripping activity asset shall be depreciated or amortised on a systematic basis, over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping activity. The units of production method shall be applied unless another method is more appropriate. Consequential amendments were also made to other standards via AASB 2011-12. The amendments become effective for the consolidated entity’s 30 June 2014 financial statements. The consolidated entity currently includes capitalised stripping costs in deferred stripping in the statement of financial position. Depreciation of the asset is currently calculated using the estimated average stripping ratio for the area being mined. The amendments may have an impact on the calculation of depreciation of capitalised stripping costs. The consolidated entity has not yet quantified the potential impact of the amendments on the consolidated entity’s financial report. Annual Improvements to IFRSs 2009–2011 Cycle This standard sets out amendments to International Financial Reporting Standards (IFRSs) and the related bases for conclusions and guidance made during the International Accounting Standards Board’s Annual Improvements process. These amendments have not yet been adopted by the AASB. The following items are addressed by this standard: IFRS 1 First-time Adoption of International Financial Reporting Standards • Repeated application of IFRS 1 • Borrowing costs IAS 1 Presentation of Financial Statements • Clarification of the requirements for comparative information IAS 16 Property, Plant and Equipment • Classification of servicing equipment IAS 32 Financial Instruments: Presentation • Tax effect of distribution to holders of equity instruments IAS 34 Interim Financial Reporting • Interim financial reporting and segment information for total 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. 78 noteS to the Financial StatementS 30 june 2012 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 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124] This Amendment deletes from AASB 124 individual key management personnel disclosure requirements for disclosing entities that are not companies. 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 9 Financial Instruments AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7 and 2010-10. The amendments become effective for the consolidated entity’s 30 June 2016 financial statements. The consolidated entity has not yet determined the potential impact of the amendments on the consolidated entity’s financial report. a) Basis of consolidation The consolidated financial report of the Company for the financial year ended 30 June 2012 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. 79 2 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 2012 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) a) Basis of consolidation (continued) (iii) Transactions eliminated on consolidation (continued) 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. 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. 80 noteS to the Financial StatementS 30 june 2012 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) 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. 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 forecast sales and purchases 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 and asset purchases) 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. 2 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 81 noteS to the Financial StatementS 30 june 2012 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) 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. 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’. Assets are deemed to be commissioned when they are capable of operating in the manner intended by management, and amortisation starts from this date. (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 – 50% 3 – 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. 82 noteS to the Financial StatementS 30 june 2012 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 reserves at fair value at acquisition date. Correspondingly, revenue from the sale of Narrabri development coal is capitalised on the statement of financial position until longwall production reaches operational levels. 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. the expenditures are expected to be recouped through successful development and exploitation of the area of interest; or ii. 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. (v) Subsequent expenditure 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. (vi) Goodwill Goodwill is recognised when the fair value of consideration paid for a business combination exceeds the fair value of the Group’s share of the identifiable net assets acquired. Goodwill is not amortised, however its carrying amount is assessed annually for impairment. 83 2 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 2012 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) 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. (ii) Non-financial assets 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’). 84 noteS to the Financial StatementS 30 june 2012 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) n) (ii) Non-financial assets (continued) impairment (continued) An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. 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. (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. 85 2 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 2012 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) 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. 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. Revenue from the sale of Narrabri development coal is being offset against development costs capitalised on the statement of financial position until longwall production reaches operational levels. (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. 86 noteS to the Financial StatementS 30 june 2012 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) 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. 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) Mineral Resource Rent Tax (MRRT) On 19 March 2012, the Australian Government passed through the Senate the Minerals Resource Rent Tax Act 2012, with application to certain profits arising from the extraction of iron ore and coal in Australia. MRRT is considered, for accounting purposes, to be a tax based on income. Accordingly, the current and deferred MRRT expense is measured and disclosed on the same basis as income tax. The MRRT is effective from 1 July 2012 however as financial reporting considerations must be made from the date of Royal Assent, the Group has recognised the impact of deferred tax originating from MRRT as at 30 June 2012. 87 2 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 2012 3. summARy Of siGNifiCANT ACCOuNTiNG POLiCiEs (CONTiNuEd) v) (ii) Tax consolidation income tax (continued) 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. (iii) Nature of tax funding arrangements and tax sharing arrangements 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. 88 noteS to the Financial StatementS 30 june 2012 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. 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. 89 2 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 2012 4. siGNifiCANT ACCOuNTiNG JudGEmENTs, EsTimATEs ANd AssumPTiONs (CONTiNuEd) 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 and 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, incorporating the probability of the performance hurdles being met (for Share Acquisition Rights). 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. 90 noteS to the Financial StatementS 30 june 2012 4. siGNifiCANT ACCOuNTiNG JudGEmENTs, EsTimATEs ANd AssumPTiONs (CONTiNuEd) 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 (including mRRT) 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. mineral Resource Rent Tax (mRRT) The MRRT legislation allows for a starting base allowance, which will be amortised and applied against the future MRRT liability. The starting base allowance is calculated as the market value of the mining and pre-mining project interests and underlying upstream project assets as at 1 May 2010. The starting base is designed to recognise investments in assets that relate to the upstream activities of a mining project interest or pre-mining project interest (starting base assets) that existed before 2 May 2010. For accounting purposes, the starting base allowance represents the MRRT tax base of the mining project interest or pre-mining project interest. The market value of the starting base was determined using a discounted cash flow methodology that requires significant judgements and estimates including: • forecast production profiles; • forecast future coal prices determined with reference to independent resource sector analysts; • the calculation of appropriate discount rates; • expected royalty rates payable; and • the reserves estimates for the mines. Australian Government’s Carbon Pricing mechanism The Australian Government’s Clean Energy Act 2011 introduced a Carbon Pricing Mechanism beginning on July 1st, 2012. The carbon price 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 re-assessed the potential impact in its impairment testing at 30 June 2012, 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 2012 are disclosed in note 19. 