CHANGING
THE GAME
YANCOAL AUSTRALIA LTD
ANNUAL REPORT 2017
28
INFRASTRUCTURE
AND LOGISTICS
30
COAL
RESOURCES
AND COAL
RESERVES
STATEMENT
38
FINANCIAL
STATEMENTS
153
CORPORATE
DIRECTORY
02
OUR
HIGHLIGHTS
06
OUR
OUTLOOK
08
CHAIRMAN’S
LETTER
10
OUR
STRATEGY
12
CEO’S
STATEMENT
14
MARKET
CONTEXT
16
HEALTH,
SAFETY
AND THE
ENVIRONMENT
17
YANCOAL
SAFETY
18
COMMUNITY
20
REVIEW OF
OPERATIONS
ANNUAL REPORT 2017 1
Changing the mining
game and leading the
way as Australia’s largest
pure-play coal producer.
Listed on the Australian Securities Exchange, Yancoal Australia
Ltd (“Yancoal”) is the country’s largest pure-play coal producer
and a major contributor to the continued economic growth
of regional New South Wales and Queensland.
In 2017 Yancoal produced 23.4 million tonnes of saleable
(equity share) thermal and metallurgical coal for export into
international markets.
Operating five sites and managing four others across New South
Wales, Queensland and Western Australia, Yancoal employs
approximately 5,000 people plus contractors and service
providers, sourcing the majority of its people from the local
communities in which it operates.
Yancoal also maintains financial interests in three of the
country’s largest ports.
Yancoal’s New South Wales region includes the mines of
Hunter Valley Operations, Mount Thorley Warkworth, Moolarben
and Stratford Duralie, with the Queensland region comprising
of Yarrabee and the Middlemount joint venture.
Yancoal also manages the Cameby Downs and Premier coal
mines in Queensland and Western Australia respectively on
behalf of its majority shareholder Yanzhou Coal Mining Company
Limited (“Yanzhou”)1 and the Ashton and Austar mines in New
South Wales on behalf of Watagan Mining Company Pty
Ltd (“Watagan”)2.
Listed on the Australian Securities Exchange, Yancoal had
43,959,446,612 shares on issue, as at 31 December 2017. The
two largest shareholders were Yanzhou with 65.5% holding and
Cinda International HGB Investment (UK) Limited with 16.7%.
1 Yanzhou is a China-based, integrated mining company with interests in coal, coal
chemicals, power generation and mechanical and electrical equipment manufacturing.
Its shares are listed on the Hong Kong and Shanghai stock exchanges. The State-owned
Yankuang Group Company Limited has a 51.59% direct shareholding in Yanzhou.
2 Watagan Mining Company Pty Ltd is a wholly-owned subsidiary of Yancoal Australia
Ltd, controlled by a consortium of financiers consisting of Industrial Bank Co. Ltd,
BOCI Financial Products Limited and United NSW Energy Limited. Effective 31 March
2016, Yancoal ceased to control Watagan and remains the exclusive provider of mine
management, marketing, infrastructure and other corporate support services for the
Ashton, Austar and Donaldson assets.
2 YANCOAL AUSTRALIA LTD
In 2017 Yancoal exceeded
market expectations,
strategically acquiring 100%
of Coal & Allied to successfully
transform into Australia’s largest
pure-play coal producer and a
major competitor throughout
international coal markets.
OUR
HIGHLIGHTS
ANNUAL REPORT 2017 3
28.54Mt1
SALES VOLUME
(EQUITY SHARE TONNES)
Total coal sales (equity share) of
28.5Mt for the year, with a sales
split (equity share) for the period
of 19.55Mt thermal coal and 8.99Mt
metallurgical coal.
30.55Mt
RUN OF MINE COAL2
(EQUITY SHARE TONNES)
Consistently strong production from
the Moolarben complex, supported
by fleet efficiencies across open cut
mines and the addition of coal from
the acquired Coal & Allied assets
drove a total 30.55 million tonnes Run
of Mine (ROM) coal (equity share).
$229M
PROFIT AFTER TAX
Yancoal reported a Full Year 2017
profit after tax of $229 million, led
by increased production output at
a time of industry-high benchmark
prices for semi-soft coking coal
and thermal coal sales.
$732M
OPERATING EBIT
TOTAL VALUE
Yancoal achieved a total Operating
EBIT of $732 million before tax,
up $693 million on the year prior.
$2.6B
TOTAL REVENUE
Yancoal generated $2.6 billion
of revenue.
US$2.45B
ACQUISITION
OF COAL & ALLIED
Yancoal became Australia’s largest
pure-play coal producer, effectively
doubling its production output and
increasing its coal product offerings
via completion of the strategic
acquisition of 100% of Coal & Allied
Industries Limited (“Coal & Allied”)
from Rio Tinto for US$2.69 billion in
value, comprising of US$2.45 billion
cash payable on completion,
US$240 million in future non-
contingent royalty payments over five
years following completion, and a
coal price linked contingent royalty.
23.44Mt
SALEABLE COAL2
(EQUITY SHARE TONNES)
Total 2017 production (equity share)
was up 47 per cent on the year prior;
including 4.92 million tonnes from the
post-acquisition production from the
Hunter Valley Operations and Mount
Thorley Warkworth assets.
1 Includes external coal purchases, Middlemount and Watagan. Includes only 51% interest in Hunter Valley Operations (“HVO”) on the basis that Glencore will be entitled
to a 49% interest in HVO with economic effect from 1 September 2017 on implementation of the Yancoal-Glencore HVO joint venture.
2 Includes Watagan, Middlemount and only 51% interest in Hunter Valley Operations (“HVO”) on the basis that Glencore will be entitled to a 49% interest in HVO with
economic effect from 1 September 2017 on implementation of the Yancoal-Glencore HVO joint venture.
OUR
HIGHLIGHTS
4 YANCOAL AUSTRALIA LTD
With a long-term vision
for continued investment
into Australian mining,
Yancoal is a leader in the
local resources sector
committed to building
new opportunities for its
employees and generating
value for its shareholders.
OPERATING PERFORMANCE
The addition of attributable production from the
newly acquired Mount Thorley Warkworth and Hunter
Valley Operations mines generated an immediate
and significant increase in production, achieving total
saleable coal production of 31.5Mt (23.4Mt equity
share) for the year (31 December 2016: 16.0Mt
equity share) and total Run of Mine (“ROM”) coal
production of 41.1Mt (30.6Mt equity share) for the
year (31 December 2016: 21.2Mt equity share).
Yancoal achieved total coal sales (equity share)
of 28.5Mt1 for the year (31 December 2016: 19.3Mt),
with a sales split (equity share) for the period
of 19.6Mt (2016 11.6Mt) thermal coal and 8.99Mt
(2016 7.7Mt) metallurgical coal.
FINANCIAL PERFORMANCE
Yancoal achieved a total operating EBIT of $732 million
before tax, up $693 million on the year prior.
Yancoal’s financial improvement was mostly
attributable to the strategic acquisition of 100%
of Coal & Allied Industries Limited from Rio Tinto for
US$2.69 billion in value, as at 1 September 2017,
resulting in a significant increase in production.
Increased production output at a time of industry-high
benchmark prices for semi-soft coking and thermal
coals led Yancoal’s recovery to announce a profit after
tax of $229 million from revenue of $2.6 billion for the
year ended 31 December 2017.
1 Includes external coal purchases, Middlemount and Watagan. Includes only 51%
interest in Hunter Valley Operations (“HVO”) on the basis that Glencore will be
entitled to a 49% interest in HVO with economic effect from 1 September 2017
on implementation of the Yancoal-Glencore HVO joint venture.
ANNUAL REPORT 2017 5
OPERATING PERFORMANCE
Equity Production and Sales
Run of Mine (ROM) Coal Production
Saleable Coal Production
Coal Sales (1)
Costs FOB (2)
Price Achievement (2)
Equity
Equity
Equity
2016
2017
YoY Change
Mt
Mt
Mt
A$/t
A$/t
21
16
19
75
82
31
23
29
71
116
44%
47%
48%
-5%
41%
Product Mix (Met % / Thermal %)
Capital Expenditure (2)
40/60
32/68
A$m
260
211
-19%
(1) Includes external coal purchases, Middlemount and Watagan. Includes only 51% interest in Hunter Valley Operations (“HVO”) on
the basis that Glencore will be entitled to a 49% interest in HVO with economic effect from 1 September 2017 on implementation of
the Yancoal-Glencore HVO joint venture.
(2) Equity is pro-rata equity share based calculation and excludes Middlemount.
FINANCIAL PERFORMANCE
Profit Results for 2017 and 2016 with
accounting reconciliations
Revenue from continuing operations
Operating EBITDA
Operating EBIT
Profit before non-operating items
Bank fees and other charges
Interest income
Gain on acquisition of subsidiaries
Impairment reversal of mining tenements
Fair value losses recycled from hedge reserve
(229)
Remeasurement of royalty receivable
Transaction costs
Stamp duty expensed
Other
8
(33)
(167)
5
Year ended December 2017
Year ended December 2016
Before Tax
$’m
2,601
988
732
445
(109)
114
177
100
Tax
$’m
After Tax
$’m
Before Tax
$’m
Tax
$’m
After Tax
$’m
1,238
172
39
(170)
(113)
125
–
–
81
(90)
–
(38)
–
–
(113)
87
–
–
(133)
40
(93)
(6)
(3)
(12)
–
2
1
–
–
(4)
(2)
(12)
–
(126)
319
33
(34)
–
(30)
69
(2)
10
–
(2)
(76)
80
177
70
(160)
6
(23)
(167)
3
Profit / (loss)
311
(82)
229
(312)
85
(227)
6 YANCOAL AUSTRALIA LTD
OUR
OUTLOOK
Yancoal will continue to achieve
an increased production output of
high quality thermal and semi-soft
coals via its tier-one open cut
mines, while continuing to consider
new opportunities for organic and
strategic acquisitive growth.
The successful completion of the Coal &
Allied transaction and integration of the
Mount Thorley Warkworth and Hunter Valley
Operations mines into the Yancoal Group has
effectively doubled the production capacity
of the Company, with guidance for saleable
production in 2018 set at 35 – 37 million
tonnes (equity share). The forecast for 2018
capital expenditure is approximately
$247 million (equity share).
Now established as Australia’s largest pure-
play coal producer, Yancoal remains well-
positioned to meet increasing demand for high
quality thermal coal, sourcing product from
its three high-grade, low cost tier-one coal
assets: the Moolarben complex; Mt Thorley
Warkworth; and the proposed Hunter Valley
Operations joint venture.
At the time of publication, Yancoal expects
to complete the Hunter Valley Operations
joint venture arrangement with a subsidiary of
Glencore Coal Pty Ltd (“Glencore”) during the
first half of 2018, subject to approvals.
Yancoal continues to consider exploration
and development opportunities within existing
approvals for the Mount Thorley Warkworth
operation, Moolarben complex and Stratford
open cut.
In 2018, Yancoal will continue to maximise
blending across the New South Wales
operations, improve fleet efficiencies at its
open cut operations, and remains focused
on reducing its operating costs and existing
levels of debt.
ANNUAL REPORT 2017 7
8 YANCOAL AUSTRALIA LTD
8 YANCOAL AUSTRALIA LTD
CHAIRMAN’S
LETTER
2017 has been a year of transformation
for Yancoal Australia. Our strategic
acquisition of Coal & Allied redefined
our business as Australia’s largest
pure-play coal producer and a major
contributor to global coal markets.
XIYONG LI
CHAIRMAN OF THE BOARD
TURNAROUND
The substantial cash flows generated from
the acquired Coal & Allied assets, combined
with the associated operational synergies
and benefits of our equity raising, have
immediately and materially strengthened
Yancoal’s balance sheet.
It is with great pleasure we have announced
Yancoal’s recovery to profit, achieving a total
operating EBIT of $732 million before tax, up
$693 million on the year prior, and a profit after
tax of $229 million from revenue of $2.6 billion.
This significant turnaround is mostly attributable
to the successful completion of the Coal
& Allied transaction at a time of increasing
pricing strength and sustainability across the
metallurgical and thermal coal markets.
PRODUCTION INCREASE
The addition of attributable production from
the newly acquired Mount Thorley Warkworth
and Hunter Valley Operations mines generated
an immediate and significant increase in
production, allowing Yancoal to maximise
sales and blending at a time of benchmark-high
pricing for semi-soft and thermal coals with
key buyers.
Yancoal achieved total saleable coal production
of 31.5Mt (23.4Mt equity share) for the year
(31 December 2016: 16.0Mt equity share) and
total Run of Mine (“ROM”) coal production of
41.1Mt (30.6Mt equity share) for the year
(31 December 2016: 21.2Mt equity share).
Such a strong production result includes only
four months of attributable activity from the
newly acquired tier-one assets and clearly
demonstrates Yancoal is very well positioned to
realise significant value for our shareholders in
the years ahead.
Combining the world-class assets of Coal &
Allied’s Mount Thorley Warkworth and Hunter
Valley Operations with the Company’s existing
portfolio, the acquisition enables the maximising
of synergies between Yancoal assets and
supports the Company’s vision for continued
market growth.
THE ACQUISITION
Critically, we approached our competitive
bid for Coal & Allied with a commitment to
pricing-discipline, ensuring we negotiated a
commercially robust offer in the best interests
of all parties of US$2.45 billion cash payable
on completion, plus US$240 million in future
non-contingent royalty payments over five years
following completion, and a coal price linked
contingent royalty.
To support the funding of the acquisition,
Yancoal also conducted a pro-rata
renounceable entitlement offer of
23,464,929,520 fully paid ordinary shares
to raise US$2.35 billion, and an associated
placement of 1,500,000,000 fully paid ordinary
shares to raise a further US$150 million.
The pro-rata entitlement offer attracted new
investors, provided greater depth to our
shareholder base, and efficiently generated
the necessary funding to support the next
stage of our business’ evolution.
ANNUAL REPORT 2017 9
With this transaction Yancoal’s Board
and executive have increased the capability
and capacity required to generate new
organic growth.
We have also maintained our strength in
project management, completing the Stage
Two Moolarben underground mine ahead of
schedule and below budget, commencing
longwall mining in October.
Our strategic decision to commit to the
development of the Moolarben Stage Two
Project in 2014 during the global coal market
downturn, has appropriately prepared our
business to respond swiftly and with surety
to the recent price recovery.
We are now reaping the benefits of our early
project investment and belief in the long-term
return of the global market, understanding
the risks and opportunities of the mining cycle.
MOVING FORWARD
While there is much work ahead for all of our
teams, we retain a positive outlook towards
the continued improvement within established
and untapped developing global coal markets.
We also continue to focus on achieving our
goal of operating without injury and achieving
cost-efficiencies across the Group.
On behalf of the Board I would like to thank
our people for their drive and dedication to
safe production and instituting the highest
operating standards.
Together, our people have fortified Yancoal
against recent years of turbulent market
forces and challenging operating conditions
to overcome and establish our business as
a true global market leader.
With the support of our majority shareholders
and our joint venture and marketing partners,
Yancoal Australia has the leadership, asset
portfolio, experience, and long term strategy
required to build a brighter future for all.
As we enter 2018, Yancoal is ready for the
next exciting step in our continuing journey.
At the same time, Yancoal also entered into
a binding agreement to establish a 51:49
unincorporated joint venture with Glencore in
relation to the Hunter Valley Operations asset,
following completion of the acquisition.
The joint venture arrangement provides
significant combined synergies and
commercial opportunities for both Yancoal
and Glencore, with shareholders set to
benefit from the co-operative management
experience and operational skills of two
of Australia’s leading coal producers. The
joint venture remains subject to Glencore
achieving all required approvals.
SHAREHOLDER SUPPORT
Throughout the transaction Yancoal operated
swiftly and with certainty, supported by our
majority shareholder, Yanzhou Coal Mining
Company Ltd, and Yanzhou’s 56 percent
shareholder, Yankuang Group Company Ltd.
Yanzhou shares Yancoal’s commitment to
continuous improvement and a belief in
operating to the highest standards of safety,
integrity, excellence and with respect for our
people and the countries in which we operate.
With their continued investment and that of
our new second-largest shareholder Cinda
International HGB Investment (UK) Limited,
we have demonstrated Yancoal’s long term
commitment to the local resources sector as a
significant employer and exporter for Australia.
Investing within Australia requires flexibility,
bravery, certainty and an ability to trust the
management team working within the country.
The strategic acquisition of Coal & Allied is a
credit to the management teams of Yancoal
and our majority shareholders.
OPERATIONAL STRENGTH
Following the completion of the transaction on
1 September 2017, we have successfully and
efficiently integrated the people, processes
and systems of the newly acquired assets into
the Yancoal Group. Sharing our values and
core operating principles across operations to
ensure we are culturally aligned and focused
on achieving our production goals for the
year ahead.
$732M
UP $693M
TOTAL OPERATING EBIT
FOR 2017
10 YANCOAL AUSTRALIA LTD
With a commitment to continued
strategic growth and maximising
new opportunities, Yancoal remains
focused on returning shareholder
value and building its business as a
leading competitor in global markets.
OUR
STRATEGY
ANNUAL REPORT 2017 11
BUSINESS
TRANSPARENCY,
COMPLIANCE
AND EFFICIENCY
Operating Yancoal’s site
and corporate functions
to the highest standards
of corporate governance,
reporting via transparent,
compliant and efficient
processes to meet the needs
of all key stakeholders.
Supported by the core values of the
Yancoal Way, the Board and management
team remain focused on investing into the
Australian resources sector, implementing
operational efficiencies, reducing costs,
sharing services, and providing all
customers with the certainty of product
quality and delivery.
Yancoal’s long-term business priorities are:
OPTIMISATION OF RESOURCES
AND VALUE CREATION MECHANISMS
1. MARKETS
2. PRODUCTS
3. PROJECTS
Strengthening the
Company’s relationships
with customers
throughout the key
thermal and coking coal
markets of Korea, Japan,
China, India and Taiwan,
with the wholly-owned
subsidiary Yancoal
Australia Sales Pty Ltd,
facilitating the sale of
Yancoal, Watagan Mining
and Yanzhou coal blends
to all external parties.
Maximising blending
opportunities across
Yancoal-controlled and
managed operations,
remaining focused on
producing high quality
thermal, semi-soft and
semi-hard coking coals
to meet increasing
demand in established
and new global markets.
Continued delivery of
brownfield exploration
and expansion projects
on time and on budget,
via efficient and robust
project management,
enabling continued
strategic organic
growth to meet global
market demand.
4. TALENTED
PERSONNEL
5. COST
REDUCTION
Attracting and developing
the right people with
the right skills, working
together to build a
robust culture of respect,
transparency, diversity
and efficiency.
Implementing operational
efficiencies across all
mines, maintaining a
commitment to reduce
costs and support future
growth opportunities
and capital improvement.
12 YANCOAL AUSTRALIA LTD
12 YANCOAL AUSTRALIA LTD
CEO’S
STATEMENT
In 2017, Yancoal surpassed industry
expectations to successfully acquire
Coal & Allied from Rio Tinto in a
competitive acquisition, effectively
doubling the scale of our operations
and employee numbers.
REINHOLD SCHMIDT
CEO YANCOAL AUSTRALIA
ANNUAL REPORT 2017 13
The expansion of our open cut portfolio at
a time of sustained market price improvements
has enabled Yancoal to achieve significant
production gains well beyond our pre-
acquisition performance.
WORKING TOGETHER
Only three years ago Yancoal was operating
in a deflated and disappointing resources
market, restructuring our operations
and managing costs to ensure we were
ready for an eventual upturn.
As prices improved throughout the past year,
we have held true to our promises to continue
to invest into the Australian resources sector,
employ from the areas in which we operate,
and remain absolutely committed to operating
safely and transparently.
Our transformative acquisition has required
a whole-of-business commitment and
its successful completion is of credit to our
people and their ability to anticipate, respond
and recalibrate to market forces and
operational demands.
Together, we have secured Yancoal’s future as
Australia’s largest pure-play coal producer, with
majority interests in two of the country’s leading
tier-one large-scale, long-life and low-cost open
cut coal mines, adding to the strength of our
established tier-one Moolarben complex.
SAFETY
As we have increased in scale, we have
remained focused on ensuring the safety of our
people. Remaining ever vigilant in ensuring we
are providing a safe workplace for the more than
5,000 people directly responsible for helping
Yancoal achieve its ongoing market success.
To support this commitment, we continue to
implement safety training and incident response
practices across each of our operations,
including the 2017 introduction of a Critical
Controls initiative to identify and mitigate against
significant on-site risks.
Only through continued training, education
and awareness can we help to ensure each
of our people returns home safely. There are
no shortcuts to safety and it is the responsibility
of every person within our business to be
watching out for themselves and those working
alongside them.
We must never compromise on safety.
TRANSFORMATION
With our management and operational
teams successfully integrating the Mount
Thorley Warkworth and Hunter Valley
Operations assets into our business from
day one, we have immediately benefitted
from operational synergies and the creation
of new marketing opportunities.
The Company’s balance sheet strengthened
via increased cashflows from a full fourth
quarter’s contribution of attributable new coal
product sales.
Sales volumes for the fourth quarter reporting
period were up 83 percent on the year prior;
including 3.45 million tonnes, a 56 percent
contribution to the year-on-year increase,
from Hunter Valley Operations and Mount
Thorley Warkworth.
OPERATIONS
During the year, we achieved a series of
key milestones essential to the next stage
of Yancoal’s continued growth, both organic
and via strategic acquisition.
Of specific note, we completed the
commissioning of the Moolarben Stage Two
underground mine ahead of time and below
budget, commencing longwall production
in October.
The completion of the Stage Two expansion,
consisting of two open cut pits and the
new underground, has now established the
Moolarben complex as a leading operation
in New South Wales, benefitting from fleet
efficiencies introduced in the year prior and
achieving superior extraction rates both
above and below ground.
Simultaneously, we have also maintained
the necessary operational flexibility and
discipline required to adapt the mine plans
of our Stratford Duralie and Yarrabee open
cuts throughout the year to successfully
improve extraction rates, reduce costs
and more efficiently meet changing global
market demands.
COMMUNITY
Employing the majority of our people from the
areas in which we operate, and relying on local
contractors and service providers to support
our operations, we remain ever mindful of our
responsibilities across regional Australia.
It is up to each of our operations to keep our
local communities engaged and informed.
Operating to the highest environmental and
safety standards, while communicating openly
and transparently. We cannot continue to grow
unless our local stakeholders are considered
in our decision-making.
We must also continue to play an important
role in financially contributing to local and
regional employment, training, health and
education initiatives we believe capable of
making a positive difference.
Within the past year we have contributed
more than $1.3m to community-focused
initiatives via our Community Support
Program and I look forward to our new
operations playing a major role in supporting
and establishing viable and sustainable
regional programs.
THE YEAR AHEAD
Renewed global demand for high quality
coal, buoyed by improved coal prices will
continue to strengthen Yancoal’s performance
as we progress the development of our
open cut operations and continue to pursue
new marketing and blending opportunities.
Moving forward, we are well advanced in
our preparations for the eventual
implementation of our joint venture with
Glencore at Hunter Valley Operations,
subject to final approvals.
The joint venture will ultimately provide
Hunter Valley Operations with the opportunity
to benefit from substantial synergies from
Glencore’s adjoining operations and both
parties look forward to working together to
drive new market growth.
Via the transaction we have also attained a
36.5% share of ownership of Port Waratah
Coal Services Limited.
AUSTRALIA’S LARGEST PURE-PLAY
COAL PRODUCER
We are now an established leader within the
Australian resources sector and have clearly
demonstrated we have the capabilities,
experience and initiative to exceed
expectations within the global marketplace.
This is a new day, a new opportunity and I
would like to thank the Yancoal team and our
shareholders for their continuing contribution
to our growth and success.
Looking ahead, there is still much to achieve.
31.5Mt
UP FROM 19.8Mt
SALEABLE COAL PRODUCTION
FOR 2017 (100% BASIS)
14 YANCOAL AUSTRALIA LTD
MARKET
CONTEXT
2017 experienced sustained global
coal market price improvements, with
industry-high benchmark prices for
semi-soft coking and thermal coals
achieved during the reporting period.
GUIDANCE
2018 guidance for saleable production is
35 – 37 million tonnes (equity share1).
1 Includes Watagan (100%), Middlemount (49.9997%), Yarrabee
(100%), Stratford Duralie (100%), Moolarben (81%), Mount
Thorley Warkworth (82.9% from 1 March 2018), and Hunter
Valley Operations (51% on the basis that Glencore will be
entitled to a 49% interest in Hunter Valley Operations with
economic effect from 1 September 2017 on implementation of
the Hunter Valley Operations Joint Venture). The Hunter Valley
Operations Joint Venture remains subject to Glencore achieving
all required approvals.
Throughout 2017, Yancoal continued to
implement cost reduction strategies across
all operations, addressed existing take-or-pay
arrangements, and blended products
across the New South Wales operations
(both managed and operated) to meet
new market opportunities.
Yancoal’s product sales split (equity share)
for 2017 was 19.6Mt (2016 11.6Mt) thermal
and 8.99Mt (2016 7.7Mt) metallurgical coal.
Yancoal Australia Sales Pty Ltd (YAS)
continued to facilitate the sale of coal blends,
contracting with and paying the supplying
coal mines, whether operated wholly or in joint
venture by a Yancoal subsidiary, an asset
managed by Yancoal Australia Ltd on behalf
of Yancoal International (Holding) Co. Ltd,
or a third-party mine.
OUTLOOK
Recent increases in metallurgical coal prices
are expected to hold, allowing for ongoing
price strength, as high demand for hard
coking coal across China, India, Europe and
South America remains. The global market is
benefiting from high steel prices in 2017 and
sustained construction rates in China, despite
the introduction of environmental restrictions
in the winter months.
In contrast, thermal coal markets face
potential price volatility in the year ahead,
as increased market competition from South
African and Colombian coals into the Asian
seaborne market, aiming to benefit from
recent higher thermal prices, will place further
pressure on Australian coal sale opportunities.
China’s import of low grade thermal coal
is expected to remain relatively strong and
consistent with 2017 levels, while solid
market growth opportunities exist within
South East Asia and the Subcontinent.
Yancoal remains focused on end-users
in the prime target markets of China, Korea
and Japan, while maximising new sales
opportunities generated via the acquisition
of the Mount Thorley Warkworth and Hunter
Valley Operations mines, including the
marketing of semi-soft coal products into
India and Europe and premium thermal coals
across Asian markets.
ANNUAL REPORT 2017 15
16 YANCOAL AUSTRALIA LTD
HEALTH, SAFETY AND
THE ENVIRONMENT
Yancoal’s Health, Safety and
Environment Committee sets the
direction for the Company’s continued
commitment to operating its mines
to the highest safety and environmental
standards in accordance with
legislative requirements.
Working with Yancoal’s executive and senior
management teams, Yancoal’s Health, Safety
and Environment Committee is chaired and led
by members of the Yancoal Board, providing
external oversight of the Company’s operating
and reporting standards.
Together, management and the Committee
continue to set the direction for a culture of
continued improvement, with the leadership,
capabilities, systems and reporting procedures
needed to be a leader in safety and
environmental management.
HEALTH AND SAFETY
Each mine implements proactive strategies
to update and monitor its safety standards,
behaviours and reporting to ensure operations
are aligned and focused on achieving
Yancoal’s goal of zero harm.
Taking responsibility for the safety of all
employees and visitors seriously, Yancoal
continues to implement robust safety and
risk awareness and management practices
across all areas of its operations.
Recent site initiatives include the successful
introduction and application of the Critical
Controls initiative throughout the Yancoal
Group, requiring every employee to
understand and be aware of the critical
risks in their workplace.
With all sites undergoing regular training
sessions focused on specific Critical Controls
unique to their underground or open cut
environments, the initiative calls for personal
accountability in every action.
Under the initiative, sites continue to share
their reporting and training practices,
enabling Yancoal to act on its commitment to
constant improvement and never compromise
on safety.
While the business has improved its Total
Recordable Injury Frequency Rates (TRIFR)
and Lost Time Injury Frequency Rates (LTIFR)
across its operations over the past six years,
a slight increase has occurred in the rolling
12-month TRIFR and LTIFR rates for 2017,
mostly attributable to the injury outcomes
associated with the underground operations
(including the managed Watagan assets and
recent addition of the new Moolarben
underground mine).
No significant events were recorded at
Yancoal’s operations for 2017.
ENVIRONMENT
Operating to stringent environmental
management conditions, including the on
and off-site management and monitoring
of potential dust and noise impacts, Yancoal
continues to work with State and Federal
Government departments to ensure full
transparency in its environmental reporting.
Each Yancoal operation also implements
robust rehabilitation plans, working to minimise
potential impacts on the local environment and
ultimately return completed mining areas to
quality pastoral and woodland for future use.
Leading edge sustainability practices ensure
Yancoal is instituting and updating its water
management, land use and monitoring plans
throughout every stage of the mining process,
from prior-to-commencement, until well after
eventual close.
Total seeding and planting across all
operations in 2017 is 285 hectares. Total new
disturbance across all operations in 2017
is 442 hectares.
As of 31 December 2017, Yancoal has seeded
and planted 50% of disturbed areas across
all operations.
ROLLING 12-MONTH TOTAL RECORDABLE INJURY FREQUENCY RATE –
OPEN CUT MINES
12
10
ROLLING 12-MONTH TOTAL RECORDABLE INJURY FREQUENCY RATE –
OPEN CUT MINES
8
12
6
ANNUAL REPORT 2017 17
10
4
YANCOAL SAFETY1
8
ROLLING 12-MONTH TOTAL RECORDABLE INJURY FREQUENCY RATE –
2
Rolling average trend data
OPEN CUT MINES
6
0
12
JUN
ROLLING 12-MONTH TOTAL RECORDABLE INJURY FREQUENCY RATE –
4
OPEN CUT MINES
10
2
12
Rolling 12-month
TRIFR
FEB MAR APR MAY
AUG SEP OCT
NOV
JAN
JUL
DEC
JUL
JAN
JUN
AUG SEP OCT
FEB MAR APR MAY
Rolling 12-month
TRIFR
8
0
10
6
8
4
ROLLING 12-MONTH LOST TIME INJURY FREQUENCY RATE –
6
2
OPEN CUT MINES
4
5
0
2
4
ROLLING 12-MONTH LOST TIME INJURY FREQUENCY RATE –
0
AUG SEP OCT
OPEN CUT MINES
3
5
Rolling 12-month
TRIFR
FEB MAR APR MAY
FEB MAR APR MAY
AUG SEP OCT
JUN
JUN
JAN
JAN
JUL
JUL
Rolling 12-month
TRIFR
2
4
4
1
5
1
ROLLING 12-MONTH LOST TIME INJURY FREQUENCY RATE –
3
OPEN CUT MINES
0
5
2
SEP OCT
ROLLING 12-MONTH LOST TIME INJURY FREQUENCY RATE –
OPEN CUT MINES
FEB MAR APR MAY
AUG
JUN
JAN
JUL
Rolling 12-month
LTIFR
NOV
DEC
NOV
DEC
NOV
DEC
NOV
DEC
JAN
FEB MAR APR MAY
JUN
JUL
AUG
SEP OCT
NOV
DEC
Rolling 12-month
LTIFR
3
0
4
2
3
1
2
0
1
JAN
FEB MAR APR MAY
NOV
ROLLING 12-MONTH TOTAL RECORDABLE INJURY FREQUENCY RATE –
Rolling 12-month
UNDERGROUND MINES
LTIFR
28
FEB MAR APR MAY
SEP OCT
SEP OCT
AUG
AUG
NOV
JUN
JUN
JAN
JUL
JUL
0
Rolling 12-month
LTIFR
24
ROLLING 12-MONTH TOTAL RECORDABLE INJURY FREQUENCY RATE –
20
UNDERGROUND MINES
16
28
12
24
8
20
ROLLING 12-MONTH TOTAL RECORDABLE INJURY FREQUENCY RATE –
4
16
UNDERGROUND MINES
0
12
28
JUN
ROLLING 12-MONTH TOTAL RECORDABLE INJURY FREQUENCY RATE –
8
UNDERGROUND MINES
24
Rolling 12-month
28
TRIFR
4
20
FEB MAR APR MAY
SEP OCT
AUG
NOV
JAN
JUL
DEC
DEC
DEC
24
0
16
20
12
16
8
JAN
FEB MAR APR MAY
JUN
JUL
AUG
SEP OCT
NOV
DEC
Rolling 12-month
TRIFR
12
4
ROLLING 12-MONTH LOST TIME INJURY FREQUENCY RATE –
8
0
SEP OCT
UNDERGROUND MINES
4
20
0
18
FEB MAR APR MAY
AUG
JUN
JAN
JUL
Rolling 12-month
TRIFR
FEB MAR APR MAY
SEP OCT
AUG
JUN
JAN
JUL
NOV
DEC
NOV
DEC
JAN
FEB MAR APR MAY
16
ROLLING 12-MONTH LOST TIME INJURY FREQUENCY RATE –
14
Rolling 12-month
UNDERGROUND MINES
TRIFR
12
20
10
18
8
16
6
14
4
ROLLING 12-MONTH LOST TIME INJURY FREQUENCY RATE –
12
2
UNDERGROUND MINES
10
0
20
SEP OCT
8
ROLLING 12-MONTH LOST TIME INJURY FREQUENCY RATE –
6
18
UNDERGROUND MINES
Rolling 12-month
16
4
20
LTIFR
2
14
18
12
0
16
10
1 Includes Mount Thorley Warkworth and Hunter Valley Operations from 1 September 2017.
14
8
12
6
10
4
8
2
6
0
4
Rolling 12-month
LTIFR
FEB MAR APR MAY
SEP OCT
AUG
AUG
NOV
NOV
JUN
JUN
JAN
JUL
JUL
DEC
DEC
JAN
FEB MAR APR MAY
JUN
JUL
AUG
SEP OCT
NOV
DEC
JAN
LTIFR
FEB MAR APR MAY
JUN
JUL
AUG
SEP OCT
NOV
DEC
2
0
Rolling 12-month
Rolling 12-month
LTIFR
18 YANCOAL AUSTRALIA LTD
Yancoal is committed to playing
an active role in the communities
in which it operates, financially
investing into projects and local
initiatives with the potential to make
a positive difference.
COMMUNITY
ANNUAL REPORT 2017 19
Each year Yancoal allocates funds at both
a site and corporate level to financially support
community groups and programs across the
areas of health, environment, sport, education,
community and training.
The Yancoal Community Support Program
aims to make a genuine, positive difference to
the lives of those working and living within the
areas Yancoal operates, ensuring the Company
is contributing beyond employment and the
use of local services and contractors.
Currently each Yancoal operation is directly and
independently responsible for the management
of its Community Support Program activities,
including the selection/review process and
allocation of funding amounts.
Each site advertises for applications from
the community in local media and online at
allocated times during the year, with the
review and allocation of funding managed by
the site Community and Environment teams,
with oversight and approval from the
Operations Manager.
In 2017, Yancoal invested more than
$1.3 million into local initiatives1, with funding
allocated to develop and implement
environmental projects; educate, train and
assist local residents gain employment;
sponsor key community events; purchase new
technology and equipment used by hospitals
and regional rescue services; and help support
disadvantaged groups within the community
via social and education initiatives.
Yancoal’s ongoing investment has the potential
to directly support local and regional
community growth with many organisations
increasingly reliant upon external investment
to maintain their quality of services.
Yancoal continues to work co-operatively
with its community stakeholders, relying upon
community consultative committees, local
newsletters, local media, community days
and site-specific websites to help ensure they
are engaged and informed of relevant matters
related to nearby operations.
Yancoal is proud to be investing into local
and regional Australia, helping build stronger
communities across the country.
EXAMPLES OF
RECENT ACTIVITY
In the past year, the Moolarben complex
achieved an important milestone, granting
$1 million in community donations to help
support local groups across Mudgee and
the wider region since 2010.
The Mount Thorley Warkworth operation dug
deep and went pink for breast cancer
awareness, painting a dragline bucket bright
pink and donating $20,000 to the McGrath
Foundation, helping place McGrath Breast
Care Nurses in communities across Australia
and increase cancer awareness across the
Hunter Valley.
Yarrabee partnered with the RACQ Capricorn
Helicopter Rescue Service, with a donation of
$25,000 helping ensure the Capricorn region
of Central Queensland retained the life-saving
emergency services of the RACQ’s airborne
intensive care unit.
Yancoal Corporate established a rolling
three-year partnership of $100,000 per year
with the Clontarf Foundation to support
indigenous youth education services
throughout regional New South Wales
and West Australia, targeting the areas
in which Yancoal manages and operates
its mines.
1 includes the addition of the recently acquired Coal & Allied
assets and associated pre-acquisition community support
initiatives Yancoal will continue to support.
COMMUNITY
20 YANCOAL AUSTRALIA LTD
The New South Wales region
includes the mines of Mount Thorley
Warkworth, Hunter Valley Operations,
Moolarben and Stratford Duralie.
The Queensland region includes
the mines of Yarrabee and joint
venture Middlemount.
Yancoal manages the Ashton, Austar and
Donaldson1 operations on behalf of Watagan
Mining Company Pty Ltd (“Watagan”)2 and
the Cameby Downs and Premier coal mines
on behalf of majority shareholder Yanzhou3.
All Run of Mine (“ROM”) and saleable figures
reported on a 100% basis. Total recoverable
coal reserves are inclusive of the coal
resources and reported on a 100% basis
for each deposit.4
YARRABEE
MIDDLEMOUNT
6
11
3
8
10
7
1
2
5
4
CAMEBY DOWNS
MOUNT THORLEY WARKWORTH
STRATFORD DURALIE
ASHTON
HUNTER VALLEY OPERATIONS
DONALDSON
AUSTAR
MOOLARBEN
9
PREMIER
REVIEW OF
OPERATIONS
QUEENSLAND
MIDDLEMOUNT
~50% Yancoal
ownership
Open cut
Hard coking coal and
low volatile PCI coal
5.3Mt
ROM
3.9Mt
Saleable
68Mt
Total recoverable
reserves
Dec 2017
YARRABEE
100% Yancoal
ownership
Open cut
Low volatile PCI coal
3.4Mt
ROM
2.9Mt
Saleable
56Mt
Total recoverable
reserves
Dec 2017
NEW SOUTH WALES
MOUNT
THORLEY
WARKWORTH5
HUNTER
VALLEY
OPERATIONS6
Yancoal 82.9%
ownership, consisting
of Mount Thorley
(Yancoal 80% ownership)
and Warkworth (Yancoal
84.5% ownership)
Open cut
Semi-soft coking coal
and thermal coal
5.8Mt
ROM
3.9Mt
Saleable
348Mt
Total recoverable
reserves
2016
MOOLARBEN
81% Yancoal
ownership
Open cut and
Underground
Thermal coal
14.7Mt
ROM
12.4Mt
Saleable
267Mt
Total recoverable
reserves
Dec 2017
51% Yancoal
ownership7
Open cut
Semi-soft coal
and thermal coal
6.2Mt
ROM
4.8Mt
Saleable
824Mt
Total recoverable
reserves
2016
STRATFORD
DURALIE
100% Yancoal
ownership
Open cut
Thermal coal
0.9Mt
ROM
0.7Mt
Saleable
44Mt
Total recoverable
reserves
Dec 2017
1 Effective from 2 May 2016, the Donaldson operation moved to “care and maintenance”.
2 Watagan Mining Company Pty Ltd is a wholly-owned subsidiary of Yancoal Australia Ltd, controlled by a consortium
of financiers consisting of Industrial Bank Co. Ltd, BOCI Financial Products Limited and United NSW Energy
Limited. Effective 31 March 2016, Yancoal ceased to control Watagan and remains the exclusive provider of mine
management, marketing, infrastructure and other corporate support services for the Ashton, Austar and Donaldson
assets. Mining ceased at Donaldson’s Abel underground mine in June 2016.
3 Coal sales, production and total recoverable reserves for Premier and Cameby Downs are not reported by Yancoal.
4 Coal Reserves are as at 31 December 2017, with the exception of Mount Thorley Warkworth and Hunter Valley
Operations which are as at 31 December 2016.
5 Mount Thorley Warkworth – four months of attributable production under Yancoal management from
1 September 2017, following completion of the Coal & Allied transaction. On 7 March 2018, Yancoal Australia
announced the completion of its purchase of Mitsubishi Development Pty Ltd’s 28.898% interest in the Warkworth
joint venture for US$230 million, in accordance with its exercising of the call option, as announced 26 September
2017. At completion, the Yancoal Group now owns approximately 84.472% of the Warkworth joint venture,
increasing the Yancoal Group’s share of coal production from the integrated Mount Thorley Warkworth operations
from 64.1% to 82.9%.
6 Hunter Valley Operations – four months of attributable production under Yancoal management from
1 September 2017, following completion of the Coal & Allied transaction.
7 Includes only 51% interest in Hunter Valley Operations (“HVO”) on the basis Glencore will be entitled to
a 49% interest in HVO with economic effect from 1 September 2017 on implementation of the proposed
Yancoal-Glencore HVO joint venture.
ANNUAL REPORT 2017 21
WATAGAN
ASHTON
100% Yancoal
ownership
Underground
Semi-soft coking coal
2.8Mt
ROM
1.2Mt
Saleable
15Mt
Total recoverable
reserves
Dec 2017
AUSTAR
100% Yancoal
ownership
Underground
Semi-hard coking coal
and thermal coal
2.0Mt
ROM
1.9Mt
Saleable
41Mt
Total recoverable
reserves
Dec 2017
DONALDSON
100% Yancoal
ownership
Underground
Coking coal and
thermal coal
On Care and
Maintenance
110Mt
Total recoverable
reserves
Dec 2017
REVIEW OF
OPERATIONS
22 YANCOAL AUSTRALIA LTD
NEW SOUTH WALES
MOUNT
THORLEY
WARKWORTH
YANCOAL 82.9%1
Mount Thorley Warkworth is
an integrated operation of two
open cut mines located adjacent
to each other, 15 kilometres
south-west of Singleton in the
Hunter Valley region of New
South Wales.
A tier-one resource producing semi-soft coking
coal and thermal coal, both Mount Thorley and
Warkworth began operation in 1981.
Yancoal manages Mount Thorley Warkworth on
behalf of the joint venture partners:
• Mount Thorley: Yancoal Australia Ltd
(80%) and POSCO Australia Pty Ltd (20%).
• Warkworth: Yancoal Australia Ltd (84.47%),
Nippon Steel and Sumitomo Metal Australia
Pty Limited (9.53%) and Mitsubishi Materials
(Australia) Pty Limited (6%).
Coal is loaded onto trains for transportation
90 kilometres to the Port Waratah Coal
Terminal in Newcastle and shipped to
international customers.
Mount Thorley Warkworth achieved ROM
coal production of 5.8Mt and saleable coal
production of 3.9Mt for the attributable
reporting period.2
1 On 7 March 2018, Yancoal announced the completion of its
purchase of Mitsubishi Development Pty Ltd’s 28.898% interest
in the Warkworth joint venture for US$230 million, in accordance
with its exercising of the call option, as announced 26 September
2017. At completion, the Yancoal Group now owns approximately
84.472% of the Warkworth joint venture, increasing the Yancoal
Group’s share of coal production from the integrated Mount
Thorley Warkworth operations from 64.1% to 82.9%.
2 Four months of attributable production under Yancoal
management from 1 September 2017, following completion
of the Coal & Allied transaction.
ANNUAL REPORT 2017 23
HUNTER
VALLEY
OPERATIONS
YANCOAL 51%
Hunter Valley Operations is
located 24 kilometres north-west
of Singleton in the Hunter Valley
region of New South Wales,
supplying international markets
with high quality thermal
and semi-soft coking coals.
Hunter Valley Operations (HVO) is a multi-pit
open cut mine, using a dragline truck and
shovel method, operating 24 hours a day,
and shipping via the Port Waratah Coal
Terminal in Newcastle.
As announced 27 July 2017, Yancoal has
entered into a binding agreement to establish
a 51:49 unincorporated joint venture with
Glencore Coal Pty Ltd (“Glencore”) in relation
to Hunter Valley Operations (“HVO JV”).
The HVO JV will be jointly controlled through
a Joint Venture Management Committee
(“JVMC”). Yancoal will continue to operate
HVO directly until such time as Glencore
receives all regulatory approvals and the
JVMC is appointed.
Hunter Valley Operations achieved ROM
coal production of 6.2Mt and saleable coal
production of 4.8Mt for the attributable
reporting period.1
1 Four months of attributable production under Yancoal
management from 1 September 2017, following completion of
the Coal & Allied transaction. Includes only 51% interest in Hunter
Valley Operations (“HVO”) on the basis Glencore Coal Pty Ltd will
be entitled to a 49% interest in HVO with economic effect from
1 September 2017 on implementation of the proposed Yancoal-
Glencore HVO joint venture.
24 YANCOAL AUSTRALIA LTD
MOOLARBEN
YANCOAL 81%
Located within the western
coalfields of New South Wales,
Moolarben is a world-class
open cut and underground
complex producing export
quality thermal coal.
STRATFORD
DURALIE
YANCOAL 100%
Located within the New South
Wales Gloucester Basin, the
Stratford Duralie operation
produces high fluidity semi-soft
coking and thermal coals.
Stratford Duralie capitalised on improved mining conditions
established in the first half of the year following a redesign of the
mine in late 2016, enabling sustained high extraction rates.
Mining of the economically recoverable resources of the Clarevale
pit were completed during the third quarter reporting period.
Stratford Duralie achieved total ROM coal production of 0.9Mt
(2016 1.2Mt) and saleable coal production of 0.7Mt (2016 0.9Mt)
for the reporting period.
Expansion of the Moolarben complex continued in 2017 with the
successful commissioning of the new underground mine and
commencement of longwall production in October on schedule
and on budget.
Production at the open cut and underground mines achieved total
ROM production of 14.7Mt (2016 12.2Mt) and saleable coal
production of 12.4Mt (2016 9.3Mt).
Now fully developed, the integrated Moolarben Coal Complex
(Stage One and Stage Two) has approval to produce up
to 21Mt of ROM coal per annum for a period of 24 years.
Moolarben Coal Operations Pty Ltd1 is the operator of the
Moolarben Coal Complex on behalf of the Joint Venture (JV).
The JV partners are Moolarben Coal Mines Pty Ltd1 (81%),
a consortium of Korean companies represented by Kores Australia
Moolarben Coal Pty Ltd (9%), and Sojitz Moolarben Resources
Pty Ltd (10%).
1 Wholly-owned subsidiary of Yancoal Australia Ltd.
Moolarben
Units
2014
2015
2016
2017
Stratford/Duralie
Units
2014
2015
2016
2017
Saleable coal production
Mt
6.4
6.9
9.3
12.4
Saleable coal production
Mt
2.0
1.4
0.9
0.7
Note: All data shown on a 100% basis.
Note: All data shown on a 100% basis.
QUEENSLAND
YARRABEE
YANCOAL 100%
Yarrabee produces ultra-low
volatile, semi-anthracite
pulverised coal injection (PCI)
coal, exporting to steelmakers
in the Asian region via the
Port of Gladstone.
ANNUAL REPORT 2017 25
MIDDLEMOUNT
YANCOAL ~50%
A joint venture between
Peabody Energy and Yancoal,
the Middlemount mine
produces low volatile PCI
coal and hard coking coal.
Yarrabee production was in accordance with forecasts, the
operation adjusting product type in the second half of the year
to capitalise on increasing price opportunities and market
demand for PCI coal.
Yarrabee achieved total ROM coal production of 3.4Mt (2016
3.6Mt) and total saleable coal production of 2.9Mt (2016 3.1Mt).
Acquired as part of Felix Resources Pty Ltd in December 2009,
the Yarrabee open cut coal mine is located approximately
40 kilometres north-east of Blackwater in Central Queensland’s
Bowen Basin.
Middlemount has contracted rail and port capacity through
Dalrymple Bay Coal Terminal and Abbot Point Port.
The Middlemount joint venture overcame the impacts of poor
weather conditions and subsequent interruptions to rail and
shipping to re-establish consistent extraction and throughput rates
in the second half of the year.
Middlemount achieved total annual ROM coal production of
5.3Mt (2016 5.3Mt) and total saleable coal production of 3.9Mt
(2016 4.1Mt).
Middlemount is an open cut mine located 90 kilometres north-east
of Emerald in Queensland’s Bowen Basin. Full scale operations
at the open cut mine commenced in November 2011, with mining
activities using conventional truck and shovel techniques.
Yarrabee
Units
2014
2015
2016
2017
Middlemount
Units
2014
2015
2016
2017
Saleable coal production
Mt
3.2
2.8
3.1
2.9
Saleable coal production
Mt
3.6
4.1
4.1
3.9
Note: All data shown on a 100% basis.
Note: All data shown on a 100% basis.
26 YANCOAL AUSTRALIA LTD
WATAGAN-CONTROLLED1
ASHTON
YANCOAL 100%
Located in the Upper Hunter Valley
region of New South Wales, the
Ashton underground mine produces
semi-soft coking coal for export
through the Port of Newcastle.
Ashton achieved total ROM coal production of 2.8Mt (2016 2.4Mt) and
saleable coal production of 1.2Mt (2016 1.1Mt) for the year.
DONALDSON
YANCOAL 100%
Donaldson Coal includes the
Abel underground mine and
former Tasman underground
mine, located near the Port
of Newcastle.
As announced 2 May 2016, the Donaldson coal operation was
moved to “care and maintenance”, with mining ceasing at the Abel
underground mine in June 2016.
AUSTAR
YANCOAL 100%
Austar is one of the oldest mines
within New South Wales, having
been in operation for 100 years.
Located south-west of Cessnock, Austar produces a premium
semi-hard coking coal characterised as the highest fluidity and
lowest ash coking coal in Australia, with low phosphorous and low
alkalis. The coal is shipped through the Port of Newcastle.
Austar achieved total ROM coal production of 2.0Mt (2016 1.2Mt)
and saleable coal production of 1.9Mt (2016 1.1Mt).
ANNUAL REPORT 2017 27
Ashton
Units
2014
2015
2016
2017
Saleable coal production Mt
1.3
1.4
1.1
1.2
Note: All data shown on a 100% basis.
Austar
Units
2014
2015
2016
2017
Saleable coal production Mt
1.5
0.7
1.1
1.9
Note: All data shown on a 100% basis.
Donaldson
Units
2014
2015
2016
2017
Saleable coal production Mt
2.0
1.3
0.2
0
Note: All data shown on a 100% basis.
1 The Watagan-controlled Ashton, Austar and Donaldson operations remain 100% Yancoal
owned subsidiaries. As announced 2 May 2016, the Donaldson coal operation was
moved to “care and maintenance” with mining ceasing at the Abel underground mine
in June 2016.
