Whitehaven Coal Annual Report 2017

Plain-text annual report

ASX 10 YEAR ANNIVERSARY 2007 to 2017 A DECADE OF GROWTH Whitehaven Coal Annual Report 2017 ASX 10 YEAR ANNIVERSARY 2007 to 2017 From starting as a small operator in NSW’s Gunnedah Basin in 1999, Whitehaven Coal has grown to become a leading producer of some of the world’s highest quality coal. This year marks the tenth anniversary of Whitehaven Coal listing on the Australian Securities Exchange (ASX) under the code WHC. Whitehaven Coal produces more than 20 million tonnes of saleable (100% basis) thermal and metallurgical coal per annum from our suite of mines. In the past decade, the company has established itself as a major player in the Pacific Seaborne coal market. Alongside our international links, our roots remain firmly in the North West NSW region. We are the largest employer in the area, with a total workforce of nearly 1,500 people. The company has contributed more than $1 bn into the local economy in the past five years. Our coal travels from the Gunnedah Basin by rail to the Port of Newcastle before being shipped to customers mainly in Japan, Korea, Taiwan and India. Whitehaven Coal strives for operational excellence and in 2016 the Maules Creek mine was awarded the NSW Minerals Council Mining Operation of the Year. As we look forward to another ten years of success, the proposed Vickery Extension Project is the next chapter in Whitehaven Coal’s story and will consolidate our longstanding commitment to the region. Listed on the Australian Securities Exchange with the code WHC, Whitehaven had 1,026,046 shares on issue as at 30 June 2017. More information on Corporate Governance is elsewhere in this report and available at www.whitehavencoal.com.au Whitehaven Coal’s Annual General Meeting (AGM) will be held on 25 October 2017. An investor calendar is available on Whitehaven Coal’s website at www.whitehavencoal.com.au CONTENTS Overview Strategy Operations Sustainability Resources & Reserves Leadership & Management Financial Report 4 14 24 32 50 52 58 I W E V R E V O Y G E T A R T S I S N O T A R E P O Y T I L I I B A N A T S U S S E V R E S E R & S E C R U O S E R T N E M E G A N A M & P H S R E D A E L I T R O P E R L A C N A N F I I Whitehaven Coal Annual Report 2017 Year Highlights Whitehaven Coal delivered another strong performance in FY2017 as we continued to strengthen and grow the business. Net profit after tax for the year was $405.4m, up from $20.5m In FY2017 full year ROM production grew 13% to 23.1Mt, total saleable production grew by 6% to 20.7Mt, sales revenue by 52% to $1,773.2m. FOB cash costs were $58 per tonne, while EBITDA of $714.2m was up 219%. Equity Basis SALEABLE COAL PRODUCTION (Mt) ROM COAL PRODUCTION (Mt) TOTAL RECORDABLE INJURY FREQUENCY RATE (TRIFR) 15.8Mt 17.7Mt 7.4 PER MILLION HOURS 20 15 10 5 20 15 10 5 0 FY 2007 2015 2016 2017 0 FY 2007 2015 2016 2017 12 10 8 6 4 2 0 FY 2015 2016 2017 2 YEAR HIGHLIGHTS REVENUE ($m’s) NET DEBT ($m’s) NET PROFIT AFTER TAX (NPAT) ($m’s) $1,773M $311M $405.4M 2,000 1,500 1,000 500 0 FY 2007 2015 2016 2017 1,000 800 600 400 200 0 FY 2007 2015 2016 2017 450 375 300 225 150 75 0 FY -75 2007 2015 2016 2017 COSTS FOB ($/t) (EXCLUDING ROYALTIES) OPERATING EBITDA ($m’s) (BEFORE SIGNIFICANT ITEMS) PRICE ACHIEVEMENTS ($/t) (EXCLUDING ROYALTIES) $58/t $714.2M $104 70 60 50 40 30 20 10 0 FY 2007 2015 2016 2017 800 700 600 500 400 300 200 100 0 FY 2007 2015 2016 2017 120 100 80 60 40 20 0 FY 2007 2015 2016 2017 3 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORT Section 1: OVERVIEW Year in Review 10 Year Story Highlights Chairman’s Statement CEO’s Statement 5 6 10 12 4 Year in Review Operations Organisation Corporate The company improved its Total Recordable Injury Frequency Rate to 7.4. Whitehaven’s TRIFR is well below the NSW coal mining average of 14.7. The Group’s workforce was nearly 1,500 people at the end of June 2017. Employee and contractor numbers have grown from the beginning of H1 FY2017 as Maules Creek has continued to expand. Net debt at 30 June 2017 was $311.1 million, with gearing of 9%. The decrease in net debt has been driven by capital management strong cashflows and disciplined capital management. Achieved record saleable production across Group of 20.7Mtpa. Mining activity at Maules Creek entered its next stage with the mine operating at an annualised rate of 10.5Mt in the second half. Increased contracted volumes of higher margin semi soft coking coal from the Maules Creek mine. Around 75 per cent of our workforce live in the area of our operations. Whitehaven’s Aboriginal employment program at Maules Creek was recognised by the NSW Minerals Council and highlighted in the Prime Minister’s Closing The Gap report. The company continues to deliver on ensuring at least 10 per cent of the workforce is made up of Aboriginal or Torres Strait Islander people, reflecting the local population as a whole. Work has neared completion of the various studies to produce the Environmental Impact Statement (EIS) required for Government approval for an expanded Vickery mine (10Mtpa). Community During FY2017 Whitehaven Coal and its Joint Venture partners made significant contributions to the New South Wales (NSW) economy and to local economies in North West NSW. The year saw the successful installation and operation of an expanded 400 metre face at the Narrabri underground mine. The larger face allows a greater volume of coal to be produced and reduces roadway development. One of Whitehaven’s employees, Murray O’Keefe, was named NSW Young Achiever of the Year in the annual NSW Minerals Council industry awards. A total of $171.9 million paid to the NSW Government in mining royalties. Spending $237 million in the Gunnedah, Narrabri, Tamworth and Liverpool Plains region this year. Made 90 donations to local community groups. 5 STRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 1 / OVERVIEWOVERVIEWWhitehaven Coal Annual Report 2017 10 Year Story HIGHLIGHTS ASX 10 YEAR ANNIVERSARY 2007 to 2017 1999 Whitehaven Coal Limited is established 2000 Mining commenced at Canyon open cut mine (formerly Whitehaven mine) 2005 Mining commenced at Werris Creek open cut mine 2006 Mining commenced at Tarrawonga open cut mine 2007 Whitehaven Coal IPO and listed on the ASX 2007 Environmental assessments lodged for mines at Narrabri, Belmont/Rocglen and Sunnyside 2008 $130 million capital raising completed Construction of Narrabri is underway 2009 NCIG under construction 2010 Canyon mine closed, rehab commenced Production commenced at Rocglen Purchase of Vickery Project 6 SECTION 1 / OVERVIEW 2010 Capital raise of $203m Expanded Gunnedah CHPP to 4.0Mtpa 2011 First coal from Narrabri 2013 Narrabri declared Commercial Maules Creek aproved by Government 2014 Construction at Maules Creek 2012 Merger with Aston Resources Boardwalk and Coalworks acquired Longwall installed at Narrabri 2015 First coal at Maules Creek Financial close on a $1.4 billion Senior Secured Bank Facility 2016 2016 2017 Record ROM production at more than 20Mtpa on a 100% basis Maules Creek declared commercial Company won industry awards for Aboriginal employment program at Maules Creek, apprenticeship program (and for Annual Report) Record year of production, 23 million ROM Coal Y G E T A R T S I S N O T A R E P O Y T I L I I B A N A T S U S S E V R E S E R & S E C R U O S E R T N E M E G A N A M & P H S R E D A E L I T R O P E R L A C N A N F I I 7 OVERVIEW Whitehaven Coal Annual Report 2017 10 Year Story HIGHLIGHTS ASX 10 YEAR ANNIVERSARY 2007 to 2017 Whitehaven Coal was first formed in 1999 to develop the Canyon open-cut mine near Gunnedah. The success of this mine led to operations commencing at Tarrawonga and Werris Creek before the company listed on the ASX in 2007, raising $26m. Whitehaven Coal story since 2007 (100% basis) FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 39.4 34.9 136.3 108.8 148.0 149.2 17.1 90.4 130.3 224.1 714.2 24.1 12.9 77.3 55.1 73.3 57.8 -67.2 -28.4 -10.7 20.5 405.4 2.3 2.8 3.3 3.9 4.7 4.9 8.2 10.3 14.6 19.7 20.7 EBITDA (Aud M)* NPAT (Aud M)* Saleable Coal Production (Mt) ( 100% Managed Basis) * Excluding significant items from FY2008 onwards. 8 SECTION 1 / OVERVIEW This year marks the 10th anniversary of the listing and in that time Whitehaven Coal has gone from strength to strength. In our first year after listing we produced 2.3m tonnes of coal and now we produce ten times that and have grown to have a market capitalisation of over $3 billion. Whitehaven’s saleable production since the listing in 2007 (100% basis) Million tonnes (Mt) 25 20 15 10 5 0 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Y G E T A R T S I S N O T A R E P O Y T I L I I B A N A T S U S S E V R E S E R & S E C R U O S E R T N E M E G A N A M & P H S R E D A E L I T R O P E R L A C N A N F I I 9 OVERVIEW Chairman’s Statement It gives me great pleasure to report on Whitehaven Coal’s performance during the 2017 financial year. Ten years since the company’s listing on the ASX, your company is now firmly entrenched as Australia’s leading independent coal company. This year has again been a record-breaking one for the company, one in which we produced, shipped and marketed in excess of 20 million tonnes of premium quality coal. In recording a profit for the year to 30 June 2017 of $405.4m, we have delivered the highest profit in the company’s history. As reported elsewhere in this report, Whitehaven Coal achieved revenue of $1773.2m, kept costs low at $58/t and delivered on our commitment to reduce debt. The share price between 1 July 2016 and 30 June 2017 rose 168% and this year has seen the Board propose to make a distribution of 20 cents per share, subject to shareholder approval. This payment to shareholders demonstrates the confidence that the Board has in the business. To our long-standing shareholders, and newer entrants to the registry, we thank you for your ongoing support. In declaring this result, I would like to thank Paul Flynn and his outstanding executive team for again showing great leadership across our business, industry and local community over the past 12 months. I would also pay tribute to Whitehaven Coal’s strong and dedicated workforce for helping deliver another outstanding year. A decade of growth This year marks the tenth anniversary of the listing of Whitehaven Coal on the ASX. The company itself was founded in 1999 to develop the Canyon mine near Gunnedah. In the decade since listing in 2007, your company has grown and now produces ten times the amount of coal than it did in the year of listing. We have a proud history in the Gunnedah Basin where our mines, local investments, workforce and community contributions are centred. As I am fond of saying, the Gunnedah Basin is home to some of the highest quality coal in the world, coal which service export markets in Asia where it helps countries such as Japan and Korea meet their carbon emissions reduction targets. As an Australian miner with a local focus, we want our projects to be environmentally and economically sustainable, and for the local community to benefit from our presence over the long-term. We are the largest non- government employer in the North West NSW region, with a workforce of more than 1,500 working across eight geographically dispersed sites. Since 2012 Whitehaven Coal has invested around $1bn in the economy in North West NSW, with wages, payments to councils, support for businesses and sponsorships and donations to community groups. We have a strong track record of creating skilled jobs and bringing new investment and prosperity to the region. But as we look forward to the next decade, we want to do more. Our Vickery Project means a bigger Whitehaven Coal and more investment in local communities. The Vickery Project will support the local community by delivering more jobs, more investment and greater economic security. Drafting of the EIS document and supporting documents is nearing completion. A decision of the preferred rail route is close and is likely to be concluded in the September quarter. Timing for construction commencement of the Vickery project remains market dependent, but will likely occur once Maules Creek has been fully ramped up to its 13Mtpa capacity. 10 Whitehaven Coal Annual Report 2017SECTION 1 / OVERVIEW W E I V R E V O Y G E T A R T S Y T I L I I B A N A T S U S Innovation I would like to close my report with a few words about innovation. Whitehaven Coal is an innovative company in an innovative industry. At our world-class Maules Creek mine, the use of ultra-class equipment – trucks and excavators – has increased productivity and reduced costs. Up the road at our underground Narrabri operation, the longwall and newly installed 400 metre wide face is fully automated and was one of the first in Australia to be equipped with computerised operating system which enables horizon control. It is pleasing that Narrabri is now one of the most productive underground mines in Australia and the mine has consistently outperformed its original design capacity. Conclusion At our Gunnedah open cuts, the commissioning of a new explosives provider has lowered the amount of explosives used and improved fragmentation of the blasted material. The use of the explosives has also contributed to improved productivity of the mining fleet and lowered costs. And with our high-quality coal helping countries across the region lower their carbon emissions, Whitehaven Coal and Australian coal producers more generally are well-placed to meet the increased global demand for cleaner coal. Reflecting on the past year, and the decade since Whitehaven listing, it is fitting to thank and pay tribute to my fellow Directors, our Joint Venture Partners, shareholders, banking syndicate, management (both past and present), workforce and of course shareholders for their support over recent years. As we look forward to another decade of success, your company would not be in the strong position that we are in today without your support. We look forward to another outstanding year in FY2018. The Hon. Mark Vaile AO Chairman 11 OPERATIONSRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTCEO’s Statement This has been another significant 12 months of achievement for Whitehaven Coal. We continue to make strong progress both operationally and financially and this is thanks to a strong team driven effort. Before I set out some of our achievements and priorities, it is worth reflecting a little on how far we have come as a company. As many shareholders will know, Whitehaven Coal was formed in 1999 to develop the Canyon open-cut mine near Gunnedah. The commencement of operations soon followed at Tarrawonga and Werris Creek before the company listed on the Australian Securities Exchange in 2007. The past decade has seen your company grow from a relatively small mining company to a major coal player in the Australian (and international) markets. Reporting on the past financial year, my thanks to all who have made this happen. From our excellent management team to our dedicated workforce who so diligently go about their business each day. The hard work has been rewarded by the company reporting its highest ever profit for the year. This is a fitting result for a company celebrating its 10 year anniversary of listing on the ASX and reflects well on all of those people who have shared and participated in the journey. It is also pleasing to demonstrate the confidence that the board has in the business by proposing a 20 cents per share distribution to shareholders. The investments made over the past five years are generating healthy cash flows, debt levels have fallen over the last two years by more than $600m from their peak and the company has a strong balance sheet so shareholders can expect to receive more returns. Operations Turning to some of the achievements of the past 12 months, Whitehaven Coal set a series of records for FY2017: – ROM coal production of 23.1Mt (up 13%) – Saleable coal production of 20.8Mt (up 6%) – Coal sales of 20.7Mt (up 3%). Importantly, we have delivered what we said we would do this time last year: a continued focus on safety, meeting production guidance provided to the market, holding costs in the first quartile, and continuing to repay debt. Each of our operations has contributed greatly over the course of the year. Obviously the largest single contributor to the year on year improvement has been Maules Creek at 9.7Mt ROM coal. The Narrabri underground mine overcame some operational challenges early in the year to produce 7.3Mt ROM coal, and installed the first 400m wide longwall face. Elsewhere, the set of smaller Gunnedah open cut mines – Werris Creek, Tarrawonga and Rocglen – again showed why they remain the bedrock of the business with record annual production of 6.1Mt ROM coal. Of particular note is the strong safety performance at all of the Gunnedah operations registering only one recordable injury for the entire year. Our team’s continued focus on safety has seen Whitehaven Coal’s Total Recordable Injury Frequency Rate (TRIFR) reduce to 7.4. This compares with an NSW mining industry average of 14.7. Safety remains a key priority and further focus will be placed on ensuring ongoing high safety standards. Community As the region’s largest single employer, we continue to grow a strong and productive workforce. This in turn has been a major contributor to our region being one of the most healthy, from a growth perspective, across the State. Over the past 12 months we have continued to build on our efforts to maintain and grow good relations with the local community. One such initiative supported this year was the launch of the Girls Academy in Gunnedah. The Girls Academy works within local school systems to provide support for Indigenous high school age girls to engage in school and pursue their goals. Our goal is that as Whitehaven continues to grow, the composition of the company’s workforce should reflect the population in which we operate. As such, this year we launched maternity leave support for existing employees and as reported in our recent WGEA submission, increased the number of female employees by 26% and female operators by 56%. We will continue to focus on making progress in this important area and endeavour to identify opportunities for local people to join Whitehaven. 12 Whitehaven Coal Annual Report 2017SECTION 1 / OVERVIEW Y G E T A R T S I S N O T A R E P O Y T I L I I B A N A T S U S Whitehaven’s continued efforts in community relations has been recognised this year around the wider community. Our Aboriginal employment program at Maules Creek was highlighted as a model of best practice by the Prime Minister in this year’s Closing The Gap report, while Maules Creek employee Murray O’Keefe was awarded the Young Achiever Award at the 2017 NSW Mining Industry and Suppliers’ Awards. The Young Achiever Award recognises an inspirational young professional aged between 18–35 years who is building a successful career in mining. Congratulations to Murray. Outlook Coal has powered the industrialised world’s development and prosperity over the past century. Cheap, affordable, scalable and accessible energy has lifted millions out of energy poverty and improved living standards and life expectancy across the entire world. As shareholders in Whitehaven Coal, you may be aware that your company has been passionate advocates for the coal industry. We will continue to be so. As a supplier of some of the highest quality coal in the world, we are well-placed to meet the increasing global demand for cleaner coal. Our coal basin produces exceptionally high-quality coal which gives us a major competitive advantage in the premium growth markets of Asia. When our coal is used in high efficiency low emissions power stations (HELE) now commonplace in our exports markets, it generates substantially less emissions than any power station here in Australia. Looking ahead, our focus for the next year is on: – An enhanced focus on safety as our number one priority – Consolidating our growth operationally to bolster our business processes and systems ready for the next wave of growth – Delivering increased saleable production but maintaining a laser focus on cost control – the submission of the Environmental Impact Statement for the Vickery Extension Project. From a financial perspective, our balance sheet is in a strong positon and we will continue to focus on further reducing our debt, returns to shareholders and providing flexibility for future growth. In conclusion, it has been another strong year of delivery, and on many levels we believe a successful year. Thank you for your support. Paul Flynn Managing Director and CEO 13 RESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTOVERVIEWSection 2: STRATEGY Strategy Future Growth: Vickery Extension Project Creating Value Coal and its Global Role today Coal and Future Demand in Asia Coal and Technology 15 16 18 20 21 22 14 Strategy Whitehaven Coal’s strategy is focused on enhancing the strong position we have established as the coal supplier of choice, the employer of choice and the coal mining investment of choice. As we continue to grow our business, our long-term priorities are: Premium Markets Projects Operating Efficiency Whitehaven Coal continues to have a long-term commitment to reduce costs, wherever it is safe to do so. By doing so, we have been able to grow margins and productivity to support future growth and capital improvements. Whitehaven Coal continues to strengthen relationships with established customers throughout the key markets of Japan, Korea and Taiwan, while generating new opportunities across South East Asia and beyond. Our high-quality coal ensures we are aligned to the Asian markets that require a premium product. Premium Products As the dominant player in the only emerging high-quality coal basin in Australia, Whitehaven Coal is uniquely positioned to fulfil the needs of those markets requiring premium quality coal. The world wants technological advancement and more energy created with lower emissions. Regulatory change around the world encourages the use of Whitehaven’s high-quality coal. Having delivered the tier one Maules Creek mine ahead of schedule and below budget, Whitehaven Coal has a track record of efficient project management. As we look forward to another ten years of success, the proposed Vickery Extension Project is next in our pipeline of projects to meet market needs. Talented Personnel Whitehaven Coal is committed to developing the skills of its people, working together to build a culture of respect, transparency and efficiency, while continuing to attract and retain the right people with the right skills to meet the future demands of the business. 15 OVERVIEWOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSTRATEGYSECTION 2 / STRATEGYFuture Growth: Vickery Extension Project Whitehaven Coal’s Vickery Extension Project seeks to expand the size of the already-approved Vickery Coal Project. The Project site is located approximately 25 kilometres north of Gunnedah in the Gunnedah Coal Field. The project encompasses the former Vickery Mine and the former Canyon mine, which closed in 2010. Whitehaven Coal received approval from the NSW Government for the 4.5Mtpa Vickery open cut mine in September 2014. We are now seeking approval to increase production up to 10.0Mtpa. The increased production will help fund new infrastructure for the mine, including a new washery and rail line. A new rail line will see coal mined by Whitehaven transported via rail, reducing the amount of coal trucks on local roads initially, and potentially removing coal trucks from shared roads altogether in the future. A new coal washery on site at Vickery will enable us to close and transfer the functions of the Gunnedah CHPP currently located at the northern end of town. If approved, the Project is expected to create 500 jobs during the construction phase, and 450 jobs during operations. Consistent with all our operations, the majority of our operational workforce will be based in the local community. Vickery last operated as a functioning open cut mine in the late 1990s and the site has been partially rehabilitated. A completely revised and enhanced Environmental Impact Statement for the Vickery Extension Project is due to be lodged with the NSW Department of Planning and Environment in September 2017. The NSW Department of Planning and Environment is expected to take up to eighteen months to approve the Vickery Extension project. During this time Whitehaven will seek to form a joint venture by selling up to 30% of the project to potential product offtakers and or investors. Once the project is approved the Whitehaven Board, along with the joint venture partners, will consider the final investment decision. Vickery Projects Timeline 2007 – 2017 The Vickery Extension Project will provide more investment and greater economic security for the local region 500 JOBS If approved, the Project will provide 500 jobs during the construction phase and 450 jobs during operations 1990s Vickery last operated as a functioning mine in the late 1990s The final investment decision will be taken subject to market conditions and the outlook for the sale of the high-quality products to be produced by the project. FY2011 Initial JORC resource for Vickery released FY2015 Approval received for the Vickery project at initial 4.5Mtpa ROM coal 2017 FY2010 Purchase of Vickery project from Rio Tinto 2007 16 Whitehaven Coal Annual Report 2017SECTION 2 / STRATEGY I W E V R E V O I S N O T A R E P O Y T I L I I B A N A T S U S S E V R E S E R & S E C R U O S E R Vickery Project Indicative Timeline from 2017 CY2018 Formation of JV, interested parties invited to participate H1 CY2019 Proposed project approval by all the relevant Government authorities 2017 September 2017 EIS lodged, approval process commenced H1 CY2019 Board to make final investment decision CY2023 Fully ramped production of 10Mtpa ROM coal and 8.5Mt saleable product comprising 40% thermal coal and 60% metallurgical coal available for sale 17 LEADERSHIP & MANAGEMENTFINANCIAL REPORTSTRATEGY Creating Value Building long-term relationships with our customers, people, communities and investors. Customer Value Employee Value Community Value STAKEHOLDERS Employees working across Whitehaven’s operations – Employment and career pathways – Training and development ENGAGEMENT – Professional development – Annual safety day – Leadership briefing sessions – Employee surveys – Internal communications channels including prestart meetings, company emails, newsletters, site notices and events STAKEHOLDERS Steel producers and power plants, including joint venture partners, in Japan, Taiwan, Korea and South East Asia – Safe, reliable and consistent supply and delivery of quality products – Maintain strong technical and commercial relationships through open and honest communication and delivering on our promise ENGAGEMENT – Japan office (with in-country employee) – Highly skilled and experienced marketing team – Quality control of Whitehaven products – Targeted continuous improvement programs – Regular visits to operations STAKEHOLDERS Local and Aboriginal communities in proximity to Whitehaven’s operations and the broader North West NSW community – Potential environmental and social impacts associated with Whitehaven’s operations – Sustainable community development through local employment, training and education, business development and opportunities, and investment in services and amenities – Culture and heritage impacts ENGAGEMENT – Office in Gunnedah central business district – Community consultation and engagement – Whitehaven-hosted community events – Donations and sponsorship program – Partnerships and investments in major projects – Trainee and apprenticeship programmes – Dedicated Aboriginal Community Relations employee We have helped 18 countries meet their energy needs over the past 12 months We made payments of $159.4m to around 1,000 employees in remuneration and superannuation We have invested $1bn in the North West NSW economy since 2012 In the past year we made 90 donations to community groups 18 Whitehaven Coal Annual Report 2017Supplier Value Investor Value Economic Value STAKEHOLDERS STAKEHOLDERS Sourcing and collaborating with range of diverse suppliers, including businesses local to Whitehaven’s operations in North West NSW – Working closely with suppliers and contractors to achieve mutually beneficial outcomes – Transparent communication throughout contract award process and meeting agreements and processes on an ongoing basis ENGAGEMENT – Regular meetings, communication and reviews with strategic suppliers and contractors – Strategic relationships with contractors and suppliers – Early engagement with key contractors and suppliers for major projects Shareholders, investors and regional and international organisations concerning environmental, human rights, sustainability and corporate social responsibility – Long-term wealth creation – Risk management – Community engagement – Environmental performance – Human rights – Compliance ENGAGEMENT – Annual report – Sustainability reporting – State and Federal Government reporting – Media releases – ASX announcements – Environment and community departments STAKEHOLDERS Federal, State and Local Governments, businesses and suppliers, local workforce ENGAGEMENT – Job creation – Taxes, royalties and Voluntary Planning Agreement payments – Funding of public infrastructure and services – Payments to business and service suppliers – Training and employment – Supporting innovation and productivity We worked with more than 350 local suppliers during the past year 167% shareholder return between 1 July 2016 and 30 June 2017 $171.9m in royalties paid to the NSW Government this year $3.5m in voluntary planning agreements payments last year for local community infrastructure 19 OVERVIEWOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 2 / STRATEGYSTRATEGYCoal and its Global Role Today Coal is a critical provider of modern necessities such as power, light and heat through reliable and affordable electricity generation, and in the form of everyday materials such as steel and concrete. Coal provides 41% of the world’s electricity, 75% of the world’s steel and 85% of the world’s cement production. According to the International Energy Outlook (IEO) 2016, coal remains the second-largest primary energy source worldwide—behind oil. Coal represents 29% of global primary energy (IEA, WEO 2016, p.204; IEA, Medium Term Coal Market Report 2016, p.17 ). Coal-fired power plants currently fuel 41% of global electricity (IEA, WEO 2016, p.204). Coal currently accounts for 29% of global primary energy demand, compared to 31% for oil, 21% for gas and 1% for renewables (excluding large-scale hydro and biomass)( IEA, WEO 2016, p.57). In the future the world faces a huge challenge in meeting global energy demand. Technology-driven urban lifestyles, the growth of the middle class, rising incomes, and more electricity- enabled appliances and machines will contribute to electricity demand doubling (WEC, World Energy Scenarios 2016 p.9). All sources of energy will be needed to meet this challenge. While renewables will have a role to play, fossil fuels are the only source able to provide base load electricity around the clock. According to the IEA, global electricity from coal is expected to grow to 2040 (IEA, WEO 2016,) even as its overall share decreases relative to other fuels and renewables. 11% Global electricity generation from coal is expected to grow by around 11% to 2040* 29% Coal accounts for 29% of global primary energy demand^ Source: *World Coal Association. IEA, WEO 2016. ^IEA, WEO 2016, p.57. Global primary energy demand under the IEA New Policies Scenario Global electricity mix 2014 total primary energy demand 13,684 Mtoe Coal Oil Gas Nuclear Renewables 2040 total primary energy demand 17,866 Mtoe Coal Oil Gas Nuclear Renewables 29% 31% 22% 5% 13% 23% 27% 24% 7% 20% 2014 electricity generation 23,809 TWh 2040 electricity generation 39,047 TWh Coal Oil Gas Nuclear Hydro Bioenergy 41% 4% 22% 11% 16% 2% ‘New’ renewables 4% Coal Oil Gas Nuclear Hydro Bioenergy 28% 1% 23% 12% 16% 3% ‘New’ renewables 17% Source: World Coal Association. International Energy Agency, World Energy Outlook 2016, see page 49 for more details. Source: World Coal Association. International Energy Agency, World Energy Outlook 2016. Coal increases from 9,707TWh to 10,787TWh, see page 49 for more details. 20 Whitehaven Coal Annual Report 2017Coal and Future Demand in Asia In its annual World Energy Outlook 2016 report, the IEA forecasts that coal will remain the largest single source of electricity generation through to 2040. Most of the new demand for coal will be driven by South East Asia and India. The IEA continues to see an increase in global coal use by 0.2% per year, and says China’s coal use will continue to make up more than half of the country’s total power generation, with Australia remaining the largest coal exporter, followed by Indonesia. Also the IEA predicts that the future of energy growth will be led by non-OECD countries, with India, South East Asia and China in particular leading demand. Based on the 2016 IEA World Energy Outlook report, global coal demand will have rebounded to 2014 levels as a result of growth in India and South East Asia by 2040, and over 80% of global coal consumption will take place in Asia. Electricity demand in South East Asia almost triples over the period, to around 2000 TWh in 2040, an increase bigger than current demand in India. The world wants technological advancement and more energy created with lower emissions. Whitehaven Coal is uniquely positioned to fulfil the needs of those markets such as Asia requiring premium quality coal. Installed Coal Generation Capacity by Country/Region South East Asia electricity generation by source in the New Policies Scenario Southeast Asia electricity generation by source in the New Policies Scenario 3,000 2,500 2,000 1,500 1,000 500 0 historical projected 2.5 2 1.5 1 0.5 0 2.5 2.0 1.5 1.0 h W T d n a s u o h T 0.5 0 1990 2000 2010 2020 2030 2040 2015 2020 2025 2030 2035 2040 China India Japan Korea Taiwan Other Asia Africa Europe North America Central America Mediterranean South America Coal Oil Year Gas Nuclear Renewables Source: World Coal Association Analysis. Source: Adapted from IEA WEO 2015. 21 OVERVIEWOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 2 / STRATEGYSTRATEGY Coal and Technology Even in a world where renewables play a larger role in the energy mix, coal such as Whitehaven’s best quality, high energy, low ash, low sulfur coal, has a vital role to play. There is an assumption that we can get rid of coal, and only by getting rid of it can we meet climate objectives. This is false. Coal plays a critical role in the world’s energy mix and is going to do so for a very long time to come. Coal is not the problem, emissions are, and in order to reduce emissions and get us on the pathway to achieving the Paris Agreement’s well below 2 degree target, high efficiency low emissions (HELE) technologies should be supported to reduce emissions. HELE and Australia Australia is facing an energy shortfall with 8GW of coal plants to retire by 2030, and a total of 25GW by 2040. While wind and solar have a role to play, the only affordable, reliable electricity available 24/7 comes from coal-fired plants. Coal-fired generation is both reliable and affordable. It runs at capacity well over 85 per cent of the time (compared to 20 to 37 per cent for intermittent renewables); it strengthens the grid and because Australia has the highest quality coal in its backyard, it provides national energy security. Leading HELE technology already anchors electricity production of countries such as Japan and Germany. Fast growing economies of Asia are also building and planning some 1200 HELE plants. Sources: Minerals Council of Australia factsheet The Affordable Energy Solution (July 2017). Cost by generation to meet Australia’s looming 50,000GWh shortfall HELE WIND SOLAR PV Capacity required 6.5GW Construction cost $14BN Capacity required 15.4GW Construction cost $33.9BN Capacity required 28.5GW Construction cost $59.9BN Source: Solstice Development Services, 2017; GHD, 2017; MCA Calculations. Note: 50,000GWh is the approximate output of Liddell, Yalloum, Vales Point and Gladstone that are likely to close by 2030 (Hazelwood is an additional 11,000GWh). HELE technologies and efficiency improvements EFFICIENCY RATE* CO2 INTENSITY COAL CONSUMPTION STEAM TEMPERATURE More Efficient Advanced ultra-supercritical 45–50% 670–740g CO2/kWh 290–320g/kWh 700˚C+ Ultra-supercritical Up to 45% 740–800g CO2/kWh 320–340g/kWh 600˚C+ Supercritical Up to 42% 800–880g CO2/kWh 340–380g/kWh Approx. 550˚C–600˚C Less Efficient Subcritical *Lower heating value Up to 38% ≥880g CO2/kWh ≥380g/kWh <550˚C Source: Adopted from IEA, Technology Roadmaps, High-efficiency lo-emissions coal-fired power generation, 2012. 