91 2 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 2012 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 and debt. 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. 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. 92 noteS to the Financial StatementS 30 june 2012 5. fiNANCiAL Risk mANAGEmENT OBJECTivEs ANd POLiCiEs (CONTiNuEd) Risk exposures and responses (continued) Foreign currency risk (continued) 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 2012 was $4,221,000 (2011: $48,790,000), comprising assets and liabilities that were recognised as fair value derivatives. At 30 June 2012, 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 2012 USD 30 June 2011 31,801 27,582 (5,086) (11,421) 42,876 33,517 68,186 (25,135) (15,566) 61,002 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 2012 1.0319 0.7707 2011 0.9881 0.7245 2012 1.0191 0.8092 2011 1.0739 0.7405 2 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 93 noteS to the Financial StatementS 30 june 2012 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 2011. Effect in thousands of AUD 30 June 2012 USD EUR 30 June 2011 USD EUR Consolidated Equity Profit or loss 13,288 (3,825) (606) – 18,057 (1,587) (5,164) – 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 2011. Effect in thousands of AUD 30 June 2012 USD EUR 30 June 2011 USD EUR Consolidated Equity Profit or loss (16,241) 606 4,207 – (22,070) 5,680 1,587 – 94 noteS to the Financial StatementS 30 june 2012 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 Investments Note 14 15 17 18 Carrying amount 2012 Carrying amount 2011 513,625 207,602 81,320 6,274 12,527 95,067 55,998 16,076 613,746 374,743 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 Trade and other receivables Carrying amount 2012 25,505 15 12,352 37,872 Carrying amount 2011 14,990 1,687 11,510 28,187 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 48.3% of the consolidated entity’s revenue is attributable to sales transactions with three customers (2011: 40.7% 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, 0% (2011: 44%) 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 2012 (2011: Nil). 95 2 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 2012 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 2012 31,614 4,051 1,296 874 37 37,872 Impairment 2012 – – – – – – Gross 2011 23,616 2,409 2,140 6 16 28,187 Impairment 2011 – – – – – – 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 $135,000,000 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. 96 noteS to the Financial StatementS 30 june 2012 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 2012 Finance lease liabilities 83,501 108,182 11,413 10,616 20,676 29,862 35,615 Interest-bearing liabilities 405,945 417,907 275,822 6,702 25,587 104,454 5,342 Trade and other payables 252,860 252,860 241,735 10,000 1,125 Forward exchange contracts: Outflow Inflow 152,584 154,690 103,756 50,934 (156,804) (158,985) (106,375) (52,610) – – – – – – – – 738,086 774,654 526,351 25,642 47,388 134,316 40,957 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 2 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 2012 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 (post tax) Consolidated Carrying amount 2012 2011 (83,501) (132,263) (83,501) (132,263) 513,625 207,602 (405,945) (46,330) 107,680 161,272 24,179 29,009 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 2011. Effect in thousands of AUD 30 June 2012 Variable rate instruments Cash flow sensitivity (net) 30 June 2011 Variable rate instruments Cash flow sensitivity (net) Profit or loss 100bp increase 100bp decrease 1,077 1,077 1,613 1,613 (1,077) (1,077) (1,613) (1,613) 98 noteS to the Financial StatementS 30 june 2012 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. 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 Group held the following financial instruments carried at fair value in the statement of financial position: In thousands of AUD 30 June 2012 Level 1 Level 2 Level 3 Assets measured at fair value Forward exchange contracts – receivable Equity shares Preference shares Liabilities measured at fair value Forward exchange contracts – payable Assets measured at fair value Forward exchange contracts – receivable Equity shares Preference shares Liabilities measured at fair value Forward exchange contracts – payable 6,274 5,628 6,899 (2,053) – 4,418 – – 6,274 – – – 1,210 6,899 (2,053) – 30 June 2011 Level 1 Level 2 Level 3 55,998 1,210 14,866 (7,208) – – – – 55,998 – – – 1,210 14,866 (7,208) – 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 listed shares is classified under level 1 in the fair value measurement hierarchy (refer note 18). 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. 99 2 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 Unlisted shares 1,210 – – 1,210 1,210 – – 1,210 Other – – noteS to the Financial StatementS 30 june 2012 5. fiNANCiAL Risk mANAGEmENT OBJECTivEs ANd POLiCiEs (CONTiNuEd) Risk exposures and responses (continued) Net Fair Values (continued) The Group holds preference shares and equity shares as available for sale financial instruments classified as level 3 within the fair value hierarchy. A reconciliation of the beginning and closing balances including movements is summarised below: Reconciliation of fair value measurements of Level 3 financial instruments In thousands of AUD At 1 July 2010 Purchases Sales At 30 June 2011 At 1 July 2011 Sales Total gains and losses recognised in OCI including FX At 30 June 2012 Financial assets and liabilities by categories Unlisted shareholder loan notes Unlisted preference shares – – 22,499 14,866 (22,499) – – – – – – 14,866 14,866 (8,464) 497 6,899 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 Note Loans and receivables1 2012 Available for sale Other Loans and receivables1 2011 Available for sale 14 15 18 22 23 513,625 81,320 – – – – 207,602 95,067 – – – – 11,317 – 594,945 11,317 252,860 489,446 – 742,306 – – – – 1,210 6,274 7,484 – – 2,053 2,053 – – 14,866 1,210 – 55,998 302,669 14,866 57,208 154,264 178,593 – 332,857 – – – – – – 7,208 7,208 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 $6.3 million (2011: $56.0 million) relating to derivatives that qualified as being in a hedging relationship. Similarly, other financial liabilities include amounts of $2.1 million (2011: $7.2 million). 100 noteS to the Financial StatementS 30 june 2012 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 2012 and 30 June 2011. 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 2012 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 expense Net profit after tax per statement of comprehensive income Open cut operations Underground operations Total 621,093 621,093 25,337 25,337 646,430 646,430 (25,337) (3,006) 618,087 150,690 – 150,690 (39,674) (37,270) 4,758 (15,965) 62,539 Capital expenditure for the year amounted to $64,191,000 for open cut operations and $54,766,000 for underground operations. 2 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 101 noteS to the Financial StatementS 30 june 2012 6. sEGmENT REPORTiNG (CONTiNuEd) 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 credit (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 651,416 651,416 10,087 10,087 661,503 661,503 (10,087) (29,230) 622,186 94,576 – 94,576 (40,938) 26,251 (63,353) (6,590) 9,946 Capital expenditure for the year amounted to $55,336,000 for open cut operations and $104,426,000 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 Korea Taiwan UK USA 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 48.32% of external revenue. 102 2012 2011 61,688 203,619 52,886 13,567 84,615 111,652 19,269 16,652 58,426 24,056 79,043 233,754 17,781 – 96,653 111,753 – 11,599 91,265 19,655 646,430 661,503 426,287 196,087 24,056 469,781 171,878 19,844 646,430 661,503 noteS to the Financial StatementS 30 june 2012 7. siGNifiCANT iTEms In thousands of AUD Net profit for the year Add back significant items: Gain on sale of joint venture interest1 Loss on coal trading for legacy contracts2 Share based compensation3 Due diligence costs and project costs4 Claim settlement5 Impairment of goodwill from acquisition of Boardwalk Resources6 Financial income on EDF receivable7 Finance costs on retranslation of EDF receivable7 significant items before tax Applicable income tax expense/(benefit) Initial recognition of MRRT starting base temporary differences8 significant items after tax Net profit before significant items Consolidated 2012 62,539 2011 9,946 (116,175) 29,416 7,568 41,377 1,514 119,791 (23,867) 21,525 81,149 15,593 (101,500) (4,758) 57,781 – 65,405 2,102 5,778 – – (8,602) 24,922 89,605 (26,251) – 63,354 73,300 Reconciliation of significant items to face of statement of comprehensive income: Operating expenses: Loss on coal trading for legacy contracts2 – purchased coal (7,494) (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: CSN settlement5 Impairment of goodwill from acquisition of Boardwalk Resources6 Due diligence costs and project costs4 Financial income Unwinding of discount on EDF receivable7 Net unrealised foreign exchange gain on translation of EDF receivable7 Financial expenses Net realised foreign exchange losses on EDF receipts7 significant items before tax 116,175 – (21,922) (39,842) (7,568) (2,102) (29,490) (41,944) (1,514) (119,791) (41,377) (162,682) – 23,867 23,867 – – (5,778) (5,778) 6,052 2,550 8,602 (21,525) (24,922) (81,149) (89,605) 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. 