28 YANCOAL AUSTRALIA LTD
INFRASTRUCTURE
AND LOGISTICS
INFRASTRUCTURE
AND LOGISTICS
ANNUAL REPORT 2017 29
With sufficient allocation to meet
existing and potential brownfield
needs, Yancoal exports 100%
of its product through five eastern
Australian ports.
INFRASTRUCTURE
Following the acquisition of Coal & Allied,
Yancoal increased its share of ownership of
Port Waratah Coal Services, supporting the
immediate increase in production output from
the Mount Thorley Warkworth and Hunter
Valley Operations assets.
NEWCASTLE COAL
INFRASTRUCTURE GROUP
(“NCIG”) 27%
Yancoal continues to be one of five company
shareholders involved in the NCIG export
coal terminal in Newcastle, New South Wales.
Yancoal has a 27 percent ownership with an
allocation of approximately 19.6Mt per annum
(100% basis).
PORT WARATAH COAL
SERVICES (“PWCS”) 36.5%
Yancoal has take-or-pay contracts with
PWCS for the export of coal through the
terminals at Newcastle, with a port allocation
of approximately 35.1Mt (100% basis).
Yancoal acquired a 36.5 percent ownership of
PWCS as part of the Coal & Allied acquisition.
WIGGINS ISLAND COAL EXPORT
TERMINAL (“WICET”) 9.4%
Yancoal is one of five owners of WICET,
which has a capacity of 27.0Mt per annum.
Yancoal’s contracted capacity is 1.5Mt
per annum, allocated to the Yarrabee mine.
RAIL
Yancoal is supported by the following
rail networks to transport product from
mine to port:
• The NSW Hunter Valley Coal Chain
supports the Hunter Valley Operations,
Mount Thorley Warkworth, Moolarben,
Austar, Ashton, Stratford Duralie
and Donaldson operations, with coal
transported to the Port of Newcastle;
• The QLD Blackwater System supports
the Yarrabee operation, transporting
coal to the Port of Gladstone; and
• The QLD Goonyella System supports
the Middlemount operation, with coal
transported to the Port of Hay Point
and Abbot Point Coal Terminal.
TAKE-OR-PAY
Yancoal significantly reduced its take-or-
pay exposure from the year prior (2016:
$76 million) to $65 million in rail and port
commitments in excess of planned sales,
$4.7 million of which is attributable to
the acquired Coal & Allied assets from
1 September 2017.
LOGISTICS
The Yancoal logistics team continues to
implement strategic measures to reduce
take-or-pay exposure across the Group by
trading between sites and with other users.
30 YANCOAL AUSTRALIA LTD
COAL
RESOURCES
AND COAL
RESERVES
STATEMENT
For year ending 31 December 2017
The Coal Resources and Coal Reserves
statement presented in this report was
produced in accordance with the Australasian
Code for reporting of Mineral Resources and
Ore Reserves 2012 Edition (“the JORC Code”).
Commodity prices and exchange rates used
to estimate the economic viability of Coal
Reserves are based on the Yancoal Australia
Ltd (“Yancoal”) long-term forecasts unless
otherwise stated.
The Coal Reserves tabulated are all held
within existing, fully permitted mining leases,
are within areas under applications to
become mining leases or are within areas
of exploration tenements detailed in the 2017
Life of Mine Plans to become mining leases
in future applications.
Yancoal’s leases are of sufficient duration
(or convey a legal right to renew for sufficient
duration) to enable all Coal Reserves on the
leases to be mined in accordance with current
production schedules.
The information in this report relating to Coal
Resources and Coal Reserves are based on
information compiled by Competent Persons
(as defined by the JORC Code). All Competent
Persons have sufficient experience relevant to
the style of mineralisation and type of deposit
under consideration and to the activity they are
undertaking to qualify as a Competent Person
as defined by the JORC Code.
The majority of the Competent Persons listed
in this report are independent consultants.
The Competent Persons who prepared the
Coal Resource and Coal Reserve reports for
Yarrabee and the Coal Reserve reports for
Austar, Ashton and Donaldson are full-time
employees of Yancoal Australia Ltd. These Coal
Resources and Coal Reserves reports were
peer reviewed at the time of their generation.
Each Competent Person consents to the
inclusion of the matters based on their
information in the form and context in which
it appears in this report.
Yancoal is not aware of any new information
or data that materially affects the information
included in this report and at the time of
this report all material assumptions and
technical parameters underpinning the
estimates continue to apply and have not
materially changed.
Coal Resources and Coal Reserves are
reported in 100 per cent terms (unless
otherwise stated). Coal Resources are reported
inclusive of the Coal Resources that have
been converted to Coal Reserves (i.e. Coal
Resources are not additional to Coal Reserves).
The tabulated information is reported by
Project; for details of the tenements and leases
containing Coal Resources and Coal Reserves
comprising each of these projects please refer
to the Yancoal Australia Tenements table.
The following abbreviations are
used throughout this report;
AusIMM: Australasian Institute
of Mining and Metallurgy
JORC: Joint Ore Reserves
Committee
Met: Metallurgical Coal
Semi: Semi-soft coking coal
PCI: Pulverised Coal Injection
Mt: Million tonnes
OC: Open Cut
UG: Underground
ANNUAL REPORT 2017 31
On an attributable basis Yancoal’s group total year end 31 December 2017 position is as follows:
MEASURED, INDICATED
AND INFERRED COAL
RESOURCES ARE
RECOVERABLE PROVED
AND PROBABLE COAL
RESERVES ARE
MARKETABLE PROVED
AND PROBABLE COAL
RESERVES ARE
6,396Mt(2)
1,304Mt(1)(2)
923Mt(1)(2)
(1) Where required the component Coal Reserve numbers for each site making up this total have been depleted by production from the JORC report date to
31 December 2017.
(2) 2017 Coal Resources and Coal Reserves have been rounded (significant figure) by the Competent Persons in line with the JORC Code and the Yancoal Coal
Resource and Reserve reporting standards to reflect the relative uncertainty of the estimates.
COAL RESOURCES FOR YEAR ENDING 31 DECEMBER 2017
YANCOAL
OWNERSHIP
%
COAL
TYPE
80.0%
81% Thermal
Semi/
Thermal
Semi/
Thermal
Semi/
Thermal
67.6%
55.574%
100%
100%
100%
100%
50%
100%
100%
Met
Semi/
Thermal
PCI/
Thermal
Met/
Thermal
Met/
Thermal
Met/
Thermal
Met/
Thermal
PROJECT
Moolarben
(OC & UG)
Mt Thorley
(OC & UG)
Warkworth
(OC & UG)
HVO(1)
(OC & UG)
Austar(5)
(UG)
Ashton(5)
(OC & UG)
Yarrabee
(OC)
Gloucester(2)
(OC)
Middlemount(3)
(OC)
Donaldson(5)
(OC & UG)
Monash (UG)
Total Coal
Resources
(100% Basis)
Yancoal
Attributable Share
MOISTURE
BASIS
%
2017
6.0%
6 to 8%
6 to 8%
6 to 8%
5.0%
6.5%
5.5%
6.0%
5.0%
MEASURED
COAL
RESOURCES
(Mt)
2016
820
(4)
(4)
(4)
75
80
100
11
93
2017
750
32
215
730
70
80
95
11
66
4.0%
190
190
6.0%
0
0
INDICATED
COAL
RESOURCES
(Mt)
2016
240
(4)
(4)
(4)
80
75
80
195
34
400
17
2017
240
75
715
1432
80
75
80
195
33
400
17
INFERRED
COAL
RESOURCES
(Mt)
2016
TOTAL
COAL
RESOURCES
(Mt)
2017
COMPETENT
PERSON #
2017
200
1190
(4)
(4)
(4)
70
110
20
110
3
100
80
260
1458
3816
220
265
195
316
102
690
97
KP
PE
PE
PE
RD
PH
SW
JMB
GJ
RD
RD
2017
200
153
528
1654
70
110
20
110
3
100
80
2239
1369
3342
1121
3028
693
8609
6396
Note: 2017 Coal Resources have been rounded in line with the JORC Code and the Yancoal reporting standards to reflect the relative uncertainty of the estimates.
Note: All Coal Resources are inclusive of Coal Reserves and are reported on a 100% basis with Yancoal’s ownership percent reported for each deposit.
The attributable share total is the total Coal Resources when the Yancoal ownership percent is applied.
Note: No Resources are reported in regards to the Oakland’s Project acquired as part of the Coal & Allied acquisition, this project is currently under assessment by
Yancoal in regards to its potential.
Note: Coal Resources detailed in table are as at 31 December 2017, with the exception of (1)MTW & (1)HVO which are as at 31 December 2016
(No production depletions have been applied).
(1) (MTW) Mt Thorley Warkworth, (HVO) Hunter Valley Operations.
(2) Gloucester comprises the Stratford, Duralie and Grant & Chainey deposits.
(3) The Middlemount JORC Coal Resource report was generated in March 2013 and excluded coal mined to 31 December 2012 (2.8Mt). A production depletion has been
applied to the reported Coal Resources by the Competent Person using the mined-out polygons as at the end of December 2017, the reported Coal Resources are
therefore as at end December 2017 based on this depletion.
(4) New acquisition, not previously reported by Yancoal (Reconciliations are not possible).
(5) On 17 February 2016, Yancoal announced a new financing arrangement to secure up to US$950 million in debt-funding via the issuing of nine-year secured debt bonds
by a newly established Yancoal subsidiary, Watagan Mining Company Pty Ltd (“Watagan”), to Industrial Bank Co. Ltd, BOCI Financial Products Limited and United NSW
Energy Limited. Under the arrangement, Yancoal’s interests in the assets of Ashton, Austar and Donaldson were transferred to and held by Watagan.
32 YANCOAL AUSTRALIA LTD
COAL RESOURCES RECONCILIATION OF 2017 TO 2016 YEAR END REPORTING
Measured Resources (Mt) – Reconciliation period 1 January 2017 to 31 December 2017
PROJECT
Production Changes
Production
(-) 1 January 2017 – 31 December 2017
Non-Production Changes
Coal sterilised within the mine plan
Reconciliation
(Actual Vs Model) adjustment
Dilution/Loss change
Seams/Plies failing eventual
economic extraction test
Resource reclassification
Geology model change
(1)Change due to significant figure
rounding (2016 Estimate)
(1)Change due to significant figure
rounding (2017 Estimate)
Total
MOOLARBEN
(OC & UG)
AUSTAR
(UG)
ASHTON
(OC & UG)
YARRABEE
(OC)
GLOUCESTER
(OC)
MIDDLEMOUNT
(OC)
DONALDSON
(OC & UG)
MONASH
(UG)
-14.4
-2.02
-2.42
-3.4
-0.82
-27.39
N/A
-9.2
-1.5
-44.1
-0.1
-4.4
2.2
1.5
-70.0
-2.62
-0.5
0.61
2.21
1.2
-1.1
0.0
0.14
-0.5
-5.0
0.12
0.12
0.18
0.40
0.0
-1.6
-5.0
0.39
-27
0.0
0.0
Indicated Resources (Mt) – Reconciliation period 1 January 2017 to 31 December 2017
PROJECT
Production Changes
Production
(-) 1 January 2017 – 31 December 2017
Non-Production Changes
Coal sterilised within the mine plan
Seams/Plies failing eventual economic
extraction test
Resource reclassification
Geology model change
(1)Change due to significant figure
rounding (2016 Estimate)
(1)Change due to significant figure
rounding (2017 Estimate)
Total
MOOLARBEN
(OC & UG)
AUSTAR
(UG)
ASHTON
(OC & UG)
YARRABEE
(OC)
GLOUCESTER
(OC)
MIDDLEMOUNT
(OC)
DONALDSON
(UG)
MONASH
(UG)
0
0
0
0
-0.08
-1.27
0
N/A
-0.8
2.6
-0.5
-4.2
2.9
0.0
0.0
0.0
0.0
0.95
-0.86
0.0
0.27
-1.0
0.0
0.0
Inferred Resources (Mt) – Reconciliation period 1 January 2017 to 31 December 2017
ANNUAL REPORT 2017 33
PROJECT
Non-Production Changes
Coal sterilised within the mine plan
Seams/Plies failing eventual economic
extraction test
Resource reclassification
Geology model change
(1)Change due to significant figure
rounding (2016 Estimate)
(1)Change due to significant figure
rounding (2017 Estimate)
Total
PROJECT
Yancoal Ownership %
Coal Type
Production Changes
Measured Resources (Mt)
Indicated Resources (Mt)
Non-Production Changes
Measured Resources (Mt)
Indicated Resources (Mt)
Inferred Resources (Mt)
Totals
MOOLARBEN
(OC & UG)
AUSTAR
(UG)
ASHTON
(OC & UG)
YARRABEE
(OC)
GLOUCESTER
(OC)
MIDDLEMOUNT
(OC)
DONALDSON
(UG)
MONASH
(UG)
9
8
-19
2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Total Resources (Mt) – Reconciliation period 1 January 2017 to 31 December 2017
MOOLARBEN
(OC & UG)
81%
Thermal
-14.4
0
-55.6
0.0
0
-70.0
AUSTAR
(UG)
100%
Met
-2.0
0
-3.0
0
0
-5.0
ASHTON
(OC & UG)
100%
Met/
Thermal
YARRABEE
(OC)
100%
PCI/
Thermal
GLOUCESTER
(OC)
100%
Met/
Thermal
MIDDLEMOUNT
(OC)
50%
Met/
Thermal
DONALDSON
(UG)
100%
Met/
Thermal
MONASH
(UG)
100%
Met/
Thermal
-2.4
0
2.42
0
0
0.0
-3.4
0
-1.6
0
0
-5.0
-0.8
-0.1
0.82
0.1
0
0.0
-27.39
-1.27
0.39
0.27
0
-28.0
Total Coal Resource Changes (100% Basis)
Yancoal Attributable Share
N/A
N/A
0
0
0
0.0
0.0
0
0.0
0
0.0
0.0
-108.0
-80.7
Note: +ve = increase in reported Coal Resources, -ve = decrease in reported Coal Resources
Note: Mt Thorley, Warkworth and HVO (Hunter Valley Operations) are new acquisitions, not previously reported by Yancoal (Reconciliations are not possible).
(1) The reported Coal Resources totals within the JORC Resource Reports utilised for public reporting are rounded (significant figure), whereas the Coal Resource
reconciliations contained within them are based on the unrounded numbers, this adjustment is required to align the unrounded reconciliations with the significant figure
rounded Coal Resource totals.
34 YANCOAL AUSTRALIA LTD
COAL RESERVES FOR YEAR ENDING 31 DECEMBER 2017
PROJECT
Moolarben (OC)
Moolarben (UG)
Mount Thorley (OC)
Warkworth (OC)
(1)HVO (OC)
(5)Austar (UG)
(5)Ashton (OC)
(5)Ashton (UG)
Yarrabee (OC)
(2)Gloucester (OC)
YANCOAL
OWNERSHIP
%
81%
81%
80.0%
55.574%
67.6%
100%
100%
100%
100%
100%
(3)Middlemount (OC)
(5)Donaldson (UG)
Total Coal Reserves (100% Basis) – Rounded
Yancoal Attributable Share
50%
100%
COAL TYPE
Thermal
Thermal
Semi/Thermal
Semi/Thermal
Semi/Thermal
Met
Met/Thermal
Met/Thermal
PCI/Thermal
Met/Thermal
Met/Thermal
Met/Thermal
RECOVERABLE COAL RESERVE
PROVED COAL RESERVES
(MT)
2016
190
60
(4)
PROBABLE COAL RESERVES
(MT)
2016
15
13
(4)
2017
183
58
6
143
359
2
0
24
37
0
50
0
862
2017
13
13
8
191
465
39
15
11
19
44
18
110
946
(4)
(4)
4
0
25
32
0.5
55
0
367
TOTAL COAL
RESERVES
(MT)
2017
196
71
14
334
824
41
15
34
56
44
68
110
1807
1304
MARKETABLE COAL RESERVE
PROVED COAL RESERVES
PROBABLE COAL RESERVES
TOTAL COAL
RESERVES
MOISTURE
BASIS
%
2017
10%
9%
10%
10%
10%
5%
8%
8.5%
5.5%
8%
Coking 10.5%
PCI 9%
8%
2017
141
58
4
100
247
2
0
13
29
0
38
0
632
(MT)
2016
148
60
(4)
(4)
(4)
4
0
14
26
0.4
42
0
294
2017
13
13
5
134
327
30
7.8
5.7
14
26
13
62
651
(MT)
2016
11
13
(4)
(4)
(4)
34
7.8
5.7
7
26
13
62
180
ASH
%
2017
22%
16%
10-13%
10-13%
10-13%
5.5%
9.5%
9.5%
10%
14%
Coking 9.8%
PCI 10.8%
17%
(MT)
2017
154
71
9
234
574
32
7.8
19
43
26
51
62
1283
923
COMPETENT
PERSON #
2017
JB
JB
DS
DS
DS
REH
REH
REH
AL
BS
MB
REH
(4)
(4)
42
15
11
9
45
18
110
278
Note: 2017 Coal Reserves have been rounded in line with the JORC Code and the Yancoal reporting standards to reflect the relative uncertainty of the estimates.
Note: All Coal Resources are inclusive of Coal Reserves, Coal Reserves are reported on a 100% basis with Yancoal’s ownership percent reported for each deposit.
The attributable share total is the total Coal Reserves when the Yancoal ownership percent is applied.
Note: Coal Reserves detailed in table are as at 31 December 2017, with the exception of (1)MTW & (1)HVO which are as at 31 December 2016.
Note: (1)MTW produced 17.5Mt of ROM (Recoverable) and 11.8Mt of Product coal tonnes. (1)HVO produced 19.2Mt of ROM and 14.8Mt Product coal tonnes
(for the period 1 January to 31 December 2017).
COAL RESERVES RECONCILIATION OF 2017 TO 2016 YEAR END REPORTING
PROJECT
Production Changes
Production
(Since previous JORC report)
Product Yield adjustments
Moisture basis modified
Non-Production Changes
Coal sterilised or increased
recovery in the mine plan
Coal Resource reclassification
Coal Reserve reclassification
Mine Plan changes from
Pre-feasibility studies
Geology model changes
Changes to the Mine plan /
Optimisation
Changed modifying factors
(1)Change due to significant
figure rounding (2016/17)
Total
RECOVERABLE COAL RESERVES (MT) – RECONCILIATION PERIOD 1 JANUARY 2017 TO 31 DECEMBER 2017
ASHTON
(OC)
GLOUCESTER
(OC)
MOOLARBEN
(UG)
MOOLARBEN
(OC)
YARRABEE
(OC)
ASHTON
(UG)
AUSTAR
(UG)
MIDDLEMOUNT
(OC)
DONALDSON
(UG)
MONASH
(UG)
-13.0
-1.7
-2.0
0.0
-2.5
-3.3
-0.9
-5.3
0.0
N/A
2.4
3.0
-2.6
-0.8
-11.0
-0.2
0.2
-0.3
-2.0
-0.2
-2.6
-0.4
-5.0
1.2
-0.5
-2.0
0.0
0
5.4
13
0.0
15.0
-0.3
-0.3
-1.5
0.0
-5.3
0.0
0.0
0.0
0
COAL RESERVES FOR YEAR ENDING 31 DECEMBER 2017
PROJECT
Moolarben (OC)
Moolarben (UG)
Mount Thorley (OC)
Warkworth (OC)
(1)HVO (OC)
(5)Austar (UG)
(5)Ashton (OC)
(5)Ashton (UG)
Yarrabee (OC)
(2)Gloucester (OC)
(3)Middlemount (OC)
(5)Donaldson (UG)
YANCOAL
OWNERSHIP
%
81%
81%
80.0%
55.574%
67.6%
100%
100%
100%
100%
100%
50%
100%
COAL TYPE
Thermal
Thermal
Semi/Thermal
Semi/Thermal
Semi/Thermal
Met
Met/Thermal
Met/Thermal
PCI/Thermal
Met/Thermal
Met/Thermal
Met/Thermal
Total Coal Reserves (100% Basis) – Rounded
Yancoal Attributable Share
RECOVERABLE COAL RESERVE
PROVED COAL RESERVES
PROBABLE COAL RESERVES
TOTAL COAL
RESERVES
2017
183
58
6
143
359
2
0
24
37
0
50
0
862
(MT)
2016
190
60
(4)
(4)
(4)
4
0
25
32
0.5
55
0
367
2017
13
13
8
191
465
39
15
11
19
44
18
110
946
(MT)
2016
15
13
(4)
(4)
(4)
42
15
11
9
45
18
110
278
(MT)
2017
196
71
14
334
824
41
15
34
56
44
68
110
1807
1304
MOISTURE
BASIS
%
2017
10%
9%
10%
10%
10%
5%
8%
8.5%
5.5%
8%
Coking 10.5%
PCI 9%
8%
MARKETABLE COAL RESERVE
PROVED COAL RESERVES
(MT)
2016
148
60
(4)
PROBABLE COAL RESERVES
(MT)
2016
11
13
(4)
2017
141
58
4
100
247
2
0
13
29
0
38
0
632
2017
13
13
5
134
327
30
7.8
5.7
14
26
13
62
651
(4)
(4)
4
0
14
26
0.4
42
0
294
(4)
(4)
34
7.8
5.7
7
26
13
62
180
ANNUAL REPORT 2017 35
TOTAL COAL
RESERVES
(MT)
2017
154
71
9
234
574
32
7.8
19
43
26
51
62
1283
923
ASH
%
2017
22%
16%
10-13%
10-13%
10-13%
5.5%
9.5%
9.5%
10%
14%
Coking 9.8%
PCI 10.8%
17%
COMPETENT
PERSON #
2017
JB
JB
DS
DS
DS
REH
REH
REH
AL
BS
MB
REH
(1) Mount Thorley Warkworth (MTW) and Hunter Valley Operations (HVO).
(2) Gloucester comprises the Stratford, Duralie and Grant & Chainey deposits.
(3) Middlemount JORC report was generated 1st January 2015, depletions have been applied to the reported Coal Reserves. The project has two product types for
Marketable Coal Reserves each with a different Moisture basis, Coking at 10.5%, PCI at 9% and Ash% of 9.8% for Coking and 10.8% for PCI.
(4) New acquisition, not previously reported by Yancoal (Reconciliations are not possible).
(5) On 17 February 2016, Yancoal announced a new financing arrangement to secure up to US$950 million in debt-funding via the issuing of nine-year secured debt bonds
by a newly established Yancoal subsidiary, Watagan Mining Company Pty Ltd (“Watagan”), to Industrial Bank Co. Ltd, BOCI Financial Products Limited and United NSW
Energy Limited. Under the arrangement, Yancoal’s interests in the assets of Ashton, Austar and Donaldson were transferred to and held by Watagan.
PROJECT
Production Changes
Production
(Since previous JORC report)
Product Yield adjustments
Moisture basis modified
Non-Production Changes
Coal sterilised or increased
recovery in the mine plan
Coal Resource reclassification
Coal Reserve reclassification
Tenement boundary (new, etc.)
Geology model changes
Changes to the Mine plan /
Optimisation
Changed modifying factors
(1)Change due to significant
figure rounding (2016/17)
Total
MARKETABLE COAL RESERVES (MT) – RECONCILIATION PERIOD 1 JANUARY 2017 TO 31 DECEMBER 2017
ASHTON
(OC)
GLOUCESTER
(OC)
MOOLARBEN
(UG)
MOOLARBEN
(OC)
YARRABEE
(OC)
ASHTON
(UG)
AUSTAR
(UG)
MIDDLEMOUNT
(OC)
DONALDSON
(UG)
MONASH
(UG)
-10.8
-1.7
-1.8
0.0
-1.1
1.7
6.6
-2.5
0.0
-5.0
-0.2
0.2
-0.9
-2.5
0.0
-0.3
-2.0
0.2
-5.0
0.0
0
0.1
-0.4
0.7
0.0
-0.7
-2.6
5.9
3.8
3.0
-0.1
10.0
TOTALS (MT) – RECONCILIATION PERIOD 1 JANUARY 2017 TO 31 DECEMBER 2017
-0.6
-3.9
0.0
N/A
0.9
-0.7
-0.4
0.0
-3.9
0.0
0.0
0.0
0
36 YANCOAL AUSTRALIA LTD
PROJECT
Yancoal Ownership %
Coal Type
Production Changes
Recoverable Coal Reserves (Mt)
Marketable Coal Reserves (Mt)
Non-Production Changes
Recoverable Coal Reserves (Mt)
Marketable Coal Reserves (Mt)
Total Changes
Recoverable Coal Reserves (Mt)
Marketable Coal Reserves (Mt)
Total Recoverable Coal
Reserve Changes (100% Basis)
Yancoal Attributable Share
MOOLARBEN
(OC)
81%
Thermal
-13.0
-10.8
2.0
5.8
-11.0
-5.0
MOOLARBEN
(UG)
AUSTAR
(UG)
ASHTON
(OC)
ASHTON
(UG)
81% 100% 100% 100%
Met/
Thermal
Met/
Thermal
Met
Thermal
YARRABEE
(OC)
100%
PCI/
Thermal
GLOUCESTER
(OC)
100%
Met/
Thermal
MIDDLEMOUNT
(OC)
50%
Met/
Thermal
DONALDSON
(UG)
MONASH
(UG)
100% 100%
Met/
Thermal
Met/
Thermal
-1.7
-1.7
-0.3
-0.3
-2.0
-2.0
-2.0
-1.8
-3.0
-3.2
-5.0
-5.0
0.0
0.0
0.0
0.0
0.0
0.0
-2.5
-1.1
0.5
0.4
-2.0
-0.7
-3.3
3.3
18.3
6.7
15.0
10.0
-0.9
-0.6
-0.6
0.2
-1.5
-0.4
-11.8
-6.6
Total Marketable Coal
Reserve Changes (100% Basis)
Yancoal Attributable Share
-5.3
-3.9
0.0
0.0
-5.3
-3.9
0.0
0.0
0.0
0.0
0.0
0.0
-7.0
-3.7
Note: +ve = increase in reported Coal Reserves, -ve = decrease in reported Coal Reserves.
Note: Mt Thorley, Warkworth and HVO (Hunter Valley Operations) are new acquisitions, not previously reported by Yancoal (Reconciliations are not possible).
(1) The reported Coal Reserves totals within the JORC Reserve Reports utilised for public reporting are rounded (significant figure), whereas the Coal Reserve reconciliations
contained within them are based on the unrounded numbers, this adjustment is required to align the unrounded reconciliations with the significant figure rounded Coal
Reserve totals.
The following table provides details of the Competent Persons for each project.
INITIALS
JB
JMB
PE
DS
MB
RD
PH
REH
GJ
AL
KP
BS
SW
COMPETENT PERSON (CP)
Jon Barber
Janet Bartolo
Peter Ellis
Doug Sillar
Mark Bryant
Rob Dyson
Paul Harrison
Raymond Howard
Greg Jones
Andrew Lau
Karol Patino
Ben Smedley
Stuart Whyte
TITLE
Principle Consultant
Senior Geologist – Manager Geological Modelling
Executive Consultant
Executive Consultant
Principal Mining Consultant
Senior Geologist – General Manager Operations
Senior Geologist
Principle Mining Engineer
Principal Consultant
Regional Technical Services Manager
– Open Cut Operations Eastern Region
Senior Geologist
Principle Mining Consultant
Resource Knowledge Manager
COMPANY
Jon Barber Mining Consultants
McElroy Bryan Geological Services Pty
RPMGlobal Asia Limited
RPMGlobal Asia Limited
The Minserve Group Pty Ltd
McElroy Bryan Geological Services Pty
McElroy Bryan Geological Services Pty
Yancoal Australia Ltd
JB Mining Services Pty Ltd
Yancoal Australia Ltd
McElroy Bryan Geological Services Pty
XENITH
Yancoal Australia Ltd
YANCOAL AUSTRALIA TENEMENTS
ANNUAL REPORT 2017 37
PROJECT
HVO
Mt Thorley
& Warkworth
(MTW)
Middlemount
Monash
TITLE
TENEMENT
ML1324
ML1337
ML1359
ML1406
ML1428
ML1465
ML1474
ML1482
ML1500
ML1526
ML1560
ML1589
ML1622
ML1634
ML1682
ML1704
ML1705
ML1706
ML1707
ML1732
ML1734
ML1748
ML1753
EL5291
EL5292
EL5417
EL5418
EL5606
EL8175
CML4
CL327
CL359
CL360
CL398
CL584
CCL714
CCL755
AUTH72
ALA52
ALA58
ALA59
MLA489
MLA495
MLA496
MLA520
MLA534
MLA535
(1)CL378
(1)CCL708
ML1412
ML1590
ML1751
ML1752
EL7712
CL219
CCL753
(1)ML1547
ML70379
ML70417
MDL282
EPC1225
EL6123
EL7579
TENEMENT
TYPE
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Exploration License
Exploration License
Exploration License
Exploration License
Exploration License
Exploration License
Consolidated Mining Lease
Coal Lease
Coal Lease
Coal Lease
Coal Lease
Coal Lease
Consolidated Coal Lease
Consolidated Coal Lease
Authority
Assessment Lease Application
Assessment Lease Application
Assessment Lease Application
Mining Lease Application
Mining Lease Application
Mining Lease Application
Mining Lease Application
Mining Lease Application
Mining Lease Application
Coal Lease
Consolidated Coal Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Exploration License
Coal Lease
Consolidated Coal Lease
Mining Lease
Mining Lease
Mining Lease
Mineral Development License
Exploration Permit for Coal
Exploration License
Exploration License
PROJECT
Yarrabee
Gloucester
Basin
Ashton
Austar
Moolarben
Donaldson
TITLE
TENEMENT
MDL160
ML1770
ML80049
ML80050
ML80096
ML80104
ML80172
ML80195
ML80196
ML80197
ML80198
EPC1429
EPC1684
EPC621
EPC717
A311
A315
EL6904
ML1360
ML1409
ML1427
ML1447
ML1521
ML1528
ML1538
ML1577
ML1646
ML1733
ML1529
ML1623
ML1533
EL4918
EL5860
ML1696
CCL728
CCL752
CML2
ML1388
ML1550
ML1661
ML1666
ML1677
EL6598
ML1605
ML1606
ML1628
ML1691
ML1715
EL6288
EL7073
EL7074
MPL0315
ML1461
ML1555
ML1618
ML1653
ML1703
ML1756
EL6964
EL5337
EL5497
EL5498
TENEMENT
TYPE
Mineral Development License
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Exploration Permit for Coal
Exploration Permit for Coal
Exploration Permit for Coal
Exploration Permit for Coal
Exploration License
Exploration License
Exploration License
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Exploration License
Exploration License
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Exploration License
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Exploration License
Exploration License
Exploration License
Mining Purpose Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Mining Lease
Exploration License
Exploration License
Exploration License
Exploration License
(1) Partially owned tenements.
38 YANCOAL AUSTRALIA LTD
40
APPENDIX
4E
42
DIRECTORS’
REPORT
64
AUDITOR’S
INDEPENDENCE
DECLARATION
65
CORPORATE
GOVERNANCE
STATEMENT
82
FINANCIAL
STATEMENTS
146
DIRECTORS’
DECLARATION
147
INDEPENDENT
AUDITOR’S
REPORT
FINANCIAL
STATEMENTS
ANNUAL REPORT 2017 39
40
YANCOAL AUSTRALIA LTD
APPENDIX 4E
1. RESULTS FOR ANNOUNCEMENT TO THE MARKET
Revenue from ordinary activities
Profit/(loss) before income tax (before non-recurring items)
Profit/(loss) before income tax (after non-recurring items)
Net profit/(loss) from ordinary activities after income tax attributable to members
(before non-recurring items)
Net profit/(loss) for the year attributable to members (after non-recurring items)
2. EARNINGS PER SHARE
Profit/(loss) per share (before non-recurring items)
Profit/(loss) per share (after non-recurring items)
3. NET TANGIBLE ASSETS PER SECURITY
Net tangible assets per share
31 December
2017
$M
2,601
229
311
31 December
2016
$M
1,238
(297)
(312)
211
229
(226)
(227)
31 December
2017
$
0.01
0.01
31 December
2016
$
(0.21)
(0.21)
31 December
2017
$
0.11
31 December
2016
$
(0.91)
%
Change
110
180
200
193
201
%
Change
106
106
%
Change
112
4. DISTRIBUTIONS
No dividends have been paid during the financial year. The Directors do not recommend that a dividend be paid in respect of the financial year
(2016: nil).
Subordinated Capital Notes distributions
Interim distribution paid on 31 July 2017 (2016 paid 29 July 2016)
No final distribution to be accrued as at 31 December 2017 (31 December 2016 accrual,
paid on 31 January 2017)
31 December
2017
US$ per SCN
3.50
31 December
2016
US$ per SCN
3.51
–
3.50
3.50
7.01
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
41
5. ENTITIES OVER WHICH CONTROL HAS BEEN GAINED OR LOST DURING THE PERIOD
a. Acquisitions
The following entities were acquired during the year as part of Coal & Allied Industries Ltd acquisition on 1 September 2017:
Coal & Allied Industries Ltd
Australian Coal Resources Ltd
Black Hill Land Pty Ltd
Catherine Hills Bay Land Pty Ltd
CNA Resources Ltd
CNA Warkworth Australasia Pty Ltd
Mount Thorley Operations Pty Ltd
Kalamah Pty Ltd
Miller Pohang Coal Co Pty Ltd
Gwandalan Land Pty Ltd
Namoi Valley Coal Pty Ltd
Nords Wharf Land Pty Ltd
Northern (Rhondda) Collieries Pty Ltd
Novacoal Australia Pty Ltd
Lower Hunter Land Holdings Pty Ltd
The following entities were incorporated during the year:
Parallax Holdings Pty Ltd
HVO Services Pty Ltd
b. Disposals
No entities were disposed of or deregistered during the year.
6. DETAILS OF ASSOCIATES AND JOINT VENTURE ENTITIES
Joint venture entities
Moolarben Joint Venture (unincorporated)
Boonal Joint Venture (unincorporated)
Middlemount Coal Pty Ltd
Warkworth Joint Venture (unincorporated)
Mount Thorley Joint Venture (unincorporated)
Hunter Valley Operations Joint Venture (unincorporated)
Associate entities
Newcastle Coal Infrastructure Group Pty Ltd
Watagan Coal Mining Company Pty Ltd
Port Waratah Coal Services Pty Ltd
Coal & Allied Mining Services Pty Ltd
Coal & Allied Operations Pty Ltd
HVO Coal Sales Pty Ltd
HV Operations Pty Ltd
Coal & Allied (NSW) Pty Ltd
CNA Warkworth Pty Ltd
CNA Bengalla Investments Pty Ltd
Warkworth Pastoral Co Pty Ltd
Warkworth Coal Sales Ltd
Warkworth Mining Ltd
Warkworth Tailings Treatment Pty Ltd
Oaklands Coal Pty Ltd
R.W. Miller (Holdings) Ltd
Minmi Land Pty Ltd
Mount Thorley Coal Loading Ltd
31 December 2017
31 December 2016
Profit/(loss)
after income tax
contribution
$M
290
Immaterial
32
71
47
116
Nil
Nil
Immaterial
Holdings
%
81
50
49.9997
55.574
80
67.6
27
100
36.53
Profit/(loss)
after income tax
contribution
$M
125
Immaterial
(5)
N/A
N/A
N/A
Nil
Nil
N/A
Holdings
%
81
50
49.9997
N/A
N/A
N/A
27
100
N/A
All other information can be obtained from the attached financial statements, accompanying notes and Directors’ report.
42
YANCOAL AUSTRALIA LTD
The Directors present their report on the consolidated entity (“Yancoal”
or “the Group”) consisting of Yancoal Australia Ltd (“the Company”)
and the entities it controlled at the end of, or during, the year ended
31 December 2017.
DIRECTORS
The following persons were Directors of Yancoal Australia Ltd during
the financial year and until the date of this report. Directors were in
office for this entire period unless otherwise stated.
Xiyong Li
Cunliang Lai
Baocai Zhang
Fuqi Wang
Gregory Fletcher
Geoffrey Raby
Boyun Xu (resigned 28 April 2017)
Yuxiang Wu (resigned 28 April 2017)
Qingchun Zhao (appointed 28 April 2017)
Xiangqian Wu (appointed 28 April 2017)
William Randall (resigned 9 November 2017)
Xing Feng (appointed 15 December 2017)
Vincent O’Rourke (resigned 30 January 2018)
Huaqiao Zhang (resigned 30 January 2018)
David Moult (appointed 30 January 2018)
Helen Gillies (appointed 30 January 2018)
SECRETARY
The name of the Secretary in office during the whole of the financial
year and up to the date of this report is as follows:
Laura Ling Zhang
REVIEW OF OPERATIONS
Safety
No significant events were recorded at Yancoal’s mine sites for the
period, with sites continuing to operate to legislative and safety
standards. Yancoal remains committed to proactively improving
the systems and processes employed across sites to educate,
communicate and record employee safety initiatives.
Under the direction of the Health, Safety and Environment Committee,
Yancoal continues to build the leadership, capabilities, systems and
reporting procedures required to deliver on its objectives of achieving
zero harm at its operations.
Financial performance
Yancoal achieved a total operating EBIT of $732 million before tax, up
$693 million on the year prior.
Yancoal’s financial improvement is directly attributable to the strategic
acquisition of 100% of Coal & Allied Industries Limited (“Coal & Allied”)
from Rio Tinto for US$2.69 billion in value, as at 1 September 2017,
resulting in a significant increase in production output at a time of
global coal market price improvements.
Increased production output at a time of industry-high benchmark
prices for semi-soft coking and thermal coals led Yancoal’s recovery to
announce a profit after tax of $229 million from revenue of $2.6 billion
(before tax) for the full year ended 31 December 2017.
Yancoal conducted a pro-rata renounceable entitlement offer
(“Entitlement Offer”) of 23,464,929,520 fully paid ordinary shares to
raise US$2.35 billion, and an associated placement of 1,500,000,000
fully paid ordinary shares (“the Placement”) to raise a further
US$150 million, to support the funding of the Coal & Allied acquisition.
Yancoal maximised sales volumes and new blending opportunities
across assets, benefitting from a full quarter’s attributable production
from the acquired Coal & Allied assets, post-completion in
September 2017.
Post-acquisition earnings enabled the Company to recover both
stamp duty and transaction costs, with Yancoal subsequently paying
down US$150 million in loans to Bank of China.
Throughout 2017, Yancoal continued to implement cost reduction
strategies across all operations, addressed existing take-or-pay
arrangements, and blended products across the New South
Wales operations (both managed and operated) to meet new
market opportunities.
Corporate activities
On 1 September 2017, Yancoal became Australia’s largest pure-
play coal producer, effectively doubling its production output and
increasing its coal product offerings via the completion of the strategic
acquisition of 100% of Coal & Allied Industries Limited (“Coal & Allied”)
from Rio Tinto for US$2.69 billion in value.
Combining the world-class assets of Coal & Allied’s Mount Thorley
Warkworth and Hunter Valley Operations with the Company’s existing
portfolio, the acquisition enables the maximising of synergies between
Yancoal assets and supports the Company’s vision for continued
market growth.
Yancoal’s binding agreement for US$2.69 billion in value comprised
US$2.45 billion cash payable on completion, US$240 million in future
non-contingent royalty payments over five years following completion,
and a coal price linked contingent royalty.
On completion, the Company acquired the following interests in two
of the country’s leading tier-one large-scale, long-life and low-cost
coal mines located in the Hunter Valley region of New South Wales, as
well as required export infrastructure:
– a 67.6% interest in the Hunter Valley Operations mining complex
(“HVO”)1;
– an 80.0% interest in the Mt Thorley mine and a 55.6% interest in
the Warkworth mine (together, “MTW”); and
– a 36.5% interest in Port Waratah Coal Services (“PWCS”), a coal
export terminal located at the Port of Newcastle.
On 27 July 2017, Yancoal entered into a binding agreement to
establish a 51:49 unincorporated joint venture with Glencore Coal Pty
Ltd (“Glencore”) in relation to Hunter Valley Operations (“HVO JV”),
following completion of Yancoal’s acquisition of Coal & Allied.
1 Yancoal’s interest in HVO will reduce to 51% on completion of the Glencore Transaction. Completion of the Glencore Transaction is subject to a number of conditions
precedent that have not been satisfied as at the date of this announcement.
DIRECTORS’ REPORT
DIRECTORS’ REPORT
ANNUAL REPORT 2017
43
The joint venture arrangement provides significant combined synergies
and commercial opportunities for both Yancoal and Glencore, with
shareholders set to benefit from the co-operative management
experience and operational skills of two of Australia’s leading coal
producers. The HVO JV remains subject to Glencore achieving all
required approvals.
Under the terms of the Joint Venture Agreement, Glencore will pay
cash consideration of US$1,139 million for 49% of HVO, of which
US$710 million will be paid to Mitsubishi Development Pty Ltd
(“MDP”) and US$429 million paid to Yancoal, plus a 27.9% share
of US$240 million of non-contingent royalties and 49% of HVO
contingent royalties payable by Yancoal in respect of the Coal &
Allied acquisition.
The HVO JV will be jointly controlled by Yancoal and Glencore through
a Joint Venture Management Committee (“JVMC”), and managed by
an independent management team to be appointed by the JVMC.
Yancoal will be appointed as the exclusive marketing representative
for sales of HVO JV coal products in China, Taiwan (other than for
certain specified customers), Thailand and Malaysia.
As published on the Australian Securities Exchange (“ASX”) 2 August
2017, Yancoal conducted a pro-rata renounceable Entitlement Offer
of 23,464,929,520 fully paid ordinary shares to raise US$2.35 billion,
and an associated placement of 1,500,000,000 fully paid ordinary
shares to raise a further US$150 million, to support the funding of the
Coal & Allied acquisition.
Yancoal completed the issue of new fully paid ordinary shares
(“New Shares”) via the Entitlement Offer and the Placement on 31
August 2017.
In addition, Yancoal issued 18,000,031,000 New Shares to Yanzhou
on conversion of all of its Subordinated Capital Notes (“SCN”) and
also issued a further 150,943 New Shares on conversion of 80 other
SCNs for which a conversion notice was received, in accordance with
the SCN terms of issue.
Yancoal continued to manage the Cameby Downs and Premier coal
mining operations in Queensland and Western Australia respectively,
on behalf of its majority shareholder Yanzhou Coal Mining Company
Limited (“Yanzhou”) throughout the reporting period. Yanzhou
production is not captured in the Yancoal report.
New South Wales
In New South Wales, Yancoal operated the Moolarben, Hunter Valley
Operations, Mount Thorley Warkworth and Stratford Duralie mines
and managed the Austar, Ashton and Donaldson mines on behalf of
Watagan Mining Company Pty Ltd (“Watagan”).
Yancoal operated the Mount Thorley Warkworth and Hunter Valley
Operations assets from 1 September 2017, following completion
of the Coal & Allied transaction. Attributable production includes
only 51% interest in the Hunter Valley Operations on the basis that
Glencore will be entitled to a 49% interest with economic effect from
1 September 2017 on implementation of the HVO JV2.
NSW operations achieved total ROM coal production of 32.4Mt (2016
17.3Mt) (Yancoal-controlled 27.6Mt, Watagan-controlled 4.8Mt) and
saleable coal production of 24.7Mt (2016 12.6Mt) (Yancoal-controlled
21.7Mt, Watagan-controlled 3.0Mt) for the period.
The newly acquired open cut mines of Hunter Valley Operations
and Mount Thorley Warkworth provided four months of attributable
production under Yancoal management, with consistent extraction
rates maintained throughout the handover and integration period
post-acquisition 1 September 2017.
Mount Thorley Warkworth, consisting of Mount Thorley (Yancoal 80%
ownership) and Warkworth (Yancoal 55.6% ownership3), achieved
ROM production of 5.8Mt and saleable coal production of 3.9Mt for
the attributable reporting period.
Hunter Valley Operations (Yancoal 51% ownership4) achieved ROM
production of 6.2Mt and saleable coal production of 4.8Mt for the
attributable reporting period.
The Company also secured commitments from Taizhong and General
Nice to subscribe for US$100 million and US$50 million respectively
and US$150 million in aggregate of new shares under the Placement.
The Moolarben Complex (Yancoal 81% ownership) achieved
total ROM production of 14.7Mt (2016 12.2Mt) and saleable coal
production of 12.4Mt (2016 9.3Mt).
The number of Yancoal shares on issue following the issue of the New
Shares under the Entitlement Offer, Placement and SCN conversion is
43,959,388,122, as at 31 December 2017.
New Shares issued under the Entitlement Offer, Placement and SCN
conversion commenced trading on the ASX on a normal settlement
basis on Friday, 1 September 2017.
Mining operations (all figures reported on a 100% basis)
The addition of attributable production from the newly acquired Mount
Thorley Warkworth and Hunter Valley Operations mines generated
an immediate and significant increase in production, achieving total
saleable coal production of 31.5Mt (23.4Mt equity basis) for the year
(31 December 2016: 16.0Mt equity share) and total Run of Mine
(“ROM”) coal production of 41.1Mt (30.6Mt equity share) for the year
(31 December 2016: 21.2Mt equity share).
Yancoal achieved total coal sales (equity share) of 28.5Mt for the year
(31 December 2016: 19.3Mt), with a sales split (equity share) for the
period of 19.6Mt (2016 11.6Mt) thermal and 8.99Mt (2016 7.7Mt)
metallurgical coal.
The Stratford Duralie (Yancoal 100% ownership) open cut mine
achieved total ROM coal production of 0.9Mt (2016 1.2Mt)
and saleable coal production of 0.7Mt (2016 0.9Mt) for the
reporting period.
Queensland
In Queensland, Yancoal operated the Yarrabee open cut operation
and maintained its near 50% equity interest in Middlemount Coal Pty
Ltd (“Middlemount”) throughout the reporting period.
Yarrabee (Yancoal 100% ownership) open cut production was in
accordance with forecasts, achieving total ROM coal production of
3.4Mt (2016 3.6Mt) and total saleable coal production of 2.9Mt (2016
3.1Mt).
The Middlemount joint venture (Yancoal ~50% ownership) maintained
consistent extraction rates throughout the reporting period to achieve
total ROM coal production of 5.3Mt (2016 5.3Mt) and total saleable
coal production of 3.9Mt (2016 4.1Mt).
2 HVO JV remains subject to Glencore achieving all required approvals.
3 Yancoal retains an option to acquire a further 29% interest in Warkworth from MDP, anticipated to be completed on 1 March 2018.
4 Attributable production includes only 51% interest in the Hunter Valley Operations on the basis that Glencore will be entitled to a 49% interest with economic effect from
1 September 2017 on implementation of the HVO JV. The HVO JV remains subject to Glencore achieving all required approvals.
44
YANCOAL AUSTRALIA LTD
Watagan-controlled5
Ashton (Yancoal 100% ownership) achieved total ROM coal
production of 2.8Mt (2016 2.4Mt) and saleable coal production of
1.2Mt (2016 1.1Mt) for the year.
Austar (Yancoal 100% ownership) achieved total ROM coal production
of 2.0Mt (2016 1.2Mt) and saleable coal production of 1.9Mt (2016
1.1Mt).
On 25 August, Austar received approval for its Modification to the
Bellbird South Consent, allowing for potential access to an additional
3.7Mt of ROM coal.
As previously announced, mining ceased at Donaldson’s Abel
underground mine in June 2016.
Infrastructure
Following the acquisition of Coal & Allied, Yancoal increased its
share of ownership of Port Waratah Coal Services, supporting the
immediate increase in production output from the Mount Thorley
Warkworth and Hunter Valley Operations assets.
With sufficient allocation to meet existing and potential brownfield
needs, Yancoal exports 100% of its product through five eastern
Australian ports into the Asian market.
Newcastle Coal Infrastructure Group (“NCIG”) 27%
Yancoal continues to be one of five company shareholders involved
in the NCIG export coal terminal in Newcastle, New South Wales.
Yancoal has a 27% ownership with an allocation of approximately
19.6Mt per annum (100% basis).
The Moolarben Coal mine is the largest of Yancoal’s Hunter based
mines to use the terminal.
Port Waratah Coal Services (“PWCS”) 36.5%
Yancoal has take-or-pay contracts with PWCS for the export of
coal through the terminals at Newcastle, with a port allocation of
approximately 35.1Mt (100% basis).
Wiggins Island Coal Export Terminal (“WICET”) 9.4%
Yancoal is one of five owners of WICET, which has a capacity of
27.0Mt per annum. Yancoal’s contracted capacity is 1.5Mt per
annum, allocated to the Yarrabee Mine.
Rail
Yancoal is supported by the following rail networks to transport
product from mine to port:
– The NSW Hunter Valley Coal Chain supports the Moolarben,
Austar, Ashton, Stratford Duralie and Donaldson operations, with
coal transported to the Port of Newcastle;
– The QLD Blackwater System supports the Yarrabee operation,
transporting coal to the Port of Gladstone;
– The QLD Goonyella System supports the Middlemount operation,
with coal transported to the Port of Hay Point and Abbot Point
Coal Terminal.
Take-or-Pay
Yancoal significantly reduced its take-or-pay exposure from the year
prior (2016: $76 million) to $65 million in rail and port commitments
in excess of planned sales, $4.7 million of which is attributable to the
acquired Coal & Allied assets from 1 September 2017.
The Yancoal logistics team continues to implement strategic measures
to reduce take-or-pay exposure across the Group by trading between
sites and with other users.
Community and Environment
Yancoal’s Health, Safety and Environment Committee sets the
direction for the Company’s continued commitment to operating its
mines to the highest environmental standards and in accordance with
legislative requirements.
Each mine implements proactive strategies to update and monitor its
environmental management systems and practices to meet its mine
plan approvals and individual licenses to operate.
Operating to stringent environmental management conditions,
including the on and off-site management and monitoring of potential
dust and noise impacts, Yancoal continues to work with State and
Federal Government departments to ensure full transparency in its
environmental reporting.
In 2017, Yancoal invested more than $544,216.00 via its community
support program into local and regional health, environmental,
education and sporting initiatives capable of making a positive
difference in the regions in which it operates.
Yancoal continues to work co-operatively with its community
stakeholders, relying upon community consultative committees, local
newsletters, local media, community days and site-specific websites
to help ensure they are engaged and informed of relevant matters
related to nearby operations.
ENVIRONMENTAL REGULATION
Yancoal is subject to significant environmental regulation. Its energy
regulation activities are set out below.