22 Whitehaven Coal Annual Report 2017HELE and emissions reductions HELE coal-fired generation reduces emissions by up to 50 per cent. A HELE USC emits 0.773 t CO2 /MWh or 49 per cent less than the recently retired Hazelwood brown coal plants or 25 per cent less than subcritical black coal plants which dominate Australia’s coal fleet. If all existing coal plants in Australia upgraded to the best HELE technology this would reduce emissions by 45 million tonnes per year or 25 per cent of National Electricity Market coal emissions. Importantly, HELE USC also sets us on the pathway to adopting CCS which would reduce CO2 emissions to near negligible levels of 0.106 t CO2 /MWh. For the first time, Australian engineering experts have produced a 550-page technical study and cost estimate to build a HELE coal-fired power plant in Australia. Solstice Development Services and GHD conclude the construction cost of building a 1000 MW ultra- supercritical (USC) plant would be $2.2 billion. Electricity sourced from a HELE plant is also the cheapest at $40 to $78 MWh compared to gas at $69 to $115 MWh. Intermittent wind ($64 to $115 MWh) and solar ($90 to $171 MWh). These costs blow out further when the necessary cost of battery storage is added. The study shows significant savings by using existing power station sites and utilising the latest technology from Asia. A HELE plant costs less to build than the $3 billion of subsidies to renewables every year and is the lowest cost 24/7 power. Sources: Minerals Council of Australia factsheet The Affordable Energy Solution (July 2017). Solstice Development Services, Prospects for a HELE USC coal-fired power station development desktop study, June 2017, GHD, HELE power station cost and efficiency report, June 2017. 8GW NEM baseload capacity closing between 2017 and 2030 $3BN Government subsidies paid to renewables in Australia in 2015–16 193% Average state electricity wholesale price increase in the year to March 2017 $2.2BN The cost of building a 1000 MW USC plant on a brownfield site Source: Solstice Development Services, 2017; GHD, 2017; MCA Calculations. HELE electricity is the lowest cost 24/7 power (A$/MWh) Electricity generations costs 2017 1,000 800 600 400 200 0 USC black coal USC black coal with CCS Combined cycle gas Combined cycle gas with CCS Open cycle gas Intermittent wind Wind with combined cycle gas Wind and battery Intermittent solar PV Solar and battery 23 OVERVIEWOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 2 / STRATEGYSTRATEGYOur Assets Outlook Maules Creek Narrabri Gunnedah Open Cuts Infrastructure and Logistics 25 26 28 29 30 31 24 Section 3:OPERATIONSOur Assets Whitehaven Coal Tenements Maules Creek Mine Narrabri Tarrawonga Mine AUSTRALIA NSW Gunnedah Sydney PACIFIC OCEAN Whitehaven Coal shipped to premium Asian markets Narrabri Mine Gunnedah CHPP Boggabri Gunnedah Vickery Project Rocglen Mine Tamworth Gunnedah Coal Basin Werris Creek Mine Gloucester Muswellbrook Singleton NEW SOUTH WALES 0 50 km 100 Key: Whitehaven Assets Railway Newcastle (PWCS and NCIG Coal Terminals) Sydney Managed Coal Sales FY2017 Thermal Coal Sales FY2017 16.2Mt Japan Taiwan Korea Chile Malaysia Indonesia Other 63% 11% 7% 3% 3% 2% 11% Metallurgical Coal Sales FY2017 4.4Mt India Japan Korea China Taiwan Vietnam Other 29% 20% 14% 13% 10% 8% 6% 25 OVERVIEWSTRATEGYSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 3 / OPERATIONSOPERATIONSOutlook Operations Demand Saleable coal production guidance for FY2018 is in the range of 22Mt to 23Mt, higher than FY2017 as Maules Creek is expected to produce ROM coal at an annualised rate of 10.5Mt for the full year and ROM production from Narrabri is also expected to increase. The next ramp up step for Maules Creek is scheduled to commence early in FY2019. ROM production from Narrabri in FY2018 is expected be higher than FY2017 following the installation of the wider longwall face and the requirement for only one longwall change-out. ROM coal production for the Gunnedah open cuts is expected to return to a level more in line with historical run rates. Maules Creek and Narrabri are tier one assets with long mine lives and industry leading low cost structures. There are opportunities to increase production at both mines in the near and medium term, while prospects also exist for life of mine extensions. These mines are now firmly established as key pillars underpinning Whitehaven’s future success. Whitehaven’s high-quality, clean coals continue to attract strong demand from a growing customer base in over ten countries. Whitehaven has attracted a number of new customers during FY2017 in countries such as China and Vietnam for semi soft coking coal and Malaysia for thermal coal. Recent analysis by CRU, a respected industry consultant, indicates that demand for seaborne thermal coal will continue to grow steadily over the next five years. The growth profile incorporates declining imports by China, modest import growth by India and strong import growth from a number of developing South East Asian countries. Pricing Coal demand remains strong, especially in Asia, and is responsible for the improvement in prices for both metallurgical and thermal coal in recent weeks. The demand for thermal coal in China increased as hot weather and reduced hydro availability increased the coal burn in thermal power stations. Imports of thermal coal into the country have been higher than anticipated, and when combined with weather related constraints on supply from Indonesia and some production issues in Australia, have pushed up the price of seaborne thermal coal in the past two months. While most of these issues are likely to be resolved in coming months, the confluence of events has provided a good platform for the thermal coal price as FY2018 unfolds. In the longer term, as a number of Asian countries continue to deploy new HELE power stations, the demand for high-quality thermal coal will continue to grow strongly. Following a six month period of extreme price volatility in spot metallurgical coal prices after the Queensland cyclone, metallurgical coal prices are now stabilising. The price remains well supported by strong steel production in China and a number of other countries. One area of uncertainty is the pricing mechanism for metallurgical coal types. The drawn out negotiations to settle quarterly benchmark prices for the June quarter and subsequent changes to the quarterly benchmark pricing methodology are likely to result in closer correlation between quarterly benchmark and spot index prices. Thermal Coal Price/t (globalCOAL Newc Index) USD AUD 150 120 90 60 30 26 01/07/2016 01/10/2016 01/01/2017 01/04/2017 01/07/2017 Whitehaven Coal Annual Report 2017 SECTION 3 / OPERATIONS 27 I W E V R E V O Y G E T A R T S Y T I L I I B A N A T S U S S E V R E S E R & S E C R U O S E R T N E M E G A N A M & P H S R E D A E L I T R O P E R L A C N A N F I I OPERATIONS Maules Creek Whitehaven’s newest and largest coal mine produced 9.7Mt of ROM coal and 9.0Mt of saleable coal during the year. The production ramp up continued in line with schedule as more mining equipment was added progressively to the mining fleet. The pace of ramp up is limited by the amount of space within the open cut where the large ultra class equipment can operate safely and efficiently. Maules Creek was operating at an annualised rate of 10.5Mt in the second half of the year and will continue to operate at that rate for all of FY2018. It is worth noting that commercial operations only began two years ago and already the mine is making a significant contribution to Whitehaven’s total production, profitability and cash flow. It is pleasing to report that market acceptance of the Maules Creek thermal and metallurgical coal products has been outstanding. The high-quality thermal coal is being eagerly sort by many of Whitehaven’s key customers along with new customers. Most of the thermal coal production is now sold under longer term contracts with pricing linked to the globalCOAL NEWC Index. Customers are paying an average a premium of around 9% over the Index price for the coal because of its higher energy and low ash qualities. Sales of metallurgical coal are increasing ahead of expectations and reached 26% of total coal sales from the mine for the year. Expectations are that coal sales from Maules Creek will reach 50:50 thermal and metallurgical coal mix over the next three years. Many metallurgical coal customers are still in the testing phase for the coal, seeing how the coal performs in their respective coking coal blends, Maules Creek Mine Timeline 2007 – 2017 Maules Creek Saleable Coal Production (Mt) 10.0 7.5 5.0 2.5 0.0 2012 FY2014 2013 FY2015 2014 FY2016 2015 2016 FY2017 before they will commit to longer term contracts. However, several spot/trial customers have already signed up to longer term contracts and are likely to become long-term customers for the product. Mining has commenced below the Braymont seam with the first of several lower seams likely to be accessed later this year. These seams contain higher quality coking coal and will enhance the overall quality of the coking coal sold into the market. This should attract more customers in the future. The number of employees at the mine continues to increase. More than 70 employees at the mine are from an Indigenous background. The number of female operators at the mine is 12% of the workforce. Production guidance for FY2018 is in the range of 10.3Mt and 10.6Mt ROM coal. Actual production of 9.7Mt ROM coal for FY2017 was in the range provided as guidance for the year. FY2013 Final approvals obtained from both Federal and NSW Government for Maules Creek Project FY2015 First coal railed from Maules Creek less than one year after construction commenced FY2017 Increased production at Maules Creek to annualised rate of 10.5Mtpa FY2012 Merger with Aston Resources and Whitehaven FY2012 Sold 10% stake in Maules Creek project to J-Power Australia Pty Ltd FY2014 Construction of Maules Creek Project commenced FY2016 Maules Creek named NSW Mine of the Year – produced 7.4Mt saleable coal in first year of commercial production 2007 28 Whitehaven Coal Annual Report 2017Narrabri In another strong year and one in which the face widening project was completed, ROM coal production was 7.3Mt. Saleable coal production was 7.0Mt for the year. The mine continues to be one of the most productive and lowest cost underground mines in Australia. As indicated above, mining in the final 300 metre wide longwall panel (LW106) was completed in the second half of the year. The subsequent longwall changeout was completed on schedule and budget with mining of the first 400 metre wide panel commencing in April. The installation of the 400 metre wide panel which cost about $84 million on a 100% basis was the culmination of a two year expansion project at the mine. Work included expanding coal stockpile space on the surface, upgrading the electricity supply to the longwall and upgrading the conveyor system to haul the coal from the mine to the surface. Future production from the mine will be higher and costs lower than could be achieved with the 300 metre wide face. Work is underway in the exploration lease to the south of the current mining lease at Narrabri with a view to increasing the Resource and Reserves in the area. A drill programme commenced early in 2017 along with mine planning and environmental studies. The results of this activity should become available over the next year and could lead to an increase in Narrabri mine life. Production guidance for FY2018 is in the range of 8.0Mt to 8.4Mt ROM coal. Actual production of 7.3Mt ROM coal for FY2017 was modestly below the guidance range of 7.5Mt to 7.8Mt provided with the half year results. Narrabri Mine Timeline 2007 – 2017 Narrabri Saleable Coal Production (Mt) 8 6 4 2 0 2012 FY2013 2013 FY2014 2014 FY2015 2015 FY2016 2016 FY2017 One of the most productive underground mines in Australia. FY2009 Narrabri construction ongoing FY2011 Expansion of existing operations – four continuous miners operating at Narrabri FY2013 Narrabri declared commercial FY2015 Record production during year – including Narrabri at 7.7Mt ROM coal for year FY2017 Narrabri’s 400 metre wide longwall operating 2007 FY2008 Narrabri Project approved and lease granted. Narrabri JV formed with sale of 7.5% stakes to Yudean Group, EDF Trading and J-Power FY2010 Sale of 7.5% stake in Narrabri to Korean consortium FY2012 Longwall installed at Narrabri and undergoing commissioning FY2014 Second longwall changeout at Narrabri completed FY2016 Move to widen longwall at Narrabri by 100 metres to 400 metres 29 OVERVIEWSTRATEGYSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 3 / OPERATIONSOPERATIONSGunnedah Open Cuts The three foundation mines owned by Whitehaven – Tarrawonga, Rocglen, Werris Creek and associated Gunnedah CHPP performed very strongly and safely in FY2017. Tarrawonga and Rocglen set new full year production records of 2.7Mt and 1.6Mt respectively. Total ROM coal production from the three mines was 6.1Mt for the year, significantly above the guidance range of 5.2Mt to 5.5Mt ROM coal. Saleable coal production for the year was 4.8Mt with the difference between ROM and saleable coal production due to a build up in coal stocks at the mines in the final month of the year. As a result of the increased production and improved efficiencies costs across the three mines were lower than expected, helping these foundation mines make an increased contribution to Whitehaven’s results for the year. The TRIFR across the operations was less than 1.0 at year end. This rate is significantly below the NSW open cut average rate. This is a creditable performance by these mines as they set the pathway for all of Whitehaven’s operations. As previously indicated ROM coal production exceeded guidance for FY2017. Production guidance for FY2018 is expected to be in the range of 5.0Mt and 5.4Mt. Gunnedah Open Cuts Timeline 2007 – 2017 FY2009 Production commenced at Rocglen and Sunnyside FY2008 Whitehaven moves to full ownership of Werris Creek mine 2007 FY2008 Rocglen Project approved and lease granted. Construction commenced 30 Open Cut Saleable Coal Production (Mt) 6.0 4.5 3.0 1.5 0.0 2012 FY2013 2013 FY2014 2014 FY2015 2015 FY2016 2016 FY2017 Rocglen: one of our Gunnedah mines underpinning our operations FY2017 Record year of production FY2013 Cost-cutting initiatives include Sunnyside placed into Care and Maintenance and Mine Plans at Tarrawonga and Rocglen revised Whitehaven Coal Annual Report 2017Infrastructure and Logistics Rail Track Rail Haulage Port Capacity Whitehaven contracts its below rail capacity with the Australian Rail Track Corporation (ARTC). The capacity framework which governs this contract has been recently renegotiated for a further 5 year term with a material reduction in track access costs. Whitehaven continues to work with ARTC to expand effective capacity within the Gunnedah Basin without requiring additional physical infrastructure through improved operating efficiencies. The objective of this work is to improve supply chain productivity and reduce costs. Whitehaven has two rail haulage contracts, one with Pacific National and one with Aurizon. These contracts have a common expiry date in 2026. These contracts provide for the haulage of up to 30Mtpa, which allows for all currently projected brownfield expansions. The company is able to align planned increases in production with contract rail haulage capacity by giving notice to the rail providers of the need for additional capacity. This supports the planned increases in Whitehaven’s managed production levels, whilst minimising fixed cost exposure. Whitehaven holds contracts at the Port of Newcastle – either at NCIG or PWCS – to support planned shipments. Whitehaven will require additional port capacity for the forecast production ramp up over the next 5 years. There is currently surplus port capacity available at the port for both short-term surge and long-term annual requirements. 31 OVERVIEWSTRATEGYSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 3 / OPERATIONSOPERATIONSSustainability Key Statistics Health and Safety People 33 34 36 38 Diversity and Inclusion Community Aboriginal Engagement Environment 40 42 44 46 32 Section 4:SUSTAINABILITYSustainability Whitehaven Coal is committed to operating a sustainable business. We recognise the importance of underpinning our operations with an aligned organisational culture, effective stakeholder engagement, good governance and business processes that embed sustainable practices into our day-to-day operations. Since 1999 Whitehaven Coal has had its roots firmly in North West NSW. As we have grown to become the largest private employer in the area, so the region has grown with us. Whether protecting the local environment, employing and training local people, supporting local organisations or helping fund new community infrastructure, Whitehaven Coal has a record of achievement since 1999. Whitehaven Coal focuses on programs that can deliver greatest long-term benefits to the local community. This includes the opening a new dedicated office in Gunnedah CBD in 2016 to enhance the link with the local community and provide the opportunity for members of the community to directly engage with the company. The local community supports our approach. A survey carried out by Newgate Research revealed that 66% of people in Gunnedah support mining and Whitehaven Coal has the strongest reputation in the region among mining companies who have coal mines in the Gunnedah Basin. Ensuring a continued positive influence in the community will require long-term investment and resources. Respect and care for the community is the best way of showing mining can and does co-exist with other industries such as agriculture. COMMUNITY $1bn Whitehaven Coal has contributed around $1 billion to the North West NSW region since 2012 LOCAL BUSINESS 350 Last year we worked with more than 350 local businesses and suppliers Our focus in the coming year will continue to emphasise how we: – maintain our strong safety record – most effectively and efficiently manage our impact on the environment – empower and support our people to perform at the highest level, and – continue to engage and support local community development Whitehaven Coal’s Health, Safety, Environment and Community Committee sets the direction for the company’s continuing commitment to the highest safety, environmental management and community engagement standards. Working with Whitehaven Coal’s executive and senior management teams, the Committee helps ensure Whitehaven Coal has the leadership, capabilities, systems and reporting procedures required to achieve zero harm. Whitehaven Coal regularly reports our activities to Community Consultative Committees that have been established for each mine that we operate. Documents on our website include the: – Employee Code of Conduct – Diversity Policy – Continuous Disclosure Policy – Securities Trading Policy – Political Donation Policy – Anti-Corruption Policy – Donations and Sponsorship Policy. Awards and Achievements Whitehaven Coal strives for operational excellence and in 2016 the Maules Creek mine was awarded the NSW Minerals Council Mining Operation of the Year. One of the team at Maules Creek, Murray O’Keefe, Acting Mining Supervisor, was named Young Achiever of the Year by the NSW Minerals Council in 2017. The Indigenous employment program at Maules Creek was recognised by the NSW Minerals Council as ‘best in class’ within the industry and was included as a case study in the Prime Ministers Closing the Gap report for 2017. Whitehaven Coal’s apprenticeship and trainee scheme has won two awards – the Large Host Employer and Safety award – at the HVTC Excellence Awards. 33 OVERVIEWSTRATEGYOPERATIONSRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 4 / SUSTAINABILITYSUSTAINABILITYKey Statistics Performance data Safety and People Number of employees (FTE)* Percentage of female representation in company Percentage identifying as Aboriginal and/or Torres Strait Islander employees Fatalities Total recordable injury frequency rate per million hours worked (TRIFR) 7.4 Lost time injury frequency rate per million hours worked (LTIFR) Safety – number of penalty infringement notices *Not including contractors. 2.2 0 ASX 10 YEAR ANNIVERSARY 2007 to 2017 Year to 30 June 2017 Year to 30 June 2016 Year to 30 June 2015 960 11.0% 11% 0 843 10.3% 11% 0 10.6 2.8 0 779 8.7% 8% 0 9.7 2.1 0 Environment: Land Environment – number of penalty infringement notices Land owned/leased (hectares) Land disturbed (hectares) Land rehabilitated (hectares) Land leased for agriculture (hectares) Land based biodiversity offset (hectares) Properties leased for agricultural purposes Year to 30 June 2017 Year to 30 June 2016 Year to 30 June 2015 3 68,314 2,942 668 27,572 21,741 112 2 4 65,487 63,270 2,672 653 29,382 20,078 111 1,450 550 30,350 20,078 109 INFRASTRUCTURE COMMUNITY $3.5M committed this year to local infrastructure and service upgrades 90 donations to community groups and projects PEOPLE 75% Around three quarters of our workforce live in the area of our operations, supporting the local economy 34 Whitehaven Coal Annual Report 2017Environment: Energy Greenhouse gas emissions (kilotonnes CO2-e) Intensity – greenhouse gas emissions (tonnes CO2-e per tonne ROM coal) Total energy use (terajoules) Intensity – total energy use (gigajoules per tonne ROM coal) 0.193 *Most recent reportable period. Year to 30 June 2016* Year to 30 June 2015 Year to 30 June 2014 1,161.8 0.057 3,967.5 761.8 0.048 3,128.4 0.198 465.6 0.040 2,212.2 0.192 Environment: Water Water license allocation (mL) River/bore water extraction (mL) Water used (mL) Water recycled (mL) *Data not available for year to 30 June 2015. Economic: Community Wages and Salaries ($m) Payments in taxes and royalties to governments ($m) Payments to businesses and suppliers in North West NSW ($m) $237.7 Voluntary planning agreement expenditure ($m) $3.5 Number of donations and sponsorships made to community groups 90 Donations and sponsorships ($’000) $296 Year to 30 June 2017 Year to 30 June 2016 Year to 30 June 2015 9,804 1,464 3,649 2,826 9,925 1,580 3,964 1,985 –* –* –* –* Year to 30 June 2017 Year to 30 June 2016 Year to 30 June 2015 $159.4 $226.3 $139.3 $166.0 $203.0 $6.4 75 $217 $125.6 $129.6 $214.9 $0.9 70 $208 PEOPLE 140 staff participated in the 2017 Whitehaven Coal Safehaven Conference LAND 2% of land owned by Whitehaven is actively mined ENVIRONMENT 160,000 trees planted in biodiversity offsets this year 35 OVERVIEWSTRATEGYOPERATIONSRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 4 / SUSTAINABILITYSUSTAINABILITYHealth and Safety Whitehaven Coal’s operations share the conviction to never compromise on the health and safety of our people, making this a priority at all times. Our goal is for zero workplace injuries or illness and for every person to go home safe and healthy after each work day. Whitehaven Coal’s people are committed to continually improve performance and provide a safe and healthy workplace for fellow employees, business partners and contractors. As the company continues to grow its operations, Whitehaven Coal proactively reviews and improves its practices, responses and training procedures, collaborating with internal and external specialists to educate, communicate and engage with our workers. On health, Whitehaven Coal takes cares of workers by preventing and reducing exposure to noise, dust, manual handling and vibration. The potential for fatigue to contribute to safety incidents is understood across the industry and Whitehaven Coal uses a range of methods to reduce potential for harm. Whitehaven Coal sites have been smoke-free since 2016 and wellness campaigns have also taken place around obesity, mental health, stretching, hydration and skin cancers. Whitehaven and NSW coal TRIFR Whitehaven Coal TRIFR NSW Coal TRIFR 25 20 15 10 5 0 14.67 7.42 Jul ’13 Jan ’14 Jul ’14 Jan ’15 Jul ’15 Jan ’16 Jul ’16 Jan ’17 Note: Data includes WHC employees and contractors at all mine sites, Gunnedah CHPP and Corporate office. TRIFR refers to total recordable injury frequency rate. Performance Whitehaven Coal safety performance confirms the effectiveness of the Safehaven Rules introduced by the company in 2014. In FY2017 Whitehaven’s TRIFR (Total Recordable Injury Frequency Rate per million hours worked) was 7.42. The Whitehaven group TRIFR has halved since the Safehaven program began in 2014. Whitehaven’s TRIFR rate compares favourably with the NSW industry benchmark of 14.7. On an operational basis the Gunnedah operations registered only 1 recordable injury for the year. Over the year there were no fatal incidents across Whitehaven’s operations. All high-risk incidents were investigated and necessary measures taken to prevent similar incidents. CASE STUDY Safehaven Conference More than 140 people from across Whitehaven took part in the company’s annual Safehaven Conference. The day provided an opportunity for our people to come together in an internal forum to reinforce Whitehaven expectations, review current programs and introduce new areas of focus. Topics discussed this year included critical control monitoring, airborne dust, personal health, movement for improvement and safety leadership. Attendees heard from a number of keynote speakers including Victoria Cross awardee Daniel Keighran, motivational speaker Matt Church and work safety advocate Helen Fitzroy. Whitehaven also holds health and safety forums for key contractors twice a year, with the most recent attended by 240 people. 36 CASE STUDY Movember For the third year in a row employees supported the Movember appeal, which supports activities related to tackling men’s health issues. Among the fundraising activities the team at Maules Creek donated $2,359 to Movember this year, with the total raised now in excess of $10,000 over the past three years. Maules Creek Mine employees: Craig Brewster, Plant Operator, Murray O’Keefe, Mining Supervisor and Bec Severin, Plant Operator. Whitehaven Coal Annual Report 2017Mines Rescue For the fifth consecutive year the team at Narrabri took part in the Hunter Valley Mines Rescue Underground Competition. The team’s fantastic results of second in 2015 (beaten by only ½ point) and winners in the First Aid component in 2016 reflect both the effort and importance the team members place on aspiring to be industry leaders in underground rescue. The Hunter Valley Mines Rescue Competition is designed to help simulate underground emergencies so mines can practice rescue in real life emergency scenarios. The competition covers scenarios such as First Aid, Search and Rescue, Breathing Apparatus and a theory paper on Mines Rescue’s procedures and equipment. The competition also tests the teams’ proficiency and ability to complete these scenarios under the critical eye of Mines Rescue personnel and accredited assessors. The competition is not mandatory for Mines Rescue teams to attend, however Narrabri supports the initiative of the team to aspire to be industry leaders in underground mines rescue. Narrabri has firmed its support for the competition by electing to hold the Australian Titles at Narrabri in late 2017. The Narrabri Coal Mines Rescue Team are sponsored by: – Pirtek – Impact Mining – Cougar Mining – Stripes Asset Services – Continental Eagle – Turner Signs & Embroidery – Blackwoods – Westrac – BIS Industries – Australian Drilling Systems – Banksia Group Safety Values We believe that safe production is the only way We believe that all incidents can be prevented Working safely is a condition of employment We want and need everyone’s input to do business safely 3737 OVERVIEWSTRATEGYOPERATIONSRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 4 / SUSTAINABILITYSUSTAINABILITYPeople Whitehaven Coal is focused on creating the conditions in which people can realise their potential and consistently deliver high performance. The company does this through a diverse workforce, inclusive culture, a dynamic and flexible work environment, advanced systems and a lean management structure to minimise costs and drive productivity. Local Employment Focus Sourcing the majority of the workforce, contractors and service providers from the local areas in which we operate, Whitehaven Coal understands the important role each mine plays in supporting regional Australia and the future of the resources sector. Whitehaven Coal provides employment, training, apprenticeships and educational opportunities to support the advancement of individual careers during a time of significant change in energy demand, technology and legislation. As the leading private sector employer in the North West NSW region, Whitehaven Coal’s local employment focus is a key strategic pillar of the business. The company encourages employees to live locally and support the local communities in which the company operates, rather than promoting fly-in-fly-out principles. As at 30 June 2017, Whitehaven Coal’s overall workforce including contractors was nearly 1,500 people, of whom almost 1,000 are full time equivalent employees. Apprenticeships and Vocational Training Whitehaven Coal has run an apprenticeship program since 2011. Operated in conjunction with Hunter Valley Training Company (HVTC), Whitehaven has hosted 25 apprentices, and since late 2016 has 14 apprentices working with the company. One of Whitehaven Coal’s first year electrical apprentices, Georgia Foley, was recently awarded the Bert Evans Scholarship, which recognises a female apprentice in a non-traditional trade for women. The ongoing commitment to offering apprenticeships and traineeships extends to vocational employment. This year, the company focused on raising awareness of its 2017/18 Vacation Employment Program. Primarily aimed at Mining, Electrical and Mechanical Engineers, the Program will run from December 2017 until March 2018. Whitehaven representatives visited university careers fairs in both NSW and QLD to discuss the Vacation Employment Program with students for the first time in FY17. People Priorities Whitehaven Coal’s ongoing focus is to ensure it builds, supports and benefits from an increasingly diverse workforce that is reflective of the general population of the region in which we operate, whilst fostering and encouraging an inclusive workplace. The benefit of longevity of having mine lives of 30 plus years provide the company with the platform to bring the opportunity for generational change in the North West region. To further attract, support and retain a diverse population of valued employees, a number of initiatives were recently undertaken or are currently underway, including the following: – A paid parental leave program was introduced, providing up to 18 weeks of paid parental leave for eligible employees – A leadership development program was recently launched to invest in people managers across the business, and to provide coaching and support to women in senior roles – Whitehaven commenced sponsorship of WIMnet NSW Mentoring Program which provides women in the mining industry with mentors from whom they can learn and receive career guidance and development. The company also offered some of its female employees the opportunity to participate as mentees in the program – Investigations were undertaken to review the adequacy of childcare demands versus supply in the region. Although current needs appear to be met, a watching brief will be kept on this as both the company and the region grow. Commitment and Values Our commitment is to be: A leading producer of some of the world’s highest quality coal A company that has locally-based employees wherever possible 38 A proud member of and leading employer in the North West NSW region A company that achieves Zero Harm to our people and our community A provider of stable and secure employment opportunities for local Aboriginal people Whitehaven Coal Annual Report 2017 SECTION 4 / SUSTAINABILITY (Pic Of Ian Lorrenz NSWMC Award) CASE STUDY One of Whitehaven Coal’s first year electrical apprentices, Georgia Foley, was this year awarded the Bert Evans Scholarship which recognises a female apprentice in a non-traditional trade for women. Pictured is Georgia with Whitehaven’s Aron Cane, HVTC field officer Paul Briscoe and Tamworth MP Kevin Anderson. The scholarship awards $5000 each year for three years. This year also saw Maules Creek employee Murray O’Keefe be awarded the Young Achiever Award at the 2017 NSW Mining Industry and Suppliers’ Awards. The Young Achiever Award recognises an inspirational young professional aged between 18–35 years who is building a successful career in mining. Murray, 29, joined Whitehaven’s then under construction flagship open cut operation at Maules Creek in July 2014. Whitehaven Coal CEO and Managing Director Paul Flynn said Murray is to be congratulated for his achievements not only as a dedicated and gifted mining employee, but as a great local role model for young people in Gunnedah. “Murray is a great example of what young people can achieve if they set goals and work hard to achieve them”, said Mr Flynn. Pictured is Murray (centre) celebrating his award with Whitehaven’s EGM Operations, Jamie Frankcombe (left), and Peter Wilkinson (right), General Manager Maules Creek. To promote Whitehaven Coal’s 2017/18 Vacation Employment Program, a team attended careers fairs around NSW and Queensland. Primarily aimed at Mining, Electrical and Mechanical Engineers, the program will run from December 2017 until March 2018. To promote the program, some of the Whitehaven team attended career fairs at the University of Newcastle, University of NSW and University of Brisbane where students could find out more about the company, the program and future career prospects. The core values of our business are: Safety in all our operations Continuous development and improvement Openness with customers and partners Social and environmental responsibility Operational excellence and sustainable growth Professionalism and integrity in everything we do Leadership in all areas 39 I W E V R E V O Y G E T A R T S I S N O T A R E P O S E V R E S E R & S E C R U O S E R T N E M E G A N A M & P H S R E D A E L I FINANCIAL REPORTSUSTAINABILITY Diversity and Inclusion Whitehaven Coal aims for an inclusive workplace that welcomes people from diverse backgrounds that reflect diversity of gender, culture, experience and skills. Our goal is that as the company continues to grow, the composition of the workforce should reflect the population in which we operate. The company’s Diversity Policy, which is reported in accordance with the requirements of the Workplace Gender Equality Act 2012 (Act), shows that Whitehaven Coal continues to make good progress on increasing female participation in our workforce. Over the last year, female representation in the business has increased to 11%. A total of 12% of operational roles at Maules Creek are being carried out by females, reflecting an above industry average figure, while at the Whitehaven Board level, two of our six non-executive Directors are female. Whitehaven’s annual public report lodged with the Work place Gender Equality Agency can be accessed at www.whitehavennews.com.au/ gender-diversity/ AT 30 JUNE 2017 FEMALE % MALE % Board Senior Management Other/Employees Total 2 4 99 105 29% 13% 11% 11% 5 33 824 862 71% 87% 89% 89% AT 30 JUNE 2016 FEMALE % MALE % Board Senior Management Other/Employees Total 2 5 82 89 29% 13% 10% 10% 5 34 722 761 71% 87% 90% 90% While the WGEA report specifically references gender diversity, Whitehaven has continued to make good progress across multiple elements of diversity and equality in our workforce over the last 12 months, as reflected by the following: – Approximately 11% of Whitehaven’s employees self-identify as Aboriginal and/or Torres Strait Islander – More than 70 Indigenous employees at our Maules Creek mine – Approximately $12 million in annual salaries flowing through our Indigenous workforce back into the local communities within which we operate – Whitehaven’s Indigenous employment program at Maules Creek was by the NSW Minerals Council as ‘best in class’ within the industry, and was included as a case study in the Prime Minister’s Closing the Gap report for 2017 – The company continues to support programs that facilitate access to education, and assisting new and developing local Aboriginal and Torres Strait Islander businesses. Paul Flynn, Whitehaven Coal Managing Director and CEO (centre), took part in a panel discussion to help launch a new EY report called ‘Has mining discovered its next great resource?’ in association with Women in Mining. The discussion was led by Tracey Waring, EY Global IFRS Mining and Metals Leader. 