103 2 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 2012 7. siGNifiCANT iTEms (CONTiNuEd) 1 During the year, the Company sold a 10% joint venture interest in the Maules Creek Project to J-Power Australia Limited (J-Power), a wholly owned subsidiary of Electric Power Development Co. Ltd., for A$370 million, realising a gain on sale of $116.2 million. The sale takes the Company’s interest in the project down to 75%. 2 During the prior 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 was made. During the year ended 30 June 2012, further coal purchases and contract settlements were required to fulfil legacy contracts, over and above what had been taken up in the prior year provision. These additional purchases and financial settlements resulted in a significant loss before tax of $29.4 million, made up of $7.5m of losses on sales of purchased coal and $21.9m of losses on contract settlements. 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. In addition, as a result of the acquisition of Boardwalk Resources the Company issued shares to key employees of Boardwalk in lieu of proposed long-term incentive arrangements and issued share options to key management persons. 4 During the year the Group undertook due diligence on a number of projects in relation to corporate and asset transactions. The majority of these costs relate to the acquisition of Boardwalk Resources ($7.7m) and the merger with Aston Resources ($31.0m) as well as the acquisition of Coalworks ($2.7m). 5 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$1,625,000. 6 Following the acquisition of Boardwalk Resources the company was required to undertake a fair value exercise of the assets and liabilities acquired. It was identified that the consideration paid by the Company was greater than the fair value of identifiable net assets acquired. The balance was initially booked as goodwill and subsequently impaired. Goodwill arose predominately from the requirements that consideration be based on the share price of Whitehaven at the date control changed which was significantly higher than at the time of the offer. In addition, accounting standards also require contingent consideration to be recorded at acquisition assuming that such amounts will be paid, adjusted for probability. 7 A receivable arising on a previous sell down of the Narrabri North Project was denominated in US$ and discounted on initial recognition. At the reporting date the receivable had been fully unwound and a net foreign exchange gain realised on receipt of the outstanding amounts in the current year. 8 During the year the federal government implemented the Mineral Resources Rent Tax regime. Under the requirements of AASB 112, the initial recognition of temporary differences between book and tax starting base values is required to be brought to account. In undertaking its starting base valuation the Company has identified temporary differences which result in the recognition of an MRRT deferred tax asset of $145.0m and a corporate tax deferred tax liability of $43.5m. The net amount of $101.5m has been recognised as an income tax benefit in the year ended 30 June 2012. 104 noteS to the Financial StatementS 30 june 2012 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 Unrealised gain on investments Sundry income1 significant items: Gain on sale of interest in Maules Creek JV2 Consolidated 2012 2011 618,087 622,186 4,947 529 – 4,766 6,796 17,038 116,175 116,175 4,548 1,027 294 – 9,315 15,184 – – 1 Included within sundry income is $6.0 million (2011: $6.1 million) of the Group’s share of income from the Blackjack Carbon Joint Venture. 2 During the year the Group sold 10% of its interest in the Maules Creek joint venture. Refer to Note 7 for further details of this transaction. 10. OThER ExPENsEs In thousands of AUD Payments for unfulfilled legacy contracts1 Share based compensation payments Loss on sale of non current assets Consolidated 2012 22,813 10,420 1,271 34,504 2011 39,842 6,431 – 46,273 1 This expense relates to the cost of financial settlements of legacy contracts which could not be filled with either Whitehaven coal or purchased coal. These legacy contracts are fixed price, term contracts entered into in 2005-06 with various coal trading companies, and have now been fully settled. 11. PERsONNEL ExPENsEs In thousands of 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 2012 70,623 5,468 4,119 1,452 172 10,420 92,254 2011 53,989 4,988 2,404 1,329 100 6,431 69,241 2 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 2012 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 receivable1 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 realised foreign exchange losses on EDF receipts1 Other interest charges financial expenses Net financing expense Recognised directly in equity Consolidated 2012 2011 5,968 863 23,867 4,398 – – 35,096 (8,013) (783) (549) – (2,417) 7,009 1,318 2,550 – 6,052 842 17,771 (7,449) (728) – (2,056) (1,388) (21,525) (24,922) (13,919) (6,149) (47,206) (42,692) (12,110) (24,921) Effective portion of changes in fair value of cash flow hedges 9,416 136,440 Net change in fair value of cash flow hedges transferred to profit or loss – sale of coal (53,436) (92,244) Income tax on income and expense recognised directly in equity finance expense recognised directly in equity, net of tax 13,206 (13,259) (30,814) 30,937 1 These items have been disclosed as significant items. Please refer to note 7 for further details. 106 noteS to the Financial StatementS 30 june 2012 13. iNCOmE TAx In thousands of AUD a) income tax (expense)/benefit Current income tax – corporate tax Current period Adjustment for prior periods Deferred income tax – corporate tax Origination and reversal of temporary differences Deferred income tax – MRRT Origination and reversal of temporary differences income tax benefit reported in the statement of comprehensive income Numerical reconciliation between tax expense recognised in the statement of comprehensive income and profit before tax Profit before tax MRRT tax benefit Profit after mRRT Income tax using the Company’s domestic tax rate of 30% (2011: 30%) Non-deductible expenses: Share based payments Impairment of goodwill Transaction costs Other non-deductible expenses MRRT tax benefit Initial recognition of deferred tax liabilities Over/(Underprovided) in prior periods Total income tax benefit 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 Consolidated 2012 2011 51,455 (443) 51,012 18,860 3,392 22,252 (163,957) (21,131) 161,582 48,637 – 1,121 13,902 161,582 175,484 (52,645) 8,825 – 8,825 (2,648) (3,126) (1,929) (35,937) (9,856) (1,074) 161,582 (9,864) (443) 48,637 – – 2,306 – – 3,392 1,121 13,206 (13,259) 326 2 13,532 (13,257) 2 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 107 noteS to the Financial StatementS 30 june 2012 13. iNCOmE TAx (CONTiNuEd) c) Recognised tax assets and liabilities In thousands of AUD Opening balance Consolidated 2012 Current income tax 2012 Deferred income tax 2011 Current income tax 2011 Deferred income tax 9,957 (38,621) (37,514) (12,089) Charged to income – corporate tax 51,012 (163,957) 22,252 (21,131) Charged to income – MRRT Charged to equity Recognition of DTA on acquisition Recognition of DTL on acquisition – MRRT (net of corporate tax DTA) – – – – 161,582 13,532 36,590 (138,908) – – – – – (13,257) – – Recognition of DTA on current year losses (51,012) 51,012 (18,860) 18,860 Transfer between current and deferred tax Payments/(receipts) Closing balance Tax expense in statement of comprehensive income: Charged to income Charged to equity Amounts recognised in the statement of financial position: Deferred tax asset Deferred tax liability – (2,427) – – 11,004 33,075 (11,004) – 7,530 (78,770) 9,957 (38,621) 48,637 13,532 – (78,770) (78,770) 1,121 (13,257) – (38,621) (38,621) 108 noteS to the Financial StatementS 30 june 2012 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 Corporate tax Property, plant and equipment Exploration and evaluation Receivables Derivatives Investments Intangibles Deferred stripping Deferred foreign exchange gain Provisions Tax losses On MRRT Other items Tax assets/(liabilities) Set off of tax assets Net tax assets/(liabilities) In thousands of AUD mRRT Property, plant and equipment Exploration and evaluation Other Tax assets/(liabilities) Set off of tax assets Net tax assets/(liabilities) Total net deferred tax asset/(liability) Consolidated Assets Liabilities 2012 2011 2012 2011 – – – – – – – – – – – – – – (98,458) (46,893) (36,944) (395) (1,269) (1,430) (1,081) – (428) (14,476) (1) – (29,880) (16,686) 1,006 27,261 69,872 11,057 18,349 7,259 12,486 18,860 – 1,258 – – – – – – – – – – 127,545 39,863 (169,457) (78,484) (127,545) (39,863) 127,545 39,863 – – (41,912) (38,621) Consolidated Assets Liabilities 2012 2011 2012 2011 16,583 – 4,050 20,633 (20,633) – – – – – – – – – – (57,491) – (57,491) 20,633 (36,858) – – – – – – (78,770) (38,621) 2 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 109 noteS to the Financial StatementS 30 june 2012 13. iNCOmE TAx (CONTiNuEd) d) 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 Corporate tax Land and mining tenements mRRT Starting base assets e) Tax consolidation Consolidated 2012 2011 21,530 21,530 21,530 21,530 338,590 338,590 – – 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. 