Greenhouse gas and energy data reporting requirements
The National Greenhouse and Energy Reporting Act 2007 Cth
(“NGER”) requires Yancoal to report its annual greenhouse gas
emissions and energy use. The Group has implemented systems
and processes for the collection and calculation of the data required
and submitted its 2016/2017 s19 Energy & Emissions Report to the
Federal Clean Energy Regulator on 31 October 2017.
The Group continues to investigate and implement energy efficiency
opportunities and share initiatives between sites.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There have been no significant changes to the state of affairs during
the financial year that significantly affected the operations of the
Group, the results of those operations or the state of affairs of Yancoal
or economic entity.
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
As announced 31 January 2018, at the request of certain eligible
holders, 1,606 Subordinated Capital Notes (“SCNs”) issued by
Yancoal SCN Limited (ASX: YCN) (“Yancoal SCN”) were converted,
effective 31 January 2018, into fully paid ordinary shares in Yancoal
Australia Ltd, in accordance with the terms of issue of the SCNs.
Yancoal SCN also redeemed any outstanding SCNs and was
subsequently removed from the official list of the Australian Securities
Exchange on 1 February 2018, after the Face Value and Final
Distribution was paid to holders.
5 The Watagan-controlled Ashton, Austar and Donaldson operations remain 100% Yancoal owned subsidiaries.
DIRECTORS’ REPORT (CONTINUED)
DIRECTORS’ REPORT
ANNUAL REPORT 2017
45
LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS
Guidance for saleable production in 2018 is 35Mt – 37Mt (equity
share). Forecast for 2018 capital expenditure is approximately
$247 million (equity share).
Cunliang Lai
Executive Director (18 November 2004 – 19 January 2014),
Co-Vice Chairman (26 June 2012 – Current), Non-Executive Director
(20 January 2014 – Current). DE, EMBA.
INFORMATION ON DIRECTORS
Xiyong Li
Chairman and Non-Executive Director
(12 September 2013 – Current). EMBA.
Experience and expertise
Mr Li has considerable experience in business management and
operations in the coal industry. Mr Li commenced his career in 1981
and was appointed as the head of Huafeng Coal Mine of Xinwen
Mining Group Co., Ltd. (Xinwen Group) in May 2001. In June 2006, he
was appointed as the Deputy General Manager of Xinwen Group. In
June 2010, he was appointed as the Chairman and Secretary of the
Party Committee of Xinwen Group. In March 2011, he was appointed
as the Vice Chairman of Shandong Energy Group Co., Ltd. and
the Chairman and the Secretary of the Party Committee of Xinwen
Group. In July 2013, Mr Li joined the Yankuang Group Company
Limited (Yankuang Group) and was appointed the General Manager
and deputy secretary of the Party Committee. In September 2013,
he was appointed the Chairman of Yanzhou Coal Mining Company
Limited (Yanzhou). He was also appointed the Chairman of Yancoal
in September 2013. In February 2015, he was appointed as the
Chairman and Secretary of the Party Committee of Yankuang Group.
Mr Li graduated from Shandong University of Science and Technology
and Nankai University, and is a researcher in engineering technique
application with an Executive Masters of Business Administration
(EMBA) degree.
Other current key directorships
Chairman of Yanzhou Coal Mining Company Limited
Chairman and the Secretary of the Party Committee of
Yankuang Group
Director of Yancoal International (Sydney) Pty Ltd
Former directorships in last three years
Chairman of Yancoal International (Holding) Co., Ltd
Special responsibilities
Chairman of the Board
Chairman of the Nomination and Remuneration Committee
Interests in shares and options
None
Experience and expertise
Mr Lai joined Yanzhou’s predecessor in 1980. He was appointed as
the Head of Xinglongzhuang Coal Mine of Yanzhou in 2000. In 2005,
he was appointed as the Deputy General Manager of Yanzhou. Before
the merger with Gloucester Coal Ltd, Mr Lai was an Executive Director
of Yancoal and was appointed the Co-Vice Chairman and Chair of
the Executive Committee in 2012. Mr Lai successfully completed
the acquisition of the Austar Coal Mine and the establishment of an
appropriate corporate governance structure for Yancoal. Mr Lai has
also successfully applied the Longwall Top Coal Caving technology in
Australia and has gained considerable experience in Australian coal
business management.
Mr Lai graduated from Nankai University and the Coal Science
Research Institute. He is a researcher in engineering technology
application with a Doctorate in Engineering and an EMBA degree.
Other current key directorships
None
Former directorships in last three years
Director of Bauxite Resources Limited
Special responsibilities
Co-Vice Chairman of the Board
Member of Nomination and Remuneration Committee
Interests in shares and options
None
Baocai Zhang
Non-Executive Director (26 June 2012 – 19 January 2014),
Co-Vice Chairman (20 December 2013 – Current), Executive Director
(20 January 2014 – Current). EMBA.
Experience and expertise
Mr Zhang joined Yanzhou’s predecessor in 1989 and was appointed
as the Head of the Planning and Finance department of Yanzhou in
2002. He was appointed as a Director and Company Secretary of
Yanzhou in 2006 and Deputy General Manager in 2011. Mr Zhang
was appointed as Non-Executive Director of Yancoal on 26 June
2012, and subsequently appointed a Co-Vice Chairman of Yancoal on
20 December 2013. He became the Chair of the Executive Committee
of Yancoal on 20 January 2014. In October 2015, he became a
director and a standing member of the Party Committee of Yankuang
Group Company Limited. Mr Zhang planned and played a key role
in the acquisition of Felix Resources Limited and the merger with
Gloucester Coal Ltd in Australia. He also led Yanzhou’s acquisition of
potash exploration permits in Canada in 2011. He has considerable
experience in capital management and business development in the
coal industry, in particular in financial control, corporate governance
and compliance for listed companies in Australia and overseas.
Mr Zhang graduated from Nankai University. He is a senior accountant
with an EMBA degree.
46
YANCOAL AUSTRALIA LTD
Baocai Zhang (continued)
Other current key directorships
Director of Yankuang Group Company Limited
Director of Yanzhou Coal Yulin Neng Hua Co., Ltd
Director of Inner Mongolia Haosheng Coal Mining Limited
Director of Yankuang Group Finance Co., Ltd6
Director of Yancoal SCN Limited
Former directorships in last three years
Director of Yanzhou Coal Mining Company Limited
Director of Yancoal International (Holding) Co., Ltd
Special responsibilities
Co-Vice Chairman of the Board
Chairman of the Executive Committee
Chairman of the Strategy and Development Committee
Interests in shares and options
5,905,873 fully paid Yancoal ordinary shares
Qingchun Zhao
Non-Executive Director (28 April 2017 – Current). EMBA
Experience and expertise
Mr Zhao is a senior accountant with an EMBA degree, and is a
Director and the Chief Financial Officer of Yanzhou.
Mr Zhao joined Yanzhou’s predecessor in 1989 and was appointed as
the Chief Accountant of the Finance Department in 2002 and Director
of the Planning and Finance Department of Yanzhou in 2006. In March
2011, he was appointed as the Vice Chief Financial Officer and the
Director of the Finance Department of Yanzhou.
In March 2014, Mr Zhao was appointed Assistant General Manager
and the Director of the Finance Management Department of Yanzhou.
In January 2016, he was appointed as the Chief Financial Officer of
Yanzhou. Mr Zhao graduated from Nankai University.
Other current key directorships
Director of Yanzhou Coal Mining Company Limited
Chairman of Zhongyin Financial Leasing Co., Ltd
Director of Qilu Bank Co., Ltd.
Director of Shanghai CIFCO Co., Ltd
Director of Duanxin Investment Holding (Shenzhen) Co., Ltd
Director of Qingdao Zhongyin International Trade Co., Ltd
Director of Yancoal International (holding) Co.Ltd Yancoal SCN Limited
Director of Yankuang Group Finance Co., Ltd7
Former directorships in last three years
None
Special responsibilities
Member of Strategy and Development Committee
Member of Audit and Risk Management Committee
Interests in shares and options
None
Fuqi Wang
Non-Executive Director (23 April 2015 – Current). ME, EMBA.
Experience and expertise
Mr Fuqi Wang is a research fellow in applied engineering technology
with an EMBA degree and Master of Engineering, and serves as the
Chief Engineer of Yanzhou.
Mr Wang joined Yanzhou’s predecessor in 1985. In 2000, he was
appointed as the Chief Engineer of Production and Technology
Division of Yankuang Group. In 2002, he served as the director of
Production and Technique Department of Yanzhou. In 2003, he was
appointed as the Deputy Chief Engineer and Director of Production
and Technique Department of Yanzhou. In March 2014, he was
appointed as the Chief Engineer of Yanzhou. Mr Wang graduated from
Northeastern University and Nankai University.
Other current key directorships
Director of Yanmei Heze Neng Hua Co., Ltd
Director of Shanxi Future Energy Chemical Co. Ltd.
Former directorships in last three years
None
Special responsibilities
Member of Health, Safety and Environment Committee
Member of Strategy and Development Committee
Interests in shares and options
None
Xiangqian Wu
Non-Executive Director (28 April 2017 – Current). DE
Experience and expertise
Mr Wu joined Yanzhou’s predecessor in 1988. In 2003, he was
appointed as the Deputy Head of Jining No.3 Coal Mine of Yanzhou.
In 2004, he was appointed as the Deputy Head and Chief Engineer of
Jining No.3 Coal Mine of Yanzhou. In 2006, he was appointed as the
Head of Jining No.3 Coal Mine of Yanzhou. In March 2014, he was
promoted as the Chairman and General Manager of Yanzhou Coal
Ordos Neng Hua Co., Ltd. and Chairman of Inner Mongolia Haosheng
Coal Mining Co., Ltd.
In May 2014, he was appointed as a Director of the Yanzhou Coal
Mining Company Limited. In January 2016, he was appointed as
the General Manager of Yanzhou. Mr Wu graduated from Shandong
University of Science and Technology and China University of Mining
and Technology.
Mr Wu is a Research Fellow in Applied Engineering Technology and a
Doctor of Engineering.
Other current key directorships
Director of Yanzhou Coal Mining Company Limited
Chairman of Yanzhou Coal Ordos Neng Hua Co.,Ltd
Chairman of Inner Mongolia Haosheng Coal Mining Co., Ltd
Director of Duanxin Investment Holding (Shenzhen) Co., Ltd
Yancoal International (Holding) Co. Ltd
6 Appointed on 25 December 2017 but effective date subject to relevant Regulator’s approval.
7 Appointed on 25 December 2017 but effective date subject to relevant Regulator’s approval.
DIRECTORS’ REPORT (CONTINUED)
DIRECTORS’ REPORT
ANNUAL REPORT 2017
47
Former directorships in last three years
None
Special responsibilities
Member of Nomination and Remuneration Committee
Interests in shares and options
None
Xing Feng
Non-Executive Director (15 December 2017). BEng
Experience and expertise
Mr Feng started his career with China Cinda Asset Management
(Cinda) in 1999, and has served in various capacities in the
Department of General Management, Department of General
Business and Department of Investment and Financing. He
has abundant experience in corporate governance, investment
and financing.
He was appointed Assistant General Manager of Cinda’s Strategic
Client Department in 2017, where he is responsible for implementing
the Department’s development strategy plan, involvement in business
review and leading the implementation of the investment plan. He has
successfully completed a number of overseas M&A investments and
mixed-ownership reform of SOE projects.
Mr Feng holds a Bachelor of Engineering (Electrical Engineering and
Automation) from Tsinghua University and is currently studying an
EMBA at Peking University.
Other current key directorships
Director of China Broadcasting and Telecommunications Corporation
Former directorships in last three years
Special responsibilities
Member of Strategy and Development Committee.
Interests in shares and options
None
Gregory Fletcher
Non-Executive Director (26 June 2012 – Current). BCom, CA.
Experience and expertise
Mr Fletcher was a Director of Gloucester Coal Ltd from June
2009. He was appointed a Director of Yancoal after the merger
of Yancoal and Gloucester Coal Ltd in June 2012. Previously, Mr
Fletcher was a senior partner with a Big 4 Accounting Firm where he
specialised in external and internal audits and risk management. He
provided professional services to some of Australia’s largest listed
corporations. Since 2009 Mr Fletcher has taken on Board and Audit
Committee roles.
Mr Fletcher holds a Bachelor of Commerce and he is a
Chartered Accountant.
Other current key directorships
Chairman of SMEG Australia Pty Ltd
Director of Yancoal SCN Limited
Director of Saunders International Limited
Director of TAFE NSW and Member of the Audit and Risk Committee
Member of Audit and Risk Committee, Railcorp
Member of NSW Electoral Commission Audit and Risk Committee
Member of Audit, Risk and Compliance Committee, Sydney Olympic
Park Authority
Member of Audit and Risk Committee NSW State Transit Authority
Former directorships in last three years
Director of WDS Limited
Special responsibilities
Chairman of Audit and Risk Management Committee
Chairman of the Independent Board Committee
Interests in shares and options
69,390 fully paid Yancoal ordinary shares.
Dr Geoffrey Raby
Non-Executive Director (26 June 2012 – Current). BEc (Hons),
MEc and PhD (Economics).
Experience and expertise
Dr Geoffrey Raby was appointed a Director of Yancoal in 2012.
He was Australia’s Ambassador to the People’s Republic of China
from 2007 to 2011. Prior to that, he was a Deputy Secretary in
the Department of Foreign Affairs and Trade (DFAT). Dr Raby has
extensive experience in international affairs and trade, having been
Australia’s Ambassador to the World Trade Organisation (1998–2001),
Australia’s APEC Ambassador (2003–2005), Head of DFAT’s Office of
Trade Negotiations and Head of the Trade Policy Issues Division at the
OECD, Paris. Between 1986 and 1991 he was Head of the Economic
Section at the Australian Embassy, Beijing. He has been the Chair of
DFAT’s Audit Committee and served as an ex officio member of the
Boards of Austrade and Export Finance and Insurance Corporation
(EFIC).
Dr Geoffrey Raby holds a Bachelor of Economics, a Masters of
Economics and a Doctor of Philosophy in Economics.
Other current key directorships
Director of Oceana Gold Corporation Limited
Director of iSentia Group Ltd
Former directorships in last three years
Director of Fortescue Metals Group
Chairman of SmartTrans Holding Limited
Director of YPB Group Ltd
Special responsibilities
Member of Audit and Risk Management Committee
Member of Health, Safety and Environment Committee
Interests in shares and options
800,000 fully paid Yancoal ordinary shares.
48
YANCOAL AUSTRALIA LTD
Helen Gillies
Non-Executive Director (30 January 2018 – Current). MBA,
MConstrLaw, LLB(Hons), BCom, AICD
Experience and expertise
Helen Gillies is an experienced legal, risk and compliance professional,
with expertise in the engineering, construction, maintenance, aviation
and services sectors.
Ms Gillies was appointed as a Non-Executive Director of Bankstown
and Camden Airports in September 2017 and a Non-Executive
Director of ASX listed company, Monadelphous Group Limited and
Red Flag Group Limited in 2016. Ms. Gillies was a Director of Sinclair
Knight Merz Management Pty Ltd and General Manager (Risk) and
General Counsel of Sinclair Knight Merz since 1995.
Ms Helen Gillies holds a Master of Business Administration and a
Master of Construction Law, as well as undergraduate degrees in
Commerce and Law. Ms Gillies is a Fellow of the Australian Institute of
Company Directors.
Other current key directorships
Chairman and Director of Coal Services Pty Ltd
Former directorships in last three years
Non-Executive Director Centennial Coal Company Limited
Managing Director & CEO of Centennial Coal Company Limited
Director of the Minerals Council of Australia
Chairman and Director of the Australian Coal Association Low
Emissions Technology Ltd
Director of the New South Wales Minerals Council
Special responsibilities
Chairman of Health, Safety and Environment Committee
Interests in shares and options
None
Other current key directorships
Director of Red Flag Group (Holdings) Limited
Director or Monadelphous Group Limited
Director of BAC Holdings Pty Ltd
Former directorships in last three years
None
Special responsibilities
Member of Nomination and Remuneration Committee
Interests in shares and options
None
David Moult
Non-Executive Director (30 January 2018 – Current). C. Eng (Mining),
MBA, FAusIMM, FIMMM, MAICD
Experience and expertise
David Moult was appointed as a Director of Yancoal in January
2018. He has over 40 years’ global coal mining experience. He was
Managing Director & CEO of Centennial Coal Company Limited from
2011 to 2017 and prior to that the Chief Operating Officer from 1998.
Mr Moult has worked with Joy Mining Machinery in the USA and
Australia, RJB Mining PLC and British Coal in the UK.
Mr Moult is a former Chairman and Director of the Australian Coal
Association Low Emissions Technology Ltd, former Director of
the Minerals Council of Australia, former Chairman and Director of
the New South Wales Minerals Council and former Director of the
Newcastle Coal Infrastructure Group and Port Kembla Coal Terminal.
Mr Moult is a Member of the University of NSW Education Trust
Advisory Committee.
Mr Moult is a Chartered Mining Engineer and holds a Master of
Business Administration.
Vincent O’Rourke AM
Non-Executive Director (22 December 2009 – 30 January 2018).
B. Econ.
Experience and expertise
Mr O’Rourke brings over 40 years of corporate and railway industry
experience spanning operations, finance and business management
to the Board of Yancoal. In 1990, Mr O’Rourke was appointed
Queensland Commissioner for Railways and was the Chief Executive
Officer of Queensland Rail (QR) from 1991 to 2000. As Chief Executive
Officer of QR, Mr O’Rourke oversaw a 10 year program of reform and
modernisation including corporatisation in 1995. He was awarded a
Member of the Order of Australia in 2000 and a Centenary Medal in
2003 for services to the rail transport industry and QR.
Mr O’Rourke holds a Bachelor of Economics from the University of
New England. He is an Honorary Doctor of the Queensland University
of Technology and Griffith University.
Other current key directorships
Chairman of Rail Innovation Australia Pty Ltd
Deputy Chairman of Mater Health Services Brisbane Limited
Chairman of Holy Cross Laundry Pty Ltd
Director of White Energy Company Limited
Director of Queensland Museum Foundation
Director of Yancoal SCN Limited
Former directorships in last three years
Chairman of the Queensland Workplace Health and Safety Board
Director of Premier Coal Limited (resigned on 27 May 2016)
Interests in shares and options
1,119,565 fully paid Yancoal ordinary shares
DIRECTORS’ REPORT (CONTINUED)
DIRECTORS’ REPORT
ANNUAL REPORT 2017
49
Huaqiao Zhang
Non-Executive Director (15 April 2014 – 30 January 2018). MEc
Yuxiang Wu
Non-Executive Director (18 November 2004 – 28 April 2017). MACC
Experience and expertise
Mr Wu joined Yanzhou’s predecessor in 1981. Mr Wu was appointed
as the Head of the Planning and Finance department of Yanzhou in
1997, and was appointed as the Chief Financial Officer and a Director
of Yanzhou in 2002. In 2004, Mr Wu was appointed a Director of
Yancoal. Mr Wu was appointed as the Deputy Chief Accountant and
the Head of Department of Investment and Development of Yankuang
Group in January 2016. He has considerable experience in financial
management and business development in the coal industry. He
also has extensive experience in organisational accounting, financial
control, capital management, risk management and corporate
compliance for Yanzhou and Yancoal.
Mr Wu is a senior accountant with a Masters degree in accounting.
Mr Wu graduated from the Party School of Shandong Provincial
Communist Committee.
Other current key directorships
Director of Yanzhou Coal Mining Company Limited
Director of Yanmei Heze Neng Hua Co., Ltd
Director of Yanzhou Coal Shanxi Neng Hua Company Limited
Chairman of the Supervisory Committee of Huadian Zouxian Power
Generation Company Limited
Director of Yancoal International (Sydney) Pty Ltd
Former directorships in last three years
None
Interests in shares and options
None
Experience and expertise
Mr Zhang is a Hong Kong based businessman and has over 23 years
of experience in the banking and finance industry, with extensive
experience in the capital markets of Hong Kong and China.
Mr Zhang commenced his career in 1986, working as an economist
at the Planning Department, People’s Bank of China until 1989. In the
first half of 1991, he was a public servant (APS 4) at the Australian
Commonwealth Government’s Department of Employment, Education
and Training (DEET). From 1991 to 1994, Mr Zhang was a Lecturer of
Banking and Finance at the University of Canberra.
Previously, Mr Zhang worked at UBS for 11 years, with the majority
of his time serving as Head of China Research and Deputy Head
of China Investment Banking. In 2006-2008, he was an Executive
Director and Chief Operating Officer of Shenzhen Investment
Ltd (604 HK).
Mr Zhang obtained a Masters degree in economics from the Financial
Research Institute of the People’s Bank of China in 1986 and a
Masters degree of economics of development from the Australian
National University in 1991.
Other current key directorships
Chairman of China Smartpay Group Holdings Ltd (8325 HK)
Independent non-executive director of Fosun International Ltd
(656 HK)
Independent non-executive director of Logan Property Holdings
Co. Ltd (3380 HK)
Independent non-executive director of Luye Pharma Group Ltd
(2186 HK)
Independent non-executive director of Wanda Hotel Development
Co. Ltd (0169 HK)
Independent non-executive director of China Huirong Financial
Holdings Ltd (1290 HK)
Independent non-executive director of Zhong An Real Estate Ltd
(672 HK)
Independent non-executive director of Sinopec Oil Services Corp
(1033 HK)
Non-executive director of Boer Power Holdings Ltd (1685 HK)
Former directorships in last three years
Independent director of Ernest Borel Holdings Ltd (1856 HK)
Director of Nanjing Central Emporium (600280 CH)
Interests in shares and options
None
50
YANCOAL AUSTRALIA LTD
Boyun Xu
Executive Director (26 June 2012 – 28 April 2017). ME, EMBA.
Former directorships in last three years
Director of Blackwood Corporation Limited
Experience and expertise
Mr Xu joined Yancoal in 2005 and held the position of Deputy
Managing Director of Yancoal until acquisition of Felix Resources.
Before the merger with Gloucester Coal Ltd, he held the position
of General Manager of Business Development of Yancoal. In 2012,
Mr Xu was appointed a Director of Yancoal and Executive General
Manager of the Australian subsidiaries of Yancoal International
(Holding) Co. Ltd. Mr Xu has over 30 years of international
management and engineering experience in the coal mining industry.
Prior to joining Yancoal he served as Deputy Chief Engineer in
Yankuang Group Company Limited in China and China Business
Manager in Minarco Asia Pacific Pty Ltd in Australia.
Mr Xu holds an EMBA degree from University of Technology, Sydney,
a Masters degree in Mining Engineering from University of New
South Wales and a Bachelor of Mining Engineering from Shandong
University of Science and Technology in China.
Other current key directorships
Director of Premier Coal Limited
Director of Yancoal International (Sydney) Pty Ltd
Director of Yancoal SCN Limited
Director of Yankuang Bauxite Resources Pty Ltd
Former directorships in last three years
None
Special responsibilities
Member of the Executive Committee
Interests in shares and options
None
William Randall
Non-Executive Director (26 June 2012 – 9 November 2017). BBus
Experience and expertise
Mr Randall started his career with Noble Group in Australia in 1997,
transferring to Asia in 1999 where he established Noble Group
Limited’s coal operations, mining and supply chain management
businesses. He served as a Director of Noble Energy Inc in 2001,
before being appointed Global Head of Coal and Coke in 2006 and
became a member of the Noble Group internal management board
in 2008. Mr Randall subsequently assumed the title of Head of Hard
Commodities in 2012. He became an Executive Director of Noble
Group Limited in February 2012 prior to which he was Head of
Energy Coal Carbon Complex. Mr Randall was appointed a Director
of Yancoal after the merger of Yancoal and Gloucester Coal Ltd in
June 2012.
Mr Randall holds a Bachelor degree in Business from the Australian
Catholic University, majoring in international marketing and finance.
Other current key directorships
Director of Noble Group Limited
Director of various subsidiaries of Noble Group Limited Subsidiaries
Alternate Director of East Energy Resources Limited
Alternate Director of Cockatoo Coal Limited
Special responsibilities
Member of Nomination and Remuneration Committee
Interests in shares and options
None
Reinhold Schmidt
Alternate Director for Boyun Xu (on 13 January 2017). MEng (Mineral
Economics)
Experience and expertise
Reinhold Schmidt has over 20 years’ experience in the mining
industry. Prior to joining the Company, Mr Schmidt was the Chief
Operating Officer of Xstrata Coal Queensland and previously the
Executive General Manager for Xstrata Coal’s Wandoan Project.
He was also formerly the President of the Colombian coal assets
of Glencore.
Other current key directorships
Director of various subsidiaries of Yancoal Australia Ltd
Former directorships in last three years
Director of Yancoal SCN Limited
Alternate director of Bauxite Resources Limited (resigned on
21 January 2016)
Special responsibilities
Chief Executive Officer of Yancoal Australia Ltd
Member of the Executive Committee
Interests in shares and options
3,453,158 fully paid Yancoal ordinary shares in Yancoal Australia Ltd
COMPANY SECRETARY
Laura Ling Zhang
(6 September 2005 – Current). BA, MA, AGIA, GAICD
Laura Ling Zhang was appointed on 6 September 2005 as
Company Secretary and subsequently as Executive General
Manager – Corporate Services for the Company in June 2012.
She oversees the Company’s corporate governance, legal issues,
corporate compliance, investor relations activities and shareholder
communications. Ms Zhang arrived in Australia in 2004 as one of the
founding executives for the Company and has played a key role in
each of the Company’s acquisitions. She brings valuable experiences
and contribution to the Company through her understanding and
experiences of both Australian and Chinese corporate governance
principles and business practices, engagement with the Board and
senior management team, as well as cross-cultural communication
and international enterprise management. She is studying the EMBA
at Australia Graduate School of Management (AGSM).
DIRECTORS’ REPORT (CONTINUED)
DIRECTORS’ REPORT
ANNUAL REPORT 2017
51
MEETINGS OF DIRECTORS
The numbers of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 31 December 20171,
and the numbers of meetings attended by each Director were:
Xiyong Li
Cunliang Lai
Baocai Zhang
Yuxiang Wu
Fuqi Wang
Boyun Xu3
William Randall
Gregory Fletcher
Geoffrey Raby4
Vincent O’Rourke
Huaqiao Zhang
Qingchun Zhao
Xiangqian Wu
Xing Feng
MEETINGS OF COMMITTEES
Audit and
Risk Management
Health, Safety
and Environment
A
B
3
4
4
4
4
4
A
1
5
5
1
B
2
5
5
3
Full meetings
of Directors
B
A
13
13
13
13
13
13
3
3
13
13
3
3
(alt)
9
13
13
(alt)
13
11
10
9
0
12
13
13
13
13
10
10
0
Nomination and
Remuneration
B
A
1
1
1
1
Strategy and
Development
B
A
Independent Board
Committee2
B
A
1
1
1
1
1
1
1
1
1
1
0
0
44
41
41
1
44
44
44
32
A = Number of meetings attended
B = Number of meetings held during the time the Director held office or was a member of the Committee during the year
1 Helen Gillies and David Moult were appointed as directors of the Company on 30 January 2018, therefore did not attend meetings of the Company’s Board of Directors or
relevant Board Committees during the year ended 31 December 2017.
2 The Independent Board Committee (“IBC”) was constituted two times under different protocols for the purpose of considering related party transactions with the
Company’s major shareholder, Yanzhou. Twelve out of 44 IBC meetings were IBC Steering Committee meetings, of which Huaqiao Zhang is not a member.
3 Boyun Xu appointed Reinhold Schmidt as an alternate director to act on his behalf, solely for the board meeting of the Company on 13 January 2017.
4 Geoff Raby appointed Gregory Fletcher as an alternate director to act on his behalf, solely for the board meeting of the Company on 1 August 2017.
52
YANCOAL AUSTRALIA LTD
REMUNERATION REPORT – AUDITED
Dear Shareholder,
I am pleased to introduce the Yancoal Australia Ltd (the “Company”) and its controlled entities (the “Group”) 2017 Remuneration Report.
Over 2017, the Nomination and Remuneration Committee continued to review the Company’s remuneration framework to ensure remuneration
arrangements were in line with sound corporate governance for an Australian listed company and for a Company of its size.
The Company has significantly transitioned from a loss making enterprise to one that is now generating profit. The company has also
successfully completed the Coal & Allied transaction which was a transformative project. Consequently, our remuneration structure reflects a
business in transition.
Programs were developed to reward specific major milestones and projects as they were accomplished.
– A break-even bonus to focus the executives’ attention on driving towards profitability;
– Transaction bonus – a special incentive to reward those actively involved in the acquisition of the Coal & Allied business over the last two and
half years.
The Board considers the success of each these was fundamental to growing shareholder value. The benefits from these special incentives have
been recognized in FY 2017 accounts and will be paid to the participants during 2018.
Having laid the foundations for our business going forward we are in the process of reviewing the strategy and structure of remuneration.
We expect the outcome of this review during 2018 will be executive remuneration arrangements that are competitive, consistent with
contemporary market practice and tailored to align with Yancoal’s short and long term strategic objectives. The right balance of well-constructed
performance based on short and long term incentives delivered in cash and equity is expected to eliminate the need for special project
incentives beyond 2018.
This report sets out remuneration information for the Company’s Key Management Personnel for the 12 months ended 31 December 2017.
Yours sincerely,
Xiyong Li
Chairman of the Board,
Chair of the Nomination and Remuneration Committee
DIRECTORS’ REPORT (CONTINUED)
DIRECTORS’ REPORT
ANNUAL REPORT 2017
53
1. Key Management Personnel
The Board delegates responsibility for the day to day management of the Company’s affairs and implementation of the strategy and policy
initiatives set by the Board to the Chairman of the Executive Committee and the Chief Executive Officer. The Executive Committee is a
management committee comprising the Chairman of the Executive Committee, the Chief Executive Officer, the Chief Financial Officer and any
other officers that the Board resolves will be members of the Executive Committee.
Consistent with the Constitution, the Company’s majority shareholder, Yanzhou Coal Mining Company Ltd (“Yanzhou”), can nominate a director
to the position of the Chairperson of the Executive Committee and the Chairperson of the Board can recommend a person to the position of
Chief Financial Officer.
The Key Management Personnel comprises directors of the Company (“Directors”) and senior members of the Executive Committee. Details of
the Key Management Personnel are set out in Table 1 below:
TABLE 1: Details of Key Management Personnel
Name
Position
Non-Executive Directors
Xiyong Li
Cunliang Lai
Yuxiang Wu
Fuqi Wang
Qingchun Zhao
Xiangqian Wu
Gregory Fletcher
Geoffrey Raby
Helen Gillies
David Moult
Xing Feng
Vincent O’Rourke
Huaqiao Zhang
William Randall
Executive Directors
Baocai Zhang
Boyun Xu
Director
Chairman of the Board
Chairman of the Nomination and Remuneration Committee
Director, Co-Vice Chairman
Chairman of Strategy and Development Committee
Member of the Nomination and Remuneration Committee
Director
Member of the Audit and Risk Management Committee
Member of the Strategy and Development Committee
Director
Member of the Health, Safety and Environment Committee
Member of the Strategy and Development Committee
Director
Member of the Audit and Risk Management Committee
Member of the Strategy and Development Committee
Director
Member of the Nomination and Remuneration Committee
Independent Director
Chairman of the Audit and Risk Management Committee
Independent Director
Member of the Audit and Risk Management Committee
Member of the Health, Safety and Environment Committee
Independent Non-Executive Director
Member of the Nomination and Remuneration Committee
Independent Non-Executive Director
Chairman of the Health, Safety and Environment Committee
Independent Director
Member of the Strategy and Development Committee
Independent Director
Chairman of the Health, Safety and Environment Committee
Independent Director
Member of the Strategy and Development Committee
Independent Director
Member of the Nomination and Remuneration Committee
Director, Co-Vice Chairman of the Board
Chair of the Strategy and Development Committee
Chair of the Executive Committee (“CEC”)
Executive Director
Executive General Manager – Australian subsidiaries of Yancoal
International (Holding) Co. Ltd
Member of the Executive Committee
Time in Role
Full year
Full year
Until 28 April 2017
Full year
From 28 April 2017
From 28 April 2017
Full year
Full year
From 30 January 2018
From 30 January 2018
From 15 December 2017
Full year – Until 30 January 2018
Full year – Until 30 January 2018
Until 9 November 2017
Full year
Full year (except Executive Director
until 28 April 2017)
Senior Executives
Reinhold Schmidt
Lei Zhang
Chief Executive Officer (“CEO”)
Chief Financial Officer (“CFO”)
Full year
Full year
Together, the Executive Directors and Senior Executives are referred to as “Executives” in this report.
54
YANCOAL AUSTRALIA LTD
2. Remuneration principles and framework
The Company’s governing principles for remuneration are:
– to ensure remuneration is equitable, aligned with the long-term interests of the Company and its shareholders and complies with relevant
Company policies, including the Diversity Policy;
– to provide market competitive remuneration and conditions to attract and retain skilled and motivated employees;
– to structure incentives to link reward with the achievement of the Company’s strategies and challenging business objectives and to the
delivery of sustainable returns over the long term; and
– to reward based on performance, in particular acknowledging the contribution of outstanding performers.
2.1 Remuneration governance framework
Consistent with its Board Charter, the Board oversees the appointment, remuneration and performance of all Key Management Personnel
(“KMP”) other than Directors and other members of the Executive Committee. On these issues, the Board receives recommendations from the
Nomination and Remuneration Committee.
The Nomination and Remuneration Committee’s objective is to assist the Board by making recommendations in relation to:
– Board composition and succession planning for the Board;
– remuneration levels and structure for KMP, and other members of the Executive Committee as appointed from time to time;
– the public reporting of remuneration for KMP, and other members of the Executive Committee;
– the performance assessment of the Executive Committee;
– designing Company remuneration policy and regulations with regard to corporate governance; and
– diversity.
3. Executive remuneration
The Executive remuneration structure below is an appropriate reflection of Yanzhou’s majority shareholding in the Company.
3.1 Objective
Remuneration frameworks for Executives are structured to be market competitive and to reflect the reward strategy of the organisation. Through
these frameworks the Company seeks to align remuneration for Executives with:
Shareholders’ interests by:
– making economic performance a core component of the overall remuneration plan design;
– focusing on the key value drivers of the business including employee safety, operational performance and cost control; and
– attracting and retaining high calibre executives.
Executive’s interests by:
– rewarding capability and experience;
– reflecting competitive reward for contribution to growth in company performance;
– providing a clear structure for earning rewards; and
– providing recognition for contribution.
Details of remuneration for all Executives are set out in Table 10 (See Section 4: Remuneration tables).
3.2 Structure
All remuneration frameworks for Executives are structured as a combination of fixed and variable remuneration, as follows:
TABLE 2: Executive remuneration structure
Current
Fixed remuneration
Variable remuneration
(‘at risk’)
– Fixed Annual Remuneration (“FAR”), including cash salary, superannuation, and may include car allowance;
and
– Other benefits (see Section 3.4).
– Short-term Incentive (see Section 3.5.1),
– One-off Special Incentive Schemes to reward specific major strategic accomplishments (see Section 3.5.2 to
3.5.4), and
– Long-term Incentive (see Section 3.5.5).
It had been intended to review the Long Term Incentive Plan (“LTI Plan”) during 2017, however due to more pressing priorities the review has
now been scheduled Q2 2018 as outlined at the beginning of this report.
DIRECTORS’ REPORT (CONTINUED)
DIRECTORS’ REPORT
ANNUAL REPORT 2017
55
3.3 Remuneration mix
The relative proportion of remuneration entitlement for Executives that is fixed (excluding benefits) and that which is linked to individual or
Company performance or both (referred to as ‘at risk’) is as follows:
TABLE 3: Proportion of Executives’ remuneration for 2017
Fixed RemunerationA
At risk – Short TermB
At risk – Long term
Incentive PlanC
At risk – Special
Incentive SchemeD
Transaction
BonusE
Name
Reinhold Schmidt
Lei Zhang
Baocai Zhang
2017
2015
2016
17% 24% 28%
29% 52% 53%
22% 50% 47%
2017
2015
2016
21% 29% 30%
13% 27% 22%
28% 37% 35%
2017
2015
2016
25% 37% 31%
5%
5%
NA
NA
4%
0%
2017
2015
2016
6% 10% 11%
8% 16% 20%
8% 13% 18%
2017
22%
36%
28%
SIS
Breakeven
BonusF
2017
9%
10%
14%
Boyun Xu was an Executive Director of Yancoal up until 28 April 2017, however his executive role related to Yancoal International (Holding) Co. Ltd (“YIH”). Mr Xu’s remuneration
is paid for by YIH and as such he is not considered a senior executive of Yancoal.
A Calculations for fixed remuneration entitlement include benefits but excluding the value of expatriate benefits, see table 3 and table 10.
B The short term variable remuneration entitlement is determined pursuant to the Short Term Incentive Plan (outlined in section 3.5.1).
C The Long Term Incentive Plan is outlined in section 3.5.5
D The Special Incentive Scheme is outlined in section 3.5.2
E Transaction Bonus is outlined in section 3.5.4
F SIS Breakeven Bonus is outlined in section 3.5.3
3.4 Fixed Remuneration
Executives receive a Fixed Remuneration package, which incorporates cash salary, superannuation benefits and may include a provision for a
car allowance, together with certain other benefits. Executives have some scope to determine the combination of cash (including car allowance)
and certain non-monetary benefits by which their FAR is delivered, provided that it does not create undue cost for the Company.
Each Senior Executive’s’ level of fixed remuneration is reviewed annually to provide a base level of remuneration which is appropriate to the
position and competitive with companies in a similar industry referencing remuneration data from McDonald and Company (Australasia) Pty Ltd
(“McDonald Report”). No Executives are guaranteed an annual increase in FAR.
Executives have some scope to determine the combination of cash (including car allowance) and certain non-monetary benefits by which their
FAR is delivered, provided that it does not create undue cost for the Company.
3.5 Variable remuneration
Variable remuneration is delivered through participation in the STI Plan (as outlined in section 3.5.1) and a Special Incentive Scheme (as outlined
in section 3.5.2). Certain Executives are also eligible to participate in a LTI Plan (as outlined in section 3.5.5).
3.5.1 Short Term Incentive Plan
Eligibility
The STI Plan applies to Executives as well as to the broader management and employees of the Company.
Objective
The objective of the STI Plan is to reward Executives and employees for the achievements of the Company, Business Unit and individual goals
that are aligned to the Company’s financial, operational and strategic priorities.
Structure
For 2017 the STI Plan comprised three key components:
1. STI opportunity – this is expressed as a percentage of the Executive’s FAR. The STI opportunity is reviewed annually. A benchmarking
exercise is completed against comparable peers in listed companies, and no changes were proposed for 2017. The CEO and CEC have
an agreed STI opportunity of between a minimum of 0% and a maximum of 126% of FAR for 2017. The Board believes this level of STI
opportunity is reasonable and competitive for the current environment.
2. STI Scorecard – this consists of a number of Key Performance Indicators (“KPIs”). For the Executives named in this report, all KPIs are
measured at the Company level. The KPIs fall into the following categories TRIFR (Total Recordable Injury Frequency Rate) (25% weighting),
Environment (10% weighting), FOR (Free On Rail) Cash Costs (35% weighting), Profitability (20% weighting) and Specific Business Unit
Measures (10%). Details of how the STI Scorecard is evaluated are set out below. STI scorecard performance is assessed by the Chairman
of the Executive Committee and the Chief Executive Officer, reviewed by the Nomination and Remuneration Committee, and approved by
the Board.
3. Individual Performance – this is measured by Key Result Areas (“KRA”). These KRAs are aligned to the Executive’s role and include areas
such as special projects, achievement of operating and capital expenditure budgets, and achievement of growth/continuous improvement
initiatives. Based on performance against the KRAs, the Executive receives a performance rating at the end of the year on a scale from
Exceptional to Below Standard. In the case of the Chief Executive Officer, individual performance is assessed by the Nomination and
Remuneration Committee, to be endorsed by the Board. For all other Executives, performance is assessed by the Chief Executive Officer and
the Chair of the Executive Committee.
56
YANCOAL AUSTRALIA LTD
At the start of each year, KPIs and KRAs are reviewed and selected by Board as being the most appropriate to the business. Assessment
against these measures is determined following the end of each year.
Performance against the STI Scorecard and the Individual KRAs are converted to two payout multipliers, and applied to the Target
STI opportunity to determine the actual STI award. Accordingly, the Executive’s STI award is heavily influenced by the achievement of
Company KPIs.
Further detail on the STI Scorecard – 2017
The STI Scorecard measures the Company’s performance in respect of Profitability, Health, Safety and Environment and Specific Business
Unit measures.
2017 STI outcome
STI outcomes are calculated by multiplying the target STI opportunity by the STI Scorecard payout multiplier and the individual performance
payout multiplier.
Any STI award is delivered as a cash payment around April each year.
TABLE 4: Company Performance against STI Scorecard in 2017
STI scorecard category
Profitability
HSE
Business Unit measures
STI Scorecard
Profit Before Tax (“PBT”)
FOR Cash Costs
TRIFR (Total recordable injury frequency rate)
Environment
Two business unit measures customised to each Executive’s role
STI Weighting
20%
35%
25%
10%
10%
Actual performance
against KPI
118%
108%
75%
174%
188%
The assessed outcomes and average achievement for the company of 132% reflects the following achievements in 2017:
(a) the overall delivery of Profit Before Tax for the Group (excluding Coal & Allied) and the assets managed on behalf of Yancoal International
Holdings (“YIH”) of $246.6M ahead of budget; and
(b) reductions in the key measure of FOR Cash Cost per ton across three out of six mine sites; and
(c) the average achievement of 125% for each Business Unit measure; and
(d) Environment measures include environmental complaints and incidents.
3.5.2 Special Incentive Scheme
As reported in the 2015 Annual report this is a one off scheme for 2015 and is distributed to employees via three tranches; one third in Year 1,
one third in Year 2 and one third in Year 3. As per Table 5 below.
Eligibility
The Special Incentive Scheme applies to Executives as well as to the broader senior management of the Group (“Eligible Employees”).
TABLE 5: Details of the Special Incentive Scheme 2015 applicable to Key Management Personnel
Amount AwardedA
Tranche Year 2015
Tranche Year 2016
Tranche Year 2017
A No SIS was paid for Mr Baocai Zhang in 2017.
CEO
Special Incentive
Scheme
$452,890
$150,963
$150,963
$150,964
CFO
Special Incentive
Scheme
$120,000
$40,000
$40,000
$40,000
CEC
Special Incentive
Scheme
$176,000
$58,666
$58,666
$0A
DIRECTORS’ REPORT (CONTINUED)
DIRECTORS’ REPORT
ANNUAL REPORT 2017
57
3.5.3 SIS Breakeven Bonus 2017
On 28 February 2017 the Board discussed a breakeven bonus as a special once off incentive plan to incentivise Senior Employees within
the business to continue to drive productivity and efficiency gains in an endeavour for a 2017 business turnaround which would position the
Company for future success. The final turnaround number excluded the Coal & Allied transaction and the identified total amount to be awarded
will be 2.5% of the total loss reduced. It was delegated to two Independent Directors, Helen Gillies and Greg Fletcher, with the CEC and CEO to
determine an eligible employee, where that employee is in a position to influence the outcome and direction of a function or operation.
It was delegated to Helen Gillies and Greg Fletcher to determine the amount to be awarded to the KMPs.
The Board considers the success of this was fundamental to growing shareholder value. The benefits from this special incentive has been
recognised in FY2017 accounts and will be paid to the participants in during 2018.
To provide alignment with shareholders both the SIS Breakeven Bonus 2017 and the Transaction Bonus 2017 referred to in 3.5.4 will be
awarded in Deferred Share Rights, unless the amount awarded to the employee is less than $100,000, when it can be awarded in cash.
Deferred Share Rights are rights to receive ordinary shares in Yancoal. These rights will be awarded in 2018 at no cost to the participant.
Amount Awarded
Year 2017
CEO
Special Incentive
Scheme Breakeven
$600,000
CFO
Special Incentive
Scheme Breakeven
$150,000
CEC
Special Incentive
Scheme Breakeven
$300,000
3.5.4 Transaction Bonus 2017
To reward the exceptional performance over more than two years required to deliver the Coal & Allied transaction, as well as to incentivise staff
to maximise post acquisition performance and synergy delivery a bonus has been approved by the Board.
The Board considers the success of this key transformational project was fundamental to growing shareholder value. The benefits from this
special incentive has been recognised in FY2017 accounts and will be paid to the participants during 2018.
It was delegated to Helen Gillies and Greg Fletcher to determine the amount to be awarded to the KMPs.
Amount Awarded
Year 2017
3.5.5 Long Term Incentive Plan
The key characteristics of the LTI plan are outlined below.
CEO
Transaction Bonus
$1,508,389
CFO
Transaction Bonus
$529,980
CEC
Transaction Bonus
$605,381
TABLE 6: LTI operation
Eligibility
Objective
Allocation frequency
LTI opportunity
LTI instrument
LTI vesting schedule
Termination arrangements
Reinhold Schmidt, Lei Zhang, Baocai Zhang and other Senior Management are eligible to participate in the
LTI Plan.
The objective of the LTI Plan is to reward and retain certain Senior Management who are in positions to influence
the Company’s long-term performance.
Each year, eligible Executives are considered for an annual LTI grant. The LTI is subject to the satisfactory
performance of the Company and service-based vesting conditions.
The Chair of the Executive Committee and the Chief Executive Officer have an annual LTI opportunity between
100% and 150% of FAR.
The Chief Financial Officer (“CFO”) has an LTI opportunity of 15% of base remuneration.
The Company may at its discretion settle an Executive’s LTI opportunity in the form of options, performance rights,
shares, cash or any other instrument.
Each annual LTI award vests on completion of three continuous years of service and thereafter vests each year.
For the CEO and CFO their first LTI Award vests on 1 January 2017 and thereafter at the completion of three
continuous years of service. Each award is paid in 3 tranches.
For the CEC his first LTI Award vests on 1 January 2018 and thereafter at the completion of three continuous years
of service. Each award is paid in 3 tranches.
If an eligible Executive ceases employment with the Company before the relevant vesting date, the Executive
forfeits 100% of their LTI opportunity.
For the CEO if the Company terminates the employment, other than for cause, any unvested LTI will continue to
vest in accordance with the original vesting arrangements.
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YANCOAL AUSTRALIA LTD
TABLE 7: Details of the LTI Plan applicable to certain Executives
2013
$119,322
100%
$39,774
$39,774
$39,774
Not applicable
Not applicable
Not applicable
Reinhold Schmidt (CEO) LTIP
Amount Awarded
% of maximum Achieved
Tranche Year
2017
2018
2019
2020
2021
2022
Lei Zhang (CFO) LTIP
Amount Awarded
% of maximum Achieved
Tranche Year
2017
2018
2019
2020
2021
2022
2014
$1,271,266
73%
$423,755
$423,755
$423,756
Not applicable
Not applicable
Not applicable
2014
$31,780
100%
$10,593
$10,593
$10,594
Not applicable
Not applicable
Not applicable
2015
$1,266,158
73%
Not applicable
$422,052
$422,053
$422,053
Not applicable
Not applicable
2015
$45,000
100%
Not applicable
$15,000
$15,000
$15,000
Not applicable
Not applicable
2016
$1,726,578
100%
Not applicable
Not applicable
$575,526
$575,526
$575,526
Not applicable
2016
$54,103
100%
Not applicable
Not applicable
$18,034
$18,034
$18,035
Not applicable
2017
$1,761,642
100%
Not applicable
Not applicable
Not applicable
$587,214
$587,214
$587,214
2017
$60,840
100%
Not applicable
Not applicable
Not applicable
$20,280
$20,280
$20,280
Since his appointment as CEC, Baocai Zhang was entitled to participate in the LTIP scheme, but has elected not to.
3.6 Linking Executive remuneration to Company performance
The Company’s remuneration principles include rewarding based on performance and this is primarily achieved through the Company’s STI and
LTI plans. Cash awards under these plans are significantly impacted by the overall performance of the Company. See Section 3.5 for further
detail. The Company’s earnings and delivery of shareholder wealth for the past four years is outlined in the table below.
TABLE 8: Yancoal’s performance ($)
PBT ($’M)
Basic EPS
Closing share price
Ordinary dividend per share
31 December
2017
311
0.01
0.13
–
31 December
2016
(312)
(0.23)
0.49
–
31 December
2015
(354)
(0.29)
0.10
–
31 December
2014
(271)
(0.36)
0.16
–
31 December
2013
(1,115)
(0.84)
0.76
–
DIRECTORS’ REPORT (CONTINUED)
DIRECTORS’ REPORT
ANNUAL REPORT 2017
59
TABLE 9: Details of STI opportunities and Short Term Bonus granted to Executives in 2016 and 2017
Name
Reinhold Schmidt
Lei Zhang
Baocai Zhang
Year
2017
2016
2017
2016
2017
2016
STI
$A
1,479,779
1,381,262
199,642
196,250
609,021
344,712
Other
Short Term
Bonus
$B
25,200
60,000
25,200
60,000
25,200
60,000
Total STI
and Short
Term Bonus
$
1,504,979
1,441,262
224,842
256,250
634,221
404,712
STI % of
maximum
entitlement
granted
100%
95%
117%
129%
100%
60%
STI % of
maximum
entitlement
forfeited
0%
5%
0%
0%
0%
40%
Transaction
Bonus
$
1,508,389
Nil
529,980
Nil
605,381
Nil
SIS Breakeven
Bonus
2017
$
600,000
Nil
150,000
Nil
300,000
Nil
A 2017 STI figure for Reinhold Schmidt, Baocai Zhang and Lei Zhang are to be paid around April 2018.
B Bonus paid on completion of the sale of three underground mines to Watagan Mining Company Pty Ltd and the issuance of US$775 million unsecured debt bonds.
4. Remuneration table
Table 10 sets out the details of remuneration earned by Executives, calculated in accordance with applicable Accounting Standards.