40 Whitehaven Coal Annual Report 2017Performance Against Diversity and Inclusion Objectives Each year the Board review and approve measurable diversity and inclusion objectives. Progress against these objectives for FY17 is summarised below. Key area of focus include: – Representation and participation – Leadership development – Community and industry – Systems, processes and performance metrics Diversity and Inclusion Objectives For FY17 Progress Over FY17 Representation and Participation: Increase representation of female and Aboriginal employees across the business – Female representation in business increased to 11% – Females occupy 12% of operational roles at Maules Creek, Whitehaven’s largest open cut mine site – Introduced paid parental leave for eligible employees – Aboriginal representation across company is 11% – More than 70 Indigenous employees at Maules Creek. Leadership Development: Community and Industry: Systems, Processes and Performance Metrics: – Pilot leadership development program launched to support people managers and help female leaders transition into more senior roles – Design of a career path survey to investigate employee views on their ambitions and development, ready to launch in FY18 – Female employees offered mentee positions under WIMnet mentoring program to offer career guidance and development – Informal mentors provided to support new Aboriginal employees – Continuation of apprenticeship and cadet programs. – Continue to meet targets and milestones set out in Reconciliation Action Plan 2015–2017 – The Executive team attended an on-site Aboriginal Cultural Awareness training program – Commenced sponsorship of WIMNet Mentor Program, providing mentoring opportunities to develop women in the mining industry – Continued recognition of women in the workplace through submissions to Women in Mining Awards – Continued sponsorship and development of female apprenticeships and promotion of female cadet work experience programs – Company continues to support programs facilitating access to education, and assisting new and developing local Aboriginal and Torres Strait Islander businesses. – Ongoing monitoring of data on number of female and Aboriginal applications, interviews and appointment statistics using e-recruitment system – All vacancies advertised on Our Mob, an Aboriginal careers website – Quarterly reporting on diversity performance metrics for each site – Monitor tenure data and collect exit interview data to gain understanding of reasons for employee turnover – All advertised vacancies state Whitehaven’s commitment to increasing the number of women and Aboriginal people in workforce and welcomes applicants who reflect diversity of gender and culture – Monitoring pay equity as part of WGEA reporting and annual salary review, and identify areas needed to be addressed. Going forward, the focus for FY18 will continue to be on these four key pillars outlined above to foster diversity and inclusion, by building upon initiatives introduced over FY17, and introducing new programs and processes. We are confident this will assist Whitehaven to continue on its path towards an increasingly productive, diverse and ultimately more successful workforce as it grows in future years. 41 OVERVIEWSTRATEGYOPERATIONSRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 4 / SUSTAINABILITYSUSTAINABILITYCommunity Whitehaven Coal recognise that creating social and economic value in the communities in which the company operates is critical for the success of our business. $1BN contributed to the North West NSW region in the last 5 years 66% of Gunnedah residents support mining $237.7M spent in local region in the year has been distributed to council projects through the Maules Creek Voluntary Planning Agreement Our focus is on programs that can deliver greatest long-term benefits to the local communities that host our operations. Engagement with local communities happens in a variety of ways. Whitehaven regularly reports activities to community consultative committees and through newsletters, media releases and advertising while feedback can be provided through a dedicated office in the Gunnedah central business district. The company carries out formal consultations, carries out an annual community survey and holds community days including this year hosting a family day at the Maules Creek and Werris Creek mines along with numerous site visits by community and local interest groups. The local community supports our approach. A survey carried out by Newgate Research revealed that 66% of people in Gunnedah support mining and Whitehaven Coal has the strongest reputation in the region among mining companies who have coal mines in the Gunnedah Basin. Measuring Social and Business Value Since 2013 Whitehaven Coal has contributed around $1 billion to the North West NSW region. This is made up of wages to employees, payment to councils for community projects, support for local businesses and suppliers and donations to community groups and organisations. In FY2017 Whitehaven spent $237.7 million in the Gunnedah, Narrabri, Tamworth and Liverpool Plains regions. The company committed $3.5 million to local infrastructure and service upgrades last year and last year made 90 annual charitable grants, donations and sponsorships to community groups. This support focuses on programs supporting health, education, representative level Indigenous sport and whole of community benefit. Each mine has a voluntary planning agreement with the relevant council. More than $13.4 million has been distributed to council projects through the Maules Creek Voluntary Planning Agreement, which has funded the Narrabri airport upgrade and improved water supply infrastructure at Baan Baa. Over the past three years, various Boggabri projects have received $800,000. Among the major activities supported this year included the Narrabri Education Foundation, Boggabri Multi Purpose Centre, Narrabri Education Foundation, Narrabri, Gunnedah and and Quirindi Shows, North Narrabri, Boggabri Drovers Campfire, Boggabri Health, Winanga-Li Aboriginal Child and Family Centre in Narrabri, Girls Academy, Narrabri and Gunnedah Education Fund and a range of other community organisations. Maules Creek Mine Open Day 42 Whitehaven Coal Annual Report 2017Gunnedah Narrabri Australian champion Bareback Rider Dee Heinemann (NARRABRI EMPLOYEE) Champion boxer Wade Ryan (NARRABRI EMPLOYEE) Boggabri Werris Creek 43 OVERVIEWSTRATEGYOPERATIONSRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 4 / SUSTAINABILITYSUSTAINABILITYAboriginal Engagement In 2015, we began executing on the objectives set out in our first Reconciliation Action Plan (RAP). Our RAP operates across all areas of the business and contains practical and meaningful objectives to address issues affecting local Aboriginal and Torres Strait Islander people. Since launching the inaugural RAP in September 2015, we have achieved the following: – More than 80 Indigenous people employed at our Maules Creek mine – Around 11% employees self-identify as Aboriginal and/or Torres Strait Islander people – We estimate that approximately $12m in annual salaries are flowing through our Indigenous workforce back into local communities – Pleasingly, our Indigenous employment program at Maules Creek was recognised by the NSW Minerals Council as ‘best in class’ within the industry and was included as a case study in the Prime Ministers Closing the Gap report for 2017. Whitehaven’s approach goes beyond direct employment. We support programs that facilitate access to education from kindergarten through to university and mature age. These include: – The Winanga-Li Aboriginal Child and Family Centre in Gunnedah, which was the first of nine Aboriginal Child and Family Centres to open its doors in NSW – Our partnership with the Girls Academy, which will assist Gunnedah High School participants on a pathway to tertiary education and/or securing long-term employment. Our commitment to assisting new and developing local Aboriginal and Torres Strait Islander businesses continues to progress and moving forward we are working with our major contracting companies and suppliers to encourage support for Aboriginal and Torres Strait Islander employment and business development within their spheres of influence. Whitehaven’s Aboriginal and Torres Strait Islander business procurement commitment was highlighted in case studies for the NSW Minerals Council, Aboriginal Affairs NSW (OCHRE Report), and the NSW Small Business Commission. Whitehaven continues to be represented on the NSW Industry Based Agreement for the Minerals Industry to actively promote Aboriginal and Torres Strait Islander business development. Whitehaven also participates in a Minerals Council Indigenous Relations Working Group. 11% of Whitehaven’s employees self-identify as Aboriginal and/or Torres Strait Islander people $12 MILLION in annual salaries are flowing through our Indigenous workforce back into local communities ‘BEST IN CLASS’ Indigenous employment program at Maules Creek was recognised by the NSW Minerals Council To continue progress, Whitehaven Coal will publish its next RAP document later this year, moving from an ‘Innovate’ to a ‘Stretch’ RAP. NAIDOC Week NAIDOC Week celebrations are held across Australia each July to celebrate the history, culture and achievements of Aboriginal and Torres Strait Islander peoples. NAIDOC is celebrated not only in Indigenous communities, but by Australians from all walks of life. The week is a great opportunity to participate in a range of activities and to support your local Aboriginal and Torres Strait Islander community. As per our Reconciliation Action Plan, each year Whitehaven Coal holds an on-site BBQ at an operating site with guest speaker/s from the local Aboriginal community to celebrate NAIDOC Week. Over the past two years on-site BBQs have been hosted at Narrabri (pictured) and Tarrawonga. 44 Whitehaven Coal Annual Report 201745 OVERVIEWSTRATEGYOPERATIONSRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 4 / SUSTAINABILITYSUSTAINABILITYWhitehaven Coal Annual Report 2017 Environment Whitehaven Coal is committed to safe, responsible and sustainable environmental management across all aspects of our operations. Air Quality Water Noise Management Waste and Recycling The company is operating under stringent noise guidelines, set by the NSW Government. A number of sites utilise predictive meteorological systems to plan operations to minimise noise impacts. Real-time monitoring is in place to allow our site- based staff to undertake adaptive management to minimise noise impacts. The company also implements a range of other noise management measures such as sound attenuation on mining equipment. Whitehaven generates various types of waste during exploration, construction, operation and closure activities across its mining facilities. Our strategy for mineral waste management includes segregation and placement of overburden and coal reject materials in waste emplacements which are designed to be safe, stable and non-polluting. Wherever possible Whitehaven segregates recyclable materials and engages specialist contractors for collection and reprocessing. Air emissions from Whitehaven’s coal mines are tightly regulated. All coal mines have in place systems for monitoring and managing air quality, particularly dust from excavation and haul truck activity and emissions arising from the use of explosives. Monitoring results are made available through each site’s Community Consultative Committee and on our website. Each of our operations are guided by site-specific Water Management Plans. In FY2017 Whitehaven’s total water allocation across our operations was 9,804 megalitres. The total amount used was 3,649 megalitres – around a third of our available allocation. Much of the water used by our operations is obtained from rainfall captured in dams at our sites and is used to assist mining activities, coal washing and dust suppression. Mine water cannot be released off site (except on certain regulated occasions at our Werris Creek operation). Sediment laden water is permitted to be released following certain rainfall events or under controlled release scenarios where the water quality complies with strict criteria. 46 SECTION 4 / SUSTAINABILITY We are mindful of the impact of our operations on the environment and surrounding communities and undergo extensive assessments for surface water, groundwater, flood impact, flora and fauna, Aboriginal cultural heritage, historical heritage, air quality, agriculture and geochemistry impacts. As Whitehaven has grown as a business, we have worked to ensure the business maintains strong sustainability practices throughout every stage of the mining process, from prior to commencement, during operations until well after eventual close. Each Whitehaven operation also implements rehabilitation plans, working to minimise potential impacts on the local environment and where appropriate returns mining areas to pre-mining vegetation communities such as pastoral, woodland and forest for future use. An extensive library of resources are available on the Whitehaven Coal website including regulatory approvals, monitoring data, performance reviews and factsheets. Progressive Rehabilitation Whitehaven applies an integrated approach to land management to ensure responsible rehabilitation practices are reflected throughout every stage of the mining life cycle. Where applicable, disturbed land is generally rehabilitated to align with pre-mining vegetation communities such as pasture, woodland and forest. Rehabilitation monitoring is conducted in accordance with each site’s Mining Operations Plan and relevant management plans. Closure Planning Closure plans and financial provisions to execute these plans are developed and maintained for all of Whitehaven’s sites. Closure planning plays an important role in the planning and development of Whitehaven’s projects and operations to ensure that the legacy impacts of its operations are minimised. A key component in the development and fulfilment of the company’s closure plans is the consultation and engagement with key stakeholders to ensure that land is returned in a state that supports future opportunity and long-term benefit. Whitehaven’s closure plans are subject to external review and approval. Management of Non-Mining Land Most of the land we own and lease is not involved in mining activities. The majority is set aside as biodiversity offsets or is licensed to local farmers for productive agricultural activities. About two per cent, or less than 2,000 hectares of our land is involved in current mining activities or is being rehabilitated after mining. Where industry activity intersects with agriculture, Whitehaven seeks to put land to productive use. Nearly 30,000 hectares of land are being used for agricultural purposes. This can include arrangements with previous managers of the land to continue grazing or cropping. This ensures non-mining land continues to contribute to a diverse local economy. Biodiversity Whitehaven has more than 20,000 hectares of land that are being managed as biodiversity offset areas. These areas are established conservation areas to offset impacts which cannot be avoided, managed or mitigated due to the nature of the coal resource. These offset areas are based on guidance from independent experts and regulatory authorities to ensure they represent like- for-like, or better, biodiversity values than the area impacted by operations. This years significant offset-related work has been undertaken: – 668 hectares rehabilitated – 160,000 trees planted in offset areas – An additional 937 hectares of revegetation has been prepared – 16.8 kilometres of new fencing installed – 76 kilometres of old fencing removed – 11,000 hectares sprayed for weed control. 47 OVERVIEWSTRATEGYOPERATIONSRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSUSTAINABILITYClimate Change At Whitehaven, we recognise that the production of coal and coal-fired generation are associated with greenhouse gas emissions, and we are aware of our responsibilities to help preserve the environment for current and future generations. As a major coal producer, we also recognise our responsibility to continue providing the energy people need. The task we share with many others is to support, develop and introduce new coal-production and energy- generation technologies and working practices that will help to reduce environmental impact while continuing to meet global energy demands. We believe that the high energy, low ash product we produce will become an increasingly important source of the move to using higher quality coal for power generation. The trend to new, more efficient coal fired generation in the Asia-Pacific region is critical to Australia’s role as a key energy exporter, and high-quality Australian coal is ideally suited to help bring about a lower emissions future, today. To assess how carbon policy and regulation will impact our business we closely monitor national and international climate and energy policy developments. We advocate for policies that are environmentally effective and economically efficient. Whitehaven mines some of the best quality coal in the world, high in energy and low in ash, sulphur and other impurities. Our coal assists key customers, such as the Governments of Japan and Korea, reduce their carbon emissions by up to 30 per cent. 48 Whitehaven Coal Annual Report 2017SECTION 4 / SUSTAINABILITY International Energy Agency Projections The International Energy Agency (IEA) regularly makes projections about world coal demand based on various future scenarios for energy development. The scenarios used by the IEA as the bases for these projections vary by time and publication. Further details are available to the public directly from IEA, including through the IEA’s website: www.iea.org/publications/scenariosandprojections The “New Policies Scenario” is IEA’s central scenario in its World Energy Outlook report (WEO). It incorporates policies and measures affecting energy markets that have already been adopted, as well as other relevant commitments and plans that have been announced by countries, including national pledges to reduce emissions and plans to phase-out fossil fuel subsidies, even if the measures to implement these commitments have yet to be identified or announced. Different scenarios used by the IEA in its projections of energy demand have different implications for coal usage. Projected coal usage is highest in the “Current Policies Scenario” and lowest in the “450 Scenario.” The Current Policies Scenario (previously called the “Reference Scenario”) assumes no changes in policies from the mid-point of the year of publication, thus considering policies and measures that have already been formally enacted, but assuming that governments do not implement any commitments that have yet to be finalised by legislation and will not introduce any new policies affecting coal usage. Finally, the 450 Scenario assumes implementation of a set of government policies consistent with a goal of limiting long-term increases in the average global temperature to two degree Celsius, a limit determined by various governments and non-governmental organisations and recognised by nations of the world in the 2010 United Nations Climate Change Conference in Cancun, Mexico. Although the New Policies Scenario is the IEA’s central scenario, the IEA does not endorse any particular scenario as being a more probable forecast than the others. 49 OVERVIEWSTRATEGYOPERATIONSRESOURCES & RESERVESLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 4 / SUSTAINABILITYSUSTAINABILITYSection 5: RESOURCES & RESERVES Coal Resources August 2017 Measured Resource (A) Indicated Resource (B) Measured + Indicated (A + B) Inferred Resource (C) Competent person Report date CL375 AUTH346 EL8072 220 400 620 Tenement Maules Creek Opencut* Narrabri North Underground** Narrabri South Underground** Tarrawonga Opencut*** Tarrawonga Underground ML1609 180 EL6243 EL5967 ML1579 ML1685 ML1693 EL5967 ML1579 ML1685 ML1693 Werris Creek Opencut ML1563 ML1672 Rocglen Opencut ML1620 Rocglen Underground ML1620 Vickery Opencut Vickery Underground Gunnedah Opencut CL316 EL4699 EL5831 EL7407 EL8224 ML1464 ML1471 ML1624 EL5183 CCL701 Gunnedah Underground EL6450 EL6587 Bonshaw Opencut Ferndale Opencut EL7430 EL7430 Ferndale Underground EL6861 Oaklands North Opencut EPC862 Pearl Creek Opencut**** 30 42 10 15 5 – 230 – 7 2 – 103 – 110 – 190 150 18 15 2 4 3 165 95 47 138 4 135 – 260 14 370 180 60 25 17 9 3 395 95 54 140 4 238 – 370 14 30 – 140 13 14 – – 1 110 135 89 24 7 134 73 580 38 1 2 3 4 4 4 4 4 5 5 4 4 4 6 6 4 7 Mar-17 Mar-17 Mar-16 Mar-17 Apr-14 Mar-17 Mar-17 Mar-15 Jul-15 Jul-15 Jun-14 Jun-14 Jun-14 Jan-13 Jan-13 Jun-14 Nov-12 Total Coal Resources 954 1640 2594 1388 1. Shaun Tamplin, 2. Charles Parbury, 3. Rick Walker, 4. Benjamin Thompson, 5. John Rogis, 6. Greg Jones, 7. Phill Sides * Maules Creek Joint Venture - Whitehaven owns 75% share. ** Narrabri Joint Venture - Whitehaven owns 70% share. *** Whitehaven owns 70% share of opencut resources within ML1579, ML1685 and ML1693. The total combined resource for Tarrawonga Mining Leases (ML1579, 1685 and 1693) and Exploration Licence (EL5967) is reported. **** 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. 5050 captionCoal Reserves – August 2017 Tenement Maules Creek Opencut* Narrabri North Underground** Narrabri South Underground** Tarrawonga Opencut *** Werris Creek Opencut CL375 AUTH346 ML1609 EL6243 EL5967 ML1579 ML1685 ML1693 ML1563 ML1672 Rocglen Opencut ML1620 Vickery Opencut CL316 EL4699 EL7407 Total Coal Reserves Recoverable Reserves Marketable Reserves PROVED PROBABLE TOTAL PROVED PROBABLE TOTAL Competent Person Report Date 190 310 500 175 265 440 69 – 30 11 1.8 55 94 11 2 0.6 124 94 41 13 2.4 67 – 25 11 1.4 – 302 200 673 200 974 – 280 53 75 9 2 0.5 178 582 120 75 34 13 1.9 178 862 1 2 3 1 1 1 1 Mar-17 Mar-17 Jul-14 Mar-17 Mar-17 Mar-17 Mar-15 1. Doug Sillar, 3. Michael Barker, 2. Graeme Rigg * Maules Creek Joint Venture - Whitehaven owns 75% share. ** Narrabri Joint Venture - Whitehaven owns 70% share. *** Whitehaven owns 70% share of opencut reserves within ML1579, ML1685 and ML1693. The total combined reserve for Tarrawonga Mining Leases (ML1579, 1685 and 1693) and Exploration Licence (EL5967) is reported. # 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. 51 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYLEADERSHIP & MANAGEMENTFINANCIAL REPORTSECTION 5 / RESOURCES & RESERVESRESOURCES & RESERVESCorporate Governance Directors Senior Executives 52 53 56 Corporate Governance Our Board is focused on high standards of governance, compliance, business conduct, safety and environmental performance – all of which are vital to Whitehaven’s performance. It is our belief that high-quality corporate governance supports long-term value creation for shareholders and other stakeholders. With this in mind, we have reviewed our corporate governance and reporting practices and our corporate governance statement has been made available on our website this year, in the section titled Corporate Governance: www.whitehavencoal.com.au/about_us/corporate_governance.cfm 52 Section 6:LEADERSHIP & MANAGEMENTBoard of Directors The Hon. Mark Vaile AO John C Conde AO BSc, BE (Electrical) (Hons), MBA (Dist) Dr Julie Beeby BSc (Hons I), PhD (Physical Chemistry), MBA, FAICD Chairman and Non-executive Director Deputy Chairman and Non-executive Director Appointed: 3 May 2012 Appointed: 3 May 2007 Non-executive Director Appointed: 17 July 2015 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 and New Zealand, Cooper Energy Limited and The McGrath Foundation. He is also president of the Commonwealth Remuneration Tribunal and a non-executive director of the Dexus Property Group. He retired as chairman of the Sydney Symphony Orchestra in May 2015. He was previously chairman of Ausgrid (formerly Energy Australia) and Destination NSW. He was formerly chairman and managing director of Broadcast Investment Holdings, as well as a non-executive director of BHP Billiton Limited and Excel Coal Limited. Julie has more than 25 years’ experience in the minerals and petroleum industries in Australia including major Australian and US resources companies and as Chief Executive Officer of WestSide Corporation, an ASX listed, Queensland-based coal seam gas company. Julie has technical, operations and strategy expertise and has held senior and executive positions in coal mining, mining services and coal seam gas after commencing her career in coal and mineral processing research. Julie is currently the Chairman of the Queensland Electricity Transmission Corporation Limited, Powerlink Queensland, and non-executive director of OZ Minerals Limited. Julie has previously held non-executive director positions on the Boards of Gloucester Coal Limited, Forge Group Limited, CRC Mining, Queensland Resources Council and Australian Coal Research. As Deputy Prime Minister of Australia and Leader of the National Party from 2005 to 2007, Mark established an extensive network of contacts throughout Australia and East Asia. His focus at home was with regional Australia and particularly Northern NSW. As one of Australia’s longest serving Trade Ministers from 1999 through until 2006, Mark led negotiations which resulted in Free Trade Agreements being concluded with the United States of America, Singapore and Thailand as well as launching negotiations with China, Japan and ASEAN. Importantly, early in his Ministerial career as the Minister for Transport and Regional Services, Mark was instrumental in the establishment of the ARTC which operates the Hunter Valley rail network. Mark brings significant experience as a company director, having been Chairman of Aston Resources and CBD Energy Limited, and is currently an independent Director on the boards of Virgin Australia Limited and Servcorp Limited which are both listed on the ASX. Mark is also a Director of Stamford Land Corp which is listed on the Singapore Stock Exchange, a Director Trustee of HostPlus Superfund, Chairman of Palisade Regional Infrastructure Fund and Independent Director and Chairman of SmartTrans Limited. 53 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESFINANCIAL REPORTSECTION 6 / LEADERSHIP & MANAGEMENTLEADERSHIP & MANAGEMENT Board of Directors continued Paul Flynn BComm, FCA Tony Haggarty MComm, FAICD, CPA Christine McLoughlin BA, LLB (Honours), FAICD Managing Director Appointed: 25 March 2013 Previously Non-executive Director Appointed: 3 May 2012 Non-executive Director from 25 March 2013 Previously Managing Director to 24 March 2013 Appointed: 3 May 2007 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 until 27 March 2013. 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 and was instrumental in the merger of Whitehaven Coal with Aston Resources. Paul joined the Board of Whitehaven on 3 May 2012 and assumed the role of Managing Director and CEO on 27 March 2013. As a partner for over eight years, Paul was the managing partner of Ernst & Young’s Sydney office and a member of its Oceania executive team. Paul managed many of the firm’s largest mining and energy clients across Australia, Asia, South and North America. Paul has also fulfilled various leadership roles with large corporations on secondment including as the CFO of a top 50 listed company. Non-executive Director Appointed: 3 May 2012 Christine has 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, stakeholder engagement and human resources in industries including financial services, telecommunications, health and nuclear science. Christine is currently a Director of Suncorp Group Limited, nib holdings ltd, Spark Infrastructure Group and Chairman of Venues NSW. She was formerly Chairman of the Australian Payments Council and a former Director of the Australian Nuclear Science & Technology Organisation (ANSTO), the Victorian Transport Accident Commission and Westpac insurance companies in Australia and New Zealand. 54 Whitehaven Coal Annual Report 2017 Raymond Zage BSc Finance Non-executive Director Appointed: 27 August 2013 Raymond is the Managing Director and Chief Executive Officer of Farallon Capital Asia, which is responsible for investing capital in Asia on behalf of Farallon Capital Management, one of the largest alternative asset managers in the world. Raymond has been involved in investments throughout Asia in various industries including financial services, infrastructure, manufacturing, energy and real estate. Previously, Raymond was in the investment banking division of Goldman, Sachs & Co. in Singapore, New York and Los Angeles. The Whitehaven Coal Board of Directors (not pictured Raymond Zage). 55 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESFINANCIAL REPORTSECTION 6 / LEADERSHIP & MANAGEMENTLEADERSHIP & MANAGEMENTSenior Executives Paul Flynn Kevin Ball BComm, CA Timothy Burt B.Ec, LLB (Hons) LLM Managing Director and Chief Executive Officer Refer to details set out on page 54. Chief Financial Officer General Counsel and Company Secretary Appointed as Chief Financial Officer of Whitehaven Coal in October 2013, Kevin Ball has over 25 years’ experience working in the mineral and energy industry across coal, oil and gas and in complex consulting practices. A finance graduate of the University of New South Wales, Kevin is a Chartered Accountant having spent 11 years with Ernst & Young at the commencement of his career predominantly in EY’s natural resources group and has a graduate Diploma in Geoscience (Mineral Economics) from Macquarie University. Timothy joined Whitehaven as General Counsel and Company Secretary in July 2009. He has over 20 years’ ASX Listed company legal, secretarial and governance experience across a range of industries. Prior to joining Whitehaven, Timothy held senior roles at ASX listed companies Boral Limited, UGL Limited and Australian National Industries Limited. He holds a Master of Laws from the University of Sydney. 56 Whitehaven Coal Annual Report 2017 Brian Cole BE (Civil-H1), M Eng Science, MBA, Fellow IE Aust, C P Eng., M AIMM Jamie Frankcombe BE (Mining), MBA (Technology) Scott Knights BEcons (Hons) Executive General Manager – Project Delivery Executive General Manager – Operations Executive General Manager – Marketing and Logistics Brian has more than 35 years’ experience in heavy engineering projects and operations at an executive level in the energy related sector, and has been focused on the Maules Creek project and other brownfields capital projects within the Whitehaven portfolio. Most recently Brian managed the construction of the three stages of the third coal terminal in Newcastle for NCIG with a combined capital cost circa $2.8 billion. Brian was appointed Executive General Manager – Project Delivery in June 2012. Jamie was appointed Executive General Manager – Operations in February 2013. Jamie was previously Director Operations at Fortescue Metals Group Ltd. Prior to that he has had extensive senior experience in coal mine operations and development including as the Chief Operating Officer of PT Adaro Indonesia, Executive General Manager – Americas for Xstrata Coal and General Manager Operations for Xstrata Coal’s Hunter Valley open cut operations. Jamie holds a Bachelor of Engineering (Mining) from Wollongong University and a Master of Business Administration (Technology) from APESMA Deakin University. Additionally he holds First Class Certificate of Competency qualifications for both the NSW and Queensland coal industry. Scott was appointed Executive General Manager – Marketing in August 2014. Prior to joining Whitehaven he was Vice President Sales, Marketing and Logistics for Peabody Energy Australia. Scott has over 25 years’ experience in a wide range of commercial roles including marketing, sales, logistics, management and business strategy in the commodities sector, working for Peabody Energy, Rio Tinto, PwC and Renison Goldfields Consolidated. 57 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESFINANCIAL REPORTSECTION 6 / LEADERSHIP & MANAGEMENTLEADERSHIP & MANAGEMENTDirectors’ Report Renumeration Report (audited) 59 68 Consolidated statement of comprehensive income 90 Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors’ declaration Auditor’s report ASX additional information 91 92 93 94 131 132 139 58 Section 7:FINANCIAL REPORT Directors’ Report For the year ended 30 June 2017 The Directors present their report together with the consolidated financial report of Whitehaven Coal Limited (‘the Company’ or ‘Whitehaven’), being the Company, its subsidiaries, and the Group’s interest in joint operations for the year ended 30 June 2017 and the auditor’s report thereon. Principal activities 1. The principal activity of Whitehaven Coal Limited and its controlled entities (the ‘Group’) during the period was the development and operation of coal mines in New South Wales. In the opinion of the directors, there were no significant changes in the state of affairs of the Group that occurred during the financial year that have not been noted in the review of operations. 2. Directors and Executives 2a. Directors See pages 53 to 55. 2b. Senior Executives See pages 56 to 57. 2c. 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 John Conde Julie Beeby Paul Flynn1 Tony Haggarty Christine McLoughlin Raymond Zage 1 Mr Flynn held 1,822,081 options issued by the Company as at the date of this report. Ordinary shares 2,043,132 888,620 55,000 383,792 11,934,485 75,000 – 59 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTDirectors’ Report2d. 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 Julie Beeby Paul Flynn Tony Haggarty Christine McLoughlin Raymond Zage Directors’ Meetings Audit & Risk Management Committee Meetings Remuneration Committee Meetings Health, Safety, Environment & Community Committee Meetings Governance & Nominations Committee Meetings A 11 11 11 11 11 11 11 B 11 11 11 11 11 11 11 A 6 6 – – 6 – – B 6 6 – – 5 – – A 5 5 – – – 5 – B 5 5 – – – 5 – A – – 4 – 4 4 – B – – 4 – 4 4 – A 1 1 – – – 1 – B 1 1 – – – 1 – A Number of meetings held during the time the Director held office during the year. B Number of meetings attended. 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 persons who are or have been directors or officers of the Company or its controlled entities against certain liabilities (subject to certain exclusions). 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. 3d. Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. 3e. Rounding The Company is of a kind referred to in ASIC Corporations Instrument 2016/191 and dated 24 March 2016 and, in accordance with that Class Order, all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated. 3. Other 3a. Dividends Paid during the year During the year the Company did not pay any dividends. Declared after end of year The directors have not declared a dividend in respect of FY2017. However, the subsequent events note sets out details of a proposed distribution to shareholders which will be subject to approval by shareholders at the Company’s AGM on 25 October 2017. 3b. Share options Shares issued on exercise of options During the reporting period no options have been exercised. Unissued shares under options At the date of this report there were 5,440,707 unissued ordinary shares of the Company under options. Refer to note 5.5 of the financial statements for further details of the options outstanding. 3c. Indemnification and insurance of officers Indemnification The Company has agreed to indemnify, to the fullest extent permitted by law, all current and former directors of the Company against liabilities that may arise from their position as directors of the Company and its controlled entities. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses. 60 Whitehaven Coal Annual Report 2017Directors’ Report (cont.)4. Operating and financial review Financial headlines – Net profit after tax (“NPAT”) increased to $405.4m. – Operating EBITDA before significant items increased by 219% to $714.2m. – Cash generated from operations increased by 143% to $655.3m. – Net debt of $311.1m at 30 June 2017 and gearing reduced to 9%. The following table summarises the key reconciling items between the Group’s operating EBITDA before significant items and its statutory profit. WHITEHAVEN COAL LIMITED – CONSOLIDATED Revenue Net profit before significant items Significant items after tax (refer to note 2.2 in the financial statements) Net profit after tax Operating EBITDA before significant items Significant items before tax and financing (refer to note 2.2 in the financial statements) Net interest expense (refer to note 5.2 in the financial statements) Other financial expenses Depreciation and amortisation Gain on asset disposals Profit before tax FY2017 FY2016 $ MILLION $ MILLION 1,773.2 1,164.4 367.2 38.2 405.4 714.2 (55.0) (42.1) (7.9) 20.5 – 20.5 224.1 – (56.9) (9.1) (133.9) (130.4) 0.1 475.4 – 27.7 The 30 June 2017 NPAT includes the impact of the following two significant items (refer to note 2.2 in the financial statements): – A $55.0m impairment charge in relation to early stage exploration assets. – Recognition of additional deferred tax assets in respect of previously unrecognised income tax losses of $76.7m. The recognition of these items has the effect of increasing the NPAT by $38.2m. There were no significant items recognised in FY2016. Review of financial performance FY2017 NPAT before significant items of $367.2m represents an increase of $346.7m compared to $20.5m in FY2016. The significant turn-around in the FY2017 result was driven by a strong operating performance coupled with improved coal prices with FY2017 EBITDA before significant items of $714.2m reflecting an increase of $490.1m (219%) compared to $224.1m in FY2016. EBITDA before significant items was underpinned by EBITDA margins improving to $46/t in FY2017 from $14/t in FY2016. The improved EBITDA margin performance reflects increased coal prices during the year, an increase in metallurgical coal sales volumes as a proportion of total sales volumes and the enduring benefit associated with the sustainable cost reductions achieved in recent years. The key factors that contributed to the FY2017 NPAT before significant items result for the year include: – Strong safety performance. – Gross revenue increased to $1,773.2m in FY2017 from $1,164.4m in FY2016. The increase was driven by the A$37/t increase in A$ realised prices to average A$112/t in FY2017 from A$75/t in FY2016 and by an increase in sales volumes to 15.8Mt in FY2017 from 15.5Mt in FY2016. – The key drivers of A$ realised prices during the period were: – The Newcastle GlobalCoal Index price averaged US$81/t for high-quality thermal coal in FY2017, US$28/t above the average of US$53/t recorded in FY2016. – The Group realised an average price of US$102/t in FY2017 for its sales of metallurgical coal products. The realised price reflects a combination of quarterly benchmark linked and index based contracts. – The high-quality of thermal coal from the Maules Creek mine which typically achieved both quality and energy premiums relative to the Newcastle GlobalCoal Index price during the period. Thermal coal sales from Narrabri, Rocglen and Tarrawonga broadly received the Index price during the year. – An increase in the proportion of metallurgical coal sales from 15% in FY2016 to 21% in FY2017 was underpinned by increased production of metallurgical coal at Maules Creek. – A strengthened currency partially offset some of the benefits of improved prices – the A$ increased to average 0.75 in FY2017 from an average of 0.73 in FY2016 – The increase in prices for both thermal and metallurgical coal during FY2017 reflected the return of the market to supply/demand balance following production cuts in a number of key coal producing countries namely China, Indonesia, the USA and Australia. – FOB costs per tonne of A$58/t in FY2017 remain in the best cost quartile. While FOB costs per tonne have increased by $2/t from A$56/t in FY2016, this is largely due to the cost of producing increased metallurgical coal tonnages, the costs incurred to recover production that was lost due to wet weather in the September 2016 quarter and due to changes in the composition of the sales mix. – Increased production from Maules Creek continues to increase the resilience of Whitehaven’s portfolio both from 61 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTDirectors’ Reporta volume and quality perspective and helps to reduce the impact of Narrabri longwall change-outs while supporting further improvement in the utilisation of contracted rail and port capacity. Gunnedah open cuts delivered a record result at historically low operating costs. – Selling and distribution costs reflect the benefits of larger scale operations, and utilisation of contracted infrastructure capacities. – Administration costs were lower than the prior period. Whitehaven’s investment in the development of Maules Creek at the bottom of the coal price cycle, the ramp up of Narrabri underground and the productivity improvements exhibited at the Gunnedah open cuts have provided a solid platform for the business and ensured that the Group continues to be well positioned to capitalise on an improved environment for thermal and metallurgical coal. Maules Creek delivered production in the second half of FY2017 at an annualised run rate of 10.5Mt with best quartile costs and a premium product delivering significant premiums to the prevailing thermal prices. This is reflected in the significant contribution that Maules Creek has made to Whitehaven’s FY2017 EBITDA. Whitehaven has a policy to maintain a strong capital base so as to maintain investor, creditor and debt market confidence and to ensure that the business is well positioned to support attractive future growth opportunities. Cash flows and capital management CASH FLOW SUMMARY Operating cash flows Investing cash flows Net free cash flow Financing cash flows Cash at the beginning of the period Cash at the end of the period CAPITAL MANAGEMENT Net debt Undrawn syndicated facility Gearing ratio1 (%) Leverage2 (times) 1 Net Debt/(Net Debt plus Equity). 2 Net Debt/ EBITDA before significant items. FY2017 FY2016 $ MILLION $ MILLION 607.6 (93.7) 513.9 (528.3) 101.5 87.1 171.9 (93.1) 78.8 (79.8) 102.4 101.5 30 June 2017 30 June 2016 $ MILLION $ MILLION 311.1 775.0 9% 0.4 839.3 365.0 23% 3.8 Cash flow and capital management commentary Operating cash flows of $607.6m in FY2017 increased by 254% compared to FY2016. The increase reflects both the resilience of the coal price recovery, which has seen both thermal and metallurgical coal prices being maintained at constructive levels, and excellent operational performance. Costs for FY2017 were within the best cost quartile of the industry cost curve. completing remaining Maules Creek project related items, main road development at Narrabri and expenditure to progress the Environmental Impact Statement (EIS) required for Government approval for an expanded Vickery mine (10Mtpa). Throughout the cycle Whitehaven has continued to allocate sustaining capital at each of its mines to maintain safe and productive operations. The strength of the operating cash flow performance has also been underpinned by the increasing scale that Maules Creek brings to the Whitehaven portfolio. Interest payments were lower as drawn debt was reduced to $398.3m at 30 June 2017 from $940.8m at 30 June 2016, while investments in working capital occurred in FY2017 predominantly due to the increased sales prices in trade receivables balances. Investing cash outflows of $93.7m in the year ended 30 June 2017 are consistent with FY2016. Growth capital has been allocated toward procuring the Narrabri 400 metre face, Whitehaven’s liquidity position strengthened considerably during FY2017. There was $87.1m in cash and $775.0m in undrawn facilities available at 30 June 2017. Net debt of $311.1m at 30 June 2017 was a reduction of $528.2m from 30 June 2016. Whitehaven remains well within the target range on all its key capital management metrics. As a result of the strength of Whitehaven’s balance sheet, its scale of operations, and its improved earnings and cash flow generation, Whitehaven is well placed to expand its operations from its existing portfolio of opportunities or to take advantage of external growth opportunities that may arise. 62 Whitehaven Coal Annual Report 2017Directors’ Report (cont.)Consolidated equity production, sales and coal stocks WHITEHAVEN TOTAL (000t) FY2017 FY2016 Movement ROM Coal Production Saleable Coal Production Sales of Produced Coal Sales of Purchased Coal Total Coal Sales Coal Stocks at Year End 17,718 15,769 15,487 328 15,815 2,371 15,760 15,072 15,432 79 15,511 1,307 12% 5% 0.4% – 2% 81% Significant highlights for FY2017 include: Review of operations – safety – ROM and saleable coal production for the year were 12% and 5% higher respectively than the prior corresponding period (“pcp”). – Coal sales of 15.8Mt were 2% higher than the pcp. – Sales of metallurgical coal continued to grow and represented 21% of total sales for the year. – Maules Creek delivered production in the second half FY2017 at an annualised run rate of 10.5Mt with best quartile costs. – The high-quality thermal coal from the Maules Creek mine continues to be highly valued by customers and typically achieved quality and energy premiums relative to the Newcastle GlobalCoal Index price. – Metallurgical coal quality from Maules Creek has exceeded early expectations and continues to attract high levels of customer interest. – At Narrabri, the installation of the first 400 metre wide panel was completed on schedule and below budget with longwall mining commencing in April. – Full year ROM coal production records were set at Tarrawonga and Rocglen 2.7Mt and 1.6Mt respectively. The Group’s total workforce including contractors was approximately 1,500 people at the end of June 2017, making Whitehaven Coal the largest private sector employer in the north- west NSW region. Employee and contractor numbers have grown from the beginning of the year as Maules Creek continued to ramp up production. Providing a safe working environment for employees is critical at Whitehaven Coal and is key to the Group’s improving financial performance. Whitehaven Coal provides training, equipment, resources and systems to create the safest possible work environment at each site. Building a culture of safety awareness is the foundation for continuous improvement to exceed targets and to exceed industry averages. As part of the Company’s Health and Safety Policy, Whitehaven Coal aims to: – Achieve zero workplace injuries and illnesses – Achieve zero plant and equipment damage – Achieve zero environmental incidents 2017 Performance Safety performance continued to improve during the year. Whitehaven’s Total Recordable Injury Frequency Rate (TRIFR) of 7.4 recordable injuries per million hours at the end of June fell from 10.6 at June 2016. Whitehaven’s TRIFR is well below the NSW coal mining average of 14.7. 63 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTDirectors’ ReportMaules Creek Ownership: Whitehaven 75% and Operator; ICRA MC Pty Ltd (an entity associated with Itochu Corporation) 15%; J-Power Australia Pty Ltd 10%. MAULES CREEK 100% (000t) ROM Coal Production Saleable Coal Production Sales of Produced Coal Coal Stocks at Year End The ramp up of ROM coal production at Maules Creek continues on schedule with production reaching an annualised rate of 10.5Mt in the second half of FY2017. Production for the full year was at the upper end of guidance, despite the slow start to the year brought about by unusually heavy rainfall in the September quarter. The next step in the ramp up of Maules Creek production is expected to occur early in FY2019. Maules Creek has continued its track record of consistently delivering high-quality thermal coal. Maules Creek thermal coal is one of the highest quality coals sold into the Asian seaborne market and continues to gain increased penetration with both existing and new customers, many of whom are seeking to utilise this high energy, low ash coal in new High Energy Low Emission (‘HELE’) technology power stations. Narrabri FY2017 FY2016 Movement 9,729 8,986 8,879 636 7,826 7,384 7,421 609 24% 22% 20% 4% Sales of metallurgical coal represented 26% of sales in FY2017, an increase compared to 14% in FY2016. Whitehaven is steadily executing term contracts with customers for the purchase of semi soft coking coal. Coal testing programmes are demonstrating the value in use of this low ash, low sulphur and high-quality semi soft coking coal. Customer interest is expected to increase further as mining progresses to the lower seams of the Maules Creek deposit as these seams exhibit even better coking characteristics than the coal produced in the preceding two years of commercial activity. Production guidance for FY2018 is in the range of 10.3Mt and 10.6Mt ROM coal. Ownership: Whitehaven 70% and Operator; J-Power 7.5%; EDF Trading 7.5%; Upper Horn Investments Limited 7.5%; Daewoo International Corporation and Korea Resources Corporation 7.5%. NARRABRI MINE 100% (000t) FY2017 FY2016 Movement ROM Coal Production Saleable Coal Production Sales of Produced Coal Coal Stocks at Year End 7,267 6,987 6,823 318 6,888 7,269 7,532 135 6% (4%) (9%) 136% Narrabri ROM coal production was 7.3Mt in FY2017, placing the mine as one of the most productive underground mines in Australia. Narrabri experienced some geotechnical issues in the December quarter which adversely impacted production for the year and led to a modest underperformance relative to the guidance target for the year. An important milestone was achieved in FY2017 with the installation of the 400 metre wide longwall face which was completed on schedule and below budget. After some debottlenecking, the new longwall equipment and associated infrastructure is now operating as expected with regular 200,000 tonne production weeks achieved. Roadway development for the next panel remains on schedule for commencement of longwall mining in panel LW108 in the first half of CY2018. Production guidance for FY2018 is in the range of 8.0Mt to 8.4Mt ROM coal. In the following two years (FY2019 and FY2020), production will be lower as the displacement caused by a fault mined through in earlier longwall panels has increased. At this stage the plan in FY2019 and FY2020 is to step the longwall around the fault, rather than attempt to mine through the fault zone due to the risk of damage and delay. 64 Whitehaven Coal Annual Report 2017Directors’ Report (cont.)Open Cut Mines (excluding the Maules Creek Mine) Ownership: Werris Creek Whitehaven 100%; Rocglen Whitehaven 100%; Tarrawonga Whitehaven 70% and Operator and Idemitsu 30%. OPEN CUTS 100% (000t) ROM Coal Production Saleable Coal Production Sales of Produced Coal Coal Stocks at Year End The Gunnedah open cut mines produced a record 6.1Mt ROM coal production in FY2017. This included 2.1Mt in the final quarter of the year. The increased production was due to a concerted effort by these operations to compensate for the adverse impact on production associated with the wet weather in the September quarter and the geotechnical issues experienced at Narrabri in the December quarter. The strong finish to the year has resulted in an increase in ROM coal stocks at all mines. These stocks will be processed and sold during the first half of FY2018. Cost reductions have been achieved at all operations during FY2017. Rocglen and the Gunnedah CHPP have both achieved another milestone of being three years free of injuries. Production guidance for FY2018 is in the range of 5.0Mt and 5.4Mt ROM coal. Vickery Ownership: Whitehaven 100%. Work progressed on the various studies to produce the Environmental Impact Statement (EIS) required for Government approval for an expanded Vickery mine (10Mtpa). Drafting of the EIS document and supporting documents is nearing completion. Submission of the completed EIS to the Department of Planning and Infrastructure is expected within the September quarter of CY2017. Discussions with numerous interested parties regarding the formation of a joint venture will commence following the lodgement of the EIS. Timing for construction commencement of the Vickery project remains market dependent, but will likely occur once Maules Creek has been fully ramped up to its 13Mtpa capacity. Exploration projects Whitehaven has several exploration and potential development projects in Queensland and New South Wales. These are early stage exploration projects. A decision was taken to record an impairment charge for these early stage projects in FY2017 because of the change in timeframe for their likely development. In the current market environment the Company is focused on maintaining the tenements in good standing but is limiting its spending on those projects. FY2017 FY2016 Movement 6,142 4,811 4,616 1,886 5,791 5,038 5,095 901 6% (5%) (9%) 109% Infrastructure Rail Track For commentary, see page 31. Rail Haulage For commentary, see page 31. Port Capacity For commentary, see page 31. 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 Group, the results of those operations, or the state of affairs of the Group, in future financial years, other than the following: Subsequent to the end of the financial period, the Group refinanced its A$1.2 billion Senior Secured Bank Facility in August 2017 provided by a syndicate of Australian and international banks. The new facility is comprised of a $1.0 billion drawable revolver and a $0.2 billion guarantee facility. The new facility’s A$1.0 billion drawable line of credit is for general corporate purposes and has a maturity of July 2021. Subsequent to the end of the financial period, the Group repaid a further $100 million of debt drawn under the senior bank facility. Subsequent to the end of the financial period, the Directors have proposed a 20 cent per share distribution to shareholders, which is expected to comprise a 14 cent capital return and a 6 cent unfranked dividend. Whitehaven is seeking a class ruling from the ATO in relation to the proposed distribution. The proposed capital return component is subject to receiving shareholder approval at Whitehaven’s Annual General Meeting (AGM) in October 2017 and, if approved by shareholders, will be paid in November 2017 along with the related unfranked dividend. Further details will be provided in the Notice of Meeting for the AGM. 65 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTDirectors’ ReportOutlook and likely developments Operations Saleable coal production guidance for FY2018 is in the range of 22Mt to 23Mt, higher than FY2017 as Maules Creek is expected to produce ROM coal at an annualised rate of 10.5Mt for the full year and ROM production from Narrabri is also expected to increase. The next ramp up step for Maules Creek is scheduled to commence early in FY2019. ROM production from Narrabri in FY2018 is expected be higher than FY2017 following the installation of the wider longwall face and the requirement for only one longwall change-out. ROM coal production for the Gunnedah open cuts is expected to return to a level more in line with historical run rates. Maules Creek and Narrabri are tier one assets with long mine lives and industry leading low cost structures. There are opportunities to increase production at both mines in the near and medium term, while prospects also exist for life of mine extensions. These mines are now firmly established as key pillars underpinning Whitehaven’s future success. Demand Whitehaven’s high-quality, clean coals continue to attract strong demand from a growing customer base in over ten countries. Whitehaven has attracted a number of new customers during FY2017 in countries such as China and Vietnam for semi soft coking coal and Malaysia for thermal coal. Recent analysis by CRU, a respected industry consultant, indicates that demand for seaborne thermal coal will continue to grow steadily over the next five years. The growth profile incorporates declining imports by China, modest import growth by India and strong import growth from a number of developing South East Asian countries. Pricing Coal demand remains strong especially in Asia and is responsible for the improvement in prices for both metallurgical and thermal coal in recent weeks. The demand for thermal coal in China increased as hot weather and reduced hydro availability increased the coal burn in thermal power stations. Imports of thermal coal into the country have been higher than anticipated, and when combined with weather related constraints on supply from Indonesia and some production issues in Australia, have pushed up the price of seaborne thermal coal in the past two months. While most of these issues are likely to be resolved in coming months, the confluence of events has provided a good platform for the thermal coal price as FY2018 unfolds. In the longer term, as a number of Asian countries continue to deploy new HELE power stations the demand for high-quality thermal coal will continue to grow strongly. Following a six month period of extreme price volatility in spot metallurgical coal prices after the Queensland cyclone, metallurgical coal prices are now stabilising. The price remains well supported by strong steel production in China and a number of other countries. One area of uncertainty is the pricing mechanism for metallurgical coal types. The drawn out negotiations to settle quarterly benchmark prices for the June quarter and subsequent changes to the quarterly benchmark pricing methodology are likely to result in closer correlation between quarterly benchmark and spot index prices. Risks relating to Whitehaven’s future prospects Whitehaven operates in the coal sector. There are many factors, both specific to Whitehaven and to the coal industry in general, which may, either individually or in combination, affect the future operating and financial performance of the Group, its prospects and/or the value of Whitehaven. Many of the circumstances giving rise to these risks are beyond the control of the Whitehaven Directors and its management. The major risks believed to be associated with investment in Whitehaven are as follows: Market risks The Company’s future financial performance will be impacted by future coal prices and foreign exchange rates. The factors which affect coal prices and demand include the outcome of future sales contract negotiations, general economic activity, industrial production levels, changes in foreign exchange rates, changes in energy demand and demand for steel, changes in the supply of seaborne coal, changes in international freight rates or other transportation infrastructure and costs, the cost of other commodities and substitutes for coal, market changes in coal quality requirements and government regulation which restricts the use of coal, imposes taxation on the resources industry or otherwise affects the likely volume of sales or pricing of coal. Sales made under export contracts are denominated in US dollars. The Company uses forward exchange contracts (FECs) to hedge some of its currency risk in line with its hedging policy. Operating risks The Company’s coal mining operations are subject to operating risks that could result in decreased coal production which could reduce its revenues. Operational difficulties may impact the amount of coal produced at its coal mines, delay coal deliveries or increase the cost of mining for varying lengths of time. Such difficulties include (but are not limited to) weather (including flooding) and natural disasters, unexpected maintenance or technical problems, failure of key equipment, depletion of the Company’s Reserves, increased or unexpected reclamation costs and interruptions due to transportation delays. Geology risks Resource and Reserve estimates are stated to the JORC Code and are expressions of judgement based on knowledge, experience and industry practice. There are risks associated with such estimates, including that coal mined may be of a different quality, tonnage or strip ratio from those in the estimates. Development risks There is a risk that circumstances (including unforeseen circumstances) may cause delays to project development, exploration milestones or other operating factors, resulting in the receipt of revenue at a date later than expected. Additionally, the construction of new projects/expansion by the Company may exceed the currently envisaged timeframe or cost for a variety of reasons outside of the control of the Company. 66 Whitehaven Coal Annual Report 2017Directors’ Report (cont.)5. Auditor independence and non-audit services 5a. Auditor’s independence declaration Corporations Act 2001 for the following reasons: The auditor’s independence declaration forms part of the Directors’ report for financial year ended 30 June 2017. It is set out on page 88. 5b. 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 – all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Audit & Risk Management 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 Taxation services Other non-audit services Review of National Greenhouse Energy Reporting Act requirements Consolidated 2017 Consolidated 2016 $ $ 20,000 66,100 56,451 142,551 42,712 99,500 11,068 153,280 67 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTDirectors’ ReportRemuneration Report (Audited) Dear Shareholder, We present our Remuneration Report for the financial year ended 30 June 2017 (FY2017). The report explains our remuneration arrangements. The Board continues to apply a fair and responsible executive remuneration framework which operates effectively to appropriately incentivise and reward senior executives to execute our strategy while being aligned with shareholder interests. Our strategy has been to build a portfolio of assets that operates in the best quartile of the coal cost curve and to develop and operate that portfolio of assets in a safe and sustainable manner. The Board believes that the current framework has been effective. At the 2016 Annual General Meeting (AGM), shareholders voted 99.54% in favour of our Remuneration Report. Whitehaven Coal’s performance in FY2017 In FY2017 the Company was the best performing stock in the ASX200 index delivering a total shareholder return of 167%. Managing Director and Chief Executive Officer, Paul Flynn (CEO), is supported by a strong executive leadership group and the Board believes that the Company is well positioned to continue to improve its performance and to deliver value for shareholders. The Company’s balance sheet strength and quality of operations underpin the confidence of the Board to recommend shareholders approve a distribution of 20 cents per share to shareholders. The introduction of a Costs Target Hurdle into our Long Term Incentive (LTI) structure in 2014 has been effective. Whitehaven has been in the best quartile for costs of production in the three most recent financial years, and when combined with the FY2017 recovery in coal prices has led to this year’s record operating profit and the retirement of a substantial amount of debt. Remuneration outcomes for FY2017 Short Term Incentive (STI) awards to Executive KMP for their performance during the year were assessed between 89% and 92% of the maximum possible award. 50% of each Executive KMP’s FY2017 STI award will be deferred into equity which will vest in two tranches following the completion of FY2018 and FY2019. Three awards of the Long Term Incentive (LTI) were tested during FY2017. These are the first LTI awards to vest since the 2012 merger. Details are set out in this report. The Board is pleased that the hurdles have been satisfied and the LTIs vested following sustained, successful efforts in executing the Company’s strategy. Changes to remuneration framework for FY2017 Changes to Executive KMP remuneration approved by the Board for FY2017 were considered in the context of our strategy, relevant benchmarks and retaining our leadership team. For FY2017 the total potential remuneration of our Executive KMP was increased, by increasing the STI target potential from 50% of Total Fixed Remuneration (TFR) to 100% of TFR for the CEO, to 80% for the EGM Operations and to 70% for other Executive KMP and by decreasing the possible stretch award available from 150% of an award to 125%. STI awards are delivered 50% in cash and 50% in deferred equity. To increase the retention value of the LTI scheme and to further align the scheme with shareholders’ interests, for FY2017 the Board introduced a change to LTI awards from being delivered 100% in the form of performance rights to being delivered in the form of 50% performance rights and 50% options with a market-value exercise price. All awards are subject to achieving performance targets. At the 2016 AGM shareholders voted 99.5% in favour of the CEO’s LTI grant. Details of the upcoming LTI grant and hurdles for FY2018 for the CEO will again be included in the Notice for our upcoming AGM when shareholders will be asked to approve the grant. Non-executive Directors fees The Board had not increased Non-executive Directors fees since the 2012 merger with Aston Resources but has now reviewed Non-executive Directors fees for FY2018. For the upcoming financial year whilst the maximum aggregate Directors’ fee pool will not be changed, the Board Chairman’s fee has increased by $25,000, and the Remuneration Committee and Health, Safety, Environment & Community Chairman fees and member fees have been aligned with Audit & Risk Management Committee fees to reflect the workload of those Committees. We thank our Executive KMP and their teams for their commitment and contribution to Whitehaven. We hope shareholders find the information provided in the Remuneration Report informative, and we welcome your feedback. Yours sincerely, The Hon. Mark Vaile AO Chairman Christine McLoughlin Chairman of the Remuneration Committee 68 Whitehaven Coal Annual Report 2017 Table of Remuneration Report Contents 1 1.1 Introduction Key management personnel for FY2017 1.2 Summary of Company performance 2 Remuneration Governance 4. Executive KMP employment contracts 5. Executive KMP remuneration tables 5.1 Executive KMP – statutory remuneration table 5.2 STI deferred equity awards made in FY2017 2.1 Role of the Board and Remuneration Committee 5.3 LTI awards made in FY2017 2.2 Use of external remuneration advisors 2.3 Executive KMP remuneration principles and framework 3 Remuneration of the Executive KMP for FY2017 3.1 Mix and timing of Executive KMP remuneration 3.2 Benchmarking total remuneration 3.3 Fixed remuneration 3.4 STI awards and structure for FY2017 3.5 LTI awards and structure for FY2017 3.6 Executive KMP realised remuneration outcomes 3.7 Executive KMP STI outcomes in FY2017 3.8 Executive KMP LTI outcomes in FY2017 6 Non-executive Director remuneration 6.1 Setting Non-executive Director fees 6.2 Current Non-executive Director fee levels and fee pool 6.3 Non-executive Director fees – statutory disclosures 7 Related party transactions and additional disclosures 7.1 Loans with Executive KMP and Non-Executive Directors 7.2 Other KMP transactions 7.3 Movements in options and rights over equity instruments held by Executive KMP 7.4 Additional disclosures relating to ordinary shares Introduction 1. This Remuneration Report forms part of the Directors Report. In accordance with Section 308 (3C) of the Corporations Act 2001 (Cth) (Corporations Act), the external auditors, Ernst & Young, have audited this Remuneration Report. This report details the remuneration and fees during FY2017 of the KMP of the Company, who are listed in the table below. For the remainder of this Remuneration Report, the KMP are referred to as either Executive KMP or Non-executive Directors. 1.1 Key Management Personnel for FY2017 This Report details the remuneration during FY2017 of: Name Role held during FY2017 Committee positions held NON-EXECUTIVE DIRECTORS The Hon. Mark Vaile AO Chairman and Non-executive Director John Conde AO Deputy Chairman and Non-executive Director Chairman of Governance & Nomination Committee Member of Audit & Risk Management Committee Member of Remuneration Committee Chairman of Audit & Risk Management Committee Member of Remuneration Committee Member of Governance & Nomination Committee Dr Julie Beeby Non-executive Director Member of Health, Safety, Environment & Community Committee Tony Haggarty Non-executive Director Chairman of Health, Safety, Environment & Community Committee Member of Audit & Risk Management Committee Christine McLoughlin Non-executive Director Chairman of Remuneration Committee Member of Governance & Nomination Committee Member of Health, Safety, Environment & Community Committee Raymond Zage Non-executive Director 69 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTRemuneration Report1.1 Key Management Personnel for FY2017 (cont.) Executive KMP Paul Flynn Kevin Ball Timothy Burt Brian Cole Jamie Frankcombe Scott Knights Role held during FY2017 Managing Director and Chief Executive Officer Chief Financial Officer General Counsel and Company Secretary Executive General Manager – Project Delivery Executive General Manager – Operations Executive General Manager – Marketing 1.2 Summary of Company performance The Remuneration Committee is of the view that the Executive Key Management Personnel (Executive KMP) have continued to successfully execute our strategy and that remuneration outcomes for FY2017 are aligned to company performance. In FY2017 the Executive KMP have focused on key projects and initiatives including: – – improving safety, environmental and community engagement outcomes; ramping up coal production, coal processing and coal sales; – deploying the 400 metre wide longwall face at Narrabri; – delivering industry leading cost performance; – capitalising on improved market conditions to substantially reduce debt; and – substantially completing the Company’s submission in support of a 10mtpa operation at Vickery. Whitehaven has capitalised on improved coal prices in FY2017 by increasing saleable production and coal sales, by improving safety and by continuing to tightly manage costs to report a record Net Profit after Tax of $405.4m. There were many highlights in FY2017 including: TRIFR of 7.4 improved by 30% Net Profit After Tax of $405.4m ROM Production of 23.1Mt increased by 13% EBITDA of $714.2m increased by 219% Saleable Production of 20.8Mt increased by 6% Cash generated from operations of $655.3m increased by 143%. Coal Sales of 20.7Mt increased by 3% Costs of Production $58/t within the best quartile As a consequence of investments made by the Company since the merger in 2012 to bring Narrabri and Maules Creek coal mines on line and ramp up their production, in FY2017 Whitehaven decreased net debt by $528m, leverage for the trailing twelve months has decreased to 0.4x EBITDA and gearing reduced to 9%. These are credit metrics that are investment grade. Company performance for the last five years A snapshot of key Company performance for the past five years is set out below: Revenue ($m’s) EBITDA ($m’s) Profit/(loss) attributable to the group ($m’s) Share price at year end (dollars per share) Basic EPS (cents per share) Diluted EPS (cents per share) Dividends paid (cents per share) Total Reportable Injury Frequency Rate (TRIFR) Environmental Enforcement Action Frequency Rate (EEAFR)2 Saleable Production – Mt 1 The opening share price for 2013 was $4.15. 2017 1,773.2 714.2 405.4 $2.87 41.2 40.7 – 7.4 4.2 20.8 2016 1,164.4 224.1 20.5 $1.08 2.1 2.1 – 10.6 8.1 19.7 2015 763.3 130.3 (342.7) $1.32 (33.3) (33.3) – 11.3 2.9 11.3 2014 755.4 90.4 (38.4) $1.43 (3.9) (3.9) – 14.1 1.9 8.2 2013 622.2 17.1 (88.7) $2.301 (9.0) (9.0) 3.0 20.1 2.6 6.6 2 Elevated as a KPI for STI in FY2017, an Environmental Enforcement Action is defined as a warning letter, an official caution, an order, a penalty or a prosecution. Where a single piece of enforcement correspondence notes a breach of more than one approval/licence condition, each breach is counted separately. 70 Whitehaven Coal Annual Report 2017Remuneration Report (cont.)Remuneration Governance 2. This section describes the role of the Board, Remuneration Committee and external remuneration advisers when making remuneration decisions, and sets out an overview of the principles and policies that underpin the Company’s remuneration framework. 2.1 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, whose role is to: – – – review and approve the remuneration of the Executive KMP; 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. The Remuneration Committee comprises three Non-executive Directors: Christine McLoughlin (Committee Chairman), John Conde, and Mark Vaile. 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. Further information regarding the Remuneration Committee’s role, responsibilities and membership is set out in the Company’s Corporate Governance Statement. 2.2 Use of external remuneration advisors From time to time, the Remuneration Committee seeks and considers advice from external advisors who are engaged by and report directly to the Remuneration Committee. Such advice will typically cover Non-executive Director fees, Executive KMP remuneration and advice in relation to equity plans. 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 Committee did not receive any remuneration recommendations in FY2017. 