14. CAsh ANd CAsh EquivALENTs In thousands of AUD Cash and cash equivalents The weighted average interest rate for cash balances at 30 June 2012 is 3.88% (2011: 4.01%). 15. TRAdE ANd OThER RECEivABLEs Current Trade receivables Other receivables and prepayments Receivables due from related parties Non-current Other receivables and prepayments Consolidated 2012 2011 513,625 207,602 37,872 21,314 11,006 70,192 28,187 55,362 8,816 92,365 11,128 2,702 Included in Current Other Receivables is an amount of $nil (2011: $41,787,000), 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 net realisable value) Coal stocks (at cost) Consumables and stores 17. dERivATivE fiNANCiAL iNsTRumENTs Current assets 695 25,782 11,496 37,973 – 19,912 5,974 25,886 forward exchange contracts – receivable 6,274 55,998 Current liabilities forward exchange contracts – payable 2,053 7,208 110 noteS to the Financial StatementS 30 june 2012 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, and has made specific capital purchases in Euros. In order to protect against exchange rate movements and reduce the foreign exchange rate related volatility of the consolidated entity’s revenue and purchase streams, the consolidated entity enters into forward exchange contracts to sell US dollars and buy Euros in the future at stipulated exchange rates. Forward exchange contracts are entered for future sales undertaken in US dollars, and future purchases undertaken in Euros. The contracts are timed to mature when funds for coal sales are forecast to be received, and when amounts for capital purchases are forecast to be paid. At 30 June 2012, 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 Buy Euros Less than 6 months Fair value 2012 4,637 1,637 6,274 (2,053) (2,053) Average exchange rates 2012 0.9694 0.9694 0.9694 0.5443 0.5443 Fair value 2011 39,572 16,426 55,998 (7,208) (7,208) Average exchange rates 2011 0.8614 0.9349 0.8945 0.5707 0.5707 The ineffectiveness recognised in financial expenses in the income statement for the current year was $549,000 (see Note 12). The cumulative effective portion of $3,735,000 is reflected in other comprehensive income. The recycling of amounts from the hedge reserve to the income statement for future sales of $53,436,000, and to the balance sheet for future purchases of $5,681,000, has been recognised in revenue and property, plant and equipment respectively. 18. iNvEsTmENTs In thousands of AUD Current investments Investment in unlisted preference shares Non-current investments Investment in unlisted shares Investment in listed shares Consolidated 2012 2011 6,899 14,866 1,210 4,418 5,628 1,210 – 1,210 During the year the Group disposed of $8.0m in preference shares. In the prior 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 prior 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. 111 2 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 2012 19. PROPERTy, PLANT ANd EquiPmENT In thousands of AUD Note Freehold land Consolidated Plant and equipment Leased plant and equipment Mining property and development Total Cost Balance at 1 July 2010 Acquisitions Transfer to plant and equipment and mining property and development Disposals Balance at 30 June 2011 Balance at 1 July 2011 Additions Transfer to plant and equipment Disposals Acquisitions on business combinations 39 54,140 19,556 (1,665) (351) 71,680 71,680 9,462 – (3,115) 47,322 220,398 109,996 474,793 859,327 26,944 40,333 130,460 217,293 970 (250) (970) – 1,665 – – (601) 248,062 149,359 606,918 1,076,019 248,062 149,359 606,918 1,076,019 69,382 31,465 (2,475) 9,135 – 159,309 238,153 (31,465) – – – – (237,895) (243,485) 2,005,137 2,061,594 Balance at 30 June 2012 125,349 355,569 117,894 2,533,469 3,132,281 depreciation Balance at 1 July 2010 Depreciation charge for the year Transfer to plant and equipment Disposals Balance at 30 June 2011 Balance at 1 July 2011 Depreciation charge for the year Transfer to plant and equipment Disposals Acquisitions on business combinations 39 Balance at 30 June 2012 Carrying amounts At 1 July 2010 At 30 June 2011 At 1 July 2011 At 30 June 2012 Leased plant and machinery – – – – – – – – – – – (33,082) (30,712) (34,552) (98,346) (13,399) (12,719) (14,667) (40,785) (1,454) 1,454 – – – – 99 99 (47,836) (47,836) (17,787) (17,757) 642 (903) (41,977) (49,219) (139,032) (41,977) (49,219) (139,032) (10,194) (11,574) (39,555) 17,757 – – – 725 – – 1,367 (903) (83,641) (34,414) (60,068) (178,123) 54,140 71,680 71,680 187,316 200,226 200,226 79,284 440,241 760,981 107,382 107,382 557,698 557,698 936,987 936,987 125,349 271,928 83,480 2,473,401 2,954,158 The consolidated entity leases mining equipment under a number of finance lease agreements. At 30 June 2012, the consolidated entity’s net carrying amount of leased plant and machinery was $83,480,000 (2011: $107,382,000). The leased equipment is pledged as security for the related finance lease liabilities. 112 noteS to the Financial StatementS 30 june 2012 20. ExPLORATiON ANd EvALuATiON In thousands of AUD Balance at 1 July 2010 Exploration and evaluation expenditure Balance at 30 June 2011 Balance at 1 July 2011 Exploration and evaluation expenditure Acquisitions on business combinations Disposals Balance at 30 June 2012 Exploration and evaluation assets Consolidated Cost 5,344 4,078 9,422 9,422 11,184 492,103 (6,640) 506,069 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. 2 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 noteS to the Financial StatementS 30 june 2012 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 Goodwill3 Consolidated 2012 7,626 1,300 (701) 6,687 (3,083) – 90,711 102,540 2011 4,063 1,300 (548) 6,687 (1,317) 39,596 – 49,781 The carrying amounts of water access rights, are reviewed at each balance date to determine whether there is any indication of impairment. When reviewing for indicators of impairment, the Group considers mining plans, project approvals and market values, among other factors. Consolidated Water access rights Contract related intangible Rail access rights Marketing commission rights Goodwill Total In thousands of AUD movement in intangibles Balance at 1 July 2010 Acquired during the year Less: Accumulated amortisation Balance at 30 June 2011 Balance at 1 July 2011 Acquired during the year Less: Accumulated amortisation 4,063 – – 4,063 4,063 994 – Acquisitions on business combinations 2,912 Disposals Written off during the year Balance at 30 June 2012 (343) – 7,626 905 – (153) 752 752 – (153) – – – 38,520 1,076 – 39,596 39,596 1,571 – – – (41,167)2 – 6,687 (1,317) 5,370 5,370 – (1,766) – – – – – – – 43,488 7,763 (1,470) 49,781 49,781 2,565 (1,919) – – – 222,110 (11,608) 225,022 (11,951) (119,791) (160,958) 599 – 3,604 90,711 102,540 1 During the prior year the consolidated entity acquired marketing commission rights (refer to note 39). The marketing commission rights were assessed as having a finite useful life and are being 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 During the current year, rail access rights held with Australian Rail Track Corporation were renegotiated and now fall under a Take or Pay agreement. The previously recognised intangible asset and related debt were extinguished as a result. 3 Goodwill of $29.9m, $64.8m and $7.6m arise at the acquisition of Boardwalk, Aston and Coalworks as a result of the recognition of deferred taxes as part of the purchase price accounting. 22. TRAdE ANd OThER PAyABLEs In thousands of AUD Current Trade payables Other payables and accruals1 Deferred purchase consideration2 Consolidated 2012 2011 36,571 215,164 1,125 58,855 60,745 34,664 252,860 154,264 1 Other payables and accruals include an amount of $112.3m payable for the acquisition of Coalworks under the offer made to Coalworks shareholders prior to year end. 2 Deferred purchase consideration in the prior year 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 paid all outstanding amounts in respect of the deferred consideration. 