TABLE 10: Details of Executives’ Remuneration earned in 2017
Short Term Benefits
Long Term Benefits
Cash
Salary
$
STI and
bonus
$
SIS
Breakeven
Bonus
Transaction
2017
Bonus
$
$
Year
600,000
2017 1,138,553 1,504,979 1,508,389
Nil
Nil
2016 1,129,056 1,441,262
150,000
529,980
224,842
2017
Nil
Nil
256,250
2016
300,000
605,381
634,221
2017
Nil
2016
Nil
404,712
2017 1,855,644 2,364,042 2,643,750 1,050,000
Nil
2016 1,792,527 2,102,224
394,370
345,519
322,721
317,952
Nil
Name
Reinhold
Schmidt
Lei
Zhang
Baocai
Zhang
Total
Other
short
term
employee
benefits
$
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Non-
monetary
benefitsi
$
134,280
127,145
7,373
7,616
1,612
2,805
143,265
137,566
Super-
annuation
benefits
$
30,000
42,846
19,832
19,462
19,832
19,462
69,664
81,770
Long
Service
Leave
$
LTI
opportunity
$
81,639 1,761,642
36,412 1,726,578
60,840
14,728
54,103
3,954
Nil
31,293
Nil
8,769
127,660 1,822,482
49,135 1,780,681
Total
Special
(including
Incentive
other fees)
Scheme
$
$
6,759,482
Nil
4,503,299
Nil
1,401,965
Nil
686,904
Nil
1,915,060
Nil
Nil
753,700
Nil 10,076,507
5,943,903
Nil
The amount included above has been updated from those presented in the 2015 remuneration report where amounts reported differed to actual
amounts paid during 2017.
i Non-monetary benefits include the following benefits plus an estimated Fringe Benefits Tax amount:
– Reinhold Schmidt – car parking, accommodation
–
Lei Zhang – car parking, Qantas Club Membership, medical insurance
– Baocai Zhang – medical insurance
– Special Incentive Scheme figures were a one off arrangement and was awarded in 2015 with payments made in 2015, 2016 and 2017. Full amount awarded was
reported in 2015
5. Service Agreements
For Non-Executive Directors, the terms and conditions of their appointment are outlined in a letter of appointment. For Executives, the terms and
conditions of their employment are outlined in their Executive Service Agreement (“ESA”) with the Company.
TABLE 11: Certain ESA terms for each of the Executives
Senior Executives
Reinhold Schmidt
Position
Chief Executive Officer
Lei Zhang
Chief Financial Officer
Baocai Zhang
Executive Director, Co-Vice Chairman,
Chair of the Executive Committee
Term of ESA
Unlimited
Unlimited
Unlimited
Notice Period
3 monthsB
6 monthsC
3 monthsA
3 monthsB
6 monthsC
Termination Benefit
Nil for cause or resignation. If Company
terminates LTI vests as per Plan rules.
Nil for cause or resignation. If Company
terminates LTI vests as per Plan rules.
Nil for cause or resignation. If Company
terminates LTI vests as per Plan rules.
A Notice period applicable if the Company terminates the Executive or if the Executive resigns.
B Notice period applicable if the Executive resigns.
C Notice period applicable if the Company terminates the Executive.
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YANCOAL AUSTRALIA LTD
6. Non-Executive Director fees
Objective
The Board seeks to set remuneration for Non-Executive Directors at a level which:
– provides the Company with the ability to attract and retain directors of the highest calibre;
– reflects the responsibilities and demands made on Non-Executive Directors; and
– is reasonable and acceptable to the Company’s shareholders.
Structure
The remuneration structure for the Non-Executive Directors is distinct from the remuneration structure for Executives in line with sound
corporate governance.
The Company set an aggregate remuneration cap of $3,500,000 per annum for all Non-Executive Directors. Consistent with the Constitution,
remuneration payable to each Non-Executive Director has been approved by the Company’s majority shareholder, Yanzhou.
The total Board and Committee fees paid by the Company to Non-Executive Directors in 2017, excluding payments for extra services outlined
below, was $666,645 which is $2,833,355 below the current aggregate cap of $3,500,000 per annum.
During 2017, Non-Executive Directors were remunerated by way of fixed fees in the form of cash and superannuation (to the maximum
superannuation guarantee cap). There has been no change to the Board and Committee fees from 2016 to 2017. No equity instruments were
issued to Non-Executive Directors over 2017 as part of their remuneration package. No element of the Non-Executive Director fees are linked
to performance.
Neither Board nor Committee fees were paid to nominee Directors of Yanzhou (Xiyong Li, Cunliang Lai, Yuxiang Wu, Fuqi Wang, Baocai
Zhang, Qingchun Zhao and Xiangqian Wu) as the responsibilities of Board or Committee membership were considered part of their role and
remuneration arrangements with their nominating company. William Randall and Xing Feng were not paid any Board or Committee fees.
Neither Board nor Committee fees were paid to Executive Directors (Baocai Zhang or Boyun Xu) as the responsibilities of Committee
membership are considered in determining the remuneration provided as part of their normal employment conditions.
TABLE 12: Board and Committee fees
Board Fees per annum (including any superannuation)
Chairman of the Board
Co-Vice Chairman of the Board
Director
Committee Fees per annum (including any superannuation)
Audit and Risk Management Committee – Chair
Audit and Risk Management Committee – member
Health, Safety and Environment Committee – Chair
Health, Safety and Environment Committee – member
Nomination and Remuneration Committee – Chair
Nomination and Remuneration Committee – member
Strategy and Development Committee – Chair
Strategy and Development Committee – member
A Not paid to Yanzhou appointed Co-Vice Chairman
B Other than as noted in Table 13
2017
$
Not applicable
115,000A
150,000B
30,000
15,000
30,000
15,000
Not applicable
Not applicable
Not applicable
15,000
Transaction specific remuneration
In 2017 the Company made total payments of $622,170 ($70,055 in 2016) for the extra services provided by the Non-Executive Directors
Gregory Fletcher, Geoffrey Raby, Huaqiao Zhang and Vincent O’Rourke for their contribution to undertake investigations and discussions on
behalf of the Company to consider the acquisition from Rio Tinto of the remaining Coal & Allied coal assets held by Rio Tinto being, principally,
Rio Tinto’s interest in the Hunter Valley Operations mine and the Mount Thorley Warkworth mines.
Details of remuneration for all Non-Executive Directors are set out in Table 13 (see Section 6: Remuneration tables).
Table 13 sets out the details of remuneration (in the form of Board and Committee fees and other benefits) earned by Non-Executive Directors,
calculated in accordance with applicable Accounting Standards.
DIRECTORS’ REPORT (CONTINUED)
DIRECTORS’ REPORT
ANNUAL REPORT 2017
61
TABLE 13: Details of Non-Executive Directors’ Remuneration, earned in 2016 and 2017
Short Term Benefits
Post-Employment Benefits
Name
Xiyong Li
Huaqiao Zhang
Cunliang Lai
Yuxiang Wu
William Randall
Xinghua Ni
Fuqi Wang
Gregory Fletcher
Geoffrey Raby
Vincent O’Rourke
Total
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Fees
Nil
Nil
102,492B
94,273C
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
569,089D
214,453E
267,138F
174,138G
270,138H
174,138I
1,208,857
657,002
STI or Bonus
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Non-
Monetary
Benefits
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Superannuation
Nil
Nil
9,737
8,956
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
38,585
20,373
15,688
15,688
15,688
15,688
79,698
60,705
Long
Service
Leave
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Total
Nil
Nil
112,229
103,229
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
607,674
234,826
282,826
189,826
285,826
189,826
1,288,555
717,707
Includes following transaction specific remuneration paid:
B, C Huaqiao Zhang – 2017: $10,959, 2016: $2,740
D, E Gregory Fletcher – 2017: $403,951, 2016: $49,315
F, G Geoffrey Raby – 2017: $102,000, 2016: $9,000
H, I Vincent O’Rourke – 2017: $105,000, 2016: $9,000
7. Share Trading Policy and Insider Trading Policy
The Company’s Share Trading Policy prohibits dealing in Company securities or Yanzhou securities by Key Management Personnel and
other relevant employees, as well as their closely related parties, during specified blackout periods each year. Subject to compliance with the
Company’s Insider Trading Policy, employees are permitted to deal in Company securities or Yanzhou securities outside these blackout periods,
however additional approval requirements apply to Directors.
The Share Trading Policy precludes relevant employees from entering into any hedge or derivative transactions relating to unvested options or
share rights granted to them under incentive plans and securities that are subject to holding locks or restrictions from dealing under such plans.
There are also restrictions regarding margin lending arrangements, hedging and short-term trading of the Company’s securities. Copies of the
Share Trading Policy and the Insider Trading Policy are available in the Corporate Governance section of the Company’s website.
62
YANCOAL AUSTRALIA LTD
8. Equity instrument disclosures
The numbers of shares in the Company held during the financial
year by each director of the Company and other key management
personnel of the Group, including their personally related parties, are
set out below. There were no shares granted during the reporting
period as compensation.
(i) Mr Gregory Fletcher
– At 1 January 2017, Mr Fletcher held 1,000 fully paid ordinary
shares in Yancoal Australia Ltd and 24 Subordinated Capital
Notes issued by Yancoal SCN Limited (“Yancoal SCN”), a
wholly owned subsidiary of Yancoal Australia Limited, at their
issue price of US$100 each.
(v) Dr Geoffrey Raby
– At 1 January 2017, Dr Raby held no shares.
– On 6 September 2017, Dr Geoffrey Raby acquired 800,000
fully paid ordinary shares in Yancoal Australia Ltd.
– As at 31 December 2017, Dr Raby holds 800,000 fully paid
ordinary shares in Yancoal Australia Ltd.
(vi) Ms Shuhua Sun (being a related party of Mr Boyun Xu)
– At 1 January 2017, Ms Sun held no shares.
– On 31 August 2017, Ms Sun acquired 118,577 fully paid
ordinary shares in Yancoal Australia Ltd.
– As at 31 December 2017, Ms Sun holds 118,577 fully paid
– On 31 August 2017, Mr Fletcher acquired 23,320 fully paid
ordinary shares in Yancoal Australia Ltd.
ordinary shares in Yancoal Australia Ltd.
– On 31 January 2018, Mr Fletcher converted 24 Subordinated
Capital Notes issued by Yancoal SCN Limited (“Yancoal
SCN”), a wholly owned subsidiary of Yancoal Australia Limited,
to 45,070 fully paid ordinary shares in Yancoal Australia Ltd.
– As at 31 December 2017, Mr Fletcher holds 69,390 fully paid
ordinary shares in Yancoal Australia Ltd.
(ii) Mr Reinhold Schmidt
– At 1 January 2017, Mr Schmidt held 135,781 fully paid
ordinary shares in Yancoal Australia Ltd and 80 Subordinated
Capital Notes issued by Yancoal SCN, at their issue price of
US$100 each.
– On 31 August 2017, Mr Schmidt acquired 3,166,434 fully
paid ordinary shares in Yancoal Australia Ltd; and converted
80 Subordinated Capital Notes issued by Yancoal SCN to
150,943 fully paid ordinary shares in Yancoal Australia Ltd.
– As at 31 December 2017, holds 3,453,158 fully paid ordinary
shares in Yancoal Australia Ltd.
(iii) Mr Baocai Zhang
– At 1 January 2017, Mr Zhang held 1,162,790 fully paid
ordinary shares in Yancoal Australia Ltd.
– On 31 August 2017, Mr Zhang acquired 4,743,083 fully paid
ordinary shares in Yancoal Australia Ltd.
– As at 31 December 2017, Mr Zhang holds 5,905,873 fully
paid ordinary shares in Yancoal Australia Ltd.
(iv) Mr Vincent O’Rourke (ceased as a director on 30 January 2018):
– At 1 January 2017, Mr O’Rourke held 250,000 fully paid
ordinary shares in Yancoal Australia Ltd.
– On 31 August 2017, Mr O’Rourke acquired 869,565 fully paid
ordinary shares in Yancoal Australia Ltd; and
– As at 31 December 2017, Mr O’Rourke holds 1,119,565 fully
paid ordinary shares in Yancoal Australia Ltd.
– On 31 August 2017, Mr Gregory James O’Rourke acquired
39,525 fully paid ordinary shares in Yancoal Australia Ltd.
– Mr Gregory James O’Rourke (being a related party of Mr
Vincent O’Rourke) holds 79,525 fully paid ordinary shares in
Yancoal Australia Ltd.
(vii) Mrs Ying Zhang (being a related party of Mr Lei Zhang)
– At 1 January 2017, Mrs Zhang held no shares.
– On 31 August 2017 acquired 988,142 fully paid ordinary
shares in Yancoal Australia Ltd.
– As at 31 December 2017, Mrs Zhang holds 988,142 fully paid
ordinary shares in Yancoal Australia Ltd.
(viii) No other key management personnel held any shares in respect
of Yancoal Australia Ltd or its related entities at, or during the year
ended 31 December 2017.
9. Other transactions with and loans to Key Management
Personnel
A number of Key Management Personnel and Directors hold positions
in other entities that result in them having control or significant
influence over the financial or operating policies of those entities.
Some of these entities transacted with the Company or its
subsidiaries in the reporting period. The terms and conditions of
any transactions with management, Directors or parties related
to management personnel or Directors were no more favourable
than those available, or which might reasonably be expected to be
available, on similar transactions to non-management or Director
related persons or entities on an arm’s length basis (refer to Note E2).
There were no loans provided to KMPs during the year.
INSURANCE OF OFFICERS OR AUDITORS
During the financial year, the Company paid a premium for Directors’
and Officers’ Liability insurance as well as Defence Costs cover.
The policies cover the Directors and other officers of the Group.
The Directors have not included details of the nature of the liabilities
covered and the amount of premium paid in respect of the Directors’
and Officers’ Liability insurance policy as such disclosure is prohibited
under the terms of insurance contracts.
Proceedings on behalf of the Company
No person has applied to the Court under section 237 of the
Corporations Act 2001 for leave to bring proceedings on behalf of the
Company, or to intervene in any proceedings to which the Company
is a party, for the purpose of taking responsibility on behalf of the
Company for all or part of those proceedings.
No proceedings have been brought or intervened in on behalf of
the Company with leave of the Court under section 237 of the
Corporations Act 2001.
DIRECTORS’ REPORT (CONTINUED)
DIRECTORS’ REPORT
ANNUAL REPORT 2017
63
Non-audit services
The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and
experience with the Group are important.
Details of the amounts paid or payable to the auditor for non-audit services provided during the year are set out below.
The Board of Directors has considered the position and, in accordance with advice received from the Audit and Risk Management Committee,
is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise
the auditor independence requirements of the Corporations Act 2001 for the following reasons:
– all non-audit services have been reviewed by the Audit and Risk Management Committee to ensure they do not impact the impartiality and
objectivity of the auditor; and
– none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for
Professional Accountants.
During the year the following fees were paid or payable for services provided by the auditor of the Group, its related practices and non-related
audit firms:
ShineWing Australia
Audit and other assurance services
Audit of regulatory returns
Other assurance services
Taxation compliance
Total services remuneration of ShineWing Australia
2017
$
2016
$
1,236,000
22,500
1,010,000
54,000
2,322,500
786,000
26,000
425,000
8,500
1,245,500
AUDITOR’S INDEPENDENCE DECLARATION
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 64.
ROUNDING OF AMOUNTS
The Group is of a kind referred to in Legislative Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating
to the “rounding off’’ of amounts in the Directors’ Report and financial statements. Amounts in the Directors’ Report and financial statements
have been rounded off to the nearest million dollars in accordance with that legislative instrument.
This report is made in accordance with a resolution of the Directors.
Mr Baocai Zhang
Director
Sydney
28 February 2018
64
YANCOAL AUSTRALIA LTD
AUDITOR’S INDEPENDENCE DECLARATION
Auditor’s independence declaration under section 307C of the Corporations Act 2001 to the directors
of Yancoal Australia Ltd
I declare that to the best of my knowledge and belief, during the year ended 31 December 2017 there have been:
(i) No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
(ii) No contraventions of any applicable code of professional conduct in relation to the audit.
ShineWing Australia
Chartered Accountants
R Blayney Morgan
Partner
Sydney, 28 February 2018
ShineWing Australia ABN 39 533 589 331. Liability limited by a scheme approved under Professional Standards Legislation. ShineWing Australia is an independent member of ShineWing
International Limited – members in principal cities throughout the world.
36
CORPORATE GOVERNANCE STATEMENT
DIRECTORS’ REPORT
ANNUAL REPORT 2017 65
ANNUAL REPORT 2017
65
Introduction
The Company adopts an approach to corporate governance based
on international best practice and Australian law requirements. The
Board and management are committed to corporate governance.
To the extent appropriate to the scale and nature of the Company’s
business, the Company has adopted the 3rd edition of the ASX
Corporate Governance Council’s Principles and Recommendations
(ASX Recommendations).
This statement sets out the Company’s compliance with the 3rd
edition of the ASX Recommendations, and the main corporate
governance policies and practices adopted by the Company.
Principle 1: Lay solid foundations for management and oversight
Role of the Board
The Board is responsible for the overall corporate governance of the
Company including directing the affairs of the Company, setting and
monitoring the Company’s risk management strategy and overseeing
the appointment, remuneration and performance of senior executives.
The Board is committed to maximising performance, generating
appropriate levels of shareholder value and financial return, and
sustaining the growth and success of the Company. The Board’s
role and responsibilities and its delegation of authority to standing
committees and senior executives have been formalised in a Board
Charter. The Board Charter can be found within the Corporate
Governance section of the Company’s website.
The Board Charter sets out the procedure by which the Board
collectively, and each individual director, can seek independent
professional advice at the Company’s expense.
Delegation to management
The Board delegates responsibility for the day to day management of
the Company’s affairs and implementation of the strategy and policy
initiatives set by the Board to the Chair of the Executive Committee
(CEC), the Chief Executive Officer (CEO) and other senior executives.
The Executive Committee is a management committee comprising
the CEC, CEO, the Chief Financial Officer (CFO) and any other senior
executives that the Board resolves from time to time will be members
of the Executive Committee.
The Executive Committee Charter sets out the functions of the
Executive Committee and the duties of the CEC, CEO and CFO.
The Executive Committee Charter also provides the financial decision
authorities and appropriate approval thresholds at different levels
which have been approved by the Board.
Senior executive contracts
The Company’s senior executives are employed under employment
contracts that set out the terms of their employment.
Company Secretary
The Company Secretary is accountable directly to the Board, through
the Chairman of the Board (Chairman), on all matters to do with the
proper functioning of the Board. All directors have direct access to the
Company Secretary. The Board Charter sets out the other duties of
the Company Secretary, which include being responsible for:
– ensuring compliance by the Company with the Company’s
constitution, the provisions of the Corporations Act and other
applicable laws as they relate to the Company;
– providing corporate governance advice to the Board;
– ensuring that the Company’s books and registers required by
the Corporations Act are established and properly maintained;
– ensuring that all notices and responses are lodged with ASIC and
ASX on time; and
– organising and attending shareholder meetings and directors’
meetings, including sending out notices, preparing agendas,
marshalling proxies and compiling minutes.
Nomination and appointment of Directors
The Board considers that Board succession planning, and
the progressive and orderly renewal of the Company’s Board
membership, are an important part of the governance process.
The Board’s policy for the selection, appointment and re-appointment
of directors is to ensure that the Board possesses an appropriate
range of skills, experience and expertise to enable the Board to carry
out its responsibilities most effectively. As part of this appointment and
re-appointment process, the directors consider Board renewal and
succession plans and whether the Board‘s size and composition is
conducive to making appropriate decisions.
At the time of appointment of a new Non-Executive Director, the
key terms and conditions relevant to that person’s appointment, the
Board’s responsibilities and the Company’s expectations of a director
are set out in a letter of appointment. The Company has implemented
an induction program through which new Non-Executive Directors are
introduced to the Company’s operations and are familiarised with the
Company’s strategy, culture and core values.
The Board has established a Nomination and Remuneration
Committee to make recommendations to the Board on matters such
as succession plans for the Board, the size and composition of the
Board, potential candidates for appointment to the Board, re-election
of directors, Board induction and Board evaluation procedures. The
structure and membership of the Nomination and Remuneration
Committee is described further under Principles 2 and 8.
The Board recognises that people are its most important asset and is
committed to the maintenance and promotion of workplace diversity.
Whilst traditionally experience as a senior executive or director of a
large organisation with international operations is a prerequisite for
candidature, in accordance with the Diversity Policy, the Board also
seeks skills and experience in the following areas:
– marketing and sales;
– policy and regulatory development and reform;
– health, safety and environment and social responsibility; and
– human resources.
66
YANCOAL AUSTRALIA LTD
The measurable objectives adopted for 2017 and the Company’s
performance against the measurable objectives are outlined in the
table below:
Objective
1. To increase
employee awareness
and understanding
of the importance
of diversity by
implementing training
on the Company’s
Diversity Policy
and Workplace
Behaviour & Anti-
Discrimination Policy.
2. To target a diverse
group of candidates
with recruitment and
selection procedures
that are merit-
based and non-
discriminatory.
3. Continue to ensure
our managers are
adept recruiters,
retainers and
motivators of our
diverse workplace.
4. Communicate
the Company
Recruitment Policy
Performance
The Yancoal Code of Conduct is currently
under review and a new version is
expected to be approved in 2018.
Once finalised, the policy will be rolled out
across the Company. Employees across
the Employees across the Company have
access to the current version of Yancoal
Code of Conduct via the Company
intranet and are reminded of this via
inductions, crew talks and as relevant
issues arise.
Across the Yancoal group, merit-
based, non-discriminatory practices are
adhered to.
A human resources representative
endeavours to sit with managers during
interviews to coach and mentor on
targeted selection techniques and
merit-based selection, as well as
general diversity awareness with regards
to candidates.
The “Yancoal Way”, continues to roll
out across the Company. The message
of continuous improvement and ‘blue
bus’ thinking is promoted during
recruitment, induction and performance
reviews to promote a culture that
encourages engagement, diversity and
continuous learning.
Continued to build a culture of diversity
and inclusion through targeted education
of managers on the positive impact of a
diverse workforce and the importance of
adhering to the Company recruitment and
diversity policies.
A human resources representative
communicates the Recruitment Policy
to managers and candidates during
interviews and the policy is also published
on the Company’s intranet.
In identifying candidates, the Nomination and Remuneration
Committee will consider and select nominees by reference to
a number of selection criteria including the skills, expertise and
background that add to and complement the range of skills, expertise
and background of the existing directors, the capability of the
candidate to devote the necessary time and commitment to the role,
potential conflicts of interest and independence, and the extent to
which the candidate would fill a present need on the Board. Where
appropriate, appropriate checks are undertaken prior to a director
being appointed. The mix of skills currently held by the Board is set
out under Principle 2.
The role, rights and responsibilities and membership requirements
of the Nomination and Remuneration Committee, together with
the selection criteria for candidates for the Board are set out in
the Nomination and Remuneration Committee Charter which
can be found within the Corporate Governance section of the
Company’s website.
Shareholder approval is required for the appointment of directors.
However, directors may appoint other directors to fill a casual vacancy
where the number of directors falls below the constitutional minimum
number of directors and in order to comply with any applicable laws,
regulations or the ASX Listing Rules. If a director is appointed to fill
a casual vacancy in these circumstances, the approval of members
must be sought at the next general meeting.
No director may hold office without re-election beyond the third
annual general meeting (AGM) following the meeting at which the
director was last elected or re-elected. The Company provides all
material information in its possession in relation to directors standing
for election or re-election in the Notice of Meeting provided to
shareholders prior to the AGM.
To the extent that the ASX Listing Rules require an election of directors
to be held and no director would otherwise be required under the
Company’s Constitution to submit for election or re-election at an
AGM, the director who has been the longest in office since their last
election or appointment must retire at the AGM. As between directors
who were last elected or appointed on the same day, where it is not
agreed between the relevant directors, the director to retire must be
decided by lot.
The process for appointment, retirement and re-election of directors is
set out in the Company’s Constitution which can be found within the
Corporate Governance section of the Company’s website.
Diversity
The Company recognises that people are its most important asset
and is committed to the maintenance and promotion of workplace
diversity. The Company has adopted a Diversity Policy, approved
by the Board, to actively facilitate a more diverse and representative
management and leadership structure. The Diversity Policy is available
in the Corporate Governance section of the Company’s website.
Annually, the Board establishes measurable objectives with the
assistance of the Nomination and Remuneration Committee with a
view to progressing towards a balanced representation of women at a
Board and senior management level.
The measurable objectives and performance against them are
reviewed annually by the Nomination and Remuneration Committee
as part of its annual review of the effectiveness of the Diversity Policy.
CORPORATE GOVERNANCE STATEMENT (CONTINUED)
CORPORATE GOVERNANCE STATEMENT
ANNUAL REPORT 2017
67
The Board has set the following measurable objectives in relation to
gender diversity for 2018:
1. Continue to increase employee awareness and understanding
of the importance of diversity by implementing training on the
Company’s Diversity Policy and Workplace Behaviour & Anti-
Discrimination Policy.
2. Continue to target a diverse group of candidates with recruitment
and selection procedures that are merit based and non-
discriminatory.
3. Continue to ensure our managers are adept recruiters, retainers
and motivators of our diverse workplace.
4. Conduct a pay analysis to ensure all salaries both of male and
females are progressing towards the market rate.
5. Review of the Workplace Behaviour and Anti-Discrimination Policy.
6. Implementation of the Company’s new Parental Leave Policy.
Proportion of Women in the Company
Gender has been identified as a key area of focus for the Company.
On an annual basis, the Nomination and Remuneration Committee
reviews the proportion of women employed by the Company and
submits a report to the Board outlining its findings. Details regarding
the proportion of men and women throughout the organisation are set
out below.
During 2017, the proportion of women who were directly employed
by the Company as a whole was 10%: 363 Full-time, 21 Part-time
and 7 Casual. There was no change between 2016 and 2017 in the
percentage of females in comparison to the percentage of males.
The proportion of women in senior management roles (being roles
which directly report to the CEO or CEC) within the Company during
2017 was 8%: Women held 1 of 12 senior management roles within
the Company.
There were no women on the Company’s Board during 2017,
however, on 30 January 2018, one female non-executive director was
appointed to Board.
Performance of the Board, its Committees and individual Directors
The Nomination and Remuneration Committee oversees an annual
evaluation process for the Board, its committees and each director
based on the Board Performance Evaluation Protocol (Protocol)
adopted and approved by the Board in 2012.
The Board
Periodically, a review of the structure and operation of the Board,
the skills and characteristics required by the Board to maximise its
effectiveness and whether the mix of skills, experience and expertise
and the Board’s practices and procedures are appropriate for
the present and future needs of the Company is conducted. This
evaluation of performance of the Board may be conducted with the
assistance of an external facilitator. As set out in the Board Charter,
the review of the Board involves directors providing written feedback
on the Board’s performance to the Chairman or to an external
facilitator, which in turn is discussed by the Board, with consideration
of whether any steps for improvement are required.
It is expected that externally facilitated reviews will occur
approximately every three years. The independent external facilitator
will seek input from each of the Directors and certain members of
senior management in relation to the performance of the Board
against a set of agreed criteria.
Once an externally facilitated review occurs, the progress against any
recommendations from the most recent externally facilitated review,
together with any new issues, will be considered internally. Feedback
from each director against a set of agreed criteria will be collected by
the Chairman or the external facilitator. The CEC and CEO will also
provide feedback from senior executives in connection with any issues
that may be relevant in the context of the Board performance review.
Feedback will be collected by the Chairman, or an external facilitator,
and discussed by the Board, with consideration being given as to
whether any steps should be taken to improve performance of the
Board or its committees.
Since the adoption of the Protocol in 2012, the Company carried out
four annual board performance reviews internally, and has conducted
one externally facilitated board performance review. An externally
facilitated review of the Board was carried out in 2016 (in respect of
2015) and a review of the Board was conducted internally in 2018 (in
respect of 2017), in accordance with process disclosed above.
The Nomination and Remuneration Committee considers
assessments by independent bodies regarding Boards of Australian
companies and their performance. The chair of the Nomination and
Remuneration Committee reports any material issues or findings from
these evaluations to the Board.
Board committees
Each of the four standing committees of the Board conducts
an annual committee performance self-assessment to review
performance using guidelines approved by the Nomination and
Remuneration Committee. The guidelines include reviewing the
committee’s performance having regard to its role and responsibilities
as set out in its Charter; consideration as to whether the committee’s
Charter is fit for purpose; and identification of future topics for training/
education of the committee or its individual members.
The outcomes of the performance self-assessments are reported
to the Nomination and Remuneration Committee (or to the Board,
if there are any material issues relating to the Nomination and
Remuneration Committee) for discussion and noting.
Each committee provides feedback to the Board on its own
performance, which is collected by the Chairman or an external
facilitator, and the feedback is discussed by the Board, with
consideration of whether any steps for improvement are required.
The most recent review of the Board’s committees was conducted
in 2018 (in respect of 2017) in accordance with the process
disclosed above.
Individual Directors
Directors are evaluated on, amongst other things, their alignment with
the values of the Company, their commitment to their duties and their
level of financial, technical and specialist knowledge.
An annual performance review of Non-Executive Directors is
conducted by the Chairman for each Non-Executive Director,
specifically addressing the performance criteria within the Protocol.
An annual review of the performance of the Chairman is facilitated by
the Co-Vice Chairmen who seeks input from each director individually
on the performance of the Chairman against the competencies for the
Chairman’s role approved by the Board. The Co-Vice Chairmen collate
the input in order to provide an overview report to the Nomination and
Remuneration Committee and to the Board, as well as feedback to
the Chairman.
68
YANCOAL AUSTRALIA LTD
An externally facilitated review of individual directors was conducted
in 2016 (in respect of 2015) and an internal review was conducted
in 2018 (in respect of 2017) in accordance with the process
disclosed above.
Performance of senior executives
The CEC and the CEO review the performance of senior executives
annually against appropriate measures as part of the Company’s
performance management system for all managers and staff.
On an annual basis, the Nomination and Remuneration Committee
and subsequently the Board formally reviews the performance of
the CEO and the CEC. The CEO’s performance is assessed against
qualitative and quantitative criteria, including profit performance, other
financial measures, safety performance and strategic actions. The
Nomination and Remuneration Committee also undertakes an annual
formal review of the performance of other members of the Executive
Committee, based on similar criteria. The Board reviews and approves
the annual review of all the members of the Executive Committee
undertaken by the Nomination and Remuneration Committee.
The performance evaluation for the CEC, CEO and senior executives
took place in 2018 (in respect of 2017) in accordance with the
process disclosed above.
Principle 2: Structure the board to add value
Structure of the Board
Currently, the Board comprises Xiyong Li, Cunliang Lai, Baocai Zhang,
Qingchun Zhao (appointed 28 April 2017), Xiangqian Wu (appointed
28 April 2017), Fuqi Wang, Geoffrey Raby, Gregory Fletcher,
David Moult (appointed 30 January 2018), Helen Gillies (appointed
30 January 2018) and Xing Feng (appointed 15 December 2017).
The following directors resigned from the Board, Yuxiang Wu (resigned
on 28 April 2017), Boyun Xu (resigned 28 April 2017), William Randall
(resigned 9 November 2017), Vincent O’Rourke AM (resigned
30 January 2018) and Huaqiao Zhang (resigned 30 January 2018).
The skills, experience and expertise of each director and the period
that each director has held office is disclosed in the Information on
directors in the Directors’ Report, on page 45.
The Constitution provides that there will be a minimum of 4 and a
maximum of 11 directors of the Company, unless the Company
resolves otherwise at a general meeting.
Chairman of the Board
The current Chairman, Xiyong Li, was nominated by the Company’s
major shareholder, Yanzhou Coal Mining Co. Ltd (“Yanzhou”).
The Chairman leads the Board and is responsible for the efficient
organisation and conduct of the Board’s functioning. The Chairman
ensures that directors have the opportunity to contribute to Board
deliberations. The Chairman regularly communicates with the CEC
and CEO and to review key issues and performance trends. The
Chairman, together with the Co-Vice Chairmen, Cunliang Lai and
Baocai Zhang, also represent the Company in the wider community.
Board Committees
The Board may from time to time establish appropriate committees
to assist in the discharge of its responsibilities. The Board has
established the following standing Board committees:
– Audit and Risk Management Committee;
– Health, Safety and Environment Committee;
– Nomination and Remuneration Committee; and
– Strategy and Development Committee.
These Board committees review matters on behalf of the Board and,
as set out in the relevant Charter:
– refer matters to the Board for a decision, with a recommendation
from the committee; or
– determine matters (where the committee acts with delegated
authority), which the committee then reports to the Board.
The purpose of each of the Board committees is outlined below.
CORPORATE GOVERNANCE STATEMENT (CONTINUED)
CORPORATE GOVERNANCE STATEMENT
ANNUAL REPORT 2017
69
Committee
Audit and Risk
Management
Committee
Purpose
The committee’s objectives are to:
Membership
Gregory Fletcher – Chair
– help the Board in relation to the reporting of financial information;
Geoffrey Raby
– advise on the appropriate application and amendment of
accounting policies;
Qingchun Zhao
(appointed 17 May 2017)
– make evaluations and recommendations to the shareholders of the
Yuxiang Wu (resigned on 28 April 2017)
Company regarding the external auditor;
– recommend to the Board the remuneration of the external auditor for
shareholder approval as required in accordance with the Constitution;
– provide a link between the Board and the external auditor
and management;
– ensure that the Board, Directors and management are aware of
material risks facing the business; and
– ensure the systems in place to identify, monitor and assess risk are
appropriate and operating effectively.
The committee assists the Board to:
– fulfil its responsibilities in relation to the health, safety and environment
(collectively HSE) matters arising out of the activities of the Company;
– consider, assess and monitor whether or not the Company has in
place the appropriate policies, standards, systems and resources
required to meet the Company’s HSE commitments; and
– provide necessary focus and guidance on HSE matters across
the Company.
Health, Safety
and Environment
Committee
Nomination and
Remuneration
Committee
The committee assists the Board of the Company by making
recommendations in relation to:
– Board composition and succession planning for the Board;
– Director remuneration (subject to any shareholder approval that is
required in accordance with the Constitution and the ASX Listing
Rules) and remuneration arrangements for the Executive Committee
and any other person nominated as such by the committee from time
to time;
– the public reporting of remuneration for Directors and the Company’s
Executive Committee;
– the performance assessment of the Executive Committee;
– designing company policy and regulations with regard to corporate
governance; and
– diversity.
The committee assists the Board in its oversight and review of the
Company’s strategic initiatives, including:
– merger and acquisition proposals;
– major capital markets transactions;
– significant investment opportunities; and
– proposals to dispose of significant Company assets.
Strategy and
Development
Committee
(minimum of three Non-Executive Directors,
a majority of whom are independent)
David Moult – Chair
(appointed 6 February 2018)
Geoffrey Raby
Fuqi Wang
Vincent O’Rourke AM (former Chair)
(resigned 30 January 2018)
(minimum of three Directors)
Xiyong Li – Chair
Cunliang Lai
Xiangqian Wu
(appointed 17 May 2017)
Helen Gillies
(appointed 6 February 2018)
William Randall
(resigned 9 November 2017)
(minimum of three Non-Executive Directors)
Baocai Zhang – Chair
Qingchun Zhao
(appointed 17 May 2017)
Fuqi Wang
Xing Feng
(appointed 6 February 2018)
Yuxiang Wu
(resigned 28 April 2017)
Huaqiao Zhang
(resigned 30 January 2018)
(minimum of three Directors)
The primary role of the Strategy and Development Committee is to assist the Board in its oversight and review of the Company’s strategic
initiatives. The other standing Board committees referred to above are discussed further below under Principle 4 (Audit and Risk Management
Committee), Principle 7 (Health, Safety and Environment Committee) and Principle 8 (Remuneration and Nomination Committee). The Charters
of each of these standing Board committees are available within the Corporate Governance section of the Company’s website.
70
YANCOAL AUSTRALIA LTD
The number of meetings held by each committee during 2017
and each member’s attendance at these meetings is set out in the
Directors’ Report on page 51.
An Independent Board Committee is established as and when
required to manage any related party transactions. The Independent
Board Committee was constituted two times in 2017 for the purposes
of considering transactions between or involving the Company and
its major shareholder, Yanzhou. In each case, the Independent Board
Committee comprised at least three independent directors.
Other committees may be established by the Board as and
when required.
Membership of the Board committees is based on the needs of
the Company, relevant regulatory requirements, and the skills and
experience of individual directors.
Director independence
The Board comprises 11 directors, of whom 5 hold their positions in
an independent non-executive capacity (based on the independence
standard disclosed below). The Company’s current independent
directors are Geoffrey Raby, Gregory Fletcher, David Moult
(appointed 30 January 2018), Helen Gillies (appointed 30 January
2018) and Xing Feng (appointed 15 December 2017). During their
appointment, Messrs William Randall (resigned 9 November 2017)
and Vincent O’Rourke AM (resigned 30 January 2018) and Huaqiao
Zhang (resigned 30 January 2018) were each deemed to be
independent directors.
The Board has assessed the independence of each of the Non-
Executive Directors (including the Chairman) in light of their interests
and relationships. A majority of the Board are not considered
independent directors having regard to their affiliation with the
Company’s major shareholder, Yanzhou, and accordingly the
Company does not comply with Recommendation 2.4 of the ASX
Recommendation. However, the Board considers that its composition
appropriately represents the interests of its shareholders including
its major shareholder, Yanzhou, and that the Board has put in place
appropriate policies and procedures to guide the Board and senior
executives in circumstances where conflicts of interest may arise and
in its dealings with Yanzhou, including establishing the Independent
Board Committee referred to above.
To help ensure that any conflicts of interests are identified, the
Company has put in place a standing agenda item at all meetings
of the Board and its committees to provide the directors with the
opportunity of declaring any conflicts of interests in the subject matter
of the proposed resolutions made within the meeting.
To assist the Board in making independent judgements, the Board
Charter sets out the procedure by which the Board collectively, and
each individual director, can seek independent professional advice,
at the Company’s expense.
Each independent director must regularly provide the Board with
all information relevant to their continued compliance with the
independence standard. The independence of directors will be
reviewed by the Board on a regular basis with assistance from the
Nomination and Remuneration Committee. The Nomination and
Remuneration Committee will also assist the Board with regular
evaluation of the performance of the Board, Board committees and
individual directors.
Independence Standard
In assessing the independence of its directors, the Board has regard
to the factors relevant to assessing the independence of a director
that are set out in Box 2.3 of the ASX Recommendations (3rd edition).
The criteria considered in assessing the independence of Non-
Executive Directors are also set out in the Board Charter.
A director is considered independent if the director:
– is not, and has not within the last three years been, employed in an
executive capacity by the Company or any of its child entities;
– is not, nor has within the last three years been, a partner, director
or senior employee of a provider of material professional services
to the Company or any of its child entities;
– is not, nor has within the last three years been, in a material
business relationship with the Company or any of its child entities,
or an officer of, or otherwise associated with, someone with such
a relationship;
– is not a substantial Shareholder of the Company or an officer
of, or otherwise associated with, a substantial Shareholder of
the Company;
– does not have a material contractual relationship with the
Company or any of its child entities other than as a director;
– does not have close family ties with any person who falls within any
of the categories described above;
– has not been a director of the Company for such a period that his
or her independence may have been compromised; and
– is free from any other interest, position, association or relationship
that might interfere, or might reasonably be seen to interfere, with
the director’s capacity to bring an independent judgement to bear
on issues before the Board and to act in the best interests of the
Company and its shareholders generally.
The Company’s Constitution provides that the Company’s
shareholders holding a majority of the issued shares of the Company
(which confer the right to vote) may nominate a director to the office
of Chairman and may elect one or more directors to the office of
Vice Chair.
Although as a nominee of Yanzhou, Xiyong Li, the Chairman is not
considered independent by the independence standard (as above),
the Board considers that this is an appropriate reflection of Yanzhou’s
majority shareholding in the Company. While a majority of the directors
are associated with Yanzhou this is considered appropriate in light of
Yanzhou’s major shareholding in the Company.
Xing Feng is employed by China Cinda Asset Management, an
associate of Cinda International HGB Investment (UK) Limited
(a substantial shareholder of the Company). The Board considers that
this relationship does not materially interfere with, nor is perceived to
interfere with, the independent exercise of Mr Feng’s judgement and
that he is able to fulfil the role of independent director for the purpose
of the ASX Recommendations. Accordingly, the Board considers
Mr Feng to be an independent Non-Executive Director. Where
appropriate, Mr Feng will stand aside from decision making where
conflicts of interest may arise, and does not participate in Independent
Board Committees.
CORPORATE GOVERNANCE STATEMENT (CONTINUED)
CORPORATE GOVERNANCE STATEMENT
ANNUAL REPORT 2017
71
Board skills matrix
The table below sets out the skills and experience that are currently
represented on the Board.
The key values underpinning the Code of Conduct are:
– our actions must be governed by the highest standards of integrity
and fairness;
Skills and Experiences
Mining/exploration and production
Engineering
Capital projects
Trading/marketing
Strategy
Leadership
Board/Committee experience
Corporate governance
Accounting/audit/risk management
Government/policy
Legal/regulatory
Health, safety and environment
Human resources
International business expertise
Total
5
5
9
4
11
11
9
8
7
9
5
7
6
10
Induction and professional development
Upon appointment, directors are provided with an information
pack containing a letter of appointment setting out the Company’s
expectations, directors’ duties and the terms and conditions of their
appointment, and other materials containing information about the
Company including the Company’s Constitution, charters and policies
to support the induction of directors to the Board.
Directors also participate in continuing education or development
programs arranged for them, including for example training on
director’s duties and developments in workplace health and
safety law.
The Company Secretary supports directors by providing access to
information in appropriate form where requested.
Principle 3: Act ethically and responsibly
Conduct and ethics
The Board policy is that directors, employees and contractors must
observe both the letter and spirit of the law, and adhere to the
highest standards of business conduct. The Company has adopted a
formal Code of Conduct and other guidelines and policies which are
approved by the Board that set out legal and ethical standards for the
Company’s directors and employees, including a Conflicts of Interests
and Related Party Transactions Policy.
The Code of Conduct and these other guidelines and policies guide
the directors, the CEO, senior executives, and employees generally as
to the practices necessary to maintain confidence in the Company’s
integrity and as to the responsibility and accountability of individuals
for reporting, and investigating reports of, unethical practices.
The Code of Conduct and these other guidelines and policies also
guide compliance with legal and other obligations to stakeholders.
Specifically, the objective of the Code of Conduct is to:
– provide a benchmark for professional behaviour;
– support the Company’s business reputation and corporate image
within the community; and
– make directors and employees aware of the consequences if they
breach the policy.
– our decisions must be made in accordance with the letter and
spirit of applicable law; and
– our business must be conducted honestly and ethically, with
our best skills and judgement, and for the benefit of customers,
employees, shareholders and the Company alike.
The Code of Conduct is available in the Corporate Governance
section of the Company’s website.
Reporting concerns and whistleblower protection
The Company’s Speak-Up Yancoal Ethics policy encourages
employees, directors, contractors and consultants to raise serious
concerns within the Company and report any issues if they genuinely
believe a person has, or persons have, breached Yancoal’s Code of
Conduct, policies or the law. The policy also protects individuals who
in good faith report misconduct which they reasonably believe to be
corrupt, illegal or unethical on a confidential basis, without fear of
reprisal, dismissal or discriminatory treatment; and assists in ensuring
that matters of misconduct and/or unethical behaviour are identified
and dealt with appropriately.
Individuals can report their concerns confidentially online, via
confidential email to an external facilitator or by telephoning a
confidential Speak Up Line.
All disclosures made under this policy will be treated seriously and be
the subject of a thorough investigation with the objective of locating
evidence that either substantiates or refutes the misconduct disclosed
by an employee. Such investigations will be facilitated independently
from the business unit concerned, the employee who made the
disclosure or any person being the subject of the reportable conduct.
The Company will determine, based on the seriousness of the
disclosure, whether the investigation will be conducted internally by a
senior member of management or the external facilitator.
Principle 4: Safeguard integrity in corporate reporting
Audit and Risk Management Committee
The Board has established an Audit and Risk Management
Committee. The committee plays a key role in helping the Board to
oversee financial reporting, internal control structure, risk management
systems and internal and external audit functions. The committee has
the necessary power and resources to meet its responsibilities under
its charter, including rights of access to management and auditors
(internal and external) and to seek explanations and additional
information. The committee meets at least four times per year, or as
frequently as required. The Charter of the Audit and Risk Management
Committee can be found in the Corporate Governance section of the
Company’s website. The purpose of the Audit and Risk Management
Committee is outlined under the Board committees section above.
In accordance with its Charter, the Audit and Risk Management
Committee has at least three members. The current members of this
committee are Gregory Fletcher (chair of the committee), Qingchun
Zhao (appointed 17 May 2017) and Geoffrey Raby. Former Committee
member Yuxiang Wu resigned on 28 April 2017 meaning that for a
brief period, until Qingchun Zhao was appointed to the Committee by
way of a circular resolution of the Board, the Committee had only two
members. The Committee did not meet during this time and Qingchun
Zhao was appointed at the first available opportunity.
72
YANCOAL AUSTRALIA LTD
The committee consists only of Non-Executive Directors
with a majority being independent. Consistent with the ASX
Recommendations, the chair of the committee is an independent
Non-Executive Director and is not the Chairman of the Board. The
qualifications, skills and experience of each member is disclosed in
the Information on directors in the Directors’ Report, on page 45.
The Company has also employed a full time EGM of Risk
Management and Auditing. His role is described further under
Principle 7.
CEO and CFO certifications on financial reports
The CEO and CFO have declared in writing to the Board that in
respect of the half year ended 30 June 2017 and the full year
ended 31 December 2017, in their opinion, the financial records
of the Company have been properly maintained and the financial
statements comply with the appropriate accounting standards and
give a true and fair view of the financial position and performance of
the Company, and that their opinion has been formed on the basis
of a sound system of risk management and internal control which is
operating effectively.
External Auditor
The Company’s external auditor is ShineWing Australia. Consistent
with the requirements of the Corporations Act 2001 (Cth), ShineWing
Australia has a policy of partner rotation every five years. The
appointment, removal and remuneration (not including amounts paid
for special or additional services provided by the auditor) of the auditor
require shareholder approval.
The external auditor receives all papers and minutes of the Audit
and Risk Management Committee. The external auditor also attends
the Company’s Annual General Meeting to answer questions from
shareholders relevant to the Company’s audit.
Principle 5: Make timely and balanced disclosure
The Company recognises the importance of timely and adequate
disclosure to the market, and is committed to making timely
and balanced disclosure of all material matters and to effective
communication with its shareholders and investors so as to give
them ready access to balanced and understandable information. The
Company also works together with its major shareholder, Yanzhou,
to ensure that Yanzhou can comply with its disclosure obligations in
relation to Company information, and vice versa, Yanzhou seeks to
ensure that the Company can comply with its disclosure obligations in
relation to Yanzhou’s information.
The Board has put in place a Disclosure Policy to encapsulate the
disclosure obligations under the Corporations Act 2001 and the ASX
Listing Rules and to set out procedures for managing compliance
with those obligations. These procedures provide a framework for
managing the disclosure of material matters to the market to ensure
accountability at Board and senior executive level. As part of this
framework, a standing agenda item at all the Company’s Board and
Executive Committee meetings requires the directors and senior
executive to consider whether any matters at the meeting should be
disclosed to the market. The Disclosure Policy can be found within the
Corporate Governance section of the Company’s website.
A Disclosure Committee has been established to assist the Company
to meet its disclosure obligations. The Committee plays a key role
in reviewing and determining whether information is likely to have a
material effect on the price or value of the Company’s securities such
that it requires disclosure to the market. The Disclosure Committee
members comprise the CEC, CEO, CFO, Company Secretary,
Investor Relations General Manager and Group Counsel.
Any information disclosed to the market through an announcement
to the ASX is also published on the Investor section of the
Company’s website.
Principle 6: Respect the rights of shareholders
Communications with shareholders
The Company has an investor relations program that is aimed at
facilitating two-way communications with investors. The Company’s
policy is to promote effective communication with shareholders
and other investors so that they understand how to assess relevant
information about the Company and its corporate direction. The
Company aims to keep shareholders, potential investors and
other stakeholders informed of all major developments affecting
the state of affairs of the Company. The Company communicates
information regularly to shareholders, potential investors and other
stakeholders by:
– posting announcements on the ASX platform in accordance
with its continuous disclosure obligations and also making these
announcements available on the Company’s website;
– keeping its website up to date on important information about the
Company, including its Constitution, Board and Board Committee
Charters, core corporate governance policies and financial
information about the Company; and
– publishing investor presentations made to analysts and
media briefings available within the Investor section of the
Company’s website.
The Company encourages shareholders to attend and participate in
all general meetings including annual general meetings. Shareholders
are entitled to ask questions about the management of the Company
and of the auditor as to its conduct of the audit and preparation of its
reports. Any shareholders who cannot attend any general meetings
can also participate via lodgement of their proxies. In addition,
shareholders have the option of receiving communications from and
sending communications to the Company and the Company’s share
registry, Computershare Investor Services, electronically.
The Company’s Shareholder Communication Policy which was
approved by the Board, can be found within the Corporate
Governance section of the Company’s website.
Principle 7: Recognise and manage risk
Risk identification and management
The Board, through the Audit and Risk Management Committee, is
responsible for satisfying itself that a sound system of risk oversight
and management exists and that internal controls are effective. In
particular, the Board ensures that:
– the principal strategic, operational, financial reporting and
compliance risks are identified; and
– systems are in place to assess, manage, monitor and report on
these risks.
The role and membership of the Audit and Risk Management
Committee are described under Principles 2 and 4.
The Company’s Audit and Risk Management Committee Charter
can be found within the Corporate Governance section of the
Company’s website.
The Board has requested the Company’s senior executives
and management to report to the Audit and Risk Management
Committee and, where appropriate the Board, regarding the effective
management of its material business risks.
CORPORATE GOVERNANCE STATEMENT (CONTINUED)
CORPORATE GOVERNANCE STATEMENT
ANNUAL REPORT 2017
73
In 2017, the Audit and Risk Management Committee had in place
a framework to identify and manage material business risks. This
framework includes:
– identification of material business risk by the Executive Committee
by reference to a single risk register, approved by the Audit and
Risk Management Committee and Board;
– implementation of a risk management framework (that includes
a risk management policy, governance structure, procedures),
approved by the Audit and Risk Management Committee
and Board;
– formal risk identification activities being undertaken at both a
functional level and at each of the Company’s mine sites;
– designated individuals across the business that have accountability
for the implementation of risk management within their areas
of responsibility;
– the EGM of Risk Management and Auditing as a central resource
available to assist with all risk management responsibilities, and to
assist with any training/awareness or other related requirements;
and
– adherence to internal procedures and plans for crisis management.
The Audit and Risk Management Committee receives periodic reports
on the performance of the Company’s risk management framework,
as well as on the Company’s key risk exposures to satisfy itself that it
continues to be sound. A review of the risk management framework
was conducted in 2017.