2.3 Executive KMP remuneration principles and framework The Company’s Executive KMP remuneration framework is based on the following core principles: – – – – to ensure the Company’s remuneration structures are equitable and aligned with the long-term interests of the Company and its shareholders, 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. These principles are reflected in the Company’s remuneration framework, which is comprised of both fixed and at-risk remuneration components as indicated below. Details of each of these components and how they applied during FY2017 are described in the tables below and in section 3. Fixed remuneration (TFR) At-risk STI At-risk LTI includes salary and superannuation – determined based on a mix of financial – – reviewed annually by the Remuneration Committee – benchmarked against peer companies – influenced by individual performance and experience and non-financial measures – STI opportunity is set between 70% and 100% of TFR for target performance and between 87.5% and 125% of TFR for stretch performance – 50% of STI is delivered as cash and 50% is deferred into rights to receive shares in the Company subject to meeting service based vesting conditions (with vesting periods of 12 and 24 months) – ability of the Remuneration Committee to reduce the number of deferred equity instruments that vest if subsequent events show such a reduction to be appropriate (clawback) – provides the Remuneration Committee with the flexibility to determine the nature, terms and conditions of the grant each year – operated in FY2017 as an award of 50% performance rights and 50% options (i.e. a right to receive a share for no cost or an option to acquire a share on payment of an exercise price, in each case if specified performance hurdles are satisfied) – the face value of the LTI opportunity is currently set between 80% and 100% of TFR – vesting is subject to two independent performance hurdles – Relative TSR and Costs Target 71 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTRemuneration Report2.3 Executive KMP remuneration principles and framework (cont.) Remuneration framework summary TFR STI TARGET – STRETCH 1 At-risk % of TFR CEO EGM – Operations Other Executive KMP Benchmarked Benchmarked Benchmarked Form of Delivery Salary & Superannuation 100% – 125% 80% – 100% 70% – 87.5% Cash 50% Deferred Share Rights 50% LTI1 100% 90% 80% Deferred Share Rights and Options Performance Period N/A 1 year (with up to 2 years further deferral) 3 & 4 years Further explanation Section 3.1 to 3.3 Section 3.4 Section 3.5 1 As a % of TFR. Remuneration of the Executive KMP for FY2017 3. This section describes in greater detail the different components of Executive KMP remuneration for FY2017. 3.1 Mix and timing of Executive KMP remuneration Executive KMP remuneration is delivered as a mix of fixed and at-risk remuneration. At-risk remuneration can be earned through both STI and LTI and is delivered to Executive KMP over multiyear timeframes to create a layered retention effect and to encourage sustained performance. The graphs below illustrate the remuneration mix for Executive KMP for FY2017 (assuming Target performance for at-risk components). CEO EGM – Operations Other Executive KMP 33.33% 33.33% 33% 37% 32% 40% 33.33% 30% 28% Fixed TFR At-risk STI At-risk LTI 72 Whitehaven Coal Annual Report 2017Remuneration Report (cont.)The diagram below shows timing for determining and delivering Executive KMP remuneration for FY2017: FY2017 FY2018 FY2019 FY2020 FY2021 Total Fixed Remuneration Determined based on: – Market benchmarking – FY2016 performance FY2017 Executive KMP Remuneration Short-Term Incentive At risk based on financial and non-financial KPI’s Restriction period for Tranche 1 of STI Deferred Equity Instruments Service Based Vesting Period – Tranche 2 Long-Term Incentive At risk based on performance against relative TSR measure & cost hurdle Vesting period for Tranche 1 Service Based Vesting Period – Tranche 2 3.2 Benchmarking total remuneration While benchmarking is a useful starting point, it is only one input used by the Board when determining total remuneration for Executive KMP. Remuneration is benchmarked against an appropriate market comparator group adopted by the Board. The market comparator group consists of Australian listed companies, which have been identified as relevant competitors of Whitehaven that operate in similar business environments. The Board considers company size, complexity and business challenges when it builds its remuneration comparator group. The objective of the Board’s positioning is to meet the market so as to attract and retain a leading management team while still ensuring appropriate restraint in respect of executive remuneration. Actual market positioning for each individual may deviate from the positioning policy (above or below) due to considerations such as internal relativities, experience, tenure in role, individual performance and retention considerations. 3.3 Fixed remuneration Fixed remuneration received by Executive KMP is subject to approval by the Remuneration Committee. Fixed remuneration is comprised of base salary and superannuation. In line with Company policy and executives’ service agreements, remuneration levels are reviewed annually based on market benchmarking and individual performance. Fixed remuneration will typically be positioned between the 50th and 75th percentile of the market comparator group adopted by the Board. 73 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTRemuneration Report3.4 STI awards and structure for FY2017 The terms of the STI that applied during FY2017 were: Who participated? All Executive KMP. What was the performance period? The STI for FY2017 operated over a 12 month performance period from 1 July 2016 to 30 June 2017. What was the target STI award? Executive KMPs’ target STI was between 70% and 100% of fixed remuneration over the 12 month performance period with a total of up to 87.5% and 125% of fixed remuneration for stretch performance. The STI amount actually awarded to each Executive KMP in FY2017 is shown in section 3.7. What were the performance conditions, why were they chosen and how were they assessed? Whitehaven has chosen performance conditions that expressly link to our strategy and motivate outperforming annual business plans. The following KPIs were adopted as performance conditions and applied to the FY2017 STI: – Safety (TRIFR) – Net Profit After Tax (NPAT) – ROM production (managed basis) – FOB cost per saleable tonne (equity basis) – Environmental Enforcement Action Frequency Rate (EEAFR) – Projects, for example Vickery submission – Leadership and individual key performance indicators as agreed between the CEO and the Board, for example community engagement and project development targets. At the commencement of FY2017, the Board set Target KPIs, the achievement of which was expected to be critical to the success of the Company as it entered what was expected to be an improving but still difficult year of trading. During the first quarter of the financial year coal prices rallied from multi-year lows. The coal price rally was sustained through the remaining quarters in the financial year. When those higher coal prices were matched to a continued focus upon tight control of costs, increased coal production, and improved safety and environmental performances, the company delivered a strong operating result and a record operating profit for the year. The Remuneration Committee and the Board assessed and approved the STI performance conditions applying to the CEO’s STI award. The performance conditions for Other Executive KMP were assessed by the CEO and approved by the Board. The weightings of each performance condition are set out in the following table. Safety (TRIFR) NPAT ROM production FOB cost per saleable tonne Environmental (EEAFR) Projects CEO CFO 20% 25% 20% 15% 10% – 20% 25% 15% 20% 10% – Individual Leadership KPIs 10% 10% Company secretary/ General Counsel 20% 20% 20% 20% 10% – 10% EGM Projects EGM Operations EGM Marketing 20% 20% 10% 10% 10% 20% 10% 20% 20% 20% 20% 10% – 10% 20% 25% 20% 15% 10% – 10% 74 Whitehaven Coal Annual Report 2017Remuneration Report (cont.)What performance level was achieved? A snapshot of the performance levels achieved for FY2017 is set out below: YoY2 30% 1,691% 13% 4% 48% Actual 7.4 $367.2m 23.1Mt $58/t 4.2 Outcome Stretch Stretch Between Gateway and Target Target Stretch Performance condition1 Safety (TRIFR) NPAT3 ROM production FOB cost per saleable tonne Environmental (EEAFR) 1 Excludes projects KPI’s and individual leadership KPIs. 2 Year on year change. 3 Before significant items. Details in relation to each KPI are set out below. Safety The emphasis on a safe working environment has continued to drive a sustained reduction in the TRIFR. The Whitehaven view that “tonnes cannot come at the expense of safety” is embedded in the Company. Our operations have performed very safely – our TRIFR of 7.4 is superior to the NSW coal industry average, and is a 30% improvement when compared with FY2016. The progress of the Company to improve safety processes and standards supports our aspirational goal of being the industry leader in safety. The overall result achieved was at stretch. NPAT While difficult operating conditions affected both the open cut and the underground mines, tight cost control was enforced. Gunnedah basin coal quality, and particularly the quality of the Maules Creek products, assisted the Group’s marketing team to penetrate new markets, win new customers, win quality adjustments to price which helped to deliver substantial value from the FY2017 rally in coal prices and deliver a record operating profit for the Group. The reported NPAT before significant items of $367.2m exceeded the stretch target. ROM production (managed) In FY2017, open cut ROM coal production was adversely impact by a wetter than usual year as well as by geological issues at Narrabri in the December quarter. Despite the impact of these factors managed ROM production of 23.1Mt for the year was a 13% increase year on year. Gunnedah open cut mines exceeded their production targets for the year, Maules Creek met its production target however Narrabri was below its target. The overall result was between gateway and target. FOB cost per saleable tonne Our goal continues to be to maintain low, industry leading unit costs. Following a wetter than usual September quarter and below trend production rates at Narrabri underground mine in the December quarter, unit costs for the year rose – principally as a result of the drive in the second half of FY2017 to recover the deferred tonnes by accelerating production from higher cost operations to take advantage of the improved coal price environment. Consequently, unit costs for FY2017 of $58/t were 4% higher than the previous year. Unit costs continue to be in the best quartile and in line with business plans. The overall result was at target. Environmental This year the Board elevated the operational environmental KPI into the Executive KMP STI programme. The Board recognises the importance of compliance with environmental approval conditions to maintaining the Group’s standing in the community. The Group strives to adopt and achieve industry best practice. The EEAFR for FY2017 represented a 48% improvement year on year falling to 4.2 incidents per million man hours worked from the previous year. The outcome represented a stretch result. Individual Leadership KPIs The leadership performance of the CEO is assessed annually by the Board. Awards to individual Executive KMP ranged from at target to stretch. A stretch result was awarded to the CEO. 75 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTRemuneration Report3.4 STI awards and structure for FY2017 (cont.) How will the STI be delivered? 50% of the STI award will be paid to the Executive KMP in cash in September 2017. The remaining 50% of the STI award will be deferred into rights to receive Whitehaven ordinary shares (Deferred Equity), which will vest and become exercisable subject to meeting service conditions. In accordance with the service conditions, half of the Deferred Equity will vest and become exercisable following the completion of FY2018, while the other half will vest and become exercisable following the completion of FY2019. There is no exercise price payable upon vesting or exercise of Deferred Equity. Upon exercise of Deferred Equity, each right entitles the recipient to one ordinary share in the Company. Vested Deferred Equity that has not been exercised by 16 August 2027 (the expiry date) will automatically be exercised. Deferred Equity will not vest if the Executive KMP resigns or is terminated for cause or the Board applies its discretion to clawback some or all of the Deferred Equity. STI Awards do not have any dividend or voting rights prior to vesting and exercise. However, following exercise of vested STI awards the recipient is entitled to receive a dividend equivalent payment in respect of the period between vesting and exercise (in recognition of the fact that they are entitled to receive ordinary fully paid shares in the Company at any time from vesting). Any dividend equivalent payment made to participants may be made in cash or provided as additional fully paid ordinary shares in the Company, as determined by the Board. Executive KMP are required to comply with the Company’s securities trading policy in respect of their Deferred Equity, which includes a prohibition on hedging or otherwise protecting the value of their unvested STI awards. In the event of a takeover or any proposed transaction that, in the Board’s opinion, is likely to result in a change of control, the Deferred Equity will vest and become exercisable. 3.5 LTI awards and structure for FY2017 The terms of the FY2017 LTI grants to Executive KMP were: Who participated? All Executive KMP. How will LTI be delivered? FY2017 LTI Awards that vest will be delivered half in the form of performance rights, being rights to receive ordinary shares at no cost, and half in the form of options to acquire shares on payment of a market-value exercise price, in each case subject to meeting performance conditions and exercise by the Executive KMP. The options component was introduced in FY2017 to improve the retention effect of the LTI awards, and to further improve alignment with shareholder interests. What was the value of LTI awards granted? The value of LTI awards granted to the Executive KMP for FY2017 remain unchanged from the previous year (i.e. the percentages of TFR – refer section 2.3). The CEO was granted LTI awards with a face value equal to 100% of his TFR and the EGM Operations was granted LTI awards with a face value equal to 90% of his TFR. Other Executive KMP were granted LTI awards with a face value equal to 80% of their TFR. LTI awards were granted half in performance rights and half in options. The number of performance rights granted was determined with reference to the volume weighted average price of the Company’s shares over the 20 trading day period commencing 10 trading days prior to 30 June 2016. The number of options granted was calculated by dividing 50% of the total LTI award value for each Executive KMP by the fair value of an option as determined by an independent third party using the Black-Scholes methodology. No discount was applied to the valuation in respect of the probability of the performance conditions being met. Shareholder approval was obtained at the 2016 Annual General Meeting for the FY2017 grant of LTI awards to the CEO. What is the exercise price for LTI awards? There is no exercise price payable on vesting or exercise of the performance rights. On exercise, each performance right entitles the recipient to one ordinary share in the Company. LTI awards that are delivered as options have an exercise price of $1.21, (being the volume weighted average price of the Company’s shares over the 20 trading day period commencing 10 trading days prior to 30 June 2016). Vested rights will have a last date for exercise that is 10 years following the grant date while vested options will have a last date for exercise up to 5 years following the grant date (Last Exercise Dates). On these Last Exercise Dates, vested but unexercised rights will be automatically exercised and vested but unexercised options will lapse. 76 Whitehaven Coal Annual Report 2017Remuneration Report (cont.)What are the performance conditions? Why were these performance conditions chosen? What are the performance periods? How will the performance condition be calculated for the TSR Awards? The LTI award was split into the following components: – TSR Awards: 50% of the award is subject to a relative total shareholder return (TSR) performance hurdle (TSR Hurdle), which compares the TSR performance of the Company with the TSR performance of a peer group of companies operating in the Australian resources sectors; and – Costs Target Awards: 50% of the award is subject to the Company achieving a defined cost per tonne target (Costs Target Hurdle). The TSR Hurdle was chosen because: 1. It allows for an objective external assessment of the shareholder value created by the Company relative to a group of peers over a sustained period; and 2. it is a widely adopted metric that is well understood by markets. The Costs Target Hurdle was chosen and set at a level which provides a structural incentive to LTI participants to ensure that the Company is positioned in the best cost quartile of Australian coal producers. This structural incentive is aligned with shareholder interests. Tight control of costs of production i.e. in the best cost quartile, is a key plank in our strategy. For this reason we have a cost metric in both our STI and LTI structures. Best quartile costs protect and preserve shareholder value in difficult times and support enhanced returns when the commodity cycle recovers. When costs are in the best quartile the Company has access to lower cost debt and larger liquidity pools, it is able to raise cost-effective equity, and its suppliers have confidence in the Company’s sustainability. Each TSR Award is divided into two equal tranches capable of vesting and becoming exercisable after a three and four year performance period (respectively), with each performance period commencing on 1 July 2016. The Costs Target Awards is based on the FOB cost per saleable tonne achieved on a Company-wide basis for the year ending 30 June 2019 with Costs Target Awards being tested at that time. Half the awards will be capable of vesting immediately and half will be subject to deferral for a further year. For the TSR Hurdle, the TSR of the Company for the FY2017 LTI grant is measured as a percentile ranking compared to the below comparator group of listed entities over the relevant performance period for the tranche. The TSR comparator group was established before the commencement of the respective performance period. BHP Billiton Mineral Resources South32 Rio Tinto Oil Search Woodside Petroleum Newcrest Mining Saracen Mineral Holding Santos Fortescue Metals Group Sandfire Resources WorleyParsons New Hope Corp OZ Minerals Syrah Resources Beach Energy Evolution Mining Iluka Resources Western Areas Northern Star Resources Independence Group The level of vesting will be determined based on the ranking against the comparator group companies in accordance with the following schedule: – at the 75th percentile or above – 100% of the TSR Awards vest; – between the 50th and 75th percentile – vesting will occur on a pro rata straight line basis; – at 50th percentile – 50% of the TSR Awards vest; and – below the 50th percentile – no TSR Awards vest. Unless the Remuneration Committee determines otherwise, the TSR of a company for a performance period will be calculated adopting the following determination of the relevant opening and closing share prices: – – the volume weighted average share price over the 20 trading day period commencing 10 trading days before 30 June 2016 (opening share price); and the volume weighted average share price over the corresponding 20 trading day period at the conclusion of the performance period ending 30 June 2019 and 30 June 2020, as applicable (closing share price). 77 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTRemuneration Report3.5 LTI awards and structure for FY2017 (cont.) How will the performance condition be calculated for the Costs Target Awards? The Remuneration Committee has set the LTI Costs Target Hurdle having regard to the Company’s budgeted cost forecasts and to the coal industry cost curve as measured by a recognised expert. The Board is satisfied that the LTI Costs Target Hurdle is challenging and that achievement of the performance condition will place the Company in the best cost quartile of the current coal industry cost curve. Testing will occur following the completion of FY2019 based on the average costs achieved on a Company- wide basis over the 12 month period from 1 July 2018 to 30 June 2019. Full vesting will only occur if the Board is satisfied that performance meets or exceeds the Maximum as set out below. The Board may, where it is appropriate to do so, revise the targets below to take account of mergers, acquisitions and divestments or other exceptional circumstances. Vesting will occur based on the following schedule: – Maximum or above – 100% of the Costs Target Awards vest; – Between Gateway and Maximum – vesting will occur on a pro rata straight line basis up to maximum performance; – Gateway – 50% of the Costs Target Awards vest; and – Below Gateway – no Costs Target Awards vest. Due to the commercially sensitive nature of this hurdle, the exact target will not be disclosed until the year of testing. However, retrospective disclosure of the outcomes against the target will be provided in the Remuneration Report for the year of testing. To the extent that the Costs Target Hurdle is satisfied at the end of FY2019: – 50% of the Costs Target Awards that vest will become exercisable; and – The remaining 50% will be subject to a further one year service condition prior to vesting and becoming exercisable. Notwithstanding the vesting schedule above, the Board retains discretion to lapse any or all Costs Target Awards if the Board considers that vesting would be inappropriate in light of the intent and purpose of the target. Re-testing All performance awards that do not vest following testing will lapse immediately. There is no re-testing of awards that do not vest. Do the performance rights and options attract dividend and voting rights? LTI Awards do not have any dividend or voting rights prior to vesting and exercise. Upon exercise of vested LTI Awards the recipient is entitled to receive a dividend equivalent payment in respect of the period between vesting and exercise (in recognition of the fact that they are entitled to receive ordinary fully paid shares in the Company at any time from vesting). Any dividend equivalent payment made to participants may be made in cash or provided as additional fully paid ordinary shares in the Company, as determined by the Board. Shares allocated on exercise of performance rights and options rank equally with other ordinary shares on issue, including in relation to dividend and voting rights. Participants are required to comply with the Company’s securities trading policy in respect of their performance rights, options and any shares they receive upon exercise. They are prohibited from hedging or otherwise protecting the value of their performance rights and options. What happens in the event of a change in control? In the event of a takeover bid or other transaction, event or state of affairs that in the Board’s opinion is likely to result in a change in control of the Company, the Board has discretion to determine that vesting of some or all of any unvested performance awards should be accelerated. What happens if an executive ceases employment during the performance period? In general, unless the Board determines otherwise, where an executive’s employment is terminated: – for cause or due to resignation all unvested performance awards will lapse; or – by mutual agreement with the Company: unvested performance awards will remain on foot and subject to the original performance hurdle. However, the Board may at its discretion determine to lapse any or all of the unvested performance awards and ordinarily, in the case of a resignation, would be expected to do so; or – for any other reason: unvested performance awards will remain on foot and subject to the original performance hurdle, with Board discretion to determine that some of the performance awards (up to a pro rata portion based on how much of the performance period remains) will lapse. The performance awards that remain on foot will be tested in the normal course following the end of the relevant performance period. 78 Whitehaven Coal Annual Report 2017Remuneration Report (cont.)3.6 Executive KMP realised remuneration outcomes As set out in Section 1.2 the Remuneration Committee is of the view that the Executive KMP have continued to successfully execute our strategy. The table below is designed to give shareholders a better understanding of the actual remuneration outcomes for Executive KMP in FY2017. It includes: – Fixed remuneration earned in FY2017; – STI earned in respect of FY2017 performance (including cash payable in September 2017 and Deferred Equity for FY2017 which may vest and become exercisable in later years); – LTI that reached the end of its performance period in FY2017 including the impact of share price appreciation between the grant date and the test date; – any termination benefits provided in FY2017; and – any non-monetary benefits provided to Executive KMP in FY2017 (including fringe benefits). The amounts disclosed in the table, while not in accordance with accounting standards, are considered more helpful for shareholders to demonstrate the linkage between Company performance and remuneration outcomes for executives for FY2017. Executive KMP TFR1 LTI3 Vested at face value of award Other5 STI2 paid Total remuneration FY2017 Deferred equity STI6 Vested LTI7 share price appreciation Total Paul Flynn 1,352,520 773,942 832,001 12,500 2,970,963 773,942 587,251 4,332,156 Kevin Ball 612,000 245,036 251,817 – 1,108,853 245,036 204,522 1,558,411 Timothy Burt 520,200 201,541 377,336 12,500 1,111,577 Brian Cole 676,260 264,141 502,727 10,432 1,453,560 201,541 264,141 180,250 1,493,368 233,671 1,951,372 Jamie Frankcombe 910,350 410,365 518,001 12,500 1,851,216 410,365 378,971 2,640,552 Scott Knights 525,000 210,292 180,000 – 915,292 210,292 171,371 1,296,955 1 Fixed remuneration comprises base salary and superannuation. 2 STI represents the amount of cash STI that each Executive KMP will be paid in September 2017 based on FY2017 performance. Refer to section 3.4 and section 3.7 for further details. 3 LTI represents LTI awards for which the test period was in FY2017 and which have vested for awards made between 2012 and 2014.The amounts shown are the face value of the awards at grant. Refer to section 3.8 for further details. 4 There were no cessation payments during FY2017. 5 Other includes parking, motor vehicle benefits and other similar items. 6 Deferred Equity STI refers to the amount of STI deferred into rights that are the subject to further service based performance conditions. Whilst not yet granted, the STI is expected to be issued at a VWAP of $2.85. It is expected that rights issued under the STI will vest and become exerciseable following the completion of FY2018 and FY2019. Refer to Section 3.4 for further details. 7 LTI Share Price Appreciation is the amount of the Executive KMP LTI award delivered by an appreciation between the face value VWAP of a share at the time of the award being granted and the VWAP of a share at the award test date for those awards which vested. Refer to section 3.8 for further details. The graphs below illustrate how the remuneration mix for Executive KMP for FY2017 was delivered – approximately half in cash with the balance awarded in equity or equity which is deferred for up to two years. REALISED REMUNERATION MIX FOR EXECUTIVE KMP FOR FY2017 100 80 60 40 20 0 CEO EGM – Operations Other Executive KMP CEO EGM – Operations Other Executive KMP 49% 50% 33% 30% 52% 35% 18% 20% 13% TFR and STI cash Vested LTI Awards STI Deterred Equity 79 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTRemuneration Report 3.7 Executive KMP STI outcomes in FY2017 The individual STI outcome for each Executive KMP is set out in the table below. Executive KMP Paid as cash Deferred equity STI earned ($A) Paul Flynn Kevin Ball Timothy Burt Brian Cole Jamie Frankcombe Scott Knights $ 773,942 245,036 201,541 264,141 410,365 210,292 Percentage of maximum STI received Percentage of maximum STI forfeited Total $ $ 773,942 1,547,884 245,036 201,541 264,141 410,365 210,292 490,072 403,082 528,282 820,730 420,584 92% 92% 89% 89% 90% 92% 8% 8% 11% 11% 10% 8% Details of the remuneration of KMP prepared in accordance with statutory obligations and accounting standards are contained in section 5 of this Remuneration Report. 3.8 Executive KMP LTI outcomes in FY2017 This is the first year since the 2012 merger that LTI awards have vested. The Board believes that the Company is well positioned to continue to improve its performance and to deliver value for shareholders. In FY2017 the Company was the best performing stock in the ASX200 index delivering a total shareholder return of 167%. The Company’s balance sheet strength and quality of operations underpin the Board’s confidence to propose a return of capital to shareholders in 2017. The table below sets out the LTI awards that were tested in FY2017 (or for which the test period concluded on 30 June 2017) and the results of the relevant test. LTI Year Tranche Test type Performance Vested Lapsed 2012 2013 2014 2014 3 of 3 2 of 2 1 of 2 1 of 1 Relative TSR 10th in 23 Relative TSR 10th in 21 Relative TSR 2nd in 21 Costs Hurdle $58/t Actual $64/t Target 68% 48% 100% 100% 32% 52% 0% 0% TSR of 167% #1 ranked in the ASX200 index for 2017 Outcomes Costs Hurdle Target In 2014, after considering the company’s three year operating plan together with information provided by a recognised industry expert, the Board set the Gateway and Target for FY2017. Saleable production in FY2014 was 8.2Mt while costs for FY2014 were $69/tonne. The Gateway was determined as the entry point into the best cost quartile, while the Target of $64/t was determined as being within the best cost quartile. The FY2017 Target was set $5/t below the previous year while expecting that FY2017 saleable production would be almost double that of FY2013. The actual cost result of $58/t for FY2017 has bettered the Target by $6/t. Management’s efforts between 2014 and 2017 to improve the cost structure have resulted in FY2017 costs finishing within the best cost quartile and as a result the Board approved an at Target award. 50% of costs hurdle target awards vest immediately while the remaining 50% are subject to a further service based vesting period of one year. 80 Whitehaven Coal Annual Report 2017Remuneration Report (cont.)Executive KMP LTI awards vesting in FY2017 LTI shares vested 2012 Tranche 3 TSR Hurdle 2013 Tranche 2 TSR Hurdle 2014 Tranche 1 TSR Hurdle 2014 Tranche 1 costs Hurdle LTI value Vested LTI at face value of award1 Vested LTI share price appreciation1 $ $ N/A N/A 20,957 28,678 N/A N/A 141,818 23,132 40,715 55,723 213,699 142,466 1,419,252 832,001 82,192 82,192 54,795 456,339 251,817 54,795 557,586 377,336 106,866 71,244 736,398 502,727 75,000 143,836 95,891 896,972 518,001 N/A 73,973 49,315 351,371 180,000 $ 587,251 204,522 180,250 233,671 378,971 171,371 Executive KMP Paul Flynn Kevin Ball Timothy Burt Brian Cole Jamie Frankcombe Scott Knights Award Test Date 23 Sept 2016 30 June 2017 30 June 2017 30 June 2017 VWAP – Grant Date VWAP – Award Test Date $4.11 $2.44 $2.242 $2.85 $1.46 $2.85 $1.46 $2.85 1 As presented in section 3.6. 2 VWAP at grant date for Mr Flynn was $2.20 based on commencement date of 25 March 2013 as CEO. Executive KMP employment contracts 4. The following section sets out an overview of key terms of employment for the Executive KMP, as provided in their service agreements. All Executive KMP contracts give the Company discretion to make payment in lieu of notice. No notice is required where termination is for cause. The contracts do not provide for any termination payments other than payment in lieu of notice. Treatment of unvested incentives is dealt with in accordance with the terms of grant. In general, under the STI and LTI arrangements, unvested entitlements will be forfeited where an executive is terminated for cause or, subject to the Board’s discretion, where they resign. In all other circumstances where the Board considers the executive to be a ‘good leaver’, outgoing executives will generally retain their entitlements (subject to any applicable performance conditions in the case of LTI arrangements). Managing Director Paul Flynn was appointed as Managing Director and CEO of the Company on 27 March 2013. This table outlines the key terms of Mr Flynn’s contract of employment. Fixed remuneration Mr Flynn’s annual TFR for FY2018 of $1,352,520 is unchanged from FY2017. It includes salary, superannuation contributions, and any components under Whitehaven’s salary packaging guidelines and all Director fees. TFR is reviewed annually. Short term incentive Mr Flynn is eligible to participate in the annual STI plan, as described in section 3.4. At Target performance, his FY2018 STI opportunity is 100% of TFR (FY2017: 100%), with up to 125% of TFR for Stretch performance (FY2017:125%). Long term incentive Mr Flynn is eligible to participate in the LTI plan as described in section 3.5, and subject to receiving required or appropriate shareholder approval. Mr Flynn’s LTI grant will be 100% of his TFR for FY2018 (FY2017: 100%). Other key terms Other key terms of Mr Flynn’s service agreement include the following: – his employment is ongoing, subject to twelve months’ notice of termination by Whitehaven or six months’ notice of termination by Mr Flynn – the Company may terminate without notice in certain circumstances, including serious misconduct or negligence in the performance of duties. Mr Flynn may terminate immediately in the case of fundamental change to his role (i.e. there is a substantial diminution in his responsibilities), in which case his entitlements will be the same as if the Company terminated him without cause – the consequences for unvested incentive awards on termination of Mr Flynn’s employment will be in accordance with the Company’s STI and LTI plans. Mr Flynn will have post-employment restraints for a period of three months. No additional amounts will be payable in respect of this restraint period. 81 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTRemuneration ReportOther Executive KMP contracts A summary of the notice periods and key terms of the current Executive KMP contracts are set out in the table below. All of the contracts below are of ongoing duration. Name and position (at year-end) Notice Kevin Ball Chief Financial Officer Appointed 16 December 2013 3 months by employee 6 months by the Company Timothy Burt General Counsel and Joint Company Secretary Appointed 29 July 2009 3 months by employee 12 months by the Company Brian Cole Executive General Manager – Project Delivery Appointed 1 July 2012 Jamie Frankcombe Executive General Manager – Operations Appointed 4 February 2013 Scott Knights Executive General Manager – Marketing Appointed 18 August 2014 6 months by employee or the Company 3 months by employee 6 months by the Company 6 months by employee or the Company 5. 5.1 Executive KMP remuneration tables Executive KMP – Statutory remuneration table The following table sets out the statutory remuneration disclosures required under the Corporations Act and has been prepared in accordance with the appropriate accounting standards and has been audited. In AUD FY Salary & fees Non – Monetary benefits Super– annuation benefits Termination STI benefits Shares Rights and options Total remun- eration Perfor- mance related Share–based payments A B C EXECUTIVE DIRECTORS Paul Flynn 2017 2016 1,317,520 1,291,000 12,500 12,020 35,000 1,216,379 35,000 772,046 OTHER EXECUTIVE KMP Kevin Ball 2017 2016 587,000 575,000 – – 25,000 398,300 25,000 337,193 Timothy Burt 2017 490,000 12,500 30,000 334,342 Brian Cole Jamie Frankcombe 2016 2017 2016 2017 2016 480,000 641,260 12,020 10,432 30,000 298,346 35,000 434,056 623,600 8,824 39,400 356,023 875,350 857,500 12,500 12,020 35,000 666,684 35,000 522,104 25,000 337,503 25,000 276,821 – – 470,000 2016 2017 4,411,130 47,932 185,000 3,387,264 2016 4,297,100 44,884 189,400 2,562,538 Scott Knights 2017 500,000 Total 82 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 896,355 3,477,754 321,283 2,431,349 325,679 1,335,979 114,962 1,052,155 301,368 1,168,210 147,782 968,148 393,150 1,513,898 195,860 1,223,707 565,718 2,155,252 229,867 1,656,491 198,333 1,060,836 84,766 856,587 2,680,603 10,711,929 1,094,520 8,188,437 % 61% 45% 54% 43% 54% 46% 55% 45% 57% 45% 51% 42% Whitehaven Coal Annual Report 2017Remuneration Report (cont.)A The amounts disclosed as non-monetary benefits relate to car spaces, motor vehicle benefits and other similar items. B Comprises the cash component of current year STI (Refer to section 3.6 and section 3.7 for details) and the fair value at each grant date of STI Deferred Equity expensed over the service based vesting conditions. The fair value for STI grants is based on the volume weighted average price of Whitehaven shares over the 20 trading day period commencing 10 trading days prior to 30 June of each respective grant. C The fair value for LTI performance rights granted to the KMP is based on the fair value at each grant date. The factors and assumptions used in determining the fair value are set out in note 5.5 to the financial statements. 