114 noteS to the Financial StatementS 30 june 2012 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 Secured bank loans Unsecured bank loans Other loans unsecured Non-current liabilities Finance lease liabilities Secured bank loans Unsecured bank loans Total interest-bearing liabilities financing facilities Secured bank loans Unsecured bank loans facilities utilised at reporting date Secured bank loans Unsecured bank loans facilities not utilised at reporting date Secured bank loans Unsecured bank loans financing facilities Consolidated 2012 2011 15,173 13,944 265,299 – 294,416 68,328 – 126,702 195,030 489,446 13,944 887,540 901,484 13,944 392,001 405,945 15,169 – – 34,267 49,436 82,827 46,330 – 129,157 178,593 95,595 – 95,595 46,330 – 46,330 – 49,265 495,539 495,539 – 49,265 In August 2011, the consolidated entity refinanced its existing bank facility with a series of unsecured bilateral facilities with credit lines of $350m and a five year tenor, and also transitioned existing secured banking facilities to the same unsecured terms. The consolidated entity expanded its debt facilities in December 2011 with an additional unsecured facility with credit lines of $450m and a one year tenor. As a result of the acquisition of Coalworks Limited, the consolidated entity inherited a bank facility of $13.9m which is secured over land of the same value. This facility matures in October 2012. finance lease facility At 30 June 2012, the consolidated entity’s lease liabilities are secured by the leased assets of $83,480,000 (2011: $107,382,000), as in the event of default, the leased assets revert to the lessor. 115 2 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 2012 23. iNTEREsT-BEARiNG LOANs ANd BORROwiNGs (CONTiNuEd) finance lease liabilities Finance lease liabilities of the consolidated entity are payable as follows: Minimum lease payments 2012 22,029 50,538 35,615 108,182 Interest 2012 6,793 16,312 1,576 24,681 Consolidated Principal 2012 15,236 34,226 34,039 83,501 Minimum lease payments 2011 23,136 66,942 40,496 130,574 In thousands of AUD Less than one year Between one and five years More than five years 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 Take or Pay Other provisions Current Non-current Interest 2011 7,967 19,807 4,804 32,578 Principal 2011 15,169 47,135 35,692 97,996 Consolidated 2012 2011 4,226 386 7,027 11,639 42,402 – 27,751 5,606 75,759 5,550 70,209 75,759 2,998 215 5,576 8,789 30,746 3,283 – – 34,029 4,932 29,097 34,029 In thousands of AUD movement in provisions Balance at 1 July 2011 Provisions made during the period Provisions used during the period Acquisitions on business combinations Disposals Unwind of discount Balance at 30 June 2012 Mine rehabilitation and closure Onerous contracts Take or Pay Other provisions 30,746 11,072 3,283 – (199) (3,283) – – 783 42,402 – – – – – – – 31,451 (3,700) – – – – 5,606 – – 27,751 5,606 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. 116 noteS to the Financial StatementS 30 june 2012 26. shARE CAPiTAL ANd REsERvEs In thousands of AUD a) share capital Consolidated 2012 2011 Fully paid ordinary shares 1,013,190,387 (2011: 493,816,735) 3,116,769 591,339 b) movements in shares on issue Ordinary shares Beginning of the financial year Exercise of share options Exercise of share acquisition rights Share based payments (Boardwalk employees) Consolidated 2012 2011 Nos of shares 000’s $000’s Nos of shares 000’s $000’s 493,817 591,339 493,650 591,176 8,200 1,967 400 16,200 167 167 – – Issued on acquisition of Boardwalk Resources Ltd1 119,905 495,480 Issued on merger with Aston Resources Ltd 388,901 2,014,508 Costs of shares issued, net of tax – (758) – – – – – (4) 1,013,190 3,116,769 493,817 591,339 1 The shares issued as consideration for the acquisition of Boardwalk Resources Ltd included 34,020,000 milestone shares. The milestone shares are fully paid ordinary shares subject to the terms of a restriction deed which removes their entitlements to vote, receive dividends as declared or participate in the proceeds from the sale of all surplus assets until such time as certain milestones are met. 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. Under the terms of the acquisition of Boardwalk Resources Limited, certain ordinary shares are subject to a restriction deed which removes their entitlement to vote, receive dividends as declared or participate in the proceeds from the sale of all surplus assets. These restrictions will be released on reaching certain milestones. 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 payment 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. 117 2 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 2012 26. shARE CAPiTAL ANd REsERvEs (CONTiNuEd) f) dividends In thousands of AUD Recognised amounts Declared and paid during the year: Final franked dividend for 2011: 4.1c (2010:2.8c) Interim franked dividend for 2012: nil (2011: 3.3c) Special franked dividend for 2012: 50.0c (2011: nil) unrecognised amounts Consolidated 2012 2011 20,273 – 251,992 272,265 13,822 16,295 – 30,117 Final franked dividend for 2012: 3.0c (2011: 4.1c) 29,375 20,273 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 2012 but will be brought to account in the year ending 30 June 2013. 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 2012 2011 14,779 101,723 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 (2011: $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 2012 2011 (12,589) (8,689) 118 noteS to the Financial StatementS 30 june 2012 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 2012 are as follows: In thousands of AUD Less than one year Between one and five years More than five years Leases as lessor Consolidated 2012 5,541 3,285 79 8,905 2011 3,727 988 – 4,715 The consolidated entity leases out land it will use for future mining operations under operating leases. At 30 June 2012 $53,060,000 (2011: $32,612,000) 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 2012 2011 33,541 178,395 211,936 55,866 – 55,866 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 2012 9,609 5,275 14,884 2011 – 6,495 6,495 2 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 119 noteS to the Financial StatementS 30 june 2012 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 2012 2011 (i) The consolidated entity provided bank guarantees to the Department of Mineral Resources NSW as a condition of continuation of mining and exploration licenses 28,559 26,079 (ii) The consolidated entity provided bank guarantees to Australian Rail Track Corporation (previously to Rail Infrastructure Corporation) 20,438 38,622 (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 Hunter Valley Energy Coal Ltd (vii) The consolidated entity provided bank guarantees to various parties for office leases – 35,590 29,367 14,432 905 400 16,920 6,754 – 82 129,291 88,857 Tax audit The ATO, as part of its ordinary processes in reviewing large business taxpayers, takes into account their size and complexity. The group can be expected to be subject to a high level review by the ATO in respect of ongoing taxation compliance. The ATO is currently auditing the increase in tax cost base of certain assets recorded by Whitehaven on its listing on the ASX due to tax consolidation. The audit is currently in the information gathering stage. Whitehaven directors do not believe there will be any adverse material result. Claim from former CEO of Aston Resources On 12 April 2012, the former CEO of Aston Resources, Mr Hamish Collins, commenced proceedings in the Supreme Court of New South Wales against Aston Resources, a now fully owned subsidiary of Whitehaven. Mr Collins’ solicitors allege that Mr Collins was entitled to ‘equity participation’ under the terms of his contract of employment with Aston Resources (“Claim”). While his solicitors accept that quantification of Mr Collins’ Claim is ‘attended by some difficulty’, they allege that the Claim is valued at $157,437,500, being the amount they calculate to be equivalent in value to 5% of the midpoint of the valuations of Aston Resources’ interests it acquired in the Maules Creek Project and the Dingo Tenements. Aston’s view is that it has acted in a way consistent with Mr Collins’ terms of employment, and having had the opportunity to review various materials related to Mr Collins claim, Whitehaven is supporting a vigorous defence of the proceedings. 