Formal risk identification activities are undertaken on an annual basis
as part of the 5-year Strategic Planning Process undertaken each
year; with Risk Identification and Analysis undertaken at a functional
level, as well as at each of the organisation’s mine sites. In addition,
where appropriate, project specific risk assessments are conducted.
The EGM of Risk Management and Auditing is responsible for
establishing and managing the company wide risk management
system, risk management framework and practices, reviewing the
impact of the risk management framework on its control environment
and insurance arrangements and reviewing the risk of major
investment projects. Together with the CEC, the Board and the Audit
and Risk Management Committee, the EGM of Risk Management
and Auditing is responsible for developing a risk matrix and framework
and for implementing related risk assurance processes and audits of
compliance for the Company and its subsidiaries.
The responsibility for managing risks, risk controls or risk management
action plans is embedded within the business and undertaken as part
of everyday activities.
Risks associated with the Company
The future operating performance of the Group may be affected by
risks relating to the Company’s business. Some of these risks are
specific to the Company while others relate to economic conditions
and the general industry and markets in which the Company operates.
The Company’s risk management policies and procedures have
been designed and implemented to identify, manage and mitigate
any exposure to risks relating to the Company’s business, including
economic, environmental and social sustainability risks. The Company
undertakes regular monitoring and assessment of these risks and
implements risk mitigation strategies to minimise its exposure to such
risks. However, there can be no assurance that such risk mitigation
strategies will protect the Company from these risks. Other risks
are beyond the Company’s control and cannot be mitigated. The
occurrence of any such risks could adversely affect the Company’s
financial condition and performance. The risks listed below are
not purported to be exhaustive and there is no assurance that
the importance of different risks will not change or other risks will
not emerge.
The table below identifies risks which are considered to be economic,
environmental and/or social sustainability risks.
Operating risks
Injury or accident risks
Funding risks
Adverse foreign exchange
rate movements
Hedging through bank
issued instruments
Coal prices and coal demand risk
Coal production risks
Debt costs
Taxation risks
Australia Accounting Standards
Regulatory approvals risks
Estimates of Resources and
Reserves and geology
Uncertainty in costs forecast
Take or pay liabilities
NCIG and WICET debt
Mine closure
Coal supply agreement
Joint ventures and reliance on
third parties
Competition
Title risks
Native Title
Overlapping tenement risks
Enforcement and counterparty
insolvency risks
Coal royalties
Climate change/carbon
regulation risks
Technological change
Key Personnel
Environmental activism
Environment and planning
Changes in government policy,
regulation or legislation
Litigation
Insurance
Exploration and development risks
Transport and infrastructure
Environmental risks
Health, safety and hazardous
materials risks
Impairment risks
Environmental
sustainability
risks
ü
Social
sustainability
risks
ü
ü
Economic
sustainability
risks
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
74
YANCOAL AUSTRALIA LTD
Operating risks
The Company’s operations are subject to operating risks that
could result in decreased coal production which could reduce their
respective revenues. Operational difficulties may impact the amount
of coal produced, delay coal deliveries or increase the cost of mining
for a varying length of time. These operating risks include (but are
not limited to) industrial, mine collapses, cave-ins or other failures
relating to mine infrastructure, including tailings dams, interruptions
due to inclement or hazardous weather conditions, power interruption,
critical equipment failure (in particular any protracted breakdown
or issues with any of the Company’s CHPP or a major excavator),
fires, and explosions from methane gas or coal dust, accidental
mine water discharges, flooding and variations in or unusual or
unexpected geological or geotechnical mining conditions (particularly
in the Company’s underground operations). Such risks could result
in damage to applicable mines, personal injury, environmental
damage, delays in coal production, decreased coal production, loss
of revenue, monetary losses and possible legal liability. Although the
Company’s insurance policies provide coverage for some of these
risks, the amount and scope of insurance cover is limited by market
and economic factors and there can be no assurance that these risks
would be fully covered by insurances maintained by the Company.
Injury or accident risks
If any injuries or accidents occur in a mine, this could have adverse
financial implications including legal claims for personal injury, wrongful
death, amendments to approvals, potential production delays or
stoppages, any of which may have a material adverse effect on the
financial performance and/or financial position of the Company.
Funding risks
The amount of future funding required by the Company will depend
on a number of factors, including the performance of the Company’s
business at that time. The Company’s business operations and
cashflow are highly sensitive to any fluctuation in the US$ coal price,
coal production from its operations, demand for its coal product and
US$ movement in foreign exchange rates, particularly movements in
the A$:US$ exchange rate.
In developing its business plan and operating budget, the Company
has made certain assumptions regarding coal prices, the A$:US$
exchange rate, future production levels and other factors which
determine the Company’s financial performance.
If a funding shortfall materialises, the Company may need to raise
substantial additional debt or equity. The Company’s capacity to
secure the requisite level of funding will depend on the amount
of funding required, the performance and future prospects of its
business and a number of other factors, including US$ coal prices,
interest rates, economic conditions, debt market conditions, equity
market conditions, and future levels of Yanzhou support.
To the extent that the Company is not able to secure additional
financing (whether debt or equity) on acceptable terms from third
parties, the Company will continue to rely on financial support
from Yanzhou.
As at 31 December 2017, the Company had a loan receivable from
Watagan of A$712 million (re-drawable up to A$1.36 billion) which
is subject to impairment testing. There is a guarantee provided
by Yankuang (being the ultimate parent entity of the Company) to
indemnify the Company for any amounts due and payable under the
loan which are not paid by Watagan.
Yanzhou’s and Yankuang’s capacity to meet their respective funding
commitments will depend on their financial position at the time and
their capacity to raise the necessary funds to meet the commitments.
Yancoal’s capacity to source further funding from Yanzhou will depend
on Yanzhou’s willingness and financial capacity to provide that
funding. There can be no assurance that Yanzhou will be in a position
to provide financial support to Yancoal or that Yankuang will be in a
position to meet its obligations under the guarantee in respect of the
Watagan Agreements.
Adverse foreign exchange rate movements
Foreign exchange risk is the risk of the Company sustaining loss
through adverse movements in exchange rates.
Such losses can impact the Company’s financial position and
performance and the level of additional funding required to support
the Company’s businesses.
The liabilities, earnings and cash flows of the Company are influenced
by movements in exchange rates, especially movements in the
A$:US$ exchange rate.
While the Company operates entirely in Australia and its costs
are primarily denominated in its functional currency, the A$,
foreign currency exposure arises particularly in relation to coal
supply contracts, which generally are priced and payable in US$,
procurement of imported plant and equipment, which can be priced in
US$ or other foreign currencies, and debt denominated in US$.
The impact of exchange rate movements will vary depending
on factors such as the nature, magnitude and duration of the
movements, the extent to which currency risk is hedged under
forward exchange contracts or other hedging instruments and the
terms of these contracts.
The hedging policy of the Company aims to protect against
the volatility of cash expenditures or reduced collection in the
abovementioned transactions as well as to reduce the volatility of
profit or loss for retranslation of US dollar denominated loans at each
period end.
Hedging through bank issued instruments
Operating foreign exchange risk that arises from firm commitments
or highly probable transactions is managed through the use of bank
issued forward foreign currency contracts and collar option contracts.
The Company hedges a portion of contracted US dollar sales and
asset purchases settled in foreign currencies in each currency to
mitigate the adverse impact on cash flow due to the future rise or fall
in Australian dollars against the relevant currencies.
Coal prices and coal demand risk
The Company generates revenue from the sale of coal. In developing
its business plan and operating budget, the Company makes certain
assumptions regarding coal prices and demand for coal. The prices
which the Company will receive for its coal depend on numerous
market factors beyond its control and, accordingly, some underlying
coal price assumptions relied on by the Company may materially
change and actual coal prices and demand may differ materially from
those expected.
The prices for coal are determined predominantly by world markets,
which are affected by numerous factors, including the outcome of
future sale 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, technological changes, changes in production levels
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and events interfering with supply, changes in international freight
rates or other transportation infrastructure and costs, the costs of
other commodities and substitutes for coal, market changes in coal
quality requirements, government regulations which restrict use of
coal, and tax impositions on the resources industry, all of which are
outside the control of the Company and may have a material adverse
impact on coal prices and demand.
In addition, the coal price is highly dependent on the outlook for coal
consumption in large Asian economies, such as China, Japan and
India, as well as any changes in government policy regarding coal or
energy policy in those countries.
Absent offsetting factors, significant and sustained adverse
movements in demand for coal and, consequently, coal prices (both
generally and in relation to particular types and classes of coal) may
have a material adverse impact on the ongoing financial performance
and financial position of the Company or may result in the Company
not proceeding with the development of new mines and projects due
to such development not being economically viable.
Any weakening in coal prices or any deterioration prompted by further
reduction in demand or addition of new tonnes to the seaborne
market (for example from thermal coal exports from the US) would
have a material adverse impact on the financial performance of the
Company and its capacity to undertake development projects.
Coal production risks
Improvement in the Company’s financial performance is dependent
on the Company being able to sustain or increase coal production
and decrease operating costs on a per tonne basis. The Company’s
success or failure in improving productivity will become particularly
important to the Company’s financial performance if the coal price
remains at current levels or falls further.
The Company’s coal production can be impacted by a number
of factors, including unforeseen geological or geotechnical issues
(particularly in the Company’s underground operations), abnormal
wet weather conditions (particularly in Queensland), unforeseen
delays or complexities in installing and operating mining longwall
systems, protracted breakdown of coal handling infrastructure and
other mining equipment and rail and port breakdowns and outages.
Regulatory factors and the occurrence of other operating risks can
also limit production.
Debt Costs
The majority of the Company’s loans are US$ LIBOR based
floating rate loans and currently there are no interest rate hedging
arrangements in place. As a result, any increase in the US$ LIBOR
from current levels will expose the Company to higher debt costs.
Taxation Risks
In addition to the corporate income tax imposed on the Company,
the Company is required to pay government royalties, direct and
indirect taxes and other imposts in the jurisdictions in which the
Company will operate. The Company may be affected by changes
in government taxation and royalty policies or in the interpretation or
application of such policies under Australian laws.
The potential of the Company to obtain the benefit of existing
tax losses and claim other tax attributes will depend on future
circumstances and may be affected by changes in ownership of
both Yanzhou and Yancoal, business activities, thin capitalisation
thresholds, tax bases and any other conditions relating to the use
of tax losses or other attributes of the group. The ability to use the
Company’s carried forward losses will depend on the Company’s
continued satisfaction of the loss recoupment tests under Australian
tax laws and be subject to the availability of sufficient future
taxable profits.
Australian Accounting Standards (AAS)
AAS are issued by the AASB and are beyond the control of
the Company and the Directors. Any changes to AAS or to the
interpretation of those standards may have an adverse effect on the
reported financial performance or financial position of the Company.
In particular, the accounting treatment for transactions such as
the transfer of the NSW mining assets of Ashton, Austar and
Donaldson to Watagan could be reviewed by standard setters
and may be subject to change. In the event that the Company is
required to reconsolidate Watagan’s results and financial position
into its consolidated financial statements ahead of the scheduled
date in 2025, due to a change to AAS or their interpretation, the
reconsolidation may have an adverse effect on the reported financial
performance or financial position of the Company.
Regulatory approvals risks
The ability of the Company to meet its long term production target
profile depends on (amongst other things) the Company being able
to obtain on a timely basis, and maintain, all necessary regulatory
approvals (including any approvals arising under applicable mining
laws, environmental regulations and other laws) for its current
operations and expansion and growth projects, including obtaining
planning approvals, land access, land owner consents and addressing
any native title issues, impacts on the environment and objections
from local communities.
The requirement to obtain approvals and to address potential and
actual issues for existing and future mining projects is common to
all companies in the coal sector. However, there is no assurance
or guarantee that the Company will be in a position to secure any
or all of the required consents, approvals and rights necessary to
maintain its current production profile from its existing operations or to
develop its growth projects in a manner which will result in profitable
mining operations and the achievement of its long term production
targets. If these approvals (or other approvals required for the planned
production increases) are not obtained, or if conditional or limited
approvals are obtained, the economic viability of the relevant projects
may be adversely affected, which may in turn result in the value of the
relevant assets being impaired.
The Company continues to engage openly and transparently with all
State and federal Government and approval bodies, while operating
to the highest safety, environmental and legislative standards to work
towards facilitating all approvals in a timely manner.
Estimates of Resources and Reserves and geology
The volume and quality of the coal that the Company recovers may
be less than the Resource and Reserve estimates reported to date.
Resource and Reserve estimates are expressions of judgment based
on knowledge, experience and industry practice. There are risks
associated with such estimates, including that coal mined may be of
a different quality or grade, tonnage or strip ratio from those in the
estimates and the ability to economically extract and process the coal
may not eventuate. Resource and Reserve estimates are necessarily
imprecise and depend to some extent on interpretations and
geological assumptions, coal prices, cost assumptions, and statistical
inferences which may ultimately prove to have been unreliable.
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YANCOAL AUSTRALIA LTD
Coal Resource and Coal Reserve estimates are regularly revised
based on actual production experience or new information and could
therefore be expected to change. Furthermore, should the Company
encounter mineralisation or formations different from those predicted
by past drilling, sampling and similar examinations, Coal Resource
and Coal Reserve estimates may have to be adjusted and mining
plans, coal processing and infrastructure may have to be altered in a
way that might adversely affect their operations. If it is determined that
mining of certain Coal Reserves are uneconomic, this may lead to a
reduction in the Company’s aggregate Coal Reserve estimates.
Material changes in Coal Reserve estimates, grades, strip ratios,
washing yields or recovery rates may affect the economic viability
of projects. Coal Reserve estimates should not be interpreted
as assurances of mine life or of the profitability of current or
future operations.
If the Company’s actual Coal Resource and Coal Reserve estimates
are less than current estimates, the Company’s prospects, value,
business, results of operations and financial condition may be
materially adversely affected.
Take or pay liabilities
Port and rail (above rail and below rail) capacity is generally contracted
via long-term take-or-pay contracts. The Company will generally be
required to pay for its contracted rail or port tonnage irrespective of
whether it is utilised. Unused port or rail capacity can arise as a result
of circumstances including insufficient production from a given mine,
a mismatch between port and rail capacity for a mine, or an inability
to transfer the used capacity due to contractual limitations such as
required consent of the provider of the port or rail services, or because
the coal must emanate from specified source mines or be loaded onto
trains at specified load points.
The Company currently has excess port and rail capacity
commitments across its NSW operations, which represents a
significant cost to its NSW operations. Delays in the Company’s
NSW growth projects may exacerbate the Company’s current
excess position.
Uncertainty in costs forecast
The business operations and financial condition of the Company
may vary with fluctuations in production and capital costs. Changes
in the costs of mining and processing operations as well as capital
costs could occur, including as a result of unforeseen events, such
as international and local economic and political events (including
movement in exchange rates) or unexpected geological or mining
conditions, and could have material adverse financial consequences
for the Company.
NICG and WICET debt
As a shipper in NCIG and WICET, the Company’s source mines are
required to maintain a minimum level of Marketable Coal Reserves
(11 years’ worth of contracted capacity). Non-compliance with
this requirement would ultimately result in the termination of the
individual contracts and require the Company to pay its share of any
outstanding senior debt, currently approximately, A$1 billion and
A$0.3 billion, respectively.
Mine closure
Closure of any of the mines or other operations of the Company
before the end of their mine life (e.g. due to environmental, geological,
geotechnical, commercial and/or health and safety issues), could
trigger significant employee redundancy costs, closure and
rehabilitation expense and other costs or loss of revenues. Many
of these costs will also be incurred where mines are closed at the
end of their planned mine life or placed on care and maintenance. A
move to care and maintenance has the potential to trigger significant
employee redundancy costs and a subsequent loss of revenues, as a
minimal employee presence is required for ongoing management and
rehabilitation of the mine.
If one or more of the relevant sites are closed earlier than anticipated,
the Company will be required to fund the closure costs on an
expedited basis and potentially lose revenues, which could have an
adverse financial effect. In addition, there is a risk that claims may be
made arising from environmental remediation upon closure of one or
more of their sites.
Coal supply agreements
The Company’s coal supply agreements typically require the delivery
of a fixed or minimum quantity of coal at a location, at a time and
over a period stipulated in the agreement. To the extent that any
contracted volumes cannot be delivered as agreed, the Company
may be liable to pay substantial compensation for the resulting losses,
costs and charges (including demurrage) incurred by the buyer.
As customer contracts expire, the Company will be likely to renew
contracts with long-term customers, or seek to enter into new
contracts with new buyers and markets, depending on the feasibility
of this. Tonnes that are not contracted are sold onto the spot market
at either index-linked or fixed price levels. The Company’s strategy
for 2018 will be to increase its term contracted position as well as to
target end-user customers as opposed to traders.
Most of the Company’s coal supply agreements also require the
delivery of coal meeting specified quality thresholds for characteristics
such as moisture content, sulphur content and ash content.
Depending on these quality thresholds, coal will be sold into markets
that are the highest paying for coal with the relevant qualities.
Joint ventures and reliance on third parties
The Company holds a number of joint venture interests, including
interests in the Middlemount, Moolarben, HVO, Mount Thorley and
Warkworth joint ventures, PWCS, NCIG and WICET, with other
parties. Decision making, management, marketing and other key
aspects of each joint venture are regulated by agreements between
the relevant joint venture participants. Under these agreements,
certain decisions require the endorsement of third party joint
venture participants and the Company relies on the co-operation
of these third parties for the success of its current operations and/
or the development of its growth projects and the transportation of
increased production.
The Company cannot control the actions of third party joint venture
participants, and therefore cannot guarantee that joint ventures will
be operated or managed in accordance with the preferred direction
or strategy of the Company. There is a risk that the veto rights of,
or consents required from, the joint venture partners will prevent the
business and assets of a joint venture from being developed, operated
and managed in accordance with that preferred direction or strategy.
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The Company also use contractors and other third parties for
exploration, mining and other services generally, and is reliant on
a number of third parties for the success of its current operations
and for the development of its growth projects. While this is normal
for the mining and exploration industry, problems caused by third
parties may arise which may have an impact on the performance and
operations of the Company. Any failure by counterparties to perform
their obligations may have a material adverse effect on the Company
and there can be no assurance that the Company will be successful in
attempting to enforce its contractual rights through legal action.
Competition
The coal industry is highly competitive, and an increase in production
or reduction in prices of competing coal from both Australia and
overseas may adversely impact the Company’s ability to sell its coal
products and the price to be attained for sales. Increased competition
in the future, including from new competitors, may emerge. This
competition may relate not only to coal produced and sold, but
also to competition for the acquisition of new projects, which may
adversely affect the ability of the Company to acquire new interests on
acceptable terms should it wish to make such acquisitions.
Further industry consolidation could result in competitors improving
their scale or productivity or competitors may develop lower-cost
geological coal resources or develop resources in lower cost base
geographies, increasing pressure on the Company’s ability to maintain
its margins.
There is significant competition within the resources industry in
Australia, the United States and Asia. Furthermore, new entrants
to the industry may emerge in one or more of those markets,
increasing the competitive pressure on the Company. This pressure
could adversely affect the Company’s market share and financial
performance and position.
Title risks
Exploring or mining for coal is generally illegal without a tenement
granted by the State Governments. The grant and renewal of
tenements is subject to a regulatory regime and each tenement
is subject to certain conditions. There is no certainty that an
application for grant or renewal of a tenement will be granted at all
or on satisfactory terms or within expected timeframes. Further, the
conditions attached to tenements may change. The permitting rules
are complex and may change over time, making the title holder’s
responsibility to comply with the applicable requirements more
onerous, more costly or even impossible, thereby precluding or
impairing continuing or future mining operations. There is a risk that
the Company may lose title to any of its granted titles if it is unable
to comply with conditions or if the land subject to the title is required
for public purposes. There is also a risk that a tenement may not
be granted from any applications for renewals of tenements or for
new tenements.
Obtaining mining tenements often involves first obtaining consents
from landholders and other third parties, some of which may in
certain circumstances have a right of veto, as well as approvals
(such as environmental approvals). There is a risk that the requisite
consents and approvals may not be able to be obtained on time
or on acceptable commercial terms, or may not be able to be
obtained at all, and consequently have an adverse financial effect on
the Company.
Native Title
Where the grant or renewal of a tenement is in respect of land in
relation to which native title may exist, the Company will need to
comply with the NTA in order for the tenement to be validly granted.
Compliance with the NTA (and the relevant native title process to
be followed for the grant of the tenement e.g. the right to negotiate
process) may be prolonged or delayed, and substantial compensation
may be payable as part of any agreement reached, including for
the extinguishment or impairment of the relevant native title rights
and interests.
The existence or determination of native title may, therefore, affect the
existing or future activities of the Company and impact on its ability
to develop projects which may in turn impact its operational and
financial performance.
Overlapping tenement risks
Some of the Company’s mines and associated tenements adjoin or
are overlapped by petroleum tenements and adjoin other exploration
interests held by third parties. Overlapping tenements could potentially
prevent, delay or increase the cost of the future development of
the Company’s projects because the Company and the relevant
petroleum exploration licence or other exploration licence holders
could potentially seek to undertake their respective activities on the
overlapping area or the same resource seams and in some cases the
overlapping petroleum tenure holder’s consent may be required.
There is no guarantee that agreement will be reached with the
overlapping petroleum tenement holder or that agreement will not
be delayed or will be reached on terms satisfactory to the Company.
There is also a risk that if agreement cannot be reached with
overlapping tenement holders the matter may be referred to the
relevant minister or a court who may make a decision which adversely
impacts upon or prevents the project proposed by the Company.
Enforcement and counterparty insolvency risks
The Company has entered into contracts which are important to the
future of its businesses including (but not limited to) for the provision of
coal handling services, long term sales contracts, debt facilities, long
term leases, contract mining and the provision of certain guarantees,
indemnities and sureties.
Any failure by counterparties to perform those contracts may
have a material adverse effect on the Company and there can be
no assurance that it would be successful in enforcing any of its
contractual rights through legal action.
In addition, any insolvency of a counterparty to any of these contracts
may have a material adverse effect on the Company and there can
be no assurance that it would be successful in enforcing any of its
contractual rights through legal action or recovering all monies owned
by that counterparty (including under any claim for damages).
Coal royalties
Royalties are payable to the NSW and QLD state governments
on coal produced in NSW and QLD. In both states, the royalties
are payable on an ad valorem basis as they are calculated as a
percentage of the value for which the coal is sold. The relevant
State Governments may increase these royalties or their method of
calculation. Any impost of new royalty related state tax or increase in
royalty rates may have an adverse effect on the Company’s financial
position and/or financial performance.
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YANCOAL AUSTRALIA LTD
Climate change/carbon regulation risks
The regulatory response to the risk of climate change, including
unilateral and collective action by Australia and other countries, may
affect demand for coal, coal prices and the competitiveness of the
Company’s products in the world energy market.
In November 2014, an agreement was announced between the
United States and China to cut greenhouse gas emissions by more
than 25% below 2005 levels by 2025. This agreement was followed
by the 2015 United Nations Climate Change Conference, and the
signing of the Paris Agreement within the United Nationals Framework
Convention on Climate Change. The Paris Agreement was signed
by representatives from 195 countries, and aims to hold back the
increase in global temperatures, increase the ability of countries to
adapt to the adverse impacts of climate change and provide channels
to finance projects that lead to greenhouse gas reductions.
In recent years, China has also taken steps to address severe air
pollution in many Chinese cities by adopting a range of policies to
lower carbon emissions and reduce coal usage.
Extensive government regulations relating to climate change impose
costs on the mining operations of the Company, and future regulations
could increase those costs, limit the Company’s ability to produce and
sell coal, or reduce demand for the Company’s coal products.
Technological change
Thermal coal as a source of energy competes with other forms of
electricity generation (such as hydro, solar and wind). In recent years,
the global shift from conventional fuels to renewable sources of energy
has created greater competition for thermal coal in the market.
As renewable technologies become more efficient and cost effective,
they may gain an economic advantage over coal-fired and other
fossil fuel based electricity generation. These economic factors,
combined with increasing costs to comply with emission limits for
other air pollutants, may result in the continued retirement of existing
coal-powered generation capacity, and the cancellation of planned
additional coal-fired power capacity, which may reduce demand for
thermal coal in the market.
Key personnel
A number of key personnel are important to attaining the business
goals of the Company. One or more of these key employees could
leave their employment or cease to actively participate in the
management of the Company and this may adversely affect the ability
of the Company to conduct its business and, accordingly, affect its
financial performance and its share price. There may be a limited
number of persons with the requisite experience and skills to serve in
the Company’s senior management positions if existing management
leave the Company. If the Company cannot attract, train and retain
qualified managers, and other personnel, the Company may be
unable to successfully manage its growth or otherwise compete
effectively in the Australian coal industry.
Environmental activism
Environmental lobby groups in both QLD and NSW have recently
made submissions opposing both operation and expansion of coal
mines in an attempt to prevent new mine developments or expansion
of existing mines on the basis of environmental concerns. Increased
community concern and adverse actions taken by community and
environmental groups may delay or prevent the Company from
progressing new mine developments or development or expansion
of existing mines, or may mean that those mines are subject to
conditions that adversely affect their profitability and consequently the
financial performance of the Company.
Changes in government policy, regulation or legislation
The resources industry is subject to extensive legislation,
regulations and supervision by a number of federal and state
regulatory organisations.
Any future legislation and regulatory change may affect the
resources industry and may adversely affect the Company’s financial
performance and position, such as future laws that may limit the
emission of greenhouse gases or the use of coal in power generation.
Environment and planning
In recent years, state government policies of NSW and QLD have
been introduced in the interests of protecting agricultural and urban
land from the effects of mining. These include the QLD Government’s
Central Queensland Plan and Regional Planning Interests Act and
the NSW Government’s Strategic Regional Land Use Policy, Aquifer
Interference Policy, and 2013 amendments to the State Environmental
Planning Policy (Mining, Petroleum Production and Extractive
Industries) 2007. Each of these policies is relevant to the areas in
which the Company has mining operations. Accordingly, there is no
assurance that the future development and exploration activities of
the Company will result in profitable or commercially viable mining
operations in these areas.
In 2013, the NSW State Government introduced the fit and proper
person consideration in making decisions about mining rights
including the grant, transfer, renewal, cancellation and suspension
of such rights. This allows the Government to consider a miner’s
conduct (in particular its compliance with environmental and mining
legislation), as well as a miner’s financial capabilities and technical
expertise. In recent years, the NSW State Government has also
significantly increased the maximum penalties for breaches of mining
and environmental legislation, and the resources of regulators to
investigate possible breaches and prosecute mining companies.
These changes have resulted in the updating of compliance
programs, and increased the risk of prosecution for breaches of
relevant legislation.
In 2013, the QLD State Government reviewed the method of
calculating the financial assurance required to be provided by mining
companies in respect of their rehabilitation liability and this review
led to a significant increase in financial assurance amounts that are
required to be covered by bank guarantees. The Audit Office of
NSW has carried out a review of rehabilitation liabilities in respect of
mines and the review has led to an increase in the amount of security
required in respect of rehabilitation liabilities.
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Litigation
Like all companies in the resources sector, the Company is exposed
to the risks of litigation (either as the complainant or as the defendant),
which may have a material adverse effect on the financial position of
the relevant entity. The Company could become exposed to claims or
litigation by persons alleging they are owed fees or other contractual
entitlements, employees, regulators, competitors or other third parties.
Insurance
The Company has insurance coverage for certain operating risks.
However, it may become subject to liability (including in relation to
pollution, occupational illnesses or other hazards), or suffer loss
resulting from business interruption, for which it is not insured (or has
not sufficiently insured) or cannot insure, including liabilities in respect
of past activities.
Should a major uninsured loss be suffered, future financial
performance could be materially adversely affected. In addition,
insurance may not continue to be available at economically
acceptable premiums. As a result, the insurance coverage may
not cover the full scope and extent of claims against the Company
or losses it may incur, including, but not limited to, claims for
environmental or industrial accidents, occupational illnesses, pollution
and product liability, war, terrorism and business interruption.
To the extent a successful claim against the Company proceeds, it
may have a material adverse effect on its financial position.
Exploration and development risks
There are several risks relating to coal mining exploration and
development which are common to the industry and which, if realised,
have the capacity to affect operations, production, cash flow and
financial performance of the Company.
Development and exploration activities may be affected by factors
beyond the control of the Company, including geological conditions,
seismic activity, mineralisation, consistency and predictability of coal
grades, changes to law, changes to the regulatory framework applying
to mining, overlapping resources tenure, and the rights of indigenous
people on whose land exploration activities are undertaken.
Any discovery of a coal deposit does not guarantee that the mining
of that deposit would be commercially viable, with the size of the
deposit, development and operating costs, land ownership, coal
prices and recovery rates all being key factors in determining
commercial viability.
Issues that arise during development, construction and mine start-
up may result in increased costs, delayed commencement of coal
production, delayed receipt of coal revenue or coal production not
commencing at all. These problems may include delays in obtaining
approvals (including land use approvals) or in the construction of mine
infrastructure. There are many milestones which need to be met in a
timely fashion for production to commence on any projects currently
in the pre-development or development stages.
The Company may also be exposed to risks including risks of default
associated with managing contractual relationships with participants
in any of the development or exploration joint ventures or other
contractual relationships to which it is, or may become, a party.
Transport and infrastructure
Coal produced from the Company’s mining operations is transported
to customers by a combination of road, rail and sea.
A number of factors could disrupt or restrict access to essential coal
transportation and handling services, including (but not limited to):
– weather related problems;
– key equipment and infrastructure failures;
– rail or port capacity constraints;
– congestions and inter-system losses;
– industrial action;
– failure to obtain consents from third parties for access to rail
or land;
– failure or delay in the construction of new rail or port capacity;
– failure to meet contractual requirements;
– access is removed or not granted by regulatory authority;
– breach of regulatory framework;
– mismatch of below rail capacity, above rail capacity and port
capacity; and
– possible sale of infrastructure,
all or any of which could impair the Company’s ability to supply coal
to customers and/or increase costs, and consequently may have a
material adverse effect on the Company’s financial position.
Significant increases in transport costs (such as emissions control
requirements and fluctuations in the price of diesel fuel and
demurrage) could make the Company’s coal less competitive when
compared to other fuels or coal produced from other regions.
Environmental risks
Due to the nature of coal mining processes, and the associated
by-products, residues and tailings generated from these processes,
all operations of the Company are subject to stringent environmental
laws and regulations.
There is a risk that past, present or future operations have not met
or will not meet environmental or related regulatory requirements
and/or that the approvals or modifications the Company is currently
seeking, or may need to seek in the future, will not be granted. If
the Company is unsuccessful in these efforts or otherwise breaches
these environmental requirements, it may incur fines or penalties, be
required to curtail or cease operations and/or be subject to increased
compliance costs or costs for rehabilitation or rectification works,
which have not been previously planned at one or more of its sites.
Environmental legislation may change in a manner that may require
compliance with additional standards, and a heightened degree of
responsibility for companies and their directors and employees. There
may also be unforeseen environmental liabilities resulting from coal
related activities, which may be costly to remedy. In particular, the
acceptable level of pollution and the potential abandonment costs
and obligations for which the Company may become liable as a
result of its activities may be impossible to assess under the current
legal framework.
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YANCOAL AUSTRALIA LTD
Health, safety and hazardous materials risks
The Company’s operations may substantially impact the environment
or cause exposure to hazardous materials. It will use hazardous
materials and will generate hazardous waste, and may be subject to
common law claims, damages due to natural disasters, and other
damages, as well as the investigation and clean-up of soil, surface
water, groundwater, and other media. Such claims may arise, for
example, out of current or former activities at sites that it owns
or operates.
There is also a risk that actions could be brought against the
Company, alleging adverse effects of such substances on personal
health. If any injuries or accidents occur in a mine, this could have
adverse financial implications including legal claims for personal injury,
wrongful death, amendments to approvals, potential production
delays or stoppages, any of which may have a material adverse effect
on the financial performance and/or financial position of the Company.
There is a risk that past, present or future operations have not met,
or will not meet, health and safety requirements and/or that the
approvals or modifications the Company is currently seeking, or may
need to seek in the future, will not be granted at all or on terms that
are unduly onerous. If the Company is unsuccessful in these efforts or
otherwise breaches these health and safety requirements, it may incur
fines or penalties, be required to curtail or cease operations and/or
be subject to increased compliance costs or costs for rehabilitation or
rectification works, which have not been previously planned at one or
more of its sites.
Impairment risks
The Company’s balance sheet includes a number of assets that are
subject to impairment risk, including mining tenements, exploration
and evaluation assets, goodwill, the Middlemount loan and royalty
receivable, the Watagan loan receivable and investments accounted
for using the equity method.
The value of these assets is derived from the fundamental valuation
of the underlying mining operations and as such is subject to many of
the risks including, but not limited to, coal price and demand, foreign
exchange, coal production, estimates of reserves and resources,
uncertainty in costs forecasts, operating risks, injury and mine closure.
Adverse changes in these risk factors could lead to a reduction in the
valuation of the Company’s assets and result in an impairment charge
being recognised.
Internal audit function
The internal audit function is managed by the Executive General
Manager (EGM) of Risk Management and Auditing. That person
has direct access to the chair of the Audit and Risk Management
Committee, as well as to the CEC, to whom he directly reports. The
Audit and Risk Management Committee recommends to the Board
the appointment of the EGM Risk Management and Auditing.
Where appropriate the internal audit function is supported primarily by
external consultants.
The EGM of Risk Management and Auditing has unfettered access
to the Audit and Risk Management Committee and its chair to
seek information and explanations. The chair of the Audit and Risk
Management Committee meets independently with the EGM Risk
Management and Auditing.
The role of the EGM Risk Management and Auditing includes
achievement of the internal audit objectives, risk management policies
and insurance strategy.
An annual program for internal audit and risk assurance is provided
to the Audit and Risk Management Committee for approval. The
annual Internal Audit program is focused on key operating risks and
processes design and effectiveness.
The program includes a review of compliance with the obligations
imposed by the US Sarbanes Oxley Act (SOX), including evaluating
and documenting internal controls as required by section 404 of SOX.
A status report on the execution of the plan, including current findings
and actions is provided to the Audit and Risk Management Committee
at each quarterly meeting. Any material findings are reported to
the Board.
The Audit and Risk Management Committee receives a report on key
issues and subsequently corrective actions are monitored, reviewed
and reported.
Health, Safety and Environment Compliance
The Company has adopted policies to comply with occupational
health, safety, environment and other laws. The Board has approved
a Health, Safety and Environment Policy which applies across the
Company. In addition, each mine site has its own health, safety and
environmental policies and procedures to deal with their particular
health, safety and environmental issues. The Board has established a
Health, Safety and Environment Committee to assist it in overseeing
the Company’s health, safety and environmental responsibilities.
In accordance with its charter, this committee has at least three
members. The current members of this committee are David Moult
(appointed 6 February 2018) (Chair of the committee), Geoffrey Raby
and Fuqi Wang. Vincent O’Rourke resigned as chair of the Committee
on 30 January 2018. It is intended the committee meets at least four
times per year, or as frequently as required. The committee meetings
are held at one of the Company’s mine sites, whenever possible, to
receive feedback from the health, safety and environment forum held
at the mine site and to address any mine specific health, safety and
environment issues.
Principle 8: Remunerate fairly and responsibly
Nomination and Remuneration Committee
The Board has established a Nomination and Remuneration
Committee. In accordance with its Charter, this committee currently
has 4 members, Xiyong Li (Chair of the committee), Cunliang Lai,
Xiangqian Wu (appointed 15 May 2017) and Helen Gillies (appointed
6 February 2018). William Randall resigned as a member of the
Committee on 9 November 2017. Three of the members of the
committee, including the chair of the committee are not independent
directors of the Company. However, the Board considers them
appropriate members, and in the case of Xiyong Li, an appropriate
chair of this committee, due to their skill set, experience and seniority,
and that the overall composition of the Nomination and Remuneration
Committee is appropriate.
Three of the committee members are non-independent Non-Executive
Directors who are not remunerated by the Company for their roles as
directors or committee members. The purpose of the committee is
outlined in the Board Committees section above.
The committee makes recommendations to the Board to achieve
Company remuneration structures that are equitable and aligned
with the long-term interests of the Company and its shareholders, to
attract and retain skilled employees, to structure short and long term
incentives that are challenging and linked to creation of sustainable
returns and to ensure any termination benefits are justifiable and
appropriate. The committee has recently engaged an external advisor
CORPORATE GOVERNANCE STATEMENT (CONTINUED)
CORPORATE GOVERNANCE STATEMENT
ANNUAL REPORT 2017
81
to assist with the evaluation of remuneration structures for Non-
Executive Directors, Executive Directors and senior management.
The committee has the necessary power and resources to meet
its responsibilities under its charter, including rights of access to
management, auditors and external advisers. It is intended that
the committee will meet at least once per year, or as frequently
as required.
Remuneration of Non-Executive Directors
The Constitution provides that the Non-Executive Directors are
entitled to such remuneration as approved by the Company’s
shareholders in accordance with the Constitution, which must not
exceed the aggregate annual amount as determined by the Company
in general meeting or by its major shareholder, Yanzhou.
Remuneration for Non-Executive Directors is capped at an aggregate
amount for each financial year of $3.5 million. Non-Executive
Directors may also be paid such additional or special remuneration
as the directors decide is appropriate where a Non-Executive
Director performs extra services or makes special exertions for
the benefit of the Company. Such additional remuneration will not
form part of the calculation of the aggregate cap on Non-Executive
Directors’ remuneration for a financial year and do not require
shareholder approval.
Further details of the remuneration of the Non-Executive Directors,
executive directors and senior executives can be found in the
Remuneration Report on pages 52 to 63.
The Nomination and Remuneration Committee Charter can be found
within the Corporate Governance section of the Company’s website.
Dealings in Company securities
By law, and under the Company’s Insider Trading Policy, dealing in
Company securities is subject to the overriding prohibition on trading
while in possession of inside information.
In addition, the Company’s Share Trading Policy prohibits dealing
in Company securities or Yanzhou securities by directors, senior
executives and other relevant employees, as well as their closely
related parties, during specified blackout periods each year. General
employees are permitted to deal in Company securities outside these
blackout periods, however additional approval requirements apply
to directors, the CEO and CFO. The Share Trading Policy precludes
relevant employees from entering into any hedge or derivative
transactions relating to unvested options or share rights granted to
them under incentive plans and securities that are subject to holding
locks or restrictions on dealing under such plans. There are also
restrictions that apply to relevant employees from entering into margin
lending arrangements and short-term trading of the Company’s
securities. Breaches of the policy are treated seriously and may lead
to disciplinary action, including dismissal.
Copies of the Company’s Share Trading Policy and Insider Trading
Policy are available on the Corporate Governance section of the
Company’s website.
This Director independence
This has been approved by the Board and is current as at
28 February 2018.
82
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF PROFIT
OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2017
Revenue
Other income
Changes in inventories of finished goods and work in progress
Raw materials and consumables used
Employee benefits
Depreciation and amortisation
Transportation
Contractual services and plant hire
Government royalties
Coal purchases
Other operating expenses
Finance costs
Share of profit/(loss) of equity-accounted investees, net of tax
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) after income tax
Profit is attributable to:
Owners of Yancoal Australia Ltd
Non-controlling interests
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Cash flow hedges:
Fair value gains/(losses)
Fair value losses transferred to profit and loss
Deferred income tax expense
Other comprehensive income, net of tax
Total comprehensive income/(expense)
Total comprehensive income/(expense) for the year is attributable to:
Owners of Yancoal Australia Ltd
Non-controlling interests
Total comprehensive expense for the year attributable to
owners of Yancoal Australia Ltd arises from:
Continuing operations
Notes
B2
B3
B4
B5
B5
E2
B6
D6
D6
D6
31 December
2017
$M
31 December
2016
$M
2,601
294
7
(349)
(302)
(256)
(312)
(274)
(173)
(340)
(330)
(287)
32
311
(82)
229
229
–
229
348
229
(173)
404
633
633
–
633
633
$
1,238
15
(7)
(187)
(188)
(133)
(267)
(124)
(71)
(211)
(163)
(209)
(5)
(312)
85
(227)
(227)
–
(227)
(43)
133
(27)
63
(164)
(164)
–
(164)
(164)
$
Profit/(loss) per share attributable to the ordinary equity holders of the Company:
Basic and diluted profit/(loss) per share
0.01
(0.21)
These financial statements should be read in conjunction with the accompanying notes.
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2017
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
83
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Royalty receivable
Asset classified as held for sale
Other current assets
Total current assets
Non-current assets
Trade and other receivables
Royalty receivable
Property, plant and equipment
Mining tenements
Exploration and evaluation assets
Intangible assets
Deferred tax assets
Interest bearing loan to associate
Investments accounted for using the equity method
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Interest-bearing liabilities
Provisions
Non-contingent royalty payable
Liabilities directly associated with assets classified as held for sale
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Deferred tax liabilities
Provisions
Non-contingent royalty payable
Deferred income
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Accumulated losses
Capital and reserves attributable to owners of Yancoal Australia Ltd
Non-controlling interests
Total equity
These financial statements should be read in conjunction with the accompanying notes.
Notes
C6
C7
C8
C9
C11
C7
C9
C1
C2
C4
C5
B6
D1
E2
D2
C10
D3
C11
D2
B6
C10
D3
D4
D6
31 December
2017
$M
31 December
2016
$M
207
658
150
24
613
37
1,689
473
175
2,832
4,296
565
99
1,219
712
251
2
10,624
12,313
758
17
59
112
67
1,013
4,706
1,030
488
48
2
6,274
7,287
5,026
6,217
(413)
(781)
5,023
3
5,026
190
435
75
31
–
7
738
407
168
1,526
2,128
498
70
1,339
775
5
6
6,922
7,660
469
20
10
–
–
499
4,930
762
117
–
–
5,809
6,308
1,352
3,104
(817)
(935)
1,352
–
1,352
84
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
Attributable to owners of Yancoal Australia Ltd
Contributed
equity
$M
Hedge
reserves
$M
Accumulated
losses
$M
Notes
Balance at 1 January 2016
Loss after income tax
Other comprehensive income
Total comprehensive income/(expense)
Transactions with owners in their capacity as owners:
Transaction cost of subordinated capital notes
Distributions to subordinated capital notes’ holders
Balance at 31 December 2016
Balance at 1 January 2017
Profit after income tax
Other comprehensive income
Total comprehensive income
3,103
–
–
–
1
–
1
3,104
3,104
–
–
–
Transactions with owners in their capacity as owners:
Issurance of new ordinary shares
Distribution to subordinate capital note’s holders
Non-controlling interests on acquisition of subsidiaries
Subordinate capital notes converted to ordinary shares
Balance at 31 December 2017
D4
D4
E1
5,296
–
–
(2,183)
3,113
6,217
These financial statements should be read in conjunction with the accompanying notes.
(880)
–
63
63
–
–
–
(817)
(817)
–
404
404
–
–
–
–
–
(413)
(535)
(227)
–
(227)
–
(173)
(173)
(935)
(935)
229
–
229
–
(75)
–
–
(75)
(781)
Total
$M
1,688
(227)
63
(164)
1
(173)
(172)
1,352
1,352
229
404
633
5,296
(75)
–
(2,183)
3,038
5,023
Non-
controlling
interests
$M
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3
–
3
3
Total
equity
$M
1,688
(227)
63
(164)
1
(173)
(172)
1,352
1,352
229
404
633
5,296
(75)
3
(2,183)
3,041
5,026
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2017
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
85
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest paid
Interest received
Transaction costs paid
Stamp duty payment
Net cash inflow/(outflow) from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Payments for capitalised exploration and evaluation activities
Proceeds from sale of property, plant and equipment
Reduction in cash balance from loss of control of subsidiaries
Payments for acquisition of interest in subsidiary (net of cash acquired)
Payment for joint operation call option fee
Advances from/(to) joint operation
Advances from/(to) related entities
Dividends received
Cash transferred from/(to) from restricted accounts
Net cash outflow from investing activities
Cash flows from financing activities
Repayment of borrowings from associate
Advance of borrowings to associate
Proceeds from interest-bearing liabilities – related entities
Repayment of interest bearing liabilities
Payment of subordinated capital notes distribution
Payment of finance lease liabilities
Proceeds from issues of shares and other equity securities
Transactions costs paid
Net cash inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
These financial statements should be read in conjunction with the accompanying notes.
31 December
2017
$M
31 December
2016
$M
Notes
2,580
(1,897)
(169)
59
(17)
(148)
408
(299)
(3)
1
–
(3,247)
(13)
40
35
6
31
(3,449)
214
(151)
188
(196)
(24)
(26)
3,125
(68)
3,062
21
190
(4)
207
1,141
(1,063)
(181)
86
–
(7)
(24)
(353)
–
1
(11)
–
–
(40)
(35)
–
(28)
(466)
623
(35)
251
(198)
(100)
(16)
–
–
525
35
159
(4)
190
F3
E1
D4
C6
86
YANCOAL AUSTRALIA LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
A – BASIS OF PREPARATION
The consolidated financial statements and notes are for the
consolidated entity consisting of Yancoal Australia Ltd (“Company”
or “parent entity”) and its subsidiaries (“the Group”).
These general purpose financial statements have been prepared
in accordance with the Australian Accounting Standards and
interpretations issued by the Australian Accounting Standards Board
and the Corporations Act 2001. Yancoal Australia Ltd is a for-profit
entity for the purpose of preparing the financial statements.
(vi) New and amended standards adopted by the Group
The Group has not elected to apply any other pronouncements
before their operative date in the annual reporting period beginning
1 January 2017.
The new standards that are applicable to for the first time for the year
ended 31 December 2017 are:
– AASB 2016-1 Amendments to Australian Accounting Standards –
Recognition of Deferred Tax Assets for Unrealised Losses
The financial statements were authorised for issue in accordance with
a resolution of the Directors on 28 February 2018.
– AASB 2016-2 Amendments to Australian Accounting Standards –
Disclosure Initiative: Amendments to AASB 107
(i) Compliance with IFRS
The consolidated financial statements of the Group also comply with
International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”).
(ii) Subsidiaries
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from the date that
control ceases.
The acquisition method of accounting is used to account for business
combinations by the Group. Intercompany transactions, balances
and unrealised gains on transactions between the Group companies
are eliminated.
Unrealised losses are also eliminated unless the transaction provides
evidence of the impairment of the asset transferred. Accounting
policies of subsidiaries are aligned to ensure consistency with the
policies adopted by the Group.
(iii) Significant accounting policies
Significant accounting policies have been included in the
relevant notes to which the policies relate, and other significant
accounting policies are discussed in Note F5. These policies
have been consistently applied to all the years presented, unless
otherwise stated.
(iv) Historical cost convention
These financial statements have been prepared on an accrual
basis and under the historical cost convention, as modified by the
revaluation of available for sale financial assets and financial assets
and liabilities (including derivative instruments) at fair value through
profit or loss.
(v) Rounding of amounts
The Company is of a kind referred to in ASIC Legislative Instrument
2016/191, issued by the Australian Securities and Investments
Commission, relating to the ‘rounding off’ of amounts in the financial
statements. Amounts in the financial statements have been rounded
off in accordance with that legislative instrument to the nearest million
dollars, or in certain cases, the nearest dollar.
These standards have introduced new disclosures for the Annual
Financial Report but did not affect the Group’s accounting policies or
any of the amounts recognised in the financial statements.
(vii) Impact of standards issued but not yet applied by the Group
Australian Accounting Standards and Interpretations issued but not
yet applicable for the year ended 31 December 2017 that not been
applied by the Group are disclosed in Note F7.
(viii) Early adoption of standards
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2017 reporting
periods and have not been early adopted by the Group. The Group’s
assessment of the impact of these new standards and interpretations
is set out below.
(ix) Critical accounting estimates
The preparation of financial statements requires the use of certain
critical accounting estimates that involve a higher degree of judgement
or complexity. It also requires management to exercise its judgement
in the process of applying the Group’s accounting policies.
The Directors evaluate estimates and judgements incorporated
into these financial statements based on historical knowledge and
best available current information. Estimates assume a reasonable
expectation of future events and are based on current trends and
economic data, obtained both externally and within the Company.
The resulting accounting estimates will, by definition, seldom equal the
related actual results.
Details of critical accounting estimates and judgements can be found
in the notes to which they relate and include income taxes B6, mining
tenements C2, impairment of assets C3, exploration and evaluation
assets C4, trade and other receivables C7, royalty receivable C9,
provisions C10, acquisition of Coal & Allied E1, and control of
Watagan E2.
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
87
(x) Going concern
For the year ended 31 December 2017, the Group had a profit after
income tax of $229 million (31 December 2016: loss after income tax
of $227 million) from continuing operations and a net cash flow from
operating activities of $408 million (31 December 16: cash outflow of
$24 million). In addition refer to Note F1(c) regarding the commitment
to purchase 28.898% of Warkworth Joint Venture from Mitsubish
Development Pty Ltd (“MDP”) and Note D7(iv) regarding the potential
requirement to purchase 32.4% of HVO from MDP.
The financial statements have been prepared on a going concern
basis, which contemplates the continuation of normal business
operations and the realisation of assets and settlement of liabilities
in the normal course of business. On the basis of these factors,
the Directors believe that the going concern basis of preparation
is appropriate and the Group will be able to repay its debts as and
when they fall due. In the event that the Group cannot continue as
a going concern, it may not realise its assets and settle its liabilities
in the normal course of operations and at the amounts stated in the
financial statements.
The Directors also note the following with regards to the ability of the
Group to continue as a going concern:
(i) At 31 December 2017, the Group has a cash balance of
$207 million.
(ii) At 31 December 2017, the Group has surplus net current assets of
$676 million.
(iii) The Directors of Yanzhou Coal Mining Company Limited
(“Yanzhou”) have provided financial support in the form of a
A$1.4 billion facility (US$832 million drawn) to support the on-going
operations and the expansion of the Group to enable it to pay its
debts as and when they fall due.
(iv) The Directors of Yanzhou have provided a letter of support
whereby unless revoked by giving not less than 24 months’ notice,
for so long as Yanzhou owns at least 51% of the shares of Yancoal,
Yanzhou will ensure that Yancoal continues to operate so that it
remains solvent.
88
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
This section of the financial statements focuses on disclosure that enhances a user’s understanding of profit after tax. Segment reporting
provides a breakdown of profit, revenue and assets by geographic segment. The key line items of the Statement of Profit or Loss and Other
Comprehensive Income along with their components provide details behind the reported balances.
B1 SEGMENT INFORMATION
Accounting Policy
Management has determined the operating segments based on the strategic direction and organisational structure of the Group together
with reports reviewed by the Chief Operating Decision Makers (“CODM”), defined as the Executive Committee, that are used to make
strategic decisions including resource allocation and assessment of segment performance.