5.2 STI deferred equity awards made in FY2017 Details of the Deferred Equity component arising from FY2016 Executive KMP STI award performance granted in FY2017 are set out below. Executive KMP Paul Flynn Kevin Ball Timothy Burt Brian Cole Jamie Frankcombe Scott Knights Number of rights granted Performance hurdle1 Fair value per right at grant date2 Latest vesting date3 95,709 95,708 41,801 41,801 36,986 36,985 44,136 44,135 64,724 64,724 34,317 34,317 Service Service Service Service Service Service Service Service Service Service Service Service $1.21 $1.21 $1.21 $1.21 $1.21 $1.21 $1.21 $1.21 $1.21 $1.21 $1.21 $1.21 August 2017 August 2018 August 2017 August 2018 August 2017 August 2018 August 2017 August 2018 August 2017 August 2018 August 2017 August 2018 1 The Deferred Equity component of FY2016 STI is subject to service conditions of one and two years, respectively. There is no exercise price payable on vesting or exercise of the Deferred Equity rights. On exercise of Deferred Equity, each right entitles the recipient to one ordinary share in the Company. Vested Deferred Equity rights that have not been exercised by 13 August 2026 (Last Exercise Date) will automatically be exercised. 2 The fair value for awards granted to the Executive KMP is based on the total deferred portion of STI divided by the volume weighted average price of Whitehaven shares over the 20 trading day period commencing 10 trading days prior to 30 June 2016 being $1.21. 3 The Vesting Dates for Deferred Equity rights are the respective dates when the financial results for each of FY2017 and FY2018 are released to the market. 5.3 LTI awards made in FY2017 A summary of the LTI awards for FY2017 (i.e. the value and the fair value of the LTI granted to each Executive KMP) is set out in the table below. Executive KMP Paul Flynn Kevin Ball Timothy Burt Brian Cole Jamie Frankcombe Scott Knights Number of performance rights granted Number of options granted Value of performance rights grant Value of options grant Fair value of performance rights at grant date Fair value of options at grant date $ $ $ $ 558,893 1,822,081 676,260 676,260 1,331,563 2,906,219 202,315 171,967 223,558 338,560 173,554 659,577 560,641 728,833 1,103,761 565,814 244,800 244,800 208,080 208,080 270,504 270,504 409,658 409,657 210,000 210,000 482,015 409,711 532,627 806,619 413,493 1,052,025 894,222 1,162,489 1,760,499 902,473 The value of the LTI performance rights was calculated based on value of grant using the volume weighted average price of Whitehaven shares over the 20 trading day period commencing 10 trading days prior to 1 July 2016, being $1.21. The value of the LTI options grant represents the face value of the grant at the start of the performance period. The fair value for LTI performance rights and options granted to the Executive KMP was based on the fair value at 17 March 2017 being the grant date. The factors and assumptions used in determining the fair value are set out in note 5.5 to the financial statements. Each option has an exercise price of $1.21. 83 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTRemuneration Report5.3 LTI awards made in FY2017 (cont.) Details of the LTI awards which were granted to Executive KMP on 17 March 2017 are shown below: Executive KMP Paul Flynn Kevin Ball Timothy Burt Brian Cole Jamie Frankcombe Scott Knights Number of rights granted Number of options granted Performance hurdle Fair value per right at grant date1 Fair value per option at grant date1 Latest Vesting date 139,724 139,723 455,521 455,520 TSR TSR 279,446 911,040 Costs hurdle2 50,579 50,579 101,157 42,992 42,992 85,983 55,890 55,889 111,779 84,640 84,640 169,280 43,389 43,388 86,777 164,895 164,894 Costs hurdle2 TSR TSR 329,788 Costs hurdle2 140,161 140,160 Costs hurdle2 TSR TSR 280,320 Costs hurdle2 182,209 182,208 Costs hurdle2 TSR TSR 364,416 Costs hurdle2 275,941 275,940 Costs hurdle2 TSR TSR 551,880 Costs hurdle2 141,454 141,453 Costs hurdle2 TSR TSR 282,907 Costs hurdle2 Costs hurdle2 $2.31 $2.20 $2.56 $2.46 $2.31 $2.20 $2.56 $2.46 $2.31 $2.20 $2.56 $2.46 $2.31 $2.20 $2.56 $2.46 $2.31 $2.20 $2.56 $2.46 $2.31 $2.20 $2.56 $2.46 $1.58 30 June 2019 $1.56 30 June 2020 $1.64 30 June 2019 $1.60 30 June 2020 $1.58 30 June 2019 $1.56 30 June 2020 $1.64 30 June 2019 $1.60 30 June 2020 $1.58 30 June 2019 $1.56 30 June 2020 $1.64 30 June 2019 $1.60 30 June 2020 $1.58 30 June 2019 $1.56 30 June 2020 $1.64 30 June 2019 $1.60 30 June 2020 $1.58 30 June 2019 $1.56 30 June 2020 $1.64 30 June 2019 $1.60 30 June 2020 $1.58 30 June 2019 $1.56 30 June 2020 $1.64 30 June 2019 $1.60 30 June 2020 1 The fair value for awards granted to the Executive KMP is based on the fair value at 17 March 2017 being the grant date. The factors and assumptions used in determining the fair value are set out in note 5.5 to the financial statements. The options have an exercise price of $1.21. 2 To the extent that the Costs Target Hurdle is satisfied at the end of FY2019, 50% of the Costs Target Awards will vest and become exercisable immediately and the remaining 50% will continue on foot, subject to a further one year service condition. 6. Non-Executive Director remuneration This section explains the fees paid to Non-executive Directors during FY2017. 6.1 Setting Non-executive Director fees Non-executive Directors fees are designed to ensure that the Company can attract and retain suitably qualified and experienced Non-executive Directors. Non-executive Directors do not receive shares, share options or any performance-related incentives as part of their fees from the Company. Although there is no formal minimum shareholding, Non-executive Directors are strongly encouraged to hold shares. Non-executive Directors are also entitled to be reimbursed for 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. In 2012 the shareholders approved a total aggregate maximum amount of Non-executive Directors’ fees of $2,500,000 per annum. No change is being sought to the total aggregate Non-executive Directors’ fee pool for FY2018. 84 Whitehaven Coal Annual Report 2017Remuneration Report (cont.)6.2 Current Non-executive Director fee levels and fee pool The table below sets out the Board and Committee fees in Australian dollars for FY2018. The Board has reviewed Non-executive Directors fees for FY2018 against the market. The company had not increased Directors fees since the 2012 merger. For the upcoming financial year the Board Chairman’s fee has been increased by $25,000, and the Remuneration Committee and Health, Safety, Environment & Community Committee Chairman and member fees have been aligned with Audit & Risk Management Committee fees to reflect the workload of those Committees. Board Audit & Risk Management Committee Remuneration Committee Governance & Nominations Committee Health, Safety, Environment & Community Committee Chairman Deputy Chairman $375,0001 $262,5001 $40,000 $40,000 No fee $40,000 – – – – Member $140,000 $20,000 $20,000 No fee $20,000 1 The Chairman and Deputy Chairman of the Board do not receive Committee fees in addition to their Board fees. The fees set out above exclude mandatory statutory superannuation contributions made on behalf of the Non-executive Directors. In addition to the meetings that the Non-executive Directors attended (as shown on page 4), the Non-executive Directors participated in site visits to mines, coal handling and preparation plants and participated in the Company’s annual safety day. 6.3 Non-executive Director fees – statutory disclosures The statutory disclosures required under the Corporations Act and in accordance with the Accounting Standards are set out in the table below. Short–term benefits Post–employment benefits Board & Committee fees Non– monetary benefits Other benefits (non–cash) Super– annuation benefits Termination benefits Total fees for services as a Non–executive Director In AUD FY NON–EXECUTIVE DIRECTORS The Hon. Mark Vaile AO (Chairman) John Conde AO (Deputy Chairman) Dr Julie Beeby¹ Tony Haggarty Christine McLoughlin Raymond Zage Rick Gazzard3 Total 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 350,000 350,000 262,500 262,500 152,500 145,869 185,000 185,000 177,500 177,500 –2 –2 –3 14,375 1,127,500 1,135,244 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 19,616 19,308 19,616 19,308 14,487 13,858 17,575 17,575 16,862 16,863 – – – 1,366 88,156 88,278 – – – – – – – – – – – – 1 Appointed 17 July 2015. 2 Mr Zage elected not to receive any Board & Committee fees in FY2017 and FY2016. 3 Resigned 16 July 2015. 369,616 369,308 282,116 281,808 166,987 159,727 202,575 202,575 194,362 194,363 – – – 15,741 1,215,656 1,223,522 85 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTRemuneration Report7. Related party transactions and additional disclosures 7.1 Loans with Executive KMP and Non-executive Directors There were no loans outstanding to any Executive KMP or any Non-executive Director or their related parties, at any time in the current or prior reporting periods. 7.2 Other KMP transactions Apart from the details disclosed in this report, no Executive KMP or Non-executive Director or their related parties have entered into a material contract with the consolidated entity since the end of the previous financial year and there were no material contracts involving those people’s interests existing at year end. 7.3 Movement in options and rights over equity instruments held by Executive KMP The movement during the reporting period, by number and value of equity instruments in the Company held by each Executive KMP is detailed below. Executive KMP Instrument Balance as at 1 July 2016 (number) Granted (number) Granted (value) (A) (B) $ Paul Flynn Performance Rights (LTI) 2,331,145 558,893 1,331,563 Options (LTI) – 1,822,081 2,906,219 Vested during the year (number) – – 263,907 191,417 231,615 166,596 Exercised (number) Exercised (value) Lapsed (number) Balance as at 30 June 2017 (number) Vested and exercisable at 30 June 2017 Lapsed (year of grant) (D) 295,4551 2013 2,594,583 1,822,081 455,324 166,596 – – – – – – (C) $ – – – – – – 63,205 – – 63,205 63,205 121,354 – 742,446 202,315 482,015 – 659,577 1,052,025 – – – – – 48,1901 2013 896,571 104,652 83,602 101,158 66,861 66,861 86,251 9,575 – – 9,575 9,575 18,384 Timothy Burt Performance Rights (LTI) 790,714 171,967 409,711 20,957 20,9572 40.237 94,6843 Options (LTI) – 560,641 894,222 – 104,652 73,971 89,505 66,861 16,968 – – 16,968 16,968 32,579 1,041,734 223,558 532,627 28,678 28,6782 55,062 129,5853 Options (LTI) – 728,833 1,162,489 – 136,047 88,271 106,808 86,919 23,298 – – 23,298 23,298 44,732 – Jamie Frankcombe Performance Rights (LTI) 1,414,626 338,560 806,619 Options (LTI) – 1,103,761 1,760,499 – – – 156,2501 2013 1,596,936 – – – – – – – – – 171,272 129,448 156,632 102,594 – 34,143 – – 34,143 34,143 65,555 Scott Knights Performance Rights (LTI) 553,552 173,554 413,493 – 565,814 902,473 – – – – – 79,530 68,634 83,047 51,127 51,127 65,954 Options (LTI) Deferred Rights (STI) 86 – – – – – – – – – – – – 659,577 121,393 – 847,040 560,641 178,623 66,861 – 1,107,029 728,833 – – – 224,318 86,919 – – – – – – – – – – – – 2012 & 2013 – – – 2012 & 2013 – – – – – – – – – – – – – – – 1,103,761 300,720 102,594 – 727,106 565,814 97,037 – – – – Kevin Ball Deferred Rights (STI) Deferred Shares (STI) Performance Rights (LTI) Options (LTI) Deferred Rights (STI) Deferred Shares (STI) Deferred Rights (STI) Deferred Shares (STI) Performance Rights (LTI) Brian Cole Deferred Rights (STI) Deferred Shares (STI) Deferred Rights (STI) Deferred Shares (STI) Whitehaven Coal Annual Report 2017Remuneration Report (cont.)(A) The number of rights granted during FY2017 includes: a. The FY2016 LTI awards. Further details are provided in section 5.3; and. b. the Deferred Equity component of the FY2016 STI award, calculated by reference to the volume weighted average price of the Company’s shares for the 20 day trading period commencing 10 trading days prior to 30 June 2016. The granting of rights occurred on 17 March 2017. Further details are provided in section 5.2. (B) The value of LTI performance rights granted in the year is the fair value of the performance rights at grant date. The value of deferred STI rights granted in the year has been calculated using the volume weighted average price of the Company’s shares for the 20 day trading period commencing 10 trading days prior to 30 June 2016. Unvested LTI and STI awards have a minimum value of zero if they do not meet the relevant performance or service conditions. The maximum value of unvested LTI and STI awards is the sale price of the Company’s shares at the date of vesting, or where applicable, exercise (plus the value of any dividend equivalent payment attaching to the award on vesting or, where applicable exercise). (C) Tranche 3 of the 2012 LTI performance rights vested at a rate of 68%. The value of LTI performance rights vested in the year is the fair value of the performance rights at grant date. Tranche 1 and the contingent portion of the FY2015 STI Deferred Equity rights vested during the period. The vested value of rights exercised has been calculated using the volume weighted average price of the Company’s shares for the 20 day trading period commencing 10 trading days prior to 1 July 2015. Tranche 2 of the FY2014 STI Deferred Shares vested during the period. The vested value has been calculated using the volume weighted average price of the Company’s shares for the 20 day trading period commencing 10 trading days prior to the effective grant date of 27 August 2014. (D) The year in which the lapsed performance rights, options or deferred shares were granted. 1 The 2013 LTI Rights TSR Tranche 1 lapsed due to the performance condition not being met. 2 The 2012 LTI Rights TSR Tranche 3 vested in September 2016 at a rate of 68%. 3 The 2013 LTI Rights TSR Tranche 1 award lapsed and 32% of 2012 LTI Rights TSR Tranche 3 award lapsed due to the performance conditions not being met. 7.4 Additional disclosures relating to ordinary shares The movement during the reporting period in the number of ordinary shares in the Company held, directly, indirectly or beneficially, by each Executive KMP and each Non-executive Director, including their related, parties is as follows: Held at 1 July 2016 Received on vesting and exercise of STI/LTI Received as remuneration Other net change Held at 30 June 2017 No. of shares DIRECTORS Mark Vaile John Conde Dr Julie Beeby Paul Flynn 2,567,767 888,620 55,000 383,7921 Tony Haggarty 21,796,293 Christine McLoughlin Raymond Zage EXECUTIVE Kevin Ball Timothy Burt Brian Cole Jamie Frankcombe Scott Knights 55,000 – 124,1501 224,1291 59,0961 427,6501 40,000 – – – – – – – 66,861 20,957 28,678 – 51,127 – – – – – – – – – – – – (524,635) 2,043,132 – – – 888,620 55,000 383,792 (9,861,808) 11,934,485 20,000 75,000 – – (55,000) (17,530) – (52,687) (91,127) 136,011 227,556 87,774 374,963 – 1 Includes shares subject to restrictions granted as part of the FY2014 STI which were held by the Whitehaven Coal Limited Equity Incentive Plan Trust. Signed in accordance with a resolution of the Directors: The Hon. Mark Vaile AO Chairman Dated at Sydney this 17th day of August 2017 87 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTRemuneration ReportAuditors Independence Declaration Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor’s Independence Declaration to the Directors of Whitehaven Coal Limited As lead auditor for the audit of Whitehaven Coal Limited for the financial year ended 30 June 2017, I declare to the best of my knowledge and belief, that there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Whitehaven Coal Limited and the entities it controlled during the financial year. Ernst & Young Ryan Fisk Partner 17 August 2017 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 88 Whitehaven Coal Annual Report 2017 Financial Report For the year ended 30 June 2017 Table of Contents Consolidated financial statements Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors’ declaration Auditor’s Report 90 91 92 93 94 131 132 Notes to the Consolidated Financial Statements Index 1. About this report 2. Group performance 2.1 Segment reporting 2.2 Significant items 2.3 Taxes 2.4 Earnings per share 3. Working capital and cash flows 3.1 Trade and other receivables 3.2 Inventories 3.3 Trade and other payables 3.4 Reconciliation of cash flows from operating activities 4. Resource assets and liabilities 4.1 Property, plant and equipment 4.2 Exploration and evaluation 4.3 Intangible assets 4.4 Provisions 5. Capital structure and financing 5.1 Interest-bearing loans and borrowings 5.2 Finance income and expense 5.3 Financial risk management objectives and policies 5.4 Share capital and reserves 5.5 Share-based payments 6. Group structure 6.1. Group’s subsidiaries 6.2 Interest in joint operations 6.3 Parent entity information 6.4 Deed of cross guarantee 6.5 Related parties 7. Other notes 7.1 Employee benefits 7.2 Auditors’ remuneration 7.3 Commitments 7.4 Contingencies 7.5 Subsequent events 7.6 New accounting standards and interpretations 89 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORT Consolidated statement of comprehensive income For the year ended 30 June 2017 Revenue Other income Operating expenses Coal purchases Selling and distribution expenses Government royalties Impairment of assets Administrative expenses Depreciation and amortisation Other expenses Profit before net financial expense Financial income Financial expenses Net financial expense Profit before tax Income tax expense Net profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss Net movement on cash flow hedges Income tax effect Other comprehensive income for the period, net of tax Total comprehensive income for the period, net of tax Net profit for the period attributable to: Owners of the parent Non-controlling interests Total comprehensive income for the period, net of tax attributable to: Owners of the parent Non-controlling interests Earnings per share: NOTE 2.1 2.2 2017 $’000 2016 $’000 1,773,242 1,164,437 7,698 8,356 (555,675) (509,815) (33,416) (311,947) (133,407) (54,963) (24,423) (5,616) (314,248) (88,155) – (26,321) (133,882) (130,385) (7,848) 525,379 1,409 (51,362) (4,505) 93,748 1,056 (67,130) 5.2 (49,953) (66,074) 2.3(a) 5.2 2.3(b) 5.2 475,426 (70,059) 27,674 (7,186) 405,367 20,488 2,618 (785) 1,833 407,200 1,186 (356) 830 21,318 406,445 20,488 (1,078) – 408,278 (1,078) 21,318 – Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 2.4 2.4 41.2 40.7 2.1 2.1 The consolidated statement of comprehensive income is to be read in conjunction with the notes to the consolidated financial statements. 90 Whitehaven Coal Annual Report 2017 Consolidated statement of financial position As at 30 June 2017 Assets Cash and cash equivalents Trade and other receivables1 Inventories Derivative financial instruments Total current assets Trade and other receivables1 Investments Property, plant and equipment Exploration and evaluation Intangible assets Deferred tax assets Total non-current assets Total assets Liabilities Trade and other payables Interest bearing loans and borrowings1 Employee benefits Provisions Derivative financial instruments Total current liabilities Non-current liabilities Interest bearing loans and borrowings1 Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Share based payments reserve Hedge reserve Retained earnings Equity attributable to owners of the parent Non-controlling interest Total equity NOTE 3.1 3.2 5.3(d) 3.1 4.1 4.2 4.3 2.3(c) 3.3 5.1 7.1 4.4 5.3(e) 5.1 4.4 2017 $’000 87,138 113,278 99,144 2,413 2016 $’000 101,453 62,119 68,737 351 301,973 232,660 10,853 37 15,381 37 3,442,467 3,497,613 156,781 22,200 32,729 206,583 19,818 103,573 3,665,067 3,843,005 3,967,040 4,075,665 166,054 135,928 23,560 20,071 5,188 582 18,223 16,872 7,260 1,138 215,455 179,421 374,715 84,574 922,532 84,996 459,289 1,007,528 674,744 1,186,949 3,292,296 2,888,716 5.4(a) 3,136,941 3,144,944 7,827 1,282 18,417 (551) 146,246 (275,172) 3,292,296 2,887,638 – 1,078 3,292,296 2,888,716 1 The comparative period has been restated to reclassify capitalised prepaid borrowing costs from ‘Trade and other receivables’ to reduce ‘Interest bearing loans and borrowings’. Current and non-current ‘Trade and other receivables’ as at 30 June 2016 as previously reported was $68.3m and $29.0m respectively. This has been reduced by $6.2m and $13.6m respectively to align with the current year’s presentation. Correspondingly, current and non-current ‘Interest bearing loans and borrowings’ as at 30 June 2016 has decreased by $6.2m and $13.6m respectively. The consolidated statement of financial position is to be read in conjunction with the notes to the consolidated financial statements. 91 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORT Consolidated statement of changes in equity For the year ended 30 June 2017 Share Based Payment Reserve Issued Capital Hedge Reserve Retained Earnings NOTE $’000 $’000 $’000 $’000 Non- controlling interest Total equity $’000 $’000 Total $’000 Opening balance at 1 July 2015 Profit for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Share based payments 5.5(a) Transfer on exercise of share based payments Transfer on lapse of share based payments Purchase of shares through employee share plan Closing balance at 30 June 2016 Opening balance at 1 July 2016 Profit for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Transfer on exercise of share based payments Transfer on lapse of share based payments Purchase of shares through employee share plan Closing balance at 30 June 2017 Share based payments 5.5(a) – – – – – – – 20,488 830 21,318 3,715 – – (1,351) 3,146,147 36,543 (1,381) (317,353) 2,863,956 1,078 2,865,034 – – – – – – – 20,488 20,488 830 – 830 830 20,488 21,318 – 148 3,715 (464) – (21,377) – – – – – 316 21,377 3,715 – – – (1,351) 5.4(a) (1,351) – 3,144,944 18,417 (551) (275,172) 2,887,638 1,078 2,888,716 3,144,944 18,417 (551) (275,172) 2,887,638 1,078 2,888,716 – – – – – – – 377 4,760 (1,170) – (14,180) – 406,445 406,445 (1,078) 405,367 1,833 – 1,833 – 1,833 1,833 406,445 408,278 (1,078) 407,200 – – – – – 4,760 793 14,180 – – – (8,380) – – – – 4,760 – – (8,380) 5.4(a) (8,380) – 3,136,941 7,827 1,282 146,246 3,292,296 – 3,292,296 The consolidated statement of changes in equity is to be read in conjunction with the notes to the consolidated financial statements. 92 Whitehaven Coal Annual Report 2017 Consolidated statement of cash flows For the year ended 30 June 2017 Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Interest paid Interest received Income taxes paid NOTE 2017 $’000 2016 $’000 1,737,063 1,188,341 (1,081,737) 655,326 (49,087) 1,405 – (919,010) 269,331 (56,123) 1,056 (42,331) Net cash from operating activities 3.4 607,644 171,933 Cash flows from investing activities Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Exploration and evaluation expenditure Net cash used in investing activities Cash flows from financing activities Purchase of shares Proceeds from borrowings Repayment of borrowings Payment of finance facility upfront costs Payment of finance lease liabilities Net cash used in financing activities Net change in cash and cash equivalents Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June 5.1 971 902 (89,462) (88,867) (5,161) (5,107) (93,652) (93,072) (8,380) 18,687 (519,299) (607) (18,708) (1,351) 9,450 (73,610) (787) (13,503) (528,307) (79,801) (14,315) 101,453 87,138 (940) 102,393 101,453 The consolidated statement of cash flows is to be read in conjunction with the notes to the consolidated financial statements. 93 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements For the year ended 30 June 2017 1. About this report Reporting entity 1.1 Whitehaven Coal Limited (‘Whitehaven’ or ‘Company) is a for- profit entity, and the principal activity of Whitehaven and its controlled entities (referred to as the ‘Group’) is the development and operation of coal mines in New South Wales. The consolidated general purpose financial report of the Group for the year ended 30 June 2017 was authorised for issue in accordance with a resolution of the directors on 17 August 2017. 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. 1.2 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 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). The financial report has been prepared on a historical cost basis, except for derivative financial instruments and available for sale financial assets that have been measured at fair value (refer to note 5.3). The Company is of a kind referred to in ASIC Corporations Instrument 2016/191 and dated 24 March 2016 and in accordance with that Class Order, all financial information has been presented in Australian dollars and rounded to the nearest thousand dollars unless otherwise stated. 1.3 Significant accounting judgements, estimates and assumptions In the process of applying the Group’s accounting policies, management has made a number of judgements and applied estimates of future events of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Judgements and estimates which are material to the financial report are found in the following notes: 2.3 4.1 Taxes page 101 Property, plant and equipment page 107 4.2 Exploration and evaluation 4.4 Provisions 6.1 Group’s subsidiaries and interests in joint operations page 108 page 110 page 124 1.4 Summary of other significant accounting policies The accounting policies set out below, and in the notes, have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently by all subsidiaries in the Group. Other significant accounting policies are contained in the notes to the consolidated financial statements to which they relate. i. Basis of consolidation The consolidated financial report of the Company for the financial year ended 30 June 2017 comprises the Company and its subsidiaries and the Group’s interest in joint operations (together referred to as the ‘Group’). ii. 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 consolidated statement of comprehensive income. Both the functional and presentation currency of the Company and of all entities in the Group is Australian dollars ($). iii. Goods and services tax Revenues, expenses and assets (excluding receivables) 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 consolidated statement of financial position. Cash flows are included in the consolidated 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. iv. Notes to the consolidated financial statements The notes to these consolidated financial statements have been organised into logical groupings to present more meaningful and dynamic information to users. To the extent possible the relevant accounting policies and numbers have been provided in the same note. The Group has also reviewed the notes for materiality and relevance and provided additional information where considered material and relevant to the operations, financial position and performance of the Group. 94 Whitehaven Coal Annual Report 20172. Group performance 2.1 Segment reporting Identification of reportable segments The Group identifies its operating segments based on the internal reports that are reviewed and used by the executive management team in assessing performance and in determining the allocation of resources. The performance of operating segments is evaluated at least monthly based on revenues and profit before taxes and is measured in accordance with the Group’s accounting policies. The Group has determined that it has two reportable segments: Open Cut Operations and Underground Operations. Unallocated operations includes coal trading, corporate, marketing and infrastructure functions which are managed on a group basis and are not allocated to reportable segments. 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. The following table represents revenue and profit information for reportable segments: YEAR ENDED 30 JUNE 2017 $’000 $’000 $’000 Open Cut operations Underground operations Unallocated operations Revenue Sales to external customers Total segment revenue 1,216,746 1,216,746 515,669 515,669 40,827 40,827 Total revenue per consolidated statement of comprehensive income Total $’000 1,773,242 1,773,242 1,773,242 484,042 238,031 (7,849) 714,224 Result Segment result Depreciation and amortisation Income tax expense Significant items before income tax and financing (see note 2.2) Net finance expense (133,882) (70,059) (54,963) (49,953) 405,367 Net profit after tax per consolidated statement of comprehensive income Capital expenditure Segment expenditure 19,926 54,609 17,279 91,814 95 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements2. Group performance (cont.) 2.1 Segment reporting (cont.) YEAR ENDED 30 JUNE 2016 $’000 $’000 $’000 Open Cut operations Underground operations Unallocated operations Revenue Sales to external customers Total segment revenue 771,036 771,036 397,207 397,207 (3,806) (3,806) Total revenue per consolidated statement of comprehensive income Total $’000 1,164,437 1,164,437 1,164,437 Result Segment result Depreciation and amortisation Income tax benefit Net finance expense 129,759 116,203 (21,829) 224,133 (130,385) (7,186) (66,074) 20,488 Net profit after tax per consolidated statement of comprehensive income Capital expenditure Segment expenditure 19,117 54,074 8,230 81,421 REPORTABLE SEGMENTS 2017 Open Cut Operations Underground Operations Unallocated Operations $19,926 $54,609 $17,279 TOTAL CAPITAL EXPENDITURE $91,814 REPORTABLE SEGMENTS 2016 Open Cut Operations Underground Operations Unallocated Operations $19,117 $54,074 $8,230 TOTAL CAPITAL EXPENDITURE $81,421 2017/2016 Comparison Capital Expenditure 2016 2017 96 Whitehaven Coal Annual Report 20172.1 Segment reporting (cont.) Other segment information Revenue from external customers is attributed to geographic location based on final shipping destination. 2017/2016 Comparison Revenue by geographic location 2016 2017 2017/2016 Comparison Revenue by product 2016 2017 Revenue by geographic location Japan Taiwan India Korea China Chile Malaysia Other Vietnam Noumea Indonesia Australia Mexico Domestic 2017 $’000 921,048 185,686 171,474 148,010 108,952 44,729 39,972 30,589 31,427 29,843 24,382 25,071 6,316 5,743 2016 $’000 631,524 141,122 84,522 148,496 50,928 20,710 20,962 18,377 – 9,358 11,925 – 21,636 4,877 Total revenue 1,773,242 1,164,437 Revenue by product Thermal Metallurgical Domestic Total revenue 2017 $’000 2016 $’000 1,321,188 950,398 446,311 209,162 5,743 4,877 1,773,242 1,164,437 97 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements 2. Group performance (cont.) 2.1 Segment reporting (cont.) Major customers The Group has three major customers which account for 30.5% (2016: 34.4%) of external revenue. Recognition and measurement: Revenue from the sale of coal is recognised and measured at the fair value of consideration received or receivable to the extent that: i. ii. it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured; the significant risks and rewards of ownership have been transferred to the buyer; and iii. transfer of risk and rewards are considered to have passed to the buyer under the terms of the individual contracts. 2.2 Significant items The items below are significant to the understanding of the overall results of the consolidated group. The Company believes the disclosure of these items provides readers of the financial statements with further meaningful insights to understand the financial performance of the Group. Included within the balances presented on the face of the Consolidated Statement of Comprehensive Income: Impairment of assets: Impairment of exploration and related assets1 Significant items before tax Applicable income tax benefit Recognition of unbooked tax losses2 Significant items after tax NOTE 2017 $’000 (54,963) (54,963) 16,490 76,672 38,199 2016 $’000 – – – – 1 During the year ended 30 June 2017, an impairment charge of $55m was recognised in respect of early stage exploration assets. The impairment charge reflects the Group’s current focus on Vickery and brownfield expansion opportunities. As a consequence, the development of early stage exploration projects, although prospective, is not imminent. 2 During the year ended 30 June 2017, the Group recognised a deferred tax asset in respect of previously unrecognised income tax losses. The recognition of these tax losses was in accordance with the principles of AASB 112 Income taxes which requires the recognition of a deferred tax asset in respect of tax losses where sufficient taxable temporary differences exist or utilisation of the income tax losses is probable in the foreseeable future. 98 Whitehaven Coal Annual Report 2017 2.3 Taxes a. Income tax (expense)/benefit Current tax (expense)/benefit Current period Deferred tax benefit/(expense) Origination and reversal of temporary differences Adjustment for prior periods Recognition of tax losses 2017 $’000 2016 $’000 (148,029) 25,691 1,298 – 76,672 (34,862) 1,985 – Income tax expense reported in the consolidated statement of comprehensive income (70,059) (7,186) Reconciliation between tax expense and profit before tax Profit before tax 475,426 27,674 Income tax expense using the Company’s domestic tax rate of 30% (2016: 30%) (142,628) (8,302) Non-deductible expenses: Share based payments Other non-deductible expenses/adjustments Recognition of tax losses Over provided in prior periods Total income tax expense b. Income tax recognised directly in other comprehensive income Deferred income tax related to items charged directly to equity Derivatives Income tax expense recorded in equity (1,428) (2,675) 76,672 – (70,059) (1,115) 246 – 1,985 (7,186) (785) (785) (356) (356) 99 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements2. Group performance (cont.) 2.3 Taxes (cont.) c. Recognised tax assets and liabilities Opening balance Charged to income – corporate tax Charged to equity (Utilisation)/recognition of deferred tax asset on current year losses Recognition of tax losses Over provided in prior periods Payments Closing balance 2017 Current income tax payable 2017 Deferred income tax 2016 Current income tax payable 2016 Deferred income tax $’000 – (148,029) – $’000 103,573 1,298 (785) $’000 (42,331) 25,691 – $’000 111,115 (34,862) (356) 148,029 (148,029) (25,691) 25,691 – – – – 76,672 – – 32,729 – – 42,331 – – 1,985 – 103,573 Deferred income tax assets and liabilities are attributable to the following: Property, plant and equipment Exploration and evaluation Receivables Investments Deferred stripping Derivatives Deferred foreign exchange gain Provisions Tax losses Other items Tax assets/(liabilities) Assets Liabilities 2017 $’000 – 9,424 – 358 – – 456 32,153 305,320 8,377 356,088 2016 $’000 2017 $’000 2016 $’000 – (319,062) (302,459) 13,539 – 358 – – – 30,943 356,815 8,959 410,614 – – (1,998) (1,696) – – (2,299) (2,356) – – – – – (236) (294) – – – (323,359) (307,041) Set off of tax (liabilities)/assets (323,359) (307,041) 323,359 307,041 Net tax assets 32,729 103,573 – – 100 Whitehaven Coal Annual Report 2017d. Unrecognised deferred tax assets During the year the Group recognised a deferred tax asset of $76.7m in respect of previously unrecognised income tax losses. Following the recognition of this amount there were no unrecognised income tax losses at 30 June 2017 (2016: $76.7m). Recognition and measurement: Income tax on the profit or loss for the year comprises current and deferred tax. Income tax relating to items recognised directly in other comprehensive income is recognised in other comprehensive income and not in the net profit or loss for the year. Current tax Current tax assets and liabilities 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 tax Deferred tax expense is the movement in the temporary differences between the carrying amount of an asset or liability in the consolidated statement of financial position and its tax base. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets, including unused tax losses, are recognised in relation to deductible temporary differences and carried forward income tax losses only to the extent that it is probable that sufficient future taxable profits will be available to utilise them. Deferred tax assets and liabilities are not recognised for taxable temporary differences that arise from goodwill or from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither accounting profit nor the taxable profit. The carrying amount of deferred 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 tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rates and laws that have been enacted or substantively enacted at the balance date. Offsetting deferred tax balances 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 taxation authority on the same taxable entity. Tax consolidation Whitehaven Coal Limited and its wholly owned Australian resident subsidiaries have formed a tax consolidated group with effect from 29 May 2007 and are therefore taxed as a single entity from that date. Whitehaven Coal Limited is the head entity of the tax consolidated group. The entities within the tax consolidated group have entered into a tax sharing arrangement which provides for 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. The entities within the tax consolidated group have also entered into a tax funding agreement. The Group has applied the Group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. Under the terms of the tax funding arrangement Whitehaven Coal Limited and each of the entities in the tax consolidated group have agreed to pay (or receive) a tax equivalent payment to (or from) the head entity, based on the current tax liability or current tax asset of the entity. Whitehaven Coal Limited and the subsidiaries in the tax consolidated group continue to account for their own current and deferred tax amounts. The amounts are measured as if each entity in the tax consolidated group continues to be a standalone tax payer in its own right. The current tax balances are then transferred to Whitehaven Coal Limited via intercompany balances. Significant accounting judgements, estimates and assumptions 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. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These depend on estimates of future production and sales volumes, operating costs, rehabilitation 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 consolidated statement of financial position and the amount of other tax losses and temporary differences not yet recognised which may require adjustment, resulting in a corresponding credit or charge to the consolidated statement of comprehensive income. 101 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements 2. Group performance (cont.) 2.4 Earnings per share Basic earnings per share The calculation of basic earnings per share 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 ($‘000) 406,445 20,488 2017 2016 Weighted average number of ordinary shares Issued ordinary shares at 1 July (000’s) Effect of shares acquired during the year (000’s) Weighted average number of ordinary shares at 30 June (000’s) 992,026 992,026 (5,959) (1,554) 986,067 990,472 Basic earnings per share attributable to ordinary shareholders (cents) 41.2 2.1 Diluted earnings per share The calculation of diluted earnings per share 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) ($’000) 406,445 20,488 2017 2016 Weighted average number of ordinary shares (diluted) Weighted average number of ordinary shares (basic) (000’s) Effect of share options/performance rights on issue (000’s) Weighted average number of ordinary shares (diluted) (000’s) 986,067 12,902 990,472 8,612 998,969 999,084 Diluted earnings per share attributable to ordinary shareholders (cents) 40.7 2.1 102 Whitehaven Coal Annual Report 2017 3. Working capital and cash flows 3.1 Trade and other receivables Current Trade receivables Other receivables and prepayments Receivables due from joint operations Non-current Other receivables and prepayments 2017 $’000 84,570 18,674 10,034 113,278 2016 $’000 47,586 9,758 4,775 62,119 10,853 15,381 Recognition and measurement: Trade receivables, which generally have between 5 and 21 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for impairment. Recoverability of trade receivables is reviewed on an ongoing basis. 3.2 Inventories Coal stocks1 Consumables and stores 1 Coal stocks include run of mine and product coal. Recognition and measurement: 73,671 25,473 99,144 44,536 24,201 68,737 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. Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the tonnes of contained coal are based on assay data, and the estimated recovery percentage is based on the expected processing method. Stockpile tonnages are verified by periodic surveys. 3.3 Trade and other payables Current Trade payables Other payables and accruals 64,902 101,152 57,241 78,687 166,054 135,928 Recognition and measurement: Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost when goods and services are received, whether or not billed to the Group, prior to the end of the reporting period. Due to their short-term nature they are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. 103 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements 3. Working capital and cash flows (cont.) 3.4 Reconciliation of cash flows from operating activities Profit for the period Adjustments for: Depreciation and amortisation Amortisation of deferred development costs Development costs deferred Write-off of finance facility upfront costs Amortisation of finance facility upfront costs Non cash interest expense accruals Foreign exchange losses unrealised Write-off of assets Unwinding of discounts on provisions Share-based compensation payments Gain on sale of non-current assets Subtotal 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 NOTE 4.1 4.1 2.2 4.4 5.5(a) 2017 $’000 405,367 133,882 55,389 (86,206) 1,194 5,999 (6,718) 4,571 54,963 1,882 4,760 (227) 574,856 (46,617) (28,224) 35,066 2,504 – 70,059 607,644 2016 $’000 20,488 130,385 55,134 (65,798) – 6,835 1,925 770 – 2,327 3,715 – 155,781 21,590 29,539 (1,543) 1,711 (42,331) 7,186 171,933 Recognition and measurement: Cash and cash equivalents comprise cash at bank and in hand and short term deposits. For the purpose of the consolidated statement of cash flows, cash and cash equivalents is equal to the balance disclosed in the consolidated statement of financial position. 104 Whitehaven Coal Annual Report 2017 4. Resource assets and liabilities 4.1 Property, plant and equipment Freehold land Plant and equipment Leased plant and equipment Mining property and development Subtotal Deferred development Deferred stripping Subtotal $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Total $’000 162,457 777,551 129,683 2,861,031 3,930,722 318,571 777,218 1,095,789 5,026,511 YEAR ENDED 30 JUNE 2017 Cost Balance at 1 July 2016 Additions 14,746 54,716 46 17,183 86,691 86,206 330,670 416,876 503,567 Transfers (5,282) 24,599 – – – (19,317) – – (2,501) (1,515) (1,515) – – – – – – – – – – – – – (2,501) (1,515) (43,343) (3,633) (39,710) – (43,343) – (2,501) – – – Transfer to intangible assets Revisions in rehabilitation assets Disposals Balance at 30 June 2017 171,921 850,732 90,019 2,857,382 3,970,054 404,777 1,107,888 1,512,665 5,482,719 Accumulated depreciation BALANCE AT 1 JULY 2016 Depreciation charge for the year Disposals Balance at 30 June 2017 Carrying amount at 30 June 2017 – (244,678) (45,923) (246,175) (536,776) (222,757) (769,365) (992,122) (1,528,898) – – (47,143) (9,377) (81,553) (138,073) (55,389) (330,861) (386,250) (524,323) 2,506 10,463 – 12,969 – – – 12,969 – (289,315) (44,837) (327,728) (661,880) (278,146) (1,100,226) (1,378,372) (2,040,252) 171,921 561,417 45,182 2,529,654 3,308,174 126,631 7,662 134,293 3,442,467 105 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements4. Resource assets and liabilities (cont.) 4.1 Property, plant and equipment (cont.) Freehold land Plant and equipment Leased plant and equipment Mining property and development Subtotal Deferred development Deferred stripping Subtotal $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Total $’000 156,857 566,149 129,683 3,011,883 3,864,572 252,773 508,480 761,253 4,625,825 YEAR ENDED 30 JUNE 2016 Cost Balance at 1 July 2015 Additions 4,362 42,632 1,238 189,913 – (21,143) – – – 40,299 87,293 65,798 268,738 334,536 421,829 (191,151) – – (21,143) – – – – – – – (21,143) Transfer to plant and equipment Disposals Balance at 30 June 2016 162,457 777,551 129,683 2,861,031 3,930,722 318,571 777,218 1,095,789 5,026,511 Accumulated depreciation BALANCE AT 1 JULY 2015 Depreciation charge for the year Disposals Balance at 30 June 2016 Carrying amount at 30 June 2016 – (219,988) (35,222) (172,553) (427,763) (167,623) (491,195) (658,818) (1,086,581) – – (45,481) (10,701) (73,622) (129,804) (55,134) (278,170) (333,304) (463,108) 20,791 – – 20,791 – – – 20,791 – (244,678) (45,923) (246,175) (536,776) (222,757) (769,365) (992,122) (1,528,898) 162,457 532,873 83,760 2,614,856 3,393,946 95,814 7,853 103,667 3,497,613 Recognition and measurement: Property, plant and equipment Property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items and costs incurred in bringing assets into use. Costs of dismantling and site rehabilitation are also capitalised, if the recognition criteria is met. Subsequent expenditure is capitalised when it is probable that the future economic benefits associated with the expenditure will flow to the Group. Depreciation Depreciation and amortisation is charged to the consolidated statement of comprehensive income on a straight line basis at the rates indicated below. Depreciation commences on assets when it is deemed they are capable of operating in the manner intended by management: – freehold land – plant and equipment – leased plant and equipment – mining property and development, deferred development and deferred stripping not depreciated 2% – 50% 3% – 14% units of production The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually. Any changes are accounted for prospectively. 106 When an asset is surplus to requirements or no longer has an economic value, the carrying amount of the asset is written down to its recoverable amount. Mining property and development Mine 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. After transfer, all subsequent mine development expenditures is similarly capitalised, to the extent that commercial viability conditions continued to be satisfied. Leased plant and equipment Assets held under lease, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised as property, plant and equipment at the inception of the lease at the lower of the fair value of the leased asset or the estimated present value of the minimum lease payments. Lease assets are depreciated over the shorter of the estimated useful life of the asset and the lease term. The corresponding finance lease obligation is included within interest bearing liabilities (refer to Note 5.1). Finance charges are recognised as an expense in the consolidated statement of comprehensive income over the lease term to reflect a constant rate of interest over the remaining balance of the obligation. Whitehaven Coal Annual Report 2017 Operating lease payments are recognised as an expense in the consolidated 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. Ongoing contracted commitments under financing and operating leases are disclosed within Note 7.3. Deferred development Deferred development mainly comprises capitalised costs (deferred development expenditure) related to underground mining incurred to expand the capacity of an underground mine and to maintain production. Deferred stripping Expenditure incurred to remove overburden or waste material during the production phase of an open cut 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. The stripping activity asset is subsequently depreciated on a units of production basis over the life of the identified component of the ore body that became more accessible as a result of the stripping activity. For the purposes of assessing impairment, deferred stripping assets are grouped with other assets of the relevant cash generating unit. Impairment The carrying amounts of the Group’s non-financial 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. 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’). The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal (‘FVLCD’). In assessing FVLCD, 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. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. 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. Significant accounting judgements, estimates and assumptions Recoverable amount of assets The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-in-use calculations and FVLCD. These calculations require the use of estimates and assumptions. Expected future cash flows used to determine the FVLCD of 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, stripping ratio, production rates and future capital expenditure. It is reasonably possible that these assumptions may change which may then impact the estimated life of mine which could result in a material adjustment to the carrying value of tangible assets. The determination of FVLCD for a CGU is considered to be a Level 3 fair value measurement, as they are derived from valuation techniques that include inputs that are not based on observable market data. The Group considers the inputs and the valuation approach to be consistent with the approach taken by market participants. The recoverable amount has been determined by the FVLCD method, determined based on the net present value of the future estimated cash flows. These cash flows are discounted using a real pre-tax discount rate of 11%. The coal prices and foreign exchange rates applied for the first three years of the cash flow estimates are based on detailed financial budgets approved by senior management which includes consideration of external sources. Long term estimates are based on a consideration of third party forecasts and management estimates in respect of long term incentive coal prices in the seaborne export coal market. Costs to dispose are estimated based on the current market rate applied by advisors in respect of the disposal of mining assets. 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 Group is required to determine and report Reserves and Resources under the Australian Code for Reporting Mineral Resources and Ore Reserves December 2012 (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. 107 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements 4. Resource assets and liabilities (cont.) 4.2 Exploration and evaluation Exploration and evaluation assets Balance at 1 July 2016 Exploration and evaluation expenditure Impairment Balance at 30 June 2017 Balance at 1 July 2015 Exploration and evaluation expenditure Balance at 30 June 2016 $’000 206,583 5,161 (54,963) 156,781 201,346 5,237 206,583 Exploration and evaluation assets include tenements granted by the Queensland State Government which are subject to periodic relinquishment requirements of up to 20% per year. During the year ended 30 June 2017, an impairment charge of $55m was recognised in respect of early stage exploration assets, which is not allocated to a segment. Exploration and evaluation assets are carried at cost. This value represents the Group’s view of these assets. The impairment charge reflects the Group’s current focus on Vickery and brownfield expansion opportunities. As a consequence, the development of early stage exploration projects, although prospective, is not imminent. Recognition and measurement: Exploration and evaluation assets, including the costs of acquiring licences, are capitalised on an area of interest basis and only after the Company has obtained the legal rights to explore the area. 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. ii. sufficient data exists to determine technical feasibility and commercial viability, and facts and circumstances suggest that the carrying amount exceeds the recoverable amount. For the purposes of impairment testing, exploration and evaluation assets are not allocated to cash-generating units. Where a potential impairment is indicated, an assessment is performed for each area of interest or at the CGU level, in line with the assessment disclosed at note 4.1. To the extent that capitalised expenditure is not expected to be recovered it is charged to the consolidated statement of comprehensive income. 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 to mining property and development assets within property, plant and equipment. Significant accounting judgements, estimates and assumptions The application of the Group’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 indicating that the recovery of expenditure is unlikely, the amount capitalised is written off in the consolidated statement of comprehensive income in the period when the new information becomes available. The recoverability of the carrying amount of exploration and evaluation assets is dependent on the successful development and commercial exploitation or sale of the respective areas of interest. 108 Whitehaven Coal Annual Report 2017 4.3 Intangible assets MOVEMENT IN INTANGIBLES Balance at 1 July 2016 Transfer from property, plant & equipment Reimbursement of costs Less: Amortisation charge Balance at 30 June 2017 Balance at 1 July 2015 Additions during the year Less: Amortisation charge Balance at 30 June 2016 Water access rights $’000 8,581 2,501 – – 11,082 8,577 4 – 8,581 Contract related intangible $’000 – – – – – 140 – (140) – Rail access rights1 $’000 11,237 – (119) – 11,118 11,237 – – 11,237 Total $’000 19,818 2,501 (119) – 22,200 19,954 4 (140) 19,818 1 As part of the agreement to cancel previously existing infrastructure sharing arrangements Whitehaven agreed to pay 10.1% of the construction cost of the shared portion of the Boggabri – Maules Creek rail spur. In return, Whitehaven receives access to rail tonnes on the joint rail spur. Recognition and measurement: Water access rights Rail access rights The Group 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. 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, in line with those disclosed at note 4.1. Rail access rights have a finite useful life and are carried at cost less, where applicable, any accumulated amortisation and accumulated impairment losses. Rail access rights are amortised over the life of the mine or access agreement. 4.4 Provisions Balance at 1 July 2016 Provisions reassessed during the period Provisions used during the period Unwind of discount Balance at 30 June 2017 Current Non-current Balance at 30 June Mine rehabilitation and closure Other provisions $’000 89,393 (1,513) – 1,882 89,762 $’000 2,863 – (2,863) – – 2017 $’000 5,188 84,574 89,762 Total $’000 92,256 (1,513) (2,863) 1,882 89,762 2016 $’000 7,260 84,996 92,256 Other provisions include amounts recognised on acquisition of subsidiaries as part of the purchase price allocation and amounts for costs expected to be incurred for maintaining Sunnyside mine in care and maintenance. 109 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements 4. Resource assets and liabilities (cont.) 4.4 Provisions (cont.) Recognition and measurement: Provisions are recognised when: – – the Group has a present legal or constructive obligation as a result of a past event; it is probable that resources will be expended to settle the obligation; and – the amount of the provision can be measured reliably. 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. The nature of rehabilitation activities includes dismantling and removing operating facilities, re-contouring and top soiling the mine, and restoration, reclamation and revegetation of affected areas. 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 obligation to rehabilitate arises at the commencement of the mining project and/or when the environment is disturbed at the mining location. At this point, the provision is recognised as a liability with a corresponding asset included in mining property and development assets. Additional disturbances or changes in the rehabilitation costs are reflected in the present value of the rehabilitation provision, with a corresponding change in the cost of the associated asset. In the event the restoration provision is reduced, the cost of the related asset is reduced by an amount not exceeding its carrying value. The unwinding of the effect of discounting the provision is recorded as a finance cost in the consolidated statement of comprehensive income. The carrying amount capitalised as a part of mining, property and development is depreciated over the useful life of the related asset. For closed mines, changes to estimated costs are recognised immediately in the consolidated statement of comprehensive income. The amount of the provision relating to rehabilitation of environmental disturbance caused by on-going production and extraction activities is recognised in the consolidated statement of comprehensive income as incurred. Significant accounting judgements, estimates and assumptions 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. 110 Whitehaven Coal Annual Report 2017 5. Capital structure and financing 5.1 Interest-bearing loans and borrowings Current liabilities Finance lease liabilities Secured loans Capitalised borrowing costs Non-current liabilities Senior bank facility Finance lease liabilities Secured loans Capitalised borrowing costs Financing facilities Facilities utilised at reporting date Facilities not utilised at reporting date Financing activities during the financial year 2017 $’000 17,682 11,908 (6,030) 23,560 2016 $’000 14,420 10,031 (6,228) 18,223 325,000 835,000 17,353 40,261 (7,899) 374,715 398,275 1,187,204 412,204 775,000 69,073 32,042 (13,583) 922,532 940,755 1,351,766 960,566 391,200 During the current year $510 million of debt drawn under the senior bank facility was repaid (2016: $65 million). An amount of $18.7 million was drawn down under the ECA facility during the year (2016: $9.5m) and $9.3 million of the ECA facility was repaid during the year (2016: $8.6 million). The security provided in relation to the facilities is a fixed and floating charge over substantially all of the assets of the Group. Refinancing of the Whitehaven train resulted in the extinguishment of a $35.3m finance lease liability. During the current period the Group cancelled $100 million of the senior bank facility. The total facility available as at 30 June 2017 was $1.1 billion (2016: $1.2 billion). During the year the Company entered into an additional $55 million of secured bilateral bank guarantee facilities. The fair values of interest bearing liabilities materially approximate their respective carrying values as at 30 June 2017 and 30 June 2016. Recognition and measurement: 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. 111 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements 5. Capital structure and financing (cont.) 5.2 Finance income and expense Recognised in the statement of comprehensive income Interest income Financial income Interest expense on finance lease liabilities Interest on drawn debt facility Other interest charges Interest and financing costs Net interest expense Unwinding of discounts on provisions Amortisation of finance facility upfront costs Other financial expenses Net financial expense Recognised directly in equity Net change in cash flow hedges Income tax effect Financial income recognised directly in other comprehensive, net of tax 2017 $’000 1,409 1,409 (3,202) (26,254) (14,025) (43,481) (42,072) (1,882) (5,999) (7,881) 2016 $’000 1,056 1,056 (6,768) (41,857) (9,343) (57,968) (56,912) (2,327) (6,835) (9,162) (49,953) (66,074) 2,618 (785) 1,833 1,186 (356) 830 Recognition and measurement: Finance income comprises interest income on funds invested and foreign currency gains. Interest income is recognised as it accrues, using the effective interest method. Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, foreign currency losses in relation to finance leases, 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 the Statement of Comprehensive Income 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. 5.3 Financial risk management objectives and policies a. Overview b. Capital management The Group’s overall risk management program seeks to mitigate risks and reduce the volatility of the Group’s financial performance. Financial risk management is carried out centrally by the Group’s Audit and Risk Management Committee under policies approved by the Board of Directors. The Committee reports regularly to the Board on its activities and also reviews policies and systems regularly to reflect changes in market conditions and Group’s activities. The Group’s principal financial risks are associated with: – market risk – credit risk – liquidity risk. 112 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 Group defines capital as total shareholders’ equity and debt. The Board manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. There were no changes in the Group’s approach to capital management during the year. The Group’s gearing ratio is calculated as net debt divided by total equity plus net debt. Whitehaven Coal Annual Report 2017 Capital management 25 20 15 10 5 0 23% 9% 1,000,000 800,000 600,000 400,000 200,000 2017 2016 Gearing Ratio Comparison (%) 0 2017 2016 Net Debt Comparison ($’000) Interest-bearing loans and borrowings Less: cash and cash equivalents Net debt Equity 2017 $’000 2016 $’000 398,275 940,755 (87,138) (101,453) 311,137 839,302 3,292,296 2,887,638 Equity and net debt 3,603,433 3,726,940 Gearing ratio 9% 23% c. Risk exposures and responses Market Risk – Foreign currency risk The Group is exposed to currency risk on sales, purchases and demurrage that are denominated in a currency other than the respective functional currency of the Group, the Australian dollar (AUD).The currency in which these transactions primarily are denominated is US Dollars (USD). The Group may use forward exchange contracts (FECs) to hedge its currency risk in relation to contracted sales where both volume and US dollar price are fixed. In respect of other monetary assets and liabilities denominated in foreign currencies, the Group 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. During the current year ended 30 June 2017, a net foreign exchange loss of $3.6m was recognised (2016: net foreign exchange gain of $1.3m). The Group designates its forward exchange contracts in cash flow hedges and measures them at fair value. The fair value of forward exchange contracts used as hedges at 30 June 2017 was $2.4m (2016: $0.3m), comprising assets and liabilities that were recognised as derivatives. At 30 June 2017, the Group had the following financial instruments that were not designated in cash flow hedges that were exposed to foreign currency risk: Cash Trade and other receivables Trade and other payables Net statement of financial position exposure The following exchange rates applied during the year: 2017 $’000 USD 13,073 38,100 (9,506) 41,667 2016 $’000 USD 21,834 7,612 (6,795) 22,651 FIXED RATE INSTRUMENTS USD Average rate Reporting date spot rate 2017 0.7545 2016 0.7283 2017 0.7662 2016 0.7387 113 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements5. Capital structure and financing (cont.) 5.3 Financial risk management objectives and policies (cont.) Market Risk – Foreign currency risk Sensitivity analysis A change in 10 per cent 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 2016. 30 JUNE 2017 USD strengthening by 10 per cent USD weakening by 10 per cent 30 JUNE 2016 USD strengthening by 10 per cent USD weakening by 10 per cent Market Risk – Interest rate risk Equity Profit or (loss) $’000 $’000 (7,559) 9,238 (3,416) 4,175 (4,944) 6,042 (2,788) 3,407 The Group‘s borrowings comprise both variable and fixed rate instruments. The variable rate borrowings expose the Group to a risk of changes in cash flows due to the changes in interest rates. Management analyses interest rate exposure on an ongoing basis and uses interest rate swaps to mitigate interest rate risk. At the reporting date the interest rate profile of the Group‘s interest-bearing financial instruments was: FIXED RATE INSTRUMENTS Financial liabilities VARIABLE RATE INSTRUMENTS Financial assets Financial liabilities Net exposure Carrying amount 2017 $’000 (35,035) (35,035) 2016 $’000 (83,493) (83,493) 87,138 101,453 (377,169) (877,073) (290,031) (775,620) (325,066) (859,113) 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 2016. 30 JUNE 2017 100bp increase 100bp decrease 30 JUNE 2016 100bp increase 100bp decrease 114 Equity Profit or (loss) $’000 $’000 302 (311) 566 (587) (2,900) 2,900 (7,756) 7,756 Whitehaven Coal Annual Report 2017Market Risk – Commodity price risk The Group’s major commodity price exposure is to the price of coal. The Group has chosen not to hedge against the movement in coal prices. Credit risk Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, trade receivables, available for sale financial assets, derivative financial instruments and the granting of financial guarantees. The Group‘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 Group’s maximum exposure to credit risk at the reporting date was: Cash and cash equivalents Trade and other receivables Derivative financial instruments Investments NOTE 3.1 5.3(d) Carrying amount 2017 $’000 87,138 84,570 2,413 37 2016 $’000 101,453 47,586 351 37 174,158 149,427 The Group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: Asia Europe Australia Trade receivables 74,041 8,925 1,604 84,570 29,030 10,845 7,711 47,586 The Group‘s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’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 30.5% of the Group’s revenue is attributable to sales transactions with three customers (2016: 34.4% with three customers). The Group trades only with recognised, creditworthy third parties and generally does not require collateral in respect of trade receivables. Receivable balances are monitored on an ongoing basis and as a result the exposure to bad debts is not significant. The Group recognised an impairment loss for trade receivables of $nil during the year ended 30 June 2017 (2016: $nil). The aging of the Group’s trade receivables at the reporting date was: GROSS Not past due Past due 0–30 days Past due 31–120 days Past due 121 days to one year More than one year 2017 $’000 83,900 526 144 – – 2016 $’000 46,456 832 298 – – 84,570 47,586 115 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements5. Capital structure and financing (cont.) 5.3 Financial risk management objectives and policies (cont.) Guarantees The policy of the Group is to provide financial guarantees for statutory bonding requirements associated with the mining operations and other purposes such as security of leased premises. Guarantees are provided under the senior secured bank facility and $105 million of secured bilateral bank guarantee facilities. Details of outstanding guarantees are provided in note 7.4. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’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 Group’s reputation. Typically, the Group 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. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: 30 June 2017 Carrying amount Contractual cash flows 6 mths or less 6–12 mths 1–2 years 2–5 years More than 5 years $’000 $’000 $’000 $’000 $’000 $’000 $’000 Financial liabilities Finance lease liabilities Interest bearing liabilities 35,035 377,169 37,261 383,265 7,762 7,063 11,862 6,920 17,637 13,433 – – 345,810 10,039 Trade and other payables 166,054 166,054 166,054 Forward exchange contracts: Outflow Inflow 80,267 83,225 83,225 (82,680) (85,698) (85,698) – – – – – – – – – – – – 575,845 584,107 178,406 18,782 31,070 345,810 10,039 30 June 2016 Carrying amount Contractual cash flows 6 mths or less 6–12 mths 1–2 years 2–5 years More than 5 years $’000 $’000 $’000 $’000 $’000 $’000 $’000 Financial liabilities Finance lease liabilities Interest bearing liabilities Trade and other payables Forward exchange contracts: 83,493 877,073 135,928 93,280 10,203 10,203 55,239 17,635 – 882,144 5,436 5,719 11,080 857,251 2,658 135,928 135,928 – – – – – – – – – – – – Outflow Inflow 38,116 37,579 37,579 (38,396) (37,857) (37,857) 1,096,214 1,111,074 151,289 15,922 66,319 874,886 2,658 116 Whitehaven Coal Annual Report 2017d. Net fair values The Group complies with 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 consolidated statement of financial position: Assets measured at fair value Equity shares Forward exchange contracts – receivable Liabilities measured at fair value Forward exchange contracts – payable Interest rate swaps – payable Assets measured at fair value Equity shares Forward exchange contracts – receivable Liabilities measured at fair value Forward exchange contracts – payable Interest rate swaps – payable 30 June 2017 Level 1 $’000 $’000 Level 2 $’000 Level 3 $’000 37 2,413 2,450 – (582) (582) 30 June 2016 Level 1 $’000 $’000 37 351 388 (71) (1,067) (1,138) – – – – – – – – – – – – – 2,413 2,413 – (582) (582) Level 2 $’000 Level 3 $’000 – 351 351 (71) (1,067) (1,138) 37 – 37 – – – 37 – 37 – – – 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 consolidated statement of financial position are the fair values and are classified under level 2 in the fair value measurement hierarchy. The fair value of the Group’s investment in unlisted shares is classified under level 3 in the fair value measurement hierarchy. The Group’s holding in unlisted shares is minor and any reasonably possible change in assumptions would not have a material impact on the Group’s financial statements. The carrying values of financial assets and financial liabilities recorded in the financial statements materially approximates their respective net fair values, determined in accordance with the accounting policies disclosed in note 3.1, 3.3 and 5.1 to the financial statements. 117 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements5. Capital structure and financing (cont.) 5.3 Financial risk management objectives and policies (cont.) e. Financial assets and liabilities by categories 2017 2016 Loans and receivables1 Available for sale Other2 Loans and receivables1 Available for sale Other2 NOTE $’000 $’000 $’000 $’000 $’000 $’000 Financial assets Cash and cash equivalents Trade and other receivables 3.1 Investments Other financial assets2 5.3(d) Total financial assets 87,138 124,131 – – 211,269 – – – – – – – 37 2,413 2,450 101,453 77,500 – – 178,953 – – – – – – – 37 351 388 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 $2.4 million (2016: $0.4 million) relating to derivatives in designated hedges. 2017 2016 Loans at amortised cost1 Available for sale Other2 Loans at amortised cost1 Available for sale Other2 NOTE $’000 $’000 $’000 $’000 $’000 $’000 Financial liabilities Trade and other payables Borrowings 3.3 5.1 Other financial liabilities2 5.3(d) Total financial liabilities 166,054 398,275 – 564,329 – – – – – – 582 582 135,928 940,755 – 1,076,683 – – – – – – 1,138 1,138 1 Loans at amortised cost are non-derivatives with fixed or determinable payments and are not quoted on an active market. Loans and payables are valued at amortised cost. 2 Other financial liabilities include $0.6 million (2016: $1.1 million) relating to derivatives in designated hedges. Recognition and measurement: Derivative financial instruments The Group uses derivative financial instruments to hedge its risks associated with foreign currency and interest 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. Cash flow hedges Cash flow hedges are hedges of 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 other comprehensive income 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 other comprehensive income are transferred out of other comprehensive income and included in the measurement of the hedged transaction (coal sales and asset purchases) when the forecast transaction occurs. 118 Each designated cash flow hedge is tested for hedge 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, hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income 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 statement of comprehensive income. Whitehaven Coal Annual Report 2017 5.4 Share capital and reserves a. Share capital 2017 2016 NO. OF SHARES $’000 NO. OF SHARES $’000 Fully paid ordinary share capital 1,026,045,885 3,136,941 1,026,045,885 3,144,944 Ordinary share capital at the beginning of the period 1,026,045,885 3,144,944 1,026,045,885 3,146,147 Transfer of shares by share plan Shares purchased by share plan – – 377 (8,380) – – 148 (1,351) Ordinary share capital at the end of the period 1,026,045,885 3,136,941 1,026,045,885 3,144,944 At 30 June 2017, a trust on behalf of the Company held 5,669,939 (30 June 2016: 3,707,778) ordinary fully paid shares in the Company. These were purchased during the year for the purpose of allowing the Group to satisfy performance rights to certain senior management of the Group. Refer to Note 5.5 for further details on the performance rights plan. Terms and conditions of issued capital b. Nature and purpose of reserves Ordinary shares are classified as equity. 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, 34,020,000 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. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any related income tax benefit. 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. 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 and long term incentive plans. Refer to note 5.5 for further details of these plans. c. Dividends No dividends were paid during the year ended 30 June 2017 (2016: nil). The directors have not declared a dividend in respect of FY2017. However, the subsequent events note sets out details of a proposed distribution to shareholders which will be subject to approval by shareholders at the Company’s AGM on 25 October 2017. Dividend franking account As at 30 June 2017 there were no franking credits available to shareholders of Whitehaven Coal Limited for subsequent financial years (2016: nil). 