120 noteS to the Financial StatementS 30 june 2012 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 Unrealised gain on investment Unwinding of discounts on provisions Unwinding of discounts on receivables Share-based compensation payments Impairment of Boardwalk Gain on sale of interest in Maules Creek JV Gain on sale of investments (Gain)/Loss 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 provisions and employee benefits Change in tax payable Change in deferred taxes Cash flows from operating activities 32. suBsEquENT EvENTs Consolidated Note 2012 2011 62,539 9,946 19 21 25 12 33 9 9 39,521 1,920 52 (4,766) 783 – 10,420 119,791 (116,175) (313) 1,271 115,043 (13,797) 40,785 1,470 26,985 – 728 (6,052) 6,431 – – – (294) 79,999 17,542 (56,069) (31,753) (72,687) 2,540 2,427 (48,637) (71,180) 45,261 2,517 (47,471) 13,274 79,369 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 3.0 cents per ordinary share (refer Note 26). • After the year end the Company approved grants of Performance Rights over up to 2,000,000 ordinary shares to key senior employees as part of its long term incentive plans. The Performance Rights will vest over the period 1 July 2014 to 1 July 2016 and are subject to market based performance hurdles. • After the year end the Company continued its acquisition of Coalworks Limited and on 21 August completed the compulsory acquisition of all remaining shares not previously acquired. • Narrabri longwall production has reached operational levels and from 1 August 2012 operational costs will no longer be capitalised. The financial effect of the above matters has not been brought to account in the financial statements for the year ended 30 June 2012 but will be recognised in future financial periods. 121 2 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 2012 33. shARE-BAsEd PAymENTs a) Recognised share-based payment expenses In thousands of AUD Employee expenses Share options – director-related entities Share options – senior employees Shares – senior employees (ex-Boardwalk) Consolidated 2012 2011 437 7,911 2,072 10,420 2,102 4,329 – 6,431 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 122 noteS to the Financial StatementS 30 june 2012 33. shARE-BAsEd PAymENTs (CONTiNuEd) b) Types of share-based payment plans (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, 13 October 2010 and 26 October 2011 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 Tranche 1 Tranche 2 Tranche 3 Exercise price Number of instruments Vesting conditions $0.00 $0.00 $0.00 $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 240,009 1 July 2012/1 July 2013 240,006 1 July 2013/1 July 2014 239,985 1 July 2014/1 July 2015 2,025,000 Expiration date 1 July 2012 1 July 2013 1 July 2012 1 July 2013 1 July 2014 1 July 2013 1 July 2014 1 July 2015 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% As a result of the merger with Aston Resources the vesting period of the share acquisition rights was accelerated and all outstanding rights vested on the merger becoming effective. 2 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 123 noteS to the Financial StatementS 30 june 2012 33. shARE-BAsEd PAymENTs (CONTiNuEd) b) Types of share-based payment plans (continued) Option grant to senior employees on 1 May 2012 The Company issued options to Mr Kane (Chief Operating Officer – Aston and Boardwalk Operations) in recognition of shares in Boardwalk Resources that Mr Kane was entitled to under his previous employment arrangements. The options have an exercise price of $0.0001 per option, resulting in a total payment on exercise of $97.43. Mr Kane’s options vested on 1 August 2012 and are exercisable from 1 October 2012. Whilst the options do not have any performance conditions attached to them (as they were granted in consideration for shares that Mr Kane was already entitled to under his previous employment arrangements), they are subject to a continuous service condition until 1 March 2014. If Mr Kane resigns or is terminated for cause prior to 1 March 2014, he will forfeit any options that remain unexercised and any shares he receives on exercise of the options. Option grant to ex-Aston option holders on 2 May 2012 The Company issued fully vested options over Whitehaven shares to Aston option holders as part of the Scheme of Arrangement. The terms and conditions of the grant are as follows. Option Tranche 1 Tranche 2 Tranche 3 Exercise price $3.15 $3.33 $4.73 Number of instruments Vesting conditions 8,619,278 Vested on issue 12,354 Vested on issue 8,241,278 Vested on issue Expiration date 17 August 2015 10 November 2015 17 August 2016 Shares granted to ex-Boardwalk employees on 1 May 2012 The Company issued Whitehaven shares to Boardwalk employees in order to remunerate them for Boardwalk shares they would have become entitled to as part of the proposed Boardwalk LTI scheme. A total of 400,060 shares were issued at a price of $5.18. 124 noteS to the Financial StatementS 30 june 2012 33. shARE-BAsEd PAymENTs (CONTiNuEd) 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 2012 Number of options 2012 Weighted average exercise price 2011 $1.71 $1.59 $3.56 $0.00 $3.71 $3.92 9,455,002 (10,167,244) 18,566,945 (7,758) 17,846,945 16,872,910 $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 The outstanding balance as at 30 June 2012 is represented by: (i) 974,035 senior employee options over ordinary shares having an exercise price of $0.00, exercisable on meeting the above conditions and until the dates shown above. (ii) 8,619,278 options over ordinary shares having an exercise price of $3.15, exercisable until 17 August 2012. (iii) 12,354 options over ordinary shares having an exercise price of $3.33, exercisable until 10 November 2015. (iv) 8,241,278 options over ordinary shares having an exercise price of $4.73, exercisable until 17 August 2016. The weighted average share price at the date of exercise for share options exercised during the year ended 30 June 2012 was $5.74 (2011: $6.68). The weighted average remaining contractual life of share options outstanding at 30 June 2012 is 3.62 years (2011: 1.91 years). d) Option pricing models The fair value of options granted is measured using a Black Scholes model. The fair value of options granted under the LTI program 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 2012 and 30 June 2011: Fair value of share options and assumptions 2012 2011 2012 2011 Options LTI program 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. $1.64-$5.01 5.18 $0.00-$4.73 40% 0-4 years 2.75% 3.00% – – – – – – – $4.45-$4.65 $4.95-$5.33 $5.79 $5.73-$6.20 $0.00 40% $0.00 40% 1-4 years 1-4 years 1.3% 1.0% 3.80-4.10% 4.60-4.80% 125 2 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 2012 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 Position The Hon. Mark Vaile Chairman John Conde Deputy Chairman Philip Christensen Non-executive Director (appointed 3 May 3012) Paul Flynn Rick Gazzard Non-executive Director (appointed 3 May 3012) Non-executive Director (appointed 3 May 3012) Christine McLoughlin Non-executive Director (appointed 3 May 3012) Neil Chatfield Alex Krueger Hans Mende Tony Haggarty Non-executive Director (resigned 3 May 2012) Non-executive Director (resigned 3 May 2012) Non-executive Director (resigned 2 July 2012) Managing Director Andrew Plummer Executive Director (resigned 3 May 2012) Allan Davies Executives Peter Kane Austen Perrin Timothy Burt Tony Galligan Executive Director Chief Operating Officer – Aston and Boardwalk Operations Chief Financial Officer and Joint Company Secretary General Counsel and Joint Company Secretary General Manager Infrastructure (until 1 June 2012) 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 Share-based compensation payments Consolidated 2012 2011 6,152,194 3,491,742 246,117 223,294 19,753 183,462 15,792 85,954 4,726,852 2,987,825 11,328,378 6,804,607 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. 126 noteS to the Financial StatementS 30 june 2012 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 previously held 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 $107,341 (2011: $353,753). This agreement included payment for utilities, parking, teleconferencing, office supplies and services and was on normal commercial terms. The sub-lease agreement was completed during the year. XLX Pty Limited also provided project consulting services to the consolidated entity during the year amounting to $nil (2011: $1,252,673). There was no outstanding balance payable to XLX Pty Limited at year-end (2011: $nil). (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 $52,505,015 (2011: $27,919,142) and purchases of $nil (2011: $nil). 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 (2011: $nil). (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 $nil (2011: $124,177) and purchases of $nil (2011: $nil). These transactions were carried out on an arm’s length basis at market rates. There was no balance outstanding at year-end (2011: $nil). 