The reportable segments are considered at a regional level being New South Wales (NSW) and Queensland (QLD).
Non-operating items of the Group are presented under the segment “Corporate” which includes administrative expenses, foreign exchange
gains and losses on interest-bearing liabilities, and the elimination of intersegment transactions and other consolidation adjustments.
On 31 March 2016 Yancoal Australia Ltd transferred control of Watagan Mining Company Pty Ltd (“Watagan”) (refer to Note E2 for further
details). Watagan holds the ownership interests in the Austar, Ashton and Donaldson mines located in NSW. The amount disclosed for
revenue in 2016 below includes the operational results of the three mines for the period 1 January 2016 to 31 March 2016, the period prior
to deconsolidation.
(a) Segment information
The segment information for the reportable segments for the year ended 31 December 2017 is as follows:
Coal Mining
31 December 2017
Total segment revenue*
Add: fair value losses recycled from hedge reserve
Revenue from external customers
Operating EBIT
Material income or expense items
Non-cash items
Remeasurement of royalty receivable
Depreciation and amortisation expense
Gain on acquisition of subsidiaries
Transactions costs
Stamp duty accrued
Impairment reversal of mining tenements
31 December 2017
Cash items
Transaction costs
Stamp duty paid
Total capital expenditure
Segment assets
Deferred tax assets
Investment in associate and joint venture
Total assets
NSW
$M
2,175
–
2,175
682
–
(215)
–
–
–
100
(115)
NSW
$M
–
–
–
335
8,793
182
191
9,166
Coal Mining
QLD
$M
460
–
460
92
–
(35)
–
–
–
–
(35)
QLD
$M
–
–
–
4
714
24
–
738
Corporate
$M
(229)
229
–
(42)
8
(6)
177
(16)
(9)
–
154
Corporate
$M
(17)
(148)
(165)
1
1,336
1,013
60
2,409
Total
$M
2,406
229
2,635
732
8
(256)
177
(16)
(9)
100
4
Total
$M
(17)
(148)
(165)
340
10,843
1,219
251
12,313
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017B – PERFORMANCE FINANCIAL STATEMENTS
ANNUAL REPORT 2017
89
The segment information for the reportable segments for the year ended 31 December 2016 is as follows:
Coal Mining
31 December 2016
Total segment revenue*
Add: fair value losses recycled from hedge reserve
Revenue from external customers
Operating EBIT
Material income or expense items
Non-cash items
Remeasurement of royalty receivable
Depreciation and amortisation expense
Stamp duty paid
Cash items
Total capital expenditure
Segment assets
Deferred tax assets
Investment in associate and joint venture
Total assets
NSW
$M
873
–
873
71
–
(94)
–
(94)
–
370
3,954
45
–
3,999
QLD
$M
326
–
326
9
–
(31)
–
(31)
–
3
644
25
–
669
Corporate
$M
(133)
133
–
(41)
(6)
(8)
(12)
(26)
–
10
1,718
1,269
5
2,992
Total
$M
1,066
133
1,199
39
(6)
(133)
(12)
(151)
–
383
6,316
1,339
5
7,660
* Total segment revenue consists of revenue from the sale of coal whereas revenue disclosed in the Consolidated Statement of Profit or Loss and Other Comprehensive
Income also includes other revenue such as management fees, rents and sub-lease rentals, interest income, dividend income and royalty income. Refer to Note B1(b) below.
There was no impairment charge or other significant non-cash items recognised during the year ended 31 December 2017 and 31 December
2016 other than those disclosed above.
(b) Other segment information
(i) Segment revenue
Sales between segments are carried out at arm’s length and are eliminated on consolidation. The revenue from external parties for the reportable
segments are measured in a manner consistent with that in the Consolidated Statement of Profit and Loss or Other Comprehensive Income.
Revenue from external customers are derived from the sale of coal from operating mines and coal purchases. Segment revenues are allocated
based on the country in which the customer is located.
Revenue from external customers can be attributed to the following geographical regions:
Australia (Yancoal’s country of domicile)
Singapore
South Korea
China
Japan
Taiwan
All other foreign countries
Total revenue from external customers
31 December
2017
$M
31 December
2016
$M
322
337
415
654
489
131
287
2,635
69
261
296
179
143
93
158
1,199
Revenues from the top five external customers were $813 million (2016: $480 million) which in aggregate represent approximately 31% (2016:
40%) of the Group’s revenues from the sale of coal. These revenues were attributable to the NSW and Queensland coal mining segments.
90
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
B1 SEGMENT INFORMATION (CONTINUED)
(b) Other segment information (continued)
Segment revenue reconciles to total revenue from continuing operations as follows:
Total segment revenue
Interest income
Mining services fees
Other revenue
Total revenue from continuing operations (refer to Note B2)
31 December
2017
$M
31 December
2016
$M
2,406
114
52
29
2,601
1,066
125
38
9
1,238
(ii) Operating EBIT
The Executive Committee assesses the performance of the operating segments based on a measure of Operating EBIT. This measure excludes
the effects of non-recurring expenditure from the operating segments such as restructuring costs, business combination related expenses and
significant impairments of cash-generating units. Furthermore, the measure excludes the effects of fair value re-measurements and foreign
exchange gains/(losses) on interest-bearing liabilities. Interest income and expense are not allocated to the NSW and QLD segments, as this
type of activity is driven by the corporate function, which manages the cash position of the Group.
A reconciliation of Operating EBIT to profit/(loss) before income tax from continuing operations is provided as follows:
Operating EBIT
Interest income
Gain on disposal of interest in joint operation and subsidiaries
Remeasurement of royalty receivable
Receipts from joint venture participant
Impairment reversal of mining tenements (refer Note 3(b))
Finance costs
Bank fees and other charges
Stamp duty expensed
Fair value losses recycled from hedge reserve – USD loans
Transaction costs
Profit/(loss) before income tax from continuing operations
31 December
2017
$M
31 December
2016
$M
732
114
177
8
5
100
(287)
(109)
(167)
(229)
(33)
311
39
125
–
(6)
–
–
(209)
(113)
(12)
(133)
(3)
(312)
(iii) Segment capitalised expenditure
Amounts with respect to capital expenditure are measured in a manner consistent with that of the financial statements. Reportable segment’s
capital expenditure is set out in Note B1(a).
All segment assets are located in Australia.
(iv) Segment liabilities
A measure of total liabilities for reportable segments are not provided to the Executive Committee. The Executive Committee reviews the
liabilities of the Group at a consolidated level.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017B – PERFORMANCE FINANCIAL STATEMENTS
ANNUAL REPORT 2017
91
B2 REVENUE
Accounting Policies
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade
allowances, rebates and amounts collected on behalf of third parties.
The Group recognises revenue when the amount of revenue can be reliably measured and it is probable that future economic benefits will
flow to the entity. Revenue is recognised in the profit or loss as follows:
(i) Sale of coal
Revenue from the sale of coal is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and
can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery, usually on a Free On Board (“FOB”)
basis. On occasion the sale of coal is recognised as the ship pulls into harbour on a Free Alongside Ship (“FAS”) basis or from the stockpile
on an ex-works basis.
(ii) Interest
Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that
asset’s net carrying amount. Interest income from a finance lease is recognised over the term of the lease based on a pattern reflecting a
constant periodic rate of return on the net investment in the lease.
(iii) Services
Revenue from the rendering of a service is recognised upon the delivery of the service to the customer.
(iv) Other
Other primarily consists of dividends, rents, sub-lease rental and management fees. Dividends are recognised as revenue when the right
to receive payment is established. Rental income arising on land surrounding a mine site is accounted for on a straight-line basis over the
lease term. Contingent rental income is recognised as income in the periods in which it is earned.
From continuing operations
Sales revenue
Sale of coal
Fair value losses recycled from hedge reserve
Other revenue
Interest income
Mining services fees
Other
31 December
2017
$M
31 December
2016
$M
2,635
(229)
2,406
114
52
29
195
2,601
1,203
(133)
1,070
125
38
5
168
1,238
92
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
B3 OTHER INCOME
Accounting Policy
Gain on acquisition is recognised in line with the accounting for business combinations (refer Note E1).
Gain on remeasurement of royalty receivable
Net gain on foreign exchange*
Receipts from joint venture participant
Impairment reversal of mining tenements
Gain on acquisition of subsidiaries
Sundry income
31 December
2017
$M
31 December
2016
$M
8
–
5
100
177
4
294
–
12
–
–
–
3
15
*
There is no impact on the conversion of US dollar denominated interest-bearing liabilities (2016: nil).
B4 EMPLOYEE BENEFITS
Accounting Policies
(i) Employee benefits expenses
Employee benefits are expensed as the related service by the employee is provided and includes both equity and cash based payment
transactions. Employee benefits recognised in the profit or loss are net of recoveries.
(ii) Superannuation
Contributions made by the Group to defined contribution superannuation funds are recognised as an expense in the period in which they
are incurred.
(iii) Wages and salaries, annual leave and sick leave
Liabilities for employee benefits for wages, salaries, annual leave and accumulating sick leave that are expected to be wholly settled within
12 months of the reporting date represent present obligations resulting from employees’ services provided to the reporting date and are
calculated at undiscounted amounts based on wage and salary rates that the Group expects to pay as at the reporting date including
related on costs, such as superannuation, workers compensation, insurance and payroll tax and are included in trade and other payables.
Non-accumulating, non-monetary benefits such as housing and cars are expensed by the Group as the benefits are used by the employee.
Employee benefits payable later than 12 months have been measured at the present value of the estimated future cash outflows to be
made for those benefits. In determining the liability, consideration is given to employee salary and wage increases and the probability that
the employee may satisfy any vesting requirements. Those cash flows are discounted using corporate bonds with terms to maturity that
match the expected timing of cash flows attributable to employee benefits.
Additional Long Service Leave payments are made monthly to the Coal Mining Industry (Long Service Leave Funding) Corporation based
on the eligible monthly payroll of employees involved in the mining of black coal. Reimbursement is sought from the fund when long service
leave is paid to employees involved in the mining of black coal. An asset for the amount recoverable from the Coal Mining Industry (Long
Service Leave Funding) Corporation is recognised in trade and other receivables.
These employee benefits are presented as current provisions as the Group has no unconditional right to deferred settlement for at least
12 months after the end of the reporting period.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017B – PERFORMANCE
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
93
(a) Employee benefits expense
Other employee benefits expenses
Defined contribution superannuation expense
Total employee benefits expenses from continuing operations
During 2017 $17 million of employee benefits were capitalised (2016: $26 million)
31 December
2017
$M
31 December
2016
$M
281
21
302
174
14
188
(b) Key management personnel compensation
Refer to the remuneration report contained in the directors’ report for details of the remuneration paid or payable to each member of the Group’s
key management personnel (KMP) for the year ended 31 December 2017.
The totals of remuneration paid to KMP of the Company and the Group during the year are as follows:
Short-term employee benefits
Post-employment benefits
Other long-term benefits
B5 EXPENSES
(a) Finance costs
Finance lease charges
Unwinding of discount on provisions and deferred payables
Other interest expenses
Interest expenses capitalised
Total finance costs from continuing operations
(b) Other operating expenses
Net loss on disposal of property, plant and equipment
Rental expense relating to operating leases
Re-measurement of royalty receivable
Insurance
Bank fees and other charges
Stamp duty
Duties and other levies
Travel and accommodation
Net loss on foreign exchange
Information & technology expenses
Other operating expenses
Total other operating expenses from continuing operations
31 December
2017
$
9,265,818
149,362
1,950,142
11,365,322
31 December
2016
$
4,805,919
142,474
1,865,017
6,813,410
31 December
2017
$M
31 December
2016
$M
4
63
229
(9)
287
4
3
–
6
109
167
12
8
8
9
4
330
4
5
215
(15)
209
7
2
6
3
114
12
6
8
–
2
3
163
94
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
B6 TAXATION
Accounting Policy
The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable income
tax rate enacted or substantially enacted at the end of the reporting period for each jurisdiction, adjusted by changes in deferred tax assets
and liabilities attributable to temporary differences and to unused tax losses.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it
arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or
substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or
the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable
amounts will be available to utilise those temporary differences and losses. The carrying value of the deferred tax asset is reviewed at each
reporting period and reduced to the extent that it is no longer probable that future taxable profit will be available to allow all or part of the
asset to be recovered.
Deferred tax liabilities and assets are recognised for taxable temporary differences between the carrying amount and tax bases of
investments in controlled entities, except where the parent entity is able to control the timing of the reversal of the temporary differences and
it is probable that the differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the
deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the Group has a legally
enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in the profit or loss, except to the extent that it relates to items recognised in other comprehensive
income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Tax consolidation legislation
Yancoal Australia Ltd and its wholly owned Australian controlled entities have implemented the tax consolidation legislation for income tax
purposes. The accounting policy in relation to this legislation is set out in Note E4.
Critical accounting estimates and judgements
The Group is subject to income taxes in Australia. Significant judgement is required in determining the provision for income taxes.
Deferred tax assets, including those arising from unutilised tax losses, require the Group to assess the likelihood that the Group will generate
sufficient taxable earnings in future periods, in order to utilise recognised deferred tax assets. Judgement is also required in respect of
the application of existing tax laws. Assumptions about the generation of future taxable profits depend on management’s estimates of
future cash flows. These estimates of future taxable income are based on forecast cash flows from operations (which are impacted by
production and sales volumes, coal prices, reserves, operating costs, closure and rehabilitation costs, capital expenditure, and other capital
management transactions). To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the
Group to realise the net deferred tax assets recorded at the reporting date could be impacted. In addition, future changes in tax laws could
limit the ability of the Group to obtain tax deductions in future periods.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017B – PERFORMANCE FINANCIAL STATEMENTS
ANNUAL REPORT 2017
95
(a) Income tax (expense)/benefit
(i) Net tax (expense)/benefit
Income tax (expense)/benefit
Income tax over provision in respect of prior years
Net tax (expense)/benefit is attributable to:
Continuing operations
(ii) Income tax benefit
Deferred tax (expense)/benefit
Deferred tax (expense)/benefit included in income tax benefit comprises:
(Decrease)/increase in deferred tax assets (refer to Note B6(b)(i))
Increase/(decrease) in deferred tax liabilities (refer to Note B6(c)(i))
Movements in other including assets classified as held for sale
(iii) Reconciliation of income tax (expense)/benefit to prima facie tax payable
Profit/(loss) from continuing operations before tax
Tax at the Australian tax rate of 30% (2016 – 30%)
Tax effect of amounts which are not deductible/taxable in calculating taxable income:
Stamp duty provision expensed
Share of profit/(loss) of equity-accounted investees not deductible
Gain on acquisition of subsidiaries
Plant and equipment
Under/over provision in prior years
Denial of debt deductions
Other
Income tax (expense)/benefit
(iv) Amounts recognised directly in equity
Aggregate current and deferred tax arising in the reporting period and not recognised in net
profit or loss or other comprehensive income but directly debited or credited to equity:
Cash flow hedges
Subordinated Capital Note transaction costs
Entitlement offer issue costs
31 December
2017
$M
31 December
2016
$M
(84)
2
(82)
(82)
(87)
(73)
(9)
–
(82)
73
12
85
85
85
157
(70)
(2)
85
31 December
2017
$M
31 December
2016
$M
311
(95)
(1)
10
2
–
1
(1)
2
(82)
173
–
(20)
153
(312)
94
(4)
(2)
–
8
12
(19)
(4)
85
27
(1)
–
26
96
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
B6 TAXATION (CONTINUED)
(b) Deferred tax assets
(i) Deferred tax assets
Deferred tax assets from income tax
(ii) Income tax
Movements
At 1 January 2016
Under/over provision in prior year
– to profit or loss
(Charged)/credited
– to Watagan Group
– to profit or loss
– directly to equity
– tax loss recorded on behalf of
Watagan Group
– directly to other
At 31 December 2016
At beginning of year
Under/over provision in prior year
(Charged)/credited
– to profit or loss
– directly to equity
– tax loss recorded on behalf of
Watagan Group
Acquisition of subsidiaries
At 31 December 2017
Tax losses
and offsets
$M
Provisions
$M
Trade and
other payables
$M
Finance lease
liabilities
$M
834
(14)
(12)
150
(40)
55
–
973
973
(44)
(73)
(20)
1
2
839
43
–
–
(5)
–
–
–
38
38
1
49
–
–
89
177
10
–
–
5
–
–
–
15
15
–
(1)
–
–
14
28
9
–
–
11
–
–
–
20
20
–
(4)
–
–
–
16
31 December
2017
$M
31 December
2016
$M
1,219
1,339
Other
$M
18
–
–
(14)
–
–
1
5
5
–
(1)
20
–
–
24
Total
$M
1,165
10
(12)
147
(27)
55
1
1,339
1,339
(43)
(30)
(153)
1
105
1,219
Cash flow
hedges
$M
251
24
–
–
13
–
–
288
288
–
–
(153)
–
–
135
The Group’s tax consolidated group includes Watagan Mining Company Pty Ltd and its controlled subsidiaries, refer to E1b(i) for further details.
Deferred tax assets are recognised for the carry forward of unused tax losses and unused tax credits to the extent that it is probable that taxable
profits will be available against which the unused tax losses/credits can be utilised. The Group has unrecognised capital tax losses (tax effected)
of $1.7 million (2016: capital tax losses $1.7 million). There is no expiry date on these tax losses.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017B – PERFORMANCE FINANCIAL STATEMENTS
ANNUAL REPORT 2017
97
(c) Deferred tax liabilities
(i) Deferred tax liabilities
Deferred tax liabilities from income tax
(ii) Income tax
Property, plant
and equipment
$M
Intangible
assets
$M
Inventories
$M
Mining tenements
and exploration
and evaluation
assets
$M
Unrealised
foreign
exchange
gains
$M
62
(2)
20
80
80
(6)
78
–
(9)
143
2
–
–
2
2
–
1
–
–
3
8
–
–
8
8
–
7
–
(2)
13
547
–
4
551
551
(4)
3
–
300
850
56
–
41
97
97
(31)
(71)
–
2
(3)
Movements
At 1 January 2016
Under/over provision in prior year
Charged/(credited)
– to profit or loss
At 31 December 2016
At 1 January 2017
Under/over provision in prior year
Charged/(credited)
– to profit or loss
– other
Acquisition of subsidiaries
At 31 December 2017
B7 PROFIT AND LOSS PER SHARE
31 December
2017
$M
31 December
2016
$M
1,030
762
Other
$M
17
–
7
24
24
–
32
(11)
(21)
24
Total
$M
692
(2)
72
762
762
(41)
50
(11)
270
1,030
Accounting Policies
(a) Basic profit/(loss) per share
Calculated as net profit/(loss) attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends)
and preference shares dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element.
(b) Diluted profit/(loss) per share
Calculated as net profit/(loss) attributable to members of the parent, adjusted for costs of servicing equity (other than dividends); the after-
tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other
non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares, divided
by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.
98
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
B7 PROFIT AND LOSS PER SHARE (CONTINUED)
(a) Basic and diluted profit or loss per share
From continuing operations
Total basic profit/(loss) per share
Total diluted profit/(loss) per share
(b) Reconciliation of profit/(loss) used in calculating profit/(loss) per share
Basic and diluted profit/(loss) per share
Profit/(loss) used in calculating the basic and diluted profit/(loss) per share:
From continuing operations
(c) Weighted average number of shares used in calculating profit or loss per share
Weighted average number of ordinary shares used as the denominator in
calculating basic profit/(loss) per share (refer to Note D4)
Adjustments to calculation of basic earnings per share
Bonus factor restatement associated with rights issue dated 31 August 2017
Number of shares associated with bonus factor
Weighted average number of shares used as the denominator in
calculating the basic profit/(loss) per share
Adjustments to denominator used in calculating the diluted profit/(loss) per share
Weighted average number of shares used as the denominator in
calculating the diluted profit/(loss) per share
31 December
2017
$
31 December
2016
$
0.01
0.01
(0.21)
(0.21)
31 December
2017
$M
31 December
2016
$M
229
229
(227)
(227)
31 December
2017
Number
31 December
2016
Number
15,967,192,331
994,216,823
10%
101,065,499
10%
101,125,335
16,068,257,830
11,376,599,165
1,095,342,158
–
27,444,859,665
1,095,342,158
In 2016, the potential conversion of subordinated capital notes into ordinary shares has an anti-dilutive impact as the Group was loss making
and was therefore excluded from the weighted average number of ordinary shares for the purpose of diluted loss per share.
As disclosed in Note D4 18,000,181,437 shares were issued during 2017 for the conversion of SCNs and are included in the basic and diluted
weighted average calculation for 2017. At 31 December 2017 there are 4,900 SCNs on issue. As the SCNs were redeemed on 31 January 2018
they have been excluded from the above calculation.
Additionally as required by AASB133 when there is a rights issue, shares on issue prior to the rights issue need to be increased by a bonus
factor equal to the fair value per share immediately before the exercise of rights and the rights issue price. In the calculation above this factor
accounts to 10%.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017B – PERFORMANCE
C – OPERATING ASSETS AND LIABILITIES
Investment in assets drives the current and future performance of
the Group. This section includes disclosures for property plant and
equipment, mining tenements, exploration and evaluation assets,
intangible assets, royalty receivable, cash and cash equivalents,
trading assets, inventories and provisions contained within the
Balance Sheet.
C1 PROPERTY, PLANT AND EQUIPMENT
Accounting Policies
Items of property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses. The cost
includes expenditure directly attributable to the acquisition of
the items and the estimated restoration costs associated with
the asset.
Subsequent costs are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of any component accounted for
as a separate asset is derecognised when replaced. All other
repairs and maintenance are charged to profit or loss during the
reporting period in which they are incurred.
Mine development assets include all mining related development
expenditure that is not included under land, buildings and plant
and equipment.
The open pit operations capitalise mine development costs
including both direct and indirect costs incurred to remove
overburden and other waste materials to enable access to the
coal seams during the development of a mine before commercial
production commences, and during future development of
new open pit mining areas. Amortisation of those capitalised
costs over the life of the operation commences at the time that
commercial production begins for the mine for the new open pit
mining area.
Underground mine development costs include both direct and
indirect mining costs relating to underground longwall panel
development and mains development (primary access/egress
roads for the mine).
Mains development costs are capitalised net of the coal sales
revenue earned from coal extracted as part of the mains
development process. These capitalised costs are amortised over
the life of the mine if the roads service the entire mine or over the
life of the panels accessible from those mains if shorter than the
mine life.
A regular review is undertaken of each area of interest to
determine the appropriateness of continuing to carry forward
mine development costs in relation to that area of interest.
Accumulated costs in relation to an abandoned area are written
off in full in the period in which the decision to abandon the area
is made.
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
99
Open cut
During the commercial production stage of open pit operations,
production stripping costs comprises the accumulation of
expenses incurred to enable access to the coal seam, and
includes direct removal costs (inclusive of an allocation of
overhead expenditure) and machinery and plant running costs.
Production stripping costs are capitalised as part of an asset, if
it can be demonstrated that it is probable that future economic
benefits will be realised, the costs can be reliably measured and
the entity can identify the component of the ore body for which
access has been improved. The asset is called “stripping activity
asset” included in mine development.
The stripping activity asset is amortised on a systematic basis,
over the expected useful life of the identified component of
the ore body that becomes more accessible as a result of the
stripping activity. The units of production method shall be applied.
Production stripping costs that do not satisfy the asset
recognition criteria are expensed.
Depreciation and amortisation
The depreciable amount of all fixed assets, excluding freehold
land, is depreciated on a straight-line or units of production basis
over the asset’s useful life to the Group based on life of mine
plans and Joint Ore Reserves Committee “JORC” estimated
reserves, commencing from the time the asset is held ready for
use. Leased assets are depreciated over the asset’s useful life
or over the shorter of the asset’s useful life and the lease term
if there is no reasonable certainty that the Group will obtain
ownership at the end of the lease term. Leasehold improvements
are depreciated over the period of the lease or estimated useful
life, whichever is the shorter, using the straight-line method.
For some assets, the useful life of the asset is linked to the level
of production. In such cases, depreciation is charged on a units
of production basis based on the recoverable reserves or the
remaining useful hours. Alternatively, the straight-line method
may be used where this provides a suitable alternative because
production is not expected to fluctuate significantly from one year
to another.
The estimated useful lives, residual values and depreciation
method are reviewed at the end of each annual reporting
period and any change in estimate is taken into account in the
determination of remaining depreciation charges.
The estimated useful lives are as follows:
– Buildings 10 – 25 years
– Mine development 10 – 40 years
– Plant and equipment 2.5 – 40 years
– Leased plant and equipment 2 – 20 years
An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater than
its estimated recoverable amount.
Any gain or loss arising on the disposal of an item of property,
plant and equipment is determined as the difference between
the sales proceeds and the carrying amount of the asset and is
recognised in profit or loss.
See Note C3 for further details on impairment of assets.
100
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
C – OPERATING ASSETS AND LIABILITIES
C1 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Year ended 31 December 2016
Opening net book amount
Transfers – asset under construction
Additions
Other disposals
Depreciation
Closing net book amount
At 31 December 2016
Cost or fair value
Accumulated depreciation
Net book amount
Year ended 31 December 2017
Opening net book amount
Transfers – asset under construction
Additions
Acquisition through business combination
Other disposals
Depreciation
Transfer to assets classified as held for sale
Closing net book amount
At 31 December 2017
Cost
Accumulated depreciation
Net book amount
Assets under
construction
$M
Freehold land
& buildings
$M
Mine
development
$M
Plant and
equipment
$M
Leased plant
and equipment
$M
235
(227)
316
–
–
324
324
–
324
324
(576)
303
33
–
–
(3)
81
81
–
81
172
1
–
–
(3)
170
182
(12)
170
170
27
–
96
–
(4)
(15)
274
330
(56)
274
303
92
14
–
(28)
381
480
(99)
381
381
308
21
353
–
(45)
(51)
967
1,310
(343)
967
502
126
3
(15)
(47)
569
869
(300)
569
569
240
12
844
(17)
(98)
(116)
1,434
2,910
(1,476)
1,434
38
–
50
–
(6)
82
103
(21)
82
82
–
9
–
(7)
(8)
–
76
105
(29)
76
Total
1,250
(8)
383
(15)
(84)
1,526
1,958
(432)
1,526
1,526
(1)
345
1,326
(24)
(155)
(185)
2,832
4,736
(1,904)
2,832
During the year ended 31 December 2017 $8 million of depreciation and amortisation was capitalised (2016 $11 million) and $9 million of
interest was capitalised (2016 $15 million).
(a) Non-current assets pledged as security
Refer to Note D2(b) for information on non-current assets pledged as security by the Group.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
101
C2 MINING TENEMENTS
Accounting Policy
Mining tenements have a finite useful life and are carried at cost less any accumulated amortisation and impairment losses. Mining
tenements are amortised from the date when commercial production commences, or the date of acquisition. Amortisation is calculated over
the life of the mine on a ‘units of production’ method based on the Joint Ore Reserves Committee (“JORC”) estimated reserves.
Changes in the annual amortisation rate resulting from changes in the remaining estimated reserves, are applied on a prospective basis from
the commencement of the next financial year. Every year the mining tenement’s carrying amount is compared to its recoverable amount and
assessed for impairment, or for possible reversals of prior year impairment.
See Note C3 for further details on the impairment of assets.
Opening net book amount
Acquisition through business combination
Transfers from exploration and evaluation assets
Impairment reversal (refer Note C3(b))
Amortisation
Transfer to assets classified as held for sale
Closing net book amount
31 December
2017
$M
31 December
2016
$M
2,128
2,456
26
100
(103)
(311)
4,296
2,085
–
101
–
(58)
–
2,128
Critical accounting estimates and judgements
Coal reserves and resources
The Group estimates its coal resources and reserves based on information compiled by Competent Persons as defined by the Australasian
Code for Reporting Exploration Results, Mineral Resources and Ore Reserves (December 2012), which is prepared by the Joint Ore
Reserves Committee (“JORC”) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals
Council of Australia, known as the JORC 2012 Code, and Australian Security Exchange (“ASX”) Listing Rules 2012.
Mineral Resources and Ore Reserves are based on geological information and technical data relating to the size, depth, quality of coal,
suitable production techniques and recovery rates. Such an analysis requires complex geological judgements to interpret the data. The
estimation of Recoverable Reserves is based on factors such as estimates of foreign exchange rates, coal price, future capital requirements,
rehabilitation obligations and production costs, along with geological assumptions and judgements made in estimating the size and quality
of the reserves. Management forms a view of forecast sales prices based on current and long-term historical average price trend.
As the economic assumptions used may change and as additional geological information is produced during the operations of a mine,
estimates of reserves may change. Additionally the amount of reserves that may actually be mined in the future and the Group’s current
reserve estimate may vary. Such changes may impact the Group’s reported financial position and results including:
– the carrying value of the exploration and evaluation assets, mine properties, property, plant and equipment and goodwill may be affected
due to changes in estimated future cash flows;
– depreciation and amortisation charges in the statement of profit and loss and other comprehensive income may change where such
charges are determined using the units of production method, or where the useful life of the related assets change; and
– the carrying value of deferred income tax assets may change due to changes in the judgements regarding the existence of such assets
and in estimates of the likely recovery of such assets.
102
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
C – OPERATING ASSETS AND LIABILITIES
C3 IMPAIRMENT OF ASSETS
Accounting policies
(i) Long term assets
Mining tenements and goodwill are tested annually for impairment, or more frequently if events or changes in circumstances indicate that
they might be impaired.
An impairment loss is recognised immediately in profit or loss for the amount by which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. Mining tenements and other
non-financial assets (excluding goodwill) that have previously suffered an impairment are reviewed for possible reversal of the impairment at
the end of each reporting period.
For the purposes of assessing impairment, assets are grouped into Cash-Generating Units (“CGU”), being the lowest levels for which there
are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets. For the
purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment
is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. The goodwill acquired in a business
combination, for the purpose of impairment testing, is allocated to CGUs that are expected to benefit from the synergies of the combination.
The Group assesses impairment by evaluation of conditions and events specific to the Company that may be indicative of
impairment triggers.
(ii) Other financial assets
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective
evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that
loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be
reliably estimated.
If there is evidence of impairment for any of the Group’s financial assets carried at amortised cost, the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows, excluding future credit losses that have not been
incurred. The cash flows are discounted at the financial asset’s original effective interest rate. The loss is recognised in profit or loss.
Critical accounting estimates and judgements
The determination of fair value and value in use requires management to make estimates and assumptions about expected production
and sales volumes, coal prices (considering current and historical prices, price trends and related factors), foreign exchange rates, coal
resources and reserves (refer to C2), operating costs, closure and rehabilitation costs and future capital expenditure. These estimates and
assumptions are subject to risk and uncertainty; hence there is a possibility that changes in circumstances will alter these projections, which
may impact the recoverable amount of the assets. In such circumstances, some or all of the carrying amount of the assets may be further
impaired or the impairment charge reduced with the impact recorded in the statement of profit or loss.
(a) CGU assessment
The Group operates on a regional basis within NSW and as such the NSW mines are considered to be one CGU. In 2017, Hunter Valley
Operations and Mount Thorley Warkworth have been included in the NSW regional CGU alongside Moolarben and Stratford/Duralie. Yarrabee
and Middlemount are considered separate CGUs due to location and ownership structure.
(b) Assessment of fair value
Each CGU’s fair value less costs of disposal has been determined using a discounted cash flow model over the expected life on mine (10 – 43
years). The fair value model adopted has been categorised as level 3 in the fair value hierarchy.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
103
The key assumptions in the model include:
Key assumptions
Coal prices
Foreign exchange rates
Production and capital costs
Coal reserves and resources
Discount rate
Description
The Group’s cash flow forecasts are based on estimates of future coal prices, which assume benchmark prices
will revert to the Group’s assessment of the long term real coal prices of USD 65 – USD 101 per tonne (2016:
USD 66 – USD 100 per tonne) for thermal and USD 110 – USD 190 per tonne (2016: USD 104 – USD 165 per
tonne) for metallurgical coal.
The Group receives long term forecast coal price data from multiple external sources when determining its
benchmark coal price forecasts and then makes adjustments for specific coal qualities.
For both thermal and metallurgical coal the Group’s forecast coal price is within the range of external
price forecasts.
The long term AUD/USD forecast exchange rate of $0.75 (2016: $0.73) is based on external sources. The year-
end AUD/USD exchange rate was $0.78 per the Reserve Bank of Australia.
Production and capital costs are based on the Group’s estimate of forecast geological conditions, stage of
existing plant and equipment and future production levels.
This information is obtained from internally maintained budgets, the five year business plan, life of mine models,
life of mine plans, JORC reports, and project evaluations performed by the Group in its ordinary course
of business.
See discussion at Note C2 Mining tenements for how the coal reserves and resources are determined.
The Group has applied a post-tax discount rate of 10.5% (2016: 10.5%) to discount the forecast future
attributable post-tax cash flows.
The post-tax discount rate applied to the future cash flow forecasts represents an estimate of the rate the
market would apply having regard to the time value of money and the risks specific to the asset for which the
future cash flow estimates have not been adjusted.
This rate is also consistent with the Group’s five year business plan, life of mine models and project evaluations
performed in ordinary course of business.
Based on the above assumptions at 31 December 2017 the recoverable amount is determined to be above book value for all CGUs resulting in
no further impairment.
At 31 December 2017, the remaining impairment provision at Moolarben of $100 million has been reversed. Management have assessed the
following as being reasons for the reversal:
– both the NSW CGU and Moolarben standalone recoverable amounts are above book value;
– completion of open-cut expansions and commencement of underground mining operations during 2017 have derisked future cash flows and
increased production from 8Mt in 2014 to approximately 17Mt of ROM coal; and
– current and life of mine operating costs and capital expenditure have decreased.
The impairment reversal has been recognised through the profit and loss.
Impairment provision recorded as at 31 December 2017 is $73 million for Stratford and Duralie. Stratford and Duralie is included in the NSW
region CGU. Management may consider reversals of the impairment provision previously recognised if there is either an increase in the average
long term real revenue over the life of the mine due to either an increase in USD coal prices, or a further weakening of the AUD/USD foreign
exchange rate or a combination of both, or further reductions in the current and life of mine operating costs, capital expenditure requirements, or
an increase in the reserves.
In determining the value assigned to each key assumption, management has used: external sources of information; the expertise of external
consultants; as well as the experience of experts within the Group to validate entity specific assumptions such as coal reserves and resources.
Additionally various sensitivities have been determined and considered with respect to each of the key assumptions, further supporting the
above fair value conclusions.
(c) Key sensitivity
The most sensitive input in the fair value model is forecast revenue, which is primarily dependent on estimated future coal prices and the AUD/
USD forecast exchange rate.
If coal prices were -10% LOM the recoverable amount would exceed book value for all CGUs with the exception of Yarrabee who exceeded the
recoverable amount by $15 million. If the AUD/USD long term forecast exchange rate was $0.80 the recoverable amount would exceed book
value for all CGUs.
Goodwill
The Yarrabee goodwill was not subject to an impairment charge as the recoverable amount is greater than the carrying value for this CGU.
104
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
C – OPERATING ASSETS AND LIABILITIES
C4 EXPLORATION AND EVALUATION ASSETS
Accounting Policy
Exploration and evaluation expenditure incurred is accumulated in respect of each separately identifiable area of interest which is at the
individual exploration permit or licence level. These costs are only carried forward where the right of tenure for the area of interest is current
and to the extent that they are expected to be recouped through successful development and commercial exploitation, or alternatively,
sale of the area, or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of
economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing.
Exploration and evaluation assets acquired in a business combination are recognised at their fair value at the acquisition date. The carrying
amount of exploration and evaluation assets are assessed for impairment when facts or circumstances suggest the carrying amount of the
assets may exceed their recoverable amount. A regular review is undertaken for each area of interest to determine the appropriateness of
continuing to carry forward costs in relation to each area of interest. Accumulated costs in relation to an abandoned area are written off in
full in the period in which the decision to abandon the area is made.
Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable,
the exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to
mining tenements.
Critical accounting estimates and judgements
The application of the Group’s accounting policy for exploration and evaluation expenditure requires judgement in determining whether it
is likely that future economic benefits are likely, which may be based on assumptions about future events or circumstances. Estimates and
assumptions may change if new information becomes available. If after expenditure is capitalised information becomes available suggesting
that the recovery of expenditure is unlikely, the amount capitalised is written off in the Consolidated Statement of Profit or Loss and Other
Comprehensive Income in the period when the new information becomes available.
Opening net book amount
Acquisition through business combination
Other additions
Transfers to mining tenements
Transfers – assets under construction
Transfer to assets classified as held for sale
Closing net book amount
31 December
2017
$M
31 December
2016
$M
498
108
3
(26)
–
(18)
565
591
–
–
(101)
8
–
498
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
105
C5 INTANGIBLES
Accounting Policies
(i) Goodwill
Goodwill acquired in a business combination is recognised at cost and subsequently measured at cost less any impairment losses.
The cost represents the excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent
liabilities acquired.
Goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate that it might be impaired.
See Note C3 for further details on impairment of assets.
(ii) Computer software
Computer software is carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated on
a straight-line basis over the period of expected benefit, which ranges from 2.5 to 10 years.
(iii) Access, water rights and other mining licences
Access rights and other mining licences have a finite useful life and are carried at cost less any accumulated amortisation and accumulated
impairment losses. Water rights have been recognised at cost and are assessed annually for impairment. The water rights have been
determined to have an indefinite useful life. Amortisation of access rights and other mining licences is calculated as the shorter of the life of the
mine or agreement using a units of production basis in tonnes, or on a straight-line basis. The estimated useful lives vary from 10 to 25 years.
(iv) Other
In acquiring Coal & Allied in 2017 under AASB3 Business Combinations an asset was recognised for management fees charged to Port
Waratah Coal Services Pty Ltd. The intangible asset will be released to the profit and loss on a straight line basis.
At 1 January 2016
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2016
Opening net book amount
Transfers – assets under construction
Amortisation charge
Closing net book amount
At 31 December 2016
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2017
Opening net book amount
Acquisition through business combination
Transfers – assets under construction
Transfer to asset classfied as held for sale
Amortisation charge
Closing net book amount
At 31 December 2017
Cost
Accumulated amortisation
Net book amount
Computer
software
$M
Access,
water rights &
other licenses
$M
Goodwill
$M
Other
$M
Total
$M
60
–
60
60
–
–
60
60
–
60
60
–
–
–
–
60
60
–
60
24
(12)
12
12
1
(3)
10
25
(15)
10
10
–
–
–
(2)
8
25
(17)
8
–
–
–
–
–
–
–
–
–
–
–
22
1
(4)
(1)
18
19
(1)
18
–
–
–
–
–
–
–
–
–
–
–
13
–
–
–
13
13
–
13
84
(12)
72
72
1
(3)
70
85
(15)
70
70
35
1
(4)
(3)
99
117
(18)
99
The goodwill at 31 December 2017 relates to the acquisition of Yancoal Resources Limited (formally known as Felix Resources Limited) from an
independent third party in an arm’s length transaction and was allocated to the Yarrabee mine. Refer to Note C3 for the details regarding the fair
value less cost to sell calculation performed at 31 December 2017. The CGU for which goodwill was allocated was not subject to an impairment
charge as the recoverable amount is greater than the carrying value for this CGU.
106
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
C – OPERATING ASSETS AND LIABILITIES
C6 CASH AND CASH EQUIVALENTS
Accounting Policy
For the purpose of the Consolidated Statement of Cash Flows, cash and cash equivalents includes:
(i) cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts; and
(ii) other short term, highly liquid investments, that are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
Cash at bank and in hand
31 December
2017
$M
31 December
2016
$M
207
190
Refer to Note D2(a) for details on the syndicated facility, minimum cash balances to be held in cash at bank.
(a) Risk exposure
The Group’s exposure to interest rate risk and credit risk is discussed in Note D8. The maximum exposure to credit risk on the cash and cash
equivalents balance at the end of the reporting period is the carrying amount of each class of cash and cash equivalents mentioned above.
C7 TRADE AND OTHER RECEIVABLES
Accounting Policy
Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They are included in current assets, except for those with maturities greater than 12 months after the reporting period which are classified
as non-current assets. After initial recognition, trade and other receivables are carried at amortised cost using the effective interest method.
Critical accounting estimate and judgements
The recoverable amount of Wiggins Island Preference Securities and Gladstone Long Term Securities, is estimated based on expected
future cashflows. WICET is currently re-negotiating its senior debt facility that could result in a change to those expected future cashflows.
Current
Trade receivables
Advances to controlled entities
Other receivables
Cash – restricted (refer to Note D2(b))
Promissory note receivable (i)
Non-current
Receivables from joint venture (refer to Note E2(b)(ii))
Receivables from other entities (iii)
Long service leave receivables
31 December
2017
$M
31 December
2016
$M
540
–
81
1
36
658
332
61
80
473
278
3
101
32
21
435
347
60
–
407
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
107
(i) Promissory notes to the value of $674 million were issued to the Group by Yanzhou Coal Mining Company Limited on 22 June 2012 on the
disposal of certain mining assets, including promissory notes of $21 million with regard to the expected tax on the disposal. During 2017
the promissory note with Yanzhou Coal Mining Company Limited was settled against related party loan interest payable by the Company. In
addition as part of the equity raising completed in 1 September 2017 in Note E1 US$28 million was deposited in Yankuang Ozstar (Ningbo)
Trading Co Limited, a related party, and a promissory note was issued to the Company. Management believe that this will be settled within
the next 12 months.
(ii) Receivables from joint venture includes a loan provided to Middlemount Coal Pty Ltd (“Middlemount”) with a face value of $350 million. From
1 July 2017 the shareholders of Middlemount agreed to make the loan interest free for 18 months. At 31 December 2017 this loan has been
revalued using the effective interest rate method to $332 million with the difference being recognised as a contribution to the joint venture.
(iii) Receivables from other entities represent the Group’s investment in securities issued by Wiggins Island Coal Export Terminal Pty Ltd
(‘WICET’). These include E Class Wiggins Island Preference Securities (‘WIPS’) of $29 million (2016: $29 million) and Gladstone Long Term
Securities (‘GiLTS’) of $32 million (2016: $32 million).
(a) Past due but not impaired
As at 31 December 2017, there were no trade receivables that were past due (2016: nil).
The other classes within trade and other receivables (other than the Middlemount receivable as detailed in (ii) above and $4.1 million of deferred
distributions from WICET) do not contain impaired assets and are not past due. It is expected that these amounts will be received when due.
(b) Foreign exchange and interest rate risk
Information about the Group’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is provided in
Note D8.
(c) Fair value and credit risk
Due to the nature of these receivables, their carrying amount is assumed to approximate their fair value.
The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of receivables mentioned above.
Refer to Note D8 for more information on the risk management policy of the Group and the credit quality of the Group’s trade receivables.
C8 INVENTORIES
Accounting Policy
Coal stocks are stated at the lower of cost and net realisable value. Costs are assigned on a weighted average basis and include direct
materials, direct labour and an appropriate proportion of variable and fixed overheads on the basis of normal mining capacity. Net realisable
value is the estimated selling price in ordinary course of business less the estimated costs of completion and the estimated costs necessary
to make the sale.
Inventories of auxiliary materials, spare parts, small tools, and fuel expected to be used in production are stated at weighted average cost
after deducting rebated and discounts less allowance, if necessary, for obsolescence.
Coal – at lower of cost or net realisable value
Tyres and spares – at cost
Fuel – at cost
31 December
2017
$M
31 December
2016
$M
87
59
4
150
47
27
1
75
(a) Inventory expense
Write downs of inventories to net realisable value recognised as a provision at 31 December 2017 amounted to $1 million (2016: $1 million).
The movement in the provision has been included in “Changes in inventories of finished goods and work in progress” in the consolidated
statement of profit or loss and other comprehensive income.
108
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
C – OPERATING ASSETS AND LIABILITIES
C9 ROYALTY RECEIVABLE
Accounting Policy
The royalty receivable is revalued at each reporting period based on expected future cash flows that are dependent on sales volumes,
price changes and fluctuations in foreign exchange rates. Gains or losses arising from changes in the fair value of the royalty receivable is
recognised in profit or loss. The cash receipts will be recorded against the royalty receivable which will be decreased over time. Since the
contract is long term, unwinding of the discount (to reflect the time value of money) for the asset will be recognised under interest income.
The royalty receivable is measured based on management’s expectations of the future cash flows with the re-measurement recorded in the
Consolidated Statement of Profit or Loss and Other Comprehensive Income at each reporting date.
The amount expected to be received during the next 12 months is disclosed as a current receivable and the discounted expected future
cash flow beyond 12 months is disclosed as a non-current receivable.
Critical accounting estimates and judgements
The fair value of the royalty receivable is estimated based on expected future cash flows that are dependent on sales volumes, price
changes and fluctuations in foreign exchange rates.
Opening balance
Cash received/receivable
Unwinding of the discount
Re-measurement of royalty receivable
Split between:
Current
Non-current
31 December
2017
$M
31 December
2016
$M
199
(29)
21
8
199
24
175
199
205
(21)
21
(6)
199
31
168
199
A right to receive a royalty of 4% of Free on Board Trimmed sales from the Middlemount mine was acquired as part of the merger with
Gloucester Coal Ltd. This financial asset has been determined to have a finite life being the life of the Middlemount Mine and is measured on a
fair value basis.
(a) Risk exposure and fair value measurements
Information about the Group’s exposure to price risk, foreign exchange risk and methods and assumptions used in determining fair value of the
royalty receivable is provided in Note D8.
C10 PROVISIONS
Accounting Policies
Provisions are:
– recognised when: the Group has a legal or constructive obligation as a result of a past event; it is probable that cash will be required to
settle the obligation; and the amount has been reliably estimated.
– measured at the present value of the management’s best estimate at reporting date of the cash outflow required to settle the obligation.
Provisions are determined by discounting the expected future cash flows at a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the liability where the time value is material. Any increase in the provision due to the
passage of the time is recognised as an interest expense.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
109
2017
Opening net book amount
Charged/(credited) to profit or loss
– unwinding of discount
– release of the provision
Acquired through business combination
Re-measurement of provisions
Transfer to asset classified as held for sale
Closing net book amount
Split between:
Current
Non-current
Total
Provision
Description
Employee
benefits
$M
Sales
contract
provision
$M
Rehabilitation
$M
1
–
–
64
35
–
100
8
92
100
–
41
(62)
149
–
(7)
121
34
87
121
83
3
–
129
20
(17)
218
–
218
218
Take
or pay
$M
38
6
(24)
50
–
(8)
62
16
46
62
Other
provisions
$M
5
–
(1)
44
–
(2)
46
1
45
46
Total
$M
127
50
(87)
436
55
(34)
547
59
488
547
Employee benefits
Rehabilitation costs
Take or pay
Sales contract
Other provisions
The provision for employee benefits represents long service leave and annual leave entitlements and other incentives
accrued by employees.
Mining lease agreements and exploration permits impose obligations on the Group to rehabilitate areas where mining
activity has taken place. Rehabilitation of these areas is ongoing and in some cases will continue until 2060. The
provision for rehabilitation costs has been calculation based on the present value of the future costs expected to be
incurred in restoring affected mining areas, assuming current technologies.
Key estimate and judgement:
The rehabilitation provision has been created based on management’s internal estimates and assumptions relating
to the current economic environment, which management believes is a reasonable basis upon which to estimate the
future liability.
These estimates are reviewed regularly to take into account any material changes to the assumptions, however actual
rehabilitation costs will ultimately depend upon the future market prices for the necessary decommissioning works and
the timing of when the rehabilitation costs are incurred. Timing is dependent upon when the mines ceases to produce at
economically viable rates, which in turn, will depend upon future coal prices, which are inherently uncertain.
In acquiring part of a business or operation, an assessment is made on the fair value of the assets and liabilities under
AASB 3 Business Combinations. Take or pay is the assessment of forecast excess capacity for port and rail contracts.
A provision was recognised for the discounted estimated excess capacity. The provision has a finite life and will be
released to profit or loss over the period in which excess capacity is realised.
Key estimate and judgement:
The provision is recognised and estimated based on management’s assessment of contracted port capacity versus
forecast usage. This involves making assumptions about the probability, amount and timing of an outflow of resources
embodying economic benefits.
In acquiring part of a business or operation, an assessment is made on the fair value of the assets and liabilities under
AASB 3 Business Combinations. The sales contract provision is the assessment of a coal supply and transportation
agreement to supply coal to BLCP Power Limited in Thailand at below market prices. A provision was recognised for the
discounted estimated variance between contract and market prices. The provision has a finite life and will be released to
profit or loss over the contract term.
Key estimate and judgement:
The provision is recognised and estimated based on management’s assessment of future market prices.
The provision includes marketing services fee payable to Noble Group Limited deemed above market norms, contingent
royalties payable to Rio Tinto Plc assessed as part of the Coal & Allied acquisition in 2017 which will be amortised over
the contract term, and make good provisions to cover the cost to ‘make good’ any hired equipment, in case any major
overhaul costs are incurred at the end of the lease period.
110
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
C – OPERATING ASSETS AND LIABILITIES
C11 ASSET CLASSIFIED AS HELD FOR SALE
Accounting Policies
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale or
loss of control transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal group) is
available for immediate sale or disposal in its present condition subject only to terms that are usual and customary for sales or disposals of
such assets (or disposal group) and the transaction is highly probable. Management must be committed to the transaction, which should be
expected to qualify for recognition as a completed transaction within one year from the date of classification.
When the Group is committed to a sale plan or other transaction involving loss of control of a subsidiary, all of the assets and liabilities of
that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-
controlling interest in its former subsidiary after the sale.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair
value less costs to sell.
Current assets
Investment in associate (i)
Interest in joint ventures (ii)
Land held for sale (iii)
Total current assets
Current liabilities
Interest in joint ventures (ii)
Total current liabilities
31 December
2017
$M
31 December
2016
$M
25
531
57
613
67
67
–
–
–
–
–
(i) Investment in associate
The investment in associate was included in the asset sale agreement with Glencore as disclosed further in Note E1. An indirect interest in
Port Waratah Coal Services Pty Ltd of 6.5%, held via shares in Newcastle Coal Shippers Pty Ltd, will be sold for US$20m and is expected to
complete in 2018.