119 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements5. Capital structure and financing (cont.) 5.5 Share-based payments a. Recognised share-based payment expenses EMPLOYEE EXPENSES Share options and performance rights – senior employees 2017 $’000 4,760 2016 $’000 3,715 Recognition and measurement: The grant date fair value of options and performance rights 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. Once the instruments have vested, no further expenses are recognised nor reserves reversed in respect to costs already charged. However, where the share rights or options have lapsed after vesting the Group transfers the equivalent amount of the cumulative cost for the lapsed awards from the share based payments reserve to another component of equity. b. Types of share-based payment plans Performance Right and option grant to CEO and senior employees The Company issued performance rights and options to the CEO and senior employees under the Company’s medium and long term incentive programs in FY2016 and FY2017. The terms and conditions of the grant are as follows. PERFORMANCE RIGHTS NUMBER OF INSTRUMENTS VESTING AND EXPIRATION DATE NUMBER OF INSTRUMENTS VESTING AND EXPIRATION DATE FY2017 FY2016 MTI LTI tranche 1 LTI tranche 2 LTI tranche 3 Total OPTIONS LTI tranche 1 LTI tranche 2 LTI tranche 3 Total 1,460,547 30 June 2019 1,166,796 30 June 2017 836,056 30 June 2019 1,371,895 30 June 2018 836,045 30 June 2020 1,371,887 30 June 2019 1,672,090 30 June 2019/201 1,829,189 30 June 2018/19 4,804,738 5,739,767 FY2017 FY2016 NUMBER OF INSTRUMENTS VESTING AND EXPIRATION DATE NUMBER OF INSTRUMENTS VESTING AND EXPIRATION DATE 1,360,181 30 June 2019 1,360,175 30 June 2020 2,720,351 30 June 2019/201 5,440,707 – – – – – – – 1 To the extent that the Costs Target Hurdle is satisfied at the end of FY2019, 50% of the Awards will vest and become exercisable immediately and the remaining 50% will continue on foot, subject to a further one year service condition. The performance rights and options are subject to a performance measure linked to relative total shareholder return (TSR) and a costs hurdle. The TSR performance measure compares the TSR performance of the Company with the TSR performance of a peer group of companies operating in the Australian resources sector. The costs hurdle performance measure relates to the Company’s achieving a defined cost per tonne target. Detailed disclosures of LTI outcomes against the target are provided in the Remuneration Report. 120 Whitehaven Coal Annual Report 2017The table below details the outcomes of MTI awards that were tested in FY2017 (or for which the test period concluded on 30 June 2017) and the results of the relevant test. MTI Year 2014 2015 Test Type Relative TSR Relative TSR Performance 10th in 21 3rd in 23 Outcomes Vested 48% 100% Lapsed 52% 0% c. Movement in options and performance rights The following table illustrates the number and weighted average exercise prices of, and movements in, options and performance rights during the year: Outstanding at beginning of period Exercised during the period Granted during the period Forfeited during the period Lapsed during the period Outstanding at 30 June Exercisable at 30 June Weighted average exercise price Number of options/ rights Weighted average exercise price Number of options/ rights 2017 2017 2016 2016 $1.76 $0.00 $0.58 $0.00 $3.92 $0.30 $0.00 22,146,025 (977,608) 11,288,0161 (440,550) (9,948,789) 22,067,094 466,804 $2.70 $0.00 $0.00 $0.00 $0.00 $1.76 $4.73 24,517,802 – 6,925,7462 (280,435) (9,017,088) 22,146,025 8,241,278 1 2 Includes 1,042,571 performance rights granted during the year under the FY2016 STI scheme. Includes 1,185,979 performance rights granted during the year under the FY2015 STI scheme. The outstanding balance as at 30 June 2017 is represented by: i. ii. 5,440,707 options over ordinary shares having an exercise price of $1.21, exercisable between 30 June 2019 and 31 August 2026. 1,011,981 performance rights over ordinary shares having an exercise price of nil, exercisable between 30 June 2017 and 30 June 2018. iii. 3,496,265 performance rights over ordinary shares having an exercise price of nil, exercisable between 30 June 2017 and 30 June 2018. iv. 937,034 performance rights over ordinary shares having an exercise price of nil, exercisable on 13 August 2017. v. 5,488,378 performance rights over ordinary shares having an exercise price of nil, exercisable between 30 June 2018 and 30 June 2019. vi. 5,692,729 performance rights over ordinary shares having an exercise price of nil, exercisable between 17 August 2017 and 30 June 2020. No share options were exercised during the year ended 30 June 2017 (2016: nil). The weighted average remaining contractual life of share options and performance rights outstanding at 30 June 2017 is 3.7 years (2016: 0.87 years). 121 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements5. Capital structure and financing (cont.) 5.5 Share-based payments (cont.) d. Option pricing models The fair value of performance rights granted under the LTI program with a TSR performance hurdle is measured using a Monte Carlo Simulation model incorporating the probability of the performance hurdles being met. The fair value of performance rights with the non-market performance hurdle (costs target) is measured using the Black-Scholes option pricing formula. The fair value of options with a TSR performance hurdle and non-market performance hurdle is measured using a combination of the Monte Carlo Simulation model and Binomial Option Pricing methods. The following table lists the inputs to the models used for the years ended 30 June 2017 and 30 June 2016: Rights Options FY2017 Performance hurdle MTI TSR MTI Cost LTI TSR LTI TSR LTI LTI Cost Cost LTI TSR LTI TSR LTI LTI Cost Cost Grant date 17 Mar 17 17 Mar 17 17 Mar 17 17 Mar 17 17 Mar 17 17 Mar 17 17 Mar 17 17 Mar 17 17 Mar 17 17 Mar 17 Vesting date 30 Jun 19 30 Jun 19 30 Jun 19 30 Jun 20 30 Jun 19 30 Jun 20 30 Jun 19 30 Jun 20 30 Jun 19 30 Jun 20 Fair value at grant date $2.31 $2.56 $2.31 $2.20 $2.56 $2.46 $1.58 $1.56 $1.64 $1.60 Share price $2.760 $2.760 $2.760 $2.760 $2.760 $2.760 $2.760 $2.760 $2.760 $2.760 Exercise price Expected volatility Performance Right life Expected dividends Risk-free interest rate $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $1.21 $1.21 $1.21 $1.21 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 10 years 10 years 10 years 10 years 10 years 10 years 5 years 5 years 5 years 5 years 3.84% 3.84% 3.84% 3.84% 3.84% 3.84% 3.84% 3.84% 3.84% 3.84% 1.9% 1.9% 2.0% 2.2% 2.0% 2.2% 2.0% 2.2% 2.0% 2.2% FY2016 Performance hurdle MTI TSR LTI TSR Rights LTI TSR LTI Cost LTI Cost Grant date 8 Apr 16 8 Apr 16 8 Apr 16 8 Apr 16 8 Apr 16 Vesting date 30 Jun 17 30 Jun 18 30 Jun 19 30 Jun 18 30 Jun 19 Fair value at grant date $0.09 $0.16 $0.20 $0.57 $0.55 Share price $0.595 $0.595 $0.595 $0.595 $0.595 Exercise price $0.00 $0.00 $0.00 $0.00 $0.00 Expected volatility 50% 50% 50% 50% 50% Performance Right life 2 years 3 years 4 years 3 years 4 years Expected dividends Risk-free interest rate 0% 1.9% 1.2% 1.8% 2.3% 1.8% 1.2% 1.8% 2.3% 1.8% All shared-based payments are equity settled. 122 Whitehaven Coal Annual Report 20176. Group structure 6.1 Group’s subsidiaries The below is a list of the Group’s subsidiaries, all of which are incorporated in Australia, unless otherwise noted: Ownership interest 2017 2016 PARENT ENTITY Whitehaven Coal Limited SUBSIDIARIES Whitehaven Coal Mining Limited1 100% 100% Maules Creek Coal Pty Ltd1 Namoi Mining Pty Ltd1 100% 100% Boardwalk Resources Limited1 Ownership interest 2017 2016 100% 100% 100% 100% Namoi Agriculture & Mining Pty Ltd 100% 100% Boardwalk Coal Management Pty Ltd1 100% 100% Betalpha Pty Ltd1 Betalpha Unit Trust 100% 100% Boardwalk Coal Marketing Pty Ltd1 100% 100% 100% 100% Boardwalk Sienna Pty Ltd1 Tarrawonga Coal Pty Ltd1 100% 100% Boardwalk Monto Pty Ltd1 Whitehaven Coal Holdings Pty Ltd1 100% 100% Boardwalk Dingo Pty Ltd1 Whitehaven Coal Infrastructure Pty Ltd1 100% 100% Boardwalk Ferndale Pty Ltd1 Narrabri Coal Pty Ltd1 100% 100% Coalworks Limited1 Narrabri Coal Operations Pty Ltd1 100% 100% Yarrawa Coal Pty Ltd1 Narrabri Coal Sales Pty Ltd1 100% 100% Loyal Coal Pty Ltd Creek Resources Pty Ltd1 100% 100% Ferndale Coal Pty Ltd 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 92.5% 92.5% 92.5% 92.5% Werris Creek Coal Sales Pty Ltd1 100% 100% Coalworks (Oaklands North) Pty Ltd1 100% 100% Werris Creek Coal Pty Ltd1 100% 100% CWK Nominees Pty Ltd1 WC Contract Hauling Pty Ltd1 100% 100% Oaklands Land Pty Ltd1 100% 100% 100% 100% Whitehaven Blackjack Pty Ltd1 100% 100% Coalworks (Vickery South) Pty Ltd1 100% 100% Whitehaven Project Pty Ltd1 100% 100% Coalworks Vickery South Operations Pty Ltd1 100% 100% Whitehaven Employee Share Plan Pty Ltd1 100% 100% Vickery South Marketing Pty Ltd1 100% 100% Aston Resources Limited1 100% 100% Vickery South Operations Pty Ltd1 100% 100% Aston Coal 2 Pty Ltd1 Aston Coal 3 Pty Ltd1 100% 100% Vickery Pty Ltd1 100% 100% 100% 100% 1 These subsidiaries entered into a Class Instrument 2016/785 dated 28 September 2016 and related deed of cross guarantee with Whitehaven Coal Limited. Refer to Note 6.4 for further information. Recognition and measurement: Subsidiaries are entities controlled by the Company. Control exists when the Company is exposed to, or has rights to, variable returns from its involvement with an entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until that control ceases. All intercompany balances and transactions have been eliminated in preparing the consolidated financial statements. 123 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements6. Group structure (cont.) Interest in joint operations 6.2 The Group has interests in the following joint operations which are proportionately consolidated in the consolidated financial statements: Tarrawonga Coal Project Joint Venture1 Narrabri Coal Joint Venture1 Maules Creek Joint Venture1 Dingo Joint Venture1 Ferndale Joint Venture1 Boggabri-Maules Creek Rail Spur Joint Venture1 Tarrawonga Coal Sales Pty Ltd2 Maules Creek Marketing Pty Ltd2 Boggabri-Maules Creek Rail Pty Ltd2 COUNTRY OF INCORPORATION Australia Australia Australia Ownership interest and voting rights 2017 70% 70% 75% 70% 2016 70% 70% 75% 70% 92.5% 92.5% 39% 70% 75% 39% 39% 70% 75% 39% 1 These entities have been classified as joint operations under AASB11 Joint Arrangements, as these joint arrangements are not structured through separate vehicles. 2 The joint operations above operate as the sales and marketing vehicles or manager of the related unincorporated joint operations and require joint consent from all joint venture partners on all significant management and financial decisions. The Group recognises its share of assets, liabilities, revenues and expenses of the above entities as joint operations under AASB11 Joint Arrangements. Recognition and measurement: Joint arrangements are arrangements in which two or more parties have joint control. Joint control is the contractually agreed sharing of control over an arrangement, which exists only when decisions about relevant strategic and/or key operating decisions require unanimous consent of the parties sharing control. The Group recognises its interest in jointly controlled operations by recognising its share in the assets and liabilities of the joint operation. The Group 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 operation. Significant accounting judgements, estimates and assumptions The Group assesses whether it has the power to direct the relevant activities of the investee by considering the rights it holds with respect to the work programme and budget approval, investment decision approval, voting rights in joint operating committees and changes to joint arrangement participant holdings. Where the Group has joint control, judgement is also required to assess whether the arrangement is a joint operation or a joint venture. 6.3 Parent entity information INFORMATION RELATING TO WHITEHAVEN COAL LIMITED: Current assets Total assets Current liabilities Total liabilities Issued capital Retained earnings Share based payments reserve Total shareholders’ equity Profit of the parent entity Total comprehensive income of the parent entity 124 Company 2017 $’000 73 2016 $’000 63 2,857,508 2,815,799 61,589 61,589 61,960 61,960 3,275,296 3,275,296 (487,204) (539,874) 7,827 18,417 2,795,919 2,753,839 92,661 92,661 1,726 1,726 Whitehaven Coal Annual Report 20176.4 Deed of Cross Guarantee Pursuant to ASIC Corporations Instrument 2016/785 dated 28 September 2016, the wholly-owned subsidiaries listed in Note 6.1 (refer footnote 1) are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and directors’ reports. It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee (the ‘Deed’). 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 Corporations Act 2001, 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 Company and each of the relevant subsidiaries entered into the deed on 27 June 2008 with subsequent assumption deeds entered into on 27 June 2012 and 25 June 2013. The following consolidated statement of comprehensive income and statement of financial position comprises the Company and its controlled entities which are party to the Deed of Cross Guarantee (the ‘Closed Group’) after eliminating all transactions between parties to the Deed. STATEMENT OF COMPREHENSIVE INCOME Profit before tax Income tax expense Profit after tax Other comprehensive income Items that may be reclassified subsequently to profit or loss Net movement on cash flow hedges Income tax effect Other comprehensive income for the period, net of tax Closed group 2017 $’000 471,271 (68,811) 402,460 2,618 (785) 1,833 2016 $’000 30,164 (7,186) 22,978 1,186 (356) 830 Total comprehensive income for the period, net of tax 404,293 23,808 STATEMENT OF FINANCIAL POSITION Assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Total current assets Trade and other receivables Investments Property, plant and equipment Exploration and evaluation Intangible assets Deferred tax assets Total non-current assets Total assets 87,014 114,883 99,144 2,413 101,329 64,471 68,737 351 303,454 234,888 10,853 37 15,381 37 3,442,170 3,497,316 156,781 22,200 33,976 202,428 19,818 103,573 3,666,017 3,838,553 3,969,471 4,073,441 125 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements6. Group structure (cont.) 6.4 Deed of Cross Guarantee (cont.) STATEMENT OF FINANCIAL POSITION (cont.) Liabilities Trade and other payables Interest bearing loans and borrowings Employee benefits Provisions Derivative financial instruments Total current liabilities Non-current liabilities Interest bearing loans and borrowings Provisions Total non-current liabilities Total liabilities Net assets Issued capital Share based payments reserve Hedge reserve Retained earnings Non-controlling interest Equity 6.5 Related parties Compensation to Executive KMP and Non-executive Directors of the Group Short term employee benefits Contributions to superannuation plans Share-based compensation payments Total compensation Closed group 2017 $’000 164,454 23,560 20,071 5,188 582 2016 $’000 134,327 17,333 16,872 7,260 1,138 213,855 176,930 374,715 84,572 459,287 673,142 922,532 84,996 1,007,528 1,184,458 3,296,329 2,888,983 3,134,437 3,142,439 7,827 1,282 18,417 (551) 152,783 (272,400) – 1,078 3,296,329 2,888,983 2017 $’000 8,974 273 2,681 11,928 2016 $’000 8,040 278 1,095 9,413 126 Whitehaven Coal Annual Report 20177. Other notes 7.1 Employee benefits CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Wages and salaries Contributions to superannuation plans Other associated personnel expenses Increase in liability for annual leave Increase/(decrease) in liability for long service leave Share based compensation payments1 1 Disclosed in “Other expenses” in the Statement of Comprehensive Income. CONSOLIDATED STATEMENT OF FINANCIAL POSITION Salaries and wages accrued Liability for long service leave Liability for annual leave 2017 $’000 2016 $’000 143,325 126,280 9,272 4,530 2,382 (115) 4,760 164,154 6,393 269 13,409 20,071 8,325 3,109 1,319 110 3,715 142,858 5,461 384 11,027 16,872 Recognition and measurement: 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. Long-term service benefits Liabilities for long-service leave and other long term benefits are recognised and measured at the present value of the estimated future cash outflows resulting from employees’ services provided up to the reporting date. Long term benefits not expected to be settled within twelve months are discounted using the rates attached to the high-quality corporate bonds at the reporting date, which most closely match the maturity dates of the related liability. Defined contribution superannuation funds Obligations for contributions to defined contribution superannuation funds are recognised as an expense in the consolidated statement of comprehensive income as incurred. 127 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements7. Other notes (cont.) 7.2 Auditors’ Remuneration Audit services: Auditors of the Company – Ernst & Young Audit and review of statutory financial statements current year Audit of joint operations Non audit services: Auditors of the Company – Ernst & Young Taxation services Other non-audit services Review of National Greenhouse Energy Reporting Act requirements 7.3 Commitments a. Capital expenditure commitments Plant and equipment and intangibles Contracted for but not provided for and payable: Within one year1 1 There were no commitments for capital expenditure beyond one year. b. Operating lease commitments 2017 $ 2016 $ 522,000 500,000 298,000 275,000 820,000 775,000 20,000 66,100 56,451 142,551 42,712 99,500 11,068 153,280 2017 $’000 2016 $’000 13,151 34,593 The Group leases mining equipment, office equipment and office space under operating leases. The leases typically run for one to five years on commercial terms. None of the leases includes contingent rentals. The operating lease expenses recognised in the statement of comprehensive income in the current year amounted to $48,575,000 (2016: $29,346,000). Future minimum rentals payable under non-cancellable operating leases as at 30 June 2017 are as follows: Less than one year Between one and five years 55,306 130,712 186,018 36,554 87,200 123,754 128 Whitehaven Coal Annual Report 2017c. Finance lease commitments Finance leases relate to property, plant and equipment with lease terms of between one to five years. At 30 June 2017, the group’s finance lease liabilities are secured by the leased assets of $45,182,000 (2016: $83,760,000), as in the event of a default, the leased assets revert to the lessor. Within one year Between one and five years Minimum lease payments Future finance charges Total lease liabilities Included in the financial statements in note 5.1 as: Current borrowings Non-current borrowings 7.4 Contingencies Bank guarantees The Group provided bank guarantees to: i. Government departments as a condition of continuation of mining and exploration licenses ii. Rail capacity providers iii. Port capacity providers iv. Electricity network access supplier vi. Other Litigation 2017 $’000 19,625 17,636 37,261 (2,226) 35,035 17,682 17,353 35,035 2017 $’000 118,907 30,503 97,163 25,511 3,195 2016 $’000 20,405 72,875 93,280 (9,787) 83,493 14,420 69,073 83,493 2016 $’000 79,104 21,357 69,708 26,499 1,880 275,279 198,548 There is a number of legal and potential claims against the Group which have arisen in the ordinary course of business. As the Group believes that it has no liability for such matters, a provision has not been made for any potential adverse outcome. The Group will defend these claims and believes that any adverse outcome would not be material based on information currently available to the Group. 7.5 Subsequent events In the interval between the end of the financial year and the date of this report there has not arisen any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years, other than the following: Subsequent to the end of the financial period, the Group refinanced its A$1.2 billion Senior Secured Bank Facility in August 2017 provided by a syndicate of Australian and international banks. The new facility is comprised of a $1.0 billion drawable revolver and a $ 0.2 billion guarantee facility. The new facility’s A$1.0 billion drawable line of credit is for general corporate purposes and has a maturity of July 2021. Subsequent to the end of the financial period, the Group repaid a further $100 million of debt drawn under the senior bank facility. Subsequent to the end of the financial period, the Directors have proposed a 20 cent per share distribution to shareholders, which is expected to comprise a 14 cent capital return and a 6 cent unfranked dividend. Whitehaven is seeking a class ruling from the ATO in relation to the proposed distribution. The proposed capital return component is subject to receiving shareholder approval at Whitehaven’s Annual General Meeting (AGM) in October 2017 and, if approved by shareholders, will be paid in November 2017 along with the related unfranked dividend. Further details will be provided in the Notice of Meeting for the AGM. 129 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTNotes to the consolidated financial statements7. Other notes (cont.) 7.6 New accounting standards and interpretations i. Changes in accounting policy and disclosures The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those of the previous financial year, except for the adoption of new standards and interpretations effective as of 1 July 2016. Several amendments apply for the first time in the current year. However, they do not impact the annual consolidated financial statements of the Group. ii. Accounting Standards and Interpretations issued but not yet effective Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ended 30 June 2017 are outlined below: AASB 9 Financial Instruments A finalised version of AASB 9 which contains accounting requirements for financial instruments, replacing AASB 139 Financial Instruments: Recognition and Measurement. The standard contains requirements in the areas of classification and measurement, impairment, hedge accounting and derecognition. The Group has not yet determined the potential impact of the amendments on the Group’s financial report. This standard applies to annual reporting periods beginning on or after 1 January 2018. AASB 15 Revenue from Contracts with Customers The core principle of AASB 15 is that an entity recognises revenue in accordance with the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with AASB 15 by applying the following steps: Step 1: Identify the contract(s) with the customer; Step 2: Identify the performance obligations in the contract; Step 3: Determine the transaction price; Step 4: Allocate the transaction price to the performance obligations in the contract; Step 5: Recognise the revenue when the entity satisfies a performance obligation. New disclosures about revenue are also introduced. The Group is currently in the process of completing its analysis of the potential impact of the amendments on the Group’s financial report. However, as the majority of the Group’s revenue is derived from contracts in which the transfer of risks and rewards occurs at the same time as the satisfaction of the performance obligation, no material changes are expected in respect of the timing and amount of revenue currently recognised by the Group. This standard applies to annual reporting periods beginning on or after 1 January 2018. AASB 16 Leases AASB 16 provides a new lessee accounting model which requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. AASB 16 contains disclosure requirements for lessees. The Group is continuing its assessment to quantify the impact of the new standard on the Group’s financial report, but expect adoption of the standard to have a material impact to the Group’s financial statements. This standard applies to annual reporting periods beginning on or after 1 January 2019. 130 Whitehaven Coal Annual Report 2017Directors’ 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. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its performance for the year ended on that date; and ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1; and 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 2017. b. c. d. e. as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in note 6.4 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 AO Chairman Sydney 17th August 2017 Paul Flynn Managing Director and Chief Executive Officer 131 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTAuditors Report 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent Auditor’s Report to the Members of Whitehaven Coal Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Whitehaven Coal Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes to the financial report, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 132 Whitehaven Coal Annual Report 2017 Auditors report Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. Impairment assessment of Property, Plant & Equipment Why significant How our audit addressed the key audit matter As at 30 June 2017, the Group’s consolidated statement of financial position included $3,442m of property, plant and equipment relating to operating mines. Our procedures conducted over the Group’s impairment indicator analysis included the following: As disclosed in Note 4.1 of the financial report, the Directors’ assess property, plant and equipment for indicators of impairment at each balance date. This involves assessment of any potential indications of impairment in property, plant and equipment including (but not limited to) significant changes to market, geological, economic or legal environment changes in the markets in which Whitehaven operates, changes in the discount rate, changes in coal price, movements in foreign exchange and movement in the Group’s market capitalisation. Consideration is also given to any expected future changes to operating conditions. This assessment determines whether a full impairment assessment is required. We focused on this area due to the magnitude of the balance in the consolidated statement of financial position, and the significant judgments and assumptions involved in the assessment of indicators of impairment. • • • • • assessed whether the methodology used by the Directors met the requirements of AASB136 Impairment of Assets; considered the appropriateness of the Group’s identification of its cash generating unit; assessed the Group’s analysis for indicators of impairment, in conjunction with our valuation specialists. This included consideration of whether any movements in the key assumptions applied indicated potential impairment, by comparing them to historical results in addition to economic and industry forecasts; assessed the Group’s methodologies and their documented basis for key assumptions used in impairment assessments, as described in note 4.1; considered whether the disclosures included in the financial report relating to impairment, including those specific to judgments and estimates, met the requirements of Australian Accounting standards. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 133 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORT Auditors Report (cont.) Recoverability of deferred tax assets Why significant How our audit addressed the key audit matter As at 30 June 2017, the net deferred tax asset in the Group’s consolidated statement of financial position includes $356.1m of deferred tax asset. $305.3m of this deferred tax asset relates to carried forward tax losses and tax credits. The recoverability of deferred tax assets, including those arising from carried forward tax losses and temporary differences can be subjective based upon the Group’s assessment of its ability to generate sufficient future taxable profits. As disclosed in Note 2.3 of the financial statements, the Directors’ assessment of recoverability of these assets is dependent upon assumptions about the generation of future taxable profits from estimates of future cash flows. These depend on estimates of future production and sales volumes, coal prices, foreign exchange rates, operating costs, rehabilitation costs, capital expenditure, dividends and other capital management transactions. This involves critical accounting estimates and assumptions, specifically relating to future cash flows and judgment relating to the application of income tax legislation. We evaluated the Group’s assessment of the recoverability of deferred tax assets. Our audit procedures included the following: • • • • • evaluated the assumptions and methodologies used by the Group in determining the recoverability of deferred tax assets including forecast cash flows; tested the mathematical accuracy of the cash flow models; compared the cash flow forecasts with the Board approved forecast cash flows; considered the future profitability of operations based on assumptions made in forecasted cash flows, consistent with models used to support the carrying value of operating property, plant and equipment; and assessed judgments and assumptions made regarding income tax legislation with assistance from our taxation specialists where appropriate. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 134 Whitehaven Coal Annual Report 2017 Auditors report Mine rehabilitation and closure provisions Why significant How our audit addressed the key audit matter As at 30 June 2017, the consolidated statement of financial position included $89.8m of mine rehabilitation and closure provisions. As a consequence of its operations, the Group incurs obligations to restore and rehabilitate the environment. Rehabilitation activities are governed by a combination of legislative requirements and Group policies. Estimating the costs associated with these future activities requires considerable judgement in relation to factors such as when the rehabilitation will take place, the time period required for the rehabilitation to be effective, the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases, and changes in economic assumptions including an appropriate rate to discount these future costs back to their net present value. This was considered to be a key audit matter due to the significant judgments and assumptions involved in the calculation of these mine rehabilitation and closure provisions. Our procedures included the following: • • • • • • • • assessed the Group’s process for recognition, review and approval of the rehabilitation provisions; agreed the disturbed areas included in rehabilitation models to surveys completed over areas requiring future rehabilitation; considered the reasonableness of cost rates applied with respect to government specified cost rates; considered the competence and objectivity of management’s experts, both internal or external, who produced the surveys and cost estimates; tested the mathematical accuracy of the rehabilitation models to support the provision balance; considered the discount rate applied by management; evaluated the appropriateness of accounting treatment applied to changes in the rehabilitation provision, including whether the impact is expensed or capitalised; and evaluated whether the judgments and estimates disclosures relating to mine closure and rehabilitation provisions met the requirements of Australian Accounting standards. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 135 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORT Auditors Report (cont.) Information Other than the Financial Report and Auditor’s Report Thereon The Directors are responsible for the other information. The other information comprises the information included in the Company’s 2017 Annual Report other than the financial report and our auditor’s report thereon. We obtained the Directors’ Report that is to be included in the Annual Report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the date of this auditor’s report. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 136 Whitehaven Coal Annual Report 2017 Auditors report one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. • • • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors. Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events and conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated to the Directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 137 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORT Auditors Report (cont.) Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 68 to 87 of the Directors' report for the year ended 30 June 2017. In our opinion, the Remuneration Report of Whitehaven Coal Limited for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Ryan Fisk Partner Sydney 17 August 2017 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 138 Whitehaven Coal Annual Report 2017 ASX additional information 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 Farallon Capital Management LLC Fritz Kundrun* Hans Mende* AMCI Group* Prudential PLC Percentage of capital held Number of ordinary shares held Date of substantial shareholder notice 16.61% 12.09% 11.13% 10.09% 8.40% 170,414,721 124,042,252 114,190,086 86,170,596 81,899,109 19 June 2013 17 Oct 2014 17 Oct 2014 17 Oct 2014 10 April 2017 *The holdings of Mr Kundrun and Mr Mende both include the 86,170,596 shares owned by AMCI Group. Voting rights Ordinary shares Refer to note 5.4 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 Number of equity security holders 1,716 2,064 739 849 99 5,467 There are 6 holders of options over ordinary shares. Refer to section 7.3 of the Remuneration Report. The number of shareholders holding less than a marketable parcel of ordinary shares is 447. 139 OVERVIEWSTRATEGYOPERATIONSSUSTAINABILITYRESOURCES & RESERVESLEADERSHIP & MANAGEMENTSECTION 7 / FINANCIAL REPORTFINANCIAL REPORTASX additional information (cont.) Securities exchange The Company is listed on the Australian Securities Exchange. Other information Whitehaven Coal Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. Twenty largest shareholders (legal ownership) Name CITICORP NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – GSCO ECA J P MORGAN NOMINEES AUSTRALIA LIMITED NATIONAL NOMINEES LIMITED AET SFS PTY LTD BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMINEES PTY LTD RANAMOK PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED BNP PARIBAS NOMINEES PTY LTD VESADE PTY LTD WHITEHAVEN EMPLOYEE SHARE PLAN PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 NATIONAL NOMINEES LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED GSCO ECA MR MICHAEL JACK QUILLEN BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMINEES PTY LTD INVIA CUSTODIAN PTY LIMITED This information is current as at 14 August 2017. Number of ordinary shares held Percentage of capital held 262,832,112 255,252,358 175,518,681 129,665,129 28,490,780 26,678,979 10,795,976 9,641,371 7,367,226 6,801,205 5,886,549 5,795,052 5,669,939 5,647,836 4,450,000 4,409,572 4,135,000 2,667,009 2,316,000 2,025,000 25.62 24.88 17.11 12.64 2.78 2.60 1.05 0.94 0.72 0.66 0.57 0.56 0.55 0.55 0.43 0.43 0.40 0.26 0.23 0.20 956,045,774 93.18 140 Whitehaven Coal Annual Report 2017Glossary of terms and abbreviations ARTC Australian Rail Track Corporation MRRT Minerals Resource Rent Tax ASEAN Association of Southeast Asian Nations CHPP Coal Handling Preparation Plant EBITDA Earnings Before Interest, Taxation, Depreciation and Amortisation FEC Forward Exchange Contract FOB Free-on-Board FVLCD Fair Value Less Costs of Disposal HELE High Energy Low Emissions JORC Joint Ore Resources Committee KMP Key Management Personnel LTI LW Long Term Incentive Longwall Mt MTI Million tonnes Medium Term Incentive Mtpa Million tonnes per annum NCIG Newcastle Coal Infrastructure Group PWCS Port Waratah Coal Services ROM Run of Mine STI t TAL TFR Short Term Incentive Tonne Tonne Axle Loads Total Fixed Remuneration TRIFR Total Recordable Injury Frequency Rate TSR Total Shareholder Return Corporate directory Directors The Hon. Mark Vaile AO Chairman John Conde Deputy Chairman Dr Julie Beeby Non-executive Director Paul Flynn Managing Director and CEO Tony Haggarty Non-executive Director Christine McLoughlin Non-executive Director Raymond Zage Non-executive Director Company Secretary Timothy Burt Registered and Principal Administrative Office Level 28, 259 George Street Sydney NSW 2000 P +61 2 8507 9700 F +61 2 8507 9701 Australian Business Number ABN 68 124 425 396 Stock Exchange Listing Australian Securities Exchange Ltd ASX Code: WHC Share Registry Computershare Investor Services Pty Ltd GPO Box 523 Brisbane QLD 4001 P 1300 850 505 F +61 7 3237 2100 Country of Incorporation Australia Web address www.whitehavencoal.com.au Auditor Ernst & Young Ernst & Young Centre 200 George Street, Sydney NSW 2000 P +61 2 9248 5555 F +61 2 9248 5199 Whitehaven Coal Level 28, 259 George Street Sydney NSW 2000 p +61 2 8507 9700 f +61 2 8507 9701 ASX Code: WHC whitehavencoal.com.au

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