2 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 127 noteS to the Financial StatementS 30 june 2012 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: Received on exercise of options/ vesting of SARs Received as remuneration Received in capacity as shareholder as a result of Merger/ Acquisition Other purchases Sales 2,761,267 8,600 No. of shares directors Mark Vaile John Conde Held at 1 July 2011 n/a 378,605 Philip Christensen Paul Flynn Rick Gazzard Christine McLoughlin n/a n/a n/a n/a Neil Chatfield 256,805 Alex Krueger – Hans Mende 76,019,833 Tony Haggarty 33,479,897 Andy Plummer 33,514,254 – – – – – – – – – – – – – – – – – – – – – – – – 2,901,075** 7,382 – – – – – – – Held at 30 June 2012 2,769,867 378,605 2,901,575 18,382 50,000 11,000 n/a1 n/a1 – – – – – – (50,000) – (6,000,000) 70,019,833 – – 33,479,897 n/a1 (625,000) 7,000,000 – 1,518,381 (35,587) 214,413 – 500 11,000 25,000 11,000 – – – – – – – – Allan Davies 2,625,000 5,000,000 Executives Peter Kane Austen Perrin Timothy Burt Tony Galligan n/a – – 250,000 100,000 34,000 120,000 – 173,938 1,344,443*** – – – – – – 48,400 – 148,400 – (34,000) n/a1 1 These parties either ceased employment with Whitehaven during the year or changed roles within Whitehaven during the year and are not considered related parties at 30 June 2012. ** Includes 762,902 shares issued subject to restrictions. Refer to note 26 for details. *** Includes 381,451 shares issued subject to restrictions. Refer to note 26 for details. 128 noteS to the Financial StatementS 30 june 2012 34. RELATEd PARTiEs (CONTiNuEd) movements in shares (continued) 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: Held at 1 July 2010 Received on exercise of options Received as remuneration Received in capacity as shareholder in Merger Other purchases Sales Held at 30 June 2011 No. of shares directors John Conde Neil Chatfield 378,605 256,805 Tony Haggarty 33,479,897 Alex Krueger – Hans Mende 76,019,833 Andy Plummer 33,514,254 Allan Davies 2,625,000 Executives Austen Perrin Timothy Burt Tony Galligan 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 – – – – – – – – – – – – – – – – – – – – 129 2 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 2012 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: director-related entities Mark Vaile Philip Christensen Allan Davies Executives Peter Kane Austen Perrin Timothy Burt Tony Galligan director-related entities Allan Davies Executives Austen Perrin Timothy Burt Tony Galligan Held at 1 July 2011 Granted/ (Forfeited) Exercised 30 June 2012 Held at Vested during the year Vested and exercisable at 30 June 2012 – – 189,000* 189,000* – – 189,000 189,000 189,000 189,000 189,000 189,000 5,000,000 – 5,000,000 – 1,666,667 – 974,035 – 974,035 200,000 65,000 85,000 50,000 35,000 35,000 250,000 100,000 120,000 – – – – 183,334 100,000 120,000 – – – – – Held at 1 July 2010 Granted/ (Forfeited) Exercised 30 June 2011 Held at Vested during the year Vested and exercisable at 30 June 2011 5,000,000 – 100,000 100,000 – – 65,000 85,000 – – – – 5,000,000 1,666,667 3,333,333 200,000 33,333 66,666 65,000 85,000 – – – – * The Group issued fully vested options over Whitehaven shares in consideration for fully vested options held in Aston Resources Limited as part of the scheme of arrangement. Directors and director related entities received these options in their capacity as option holders in Aston Resources Limited and as such they do not form part of their remuneration. 130 noteS to the Financial StatementS 30 june 2012 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 in the below. Ownership interest Country of incorporation 2012 % 2011 % Parent entity Whitehaven Coal Limited subsidiaries Whitehaven Coal Mining Limited Namoi Mining Pty Ltd Namoi Agriculture & 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 Aston Resources Ltd Aston Coal 2 Pty Ltd Aston Coal 3 Pty Ltd Maules Creek Coal Pty Ltd Boardwalk Resources Ltd Boardwalk Coal Management Pty Ltd Boardwalk Coal Marketing Pty Ltd Boardwalk Sienna Pty Ltd Boardwalk Monto Pty Ltd Boardwalk Dingo Pty Ltd Boardwalk Ferndale Pty Ltd Coalworks Limited Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 77 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 2 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 131 noteS to the Financial StatementS 30 june 2012 35. CONsOLidATEd ENTiTy’s suBsidiARiEs, AssOCiATEs ANd iNTEREsTs iN JOiNT vENTuREs (CONTiNuEd) Jointly controlled entities Tarrawonga Coal Sales Pty Ltd Blackjack Carbon Pty Ltd Blackjack Carbon Sales Pty Ltd Maules Creek Marketing Pty Ltd Ownership interest Country of incorporation 2012 % 2011 % Australia Australia Australia Australia 70 50 50 75 70 50 50 n/a 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 Maules Creek Joint Venture Dingo Joint Venture Ferndale Joint Venture Vickery South Joint Venture Ownership interest 2012 % 2011 % 70 70 50 75 70 94 71 70 70 50 n/a n/a n/a n/a 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 2012 consolidated financial statements under their respective categories. 132 noteS to the Financial StatementS 30 june 2012 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 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 2012 2011 101,771 70,954 18,174 5,467 11,549 25,233 60,423 8,510 4,961 9,674 15,984 39,129 738,939 419,091 4,261 1,691 743,200 420,782 803,623 459,911 48,745 53,560 173 87 48,918 53,647 13,026 13,026 61,944 7,497 7,497 61,144 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 24,197 46,282 – – 24,197 46,282 2 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 133 noteS to the Financial StatementS 30 june 2012 36. EARNiNGs PER shARE Basic earnings per share The calculation of basic earnings per share at 30 June 2012 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 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) diluted earnings per share Consolidated 2012 $000 2011 $000 62,539 9,946 Consolidated 2012 000’s 2011 000’s 493,817 493,650 79,937 55 573,754 493,705 10.9 2.0 The calculation of diluted earnings per share at 30 June 2012 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) 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) Consolidated 2012 $000 2011 $000 62,539 9,946 Consolidated 2012 000’s 2011 000’s 573,754 493,705 901 6,316 574,655 500,021 10.9 2.0 134 noteS to the Financial StatementS 30 june 2012 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 National Greenhouse Energy Reporting Act requirements Other assurance services Non-audit services: Auditors of the Company – Ernst & Young Due diligence services Taxation services - MRRT 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 Consolidated 2012 2011 507,311 354,138 201,354 156,300 53,625 21,630 74,059 7,210 783,920 591,707 559,586 487,229 437,750 997,336 – 487,229 Company 2012 2011 286,210 285,614 3,194,192 770,720 – – (2) (9,694) 3,245,768 720,338 (119,272) 67,696 16,330 24,358 3,194,192 761,026 136,663 136,663 35,496 35,496 2 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 135 noteS to the Financial StatementS 30 june 2012 39. BusiNEss COmBiNATiONs ANd ACquisiTiONs Of NON-CONTROLLiNG iNTEREsTs Acquisitions in the year ended 30 June 2012 Business acquired Principal Activity Date of acquisition Proportion acquired Cost of acquisition Boardwalk Resources Limited Coal exploration 1 May 2012 Aston Resources Limited Coal mine development 2 May 2012 Coalworks Limited Coal exploration 20 June 2012 Purchase consideration: In thousands of AUD Shares issued, at fair value Options issued, at fair value Contingent consideration, at fair value Cash consideration Fair value of previously held equity interest Boardwalk Resources Limited1 444,885 - 50,595 - - 100% 100% 51.1% Aston Resources Limited2 2,014,508 32,918 - - - 495,480 2,047,426 495,480 2,047,426 88,862 Coalworks Limited3 - - - 59,193 29,669 88,862 1 The Group issued 85,885,178 ordinary shares as consideration for the 100% interest in Boardwalk Resources Limited. The fair value of these shares is the published price of the shares of the Group at the date of acquisition, which was $5.18 each. In addition, the Group issued, as contingent consideration, 34,020,000 ordinary shares which were subject to the terms of a restriction deed. The restriction deed removes their entitlements to vote, receive dividends as declared or participate in the proceeds from the sale of all surplus assets until such time as certain milestones are met. The restrictions will cease to apply upon the occurrence of certain trigger events including the grant of mining leases and environmental approvals at the Boardwalk projects. At the acquisition date the fair value of the contingent consideration was deemed to be $50,595,000, which was based on an assessment of the probability and timing of achieving the milestones required to release the restrictions over the contingent consideration. 2 The Group issued 388,901,169 ordinary shares as consideration for the 100% interest in Aston Resources Limited. The fair value of these shares is the published price of the shares of the Group at the date of acquisition, which was $5.18 each. In addition, the Group issued 16,872,910 fully vested options in consideration for options held in Aston Resources Limited. At the acquisition date the fair value of the options was deemed to be $32,918,000 (refer to note 33 for details of assumptions used in determining the fair value of options issued during the year). 