(ii) Interest in joint ventures
On 27 July 2017 the Company announced that it has entered into a binding agreement to establish a 51:49 unincorporated joint venture with
Glencore in relation to HVO, following completion of the Group’s acquisition of Coal & Allied from Rio Tinto. Glencore will pay cash consideration
of US$429 million to the Group for a 16.6% interest in HVO, and this amount is reduced by the net cash flows generated by the 16.6% HVO
interest from 1 September 2017 to the date of completion. The consideration will also include a 27.9% share of US$240 million of non-
contingent royalties and 49% of HVO contingent royalties payable by the Group and a net debt and working capital adjustment in respect of the
Coal & Allied acquisition. The US$429 million includes US$20 million associated with the sale of shares in Newcastle Coal Shippers Pty Ltd held
by Coal & Allied to Glencore noted above.
(iii) Land held for sale
The land held for sale refers to parcels of non-mining land located in the Lower Hunter Valley that is held for development or future sale.
As disclosed in Note E1 these were acquired as part of the acquisition of Coal & Allied at fair value.
Summarised financial information
The following table provides summarised financial information for the interest in HVO that are held for sale as at 31 December 2017.
The information disclosed reflects the interest in HVO share of the Group’s aggregated assets and liabilities.
Current assets
Property, plant and equipment
Mining tenements
Other non-current assets
Non-current assets
Total assets classified as held for sale
Current liabilities
Non-current liabilities
Total liabilities associated with assets classified as held for sale
Net assets classified as held for sale
31 December
2017
$M
13
185
311
22
518
531
38
29
67
464
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
111
D – CAPITAL STRUCTURE AND FINANCING
The ability of the Group to fund the investment in its ongoing activities, invest in new opportunities and meet current commitments is dependent
on available cash and access to third party capital. This section contains disclosure on interest bearing liabilities, contingencies, derivative
financial instruments, financial risk management, reserves and contributed equity that are required to finance the Group’s activities.
D1 INTEREST-BEARING LOAN TO ASSOCIATE
Accounting Policy
Financial assets classified as loans are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for those with maturities greater than 12 months after the reporting period which are
classified as non-current assets.
Opening balance
Loan recognised on deconsolidation
Repayments
Drawdowns
Closing balance
31 December
2017
$M
31 December
2016
$M
775
–
(214)
151
712
–
1,363
(623)
35
775
On 31 March 2016 the Group transferred its interest in three of its 100% owned NSW coal mining operations, being the Austar, Ashton and
Donaldson coal mines, to Watagan Mining Company Pty Limited (“Watagan”) for a purchase price of $1,363 million. The purchase price was
funded by way of a $1,363 million loan from Yancoal Australia Ltd to Watagan bearing interest of BBSY plus 7.06% with a maturity date of
1 April 2025. The outstanding interest and principal of this loan is guaranteed by Yankuang Group Co. Ltd, the Group’s ultimate parent entity.
Watagan can make prepayments of the outstanding loan balance with any such prepayment capable of redraw in the future.
D2 INTEREST-BEARING LIABILITIES
Accounting Policies
(i) Interest bearing liabilities
Interest-bearing liabilities (excluding financial guarantees) are initially recognised at fair value, net of transaction costs. They are subsequently
measured at amortised cost using the effective interest rate method. US dollar interest bearing loans are designated as a hedge instrument
in a cash flow hedge (refer to note D6).
(ii) Leases
Property, plant and equipment held by the Group under leases that transfer to the Group substantially all of the risks and rewards of
ownership are classified as finance leases.
The leased property, plant and equipment are initially measured at an amount equal to the lower of their fair value and the present
value of the minimum lease payments. Subsequently they are accounted for in accordance with the property, plant and equipment
accounting policy.
The corresponding minimum lease payments are included in lease liabilities within interest bearing liabilities. Each lease payment is allocated
between finance cost and a reduction in the outstanding lease liability. The finance cost is charged to profit or loss over the lease period so
as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
The net gains arising on the sale of an asset and the leasing back of the same asset using a finance lease are included as deferred income
in the balance sheet and are released to the profit or loss on a straight-line basis over the term of the lease.
(iii) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of
time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for
their intended use or sale.
All other borrowing costs are recognised as an expense in the period in which they are incurred.
112
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
D – CAPITAL STRUCTURE AND FINANCING
D2 INTEREST-BEARING LIABILITIES (CONTINUED)
Current
Secured lease liabilities (refer to Note F1(b))
Non-current
Secured bank loans
Secured lease liabilities (refer to Note F1(b))
Unsecured loans from related parties
Total interest-bearing liabilities
AUD’M
Facilities
Balance
31 Dec 2016
Debt
drawdown
Debt
repayment
Lease
repayment
New
Leases
Secured bank loan
Loans from related parties (i)
Finance leases
Total interest-bearing liabilities
3,593
1,290
67
4,950
–
326
–
326
(196)
–
–
(196)
–
–
(23)
(23)
–
–
9
9
31 December
2017
$M
31 December
2016
$M
17
17
3,141
38
1,527
4,706
4,723
20
20
3,593
47
1,290
4,930
4,950
Foreign
exchange
movements
Balance
31 Dec 2017
(256)
(89)
–
(345)
3,141
1,527
55
4,723
(i)
Interests costs incurred on finance leases amounted to $3 million as at 31 December 2017. During 2017 debt drawdowns from related
parties includes $137 million of non-cash drawdowns related to SCN distributions capitalised.
(a) Secured bank loans
The secured bank loans are made up of the following facilities:
Secured bank loans
Syndicated facility (i)
Facility
$M
31 December 2017
Facility
AUD $M
Utilised
AUD $M
31 December 2016
Facility
AUD $M
Utilised
AUD $M
US 2,450
3,141
3,141
3,593
3,593
(i) Syndicated facility
In 2009 a Syndicated loan facility of US$2,600 million was taken out and fully drawn down to fund the acquisition of the Felix Resources Group.
During 2014, the Syndicated Facility was extended with repayments due in 2020, 2021 and 2022. During 2017 US$150 million was repaid
reducing the facility to US$2,450 million.
Security is held over these loans in the form of a corporate guarantee issued by the Company’s majority shareholder, Yanzhou Coal Mining
Company Limited (“Yanzhou”), for the full amount of the facility.
As part of the acquisition of Coal & Allied (refer to Note E1) the financial covenants were adjusted from 1 September 2017. The Syndicated
Facility includes the following financial covenants to be tested half-yearly:
(a) The interest cover ratio will not be less than 1.40 for period from 1 September 2017 to 31 December 2017, and thereafter (2016 1.15);
(b) The gearing ratio of the Group will not exceed 0.75 (2016 0.80); and
(c) The consolidated net worth of the Group is not less than AU$3,000 million (2016 $1,600 million).
The calculation of the above covenants include certain exclusions with regard to unrealised gains and losses including foreign exchange gains
and losses.
The Syndicated Facility include the following minimum balance requirements to be satisfied daily and at each end of month:
(a) The Company is to maintain in the Lender Accounts an aggregate daily average balance of not less than AUD25 million, this is tested at the
end of each month and
(b) The Company is to maintain in the Lender Accounts an aggregate end of month balance of not less than AUD50 million.
There was no breach of covenants at 31 December 2017.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
113
(b) Bank guarantee facilities
Yancoal are party to the following bank guarantee facilities which have been issued for operational purposes in favour of port, rail, government
departments and other operational functions:
Provider
Syndicate of seven domestic and
international banks
US $M
–
AU $M
1,000
Utilised
AU $M Security
935 Secured by Yarrabee and Moolarben mine assets with
carrying value of $3,159 million, and Coal & Allied Group
assets with carrying value of $4,323 million. Facility expires on
31 August 2020.
Bank of China*
95
122
106 Parent corporate guarantees from Yanzhou to Bank of China
for the full amount of the facility. Expiry dates are as follow:
– US$45.0 million expires on 16 December 2017
– US$45.0 million expires on 16 December 2018
– US$50.0 million expires on 16 December 2019
Total
95
1,122
1,041
* This facility can be drawn in both A$ and US$. As at 31 December 2017, all bank guarantees outstanding under this facility are denominated in A$.
The Guarantee Facility includes the following financial covenants based on consolidated results of Yancoal Resources Ltd Group and Coal
& Allied Group to be tested half-yearly. As part of the acquisition of Coal & Allied (refer to Note E1) the Guarantee Facility was increased to
$1 billion and the financial covenants were adjusted from 1 September 2017:
(a) The interest cover ratio is greater than 5.0 times (2016 5.0 times);
(b) The finance debt to EBITDA ratio is less than 3.0 times (2016 3.0 times); and
(c) The net tangible assets are greater than AU$1,500 million (2016 AU$600 million).
There was no breach of covenants at 31 December 2017.
(c) Unsecured loans from related parties
In December 2014, the Company successfully arranged two long term loan facilities from its majority shareholder, Yanzhou repayable on
31 December 2024.
– Facility 1: AU$1,400 million – the purpose of the facility is to fund working capital and capital expenditure.
The facility can be drawn in both AUD and USD. During the period US$150.0 million had been drawn down. In total US$832 million
(AU$1,066 million) was drawn down as at 31 December 2017 (31 December 2016: US$682 million (AU$942 million)).
– Facility 2: US$807 million – the purpose of the facility is to fund the coupon payable on subordinated capital notes. During the period
US$107 million was drawn down. In total US$243 million (AU$312 million) was drawn down as at 31 December 2017 (31 December 2016:
US$136 million (AU$188 million)).
Both the facilities have a term of 10 years (with the principal repayable at maturity) and are provided on an unsecured and subordinated basis
with no covenants.
In August 2012, the Company successfully arranged a long term loan facility from Yancoal International Resources Development Co., Ltd,
a wholly owned subsidiary of Yanzhou. The facility was for US$550 million and was provided on an unsecured basis with no covenants.
The purpose of the facility was to fund the acquisition of Gloucester Coal Limited. In December 2014 US$434 million was repaid, leaving an
outstanding balance of US$116 million which remains outstanding as at 31 December 2017 and is repayable on 12 May 2022.
114
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
D – CAPITAL STRUCTURE AND FINANCING
D3 NON-CONTINGENT ROYALTY
Accounting Policies
In acquiring part of a business or operation, an assessment is made on the fair value of the assets and liabilities under AASB 3 Business
Combinations. The non-contingent royalty was fair valued on initial recognition and payable in US dollars so subject to foreign exchange
movements. The amount has a finite life with any discounting and foreign exchange released to profit or loss over the contract term.
Opening balance
Initial recognition
Payments
Unwind of discount
Foreign exchange
Closing balance
Current
Non-current
Total
31 December
2017
$M
–
283
(142)
13
6
160
112
48
160
As part of the acquisition of Coal & Allied on 1 September 2017 (refer to Note E1) US$240 million of the purchase price is to be paid over five
years from completion. During 2017 US$110 million of the non-contingent royalties were paid.
D4 CONTRIBUTED EQUITY
Accounting Policy
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Costs
directly attributable to the issue of new shares, options or other equity instrument are shown as a deduction from the equity proceeds, net
of any income tax benefit. Costs directly attributable to the issue of new shares or options associated with the acquisition of a business are
included as part of the purchase consideration.
(a) Contributed equity
(i) Share capital
Ordinary shares (note D4(b)) Issued and fully paid up
43,959,446,612
994,276,659
5,953
657
31 December
2017
Number
31 December
2016
Number
31 December
2017
$M
31 December
2016
$M
(ii) Other equity securities
Subordinated capital notes (note D4(c))
Contingent value right shares
Total contributed equity
(iii) Movements in contributed equity
Opening balance
Subordinated capital notes converted to ordinary shares
Ordinary shares issued under entitlement offer
Ordinary shares issued under institutional placement
Transaction costs, net of tax
Closing balance
During 2016 there were no movements in contributed equity.
4,900
18,005,042
1
263
264
6,217
2,184
263
2,447
3,104
31 December
2017
$M
Ordinary shares
31 December
2017
$M
Other share capital
657
2,183
2,971
190
(48)
5,953
2,184
(2,183)
–
–
–
1
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
115
(b) Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of
and amounts paid on the shares held.
On a show of hands, every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each
share is entitled to one vote.
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. During the year 58,490 ordinary
shares were issued on conversion of the SCNs noted below.
On 31 August 2017 the Company issued new shares under the pro-rata renounceable entitlement offer and institutional placement
as announced to ASX on 1 August 2017. 23,464,929,520 new shares were issued under pro-rata renounceable entitlement offer and
1,500,000,000 new shares under the institutional placement. In addition, the Company issued 18,000,031,000 new shares to Yanzhou Coal
Mining Co., Ltd on conversion of all of its subordinated capital notes and 150,943 new shares on conversion of 80 other subordinated capital
notes by other holders. In total 42,965,111,463 new shares were issued. The total amount raised was US$2,496 million (AU$3,161 million)
and issue costs of $68 million have been capitalised. As noted in C7(i) US$28 million (AU$36 million) was deposited with a related party and a
promissory note was issued to the Company.
(c) Subordinated capital notes
On 31 December 2014, Yancoal SCN Limited, a wholly owned subsidiary of Yancoal Australia Ltd issued 18,005,102 Subordinated Capital
Notes (SCN Notes) at USD100 each. Each SCN Note is convertible into 1,000 Yancoal Australia Limited ordinary shares. During 2016 60 SCN
Notes and in 2017 31 SCN Notes were converted into 58,490 ordinary shares of the Company in accordance with the terms of the SCN Notes,
and as described above in Note D4(b) 18,000,181,437 new shares were issued on conversion of 18,000,111 SCNs. At 31 December 2017
there were 4,900 SCN Notes on issue.
The subordinated capital notes are perpetual, subordinated, convertible, unsecured capital notes of face value USD100 per note. The
subordinated capital notes entitle holders to receive fixed rate distribution payments, payable semi-annually in arrears unless deferred. The
distribution rate is set at 7% per annum, the rate is resettable to the 5 year USD mid-swap plus the initial margin per annum every 5 years.
The SCN Notes are convertible at the option of the holders to Yancoal Australia Ltd ordinary shares within 30 years. As announced by the
Company on 7 December 2017 the remaining SCNs will be redeemed on 31 January 2018.
(d) Contingent value right shares
The contingent value right (“CVR”) shares were repurchased on 4 March 2014 for cash of $262.9 million representing the market value of $3.00
cash per CVR share.
(e) Capital risk management
Total capital comprises total equity as shown on the balance sheet plus total interest bearing liabilities. The Group’s primary objectives when
managing capital are to ensure the continued ability to provide a consistent return for equity stakeholders through a combination of capital
growth and distributions and to maintain an optimal capital structure to reduce the cost of capital. In order to achieve these objectives, the
Group seeks to maintain a debt to debt plus equity ratio (gearing ratio) that balances risks and returns at an acceptable level and also to
maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In order to maintain or adjust
the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or
other equity instruments, repay debt or draw down additional debt.
The gearing ratios at 31 December 2017 and 31 December 2016 were as follows:
Total interest-bearing liabilities
Less: cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
Refer to Note D2 for the Group’s compliance with the financial covenants of its borrowing facilities.
Notes
D2
C6
31 December
2017
$M
31 December
2016
$M
4,723
(207)
4,516
5,026
9,542
4,951
(190)
4,761
1,351
6,112
47.3%
77.9%
116
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
D – CAPITAL STRUCTURE AND FINANCING
D5 DISTRIBUTIONS
(a) SCN distributions
Interim distribution paid on 31 July 2017 (2016 paid 29 July 2016)
Final distribution to be accrued as at 31 December 2017
(31 December 2016 accrual, paid on 31 January 2017)
%
per SCN
7%
7%
2017
Total
US$’M
63
–
63
Total
AU$’M
%
per SCN
79
–
79
7%
7%
2016
Total
US$’M
63
63
126
Total
AU$’M
84
87
171
No accrual was made as at 31 December 2017 for the distribution on 31 January 2018 as the Yancoal SCN Ltd Board had not approved the
distribution as at 31 December 2017. Due to foreign exchange the 31 January 2017 payment decrease by AU$4 million from the 31 December
2016 accrual (29 January 2016 payment increased by AU$2 million from the 31 December 2015 accrual).
(b) Franked dividends
Franking credits available for subsequent reporting periods based
on an income tax rate of 30% (2016 – 30%)
31 December
2017
$M
31 December
2016
$M
3
–
The above amounts represent the balance of the franking account as at the end of the reporting period, adjusted for:
(a) franking credits that will arise from the payment of the amount of the provision for income tax and franking debits that will arise as a result of
refunds of tax that are reflected in the current tax receivable balance at the reporting date;
(b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date, and
(c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
D6 HEDGE RESERVE
Accounting Policy
When a financial instrument is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the
hedging instrument is recognised in other comprehensive income and accumulated in the hedging reserve until the anticipated underlying
transaction occurs. Any ineffective portion of changes in the fair value of the hedging instrument is recognised immediately in profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, or is sold, terminated or expires, any accumulated gain or loss
remains in equity until the forecast transaction is ultimately recognised in profit or loss. If the forecast transaction is no longer expected to
occur, then the amount accumulated in equity is immediately recognised in profit or loss.
The collar option contracts entered into by the Group are designated and qualify as cash flow hedges.
(a) Reserves
Hedging reserve
Movements:
Hedging reserve – cash flow hedges
Opening balance
Profit/(loss) recognised on USD interest bearing liabilities
Transferred to profit or loss
Deferred income tax benefit
Closing balance
31 December
2017
$M
31 December
2016
$M
(413)
(413)
(817)
348
229
(173)
(413)
(817)
(817)
(880)
(43)
133
(27)
(817)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
117
The hedging reserve is used to record gains or losses on cash flow hedges that are recognised directly in equity through the Consolidated
Statement of Profit or Loss and Other Comprehensive Income.
The closing balance relates to the effective portion of the cumulative net change in the fair value of the natural cash flow hedge using the US
dollar denominated interest-bearing liabilities to hedge against future coal sales.
During the year ended 31 December 2017, losses of $229 million were transferred from other comprehensive income to profit or loss in respect
of the hedging reserve (31 December 2016 a loss of $133.3 million).
D7 CONTINGENCIES
Contingent liabilities
The Group had contingent liabilities at 31 December 2017 in respect of:
(i) Bank guarantees
Parent entity and consolidated entity
Performance guarantees provided to external parties
Guarantees provided in respect of the cost of restoration of certain mining leases
given to government departments as required by statute
Joint ventures (equity share)
Guarantees provided in respect of land acquisition
Performance guarantees provided to external parties
Guarantees provided in respect of the cost of restoration of certain mining leases
Guarantees held on behalf of related parties (refer to Note E3(d) for details of beneficiaries)
Performance guarantees provided to external parties
Guarantees provided in respect of the cost of restoration of certain mining leases given to government
departments as required by statute
31 December
2017
$M
31 December
2016
$M
352
80
432
–
195
248
443
109
57
166
1,041
88
77
165
20
65
27
112
112
52
164
441
(ii) Tax audit
The Australian Taxation Office (“ATO”) has completed the audit of certain matters in the Company’s tax filing for the year ended 31 December
2012. The outcome of the audit resulted in no material adjustments and required no cash payments.
(iii) Letter of Support provided to Middlemount Coal Pty Ltd
The Company has issued a letter of support dated 4 March 2015 to Middlemount Coal Pty Ltd (“Middlemount”), a joint venture of the
Group confirming:
– it will not demand the repayment of any loan due from Middlemount, except to the extent that Middlemount agrees otherwise or as otherwise
provided in the loan agreement; and
– it will provide financial support to Middlemount to enable it to meet its debts as and when they become due and payable, by way of new
shareholder loans in proportion to its share of the net assets of Middlemount.
This letter of support will remain in force whilst the Group is a shareholder of Middlemount or until notice of not less than 12 months is provided
or such shorter period as agreed by Middlemount.
118
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
D – CAPITAL STRUCTURE AND FINANCING
D7 CONTINGENCIES (CONTINUED)
Contingent liabilities (continued)
(iv) Mitsubishi Development Pty tag along right
As announced 28 July 2017, Yancoal has separately entered into a
conditional binding implementation agreement with Glencore Coal
Pty Ltd (“Glencore”), a wholly owned subsidiary of Glencore plc,
under which Yancoal and Glencore will establish a 51% (Yancoal) and
49% (Glencore) unincorporated joint venture in relation to HVO (the
“Glencore Transaction”).
Glencore has agreed to pay US$1,139 million for its 49% interest,
of which: US$710 million will be paid to HVO Resources Pty Ltd
(“HVOR”), a wholly owned subsidiary of Mitsubishi Development Pty
(“MDP”), for the acquisition of HVOR’s 32.4% interest in the Hunter
Valley Operations mining complex (“HVO”), and US$429 million
will be paid to Yancoal for the acquisition of a 16.6% interest in
HVO from Yancoal. Glencore will also pay to Yancoal 27.9% of the
US$240 million in future non-contingent royalty payments and 49% of
the coal price linked contingent royalty payments associated with HVO
that are payable by Yancoal to Rio Tinto Limited for the Acquisition.
The Transaction is subject to a number of conditions precedent,
including Glencore obtaining all necessary regulatory approvals,
including final competition clearance from Japan. Should the
conditions precedent not be satisfied then Yancoal would need to pay
HVOR US$710 million to acquire its 32.4% interest in HVO.
(v) Other contingencies
A number of claims have been made against the Group, including in
respect of personal injuries, and in relation to contracts which Group
members are party to as part of the Group’s day to day operations.
The personal injury claims which have been made against the Group
have largely been assumed by the insurers of the Group under the
Group’s insurance policies. The Directors do not believe that the
outcome of these claims will have a material impact on the Group’s
financial position.
D8 FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks: market
risk (including foreign exchange risk, price risk and interest rate risk),
credit risk and liquidity risk. The Group’s overall risk management
program focuses on the unpredictability of financial markets
and seeks to minimise potential adverse effects on the financial
performance of the Group. The Group uses derivative financial
instruments such as foreign exchange contracts to hedge certain risk
exposures. Derivatives are exclusively used for hedging purposes and
not as speculative instruments. The Group uses different methods to
measure different types of risk to which it is exposed. These methods
include sensitivity analysis in the case of foreign exchange, interest
rate risk and other price risks, and aging analysis for credit risk.
The Group holds the following financial instruments:
(i) Cash and cash equivalents;
(ii) Trade and other receivables;
(iii) Trade and other payables;
(iv) Interest-bearing liabilities, including bank loans and finance leases;
(v) Available-for-sale investments;
(vi) Royalty receivable;
(vii) Derivative financial instruments; and
(viii) Interest-bearing loan from associate.
The Board of Directors has overall responsibility for determining risk
management objectives and policies and risk management is carried
out by the Group Audit and Risk Management department along with
the Group Treasury department. The Board provides written principles
for overall risk management, as well as policies covering specific areas
such as the use of derivative financial instruments to mitigate foreign
exchange risk. These derivative instruments create an obligation or
right that effectively transfers one or more of the risks associated with
an underlying financial instrument, asset or obligation.
The overall objective of the Board is to set policies that seek to reduce
risk and volatility in financial performance without unduly affecting
competitiveness and flexibility. Further details regarding these policies
are set out below.
(a) Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates, securities prices, and coal
prices, will affect the Group’s income or the value of its holdings of
financial instruments.
(i) Foreign exchange risk
The Group operates entirely in Australia and its costs are primarily
denominated in its functional currency, the Australian dollar. Export
coal sales are denominated in US dollars and a strengthening of
the Australian dollar against the US dollar has an adverse impact
on earnings and cash flow settlement. Liabilities for some plant and
equipment purchases and loans are denominated in currencies other
than the Australian dollar and a weakening of the Australian dollar
against other currencies has an adverse impact on earnings and cash
flow settlement.
The hedging policy of the Group aims to protect against the volatility
of cash expenditures or reduced collection in the above mentioned
transactions as well as to reduce the volatility of profit or loss for
retranslation of US dollar denominated loans at each period end.
Hedging through bank issued instruments
Operating foreign exchange risk that arises from firm commitments
or highly probable transactions are managed through the use of bank
issued forward foreign currency contracts and collar option contracts.
The Group hedges a portion of contracted US dollar sales and asset
purchases settled in foreign currencies in each currency to mitigate
the adverse impact on cash flow due to the future rise or fall in
Australian dollars against the relevant currencies.
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised in Other
Comprehensive Income in the hedging reserve until the anticipated
underlying transaction occurs. Once the anticipated underlying
transaction occurs, amounts accumulated in equity are recycled
through the profit or loss or recognised as part of the cost of the asset
to which it relates. The ineffective portion of changes in the fair value
of derivatives that are designated and qualify as cash flow hedges is
recognised immediately in the profit or loss. In the current period, the
loss relating to the ineffective portion was $nil (2016: $nil).
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
119
Natural cash flow hedge
The Group currently does not use bank issued instruments to hedge foreign exchange risks in respect of US dollar denominated loans, however,
the scheduled repayment of the principal on US dollar loans is designated to hedge the cash flow risks on the portion of forecast US dollar
sales that are not hedged through bank issued instruments (“natural cash flow hedge”). US dollar loan repayments up to a six-month period are
designated to hedge the forecast US dollar sales during the same period after the designation of the hedge relationship based on a dollar for
dollar basis until the hedge ratio reaches one.
Hedging effectiveness is determined by comparing the changes in the hedging instruments and hedged sales. Hedge ineffectiveness will occur
when cash flows generated by sales transactions are lower than the forecast sales transaction. In cases of hedge ineffectiveness, gains or
losses in relation to the excess portion in the foreign exchange movement of the designated US dollar loan repayment will be recycled to profit
or loss. The effective portion of changes in the hedging instruments will be recognised in the cash flow hedge reserve in Other Comprehensive
Income. When the sales transactions occur, amounts accumulated in equity are recycled through the profit or loss as an increase or decrease to
sales revenue.
Royalty receivable
The royalty receivable from the Middlemount Joint Venture is estimated based on expected future cash flows that are dependent on sales
volumes, US dollar denominated coal prices and the US dollar foreign exchange rate (refer to Note C9).
Other assets
Other assets include the US$10 million associated with the Warkworth Call Option expected to complete in March 2018, and the promissory
note receivable as discussed in Note C7(i). These balances are predominantly held in US dollars and expected to settle within 12 months.
Non-contingent royalty payable
As discussed in Note E1 the Company has agreed to make deferred non-contingent royalty payments to Rio Tinto Plc (“Rio Tinto”) in US dollars.
The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian dollars, was as follows:
Cash and cash equivalents
Trade receivables
Other assets
Royalty receivable
Trade and other payables
Interest bearing liabilities
Non-contingent royalty payable
Net Exposure
31 December 2017
31 December 2016
USD
$M
139
432
49
199
(249)
(4,668)
(167)
(4,265)
RMB*
$M
–
–
–
–
–
–
–
–
USD
$M
124
165
–
199
(157)
(4,883)
(1)
(4,553)
RMB*
$M
1
–
–
–
–
–
–
1
*
The cash and cash equivalents balance in RMB was $1.6 million on 18 January 2018. No foreign exchange risk for sensitivity analysis has been performed in 2017 due to
the immaterial position subsequent to year end.
Sensitivity
The following table summarises the sensitivity of the Group’s financial assets and liabilities to a reasonable possible change in the US dollar
exchange rate. The Group’s exposure to other foreign exchange movements is not material. The Group has used the observed range of actual
historical rates for the preceding five year period, with a heavier weighting placed on recently observed market data, in determining reasonably
possible exchange movements to be used for the current year’s sensitivity analysis. Past movements are not necessarily indicative of future
movements. A 10% depreciation/appreciation of the Australian dollar against the US dollar would have (decreased)/increased equity and profit or
loss after tax by the amounts shown below. This analysis assumes that all other variables remain constant.
120
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
D – CAPITAL STRUCTURE AND FINANCING
D8 FINANCIAL RISK MANAGEMENT (CONTINUED)
(a) Market risk (continued)
(i) Foreign exchange risk (continued)
2017
Cash and cash equivalents
Trade and other receivables
Royalty receivable
Other assets
Total increase/(decrease) in financial assets
Trade and other payables
Interest-bearing liabilities
Non-contingent royalty payable
Total (increase)/decrease in financial liabilities
Total increase/(decrease) in profit after tax and equity
2016
Cash and cash equivalents
Trade and other receivables
Royalty receivable
Total increase/(decrease) in financial assets
Trade and other payables
Interest-bearing liabilities
Derivative financial instrument
Total (increase)/decrease in financial liabilities
Total increase/(decrease) in profit after tax and equity
10% depreciation of
AUD/USD
10% appreciation of
AUD/USD
Profit after
income tax
$M
Equity
$M
Profit after
income tax
$M
Equity
$M
11
34
15
4
64
(19)
–
(13)
(32)
32
10
13
16
39
(12)
–
(7)
(19)
20
–
–
–
–
–
–
(363)
–
(363)
(363)
–
–
–
–
–
(380)
–
(380)
(380)
(9)
(28)
(18)
(38)
(93)
26
–
11
37
(56)
(8)
(11)
(12)
(31)
10
–
6
16
(15)
–
–
–
–
–
–
297
–
297
297
–
–
–
–
–
311
–
311
311
Equity movements above reflect movements in the hedge reserve due to foreign exchange movements on USD interest bearing loans.
(ii) Price risk
The price risk of the Group include coal price risk.
The Group does not enter into commodity contracts other than to meet the Group’s expected usage and sales requirements, such contracts
are not settled net. The royalty receivables from Middlemount JV is exposed to fluctuations in coal price. The Group currently does not have any
derivative hedges in place against the movement in the spot coal price.
Sensitivity
The following table summarises the sensitivity of the Group’s financial assets and liabilities to a possible change in the forecasted coal sales price
used to determine the fair value of the royalty receivable from the Middlemount Joint Venture. A 10% (decrease)/increase in the market price
would have (decreased)/increased equity and profit or loss after tax by the amounts shown below. This analysis assumes that all other variables
remain constant.
2017
Royalty receivable
Total (decrease)/increase in profit after tax and equity
2016
Royalty receivable
Total (decrease)/increase in profit after tax and equity
+10%
-10%
Profit after
income tax
$M
Equity
$M
Profit after
income tax
$M
Equity
$M
(14)
(14)
(14)
(14)
–
–
–
–
14
14
14
14
–
–
–
–
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
121
(iii) Interest rate risk
The Group is subject to interest rate risk that arises from borrowings, cash and cash equivalents and restricted cash. Generally, no variable
interest is receivable or payable on the Group’s trade and other receivables or payables where applicable as they are fixed in nature and therefore
they are not exposed to the interest rate risk.
The Group’s cash flow interest rate risk for assets primarily arises from cash at bank and deposits subject to market bank rates. Floating rate
borrowings bearing LIBOR rates are re-set on a quarterly basis.
The Group’s exposure to interest rate risk and the weighted average interest rate is set out as below:
Cash and cash equivalents
Restricted cash
Bank loans and other borrowings
Net exposure to cash flow interest rate risk
31 December 2017
31 December 2016
Weighted
average
interest rate
%
1.3
3.0
5.0
Weighted
average
interest rate
%
0.5
2.1
4.4
Balance
$M
207
1
3,141
3,349
Balance
$M
190
29
3,593
3,812
Sensitivity
The following table summarises the sensitivity of the Group’s significant financial assets and liabilities to changes in variable interest rates. This
sensitivity is based on reasonably possible changes, determined using observed historical interest rate movements for the preceding five year
period, with a heavier weighting given to more recent market data. Past movements are not necessarily indicative of future movements. For
financial assets, a 25 basis point (decrease)/increase in interest rates would have (decreased)/increased equity and profit or loss after tax by the
amounts shown below. For financial liabilities, a 25 basis point (decrease)/increase in interest rates would have increased/(decreased) equity and
profit or loss after tax by the amounts shown below. This analysis assumes that all other variables remain constant.
2017
Interest bearing loan to associate
Interest bearing liabilities
2016
Interest bearing loan to associate
Interest bearing liabilities
-25 bps
+25 bps
Profit after
income tax
$M
Equity
$M
Profit after
income tax
$M
Equity
$M
(1)
6
5
(2)
6
4
–
–
–
–
–
–
1
(6)
(5)
2
(6)
(4)
–
–
–
–
–
–
122
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
D – CAPITAL STRUCTURE AND FINANCING
D8 FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, favourable derivative financial instruments and
deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables
and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted. If
wholesale customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, the marketing department
assesses the credit quality of the customer, taking into account its financial position, past experience and other factors.
Credit risk in trade receivables is managed in the following ways:
(i) payment terms and credit limits are set for individual customers;
(ii) a risk assessment process is used for all customers; and
(iii) letters of credit are required for those customers assessed as posing a higher risk.
The maximum exposure to credit risk on financial assets which have been recognised in the balance sheet is their carrying amount less
impairment provision, if any as set out below.
Cash and cash equivalents
Trade and other receivables
31 December
2017
$M
31 December
2016
$M
207
1,131
1,338
222
842
1,064
Included in trade and other receivables are significant customers located in Singapore, Japan, Australia, and Hong Kong that account for 30%,
23%, 14% and 8% of trade receivables respectively (2016: Australia 46%, Singapore 22%, South Korea 7% and China 4%).
At 31 December 2017, no derivative financial instruments were outstanding (2016: net liability position). As a result no credit risk has been
disclosed above.
(c) Liquidity risk
Liquidity risk includes the risk that the Group will not be able to meet its financial obligations as they fall due. The Group will be impacted in the
following ways:
(i) will not have sufficient funds to settle transactions on the due date;
(ii) will be forced to sell financial assets at a value which is less than what they are worth; or
(iii) may be unable to settle or recover a financial asset at all.
Liquidity risk is managed by maintaining sufficient cash and liquid deposit balances and having readily accessible standby facilities in place in
accordance with the Board’s risk management policy. Details regarding finance facilities are set out in Note D2.
Maturities of financial liabilities
The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities for:
(a) all non-derivative financial liabilities, and
(b) net and gross settled derivative financial instruments for which the contractual maturities are essential for an understanding of the timing of
the cash flows.
The amounts disclosed in the table are the contractual undiscounted cash flows including interest payments. Balances due within 12 months
equal their carrying balances as the impact of discounting is not significant.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
123
Contractual maturities of financial liabilities
At 31 December 2017
Trade payables
Non-contingent royalty
Interest-bearing liabilities
Total non-derivatives
Derivatives
Gross settled (Derivative financial instruments)
– (inflow)
– outflow
Total derivatives
At 31 December 2016
Non-derivatives
Trade payables
Interest-bearing liabilities
Total non-derivatives
Derivatives
Gross settled (Derivative financial instruments)
– (inflow)
– outflow
Total derivatives
Less than
1 year
$M
Between 1 and
2 years
$M
Between 2 and
5 years
$M
Greater than
5 years
$M
Total contractual
cash flows
$M
–
26
4,116
4,142
–
–
–
–
–
1,612
1,612
–
–
–
775
167
6,481
7,423
–
–
–
Carrying
amount
$M
775
167
4,723
5,665
–
–
–
–
3,301
3,301
–
2,786
2,786
467
6,760
7,227
467
4,951
5,418
–
–
–
–
–
–
(93)
93
–
–
1
1
775
115
369
1,259
–
–
–
467
341
808
(93)
93
–
–
26
384
410
–
–
–
–
332
332
–
–
–
(d) Fair value measurements
(i) Fair value hierarchy
The Group uses various methods in estimating the fair value of financial instruments. AASB 13 Fair Value Measurement requires disclosure of fair
value measurements by level in accordance with the following fair value measurement hierarchy:
(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
(b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly
(derived from prices) (level 2); and
(c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).
The following table presents the Group’s financial assets and financial liabilities measured and recognised at fair value at 31 December 2017 and
31 December 2016:
31 December 2017
Assets
Royalty receivable
Total assets
Liabilities
Total liabilities
31 December 2016
Assets
Royalty receivable
Total assets
Liabilities
Derivatives used for hedging
Forward foreign exchange contracts
Other derivatives
Total liabilities
Level 1
$M
Level 2
$M
Level 3
$M
–
–
–
–
–
–
–
–
–
–
–
–
–
1
–
1
199
199
–
199
199
–
–
–
Total
$M
199
199
–
199
199
1
–
1
124
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
D – CAPITAL STRUCTURE AND FINANCING
D8 FINANCIAL RISK MANAGEMENT (CONTINUED)
(d) Fair value measurements (continued)
(ii) Valuation techniques
The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. These valuation
techniques maximise the use of observable market data where it is available. If all significant inputs required to fair value an instrument are
observable, the instrument is included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for the
royalty receivable.
The valuation techniques used for level 2 financial instruments are:
Description
Valuation Technique(s)
Inputs used
Forward Foreign Exchange Contracts
Income approach using discount cash flow
methodology
Current forward exchange rates applicable to
remaining life of contract
(iii) Fair value measurements using significant unobservable inputs (level 3)
The following table presents the changes in level 3 instruments for the year ended 31 December 2017:
Opening balance
Cash received/receivable
Unwinding of the discount
Remeasurement of the royalty receivable recognised in profit and loss
Closing balance
31 December
2017
Royalty
Receivable
$M
31 December
2016
Royalty
Receivable
$M
199
(29)
21
8
199
205
(21)
21
(6)
199
Royalty receivable
The fair value of the royalty receivable is the fair value of the right to receive a royalty of 4% of Free on Board Trimmed Sales from the
Middlemount Mine. The financial asset has a finite life being the life of the Middlemount Mine and will be measured on a fair value basis.
The fair value is determined using the discounted future cash flows that are dependent on the following unobservable inputs: forecast sales
volumes, coal prices and fluctuations in foreign exchange rates. The forecast sales volumes are based on the internally maintained budgets, five
year business plan and life of mine models. The forecast coal prices and long term exchange rates are based on external data consistent with
the data used for impairment assessments (refer to Note C3). The risk-adjusted post-tax discount rate used to determine the future cash flows
is 10%.
The estimated fair value could increase significantly if the following unobservable inputs of sales volumes and coal prices were higher and if the
Australian dollar weakens against the US dollar. The estimated fair value would also increase if the risk-adjusted discount rate was lower.
(iv) Fair values of other financial instruments
The carrying amount is approximate to the fair value for the following:
(i) Trade and other receivables
(ii) Other financial assets
(iii) Trade and other payables
(iv) Interest-bearing liabilities
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
125
E – GROUP STRUCTURE
This section explains significant aspects of the Group’s structure including interests in other entities, related party transactions, parent entity
information, controlled entities and the deed of cross guarantee.
E1 ACQUISITION OF COAL & ALLIED
Accounting Policies
The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities
or businesses under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred
for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by
the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any
pre-existing equity interest in the subsidiary. Acquisition related costs are expensed as incurred with the exception of stamp duty. Identifiable
assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at
their fair values at the acquisition date.
The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree and the acquisition date fair value
of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is recorded as
goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all
amounts has been reviewed, the difference is recognised directly in profit or loss as a gain on acquisition of subsidiaries.
Critical accounting estimates and judgements
Acquisition accounting
Accounting for acquisition of businesses requires judgement and estimates in determining the fair value of acquired assets and liabilities.
Techniques used to determine the fair value of acquired assets and liabilities include an income & cost approach for mining tenements and
depreciated replacement cost for the valuation of property, plant and equipment.
The relevant accounting standard allows the fair value of assets acquired to be refined for a window of one year after the acquisition date,
and judgement is required to ensure the adjustments made reflect new information obtained about facts and circumstances that existed
as of the acquisition date. The adjustments made on fair value of assets are retrospective in nature and have an impact on goodwill or gain
recognised on acquisition.
Acquisition of Coal & Allied
(a) Summary of acquisition
As announced on 24 January 2017 and as subsequently amended on 26 June 2017, the Company entered into a binding agreement to acquire
100% of the shares in Coal & Allied from wholly owned subsidiaries of Rio Tinto for US$2.69 billion plus an adjustment for net debt and working
capital. US$2.45 billion was paid on completion, plus US$240 million in non-contingent royalty payments over five years from completion. The
Acquisition completed on 1 September 2017 resulting in the Company acquiring (through its ownership of the shares in Coal & Allied) Rio Tinto’s
interest in the Hunter Valley Operations (HVO) and Mount Thorley Warkworth (MTW) mines (an integrated operation of two open-cut mines
located adjacent to each other in the Hunter Valley, NSW), a 36.5% interest in PWCS (the owner of a coal export terminal located at the Port of
Newcastle), as well as other coal exploration projects and landholdings.
(b) Transaction funding and capital structure simplification
On 31 August funding for the acquisition of Coal & Allied was achieved by the Company successfully completing the issue of new fully paid
ordinary shares (“New Shares”) under the pro-rata renounceable entitlement offer (“Entitlement Offer”) and institutional placement (“Placement”)
announced to ASX on 1 August 2017. New Shares under the Entitlement Offer and Placement were issued at the offer price of US$0.10
(“Offer Price”).
Yancoal issued:
– 23,464,929,520 New Shares under the Entitlement Offer, raising gross proceeds of US$2,346,492,952; and
– 1,500,000,000 New Shares under the Placement, raising gross proceeds of US$150,000,000.
In addition, the Company issued 18,000,031,000 New Shares to Yanzhou Coal Mining Co., Ltd (“Yanzhou”) on conversion of all of its
subordinated capital notes (“SCN”) at a conversion price of US$0.10 per New Share, in accordance with the SCN terms of issue. Yancoal has
also issued a further 150,943 New Shares on conversion of 80 other SCNs for which a conversion notice was received, at a conversion price of
US$0.053 per New Share, in accordance with the SCN terms of issue.
126
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
E – GROUP STRUCTURE
E1 ACQUISITION OF COAL & ALLIED (CONTINUED)
(c) Assets and liabilities acquired
Details of the purchase consideration, the net assets and liabilities acquired and gain on acquisition of subsidiaries are as follows:
Purchase consideration (refer to (c) below):
Acquisition price
Non-contingent royalty
Net debt and working capital adjustment
Total consideration
Gain on acquisition of subsidiaries
Fair value of net identifiable assets acquired (refer to (i) below)
(i) Assets and liabilities acquired
The assets and liabilities recognised as a result of the acquisition are as follows:
Cash
Trade receivables
Inventories
Assets classified as held for sale
Other assets
Investments in associates
Plant and equipment
Mining tenements
Exploration and evaluation assets
Intangible assets
Deferred tax asset
Trade and other payables
Other liabilities
Provisions
Deferred tax liabilities
Fair value of net identifiable assets acquired
$M
3,102
283
162
3,547
177
3,724
Fair value
$M
152
135
79
82
60
197
1,326
2,456
108
35
105
(303)
(2)
(436)
(270)
3,724
The accounting for the acquisition has been determined on a provisional basis at 31 December 2017. Any adjustments to the provisional values
as a result of completing work on the fair values of assets and liabilities acquired will be recognised within 12 months of the acquisition date and
will be recognised as if they had occurred as at the date of acquisition.
The preliminary assessment of the contingent royalty included in the entitlement offer booklet was that it formed part of the purchase
consideration. Having performed a more detailed assessment it has been determined the contingent royalty obligation represents a liability of the
acquired group as it is payable by subsidiaries of Coal & Allied and is included in provisions above.
(ii) Gain on acquisition of subsidiaries
The Company recognised a gain on acquisition of $177 million in other income in the profit and loss for the year ended 31 December 2017.
The acquisition resulted in a gain due to the fair value of the mine assets acquired benefiting from improved valuation assumptions on completion
date compared to the date the acquisition price was struck.
(iii) Revenue and profit contribution
The acquired interest contributed revenue of $749 million and net profit of $215 million to the Group for the period from 1 September 2017 to
31 December 2017. If the acquisition had occurred on 1 January 2017, consolidated revenue and net profit for the period ended 31 December
2017 would have been $2,173 million and $818 million respectively. These amounts have been calculated using the Group’s accounting policies.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
127
E2 INTERESTS IN OTHER ENTITIES
Accounting Policies
(i) Associates
Associates are all entities over which the Group has significant influence but not control or joint control, generally accompanying a
shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of
accounting, after initially being recognised at cost. The Group’s investments in associates includes goodwill identified on acquisition.
The Group’s share of its associates’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition other
comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against
the carrying amount of the investment. Dividends receivable from associates are recognised as a reduction in the carrying amount of
the investment.
(ii) Joint arrangements
A joint arrangement is a contractual arrangement whereby two or more parties undertake economic activities under joint control. Joint
control exists only when the strategic, financial and operational policy decisions relating to the activities of the joint arrangement require the
unanimous consent of the parties sharing control.
A joint arrangement is either a joint operation or a joint venture. The structure of each joint arrangement is analysed to determine whether
the joint arrangement is a joint operation or a joint venture. The classification of a joint arrangement is dependent on the rights and
obligations of the parties to the arrangement.
Joint operations
The Group recognises its proportional right to the assets, liabilities, revenues and expenses of joint operations and its share of any
jointly held or incurred assets, liabilities, revenues and expenses. These have been incorporated in the financial statements under the
appropriate headings.
Joint ventures
A joint venture is structured through a separate vehicle and the parties have rights to the net assets of the arrangement. Joint ventures are
accounted for using the equity method where the assets and liabilities will be aggregated into one line item on the face of the consolidated
balance sheet, after adjusting for the share of profit or loss after tax, which is shown as a separate line item on the face of the Consolidated
Statement of Profit or Loss and Other Comprehensive Income, after adjusting for amounts recognised directly in equity.
When the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture (which includes any long-term interests
that, in substance, form part of the Group’s net investment in the joint venture), the Group does not recognise further losses, unless it has
incurred obligations or made payments on behalf of the joint venture.
Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the
joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Accounting policies of the joint ventures have been changed where necessary, to ensure consistency with the policies adopted by
the Group.
Critical accounting estimates and judgements
There is significant judgement in assessing whether the Group controls Watagan. Even though it holds 100% of the nominal share capital.
An assessment has been made that in accordance with the accounting standards the Group does not control Watagan as it is not able to
direct the relevant activities of Watagan and accounts for its interest in Watagan as an associate.
128
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
E – GROUP STRUCTURE
E2 INTERESTS IN OTHER ENTITIES (CONTINUED)
(a) Joint operations
A controlled entity, Moolarben Coal Mines Pty Limited, has an 81% interest in the Moolarben Joint Venture whose principal activity is the
development and operation of open-cut and underground coal mines.
A controlled entity, Coal & Allied Operations Pty Ltd has a 67.6% interest in the Hunter Valley Operations Joint Venture whose principal activity is
the development and operation of open-cut coal mines.
A controlled entity, Mount Thorley Pty Ltd has an 80% interest in the Mount Thorley Joint Venture whose principal activity is the development and
operation of open-cut coal mines.
Controlled entities, CNA Workworth Associates Pty Ltd and CNA Resources Ltd, have a combined 55.6% interest in the Workworth Joint
Venture whose principal activity is the development and operation of open-cut mines.
A controlled entity, Yarrabee Coal Company Pty. Ltd., has a 50% interest in the Boonal Joint Venture, whose principal activity is the provision of a
coal haul road and train load out facility.
The principal place of business for the above joint operations is in Australia.
(b) Interests in associates and joint ventures
Set out below are the associates and joint ventures of the Group as at 31 December 2017. The entities listed below have share capital
consisting solely of ordinary shares, which are held directly by the Group. The country of incorporation or registration is also their principal place
of business.
Place of business/
country of
incorporation
% of ownership
interest
Nature of
relationship
Measurement
method
Name of entity
Newcastle Coal Infrastructure Group Pty Ltd Australia
Australia
Watagan Mining Company Pty Ltd
Australia
Port Waratah Coal Services Ltd
Australia
Middlemount Coal Pty Ltd
(i) Investment in associates
2017
%
27
100
36.53
49.9997
2016
%
27
100
–
49.9997
Associate
Associate
Associate
Joint Venture
Equity method
Equity method
Equity method
Equity method
Carrying
amount of
investment
2017
$M
–
–
191
60
2016
$M
–
–
–
5
Newcastle Coal Infrastructure Group Pty Ltd
The Group holds 27% (2016: 27%) of the ordinary shares of Newcastle Coal Infrastructure Group Pty Ltd (“NCIG”). Under the shareholder
agreement between the Group and other shareholders, the Group has 27% of the voting power of NCIG. The Group has the right to appoint a
director and is currently represented on the Board to partake in policy-making processes.
Watagan Mining Company Pty Ltd
During 2015 the Group established a 100% owned subsidiary, Watagan Mining Company Pty Ltd (“Watagan”). On 18 February 2016, the
Group executed a Bond Subscription Agreement, together with other agreements (the “Watagan Agreements”) that, on completion, transferred
the Group’s interest in three of its 100% owned NSW coal mining operations, being the Austar, Ashton and Donaldson coal mines (the “three
mines”), to Watagan for a purchase price of $1,363.4 million (an amount equal to the book value of the three mines at completion). The purchase
price was funded by way of a $1,363.4 million loan from Yancoal Australia Ltd to Watagan bearing interest at BBSY plus 7.06% with a maturity
date of 1 April 2025. The outstanding interest and principal of this loan is guaranteed by Yankuang Group Co., Ltd (“Yankuang”), the Group’s
ultimate parent entity. The completion date of the transaction was 31 March 2016.
On completion Watagan issued US$775 million of secured debt bonds with a term of approximately nine years to three external financiers
(“Bondholders”). The Bondholders will receive interest on the face value outstanding on the bonds comprising a fixed interest component, as
well as a variable interest component that is tied to the EBITDA performance of Watagan. Under the terms of the Watagan Agreements, it was
determined that upon issuance of the bonds the Group lost control of Watagan.
This loss of control was determined to occur on the issuance date of the bonds on the basis that the power over the key operating and strategic
decisions of Watagan no longer reside with the Group. Specifically, those powers were transferred to the Bondholders under the terms of the
Watagan Agreements as the Bondholders were given control of Watagan’s board of directors via appointment of the majority of directors. This
loss of control resulted in the Group de-consolidating the consolidated results of Watagan from the transaction completion date and the Group
began to equity account for its 100% equity interest in Watagan as an associate.
While Watagan is deconsolidated for accounting purposes, as a result of the Group’s ongoing 100% equity ownership it remains within the
Group’s tax consolidated group.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
129
Port Waratah Coal Services Ltd
The Group holds a direct shareholding in Port Waratah Coal Services Ltd (“PWCS”) and also an indirect shareholding through Newcastle Coal
Shippers Pty Ltd totaling 36.5% (2016: nil) of the ordinary shares of PWCS. Under the shareholder agreement between the Group and other
shareholders, the Group has 36.5% of the voting power of PWCS. The Group has the right to appoint a director and is currently represented on
the Board to partake in policy-making processes. The principal activities of PWCS were the provision of coal receivable, blending, stockpiling
and ship loading services in the Port of Newcastle.
Summarised financial information of associates
The information below reflects the Group’s share of the results of its principal associates and the aggregated assets and liabilities. They have
been amended to reflect adjustments made by the Group when using the equity method, including fair value adjustments and modifications for
differences in accounting policy.