3 The Group agreed to pay $1 per share under the terms of the offer made by the Group to Coalworks Limited shareholders. On 20 June 2012 the Group had received a number of acceptances such that, combined with the Group’s existing equity interest in Coalworks, the Group’s total ownership interest in Coalworks amounted to 51.1%. This consideration was payable on 6 July 2012 under the terms of the offer made to Coalworks shareholders. 136 noteS to the Financial StatementS 30 june 2012 39. BusiNEss COmBiNATiONs ANd ACquisiTiONs Of NON-CONTROLLiNG iNTEREsTs (CONTiNuEd) Assets and liabilities acquired: The provisional fair value of the net assets acquired as at the date of acquisition were: In thousands of AUD Current assets Cash and cash equivalents Trade and other receivables Other current assets Non-current assets Investments Property plant and equipment Exploration expenditure Intangible assets Goodwill arising on initial recognition of deferred tax assets and liabilities Deferred tax assets Other non-current assets Current liabilities Trade and other payables Employee benefits Provisions Interest bearing liabilities Other current liabilities Non-current liabilities Trade and other payables Interest bearing liabilities Provisions Deferred tax liabilities MRRT fair value of net assets acquired Impairment write down of goodwill Non-controlling interest at fair value Total consideration Cash flows on acquisition: Boardwalk Resources Limited Aston Resources Limited Coalworks Limited 140,678 36,909 29,812 1,849 80 3,837 1,095 26,357 – 3,361 2,036,002 2,124 1,582 3,676 21,328 288,674 56,440 146,989 – 29,894 16,683 – 2,912 64,785 76,165 – – 7,640 3,273 225 (13,768) (56,610) (9,237) (832) – (55,777) (10,000) – – (277) (2,873) (38) (47) (1,275) (70) (4,933) (28,579) – (670) (13,944) (5,258) – – – (46,577) (140,950) (10,914) 375,689 2,047,426 176,626 119,791 – – – 495,480 2,047,426 – (87,764) 88,862 Cash balances acquired (included in cash flows from investing activities) (140,678) (36,909) (29,812) Transaction costs (included in cash flows from operating activities) 7,565 21,523 Transaction costs attributable to issuance of shares (included in cash flows from financing activities) 271 756 722 – Net cash (inflow)/outflow on acquisition – current year (132,842) (14,630) (29,090) Transaction costs – not yet paid 128 9,439 2,000 137 2 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 2012 39. BusiNEss COmBiNATiONs ANd ACquisiTiONs Of NON-CONTROLLiNG iNTEREsTs (CONTiNuEd) The fair values relating primarily to property, plant and equipment, exploration and evaluation expenditure, acquired intangibles and taxation are provisional due to the complexity of the acquisition and due to the inherently uncertain nature of the mining industry, mining properties and intangible exploration and evaluation assets, in particular. The review of the fair value of the assets and liabilities acquired will be completed within 12 months of the acquisition date at the latest. Goodwill arises principally because of the requirement to recognise deferred income tax assets and liabilities for the difference between the assigned fair values and the tax bases of assets acquired and liabilities assumed in a business combination at amounts that do not reflect fair value. The fair value of the non-controlling interest in Coalworks Limited was determined using the $1 per share offer made by the Group to Coalworks Limited shareholders. Prior to acquisition, the Group held an existing equity interest in Coalworks Limited as an available for sale investment. The fair value gain on this investment recognised in other income in the income statement for the current year was $4,766,000 (see Note 9). Acquisition of additional interest in Coalworks Limited In the period from 20 June to 30 June 2012 the Group acquired additional interests in the voting shares of Coalworks Limited, increasing its ownership interest to 77.0%. Cash consideration of $53,112,000 is payable to non-controlling interest shareholders. From the date of acquisition, the companies acquired contributed the following amounts of revenue and net profit/(loss) to the Group: In thousands of AUD Revenue Net profit/(loss)1 Boardwalk Resources Limited Aston Resources Limited Coalworks Limited – – (114,985) 116,118 – – 1 Net profit/(loss) includes the gain on sale of joint venture interest and impairment of goodwill on acquisition of Boardwalk Resources (refer to note 7 for details). If the business combinations had been completed on the first day of the financial year, the consolidated statement of comprehensive income would have included revenue of $nil and a net loss1 of $90.9 million. Transaction costs of $41.4 million have been expensed and are included in administrative expenses. Acquisitions in the year ended 30 June 2011 During the year the consolidated entity acquired a coal marketing business for cash consideration of $7,024,000. The fair values of net assets acquired as at the date of acquisition were: In thousands of AUD Non-current assets Property, plant and equipment Marketing commission rights acquired1 Liabilities Employee benefits fair value of net assets acquired Total consideration Fair value at acquisition date 50 7,000 (26) 7,024 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 were recognised as an intangible asset (refer to note 21). 138 noteS to the Financial StatementS 30 june 2012 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 • Whitehaven Blackjack Pty Ltd • Whitehaven Project Holdings Pty Ltd • Whitehaven Project Pty Ltd • Aston Resources Ltd • Aston Coal 2 Pty Ltd • Aston Coal 3 Pty Ltd • Maules Creek Coal Pty Ltd • Boardwalk Resources Ltd • Boardwalk Coal Management Pty Ltd • Boardwalk Coal Marketing Pty Ltd • Boardwalk Sienna Pty Ltd • Boardwalk Monto Pty Ltd • Boardwalk Dingo Pty Ltd • Boardwalk Ferndale Pty Ltd The Company and each of the subsidiaries entered into the deed on 28 June 2012. 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. 139 2 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 2012 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 2012. as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in note 40 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 The hon. mark vaile Chairman Sydney 14 September 2012 140 inDepenDent auDitor’S report to the memberS oF whitehaven coal limiteD 2 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 141 inDepenDent auDitor’S report to the memberS oF whitehaven coal limiteD 142 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 Aston Resources Investments FRC Whitehaven Holdings BV Hans Mende Fritz Kundrun Farrallon Capital Management LLC 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 Percentage of capital held Number of ordinary shares held per most recent substantial shareholder notice 21.38 216,589,946 7.17 6.91 6.85 5.74 72,650,000 70,019,833 69,433,458 58,153,033 Number of equity security holders 2,056 3,629 1,311 1,068 127 8,191 There are 6 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 395. sECuRiTiEs ExChANGE The Company is listed on the Australian Securities Exchange. 2 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 143 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 HSBC Custody Nominees (Australia) Ltd Aston Resources Investments Pty Ltd (WHC shares exclude opts A/C) National Nominees Limited JP Morgan Nominees Australia Limited (cash income A/C) FRC Whitehaven Holdings BV Boardwalk Resources Investments Pty Ltd HSBC Custody Nominees (Australia) Ltd – GSCO ECA JP Morgan Nominees Australia Limited Citicorp Nominees Pty Ltd JP Morgan Nominees Australia Limited HFTT Pty Ltd (Haggarty Family A/C) Ranamok Pty Ltd (Plummer Family A/C) AET SFS Pty Ltd BNP Paribas Noms Pty Ltd (Master Cust DRP) Citicorp Nominees Pty Ltd (Colonial First State Inv A/C) HSBC Custody Nominees (Australia) Ltd – A/C 2 Aston Resources Investments Pty Ltd (WHC Option Shares A/C) UBS Wealth Management Australia Nominees Pty Ltd HSBC Custody Nominees (Australia) Ltd – A/C 3 HSBC Custody Nominees (Australia) Ltd (NT-Comnwlth Super Corp A/C) Mr Michael Jack Quillen (Quillen Family A/C) This information is current as at 31 August 2012 Number of ordinary shares held Percentage of capital held 133,918,244 112,190,010 95,473,214 77,838,628 72,650,000 67,352,407 50,780,382 50,273,778 48,792,484 36,916,878 33,437,979 29,338,234 26,678,979 19,209,389 10,926,669 10,699,629 10,000,000 8,742,225 8,000,198 7,126,065 6,135,000 13.22 11.07 9.42 7.68 7.17 6.65 5.01 4.96 4.82 5.97 3.30 2.90 2.63 1.90 1.08 1.06 0.99 0.86 0.79 0.70 0.61 879,563,514 86.81 144 corporate DirectorY diRECTORs The Hon. Mark Vaile, Chairman John Conde, Deputy Chairman Tony Haggarty, Managing Director Paul Flynn Philip Christensen Rick Gazzard Christine McLoughlin Allan Davies COmPANy sECRETARiEs Austen Perrin Timothy Burt REGisTEREd ANd PRiNCiPAL AdmiNisTRATivE OffiCE Level 28, 259 George 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 

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