NCIG
Watagan
PWCS
31 December
2017
$M
31 December
2016
$M
31 December
2017
$M
31 December
2016
$M
31 December
2017
$M
31 December
2016
$M
Cash and cash equivalent
Other current assets
Current assets
Property, plant and equipment
Mining tenements
Exploration and evaluation assets
Goodwill
Other non-current assets
Non-current assets
Total assets
Current liabilities
Deferred tax liability
Other non-current liabilities
Non-current liabilities
Total liabilities
Net Assets
Revenue
Management fees (Yancoal Australia Ltd)
Interest paid/payable (Bondholders)
Interest paid/payable (Yancoal Australia Ltd)
Other interest expenses
Depreciation & amortisation expenses
Gain/(loss) on foreign exchange
Other expenses
Income tax (expense)/benefit
Profit/(loss) from continuing operations
after tax
Other comprehensive income/(expense)
Total comprehensive income/(expense)
20
11
31
610
–
–
–
108
717
748
13
27
983
1,011
1,024
(276)
108
–
–
–
(55)
(31)
74
(29)
(29)
36
–
36
14
9
23
636
–
–
–
138
774
797
12
29
1,068
1,097
1,109
(312)
101
–
–
–
(56)
(29)
(5)
(21)
–
(11)
–
(11)
103
184
287
844
330
298
–
80
1,551
1,838
99
183
1,756
1,939
2,038
(200)
625
(56)
(102)
(67)
(5)
(136)
55
(382)
10
(58)
–
(58)
100
311
411
884
332
311
–
40
1,567
1,978
43
214
1,883
2,097
2,140
(162)
283
(38)
(54)
(75)
(5)
(90)
(36)
(98)
(48)
(162)
–
(162)
17
12
29
526
–
–
1
8
534
563
128
24
220
244
372
191
48
–
–
–
–
(17)
–
(31)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Movements in carrying amounts
The Group’s share of NCIG’s profit/(loss) after tax has not been recognised for the years ended 31 December 2017 and 31 December 2016
since the Group’s share of NCIG’s accumulated losses exceeds its interest in NCIG at 31 December 2017 and at 31 December 2016.
Apart from the initial $100 invested, the Group’s share of Watagan’s loss after tax has not been recognised for the year ended 31 December
2016 as the Group’s share of Watagan’s accumulated losses exceeds its interest in Watagan at 31 December 2016.
130
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
E – GROUP STRUCTURE
E2 INTERESTS IN OTHER ENTITIES (CONTINUED)
(b) Interests in associates and joint ventures (continued)
(i) Investment in associates (continued)
Movements in carrying amounts (continued)
Movements in PWCS carrying amounts
Acquisition of interest in associate
Dividends received
Closing net book amount
(ii) Interest in joint venture
31 December
2017
$M
31 December
2016
$M
197
(6)
191
–
–
–
Middlemount Coal Pty Ltd
A controlled entity, Gloucester (SPV) Pty Ltd, has a 49.9997% interest in the net assets of Middlemount Coal Pty Ltd (“Middlemount”), an
incorporated joint venture, whose principal activity is the development and operation of open-cut coal mines in the Bowen Basin.
Summarised financial information of joint venture
The following table provides summarised financial information for Middlemount. The information disclosed reflects the Group’s share of the
results of Middlemount and its aggregated assets and liabilities. They have been amended to reflect adjustments made by the Group when using
the equity method, including fair value adjustments and modifications for differences in accounting policy.
Cash and cash equivalents
Other current assets
Total current assets
Total non-current assets
Other current liabilities
Total current liabilities
Non-current financial liabilities
Other non-current liabilities
Total non-current liabilities
Net assets
Revenue
Depreciation and amortisation
Other expenses
Interest expense
Income tax (expense)/benefit
Profit/(loss) from continuing operations after tax
Movements in reserves, net of tax
Total comprehensive income/(expense)
31 December
2017
$M
2
78
80
31 December
2016
$M
6
59
65
488
63
63
340
105
445
60
332
(31)
(229)
(21)
(19)
32
23
55
546
113
113
390
103
493
5
249
(21)
(205)
(24)
(4)
(5)
2
(3)
The liabilities of Middlemount include an interest bearing liability of $331 million (face value of $350 million) due to the Group at 31 December
2017 (31 December 2016: $347 million). The repayment of the loan due to the Group can only be made by Middlemount after the full
settlement of all external borrowings (bank loans) and the Priority Loans owed to the other shareholder of Middlemount amounting to $16 million
(31 December 2016: $130 million). The liabilities of Middlemount also includes a royalty payable of $11 million due to the Group at 31 December
2017 (31 December 2016: $74 million).
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
131
Movements in carrying amounts
Opening net book amount
Share of profit/(loss) of equity-accounted investees, net of tax
Movements in reserves, net of tax
Closing net book amount
31 December
2017
$M
31 December
2016
$M
5
32
23
60
8
(5)
2
5
(iii) Commitments and contingent liabilities in respect of associates and joint ventures
There were no commitments and no contingent liabilities in respect of the Group’s associates as at 31 December 2017.
There were no commitments in respect of the Group’s interest in Middlemount at 31 December 2017.
Contingent liabilities in respect of the Group’s interest in Middlemount are set out in Note D7(iii).
E3 RELATED PARTY TRANSACTIONS
(a) Parent entities
The parent entity within the Group is Yancoal Australia Ltd. The Group’s parent entity is Yanzhou Coal Mining Company Limited (“Yanzhou”)
(incorporated in the People’s Republic of China). The ultimate parent entity and ultimate controlling party is Yankuang Group Corporation Limited
(incorporated in the People’s Republic of China).
(b) Transactions with other related parties
The following transactions occurred with related parties:
Sales of goods and services
Sales of coal to Noble Group Limited
Sales of coal to Watagan Mining Company Pty Ltd
Sales of coal to Yancoal International (Holding) Co., Ltd
Provision of marketing and administrative services to other related parties – Watagan Group
Provision of marketing and administrative services to other related parties – Yancoal International Group
Purchases of goods and services
Purchase of coal from Watagan Group
Purchases of coal from Syntech Resources Pty Ltd
Advances/loans to and repayment of advances
Loan to Watagan Mining Company Pty Ltd
Net repayment of loan to Watagan Mining Company Pty Ltd
Repayment/(advances) to a related party – Premier Coal Holdings Pty Ltd
Equity subscription, debt repayment and debt provision
Loans from Yanzhou Coal Mining Company Limited
Finance costs
Interest paid on loans from Yancoal International Resources Development Co., Ltd
Interest accrued on loans from Yancoal International Resources Development Co., Ltd
Interest paid on loans from Yanzhou Coal Mining Company Ltd
Interest accrued on loans from Yanzhou Coal Mining Company Ltd
Interest paid on loans from Yancoal International (Holding) Co., Ltd
Interest accrued on loans from Yancoal International (Holding) Co., Ltd
Interest paid on loans from Yancoal International Trading Co., Ltd HK
Interest paid on loans from Yancoal International Trading Co., Ltd HK
31 December
2017
$
31 December
2016
$
195,466,360
76,188,812
–
5,653,000
8,081,338
285,389,510
162,253,762
60,583,319
40,700,933
6,517,672
9,598,367
279,654,053
(161,481,064)
(38,731,161)
(200,212,225)
(48,347,776)
(30,386,783)
(78,734,559)
62,838,635
35,000,000
(97,838,635)
– (1,363,372,059)
588,372,059
(35,000,000)
810,000,000
329,615,625
329,615,625
351,947,846
351,947,846
(7,616,799)
(1,120,611)
(22,382,991)
(34,421,625)
(4,746,200)
(3,761,855)
(9,029,738)
(7,523,709)
(90,603,528)
(7,651,933)
(1,207,955)
(17,520,090)
(25,204,592)
(4,698,513)
(4,055,067)
(7,471,634)
(8,110,134)
(75,919,918)
132
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
E – GROUP STRUCTURE
E3 RELATED PARTY TRANSACTIONS (CONTINUED)
(b) Transactions with other related parties (continued)
Other costs
Corporate guarantee fee paid to Yanzhou Coal Mining Company Limited (extended portion)
Corporate guarantee fee accrued to Yanzhou Coal Mining Company Limited (extended portion)
Port charges paid to NCIG Holdings Pty Limited
Port charges accrued to NCIG Holdings Pty Limited
Bank guarantee fee charged to Yancoal International (Holding) Co; Ltd
Arrangement fee paid on loans from Yancoal International Resources Development Co., Ltd
Arrangement fee accrued on loans from Yancoal International Resources Development Co., Ltd
Finance income
Interest income received from Premier Coal Holdings Pty Ltd
Interest income capitalised into loan receivable from Middlemount Coal Pty Ltd
Interest income received on loan to Watagan Mining Company Pty Ltd
Interest income receivable from Watagan Mining Company Pty Ltd
Other income
Mining services fees charged to Watagan Mining Company Pty Ltd
Royalty income from Middlemount Coal Pty Ltd
Bank guarantee fee charged to Premier Coal Holdings Pty Ltd
Bank guarantee fee charged to Syntech Resources Pty Ltd
Longwall hire fee charged to Austar Coal Mine Pty Ltd
31 December
2017
$
31 December
2016
$
(117,670,635)
23,742,185
(102,076,022)
(14,102,862)
–
(1,955,923)
19,359
(212,043,898)
(49,050,753)
(51,814,273)
(68,496,548)
(2,069,401)
(13,442)
(1,718,186)
(267,732)
(173,430,335)
1,658,494
26,922,477
50,517,011
16,292,548
95,390,530
51,853,076
27,572,213
26,329
112,419
3,000,000
82,564,037
1,150,969
18,797,033
74,531,961
–
94,479,963
38,413,132
20,492,118
310,849
1,355,706
2,567,334
63,139,139
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
133
(c) Outstanding balances arising from transactions with related parties
Balances outstanding at the reporting date to/from related parties are unsecured, non-interest bearing (except for loans receivable and loans
payable) and are repayable on demand.
The following balances are outstanding at the end of the reporting period in relation to transactions with related parties:
Current assets
Trade and other receivables
Receivable from Yancoal International Group in relation to cost reimbursement
Receivable from Watagan Group entities in relation to cost reimbursement
Trade receivable from Noble Group Limited in relation to sales of coal
Promissory Notes receivable from Yancoal International (Holding) Co., Ltd
Royalty receivable from Middlemount Coal Pty Ltd
Loan receivable from Premier Coal Holdings Pty Ltd
Promissory Notes receivable from Oz Star Ningbo Trading Co Ltd
Interest income receivable from Watagan Mining Company Pty Ltd
Other receivable from Yankuang Entities
Non-current assets
Advances to joint venture
Receivable from Middlemount Coal Pty Ltd being an unsecured, non-interest bearing advance
Receivable from Watagan Mining Company Pty Ltd being an unsecured, interest-bearing loan
Current liabilities
Other payables
Payables to Yanzhou Coal Mining Company Limited
Payables to Yancoal International Resources Development Co., Ltd
Payables to Yancoal International (Holding) Co., Ltd
Payables to Noble Group Limited
Payables to Yancoal International Trading Co., Ltd HK
Other payable to Watagan Group Entities
Non-current liabilities
Other payables
Payable to Yancoal International Resources Development Co., Ltd being an unsecured,
interest-bearing loan
Payable to Yancoal International (Holding) Co., Ltd being an unsecured, interest-bearing loan
Payable to Yancoal International Trading Co., Ltd HK being an unsecured, interest-bearing loan
Payable to Yanzhou Coal Mining Company Limited being an unsecured, interest-bearing loan
31 December
2017
$
31 December
2016
$
10,966,329
–
42,267,396
–
11,171,154
197,951
35,897,436
16,292,548
24,188
116,817,002
5,245,415
823,277
40,602,900
21,174,124
73,690,232
35,000,000
–
–
–
176,535,948
331,686,091
712,161,365
1,043,847,456
346,845,834
775,000,000
1,121,845,834
81,065,644
1,368,984
3,761,855
–
7,523,709
31,775,584
125,495,776
77,018,865
1,475,687
4,055,067
234,317
8,110,134
–
90,894,070
148,713,974
128,205,128
256,410,256
993,177,599
1,526,506,957
160,305,279
138,197,899
276,395,799
715,282,394
1,290,181,371
134
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
E – GROUP STRUCTURE
E3 RELATED PARTY TRANSACTIONS (CONTINUED)
(d) Guarantees
The bankers of the Group have issued undertakings and guarantees to government departments, and various external parties on behalf of the
following related entities:
Syntech Resources Pty Ltd
AMH (Chinchilla Coal) Pty Ltd
Premier Coal Limited
Tonford Holdings Pty Ltd
Athena Joint Venture
Ashton Coal Mines Ltd
Austar Coal Mine Pty Ltd
Donaldson Coal Pty Ltd
Yankuang Resources Pty Ltd
31 December
2017
$
31 December
2016
$
84,693,965
49,000
29,000,000
10,000
2,500
15,466,954
29,325,000
7,372,000
45,324
88,213,921
29,000
29,000,000
10,000
2,500
12,287,795
27,035,000
7,322,000
107,805
165,964,743 164,008,021
Refer to Note D7(i) for details of the natures of the guarantees provided.
(e) Terms and conditions
Transactions between related parties are usually on normal commercial terms and conditions no more favourable than those available to other
parties unless otherwise stated.
The US$116.0 million loan obtained in 2013 from Yancoal International Resources Development Co., Ltd was charged at a fixed interest rate of
7.00% p.a (inclusive of arrangement fees).
On 31 December 2014 an AU$1,400 million facility was provided by Yanzhou at a fixed interest rate of 7% on any amounts drawn. During 2017
an additional US$150 million was drawn (D2(c)). As at 31 December 2017 a total of US$832 million has been drawn.
On 31 December 2014 a US$807 million facility was provided by Yanzhou at a fixed interest rate of 7% on any amounts drawn. During 2017 an
additional US$83 million was drawn (D2(c)). As at 31 December 2017 a total of US$243 million has been drawn.
Yanzhou provided corporate guarantees as security for the following facilities:
– Syndicated facility and bi-lateral facility (converted to a bank guarantee facility in 2016) – a fixed rate of 2.5% is charged on the outstanding
loan principal and outstanding bank guarantee facility limit.
– ICBC bank guarantee facility – a fixed rate of 2.0% is charged on the facility limit of AUD 100 million. This corporate guarantee was cancelled
on 30 September 2017.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
135
E4 PARENT ENTITY FINANCIAL INFORMATION
Accounting Policy
(a) Investments in subsidiaries, associates and joint arrangements
Investments in subsidiaries, associates and joint arrangements are accounted for at cost less any impairment in the financial statements
of Yancoal Australia Ltd. Dividends received from associates are recognised in the parent entity’s profit or loss, rather than being deducted
from the carrying amount of these investments.
(b) Tax consolidation legislation
Yancoal Australia Ltd and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation.
The head entity, Yancoal Australia Ltd, and the entities in the tax consolidated group account for their own current and deferred tax amounts.
These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right.
In addition to its own current and deferred tax amounts, Yancoal Australia Ltd also recognises the current tax liabilities (or assets) and the
deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.
The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Yancoal Australia Ltd for
any current tax payable assumed and are compensated by Yancoal Australia Ltd for any current tax receivable and deferred tax assets relating
to unused tax losses or unused tax credits that are transferred to Yancoal Australia Ltd under the tax consolidation legislation as loans between
entities. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements.
The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is
issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to
assist with its obligations to pay tax instalments.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable
from or payable to other entities in the Group.
Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a
contribution to (or distribution from) wholly owned tax consolidated entities.
(a) Summary financial information
The individual financial statements for the parent entity, Yancoal Australia Ltd show the following aggregate amounts:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Contributed equity
Reserves
Cash flow hedges
Retained earnings
Capital and reserves attributable to the owners of Yancoal Australia Ltd
Loss for the year
Other comprehensive income
Total comprehensive expense
31 December
2017
$M
31 December
2016
$M
361
9,850
10,211
1,134
4,651
5,785
4,426
232
6,780
7,012
163
5,303
5,466
1,546
6,217
3,115
(413)
(1,378)
4,426
(550)
376
(174)
(817)
(752)
1,546
(1,066)
90
(976)
(b) Guarantees entered into by the parent entity
As at 31 December 2017, the parent entity had contingent liabilities in the form of a bank guarantee amounting to $1,041 million (2016:
$441 million) in support of the operation of the entity, its subsidiaries and related parties (refer to Note E3).
(c) Contingent liabilities of the parent entity
There are cross guarantees given by Yancoal Australia Ltd and certain subsidiaries as described in Note E5.
The parent entity did not have any contingent liabilities as at 31 December 2017, except for those described in Note D7.
136
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
E – GROUP STRUCTURE
E5 CONTROLLING INTERESTS
(a) Significant investments in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following principal subsidiaries:
Equity holding
Name of entity
The Company
Yancoal Australia Ltd (i)
Controlled entities
Yancoal SCN Ltd (iv)
Yancoal Australia Sales Pty Ltd (i) (iii)
Yancoal Resources Limited (iii)
Yancoal Mining Services Pty Ltd
Moolarben Coal Mines Pty Ltd (iii)
Moolarben Coal Operations Pty Ltd
Moolarben Coal Sales Pty Ltd
Felix NSW Pty Ltd
SASE Pty Ltd
Yarrabee Coal Company Pty. Ltd. (iii)
Proserpina Coal Pty Ltd
Athena Coal Operations Pty Ltd
Athena Coal Sales Pty Ltd
Gloucester Coal Ltd (i) (iii)
Westralian Prospectors NL (i)
Eucla Mining NL (i)
CIM Duralie Pty Ltd (ii)
Duralie Coal Marketing Pty Ltd (ii)
Duralie Coal Pty Ltd (i) (iii)
Gloucester (SPV) Pty Ltd (iii)
Gloucester (Sub Holdings 2) Pty Ltd (ii)
CIM Mining Pty Ltd (i)
Monash Coal Holdings Pty Ltd (ii)
CIM Stratford Pty Ltd (i)
CIM Services Pty Ltd (ii)
Monash Coal Pty Ltd (ii) (iii)
Stratford Coal Pty Ltd (ii) (iii)
Stratford Coal Marketing Pty Ltd (ii)
Paway Ltd
Coal & Allied Industries Ltd
Kalamah Pty Ltd
Coal & Allied (NSW) Pty Ltd
Australian Coal Resources Ltd
Coal & Allied Operations Pty Ltd
HV Operations Pty Ltd
Lower Hunter Land Holdings Pty Ltd
Oaklands Coal Pty Ltd
Novacoal Australia Pty Ltd
Port Waratah Coal Services Ltd
CNA Resources Ltd
CNA Warkworth Pty Ltd
Coal & Allied Mining Services Pty Ltd
RW Miller (Holdings) Ltd
Mount Thorley Coal Loading Ltd
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
British Virgin Islands
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
2017
%
100
100
100
100
100
100
100
100
100
90
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
37
100
100
100
100
66
2016
%
100
100
100
100
100
100
100
100
100
90
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
137
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Equity holding
2017
%
100
100
100
100
100
100
68
100
100
100
100
80
56
56
56
56
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
2016
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Name of entity
Gwandalan Land Pty Ltd
Nords Wharf Land Pty Ltd
Catherine Hill Bay Land Pty Ltd
Black Hill Land Pty Ltd
Minmi Land Pty Ltd
Namoi Valley Coal Pty Ltd
HVO Coal Sales Pty Ltd
CNA Warkworth Australasia Pty Ltd
CNA Bengalla Investments Pty Ltd
Mount Thorley Operations Pty Ltd
Northern (Rhondda) Collieries Pty Ltd
Miller Pohang Coal Company Pty Ltd
Warkworth Mining Ltd
Warkworth Pastoral Company Pty Ltd
Warkworth Tailings Treatment Pty Ltd
Warkworth Coal Sales Ltd
Parallax Holdings Pty Ltd
HVO Services Pty Ltd
Non controlled entities (v)
Watagan Mining Company Pty Ltd
Austar Coal Mine Pty Limited (i) (iii)
White Mining Limited
White Mining Services Pty Limited
White Mining (NSW) Pty Limited (iii)
Ashton Coal Operations Pty Limited
Ashton Coal Mines Ltd (iii)
Gloucester (Sub Holdings 1) Pty Ltd (i)
Donaldson Coal Holdings Ltd (i)
Donaldson Coal Pty Ltd (i) (iii)
Donaldson Coal Finance Pty Ltd (ii)
Abakk Pty Ltd (ii)
Newcastle Coal Company Pty Ltd (i) (iii)
Primecoal International Pty Ltd (ii)
(i) These subsidiaries have been granted relief from the requirement to prepare financial reports in accordance with ASIC Legislative Instrument
2016/785. These subsidiaries represent the closed group for the purposes of the class order. For further information refer to Note E6.
(ii) These subsidiaries are members of the extended closed group for the purposes of ASIC Legislative Instrument 2016/785. For further
information refer to Note E6.
(iii) These entities are considered to be the material controlled entities of the Group. Their principal activities are the exploration, development,
production and marketing of metallurgical and thermal coal.
(iv) This entity is considered to be a material controlled entity of the Group. The principal activities are financing and the issue of Subordinated
Capital Notes.
(v) On 31 March 2016 the Group lost control of Watagan Mining Company Pty Ltd and its subsidiaries. For furthur information refer to Note E2.
The subsidiaries as listed have share capital consisting solely of ordinary shares and subordinated capital notes, which are held directly by the
Group, and the proportion of ownership interests held equals to the voting rights held by the Group apart from the non-controlled entities that
are 33% being the current proportion of board members. The country of incorporation or registration is also their principal place of business.
138
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
E – GROUP STRUCTURE
E6 DEED OF CROSS GUARANTEE
Yancoal Australia Ltd and certain subsidiaries (refer to Note E5), are parties to a deed of cross guarantee under which each company guarantees
the debts of the others. By entering into the deed, the wholly owned entities have been relieved from the requirement to prepare a financial
report and Directors’ Report under Legislative Instrument 2016/785 issued by the Australian Securities and Investments Commission.
(a) Consolidated statement of profit or loss and other comprehensive income
Set out below is a Consolidate Statement of Profit or Loss and Other Comprehensive Income and a summary of movements in consolidated
retained earnings for the year ended 31 December 2017 of the entities included in the deed of cross guarantee consisting of Yancoal Australia
Ltd and certain subsidiaries. For details regarding the closed group and the extended closed group refer to Note E5.
Revenue
Other income
Changes in inventories of finished goods and work in progress
Raw materials and consumables used
Employee benefits expense
Depreciation and amortisation expense
Coal purchases
Transportation expenses
Contractual services and plant hire expenses
Government royalties expense
Other operating expenses
Finance costs
Loss before income tax
Income tax benefit
Loss for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Cash flow hedges:
Fair value losses taken to equity
Fair value losses transferred to profit or loss
Deferred income tax benefit
Other comprehensive expense for the period, net of tax
Total comprehensive expense for the year
Summary of movements in consolidated retained earnings
Retained earnings at the beginning of the financial year
Loss after income tax
Distributions to SCN holders
Retained earnings at the end of the financial year
31 December
2017
$M
31 December
2016
$M
354
26
(5)
(13)
(118)
(25)
(312)
(55)
(76)
(6)
(227)
(244)
(701)
156
(545)
(348)
(229)
173
(404)
(949)
(698)
(545)
(75)
(1,318)
305
18
(4)
(28)
(105)
(32)
(210)
(67)
(34)
(6)
(90)
(213)
(466)
196
(270)
43
(133)
27
(63)
(333)
(254)
(270)
(174)
(698)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
139
(b) Consolidated balance sheet
Set out below is a consolidated balance sheet as at 31 December 2017 of the entities included in the deed of cross guarantee consisting of
Yancoal Australia Ltd and certain subsidiaries. For details regarding the closed group and the extended closed group refer to Note E5.
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Receivable from disposal of joint venture interest
Royalty receivable
Total current assets
Non-current assets
Trade and other receivables
Other financial assets
Property, plant and equipment
Mining tenements
Interest-bearing loan to associates
Deferred tax assets
Intangible assets
Exploration and evaluation assets
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest-bearing liabilities
Derivative financial instruments
Provisions
Non-contingent royalty payable
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Deferred tax liabilities
Provisions
Non-contingent royalty payable
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
31 December
2017
$M
31 December
2016
$M
164
451
11
10
13
28
677
37
6,791
372
270
712
1,024
1
273
11
9,491
10,168
596
8
–
7
119
730
4,705
145
61
41
4,952
5,682
4,486
5,954
(150)
(1,318)
4,486
119
1,287
16
1
–
–
1,423
49
3,243
360
270
775
1,303
2
272
–
6,274
7,697
860
7
1
6
–
874
4,926
250
47
–
5,223
6,097
1,600
3,115
(817)
(698)
1,600
140
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
F – OTHER INFORMATION
This section provides details on other required disclosures relating to the Group to comply with the accounting standards and other
pronouncements. Information is provided on remuneration of auditors, commitments, events occurring after balance date, reconciliation of profit
after income tax to net cash inflow, other accounting policies and new and amended accounting policies.
F1 COMMITMENTS
(a) Capital commitments
Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows:
Property, plant and equipment
Not later than one year
Share of joint operations
Other
Exploration and evaluation
(b) Lease expenditure commitments
(i) Non-cancellable operating leases
Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:
Not later than one year
Later than one year but not later than five years
31 December
2017
$M
31 December
2016
$M
33
–
33
138
1
139
31 December
2017
$M
31 December
2016
$M
38
149
187
25
67
92
The Group leases mining equipment, office space and small items of office equipment under operating leases. The leases typically run for
1 month to 5 years with an option to renew at the expiry of the lease period. None of the leases include contingent rentals.
(ii) Finance leases
Commitments in relation to finance leases are payable as follows:
Not later than one year
Later than one year but not later than five years
Minimum lease payments
Less: future finance charges
Total lease liabilities
Finance leases are included in the financial statements as:
Current lease liability (refer to Note D2)
Non-current lease liability (refer to Note D2)
31 December
2017
$M
31 December
2016
$M
19
42
61
(6)
55
17
38
55
24
53
77
(9)
68
20
47
67
(c) Acquisition from Mitsubishi Developments Pty Ltd
As announced on 27 July 2017 the Company has exercised its call option to Mitsubishi Developments Pty Ltd (MDP) to purchase MDP’s 28.9%
interest in the Warkworth Joint Venture for $US230 million less the US$10 million call option fee already paid. The acquisition is expected to
complete on 1 March 2018.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017
FINANCIAL STATEMENTS
ANNUAL REPORT 2017
141
F2 REMUNERATION OF AUDITORS
During the year the following fees were paid or payable for services provided by the auditor of the Group, its related practices and non-related
audit firms:
(a) ShineWing Australia
Audit and other assurance services
Other assurance services
Taxation compliance services
Total remuneration of ShineWing Australia
31 December
2017
$000
31 December
2016
$000
1,259
1,010
54
2,323
812
434
–
1,246
During the year ended 31 December 2017 Ernst & Young provided services relating to the audit and review of Middlemount’s financial
statements of $36,000 (Yancoal 49.9997% share, 2016: $32,500).
F3 RECONCILIATION OF GAIN/(LOSS) AFTER INCOME TAX TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES
Profit/(loss) after income tax
Non-cash flows in profit or loss:
Depreciation and amortisation of non-current assets
Release of provisions
Capitalised interest income from joint venture
Unwinding of discount on royalty receivable
Unwinding of discount on provisions
Fair value loss/(gain) on financial assets/liabilities
Net loss on disposal of property, plant and equipment
Stamp duty accrual
Impairment reversal of mining tenements
Fair value losses recycled from hedge reserve
Foreign exchange (gains)/losses
Finance lease interest expenses
Gain on acquisition
Gain on remeasurement of royalty receivables
Unwind of discount on non-contingent royalty
Share of (profit)/loss of equity-accounted investees, net of tax
Changes in assets and liabilities:
Decrease/(increase) in deferred tax assets
(Decrease)/increase in inventories
Increase in operating receivables
Increase in operating payables
(Increase)/decrease in prepayments
(Decrease)/increase in deferred tax liabilities
Decrease in provisions
Net cash inflow/(outflow) from operating activities
31 December
2017
$M
31 December
2016
$M
229
256
(86)
(18)
(21)
50
–
4
9
(100)
229
20
4
(177)
(8)
13
(32)
445
(11)
(148)
124
(10)
(364)
–
408
(227)
133
(13)
(19)
(21)
5
6
7
(5)
–
133
1
4
–
–
–
5
(199)
10
(50)
131
9
70
(4)
(24)
142
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
F – OTHER INFORMATION
F4 EVENTS OCCURRING AFTER THE REPORTING PERIOD
No matter or circumstances have occurred subsequent to the end of
the financial year which has significantly affected, or may significantly
affect, the operations of the Group, the result of those operations or
the state of affairs of the Group in subsequent financial periods except
for the following matters:
In accordance with the Terms of Issue of the Subordinated Capital
Notes issued by Yancoal SCN Limited in December 2014, the next
distribution payment date for the SCNs occurred on 31 January 2018.
The distribution was paid at a rate of 7% per annum or US$3.50 per
SCN. The total amount distributed was US$17,150.
F5 OTHER SIGNIFICANT ACCOUNTING POLICIES
(a) Foreign currency transactions
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (‘the functional currency’).
The consolidated financial statements are presented in Australian
dollars, which is the Group’s functional and presentation currency,
except for Yancoal SCN Limited which has the US dollars as its
functional currency.
For the purpose of presenting these consolidated financial statements,
the assets and liabilities of the Group’s foreign operations are
translated into Australian dollars using exchange rates prevailing at the
end of the reporting period. Income and expense items are translated
at the average exchange rates for the period, unless exchange rates
fluctuated significantly during that period, in which case the exchange
rates at the dates of the transactions are used. Exchange differences
arising, if any, are recognised in other comprehensive income and
accumulated in equity.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in profit or loss, except when they
are deferred in equity as qualifying cash flow hedges.
Non-monetary items that are measured at fair value in a foreign
currency are translated using the exchange rates at the date when
the fair value was determined. Translation differences on assets and
liabilities carried at fair value are reported as part of the fair value gain
or loss. Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange rate at
the date of the transaction.
F6 NEW AND AMENDED STANDARDS ADOPTED BY THE GROUP
The Group was not required to change any of its accounting
policies as the result of new or revised accounting standards which
became effective for the annual reporting period commencing on
1 January 2017.
The new standards that are applicable to for the first time for the year
ended 31 December 2017 are:
AASB 1057 – Application of Australian Accounting Standards
AASB 2014 – 4 – Amendments to Australian Accounting Standards
– Clarification of Acceptable Methods of Depreciation
and Amortisation
AASB 2014 – 9 – Equity Accounting in Separate Financial Statements
AASB 2014 –10 – Sale or Contribution of Assets between An Investor
and its Associate or Joint Venture
AASB 2015 – 1 – Amendments to Australian Accounting Standards
– Annual Improvements to Australian Accounting Standards
2012-2014 Cycle
AASB 2015 – 3 – Amendments to Australian Accounting Standards
arising from the Withdrawal of AASB 1031 Materiality
AASB 2015 – 4 – Amendments to Australian Accounting Standards
– Financial Reporting Requirements for Australian Groups with a
Foreign Parent
AASB 2015 – 5 – Amendments to Australian Accounting Standards
– Investment Entities: Applying the Consolidation Exception
AASB 2015 – 9 – Amendments to Australian Accounting Standards
– Scope and Application Paragraphs
These standards have introduced new disclosures for the Annual
Financial Report but did not affect the Group’s accounting policies or
any of the amounts recognised in the financial statements.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
143
F7 NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2017 reporting periods and
have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below.
Reference and Title
Details of New Standard/Amendment/Interpretation
AASB 9
Financial Instruments
Amends the requirements for classification and measurement of financial assets. The available-for-sale
and held-to-maturity categories of financial assets in AASB 139 have been eliminated. Under AASB 9,
there are three categories of financial assets:
Application date
for the Group
1 January 2018
a) Amortised cost
b) Fair value through profit or loss
c) Fair value through other comprehensive income
The standard introduces an ‘expected credit loss’ model for the measurement of the impairment of
financial assets, so it is no longer necessary for a credit event to have occurred before a credit loss
is recognised.
The following requirements have generally been carried forward unchanged from AASB 139 Financial
Instruments: Recognition and Measurement into AASB 9:
a) Classification and measurement of financial liabilities; and
b) Derecognition requirements for financial assets and liabilities
However, AASB 9 requires that gains or losses on financial liabilities measured at fair value are recognised
in profit or loss, except that the effects of changes in the liability’s credit risk are recognised in other
comprehensive income.
Impact:
AASB 16
The Directors anticipate that the adoption of AASB 9 will have no impact on the recognition of amounts
in the Group’s financial statements, including hedging activity, it is impracticable at this stage to provide a
reasonable estimate of such impact, but there will be additional disclosures required.
Leases
This standard introduces a single lessee accounting model that eliminates the requirement for leases to
be classified as operating or finance leases.
1 January 2019
The main changes introduced by the new standard include:
a) Recognition of a right-to-use asset and liability for all leases (excluding short term leases with less than
12 months of tenure an leases relating to low value assets);
b) Deprecation of right-to-use assets in-line with AASB 116 Property, plant and equipment in profit or
loss and unwinding of the liability in principal and interest components;
c) Variable lease payments that depend on an index or a rate are included in the initial measurement of
the lease liability using the index or rate at the commencement date;
d) By applying a practical expedient, a lessee is permitted to elect not to separate non-lease components
and instead account all components as a lease; and
e) Additional disclosure requirements.
Impact:
AASB 15
Although the Directors anticipate that the adoption of AASB 16 will impact the Group’s financial
statements, it is impracticable at this stage to provide a reasonable estimate of such impact.
Revenue from Contracts with Customers
An entity will recognise revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. This means that revenue will be recognised when control of goods or
services is transferred, rather than on transfer of risks and rewards as is currently the case under AASB
118 Revenue.
Impact:
The Directors anticipate that the adoption of AASB 15 will have no impact on the recognition of amounts
in the Group’s financial statements, but there will be additional disclosures required.
1 January 2018
144
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
F – OTHER INFORMATION
Reference and Title
AASB 2014-1
Details of New Standard/Amendment/Interpretation
Amendments to Australian Accounting Standards (Part E)
Part E of this Standard defers the application date of AASB 9: Financial Instruments (December 2010)
to annual reporting periods beginning on or after 1 January 2018. This part also makes consequential
amendments to hedge accounting disclosures set out in AASB 7: Financial Instruments: Disclosures,
and to AASB 132: Financial Instruments: Presentation to permit irrevocable designation of “own use
contracts” as measured at fair value through profit or loss if the designation eliminates or significantly
reduces an accounting mismatch.
AASB 2014-10
Impact:
The Group is currently adhering to this standard and there is no material impact expected on the Group’s
financial report.
Amendments to Australian Accounting Standards – Sale or Contribution
of Assets between an Investor and its Associate or Joint Venture
This Standard amends AASB 10: Consolidated Financial Statements with regards to a parent losing
control over a subsidiary that is not a “business” as defined in AASB 3 to an associate or joint venture,
and requires that:
a) a gain or loss (including any amounts in other comprehensive income (OCI)) be recognised only to the
extent of the unrelated investor’s interest in that associate or joint venture;
b) the remaining gain or loss be eliminated against the carrying amount of the investment in that
associate or joint venture; and
Application date
for the Group
1 January 2018
1 January 2018
AASB 2016-5
AASB
Interpretation 22
c) any gain or loss from remeasuring the remaining investment in the former subsidiary at fair value also
be recognised only to the extent of the unrelated investor’s interest in the associate or joint venture. The
remaining gain or loss should be eliminated against the carrying amount of the remaining investment.
The application of AASB 2014-10 will result in a change in accounting policies for transactions of loss of
control over subsidiaries (involving an associate or joint venture) that are businesses per AASB 3 for which
gains or losses were previously recognised only to the extent of the unrelated investor’s interest.
Impact:
The Group is currently adhering to this standard and there is no material impact expected on the Group’s
financial report.
Amendments to Australian Accounting Standards – Classification and
Measurement of Share-based Payment Transactions
This standard provides guidance on treatment of vesting conditions in a cash-settled share based
payment arrangement that are similar to what has been prescribed for equity settled share based
payment arrangements. It also clarifies that, subject to certain exceptions, share based payment
transactions with net-settlement feature on account of withholding tax obligations should be classified in
entirety as equity settled share based payment.
1 January 2018
Impact:
Since the Group does not have a policy of cash-settled share based awards or net-settlement features in
equity settled plans, this standard is not expected to impact the Group’s financial statements.
Foreign Currency Transactions and Advance Consideration
The amendment to AASB 107 introduces additional disclosures that will enable users of financial
statements to evaluate changes in liabilities arising from financing activities. The amendment requires
disclosure of changes arising from:
– cash flows, such as drawdowns and repayments of borrowings, and
– non-cash changes, such as acquisitions, disposals and unrealised exchange differences.
1 January 2018
Impact:
The Group is currently adhering to this standard and there is no material impact expected on the Group’s
financial report.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS
ANNUAL REPORT 2017
145
Reference and Title
AASB 2017-6
AASB 2017-7
Details of New Standard/Amendment/Interpretation
Amendments to Australian Accounting Standards – Prepayment
Features with Negative Compensation
This Standard amends AASB 9 Financial Instruments to permit entities to measure at amortised cost
or fair value through other comprehensive income particular financial assets that would otherwise have
contractual cash flows that are solely payments of principal and interest but do not meet that condition
only as a result of a prepayment feature. This is subject to meeting other conditions, such as the nature of
the business model relevant to the financial asset. Otherwise, the financial assets would be measured at
fair value through profit or loss. The Standard also clarifies in the Basis for Conclusion that, under AASB
9, gains and losses arising on modifications of financial liabilities that do not result in derecognition should
be recognised in profit or loss.
Application date
for the Group
1 January 2019
Impact:
The Directors anticipate that the adoption of AASB 2017-6 will have no impact on the recognition of
amounts in the Group’s financial statements, but there will be additional disclosures required.
Amendments to Australian Accounting Standards – Long-term Interests
in Associates and Joint Ventures
This Standard amends AASB 128 Investments in Associates and Joint Ventures to clarify that an entity
is required to account for long term interests in an associate or joint venture, which in substance form
part of the net investment in the associate or joint venture but to which the equity method is not applied,
using AASB 9 Financial Instruments before applying the loss allocation and impairment requirements in
AASB 128.
Impact:
1 January 2019
Not yet issued
by the AASB
The Directors anticipate that the adoption of AASB 2017-7 will have no impact on the recognition of
amounts in the Group’s financial statements, but there will be additional disclosures required.
Annual Improvements to IFRS Standards 2015-2017 Cycle
The amendments clarify certain requirements in:
a) IFRS 3 Business Combinations and IFRS 11 Joint Arrangements – previously held interest in a
1 January 2019
joint operation
b) IAS 12 Income Taxes – income tax consequences of payments on financial instruments
classified as equity
AASB
Interpretation 23,
and relevant
amending
standards
c) IAS 23 Borrowing Costs – borrowing costs eligible for capitalisation.
Uncertainty over Income Tax Treatments
The Interpretation clarifies the application of the recognition and measurement criteria in AASB 112
Income Taxes when there is uncertainty over income tax treatments. The Interpretation specifically
addresses the following:
a) Whether an entity considers uncertain tax treatments separately
1 January 2019
b) The assumptions an entity makes about the examination of tax treatments by taxation authorities
c) How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits
and tax rates
d) How an entity considers changes in facts and circumstances.
The Group is currently adhering to this standard and there is no material impact expected on the Group’s
financial report.
146
YANCOAL AUSTRALIA LTD
FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
31 DECEMBER 2017
In the Directors’ opinion:
a) the financial statements and notes set out on pages 82 to 145 are in accordance with the Corporations Act 2001, including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and
(ii) giving a true and fair view of the Group’s financial position as at 31 December 2017 and of its performance for the year ended on that
date, and
b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable, and
c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in Note E6
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 described
in Note E6.
Note (i) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
The Directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the
Corporations Act 2001.
This declaration is made in accordance with a resolution of Directors.
Baocai Zhang
Director
ANNUAL REPORT 2017
147
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF YANCOAL AUSTRALIA LTD AND CONTROLLED ENTITIES
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the accompanying financial report of Yancoal Australia Ltd (the “Company”), which comprises
the consolidated balance sheet as at 31 December 2017, the consolidated statement of profit or loss and other
comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash
flows for the year then ended, notes comprising a summary of significant accounting policies and other
explanatory information, and the directors’ declaration of the consolidated entity comprising the Company and
the entities it controlled at the year’s end or from time to time during the financial year (the “Group”).
In our opinion:
a)
the financial report of Yancoal Australia Ltd and controlled entities is in accordance with the Corporations Act
2001, including:
i. giving a true and fair view of the Group’s financial position as at 31 December 2017 and of its
performance for the year ended on that date; and
ii. complying with Australian Accounting Standards and the Corporations Regulations 2001.
b)
the financial report also complies with International Financial Reporting Standards as disclosed in Note A(i).
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we
comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain
reasonable assurance about whether the financial report is free from material misstatement. Our responsibilities
under those standards are further described in the Auditor’s Responsibility section of our report. We are
independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants
(the “Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical
responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key Audit Matters (“KAMs”)
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
consolidated financial report for the year ended 31 December 2017. These matters were addressed in the context
of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
ShineWing Australia ABN 39 533 589 331. Liability limited by a scheme approved under Professional Standards Legislation. Shin eWing Australia is an independent member of
ShineWing International Limited – members in principal cities throughout the world.
147
INDEPENDENT AUDITOR’S REPORT
148
YANCOAL AUSTRALIA LTD
How the matter was addressed during the audit
Our audit procedures included, among others:
• Assessing the source and appropriateness of key
assumptions made in the purchase price allocation,
including coal prices, life of mine plans,
operating/capital costs, discount rates, inflation rates
and foreign exchange rates. We compared these
assumptions with external benchmarks and reports
prepared by appropriate experts;
• In assessing key assumptions, we utilised our
valuation experts who assisted with assessing the
valuation methodology against accepted industry
practice, discount rates, cross checks of the valuation,
coal prices and forecast foreign exchange rates;
• Comparing the accounting valuation and taxation
valuation to check the deferred taxation calculations to
consider whether deferred taxation balances were
recognised appropriately;
• Agreeing the consideration paid to supporting
documentation, agreeing the accounting entries and
recalculating the gain on acquisition; and
• Assessing the Group’s acquisition accounting
disclosures.
Our audit procedures included, among others:
• Assessing management’s determination of the
Group’s Cash-Generating Units;
• Engaging our valuation team who assisted with the
review of the asset valuation model;
• Agreeing the assumptions used in the asset valuation
model such as discount rate, resource prices,
exchange rates, production and sales volumes, coal
resources and reserves, operating and other costs;
and agreeing the appropriateness of the valuation
methodology used;
• Testing the mathematical accuracy of discounted cash
flow models and agreeing relevant data to supporting
information;
• Performing sensitivity analyses on key inputs; and
• Assessing the Group’s impairment of assets
disclosures.
Key Audit Matter
Acquisition of Coal & Allied Industries Limited
(“Coal & Allied”)
(Note E1)
The Group acquired 100% of the issued capital of Coal
& Allied on 1 September 2017 for total consideration of
$3.55 billion. The net assets acquired were valued at
$3.72 billion, leading to a gain on acquisition of $176
million being recognised.
The Group is required to recognise Coal & Allied’s
assets acquired and liabilities assumed at the
acquisition-date fair values; and the excess or deficit of
consideration less those fair values as goodwill or gain
on acquisition. Yancoal management engaged third-
party experts to provide valuation, tax and business
modelling support to determine the fair values of Coal &
Allied’s assets and liabilities under AASB 3 Business
Combinations.
There is a high level of judgement involved in
calculating the fair value of assets and liabilities
acquired; particularly the valuation of mining tenements
and associated tax balances. Given the extent of
judgement required we consider this a significant risk of
material misstatement.
Impairment of non-current assets and associated
Moolarben impairment reversal
(Note C3)
A substantial amount of the Group’s non-current assets
(over 80%) relate to tangible and intangible assets
which are subject to an impairment assessment in
accordance with AASB 136 Impairment of Assets or
AASB 139 Financial Instruments: Recognition and
Measurement.
These assets include property plant and equipment
(note C1), mining tenements (note C2), intangible
assets (note C5), interest bearing loan to associate
(note D1) and royalty receivable (note C9), receivables
from joint venture and other receivables from WICET
(note C7).
In performing the impairment assessment, the
impairment provision associated with Moolarben was
reversed as the mine’s financial metrics and operations
have improved significantly and the net realisable value
of the Moolarben asset is above the book value of the
mine with substantial headroom an impairment reversal
of $100 million before income tax was recognised.
Management’s impairment assessment of these non-
current assets are considered a key audit matter as they
are often highly judgmental and based on many
assumptions, specifically coal prices, operating/capital
costs, discount rates, inflation rates and foreign
exchange rates, which are affected by expected future
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Key Audit Matter
market or economic conditions, particularly those in
China and Asia.
Taxation
(Note B6)
The Group is subject to income taxes in Australia.
Significant judgement is required in determining the
provision for income taxes. The Group estimates its tax
liabilities based on the Group’s understanding of the tax
law. Where the final tax outcome of these matters is
different from the amounts that were initially recorded,
such differences will impact the current and deferred
income tax assets and liabilities in the period in which
such determination is made.
During the year the Group completed a significant
capital raising to acquire Coal& Allied. In conjunction
with the capital raising for the Coal & Allied acquisition,
Yanzhou Coal Mining Company Limited (“Yanzhou”)
converted its holdings of Subordinated Capital Notes
(“SCNs”) into ordinary shares of Yancoal. Due to these
transactions the applicability of prior period losses
needed to be assessed against the Continuity of
Ownership Test (“COT”).
Significant judgement is required in calculating taxation
balances and the recoverability of the net deferred tax
assets (notes B6(b) and B6(c)). To assess the
recoverability of these assets cash flow forecasts are
used to ascertain whether the recoverability of these
assets is probable.
Parent company support
(Note A(x))
The Group has the support of its parent Yanzhou Coal
Mining Company Ltd (“Yanzhou”) through a letter of
support and guarantees over external borrowings.
The Group is in the process of completing the
acquisition of 28.9% of Warkworth from Mitsubishi
Development Pty Ltd (“MDP”) for US$230 million on 1
March 2017 and the expected sale of 16.6% of the
Hunter Valley Operations Joint Venture (“HVO”) to a
subsidiary of Glencore Coal Pty Ltd (“Glencore”).
If the sale of the 16.6% of HVO is not completed then
the Group will be required to complete the tag-along
purchase of 32.4% of HVO from MDP for US$710
million. This will require additional funding from capital
markets, the financiers or Yanzhou.
Watagan Mining Company Pty Ltd (“Watagan”)
(Note E2(b)(i))
Even though the Group holds 100% of the nominal
share capital of Watagan the Directors have assessed
that the Group does not control Watagan as it is not
able to direct the relevant activities of Watagan.
How the matter was addressed during the audit
Our audit procedures included, among others:
• Assessing the tax calculations prepared by the Group;
• Evaluating the key assumptions used to determine the
tax provision and deferred taxation assets and
liabilities. This included utilising our taxation specialists
where necessary;
• Evaluating the recoverability of deferred taxation
assets including considering the COT; and
• We assessed the Group’s taxation disclosures.
Our audit procedures included, among others:
• Assessing the cash flow forecasts prepared by
management for the 12 months from the date of
signing the financial statements;
• Assessing the credit facilities available to Yancoal to
assess their adequacy compared to the cash flow
forecasts;
• Assessing the validity of the Letter of Support provided
by Yanzhou to supporting information including
Yanzhou financial statements;
• Reviewing the minutes and correspondence of the
Company for any revocation of the Letter of Support
provided by Yanzhou; and
• Assessing the Group’s disclosures in relation to this
matter.
Our audit procedures included, among others:
• Assessing the current governance arrangements of
Watagan against AASB 10 Consolidated Financial
Statements to assess whether the financiers have
control of the operations.
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Key Audit Matter
The control assessment under the accounting standards
requires a high degree of judgement. If Watagan is
controlled by the Group, there would need to be a
significant change to the financial statements to reflect
the consolidation of the assets and liabilities of the
mines owned by Watagan.
Other information
How the matter was addressed during the audit
• Reviewing the disclosures associated with Watagan in
the financial statements.
The directors are responsible for the other information. The other information comprises the information in the
Group’s annual report for the year ended 31 December 2017, but does not include the financial report and our
auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial report or our knowledge obtained
in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, 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 to cease operations, or has no realistic alternative but to
do so.
The directors are responsible for overseeing the Group’s financial reporting process. In Note A(i), the directors also
state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial
statements comply with International Financial Reporting Standards.
Auditor’s responsibilities for the Audit of the Financial Report
Our responsibility is to express an opinion on the financial report based on our audit. 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 judgement and
maintain professional scepticism throughout the audit. We also:
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•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intent ional 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. However, we will communicate to you in writing concerning any significant deficiencies
in internal control relevant to the audit of the financial report that we have identified during the audit.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or 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. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s report. 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.
The Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements.
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 with the directors, we determine those matters that were of most significance in the
audit of the financial report of the current period and are therefore the key audit matters. We describe these matters
in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should 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.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 52 to 63 of the directors’ report for the year ended 31
December 2017. 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.
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Opinion on the Remuneration Report
In our opinion, the Remuneration Report of Yancoal Australia Ltd, for the year ended 31 December 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.
ShineWing Australia
Chartered Accountants
R Blayney Morgan
Partner
Sydney, 28 February 2018
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INDEPENDENT AUDITOR’S REPORT (CONTINUED)
DIRECTORS
Xiyong Li
Baocai Zhang
Gregory Fletcher
Dr Geoffrey Raby
Cunliang Lai
Xiangqian Wu
Fuqi Wang
Qingchun Zhao
Xing Feng
Helen Gillies
David Moult
COMPANY SECRETARY
Laura Ling Zhang
AUDITOR
ShineWing Australia
Level 8, 167 Macquarie Street
Sydney, NSW 2000,
Australia
ANNUAL REPORT 2017 153
REGISTERED AND PRINCIPAL
PLACE OF BUSINESS
Level 18, Darling Park 2
201 Sussex Street
Sydney, NSW 2000
AUSTRALIAN COMPANY
NUMBER
111 859 119
STOCK EXCHANGE LISTING
Australian Securities
Exchange Ltd (ASX)
ASX Code: YAL
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T: 02 8234 5000
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www.yancoal.com.au
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